<PAGE>   1

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

                                   FORM 10-K

(MARK ONE)

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

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

                                       OR

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

         FOR THE TRANSITION PERIOD FROM ____________ TO ____________ .

                         COMMISSION FILE NUMBER 1-12546

                          PACIFIC GULF PROPERTIES INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S>                                            <C>
                   MARYLAND                                      33-0577520
       (STATE OR OTHER JURISDICTION OF                        (I.R.S. EMPLOYER
        INCORPORATION OR ORGANIZATION)                     IDENTIFICATION NUMBER)

  4220 VON KARMAN, NEWPORT BEACH, CALIFORNIA                       92660
   (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                      (ZIP CODE)
</TABLE>

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (949) 223-5000
          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

<TABLE>
<CAPTION>
              TITLE OF SECURITY                  NAME OF EACH EXCHANGE ON WHICH REGISTERED
              -----------------                  -----------------------------------------
<S>                                            <C>
        Common Stock, $0.01 par value                     New York Stock Exchange
</TABLE>

       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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes [X]  No [ ]

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

     The aggregate market value of Common Stock held by non-affiliates of the
registrant as of March 17, 2000 was approximately $416,972,000.

     On March 17, 2000, the registrant had 20,656,121 shares of Common Stock
outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the proxy statement for the annual meeting of shareholders of
Pacific Gulf Properties Inc. to be held on May 11, 2000 are incorporated by
reference into Part III of this report.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>   2

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                        PAGE
                                                                        -----
<S>       <C>                                                           <C>
                                   PART I
Item 1.   Business....................................................      3
Item 2.   Properties..................................................     10
Item 3.   Legal Proceedings...........................................     16
Item 4.   Submission of Matters to a Vote of Security Holders.........     16

                                   PART II
Item 5.   Market for the Company's Common Equity and Related
          Stockholder Matters.........................................     17
Item 6.   Selected Financial and Operating Data.......................     18
Item 7.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations...................................     20
Item 7A   Quantitative and Qualitative Disclosures About Market
          Risk........................................................     26
Item 8.   Financial Statements and Supplementary Data.................     27
Item 9.   Changes in and Disagreements with Accountants on Accounting
          and Financial Disclosure....................................     27

                                  PART III
Item 10.  Directors and Management....................................     28
Item 11.  Executive Compensation......................................     28
Item 12.  Security Ownership of Certain Beneficial Owners and
          Management..................................................     28
Item 13.  Certain Relationships and Related Transactions..............     28

                                   PART IV
Item 14.  Exhibits, Financial Statement Schedule and Reports on form
          8-K.........................................................     28
</TABLE>

                DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS

     This report contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1993, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Pacific Gulf Properties Inc.
(together with its consolidated operating partnerships, PGP Inland Communities,
L.P., Pacific Inland Communities, L.L.C., Terrace Gardens PGP L.P., Morning View
Terrace PGP L.P., PGP Northern Industrial L.P., PGP Southern Industrial II, L.P.
and PGP Von Karman Properties, collectively the "Company") intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995, and is including this statement for purposes of complying with
those safe harbor provisions. Forward-looking statements, which are based on
certain assumptions and describe future plans, strategies and expectations of
the Company, are generally identifiable by use of the words "believe," "expect,"
"intend," "anticipate," "estimate," "project," "prospects" or similar
expressions. The Company's ability to predict results or the actual effect of
future plans or strategies is inherently uncertain. Factors which could have a
material adverse affect on the operations and future prospects of the Company on
a consolidated basis include, but are not limited to: changes in economic
conditions generally and the real estate market specifically, legislative/
regulatory changes (including changes to laws governing the taxation of REITs),
availability of capital, interest rates, competition, supply and demand for
industrial and multifamily properties in the Company's current and proposed
market areas and general accounting principles, policies and guidelines
applicable to REITs. These risks and uncertainties should be considered in
evaluating forward-looking statements and undue reliance should not be placed on
such statements. Further information concerning the Company and its business,
including additional factors that could materially affect the Company's
financial results, is included herein and in the Company's other filings with
the Securities and Exchange Commission.

                                        2
<PAGE>   3

                                     PART I

ITEM 1. BUSINESS

                                    OVERVIEW

     Pacific Gulf Properties Inc. operates as a self-administered and
self-managed equity real estate investment trust (a "REIT") which owns,
operates, leases, acquires, rehabilitates and develops primarily light
industrial and business park properties ("Industrial Properties") in the Western
United States. In addition to its Industrial Properties, the Company owns,
operates, acquires and develops rental housing for active seniors age 55 and
older, focusing mainly in California. The Company also owns and operates
family-style apartment communities.

     As of December 31, 1999, the Company owned a portfolio of 74 industrial
properties, including five properties under development and rehabilitation,
containing an aggregate of 15.6 million leasable square feet, one of which is
being rehabilitated containing approximately 118,000 leasable square feet and
four which are being developed that will contain approximately 709,000 leasable
square feet (the "Industrial Properties"). As of December 31, 1999, the
Industrial Properties experienced a combined occupancy rate of 96%.

     As of December 31, 1999, the Company also owned a portfolio of 18
multifamily properties (the "Multifamily Properties") containing 3,069 units. Of
these units, 1,438 units in eight properties are active senior rental apartment
communities (the "Active Senior" properties). The remaining 10 properties are
family-style apartment communities which the Company continues to operate. The
Company is negotiating contracts with listing brokers for the sale of the
remaining family-style apartment communities. At year end 1999, occupancy rates
at the Active Senior properties and the remaining family-style apartment
communities were 94% and 96%, respectively.

     The Company was incorporated in August 1993 in the State of Maryland and
completed its initial public offering on February 18, 1994 (the "Offering").
Prior to February 18, 1994, the Company was a wholly-owned subsidiary of Santa
Anita Realty Enterprises, Inc. ("Realty"). Its executive offices are located at
4220 Von Karman Drive, Newport Beach, California 92660.

                               BUSINESS STRATEGY

     The Company's primary objective is to seek investment opportunities in the
industrial and active senior apartment segments of the real estate industry
which may be either upgraded by capital improvements and intensive management;
developed, and or acquired at or below replacement cost. The Company strives to
maximize the growth potential of its portfolio to obtain the highest level of
funds from operations while increasing the value of its real estate holdings for
the overall benefit and profit of its shareholders.

INDUSTRIAL PROPERTIES

     The Company focuses on multi tenant business parks and mid-size
warehouse/distribution facilities. It specializes in serving small to mid-size
industrial tenants ranging from 1,000 to 100,000 square feet of space. The
average tenant of the Company's Industrial Properties leases approximately 6,500
square feet of space. Over 2,300 tenants currently occupy the Industrial
Properties and no one tenant accounts for more than 1% of the Company's total
revenue.

     Management believes that its properties are located in strong markets and
intends to continue to focus its activities in the Western United States. The
Company believes these regions possess diverse and vibrant economies with good
prospects for continued economic growth due to their Pacific Rim location,
quality of life, well developed transportation infrastructures, high technology
industries, well-educated employee base and excellent universities. Within these
regions, the Company focuses on sub-markets within the major metropolitan areas
of Orange County, San Bernardino/Riverside Counties, Sacramento, the East Bay
area of Northern California, Los Angeles, San Diego, Seattle, Phoenix and Las
Vegas.

                                        3
<PAGE>   4

     In each specific local submarket in which it operates, the Company
generally seeks to own a number of properties and to be a significant commercial
landlord in that market for the Company's product type. Through this approach,
the Company can offer prospective tenants a variety of property options and can
provide existing tenants, who are growing, additional space in properties owned
by the Company in the same area. The Company believes that this strategy gives
it a measure of control over the rental rates it charges for its properties. The
Company also believes that it has achieved significant market penetration within
a number of submarkets in which it operates. Such market focus enables the
Company to maximize synergistic opportunities and economies of scale and allows
management to concentrate its expertise on specific markets and local
conditions.

     The Company manages all of its existing Industrial Properties in
California, Nevada and the Pacific Northwest using its network of eight regional
offices, each of which is headed by a Regional Manager who reports directly to
the Senior Vice President of Industrial Operations. The Company offers
industrial leases in the one- to five-year range. Lease terms include, in most
cases, annual adjustments based on changes in the consumer price index. The
standard lease also includes some refurbishing and tenant improvement allowance
with the amount varying depending upon the length of the lease, the size of the
space leased and the use. The Company will seek tenants primarily involved in
warehouse, distribution, assembly and light manufacturing activities. Standard
lease terms include a stipulated due date for rent payment, late charges
(typically with no grace period), no offset or withholding provisions, security
deposit clause, as well as many other provisions considered favorable to the
landlord.

MULTIFAMILY PROPERTIES

     In 1998, the Company began to execute its strategy to exit the family-style
apartment segment of the multifamily market and to focus only on industrial and
active senior apartment properties. The Company exited out of the Pacific
Northwest market when it sold its portfolio of five family-style apartment
communities containing 1,322 units in Washington state in December of 1998 and
subsequently used the proceeds to purchase seven industrial properties
encompassing approximately 1.3 million square feet in various western markets.
As a continuation of its strategy, in February of 1999, the Company sold a 196
unit family-style apartment community in Orange County, California and used the
proceeds to repay a portion of its line of credit.

     After the above-referenced sales, the Company continues to own a portfolio
of 10 family-style apartments consisting of 1,631 units all located in Southern
California. The Company is negotiating contracts with listing brokers to sell
all of these properties. There can be no assurance that the Company will
actually dispose of such properties, nor can there be any assurance as to the
timing of any such dispositions. Any such decision by the Company will be
subject to numerous factors, including prices offered for the Company's
family-style apartment communities and the availability of suitable alternate
investment for the proceeds of such dispositions.

     The Company intends to focus on active senior housing for individuals ages
55 and older, where seniors can be involved in activities, social gatherings and
other types of entertainment with residents of their own age group. The Company
offers no assisted living or related services. The Company's properties are
oriented to those seniors interested in renting versus owning and who are able
to care for themselves. The Company believes that the senior population will
continue to grow and that the market for rental housing for active seniors will
be strong. In addition, management believes that active senior housing typically
has lower operating and management costs due to lower tenant turnover and
maintenance cost. The Company is focusing its active senior activities primarily
in the California marketplace.

     The Company currently manages all of its Multifamily Properties in each of
its regions. Each of the regions is managed by a Regional Manager who reports
directly to the Senior Vice President of Operations -- Apartments. Within each
region, each of the Multifamily Properties is operated by a staff of
approximately six to seven individuals (three to four at the Active Senior
communities), including a manager, assistant manager and/or leasing agents, and
a maintenance and apartment preparation staff. The Company locates prospective
tenants for its Multifamily Properties primarily by advertising in magazines
listing available rentals and by

                                        4
<PAGE>   5

using firms that assist tenants in locating apartments. The Company also does
magazine and direct mail advertising. Policies and procedures utilized at the
property sites, including procedures concerning lease contracts, on-site
marketing, credit collection standards and eviction standards, follow
established federal and state laws.

     Individual property lease programs are structured to respond to local
market conditions. The Company attempts to balance rent increases with high
occupancy and low turnover. None of the Multifamily Properties are currently
subject to rent control or rent stabilization regulations. However, certain of
these properties are subject to restrictions based on tax-exempt loan
requirements. Standard lease terms stipulate due dates for rent payments, late
charges, no offset or withholding provisions, security deposits and damage
reimbursement clauses, as well as many other provisions considered favorable to
the property owner. Nonpayment of rent is generally handled at the properties
within 15 days from the beginning of the month, with either commencement of
collection or eviction proceedings occurring within that time period.

REHABILITATION PROGRAM

     As part of its acquisition program, the Company seeks properties whose
financial performance can be enhanced through physical renovation and
rehabilitation. The Company also periodically renovates and rehabilitates the
properties it already owns. Rehabilitation activity generally involves updating
older properties to conform to current market standards and may include the
installation of additional loading facilities, sprinkler upgrades, mezzanine
level upgrades, parking lot upgrades and cosmetic rehabilitation of the
property. The Company capitalizes on senior management's experience with
renovation and rehabilitation projects, as well as third party expertise, to
expedite the renovation and rehabilitation process.

                                        5
<PAGE>   6

                               1999 DEVELOPMENTS

PROPERTY ACQUISITION ACTIVITY

     During 1999, the Company acquired approximately $11.5 million of industrial
operating properties. The Company also acquired $4.7 million and $9.0 million of
industrial development and rehabilitation and active senior apartment
development properties, respectively. The following table sets forth information
regarding these properties.

<TABLE>
<CAPTION>
                                                            NET RENTABLE
                                                               SQUARE                      TOTAL
                                                   DATE       FOOTAGE/     ACQUISITION   ESTIMATED     INITIAL
       PROPERTY NAME             LOCATION        ACQUIRED      UNITS          COST        COST(1)    OCCUPANCY(2)
       -------------         -----------------   --------   ------------   -----------   ---------   ------------
                                                                             (000'S)      (000'S)
<S>                          <C>                 <C>        <C>            <C>           <C>         <C>
INDUSTRIAL
 Operating Properties
  PGDC -- Las Vegas........  Las Vegas, NV       November      79,274        $ 3,525      $ 3,645         82%
  Broadwood Business
    Center.................  Mesa, AZ            November     156,197          7,950        7,960         94%
                                                              -------        -------      -------
                                                              235,471         11,475       11,605
 Development and
 Rehabilitation Properties
  PGBP -- Renton...........  Renton, WA          December     107,000          1,553        6,715        n/a
  PGBP -- Geneva...........  Tempe, AZ           August       117,792          3,108        5,600        n/a
                                                              -------        -------      -------
                                                              224,792          4,661       12,315
MULTIFAMILY -- ACTIVE
  SENIORS
 Development Properties
  The Fountains............  Anaheim Hills, CA   March            259          5,461       23,878        n/a
  The Fountains............  Temecula, CA        August           244          2,390       16,098        n/a
  The Fountains............  Sacramento, CA      December         166          1,141       10,191        n/a
                                                              -------        -------      -------
                                                                  669          8,992       50,167
                                                                             -------      -------
         Total
           Acquisitions....                                                  $25,128      $74,087
                                                                             =======      =======
</TABLE>

---------------
(1) Total capitalized acquisition cost, including closing and anticipated
    development or rehabilitation costs.

(2) Occupancy is reported as of closing date of acquisition.

                                        6
<PAGE>   7

PROPERTY DISPOSITION ACTIVITY

     During 1999, the Company disposed of approximately $15.7 million of
industrial properties and $7.6 million of multifamily properties. The following
table sets forth information regarding these properties and does not include a
deferred gain of $.9 million related to collection of a note receivable.

<TABLE>
<CAPTION>
                                                           ACRES/
                                                       SQUARE FOOTAGE/    MONTH OF     SALES    COST OF   GAIN ON
           PROPERTY NAME                LOCATION            UNITS        DISPOSITION   PRICE     SALE      SALE
           -------------             ---------------   ---------------   -----------  -------   -------   -------
                                                                                      (000'S)   (000'S)   (000'S)
<S>                                  <C>               <C>               <C>          <C>       <C>       <C>
INDUSTRIAL
Pacific Gulf Spectrum Center(1)....  Lake Forest, CA          1.05       April        $   850   $   850   $   --
PGDC -- Anaheim....................  Anaheim, CA            91,200       June           4,680     3,521    1,159
Seattle Industrial 8th Avenue......  Seattle, WA            42,240       August         1,900     1,408      492
Goldenwest -- Etiwanda(2)..........  Ontario, CA           302,020       October       11,160     8,646    2,514
Contra Costa Diablo(2).............  Concord, CA            16,848       December       1,400     1,294      106
                                                                                      -------   -------   ------
MULTIFAMILY                                                                            19,990    15,719    4,271
Park Place Apartments..............  Santa Ana, CA             196       February      11,000     7,649    3,351
                                                                                      -------   -------   ------
         Total Dispositions........                                                   $30,990   $23,368   $7,622
                                                                                      =======   =======   ======
</TABLE>

---------------
(1) Sale of excess acreage at development site.

(2) Sale of single building in a multi-building project.

COMPLETION OF INDUSTRIAL PROPERTY REHABILITATION

     During 1999, the Company completed rehabilitation on a 382,000 square foot
warehouse in San Diego, California. The total rehabilitation cost for the
property was $2.6 million. The project is 100% occupied at December 31, 1999.

     During 1999, the Company also completed development of a 209,000 square
foot industrial park in Lake Forest, California for a cost of $11.8 million,
excluding land costs of $3.6 million. The property is 97% occupied at December
31, 1999.

FINANCING ACTIVITY

     The Company has a $150.0 million unsecured revolving credit agreement (the
"Line of Credit") which matures in April 2001. The interest rate payable under
the Line of Credit is based on the leverage level of the Company and at December
31, 1999 is LIBOR plus 1.30%.

     In 1997, the Company established a pool agreement with the Federal National
Mortgage Associations ("FNMA") to provide 30-year credit enhancement on the
Company's tax-exempt projects. In 1999, the Company replaced the existing credit
enhancement which was maturing with FNMA to finance Tyler Springs senior
apartment community in Riverside, California. The $9.0 million in bonds secured
by Tyler Springs have a variable interest rate, after giving effect to credit
enhancement and other costs, of 5.04% as of December 31, 1999.

     In December 1998 in conjunction with the sale of the Company's Washington
apartment communities, the Company restructured the existing indebtedness on the
Hampton Bay apartment community. The lender, a life insurance company, released
the Hampton Bay property as collateral and accepted a letter of credit in the
amount of $9.4 million as substitution collateral. The Company replaced the
letter of credit by providing its City of Industry industrial project as
replacement collateral in May 1999.

     In February 1999, the Company borrowed $9.0 million at an interest rate of
LIBOR + 1.375% for a term of one year. The proceeds of this loan were used to
repay $9.0 million of indebtedness under the Company's Line of Credit. The loan
is secured by a 359,000 square foot industrial property acquired in June 1998.

     In November 1999, the Company borrowed $6.5 million at an interest rate of
LIBOR + 1.65% for a term of one year. The proceeds of this loan were used to
acquire a 156,000 square foot industrial property located in Mesa, Arizona. The
loan is secured by this property.

                                        7
<PAGE>   8

                                  INDEBTEDNESS

     The following table presents information on indebtedness encumbering the
Industrial and Multifamily Properties, excluding borrowings outstanding under
the Company's Line of Credit, as of December 31, 1999:

<TABLE>
<CAPTION>
                                                             OUTSTANDING
                                                               BALANCE        MATURITY
                         PROPERTY                            (IN 000'S)         DATE        INTEREST RATE
                         --------                            -----------   --------------   --------------
<S>                                                          <C>           <C>              <C>
INDUSTRIAL
  Baldwin Industrial Park..................................   $ 11,270       October 2005           8.150%
  PGBP -- Tukwila..........................................     11,004      December 2002     Libor + 1.5%(d)
  Vista Distribution Center(a).............................      7,789       October 2010           8.000%
  PGBP -- Rancho Cucamonga(a)..............................      3,795       October 2010           8.000%
  Garden Grove Industrial Center(a)........................      5,293       October 2010           8.000%
  Horn Road Business Park..................................      2,725      February 2006           7.950%
  Various(b)...............................................     33,973       October 2007           7.110%
  Eden Plaza/Eden Industrial...............................     11,639      December 2002           7.050%
  PGDC -- Bell Ranch Road(c)...............................      2,475      December 2012           7.750%
  PGBP -- Pacific Park(c)..................................      4,425      December 2012           7.750%
  PGBP -- North County(c)..................................      4,125      December 2012           7.750%
  PGBP -- Bay San Marcos(c)................................      2,700      December 2012           7.750%
  PGBC -- Escondido(c).....................................      6,300      December 2012           7.750%
  PGBP -- Riverview Industrial Park(c).....................      4,475      December 2012           7.750%
  PGDC -- Miramar Village(e)...............................     10,974       October 2001   Libor + 1.375%
  PGDC -- Algona 2(f)......................................      4,625       October 2001   Libor + 1.375%
  PGDC -- City of Industry.................................      7,406         April 2006           7.300%
  PGDC -- Las Vegas........................................      4,365       January 2004           8.380%
  PGDC -- Garden Grove II..................................      2,259          June 2011           8.000%
  PGBP -- Lake Forest(j)...................................     10,027         March 2000     Libor + 1.5%
  Pacific Gulf Spectrum Center(k)..........................     14,599        August 2000     Libor + 1.3%
  PGBC -- Tustin(n)........................................      9,000      February 2000   Libor + 1.375%
  Broadwood Business Center................................      6,500      November 2000    Libor + 1.65%
  PGDC -- Whittier(l)......................................      7,587     September 2001   Libor + 1.525%
                                                              --------
         Total Industrial..................................   $189,330
                                                              --------
MULTIFAMILY
  Inn at Laguna Hills......................................      4,556        August 2024           7.250%
  Daisy V..................................................      1,253     September 2025           7.466%(g)
  Daisy VII................................................     10,028        August 2000           6.780%
  Daisy XII................................................      3,570     September 2025           7.466%(g)
  Daisy XVI................................................     11,305        August 2000           6.780%
  Daisy XVII...............................................      6,542        August 2000           6.780%
  Lariat...................................................      1,155     September 2025           7.466%(g)
  Daisy XIX(h).............................................      6,444      December 2026           6.300%
  Daisy XX(h)..............................................      7,396      December 2026           6.300%
  Sunnyside I(h)...........................................      5,453      December 2026           6.300%
  Sunnyside II(h)..........................................      1,760      December 2026           6.300%
  Sunnyside III(h).........................................      2,847      December 2026           6.300%
  Raintree(h)..............................................      6,695       January 2026           6.400%
  Tyler Springs(h).........................................      8,981       January 2027           5.040%(i)
  Terrace Gardens(h).......................................      7,837       January 2026           6.385%
  Morning View Terrace(h)..................................     10,644       January 2026           6.375%
  The Fountains at Rancho Santa Margarita(h)...............      6,277      December 2026           6.400%
  The Fountains at Anaheim Hills(m)........................      2,620     September 2001   Libor + 1.525%
                                                              --------
         Total Multifamily.................................    105,363
                                                              --------
         TOTAL.............................................   $294,693
                                                              ========
</TABLE>

---------------
 (a)  Vista Distribution Center, PGBP -- Rancho Cucamonga and Garden Grove
      Industrial Center jointly collateralize the $16,900,000 note payable.

 (b)  PGDC -- Fontana, PGDC -- Chino, Pacific Gulf Warm Springs Industrial,
      PGDC -- Downey and PGDC -- Rancho Bernardo jointly collateralize the
      $34,000,000 note payable.

                                        8
<PAGE>   9

 (c)  PGDC -- Bell Ranch Road, PGBP -- Pacific Park, PGBP -- North County,
      PGBP -- Bay San Marcos, PGBC -- Escondido and PGBP -- Riverview Industrial
      Park jointly collateralize the $24,500,000 note payable.

 (d)  The Company entered into an interest rate swap agreement that fixed the
      interest rate on $11,500,000 of the principal balance at 7.35% for five
      years commencing July 1, 1996.

 (e)  Construction loan relating to rehabilitation of PGDC -- Miramar Village.
      The maximum loan amount under the agreement was modified to $13,930,000.
      The current interest rate at December 31, 1999 is 7.88%.

 (f)  Construction loan relating to rehabilitation of PGDC -- Algona 2. The
      maximum loan amount under the agreement was modified to $4,625,000. The
      current interest rate at December 31, 1999 is 7.25%.

 (g)  Interest rate is subject to periodic adjustments beginning March 10, 1996
      based on the monthly weighted average 11th District Cost of Funds plus
      2.8%.

 (h)  These tax-exempt mortgage loans are financed using tax-exempt bond
      financing supported by credit enhancement from FNMA. The collateral
      properties, which also include Applewood, not listed above, are subject to
      restrictions requiring that a specified percentage of the apartment units
      in such properties be made available to persons with lower and moderate
      income. As of December 31, 1999, 349 apartment units, or 11% of the total
      apartments owned, were required to have been made available to persons
      with lower or moderate income pursuant to these requirements, and the
      Company has complied with such requirements. In addition, state and local
      authorities in some cases impose certain restrictions on the amount of
      rent that can be charged.

 (i)  Interest rate is subject to periodic adjustments based on the pass through
      interest rate in addition to a set rate interest component.

 (j)  Represents construction loan relating to development and construction of
      the PGBP -- Lake Forest project with a maximum loan amount of $10,500,000.
      The current interest rate at December 31, 1999 is 8.00%. An option to
      extend the loan for one year was exercised in March of 2000.

 (k)  Represents construction loan relating to development and construction of
      the Pacific Gulf Spectrum Center with a maximum loan amount of
      $16,800,000. The current interest rate at December 31, 1999 is 7.80%.

 (l)  Construction loan relating to the development and construction of the
      PGDC -- Whittier project with a maximum loan amount of $10,250,000. The
      current interest rate at December 31, 1999 is 8.03%.

 (m)  Construction loan relating to the development and construction of the
      Fountains at Anaheim Hills senior apartments with a maximum loan amount of
      $16,350,000. The current interest rate at December 31, 1999 is 8.03%.

 (n)  In February 2000, this loan was extended to February 2001.

                        CORPORATE OFFICES AND EMPLOYEES

     The Corporate offices are located in Newport Beach, California in
approximately 16,000 square feet of a 26,000 square foot office building, which
is owned by the Company. At December 31, 1999, the Company employed
approximately 166 persons, of which 116 were onsite or property related and 50
were corporate office employees.

                        COMPETITIVE AND OTHER CONDITIONS

     Competition. Within its geographic areas of operation, the Company is
subject to competition from a variety of investors, including insurance
companies, pension funds, corporate and individual real estate developers and
investors and other REITs with investment objectives similar to those of the
Company. Some of these competitors have more substantial financial resources and
longer operating histories than the Company. As an owner of industrial and
apartment real estate properties, the Company competes with other owners of
similar properties in connection with their financing, sale, lease or other
disposition and use.

                                        9
<PAGE>   10

     While the Company has not experienced material competitive pressures
confined to specific geographic regions, it is possible that material adverse
changes in regional economies or in the operations of major regional employers
(such as Boeing in the Pacific Northwest) could have a material adverse effect
on the ability of the Company to lease its properties and on the rents charged.
Conversely, if any of the regional geographic areas in which the Company owns
properties experiences economic growth, the Company is likely to experience
increased competition for acquisition and development projects, thereby
increasing the Company's costs of acquisition and development and potentially
reducing the Company's returns therefrom.

     Insurance. The Company carries comprehensive liability, fire, extended
coverage and rental loss insurance with respect to its Industrial, Active Senior
and Multifamily Properties, with policy specifications, insured limits and
deductibles customarily carried for similar properties which the Company
believes are adequate and appropriate under the circumstances. These are certain
types of losses, such as those arising from acts of war, which are not generally
insured because they are either uninsurable or not economically insurable.
Currently the Company carries earthquake disaster insurance on its California
properties, which comprise 89% of the Company's total portfolio (as a percentage
of total revenues); however, such insurance is also subject to deductible
amounts that must be paid by the Company in the event of such an occurrence, and
may not be available in the future or may only be available at rates that, in
the opinion of the Company, are prohibitive. In the event that an uninsured
disaster or a loss in excess of insured limits should occur, the Company could
suffer a substantial loss, including loss of anticipated future revenues, while
remaining obligated on related mortgage indebtedness. The Company believes its
properties were constructed in compliance with applicable construction standards
in effect at the time of construction. The Company obtained customary title
insurance insuring fee title to its properties upon their acquisition.

ITEM 2. PROPERTIES

     The following table presents information on the composition of the
Company's operating properties based on the percentage of rental revenue at
December 31, 1999 and 1998.

<TABLE>
<CAPTION>
                                                          1999                           1998
                                               ---------------------------    ---------------------------
                                                 NUMBER      PERCENTAGE OF      NUMBER      PERCENTAGE OF
                                                   OF           RENTAL            OF           RENTAL
                                               PROPERTIES       REVENUE       PROPERTIES       REVENUE
                                               ----------    -------------    ----------    -------------
<S>                                            <C>           <C>              <C>           <C>
PROPERTY TYPE
  Industrial.................................      69              79%            68              67%
  Active Senior..............................       8              10              8               9
  Family.....................................      10              11             11              24
                                                   --             ---             --             ---
          Total..............................      87             100%            87             100%
                                                   ==             ===             ==             ===
GEOGRAPHIC LOCATION
  California.................................      77              89%            77              82%
  Pacific Northwest..........................       6               8              7              16
  Southwest..................................       4               3              3               2
                                                   --             ---             --             ---
          Total..............................      87             100%            87             100%
                                                   ==             ===             ==             ===
</TABLE>

                                       10
<PAGE>   11

     The tables below set forth certain information relating to the Company's
operating Industrial and Multifamily Properties by location and type as of
December 31, 1999.

<TABLE>
<CAPTION>
                                             NUMBER                        PERCENT OF
                                               OF         LEASABLE      INDUSTRIAL GROSS
                                           PROPERTIES    SQUARE FEET    RENTAL REVENUE(1)    OCCUPANCY
                                           ----------    -----------    -----------------    ---------
<S>                                        <C>           <C>            <C>                  <C>
INDUSTRIAL
  California Inland Empire(2)............       7         1,827,194              8%              95%
     San Diego...........................       7         1,585,285             11               99
     Orange County.......................      23         3,882,717             30               95
     Los Angeles.........................       5         1,507,120              8              100
     Northern California.................      17         3,709,506             29               96
  Pacific Northwest(4)...................       6         1,313,642              9              100
  Southwest(3)...........................       4           858,271              5               95
                                               --        ----------            ---              ---
          Total or Weighted Average......      69        14,683,735            100%              96%
                                               ==        ==========            ===              ===
MULTIFAMILY
  California
     Inland Empire(2)(5).................      13             1,806             58%              95%
     Orange County(5)....................       3               712             26               96
     San Diego(5)........................       2               551             16               96
                                               --        ----------            ---              ---
          Total or Weighted Average......      18             3,069            100%              95%
                                               ==        ==========            ===              ===
</TABLE>

---------------
(1) Based on rental revenues for the fourth quarter of 1999.

(2) Includes the eastern portion of Los Angeles County adjacent to the
    Riverside-San Bernardino metropolitan statistical area.

(3) Includes Nevada and Arizona.

(4) Includes Washington and Oregon.

(5) Includes Active Senior properties.

                             INDUSTRIAL PROPERTIES

     The following table presents information concerning the Industrial
Operating Properties, including the actual average rent per square foot and
percentage of the leasable square footage occupied by tenants, as of December
31, 1999:

<TABLE>
<CAPTION>
                                                                                     GROSS AVERAGE
                                                                         LEASABLE       MONTHLY
                                                           DATE           SQUARE       BASE RENT
         INDUSTRIAL                  LOCATION            COMPLETED       FOOTAGE      PER SQ. FT.    OCCUPANCY
         ----------                  --------         ---------------   ----------   -------------   ---------
<S>                            <C>                    <C>               <C>          <C>             <C>
INLAND EMPIRE
  PGBP -- Rancho
    Cucamonga................  Rancho Cucamonga, CA        1990            296,821       $0.45           96%
  PGDC -- Etiwanda...........  Ontario, CA                 1991            274,307        0.50          100%
  Crescent Business Center...  Rancho Cucamonga, CA        1981            136,066        0.45           94%
  PGBP -- Riverview
    Industrial Park..........  San Bernardino, CA          1980            297,180        0.32           76%
  PGDC -- Chino..............  Chino, CA                   1988            302,166        0.31          100%
  PGDC -- Fontana............  Fontana, CA                 1988            380,634        0.31          100%
  Mountain Avenue Business
    Park.....................  Upland, CA                  1977            140,020        0.44           95%
</TABLE>

                                       11
<PAGE>   12

<TABLE>
<CAPTION>
                                                                                     GROSS AVERAGE
                                                                         LEASABLE       MONTHLY
                                                           DATE           SQUARE       BASE RENT
         INDUSTRIAL                  LOCATION            COMPLETED       FOOTAGE      PER SQ. FT.    OCCUPANCY
         ----------                  --------         ---------------   ----------   -------------   ---------
<S>                            <C>                    <C>               <C>          <C>             <C>
SAN DIEGO, CA
  Vista Distribution
    Center...................  Vista, CA                   1990            356,800       $0.48          100%
  PGBP -- Bay San Marcos.....  San Marcos, CA              1988            121,768        0.53          100%
  PGBC -- Escondido..........  Escondido, CA             1988 - 92         251,464        0.62           97%
  PGBP -- San Marcos.........  San Marcos, CA              1985             72,050        0.52           95%
  PGBP -- Miramar(1).........  San Diego, CA               1981            186,022        0.79          100%
  PGDC -- Rancho Bernardo....  Rancho Bernardo, CA         1990            215,502        0.56          100%
  PGDC -- Miramar Village....  San Diego, CA            1981, 1999         381,679        0.50          100%
ORANGE COUNTY, CA
  Garden Grove Industrial
    Center...................  Garden Grove, CA            1979            252,184        0.48          100%
  PGBP -- Hoover.............  Garden Grove, CA            1986            189,526        0.71           96%
  PGBP -- Pacific Park.......  Aliso Viejo, CA             1988             99,622        1.08           98%
  PGBP -- North County.......  Yorba Linda, CA           1987 - 89         105,516        0.62           95%
  Harbor Business Park.......  Santa Ana, CA             1974 - 76         193,136        0.66           93%
  Harbor Warner Business
    Park.....................  Santa Ana, CA             1974 - 76         127,836        0.69           90%
  PGBP -- Lake Forest........  Lake Forest, CA             1999            208,584        0.70           97%
  PG Commerce Park --
    Anaheim..................  Anaheim, CA                 1972            145,745        0.66           83%
  Acacia Business Center.....  Fullerton, CA               1980            202,551        0.42          100%
  PGDC -- Anaheim............  Anaheim, CA                 1961            129,426        0.41          100%
  Tower Park.................  Anaheim, CA              1986, 1998         245,192        0.44           78%
  PGBC -- Fullerton..........  Fullerton, CA               1977            110,900        0.57           94%
  PGBP -- Irvine(1)..........  Irvine, CA                  1979            170,305        0.86           96%
  PGBP -- Cerritos(1)........  Anaheim, CA                 1985            213,755        0.55           98%
  PGBP -- Los Alamitos.......  Los Alamitos, CA            1975            124,924        0.75           92%
  PGBC -- Garden Grove II....  Garden Grove, CA            1973            208,200        0.62           98%
  PGBC -- Irvine
    Cartwright...............  Irvine, CA                  1979            129,015        0.73          100%
  PGBC -- Tustin(1)..........  Tustin, CA                1974 - 76         358,807        0.77           95%
  Garden Grove Industrial
    Hunt Avenue(3)...........  Garden Grove, CA            1979            168,390        0.48          100%
LOS ANGELES, CA
  Baldwin Industrial Park....  Baldwin Park, CA            1986            567,605        0.39          100%
  PGDC -- Bell Ranch Road....  Santa Fe Springs, CA        1981            128,640        0.38          100%
  PGDC -- City of Industry...  City of Industry, CA   1973 - 77, 1998      382,245        0.34          100%
  PGDC -- Downey.............  Downey, CA                  1988            289,294        0.37          100%
  PGBP -- La Mirada..........  La Mirada, CA               1975             82,010        0.64           82%
  PGBP -- Montebello.........  Montebello, CA              1985            143,391        0.41          100%
  Lurline Industrial Park....  Chatsworth, CA            1976 - 78         124,585        0.62           97%
  Walnut Avenue Business
    Park.....................  Signal Hill, CA             1990             74,453        0.70          100%
  PGDC -- Whittier...........  Whittier, CA             1959, 1998         214,000        0.40          100%
NORTHERN CALIFORNIA
  PG -- Commerce Park -- Eden
    Landing..................  Hayward, CA               1972 - 74         193,358        0.80           92%
  Woodland Distribution
    Center...................  Woodland, CA                1986            570,000        0.19          100%
  PG Warm Springs Industrial
    Park.....................  Fremont, CA              1980, 1987         344,416        0.46          100%
  Concord Business Park......  Concord, CA                 1989            141,792        0.67           89%
  PG -- Commerce Park --
    Sacramento...............  Sacramento, CA              1973            269,146        0.81           87%
</TABLE>

                                       12
<PAGE>   13

<TABLE>
<CAPTION>
                                                                                     GROSS AVERAGE
                                                                         LEASABLE       MONTHLY
                                                           DATE           SQUARE       BASE RENT
         INDUSTRIAL                  LOCATION            COMPLETED       FOOTAGE      PER SQ. FT.    OCCUPANCY
         ----------                  --------         ---------------   ----------   -------------   ---------
<S>                            <C>                    <C>               <C>          <C>             <C>
  PG -- Commerce Park -- San
    Tomas....................  Santa Clara, CA             1972            188,777        1.49           97%
  PG -- Commerce Park --
    Sunnyvale................  Sunnyvale, CA               1972            129,513        1.48           96%
  Bradshaw Business Center...  Sacramento, CA              1988            114,473        0.84           90%
  Horn Road Business Park....  Sacramento, CA              1988            221,300        0.46           97%
  Norwood Industrial Park....  Sacramento, CA              1988            168,292        0.34           97%
  Madison West Business
    Park.....................  North Highlands, CA       1987 - 88         147,089        0.64           88%
  Contra Costa Diablo
    Business Park............  Concord, CA              1980, 1984         129,478        0.68           78%
  Sierra Trinity Industrial
    Park.....................  Dublin, CA                  1985            223,371        1.31           93%
  Hesperian Industrial
    Park.....................  Hayward, CA               1981 - 86         152,962        0.58           98%
  West Sacramento Industrial
    Center...................  Sacramento, CA              1981            214,900        0.32          100%
  PGBP -- Eden Plaza(2)......  Hayward, CA                 1974            101,084        0.99          100%
  PG Eden Industrial(2)......  Hayward, CA                 1973            399,555        0.37          100%

PACIFIC NORTHWEST
  Seattle Industrial -- 16th
    Avenue...................  Seattle, WA                 1981             64,077        0.63          100%
  Seattle Industrial -- South
    200th....................  Seattle, WA                 1981             78,720        0.59          100%
  PGBP -- Tukwila............  Tukwila, WA               1975 - 79         475,629        0.79           99%
  PGDC -- Algona.............  Algona, WA                  1989            200,401        0.35          100%
  PGDC -- Algona 2...........  Algona, WA                  1988            266,305        0.32          100%
  PGBP -- Airport Business
    Center...................  Portland, OR              1979 - 86         228,510        0.45           99%

SOUTHWEST
  Hohokam 10 Industrial Park
    East.....................  Phoenix, AZ                 1980            256,920        0.68          100%
  Hohokam 10 Industrial Park
    West.....................  Tempe, AZ                   1980             65,880        0.59          100%
  Broadwood Business
    Center...................  Mesa, AZ                    1986            156,197        0.56           94%
  PGDC -- Las Vegas..........  Las Vegas, NV             1976 - 79         379,274        0.40           92%
                                                                        ----------       -----          ---
  Sub-Total or Weighted
    Average for Industrial
    Properties...............                                           14,683,735       $0.55           96%
                                                                        ==========       =====          ===
</TABLE>

---------------
(1) Subject to ground lease.

(2) Owned by PGP Northern Industrial, L.P., a limited partnership in which the
    Company has an ownership interest of approximately 59%, full management and
    control, and the right to substantially all of the cash flow.

(3) Owned by PGP Southern Industrial II, L.P., a limited partnership in which
    the Company has an ownership interest of approximately 49%, and full
    management and control.

                                       13
<PAGE>   14

     The following tables present information concerning the Company's
Industrial Properties under rehabilitation and development as of December 31,
1999.

REHABILITATION AND DEVELOPMENT PROPERTIES

REHABILITATION PROPERTIES

<TABLE>
<CAPTION>
                                                             ESTIMATED
                                                ESTIMATED    RENTABLE                   ESTIMATED      TOTAL
                                       DATE     COMPLETION    SQUARE     ACQUISITION   DEVELOPMENT   ESTIMATED
     PROPERTY NAME       LOCATION    ACQUIRED      DATE       FOOTAGE       COST          COST         COST
     -------------       ---------   --------   ----------   ---------   -----------   -----------   ---------
                                                                           (000'S)       (000'S)      (000'S)
<S>                      <C>         <C>        <C>          <C>         <C>           <C>           <C>
INDUSTRIAL
PGBP -- Geneva(1)......  Tempe, AZ    Aug-99      Jan-01      117,792      $3,108        $2,492       $5,600
</TABLE>

DEVELOPMENT PROPERTIES

<TABLE>
<CAPTION>
                                                                  ESTIMATED
                                                                     NET
                                                     ESTIMATED    RENTABLE                   ESTIMATED      TOTAL
                                            DATE     COMPLETION    SQUARE     ACQUISITION   DEVELOPMENT   ESTIMATED
    PROPERTY NAME          LOCATION       ACQUIRED      DATE       FOOTAGE       COST          COST         COST
    -------------       ---------------   --------   ----------   ---------   -----------   -----------   ---------
                                                                                (000'S)       (000'S)      (000'S)
<S>                     <C>               <C>        <C>          <C>         <C>           <C>           <C>
INDUSTRIAL
Pacific Gulf Spectrum
  Center..............  Lake Forest, CA    Jul-97      Apr-99      227,000      $6,516        $16,959      $23,475
PGDC -- Miramar
  Village(2)..........  San Diego, CA      Aug-97     June-00       85,000          --          4,961        4,961
PGDC -- Whittier(2)...  Whittier, CA       May-98      Jan-00      290,000          --         14,629       14,629
PGBP -- Renton........  Renton, WA         Dec-99      Dec-00      107,000       1,553          5,162        6,715
                                                                   -------      ------        -------      -------
                                                                   709,000      $8,069        $41,711      $49,780
                                                                   =======      ======        =======      =======
</TABLE>

---------------
(1) Includes rehabilitation of existing building and development of excess land.

(2) No acquisition cost is reflected because the property being developed by the
    Company is the excess portion of a property previously acquired by the
    Company.

     The following table shows scheduled lease expirations for all leases for
the Industrial Operating Properties (excluding properties under development) as
of December 31, 1999.

<TABLE>
<CAPTION>
                                                                                                    PERCENTAGE
                                               LEASABLE          ANNUAL BASE      PERCENTAGE OF       ANNUAL
                            NUMBER OF       SQUARE FEET OF         RENT OF        GROSS LEASABLE    BASE RENT
         YEAR            LEASES EXPIRING    EXPIRING LEASES    EXPIRING LEASES    AREA EXPIRING      EXPIRING
         ----            ---------------    ---------------    ---------------    --------------    ----------
<S>                      <C>                <C>                <C>                <C>               <C>
2000...................         920            3,501,000         $24,743,000           41.1%           28.2%
2001...................         715            3,191,000          22,582,000           31.9            25.8
2002...................         333            2,855,000          16,947,000           14.9            19.3
2003...................         148            1,699,000          10,810,000            6.6            12.3
2004...................         103              921,000           6,173,000            4.6             7.0
2005...................          10              989,000           4,701,000            0.5             5.4
2006...................           3                7,000              49,000            0.1             0.1
2007...................           2               10,000             110,000            0.1             0.1
2008...................           4              278,000           1,163,000            0.2             1.3
2009...................           1               55,000             404,000             --             0.5
                              -----           ----------         -----------          -----           -----
          Totals.......       2,239           13,506,000(1)      $87,682,000          100.0%          100.0%
                              =====           ==========         ===========          =====           =====
</TABLE>

---------------
(1) As of December 31, 1999, 608,000 square feet of tenants were on
    month-to-month leases (which are not included above) and 570,000 square feet
    were unoccupied.

                                       14
<PAGE>   15

                             MULTIFAMILY PROPERTIES

     The following table presents information concerning the Multifamily
Operating Properties, including average gross scheduled rents per unit and
percentage of units occupied as of December 31, 1999:

<TABLE>
<CAPTION>
                                                                               AVERAGE    AVERAGE
                                                                              UNIT SIZE     RENT
          MULTIFAMILY                    LOCATION         COMPLETED   UNITS   (SQ. FT.)   PER UNIT   OCCUPANCY
          -----------                    --------         ---------   -----   ---------   --------   ---------
<S>                               <C>                     <C>         <C>     <C>         <C>        <C>
ACTIVE SENIOR
  Inn at Laguna Hills(1)........  Laguna Hills, CA          1994        140       500       $717         92%
  The Fountains(1)..............  Rancho Santa Marg., CA    1998        166       600        773         98
  Tyler Springs(1)..............  Riverside, CA             1987        273       714        563         92
  Terrace Gardens(1)(4).........  Escondido, CA             1985        225       780        654         96
  Morning View Terrace(1)(5)....  Escondido, CA             1986        326       649        638         97
  Sunnyside I(1)(3).............  San Dimas, CA             1984        164       495        580         94
  Sunnyside II(1)(3)............  Ontario, CA               1983         60       493        508         83
  Sunnyside III(1)(3)...........  Ontario, CA               1985         84       504        519         89
FAMILY
  Applewood.....................  Santa Ana, CA             1972        406       801        834         96
  Raintree(2)...................  Ontario, CA               1984        165       846        672         92
  Daisy 5(2)(3).................  Covina, CA                1977         38       897        763         95
  Daisy 7(2)(3).................  Diamond Bar, CA           1978        204       950        919        100
  Daisy 12(2)(3)................  San Dimas, CA             1979        102       952        827         96
  Daisy 16(2)(3)................  West Covina, CA           1981        250       986        809         95
  Daisy 17(2)(3)................  San Dimas, CA             1981        156       962        846         98
  Lariat(2)(3)..................  San Dimas, CA             1981         30       970        823        100
  Daisy 19(3)...................  Ontario, CA               1983        125     1,019        836         99
  Daisy 20(3)...................  Ontario, CA               1982        155     1,000        756         94
                                                                      -----                             ---
Sub-Total or Weighted Average for Multifamily
  Properties............................................              3,069                              95%
                                                                      =====                             ===
</TABLE>

---------------
(1) Properties serving active senior tenants (individuals 55 and older).

(2) Under rehabilitation.

(3) Owned by PGP Inland Communities, L.P., a limited partnership in which the
    Company has a 84% equity interest, full management and control, and the
    right to 100% of cash flow until certain net operating income levels are
    achieved.

(4) Owned by Terrace Gardens -- PGP L.P., a limited partnership in which the
    Company has an ownership interest of approximately 58%, full management and
    control, and the right to substantially all of the cash flow.

(5) Owned by Morning View Terrace -- PGP L.P., a limited partnership in which
    the Company has an ownership interest of approximately 59%, full management
    and control, and the right to substantially all of the cash flow.

                                       15
<PAGE>   16

DEVELOPMENT PROPERTIES

     The following table presents information concerning the Company's
Multifamily Properties under development as of December 31, 1999:

<TABLE>
<CAPTION>
                                                                                       ESTIMATED      TOTAL
                                                                        ACQUISITION   DEVELOPMENT   ESTIMATED
                                                    COMPLETED   UNITS      COST          COSTS        COST
                                                    ---------   -----   -----------   -----------   ---------
<S>                    <C>                 <C>      <C>         <C>     <C>           <C>           <C>
MULTIFAMILY -- ACTIVE SENIORS
The Fountains........  Anaheim Hills, CA   Mar-99    Sep-00      259      $5,461        $18,437      $23,878
The Fountains........  Temecula, CA        Aug-99    Nov-00      244       2,390         13,708       16,098
The Fountains........  Sacramento, CA      Dec-99    Mar-01      166       1,141          9,050       10,191
                                                                 ---      ------        -------      -------
                                                                 669      $8,992        $41,195      $50,167
                                                                 ===      ======        =======      =======
</TABLE>

ITEM 3. LEGAL PROCEEDINGS

     The Company is not presently subject to any litigation nor is any
litigation threatened against the Company, other than routine litigation arising
in the ordinary course of business.

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

     Not applicable.

                                       16
<PAGE>   17

                                    PART II

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

     The common stock of the Company has traded on the New York Stock Exchange
("NYSE") since October 29, 1996 under the symbol "PAG". Prior to that date and
since its formation, the Company traded on the American Stock Exchange ("ASE").
The following table sets forth the high and low closing prices for the common
stock on the respective exchange.

<TABLE>
<CAPTION>
                                                     CASH            RECORD
                              HIGH      LOW      DISTRIBUTION         DATE            DATE PAID
                              ----      ---      ------------    ---------------   ----------------
<S>                           <C>       <C>      <C>             <C>               <C>
1997
  1st Quarter...............   23 3/8   19 1/4       0.41(1)       April 1, 1997     April 11, 1997
  2nd Quarter...............   22 1/8   20 1/2       0.41(1)        July 1, 1997      July 11, 1997
  3rd Quarter...............   24 5/16  20 7/8       0.41(1)     October 1, 1997   October 10, 1997
  4th Quarter...............   24 5/16  20 3/4       0.42(2)     January 1, 1998   January  9, 1998
1998
  1st Quarter...............   23 5/16  22 1/8       0.42(2)       April 1, 1998     April 10, 1998
  2nd Quarter...............   23 1/4   21           0.42(2)        July 1, 1998      July 10, 1998
  3rd Quarter...............   22 5/16  18 3/8       0.42(2)     October 1, 1998   October  9, 1998
  4th Quarter...............   20 1/2   16 1/4       0.43(3)     January 1, 1999   January  8, 1999
1999
  1st Quarter...............   21       17 11/16     0.43(3)       April 1, 1999     April  9, 1999
  2nd Quarter...............   23 5/16  17 3/4       0.43(3)        July 1, 1999      July  9, 1999
  3rd Quarter...............   23       19 3/4       0.43(3)     October 1, 1999   October 15, 1999
  4th Quarter...............   21 5/16  19 1/2       0.44        January 1, 2000   January 14, 2000
</TABLE>

---------------
(1) 28.6% of the distributions paid to beneficial owners in 1997 are estimated
    to represent a capital gain distribution.

(2) 12.6% of the distributions paid to beneficial owners in 1998 represents a
    return of capital ($.21 per share)

(3) 2.1% of the distributions paid to beneficial owners in 1999 represents a
    return of capital ($.01 per share), 9.1% represent capital gains ($.04 per
    share).

     The minimum distribution requirement to maintain REIT status was
approximately $22,834,000 for 1997, $31,276,000 for 1998 and $36,426,000 for
1999.

     A regular quarterly distribution of $.44 per share was paid on January 14,
2000. The closing price of the common stock on the New York Stock Exchange on
March 17, 2000 was $20 7/16 per share. As of March 17, 2000, there were
approximately 10,366 beneficial owners of common stock.

     Future distributions by the Company will be at the discretion of the Board
of Directors and will depend upon the actual Funds From Operations of the
Company, its financial condition, capital requirements, the annual distribution
requirements under the REIT provisions of the Internal Revenue Code, applicable
legal restrictions and such other factors as the Board of Directors deems
relevant. Although the Company intends to continue to make quarterly
distributions to its stockholders, no assurances can be given as to the amount
of distributions, if any, made in the future.

     The statement on the face of this Annual Report on Form 10-K regarding the
aggregate market value of voting stock of the Company held by non-affiliates of
the Company is based on the assumption that all directors and officers of the
Company were, for purposes of this calculation only (and not for any other
purpose), affiliates of the Company.

                                       17
<PAGE>   18

ITEM 6. SELECTED FINANCIAL AND OPERATING DATA

     The following table and footnotes set forth selected historical financial
and operating data for the Company:

<TABLE>
<CAPTION>
                                                         YEARS ENDED DECEMBER 31,
                                       -------------------------------------------------------------
                                          1999         1998         1997        1996         1995
                                       ----------   ----------   ----------   ---------    ---------
                                                   (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                    <C>          <C>          <C>          <C>          <C>
OPERATING DATA
Rental income
  Industrial properties..............  $   98,288   $   76,271   $   36,410   $  20,783    $  12,193
  Multifamily properties(a)..........      25,880       36,858       33,096      29,104       24,898
                                       ----------   ----------   ----------   ---------    ---------
                                          124,168      113,129       69,506      49,887       37,091
                                       ----------   ----------   ----------   ---------    ---------
Rental property expenses Industrial
  properties.........................      21,570       16,746        8,212       5,308        2,567
Multifamily properties...............       9,334       13,751       12,754      11,554       10,215
                                       ----------   ----------   ----------   ---------    ---------
                                           30,904       30,497       20,966      16,862       12,782
Depreciation.........................      26,117       20,386       12,008       8,236        6,081
Interest.............................      27,242       25,758       17,337      18,411       14,066
General and administrative...........       7,165        5,903        3,159       2,974        2,423
Minority interest in earnings of
  partnerships.......................       1,342        1,024          172          --           --
Nonrecurring loss on exchange of
  debentures for common stock........          --           --           --       3,596(b)        --
                                       ----------   ----------   ----------   ---------    ---------
                                           92,770       83,568       53,642      50,079       35,352
                                       ----------   ----------   ----------   ---------    ---------
Income (loss) before gains on sale of
  real estate........................      31,398       29,561       15,864       (192)        1,739
Gains on sale of real estate.........       8,472       35,292        5,594          74        6,664
                                       ----------   ----------   ----------   ---------    ---------
Net income (loss)....................      39,870       64,853       21,458       (118)        8,403
Less preferred dividend
  requirements(d)....................       4,971        4,856          855          --           --
                                       ----------   ----------   ----------   ---------    ---------
Income available (loss attributable)
  to common shareholders.............  $   34,899   $   59,997   $   20,603   $   (118)    $   8,403
                                       ==========   ==========   ==========   =========    =========
Earnings (loss) per share(c)
  Basic..............................  $     1.73   $     3.01   $     1.51   $  (0.02)    $    1.74
  Diluted............................  $     1.71   $     2.76   $     1.47   $  (0.02)    $    1.68
Weighted average common shares
  outstanding........................  20,216,704   19,939,014   13,685,693   6,311,963    4,830,723
</TABLE>

---------------
(a) Includes Active Senior apartment properties.

(b) Reflects the $3,596,000 nonrecurring loss incurred on the exchange of
    $42,069,000 aggregate principal amount of convertible subordinated
    debentures into 2,440,002 shares of common stock in December 1996.

(c) Earnings per share data for all periods presented reflects basic and diluted
    calculations in accordance with Statement No. 128 and has been restated from
    the previous accounting standard of primary and fully diluted earnings per
    share. (See Part IV -- Financial Statements.)

(d) Represents dividends on Class A Preferred Stock which was issued during
    1997. (See Part IV -- Financial Statements)

                                       18
<PAGE>   19

<TABLE>
<CAPTION>
                                                     YEARS ENDED DECEMBER 31,
                                    ----------------------------------------------------------
                                      1999        1998         1997         1996        1995
                                    --------    ---------    ---------    --------    --------
                                              (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                 <C>         <C>          <C>          <C>         <C>
BALANCE SHEET DATA
Operating properties, net of
  accumulated depreciation:
  Industrial properties...........  $667,285    $ 654,004    $ 455,045    $170,731    $102,813
  Multifamily properties(a).......   150,012      159,408      206,756     179,965     175,879
                                    --------    ---------    ---------    --------    --------
                                     817,297      813,412      661,801     350,696     278,692
Properties under development......    52,815       39,926       32,107       2,171          --
                                    --------    ---------    ---------    --------    --------
Total real estate.................   870,112      853,338      693,908     352,867     278,692
Total assets......................   891,921      875,127      712,471     364,640     288,591
Senior debt.......................   418,343      403,845      283,852     197,401     149,847
Convertible subordinated
  debentures......................        --       12,244       12,592      14,227(b)   55,659
          Total equity............   427,891      415,554      388,840     139,822      71,980

PROPERTY DATA (END OF PERIOD)
Total industrial properties.......        69           68           49          21          10
Industrial leasable area (Sq.
  Ft.)............................    14,684       14,310       10,676       4,573       2,902
Industrial -- Occupancy %.........        96%          95%          95%         98%         96%
Total multifamily properties(a)...        18           19           24          22          21
Total apartment units(a)..........     3,069        3,265        4,655       4,110       3,945
Apartment -- Occupancy %..........        95%          95%          94%         93%         92%

SUPPLEMENTAL DATA
Funds from operations(c)..........  $ 52,544    $  45,091    $  27,017    $  8,044    $  7,820
Cash flow information:
  Operating activities............  $ 56,149    $  50,701    $  27,736    $  8,523    $  7,138
  Investing activities............  $(31,488)   $(140,700)   $(350,597)   $(81,918)   $(84,480)
  Financing activities............  $(24,760)   $  90,809    $ 322,804    $ 72,071    $ 76,674
Ratio of Earnings to Fixed
  Charges.........................      1.80         1.76         1.75          --(d)     1.12
</TABLE>

---------------
(a) Includes Active Senior apartment properties.

(b) Reflects the exchange of $42,069,000 aggregate principal amount of
    convertible subordinated debentures into 2,440,002 shares of common stock in
    December 1996.

(c) We consider funds from operations, as defined by the National Association of
    Real Estate Investment Trusts, or NAREIT to be a useful financial measure of
    our operating performance. We believe that funds from operations provides
    investors with an additional basis to evaluate our ability to service debt
    and to fund acquisitions and other capital expenditures. Funds from
    operations should not be considered an alternative to net income determined
    in accordance with GAAP, as an indicator of our financial performance or as
    a substitute for cash flow from operating activities determined in
    accordance with GAAP as a measure of our liquidity. Funds from operations
    also is not necessarily indicative of funds available to fund our cash
    needs, including our ability to service our debt.

    The White Paper on funds from operations approved by the Board of Governors
    of NAREIT in October 1999 defines funds from operations as net income or
    loss computed in accordance with GAAP, excluding gains or losses from
    extraordinary items, as defined by GAAP, and gains and losses from sales of
    depreciable operating property plus real estate-related depreciation and
    amortization and after adjustments for unconsolidated partnerships and joint
    ventures. We compute funds from operations in accordance with standards
    established by the White Paper which may differ from the standards used by
    other real estate companies and, accordingly, our funds from operations may
    not be comparable to those companies' funds from operations.

                                       19
<PAGE>   20

(d) Earnings for the year ended December 31, 1996 were inadequate to cover fixed
    charges by approximately $0.2 million as a result primarily of the
    nonrecurring loss of $3,596,000 relating to the Company's exchange of
    debentures for common stock. The ratio of earnings to fixed charges
    excluding this $3.6 million non-cash item is 1.18 to 1.

CALCULATION OF FFO

<TABLE>
<CAPTION>
                                                              YEARS ENDED DECEMBER 31,
                                                  ------------------------------------------------
                                                   1999       1998      1997      1996      1995
                                                  -------   --------   -------   -------   -------
                                                       (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                               <C>       <C>        <C>       <C>       <C>
Income available (loss attributable) to common
  shareholders..................................  $34,899   $ 59,997   $20,603   $  (118)  $ 8,403
Depreciation....................................   26,117     20,386    12,008     8,236     6,081
Gains on sale of real estate....................   (8,472)   (35,292)   (5,594)      (74)   (6,664)
                                                  -------   --------   -------   -------   -------
Funds from operations...........................   52,544     45,091    27,017     8,044     7,820
Preferred dividend requirements.................    4,971      4,856       855        --        --
Interest expense on debentures..................      615      1,041     1,100     4,720     4,736
Amortization of debenture discount and costs....       87        130       141       570       552
                                                  -------   --------   -------   -------   -------
Proforma funds from operations(a)...............  $58,217   $ 51,118   $29,113   $13,334   $13,108
                                                  =======   ========   =======   =======   =======
</TABLE>

---------------
(a) Proforma funds from operations assumes the conversion of the Company's
    convertible subordinated debentures and preferred stock and excludes the
    conversion of limited partnership units.

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

OVERVIEW

     The following discussion should be read in conjunction with the financial
statements and notes thereto of the Company and the "Selected Financial and
Operating Data" appearing elsewhere in this report. Such financial statements
and information have been prepared to reflect the Company's financial position
as of December 31, 1999, 1998 and 1997 together with the results of its
operations and its cash flows.

     Historical results and trends should not be taken as indicative of future
operations. Management's statements contained in this report that are not
historical facts are 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. Actual results may differ materially from
those included in the forward-looking statements. The Company intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995, and is including this statement for purposes of complying with
those safe harbor provisions. Forward-looking statements, which are based on
certain assumptions and describe future plans, strategies and expectations of
the Company, are generally identifiable by use of the words "believe," "expect,"
"intend," "anticipate," "estimate," "project," "prospects" or similar
expressions. The Company's ability to predict results or the actual effect of
future plans or strategies is inherently uncertain. Factors which could have a
material adverse affect on the operations and future prospects of the Company on
a consolidated basis include, but are not limited to: changes in economic
conditions generally and the real estate market specifically,
legislative/regulatory changes (including changes to laws governing the taxation
of REITs), availability of capital, interest rates, competition, supply and
demand for industrial and multifamily properties in the Company's current and
proposed market areas and general accounting principles, policies and guidelines
applicable to REITs. These risks and uncertainties should be considered in
evaluating forward-looking statements and undue reliance should not be placed on
such statements. Further information concerning the Company and its business,
including additional factors that could materially affect the Company's
financial results, is included herein and in the Company's other filings with
the Securities and Exchange Commission.

     The comparability of the financial information discussed below is impacted
by a significant amount of property acquisitions, developments, rehabilitations
and dispositions, as follows: during 1999, the acquisitions

                                       20
<PAGE>   21

of three industrial properties totaling 304,000 leasable square feet, the
completion of two industrial projects containing 591,000 square feet previously
under development or rehabilitation, the disposition of two industrial
properties containing 133,000 square feet, the disposition of two individual
buildings located within existing projects totaling 319,000 square feet, the
disposition of 1.05 acres of improved land, the disposition of a multifamily
property containing 196 apartment units and the redemption of debentures for
common stock and cash; during 1998, the acquisition of 18 operating industrial
properties containing approximately 3,278,000 leasable square feet, the
completion of an active senior property containing 166 apartment units and three
industrial projects containing 464,000 square feet previously under development,
and the disposition of six multifamily properties containing 1,556 apartment
units; and during 1997, the acquisition of 27 operating industrial properties
containing approximately 5,776,000 leasable square feet, the acquisition of
three multifamily properties containing 824 apartment units, and the disposition
of one multifamily property containing 279 apartment units.

RESULTS OF OPERATIONS

  Comparison of the Year Ended December 31, 1999 to the Year Ended December 31,
1998.

     Industrial rental income increased by $22,017,000 or 29%, from $76,271,000
in 1998 to $98,288,000 in 1999. This increase was primarily attributable to the
acquisition of seven industrial properties in the fourth quarter of 1998 and
three industrial properties in 1999. Industrial rental income for the year ended
December 31, 1999 included $10,041,000 related to fourth quarter 1998 and 1999
acquisitions.

     Multifamily rental income decreased by $10,978,000 or 30%, from $36,858,000
in 1998 to $25,880,000 in 1999. This decrease was primarily attributable to the
sale of six multifamily properties at the end of 1998 and one multifamily
property in 1999, offset partially by an increase in rental rates.

     As a result of these changes total revenues increased by $11,039,000 or
10%, from $113,129,000 in 1998 to $124,168,000 in 1999.

     Industrial rental property expenses increased by $4,824,000, or 29%, from
$16,746,000 in 1998 to $21,570,000 in 1999. This increase was primarily related
to the Company's acquisitions in the fourth quarter of 1998 and the three
acquisitions in 1999. Industrial rental property expenses for the year ended
December 31, 1999 included $2,265,000 related to fourth quarter 1998 and 1999
acquisitions.

     Multifamily rental property expenses decreased by $4,417,000, or 32%, from
$13,751,000 in 1998 to $9,334,000 in 1999. This decrease was primarily related
to the disposition of six multifamily properties at the end of 1998 and one
multifamily property in 1999.

     Depreciation increased by $5,731,000 or 28%, from $20,386,000 in 1998 to
$26,117,000 in 1999. The increases relate primarily to the acquisitions
described above and the capital improvements made to rehabilitate existing
properties.

     Interest expense (including amortization of financing costs) increased by
$1,484,000, or 6%, from $25,758,000 in 1998 to $27,242,000 in 1999. This
increase was primarily attributable to an increase in outstanding borrowings due
to new acquisitions made during 1998, offset by a lower interest rate on the
Company's line of credit and a decrease in the outstanding debentures due to the
August and November 1999 redemptions. Interest resulting from the amortization
of financing costs decreased by $328,000 or 29% from $1,129,000 in 1998 to
$801,000 in 1999. This decrease is attributable to the redemptions of the
Company's outstanding debentures offset by the write off of deferred financing
costs in August and November 1999.

     General and administrative expenses increased by $1,262,000, or 21%, from
$5,903,000 in 1998 to $7,165,000 in 1999. This increase was primarily
attributable to staff additions, staff retention costs and inflation.

     Minority interests in earnings of consolidated partnerships increased by
$318,000 or 31% from $1,024,000 in 1998 to $1,342,000 in 1999. Minority interest
represents earnings allocated to the minority partners in the partnerships in
which the Company has a controlling general partner interest.

                                       21
<PAGE>   22

     For the year ended December 31, 1999, the Company had income available to
common shareholders of $34,899,000 compared to income of $59,997,000 in 1998.
The results in each year were impacted by the sale of real estate. In 1998, a
$35,292,000 net gain on sale of real estate was recognized primarily from the
sale of six apartment communities with 1,556 apartment units located in
Washington, while in 1999 an $8,472,000 net gain on sale of real estate was
recognized as described in Note 9 to the financial statements.

  Comparison of the Year Ended December 31, 1998 to the Year Ended December 31,
1997.

     Industrial rental income increased by $39,861,000 or 109%, from $36,410,000
in 1997 to $76,271,000 in 1998. This increase was primarily attributable to the
acquisition of 18 industrial properties in 1998. Industrial rental income for
the year ended December 31, 1998 included $25,530,000 related to fourth quarter
1997 and 1998 acquisitions.

     Multifamily rental income increased by $3,762,000 or 11%, from $33,096,000
in 1997 to $36,858,000 in 1998. This increase was primarily attributable to an
increase in rental rates and the completion of an active senior property
previously under development.

     As a result of these changes total revenues increased by $43,623,000 or
63%, from $69,506,000 in 1997 to $113,129,000 in 1998.

     Industrial rental property expenses increased by $8,534,000, or 104%, from
$8,212,000 in 1997 to $16,746,000 in 1998. This increase was primarily related
to the Company's acquisitions in 1998. Industrial rental property expenses for
the year ended December 31, 1998 included $6,282,000 related to fourth quarter
1997 and 1998 acquisitions.

     Multifamily rental property expenses increased by $997,000, or 8%, from
$12,754,000 in 1997 to $13,751,000 in 1998. This increase was primarily related
to an increase in operating expenses and the completion of an active senior
property previously under development.

     Depreciation increased by $8,378,000 or 70%, from $12,008,000 in 1997 to
$20,386,000 in 1998. The increases relate primarily to the acquisitions
described above and the capital improvements made to rehabilitate existing
properties.

     Interest expense (including amortization of financing costs) increased by
$8,421,000, or 49%, from $17,337,000 in 1997 to $25,758,000 in 1998. This
increase was due to an increase in outstanding borrowings due to new
acquisitions made during 1997 and 1998. Interest resulting from the amortization
of financing costs increased by $302,000 or 37% from $827,000 in 1997 to
$1,129,000 in 1998. This increase is attributable to the additional finance
costs incurred as a result of the Company's new unsecured credit facility.

     General and administrative expenses increased by $2,744,000, or 87%, from
$3,159,000 in 1997 to $5,903,000 in 1998. This increase was primarily
attributable to personnel increases and expensing of certain costs of abandoned
projects.

     Minority interests in earnings of consolidated partnerships increased by
$852,000 from $172,000 in 1997 to $1,024,000 in 1998. Minority interest
represents earnings allocated to the minority partners in four partnerships in
which the Company has a controlling general partner interest.

     For the year ended December 31, 1998, the Company had net income of
$59,997,000 compared to net income of $20,603,000 in 1997. The results in each
year were impacted by non-recurring items. In 1997, a $5,594,000 net gain on
sale of real estate was recognized primarily from the sale of a 279 unit
apartment community in Oregon, while in 1998 a $35,292,000 net gain on sale of
real estate was recognized primarily from the sale of six apartment communities
with 1,556 apartment units located in Washington.

                                       22
<PAGE>   23

LIQUIDITY AND CAPITAL RESOURCES

  Liquidity

     At December 31, 1999, the Company had $2,177,000 of cash to meet its
immediate short-term liquidity requirements. Future short-term liquidity
requirements are anticipated to be met through the net cash flow from
operations, existing working capital and, if necessary, funding from the
Company's Line of Credit.

     The Company anticipates that adequate cash will be available to fund its
operating and administrative expenses, continuing debt service obligations and
the payment of dividends in accordance with REIT requirements in the foreseeable
future.

     Cash provided by operating activities increased from $27,736,000 for the
year ended December 31, 1997 to $50,701,000 for the year ended December 31, 1998
and $56,149,000 for the year ended December 31, 1999. The primary reason for
this increase relates to the additional rental income contributed by properties
acquired during 1997, 1998 and 1999.

     Cash used in investing activities decreased from $350,597,000 for the year
ended December 31, 1997 to $140,700,000 for the year ended December 31, 1998 and
then decreased to $31,488,000 for the year ended December 31, 1999 primarily as
a result of the reduction on acquisitions and improvements to properties.
Acquisitions and improvements decreased from $332,324,000 in 1997 to
$201,160,000 in 1998, and then decreased to $32,265,000 in 1999, and were offset
by $15,115,000 from the sale of a multifamily community in Oregon in 1997, and
$92,025,000 from the sale of a multifamily property and a multifamily portfolio
in the Pacific Northwest in 1998 and $31,840,000 from the sale of two industrial
properties, two individual industrial buildings, a multifamily property and a
parcel of improved land in 1999.

     Cash provided by financing activities decreased from $322,804,000 for the
year ended December 31, 1997 to $90,809,000 for the year ended December 31, 1998
and then decreased to $24,760,000 for the year ended December 31, 1999. The
fluctuations were primarily a result of decreased capital funding from equity
offerings in 1998 as compared to 1997, and decreased borrowing activity
associated with acquisitions in 1999 as compared to 1998.

     In order to qualify as a REIT for federal income tax purposes, the Company
is required to make distributions to its shareholders of at least 95% of REIT
taxable income. The Company expects to use its cash flow from operating
activities for distributions to shareholders and for payment of other
expenditures. The Company intends to invest amounts accumulated for distribution
in short-term investments.

  Unsecured Line of Credit

     The Company has a $150,000,000 unsecured revolving credit agreement (the
"Line of Credit") which matures in April 2001. The interest rate payable under
the Line of Credit is based on the leverage level of the Company and at December
31, 1999 is LIBOR plus 1.30%. As of December 31, 1999, the Company had borrowed
$123,650,000 under this line.

  Acquisitions and Improvements to Properties

     During 1999 the Company invested $32,265,000 in real estate assets.
Proceeds for these investments were generated primarily from the sale of two
industrial properties, two individual industrial buildings, a multifamily
property and a parcel of improved land in 1999 which generated proceeds of
$30,990,000 and borrowings from the Line of Credit.

     The Company intends to acquire additional properties and may seek to fund
these acquisitions through proceeds received from a combination of its Line of
Credit, equity offerings, debt financings or asset dispositions.

                                       23
<PAGE>   24

  Dispositions

     In 1999, the Company sold for a gross sales price of $30,990,000 -- a
91,200 square foot industrial property, a 302,020 square foot individual
industrial building, a 1.05 acre parcel of improved land and a 196 unit
multifamily property all located in Southern California, a 42,240 square foot
industrial property in Washington, and a 16,848 square foot individual
industrial building located in Northern California. The Company also recognized
a deferred gain of $850,000 as a result of the collection of a note receivable
relating to the sale of the Company's Texas properties in 1995. The Company
reported a gain on the sales after all costs of $8,472,000.

     After the above-referenced sales, the Company continues to own a portfolio
of 10 family-style apartments consisting of 1,631 units all located in Southern
California. The Company has entered into contracts with listing brokers to sell
all of these properties. There can be no assurance that the Company will
actually dispose of such properties, nor can there be any assurance as to the
timing of any such dispositions. Any such decision by the Company will be
subject to numerous factors, including prices offered for the Company's
family-style apartment communities and the availability of suitable alternate
investment for the proceeds of such dispositions.

  Developments

     During 1999, the Company completed and transferred to operating properties
a 382,000 square foot warehouse in San Diego, California. The total
rehabilitation cost for the property was $2,600,000. The project is currently
100% occupied at December 31, 1999.

     During 1999, the Company also developed a 209,000 square foot industrial
park in Lake Forest, California for a cost of $11,800,000, excluding land costs
of $3,600,000. The property is 97% occupied at December 31, 1999.

     As of December 1999, the Company has under development four industrial
properties that will contain approximately 709,000 leasable square feet. Three
of the properties are located in Southern California and one is located in
Washington. The Company also has one industrial property which upon
rehabilitation and development will contain approximately 118,000 leasable
square feet located in Arizona. Development and rehabilitation costs for these
properties totaled $27,105,000 through December 31, 1999.

     As of December 1999, the Company has under development three multifamily
apartment properties for active seniors containing 669 units. Two are located in
Southern California and one is located in Northern California. Development
costs, excluding land costs of $8,992,000, for these properties totaled
$3,505,000 through December 31, 1999.

  Debt Financings

     In 1997, the Company established a pool agreement with the Federal National
Mortgage Associations ("FNMA") to provide 30-year credit enhancement on the
Company's tax-exempt projects. In 1999, the Company replaced the existing credit
enhancement which was maturing with FNMA to finance Tyler Springs senior
apartment community in Riverside, California. The $9.0 million in bonds secured
by Tyler Springs have a variable interest rate, after giving effect to credit
enhancement and other costs, of 5.00% as of December 31, 1999.

     In December 1998 in conjunction with the sale of the Company's Washington
apartment communities, the Company restructured the existing indebtedness on the
Hampton Bay apartment community. The lender, a life insurance company, released
the Hampton Bay property as collateral and accepted a letter of credit in the
amount of $9.4 million as substitution collateral. The Company to replaced the
letter of credit by providing its City of Industry industrial project as
replacement collateral in May 1999.

                                       24
<PAGE>   25

  Convertible Subordinated Debentures

     The Company called for redemption of $6,500,000 of its outstanding
debentures on August 18, 1999. As of that date, $6,300,000 of the debentures
called had converted into 338,301 shares of Common Stock. The Company redeemed
the remaining $200,000 for cash.

     The Company called for redemption of the remaining outstanding debenture of
$5,273,000 on November 10, 1999. As of that date, $5,110,000 of the debentures
called had converted into 274,373 shares of Common Stock. The Company redeemed
the remaining $163,000 for cash.

  Shelf Registration

     During 1998, the Company filed a shelf registration statement with the
Securities and Exchange Commission for an aggregate amount of $300,000,000,
covering the proposed issuance of debt, preferred or common stock securities and
warrants to purchase securities of the Company (the "1998 Shelf Registration
Statement"). The 1998 Shelf Registration Statement was declared effective in
April of 1998. At December 31, 1999, the Company has $300,000,000 available
under the 1998 Shelf Registration Statement.

  Year 2000 Readiness

     In 1999, we completed our remediation and testing of systems with respect
to the Year 2000 date change. As a result of our planning and implementation
efforts, we experienced no disruptions in mission critical information
technology and non-information technology systems and believe those systems
successfully responded to the Year 2000 date change. We incurred costs of less
than $100,000 during 1999 in connection with remediating our systems. We are not
aware of any material problems resulting from Year 2000 issues, either with our
products, our internal systems or the products and services of third parties. We
will continue to monitor our mission critical computer applications and those of
our suppliers and vendors throughout the year to ensure that any latent Year
2000 matters that may arise are addressed promptly.

  Capital Expenditures

     The Company capitalizes the direct and indirect cost of expenditures for
the acquisition of development properties or rehabilitation of its multifamily
and industrial properties. The Company also capitalizes the direct cost of
capital expenditures that are considered revenue producing ("Revenue Producing")
and other expenditures that increase the service life of the Company's
properties ("Restorations").

     Revenue Producing expenditures are improvements which significantly
increase the revenue-producing capability of the asset including tenant
improvements at industrial properties, installation of washers and dryers at
multifamily properties, and other value-added additions.

     Rehabilitation expenditures are costs the Company determines are necessary
during the due diligence phase immediately preceding the acquisition of a
property. At newly acquired properties, the Company often finds it necessary to
upgrade the physical appearance of such properties and to complete the
maintenance and repair work that had been deferred by prior owners.

     Restorations are nonrevenue-producing capital expenditures which recur on a
regular basis, and have estimated useful lives of more than one year.

     Make ready costs incurred after a property's rehabilitation, such as carpet
and appliance replacement, interior painting and window coverings are expensed
as incurred.

                                       25
<PAGE>   26

     The following table summarizes capital expenditures incurred by the Company
related to its operating properties for the years ended December 31, 1999 and
1998 (all amounts are in thousands):

<TABLE>
<CAPTION>
                                                               1999       1998
                                                              -------   --------
<S>                                                           <C>       <C>
INDUSTRIAL
Development.................................................  $ 2,400   $    832
Acquisitions................................................   14,744    181,780
Revenue-Producing...........................................    7,718      5,427
Rehabilitation..............................................       --      6,820
Restorations................................................    5,140      2,373
                                                              -------   --------
                                                               30,002    197,232
                                                              -------   --------
MULTIFAMILY
Development.................................................       --      1,639
Acquisitions................................................       --         --
Revenue-Producing...........................................       25        123
Rehabilitation..............................................    1,135      1,955
Restorations................................................    1,103        211
                                                              -------   --------
                                                                2,263      3,928
                                                              -------   --------
                                                              $32,265   $201,160
                                                              =======   ========
</TABLE>

     The Company expects such expenditures will be funded from available cash
balances, revolving lines of credit, equity offerings, and proceeds from
refinancing.

                              IMPACT OF INFLATION

     Substantially all of the Company's leases on its Industrial Properties,
which have terms generally ranging from one to five years, contain provisions
providing for rental increases based either on fixed increases or on increases
in the Consumer Price Index. All of the Company's leases on its Multifamily
Properties are for a period of one year or less. Substantially all of the
Company's leases allow at the time of renewal, for adjustments in the rent
payable thereunder. Accordingly, management believes the provisions contained in
its industrial leases and the nature of its multifamily leases tend to mitigate
the adverse impact of inflation.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company's exposure to market risk for changes in interest rates relates
primarily to the Company's current and future debt obligations. The Company is
vulnerable to significant fluctuations of interest rates on its floating rate
debt, repricing on its fixed rate debt at various points in the future and
future debt.

                                       26
<PAGE>   27

     The following table provides information about the Company's financial
instruments that are sensitive to changes in interest rates. The table below
presents principal cash flows and related weighted-average interest rates by
expected maturity dates.

<TABLE>
<CAPTION>
                                                        INTEREST RATE SENSITIVITY
                                     PRINCIPAL AMOUNT AND AVERAGE INTEREST RATE BY EXPECTED MATURITY
                                -------------------------------------------------------------------------
                                      2000               2001         2002     2003    2004    THEREAFTER
                                -----------------   --------------   -------   ----   ------   ----------
                                                  (IN THOUSANDS, EXCEPT INTEREST RATES)
<S>                             <C>                 <C>              <C>       <C>    <C>      <C>
Mortgage Notes................       $43,375           $     --      $22,644   $ --   $4,366    $109,543
Construction Loans............        24,626             25,806           --     --       --          --
Tax Exempt Mortgage Debt......            --                 --           --     --       --      64,333
Line of Credit -- Unsecured...            --            123,650           --     --       --          --
                                     -------           --------      -------   ----   ------    --------
          Total...............       $68,001           $149,456      $22,644   $ --   $4,366    $173,876
                                     =======           ========      =======   ====   ======    ========
Weighted Average Interest
  Rates
Mortgage Notes................          7.25%                --         7.20%    --     8.38%       7.58%
Construction Loans............  Libor + 1.30,       Libor + 1.375,        --     --                   --
                                Libor + 1.50        Libor + 1.525
                                or reference rate
Tax Exempt Mortgage Debt......            --                 --           --     --                 6.30%
Line of Credit................            --        Libor + 1.30          --     --                   --
</TABLE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     See Index to Financial Statements for a listing of the financial statements
and supplementary data filed with this report.

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

     None.

                                       27
<PAGE>   28

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS

     The information required by this item is hereby incorporated by reference
from the Company's proxy statement for the Year 2000 Annual Meeting ("Proxy
Statement") under the caption "Election of Directors -- Nominees" and "Officers
and Key Employees."

ITEM 11. EXECUTIVE COMPENSATION

     The information required by this item is hereby incorporated by reference
from the Proxy Statement under the caption "Officers and Key Employees
 -- Compensation."

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required by this item is hereby incorporated by reference
from the Proxy Statement under the caption "Security Ownership of Certain
Beneficial Owners and Management."

ITEM 13. CERTAIN RELATIONSHIPS AND OTHER TRANSACTIONS

     The information required by this item is hereby incorporated by reference
from the Proxy Statement under the caption "Certain Transactions."

                                    PART IV

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

     (a) The following documents are filed as part of this report

        1. Financial Statements. See Index to Financial Statements.

        2. Financial Statement Schedule. See Index to Financial Statements.

        3. Exhibits. See Exhibit Index on pages F-28 and F-29.

     (b) Reports on Form 8-K.

        None.

                                       28
<PAGE>   29

                                   SIGNATURES

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

                                          PACIFIC GULF PROPERTIES INC.

                                          By:    /s/ GLENN L. CARPENTER

                                            ------------------------------------
                                                     Glenn L. Carpenter
                                             Chairman of the Board of Directors
                                               President and Chief Executive
                                                           Officer

                                          By:     /s/ DONALD G. HERRMAN

                                            ------------------------------------
                                                     Donald G. Herrman
                                            Executive Vice President, Secretary,
                                                and Chief Financial Officer
                                            (Principal Financial and Accounting
                                                           Officer)

Date: March 17, 2000

     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 Company
and in the capacities and on the date indicated.

<TABLE>
<CAPTION>
                   NAME                                      TITLE
                   ----                                      -----
<S>                                         <C>

          /s/ GLENN L. CARPENTER               Chairman of the Board of Directors
------------------------------------------     President, Chief Executive Officer
            Glenn L. Carpenter
      (Principal Executive Officer)

           /s/ PETER L. EPPINGA                             Director
------------------------------------------
             Peter L. Eppinga

           /s/ CHRISTINE GARVEY                             Director
------------------------------------------
             Christine Garvey

         /s/ CARL C. GREGORY, III                           Director
------------------------------------------
           Carl C. Gregory, III

            /s/ JOHN F. KOOKEN                              Director
------------------------------------------
              John F. Kooken

           /s/ DONALD E. LANGE                              Director
------------------------------------------
             Donald E. Lange

           /s/ ROBERT E. MORGAN                             Director
------------------------------------------
             Robert E. Morgan

        /s/ JAMES E. QUIGLEY, 3RD                           Director
------------------------------------------
          James E. Quigley, 3rd

           /s/ KEITH W. RENKEN                              Director
------------------------------------------
             Keith W. Renken
</TABLE>

                                       29
<PAGE>   30

                          PACIFIC GULF PROPERTIES INC.

                   INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
                               DECEMBER 31, 1999

<TABLE>
<CAPTION>
                                                               PAGE
                                                              -------
<S>                                                           <C>
FINANCIAL STATEMENTS FILED AS PART OF THIS REPORT
  Report of Independent Auditors............................      F-2
  Consolidated Balance Sheets...............................      F-3
  Consolidated Statements of Operations.....................      F-4
  Consolidated Statements of Shareholders' Equity...........      F-5
  Consolidated Statements of Cash Flows.....................      F-6
  Notes to Consolidated Financial Statements................      F-7
SCHEDULE FILED AS PART OF THIS REPORT
  Schedule III -- Real Estate and Accumulated
     Depreciation...........................................     F-25
</TABLE>

                                       F-1
<PAGE>   31

                         REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Shareholders
Pacific Gulf Properties Inc.

     We have audited the accompanying consolidated balance sheets of Pacific
Gulf Properties Inc. as of December 31, 1999 and 1998, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1999. Our audits also
included the financial statement schedule listed in the Index on page F-1. These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 Pacific Gulf
Properties Inc. at December 31, 1999 and 1998, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.

                                          ERNST & YOUNG LLP

Newport Beach, California
February 10, 2000

                                       F-2
<PAGE>   32

                          PACIFIC GULF PROPERTIES INC.

                          CONSOLIDATED BALANCE SHEETS

                                     ASSETS

<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                              ----------------------
                                                                1999         1998
                                                              ---------    ---------
                                                              (IN THOUSANDS, EXCEPT
                                                                   SHARE DATA)
<S>                                                           <C>          <C>
Real estate assets
  Operating properties
     Land...................................................  $232,665     $229,920
     Buildings..............................................   657,347      633,268
                                                              --------     --------
                                                               890,012      863,188
     Accumulated depreciation...............................   (72,715)     (49,776)
                                                              --------     --------
                                                               817,297      813,412
  Properties under development, including land..............    52,815       39,926
                                                              --------     --------
                                                               870,112      853,338
Cash and cash equivalents...................................     2,177        2,276
Accounts and other receivables..............................     4,005        4,984
Other assets................................................    15,627       14,529
                                                              --------     --------
                                                              $891,921     $875,127
                                                              ========     ========
                        LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
  Loans payable.............................................  $418,343     $403,845
  Accounts payable and accrued liabilities..................    17,244       15,828
  Dividends payable.........................................    10,366        9,844
  Convertible subordinated debentures.......................        --       12,244
                                                              --------     --------
                                                               445,953      441,761
Minority interests in consolidated partnerships.............    18,077       17,812
Commitments and contingencies...............................        --           --
Shareholders' equity
  Preferred shares, $.01 par value; 10,000,000 shares
     authorized; 2,763,116 Senior Cumulative Convertible
     Class A shares outstanding at December 31, 1999, and
     December 31, 1998......................................        28           28
  Preferred shares, $.01 par value; 300,000 shares
     authorized; Class C Junior Participating Cumulative
     Preferred Stock; no shares outstanding.................        --           --
  Common shares, $.01 par value; 100,000,000 shares
     authorized; 20,685,402 and 20,017,814 shares
     outstanding at December 31, 1999 and December 31, 1998,
     respectively...........................................       207          201
  Outstanding restricted stock..............................    (1,193)      (1,203)
  Additional paid-in capital................................   424,632      412,093
  Retained earnings.........................................     4,217        4,435
                                                              --------     --------
                                                               427,891      415,554
                                                              --------     --------
                                                              $891,921     $875,127
                                                              ========     ========
</TABLE>

                            See accompanying notes.
                                       F-3
<PAGE>   33

                          PACIFIC GULF PROPERTIES INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                    YEARS ENDED DECEMBER 31,
                                                              -------------------------------------
                                                                 1999          1998         1997
                                                              ----------    ----------    ---------
                                                              (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                           <C>           <C>           <C>
REVENUES
Rental income
  Industrial properties.....................................   $ 98,288      $ 76,271      $36,410
  Multifamily properties....................................     25,880        36,858       33,096
                                                               --------      --------      -------
                                                                124,168       113,129       69,506
EXPENSES
Rental property expenses
  Industrial properties.....................................     21,570        16,746        8,212
  Multifamily properties....................................      9,334        13,751       12,754
                                                               --------      --------      -------
                                                                 30,904        30,497       20,966
Depreciation................................................     26,117        20,386       12,008
Interest (including amortization of debenture discount and
  financing costs of $801, $1,129 and $827, respectively)...     27,242        25,758       17,337
General and administrative..................................      7,165         5,903        3,159
Minority interests in earnings of consolidated
  partnerships..............................................      1,342         1,024          172
                                                               --------      --------      -------
                                                                 92,770        83,568       53,642
                                                               --------      --------      -------
INCOME BEFORE GAINS ON SALE OF REAL ESTATE..................     31,398        29,561       15,864
Gains on sale of real estate................................      8,472        35,292        5,594
                                                               --------      --------      -------
NET INCOME..................................................     39,870        64,853       21,458
  Less preferred dividend requirements......................      4,971         4,856          855
                                                               --------      --------      -------
INCOME AVAILABLE TO COMMON SHAREHOLDERS.....................   $ 34,899      $ 59,997      $20,603
                                                               ========      ========      =======
EARNINGS PER SHARE
  Basic.....................................................   $   1.73      $   3.01      $  1.51
                                                               ========      ========      =======
  Diluted...................................................   $   1.71      $   2.76      $  1.47
                                                               ========      ========      =======
</TABLE>

                            See accompanying notes.

                                       F-4
<PAGE>   34

                          PACIFIC GULF PROPERTIES INC.

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                     COMMON STOCK     PREFERRED STOCK   OUTSTANDING   ADDITIONAL    RETAINED EARNINGS
                                    ---------------   ---------------   RESTRICTED     PAID-IN      (DISTRIBUTIONS IN
                                    SHARES   AMOUNT   SHARES   AMOUNT      STOCK       CAPITAL     EXCESS OF EARNINGS)    TOTAL
                                    ------   ------   ------   ------   -----------   ----------   -------------------   --------
<S>                                 <C>      <C>      <C>      <C>      <C>           <C>          <C>                   <C>
Balance -- December 31, 1996......   9,758    $ 98       --     $ --      $  (878)     $157,896         $(17,294)        $139,822
Common shares issued..............  10,189     102       --       --           --       200,787               --          200,889
Preferred shares issued...........      --      --    2,763       28           --        52,504               --           52,532
Net issuance of restricted
  stock...........................      21      --       --       --           60            --               --               60
Dividends on common shares........      --      --       --       --           --            --          (25,066)         (25,066)
Dividends on preferred shares.....      --      --       --       --           --            --             (855)            (855)
Net income........................      --      --       --       --           --            --           21,458           21,458
                                    ------    ----    -----     ----      -------      --------         --------         --------
Balance -- December 31, 1997......  19,968     200    2,763       28         (818)      411,187          (21,757)         388,840
Common shares issued..............      50       1       --       --           --           932               --              933
Preferred shares issued...........      --      --       --       --           --           (26)              --              (26)
Net issuance of restricted
  stock...........................      --      --       --       --         (385)           --               --             (385)
Dividends on common shares........      --      --       --       --           --            --          (33,805)         (33,805)
Dividends on preferred shares.....      --      --       --       --           --            --           (4,856)          (4,856)
Net income........................      --      --       --       --           --            --           64,853           64,853
                                    ------    ----    -----     ----      -------      --------         --------         --------
Balance -- December 31, 1998......  20,018     201    2,763       28       (1,203)      412,093            4,435          415,554
Common shares issued..............     667       6       --       --           --        12,357               --           12,363
Net issuance of restricted
  stock/compensation earned on
  options.........................      --      --       --       --           10           182               --              192
Dividends on common shares........      --      --       --       --           --            --          (35,117)         (35,117)
Dividends on preferred shares.....      --      --       --       --           --            --           (4,971)          (4,971)
Net income........................      --      --       --       --           --            --           39,870           39,870
                                    ------    ----    -----     ----      -------      --------         --------         --------
Balance -- December 31, 1999......  20,685    $207    2,763     $ 28      $(1,193)     $424,632         $  4,217         $427,891
                                    ======    ====    =====     ====      =======      ========         ========         ========
</TABLE>

                            See accompanying notes.
                                       F-5
<PAGE>   35

                          PACIFIC GULF PROPERTIES INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                  YEARS ENDED DECEMBER 31,
                                                              --------------------------------
                                                                1999       1998        1997
                                                              --------   ---------   ---------
                                                                       (IN THOUSANDS)
<S>                                                           <C>        <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income................................................  $ 39,870   $  64,853   $  21,458
  Adjustments to reconcile net income to net cash provided
     by operating activities:
     Depreciation...........................................    26,117      20,386      12,008
     Amortization of debenture discount and financing
       costs................................................       801       1,129         827
     Minority interests in earnings of consolidated
       partnerships.........................................     1,342       1,024         172
     Gains on sale of real estate...........................    (8,472)    (35,292)     (5,594)
     Compensation recognized related to restricted stock
       issued to employees..................................        10        (385)         59
     Compensation recognized related to options issued to
       employees............................................       182          --          --
     Net increase in other assets...........................    (3,849)     (7,370)     (4,532)
     Net increase in liabilities............................       148       6,356       3,338
                                                              --------   ---------   ---------
          Net cash provided by operating activities.........    56,149      50,701      27,736
                                                              --------   ---------   ---------

CASH FLOWS FROM INVESTING ACTIVITIES
  Acquisitions and improvements to properties...............   (32,265)   (201,160)   (332,324)
  Development expenditures..................................   (31,063)    (31,565)    (29,936)
  Proceeds from sale of real estate.........................    31,840      92,025      15,115
  Purchase of property and equipment, net...................        --          --      (3,452)
                                                              --------   ---------   ---------
  Net cash used in investing activities.....................   (31,488)   (140,700)   (350,597)
                                                              --------   ---------   ---------

CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from unsecured line of credit....................    36,150     236,419     158,278
  Repayment of unsecured line of credit.....................   (46,250)   (119,869)   (154,764)
  Proceeds from mortgage notes payable......................    15,500      18,300      97,921
  Repayment of mortgage notes payable.......................    (9,355)    (28,411)    (19,784)
  Proceeds from construction loans..........................    18,453      19,515       4,800
  Repayment of construction loans...........................        --      (5,962)         --
  Debentures converted to common shares.....................      (304)       (348)     (1,635)
  Issuance of common shares.................................       424         907     200,891
  Issuance of preferred shares..............................        --          --      52,531
  Minority interests contributions..........................    (1,077)      7,462       5,636
  Dividends on common shares................................   (34,623)    (33,583)    (20,215)
  Dividends on preferred shares.............................    (3,678)     (3,621)       (855)
                                                              --------   ---------   ---------
  Net cash (used in) provided by financing activities.......   (24,760)     90,809     322,804
                                                              --------   ---------   ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS........       (99)        810         (57)
CASH AND CASH EQUIVALENTS -- BEGINNING OF PERIOD............     2,276       1,466       1,523
                                                              --------   ---------   ---------
CASH AND CASH EQUIVALENTS -- END OF PERIOD..................  $  2,177   $   2,276   $   1,466
                                                              ========   =========   =========
</TABLE>

                            See accompanying notes.

                                       F-6
<PAGE>   36

                          PACIFIC GULF PROPERTIES INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

     Pacific Gulf Properties Inc. was incorporated in Maryland in August 1993.
The Company operates as a real estate investment trust ("REIT") under the
Internal Revenue Code of 1986, as amended, which owns, operates, leases,
acquires, rehabilitates and develops light industrial and business park
properties and multifamily properties including active senior and family-style
apartment communities. The Company commenced operations on February 18, 1994
upon the completion of its initial public offerings and consummation of certain
formation transactions.

BASIS OF PRESENTATION

     The consolidated financial statements include the Company's accounts and
all subsidiaries and partnerships over which it has control. The Company's
controlled partnerships and subsidiaries include PGP Inland Communities, L.P.,
PGP -- Terrace Gardens Holdings Inc., PGP -- Morning View Terrace Holdings Inc.,
PGP Northern Industrial, L.P., PGP Southern Industrial II, L.P., Pacific Inland
Communities LLC and PGP Von Karman Properties. Minority interests represent the
ownership interests of outside limited partners in certain of the partnerships
controlled by the Company. All intercompany accounts and transactions have been
eliminated in consolidation.

REAL ESTATE ASSETS

     Real estate assets consist of operating properties and properties under
development. Operating properties are held for investment and carried at cost
less accumulated depreciation. Cost includes the cost of land and completed
buildings and related improvements. Expenditures that increase the service life
of properties are capitalized; the cost of maintenance and repairs is charged to
expense as incurred. Depreciation is generally provided on a straight-line basis
over the estimated useful lives of the buildings and improvements, ranging
primarily from 15 to 40 years. When depreciable property is retired or disposed
of, the related costs and accumulated depreciation are removed from the accounts
and any gain or loss reflected in operations.

     Properties under development are carried at cost. The cost of development
includes land acquisition and infrastructure costs, direct and indirect
construction costs and carrying costs including interest and taxes. Land
acquisition and infrastructure costs are allocated to components of properties
based on relative fair value. Interest and property taxes are capitalized to
properties while development activities are in progress. When a project or
property under development is completed, all related holding and operating costs
are expensed as incurred.

     Impairment losses are recorded on long-lived assets used in operations and
properties under development when indicators of impairment are present and the
assets' carrying amount is greater than the sum of the future undiscounted cash
flows, excluding interest, estimated to be generated by those assets. As of
December 31, 1999, no indicators of impairment existed and no impairment losses
have been recorded.

     The Company follows the provisions of EITF 97-11, Accounting for Internal
Costs Related to Real Estate Property Acquisitions. Accordingly, effective April
1, 1998, the Company ceased capitalizing its internal acquisition costs incurred
in conjunction with the identification and acquisition of properties to be held
for operations. The Company continues capitalizing internal acquisition costs
associated with properties which are under development.

CASH AND CASH EQUIVALENTS

     Certificates of deposit and short-term investments with remaining
maturities of three months or less when acquired are considered cash
equivalents.

                                       F-7
<PAGE>   37
                          PACIFIC GULF PROPERTIES INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS

     Accounts receivable are net of an allowance for uncollectible accounts
totaling $1,012,000 and $298,000 at December 31, 1999 and 1998, respectively.

FINANCING COSTS

     Financing costs are included in other assets and consist of loan fees,
other loan costs and deferred debenture costs. Loan fees and other loan costs
are amortized over the term of the respective loan. Costs relating to the
convertible subordinated debentures offering are amortized over the term of the
debentures using a method that approximates the effective interest method.
Amortization of financing costs is included in interest expense.

CONCENTRATION OF CREDIT RISK

     Financial instruments that potentially subject the Company to a
concentration of credit risk are primarily cash investments and accounts
receivable from tenants. Cash is generally invested in investment-grade short-
term instruments and the amount of credit exposure to any one commercial issuer
is limited. Concentration of credit risk with respect to accounts receivable
from tenants is limited. The Company performs credit evaluations of prospective
tenants and security deposits are also obtained.

FAIR VALUE OF FINANCIAL INSTRUMENTS

     The carrying amounts of the Company's short-term investments and loans
payable approximate their fair values as of December 31, 1999.

DIVIDEND REINVESTMENT PLAN

     During the years ended December 31, 1999 and 1998, the Company issued 3,330
and 2,156 shares, respectively, under the Company's Dividend Reinvestment Plan.

RENTAL INCOME

     Rental income from multifamily leases is recognized when due from tenants.
Apartment units are rented under lease agreements with terms of one year or
less.

     Rental income from industrial leases is recognized on a straight-line basis
over the related lease term. As a result, deferred rent is created when rental
income is recognized during free rent periods of a lease. The deferred rent is
included in other assets, evaluated for collectibility and amortized over the
lease term.

INTEREST

     Interest incurred for the years ended December 31, 1999, 1998 and 1997
totaled $29,757,000, $28,810,000 and $19,469,000, respectively. Interest
incurred in 1999, 1998 and 1997 includes $615,000, $1,041,000 and $1,100,000
related to the Company's convertible subordinated debentures.

     For the years ended December 31, 1999, 1998 and 1997, the Company
capitalized $2,515,000, $3,052,000 and $2,132,000 of interest related to
properties under development

     Interest paid for the years ended December 31, 1999, 1998 and 1997 totaled
$29,448,000, $27,732,000 and $18,932,000, respectively.

                                       F-8
<PAGE>   38
                          PACIFIC GULF PROPERTIES INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

GAINS ON SALE OF REAL ESTATE

     Gains on sale of real estate are recognized by the Company when title to
the real estate passes to the buyer, an adequate down payment is received, the
collectibility of notes received from buyers is reasonably assured, and all
other conditions necessary for profit recognition have been satisfied.

INCOME TAXES

     The Company has elected to be taxed as a REIT. As a REIT, the Company is
generally not subject to income taxes. To maintain its REIT status, the Company
is required to distribute annually as dividends at least 95% of its REIT taxable
income, as defined by the Internal Revenue Code ("IRC"), to its shareholders,
among other requirements.

PER SHARE DATA

     The Company reports earnings per share pursuant to Statement of Financial
Accounting Standards No. 128 ("Statement No. 128"). All earnings per share
amounts for all periods presented reflect basic and diluted earnings per share
and have been restated from the previous standard of primary and fully diluted
earnings per share. (See Note 10 for additional information.)

USE OF ESTIMATES

     The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of the assets and liabilities
as of December 31, 1999 and 1998 and revenues and expenses for each of the three
years in the period ended December 31, 1999. Actual results could differ from
those estimates in the near term.

STOCK-BASED COMPENSATION

     During 1999, the Company adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"),
which establishes a fair value method of accounting for stock-based compensation
plans. The Company follows SFAS No. 123 for all plans adopted after January 1,
1999. For stock-based compensation plans established prior to January 1, 1999,
the Company continues to follow the intrinsic value method set forth in APB
Opinion 25, "Accounting for Stock Issued to Employees." The adoption of this
Standard in 1999 had no material effect on the Company's financial statements
(see Note 5).

RECENTLY ISSUED ACCOUNTING STANDARDS

     The Financial Accounting Standards Board has issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities as amended", which
is required to be adopted on June 15, 2000. At that time, the Company will be
required to report the fair value of derivatives and reflect adjustments to the
carrying amount of hedged items as gains or losses. The Company does not believe
the additional requirements will have a significant impact on its financial
position or results of operations.

RECLASSIFICATIONS

     Certain prior year financial statement amounts have been reclassified to
conform to the current year presentation.

                                       F-9
<PAGE>   39
                          PACIFIC GULF PROPERTIES INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 2. REAL ESTATE ASSETS

     The Company's real estate assets consist of the following at December 31:

                              OPERATING PROPERTIES

<TABLE>
<CAPTION>
                                                              1999            1998
                                                          ------------    ------------
<S>                                                       <C>             <C>
INDUSTRIAL PROPERTIES
  Land..................................................  $191,650,000    $187,416,000
  Buildings and improvements............................   529,381,000     500,837,000
                                                          ------------    ------------
                                                           721,031,000     688,253,000
  Accumulated depreciation..............................   (53,747,000)    (34,249,000)
                                                          ------------    ------------
                                                           667,284,000     654,004,000
                                                          ------------    ------------
MULTIFAMILY PROPERTIES
 Active Senior Apartments
  Land..................................................    14,116,000      14,116,000
  Buildings and improvements............................    57,083,000      56,270,000
                                                          ------------    ------------
                                                            71,199,000      70,386,000
  Accumulated depreciation..............................    (5,259,000)     (3,303,000)
                                                          ------------    ------------
                                                            65,940,000      67,083,000
                                                          ------------    ------------
 Family Apartments
  Land..................................................    26,899,000      28,388,000
  Buildings and improvements............................    70,883,000      76,161,000
                                                            97,782,000     104,549,000
  Accumulated depreciation..............................   (13,709,000)    (12,224,000)
                                                          ------------    ------------
                                                            84,073,000      92,325,000
                                                          ------------    ------------
TOTAL OPERATING PROPERTIES
  Land..................................................   232,665,000     229,920,000
  Buildings and improvements............................   657,347,000     633,268,000
                                                          ------------    ------------
                                                           890,012,000     863,188,000
  Accumulated depreciation..............................   (72,715,000)    (49,776,000)
                                                          ------------    ------------
                                                          $817,297,000    $813,412,000
                                                          ============    ============
</TABLE>

OPERATING PROPERTIES

  Industrial Properties

     At December 31, 1999, the Company owns and operates 69 operating industrial
properties containing an aggregate of 14,684,000 leasable square feet located in
the states of California, Washington, Nevada, Arizona and Oregon. During 1999,
the Company purchased three industrial properties located in Nevada and Arizona
containing an aggregate of 304,000 leasable square feet.

                                      F-10
<PAGE>   40
                          PACIFIC GULF PROPERTIES INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     The Company's industrial properties are leased to tenants under operating
leases with terms ranging from 1 to 5 years. The minimum future lease payments
to be received from noncancelable industrial leases for each of the next five
years ending December 31 and thereafter, are summarized as follows:

<TABLE>
<S>                                                           <C>
2000........................................................  $24,743,000
2001........................................................   22,582,000
2002........................................................   16,947,000
2003........................................................   10,810,000
2004........................................................    6,173,000
Thereafter..................................................    6,427,000
                                                              -----------
                                                              $87,682,000
                                                              ===========
</TABLE>

  Multifamily Properties

     At December 31, 1999, the Company owns and operates 18 multifamily
properties containing 3,069 apartment units located in Southern California,
including 8 multifamily properties with 1,438 units for active seniors. During
1999, the Company sold a multifamily property containing 196 apartment units
located in Southern California. (See Note 9.)

                          PROPERTIES UNDER DEVELOPMENT

<TABLE>
<CAPTION>
                                                               1999           1998
                                                            -----------    -----------
<S>                                                         <C>            <C>
INDUSTRIAL PROPERTIES
  Land....................................................  $13,662,000    $16,467,000
  Buildings and improvements..............................   26,656,000     23,459,000
                                                            -----------    -----------
                                                             40,318,000     39,926,000
                                                            ===========    ===========
MULTIFAMILY PROPERTIES
 Active Senior Apartments
  Land....................................................    8,992,000             --
  Buildings and improvements..............................    3,505,000             --
                                                            -----------    -----------
                                                             12,497,000             --
                                                            ===========    ===========
TOTAL PROPERTIES UNDER DEVELOPMENT
  Land....................................................   22,654,000     16,467,000
  Buildings and improvements..............................   30,161,000     23,459,000
                                                            -----------    -----------
                                                            $52,815,000    $39,926,000
                                                            ===========    ===========
</TABLE>

PROPERTIES UNDER DEVELOPMENT

  Industrial Properties

     During 1999, the Company completed and transferred to operating properties
one rehabilitation project; a 382,000 square foot warehouse in San Diego,
California. The total rehabilitation cost for the property was $2,572,000. The
project is 100% occupied at December 31, 1999.

     During 1999, the Company also completed development of a 209,000 square
foot industrial park in Lake Forest, California for a cost of $11,793,000,
excluding land costs of $3,554,000. The property is 97% occupied at December 31,
1999.

     As of December 1999, the Company has under development in Southern
California and Washington, four industrial properties that will contain
approximately 709,000 leasable square feet, and one industrial

                                      F-11
<PAGE>   41
                          PACIFIC GULF PROPERTIES INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

property in Arizona under rehabilitation containing approximately 118,000
leasable square feet. Development costs, excluding land costs of $8,992,000, for
these properties totaled $27,105,000 through December 31, 1999.

  Multifamily Properties

     As of December 1999, the Company has under development three multifamily
properties for active seniors in California (two in Southern California and one
in Northern California) that will contain 669 units. Development costs for these
properties totaled $3,505,000.

 3. LOANS PAYABLE

     The Company's loans payable at December 31, 1999 and 1998 consist of the
following:

<TABLE>
<CAPTION>
                                                              1999            1998
                                                          ------------    ------------
<S>                                                       <C>             <C>
MORTGAGE NOTES
Conventional mortgage debt
  Industrial............................................  $141,519,000    $141,629,000
  Active Senior.........................................     4,556,000       4,620,000
  Family................................................    33,853,000      26,355,000
                                                          ------------    ------------
                                                           179,928,000     172,604,000
Tax exempt mortgage debt
  Industrial............................................            --              --
  Active Senior.........................................    43,799,000      44,697,000
  Family................................................    20,534,000      20,815,000
                                                          ------------    ------------
                                                            64,333,000      65,512,000
Construction loans......................................    50,432,000      31,979,000
Unsecured line of credit................................   123,650,000     133,750,000
                                                          ------------    ------------
                                                          $418,343,000    $403,845,000
                                                          ============    ============
</TABLE>

MORTGAGE NOTES

     At December 31, 1999, the Company's conventional mortgage debt consists of
21 notes secured by industrial properties and active senior and multifamily
apartments, due in monthly installments and maturing at various dates through
September 2025. Certain of the Company's conventional mortgage note agreements
contain cross-collateralization provisions (see schedule III). Approximately
$173,951,000 or 18 conventional mortgage notes bear fixed rates of interest
ranging from 6.78% to 8.50% per annum. The remaining three conventional mortgage
notes totaling $5,977,000 bear a variable rate of interest based on the Federal
Home Loan Bank 11th District Rate plus 2.8%. The weighted average interest rate
of the Company's conventional mortgage debt at December 31, 1999 was 7.51%.
During the year ended December 31, 1999, the Federal Home Loan Bank 11th
District Rate ranged from 4.48% to 4.69% and was 4.67% at December 31, 1999.

     At December 31, 1999, the Company's tax-exempt mortgage debt consists of
eight notes totaling $64,333,000 that are secured by active senior properties
and multifamily apartment properties. Seven of the tax-exempt mortgage notes
totaling $55,352,000 and related bond financings are in a 30 year refunding
agreement, which is backed by credit and liquidity support from guaranteed
mortgage pass-through certificates issued by the Federal National Mortgage
Association ("FNMA"). Standard & Poor's Rating Group assigned a rating of AAA to
the bonds based on a collateral agreement with FNMA. The Company makes monthly
principal and interest payments on the loans to a trustee, which in turn pays
the bondholders when interest is due. The bonds are remarketed periodically and
bear interest at fixed rates scheduled to increase from 3.75% to 5.20% through
2007. Principal payments on the loans are amortized based on

                                      F-12
<PAGE>   42
                          PACIFIC GULF PROPERTIES INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

scheduled amounts over a 30-year period. As part of the refunding agreement, the
Company is required to deposit impounds with the trustee for property taxes,
property and liability insurance and reserves for capital replacements on a
semiannual basis. Unamortized finance costs and fees related to the refunding
agreement are included in other assets and totaled $2,976,000 and $1,462,000 at
December 31, 1999 and 1998, respectively. The weighted average interest rate of
the Company's tax-exempt mortgage notes backed by FNMA, at December 31, 1999,
was 6.35%.

     The Company's eighth tax-exempt mortgage note is a variable rate obligation
supported by letters of credit from financial institutions. In 1999, the Company
replaced the existing credit enhancement which was maturing with FNMA. At
December 31, 1999 the principal amount of the debt was $8,981,000 and the
interest rate was 5.04% at December 31, 1999.

CONSTRUCTION LOANS

     At December 31, 1999 the Company has six construction loans, which are
payable to a bank, and are secured by industrial properties under development.
The construction loans bear interest at LIBOR + 1.30% to 1.525% or the reference
rate payable monthly and mature between March 2000 and October 2001. Undisbursed
funds on the construction loans at December 31, 1999 total $22,023,000. Upon
completion of the properties, the Company has the option to convert the interest
rate on the loans into a fixed rate of interest upon meeting certain conditions.
At December 31, 1999, LIBOR was 5.835%.

UNSECURED LINE OF CREDIT

     The Company has a $150,000,000 unsecured revolving credit agreement (the
"Line of Credit") which matures in April 2001. The interest rate payable under
the Line of Credit is based on the leverage level of the Company and at December
31, 1999 is LIBOR plus 1.30%.

     The Company's Line of Credit contains certain debt covenants. The most
significant covenants require the Company to maintain a minimum net worth, a
leverage ratio based on a calculated asset value no greater than 50%, an
interest coverage ratio in excess of 2.00 (measured on a quarterly basis) and a
fixed charge coverage ratio of not less than 1.75. In addition, the Line of
Credit contains a provision which limits the loan availability amount to
approximately 58% of the value of the Company's unencumbered assets, less
unsecured debt. As of December 31, 1999, the Company was in compliance with all
debt covenants.

INTEREST RATE SWAP AGREEMENTS

     The Company has interest rate swap agreements that effectively convert
certain floating rate mortgage notes to a fixed-rate basis, thus reducing the
impact on future earnings of fluctuations in interest rates. At December 31,
1999, the Company's interest rate swap agreements have notional amounts totaling
$34,500,000 under which the Company pays fixed rates of interest and receives
floating rates of interest based on an index that is reset weekly. The swap
counterparties are all financial institutions rated AAA by Standard & Poor's.
The rate differences to be paid or received are accrued and included in interest
expense as a yield adjustment and the related payable or receivable from
counterparties is included in accrued liabilities or other assets. The interest
rate swap agreements mature in August, 2000.

                                      F-13
<PAGE>   43
                          PACIFIC GULF PROPERTIES INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

LOANS PAYABLE MATURITIES

     The principal payments due on loans payable for each of the next five years
ending December 31 and thereafter are summarized as follows:

<TABLE>
<S>                                                           <C>
2000........................................................  $ 68,001,000
2001........................................................   149,456,000
2002........................................................    22,644,000
2003........................................................            --
2004........................................................     4,366,000
Thereafter..................................................   173,876,000
                                                              ------------
                                                              $418,343,000
                                                              ============
</TABLE>

 4. CONVERTIBLE SUBORDINATED DEBENTURES

     The Company called for redemption of $6,500,000 of its outstanding
debentures on August 18, 1999. As of that date, $6,300,000 of the debentures
called had converted into 338,301 shares of Common Stock. The Company redeemed
the remaining $200,000 for cash.

     The Company called for redemption of its remaining outstanding debenture of
$5,273,000 on November 10, 1999. As of that date, $5,110,000 of the debentures
called had converted into 274,373 shares of Common Stock. The Company redeemed
the remaining $163,000 for cash.

 5. BENEFIT PLANS

SHARE OPTION PLANS

     The Company has stock options outstanding under share option plans as more
fully described in the Company's proxy filed with the Securities and Exchange
Commission. The Company's stock options consist of fixed and variable stock
options as listed below. Fixed options vest over a specified period. Variable
options are subject to performance based vesting criteria. Available shares
under the Company's share option plans totaled 3,145,000 (including 300,000
reserved for non-employee directors). Approximately 845,000 of the Company's
options, at an exercise price of $20.75 per share, were granted under a plan
approved by the Board of Directors and is subject to shareholder approval.

                                      F-14
<PAGE>   44
                          PACIFIC GULF PROPERTIES INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FIXED STOCK OPTIONS

     The stock options listed in the table below, except as noted, primarily
vest in equal installments over a five-year period from the date of the grant
and expire ten years from the original grant date.

<TABLE>
<CAPTION>
                                                          NUMBER OF     EXERCISE PRICE
                                                           OPTIONS        PER SHARE
                                                          ---------    ----------------
<S>                                                       <C>          <C>
Outstanding at December 31, 1996........................    241,200    $15.00 - $18.25
  Granted...............................................    468,000    $20.75 - $23.75
  Canceled..............................................     (4,000)   $18.25
  Exercised.............................................    (13,550)   $16.25 - $21.38
                                                          ---------    ----------------
Outstanding at December 31, 1997........................    691,650    $15.00 - $23.75
  Granted...............................................    340,000    $19.50 - $22.56
  Canceled..............................................     (3,500)   $18.25
  Exercised.............................................       (900)   $21.38
                                                          ---------    ----------------
Outstanding at December 31, 1998........................  1,027,250    $15.00 - $23.75
  Granted(a)............................................    285,000    $18.94 - $20.75
  Canceled..............................................    (17,850)   $19.00 - $22.625
  Exercised.............................................     (8,486)   $15.00 - $20.06
                                                          ---------    ----------------
Outstanding at December 31, 1999........................  1,285,914    $15.00 - $23.75
                                                          =========
</TABLE>

---------------
(a) 210,000 of options vest in equal installments over a three-year period from
    the date of the grant and expire ten years from the original grant date.

VARIABLE STOCK OPTIONS

     A summary of the status of the Company's variable stock options as of
December 31, 1999 and changes during the year is presented below:

<TABLE>
<CAPTION>
                                                              NUMBER OF    EXERCISE
                                                               SHARES       PRICE
                                                              ---------    --------
<S>                                                           <C>          <C>
Outstanding at December 31, 1998............................        --         --
  Granted...................................................   635,000      20.75
  Canceled..................................................        --         --
  Exercised.................................................        --         --
                                                               -------      -----
Outstanding at December 31, 1999............................   635,000      20.75
                                                               =======      =====
</TABLE>

     Variable stock options will vest depending on achieving certain specified
performance measures of the Company during the period July 1, 1999 through
December 31, 2001. Subject to the shareholders approval discussed above vesting
of such options will occur after December 31, 2001 (subject to earlier vesting
in the event of a change in control of the Company or the death or disability of
a participant). Measurement of the specified performance criteria and the
determination of the number of options that will vest, if any, will occur at the
end of 2001. Any variable options that do not vest will expire.

     As described in Note 1, the Company adopted Statement SFAS No. 123
effective January 1, 1999. Accordingly, the Company accounts for all options
granted after January 1, 1999 using the fair value method which resulted in
compensation expense totaling $182,000 for the year ended December 31, 1999.
Stock options granted after January 1, 1999 and accounted under SFAS No. 123
totaled 920,000, all of which are outstanding at December 31, 1999.

                                      F-15
<PAGE>   45
                          PACIFIC GULF PROPERTIES INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     The Company continues to account for options granted prior to January 1,
1999 using the previous standard (APB No. Opinion 25) which has resulted in no
compensation costs being recorded. Stock options granted prior to January 1,
1999 and accounted under this Opinion No. 25 totaled 1,070,700, of which
1,000,914 are outstanding at December 31, 1999.

     For disclosure purposes only, the Company has measured the compensation
cost which would have been recognized had the fair value of the these pre-1999
options been used at the date of their grant for accounting purposes in
accordance with SFAS No. 123. Based on such calculations, net income and
earnings per share amounts would be approximately the same as the amounts
reported by the Company. The fair value of all options at date of grant was
estimated using a Black-Scholes option pricing model with the following weighted
average assumptions: risk-free interest of 5.51%; a dividend yield of 8.60%; a
volatility factor for the price of the Company's common shares of .210 and
expected lives for the options of ten years.

RESTRICTED STOCK AWARDS

     The Company awards restricted stock to its employees for compensation
purposes. Compensation expense related to restricted stock awards is measured
based on the market price of the stock on the date of the grant, and is expensed
ratably over the vesting period of each award with the unamortized portion
reflected as outstanding restricted stock in the shareholders' equity section in
the Company's balance sheets.

     The restricted stock awards listed in the table below were awarded to
employees based on performance and vest over periods ranging between one to
seven years.

<TABLE>
<CAPTION>
                                                              NUMBER OF
                                                               AWARDS
                                                              ---------
<S>                                                           <C>
  Outstanding at December 31, 1997..........................   48,796
  Granted...................................................   25,261
                                                               ------
  Outstanding at December 31, 1998..........................   74,057
  Granted...................................................   15,000
                                                               ------
  Outstanding at December 31, 1999..........................   89,057
                                                               ------
  Vested at December 31, 1999...............................   41,549
                                                               ======
</TABLE>

     At December 31, 1999 and 1998, the unamortized amount of outstanding
restricted stock issued to employees which will be charged to compensation
expense in future periods totaled $1,193,000 and $1,203,000, respectively.

THRIFT PLAN

     The Company has a thrift plan under which employees may elect to contribute
up to 21% of their annual compensation, excluding bonuses, on a combination
before-and-after tax basis. Contributions by the employee are matched by the
Company at a 75% rate with total matching contributions not exceeding 4 1/2% of
the contributing employee's annual compensation up to a maximum of 6% of
compensation. Matching contributions and employee contributions are invested in
a fixed income fund, various growth funds, or a combination thereof, according
to the employee's choice. The thrift plan provides for 20% vesting of
contributions by the Company for each full year of service, increasing to 100%
vesting after five years of service. Contributions made by the Company to the
thrift plan for the years ended December 31, 1999, 1998 and 1997 totaled
$107,000, $113,000, and $29,000 respectively.

                                      F-16
<PAGE>   46
                          PACIFIC GULF PROPERTIES INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

RETIREMENT INCOME PLAN

     The Company has a defined benefit retirement plan for full time employees
who are at least 21 years of age with one or more years of service. Plan assets
consist of investments in a life insurance group annuity contract. Plan benefits
are based primarily on years of service and qualifying compensation during the
final years of employment. Funding requirements comply with federal requirements
that are imposed by law. The Company has adopted Statement No. 132, Employers'
Disclosures About Pensions and Other Post-Retirement Benefits, in 1998.
Accordingly, the following information reflects the required disclosures
pursuant to that Statement.

     Net periodic pension cost related to the retirement income plan includes
amortization of past service cost over a remaining period of 26 years. Based
upon actuarial valuation dates as of December 31, 1999 and 1998, the benefit
obligations were $2,040,000 and $1,878,000, respectively, and the plan's net
assets available for benefits were $1,392,000 in 1999 and $1,142,000 in 1998.

     The Company's net periodic pension cost included in general and
administrative expenses for the years ended December 31, 1999, 1998, and 1997
consists of the following components:

<TABLE>
<CAPTION>
                                                          1999        1998       1997
                                                        ---------   --------   --------
<S>                                                     <C>         <C>        <C>
Service cost..........................................  $ 288,000   $275,000   $116,000
Interest cost on projected benefit obligation.........    122,000    112,000     65,000
Expected return on plan assets........................   (103,000)   (63,000)   (41,000)
Amortization of transition/obligation.................      7,000      7,000         --
Amortization of unrecognized prior service costs and
  unrecognized net obligation.........................     13,000     24,000      1,000
                                                        ---------   --------   --------
Net periodic pension cost.............................  $ 327,000   $355,000   $141,000
                                                        =========   ========   ========
</TABLE>

                                      F-17
<PAGE>   47
                          PACIFIC GULF PROPERTIES INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     The following table sets forth the plan's funded status for the fiscal
years ending December 31, 1999 and 1998:

<TABLE>
<CAPTION>
                                                                 1999          1998
                                                              ----------    ----------
<S>                                                           <C>           <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year.....................  $1,878,000    $1,598,000
Service cost................................................     288,000       275,000
Interest cost...............................................     122,000       112,000
Plan participant contributions..............................          --            --
Actuarial gain..............................................    (150,000)     (107,000)
Benefits paid...............................................          --            --
Other.......................................................     (98,000)           --
                                                              ----------    ----------
Benefit obligation at end of year...........................  $2,040,000    $1,878,000
                                                              ==========    ==========
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year..............  $1,142,000    $  704,000
Actual return on plan assets................................     (41,000)      109,000
Employer contributions......................................     291,000       329,000
Plan participant contributions..............................          --            --
Benefits paid...............................................          --            --
Other.......................................................          --            --
                                                              ----------    ----------
Fair value of plan assets at end of year....................  $1,392,000    $1,142,000
                                                              ==========    ==========
RECONCILIATION OF FUNDED STATUS
Funded status underfunded...................................  $ (648,000)   $ (735,000)
Unrecognized net actuarial loss.............................     281,000       293,000
Unrecognized transition obligation..........................     153,000       160,000
Unrecognized prior service cost.............................      19,000       124,000
                                                              ----------    ----------
Accrued benefit cost........................................  $ (195,000)   $ (158,000)
                                                              ==========    ==========
ADDITIONAL MINIMUM LIABILITY DISCLOSURES
Accrued benefit liability...................................  $       --    $       --
Intangible asset............................................          --            --
Other comprehensive income, not adjusted for applicable
  income tax................................................  $       --    $       --
</TABLE>

     Assumptions used in determining the status of the Company's retirement
income plan are as follows:

<TABLE>
<CAPTION>
                                                              1999    1998    1997
                                                              ----    ----    ----
<S>                                                           <C>     <C>     <C>
Weighted average discount rate..............................  7.0%    6.5%    7.0%
Weighted average rate of increase in compensation levels....  4.8%    4.9%    4.9%
Expected long-term rate of return on plan assets............  7.5%    7.5%    7.5%
</TABLE>

DEFERRED COMPENSATION AGREEMENTS

     In conjunction with its initial public offerings, the Company assumed the
deferred compensation obligations attributable to employees who were previously
employed by its predecessor. Deferred compensation agreements were provided to
selected management employees with a fixed benefit at retirement. Benefits were
based primarily on years of service and qualifying compensation during the final
years of employment. During 1995, the deferred compensation agreements were
substantially replaced with restricted stock.

                                      F-18
<PAGE>   48
                          PACIFIC GULF PROPERTIES INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 6. CONSOLIDATED REAL ESTATE PARTNERSHIPS

     The Company's consolidated partnerships include the following:

  PGP Inland Communities, L.P.

     PGP Inland Communities, L.P., a Delaware limited partnership (the
"Partnership") was formed by the Company in August 1995 for the purpose of
acquiring and operating 11 multifamily properties consisting of 1,368 apartment
units located in Southern California (the "Properties") which were contributed
by unrelated parties. In exchange for contributing the Properties to the
Partnership, the unrelated parties received approximately 225,452 limited
partnership units representing an initial ownership interest of approximately
22%. The Company is the sole general partner in the Partnership and currently
holds an ownership interest of approximately 84%. The terms of the Partnership
agreement provide that all net income (and cash flow) from the Properties be
allocated (distributed) to the Company until the Properties have achieved a
threshold net operating income of $6,200,000 for any given year, and
cumulatively for all prior years. The Partnership's results of operations since
1995 have been fully allocated to the Company. Beginning in August 1997, the
Partnership's limited partnership units can be tendered for redemption on a
one-for-one basis for cash or for shares of common stock at the election of the
Company. As of December 31, 1999, 55,920 of these units have been tendered for
cash, the cost of which has been capitalized to the properties.

  Terrace Gardens -- PGP L.P. and Morning View Terrace -- PGP L.P.

     In June 1997, the Company, through its subsidiaries, PGP Terrace Gardens
Holdings Inc. and PGP Morning View Terrace Holdings Inc., acquired a controlling
general partner interest in two existing limited partnerships ("Terrace Gardens"
and "Morning View") that own two adjacent active seniors apartment communities
located in Escondido, California. The properties contain an aggregate of 551
apartment units. Following the acquisition, the Company became the sole general
partner of the existing limited partnerships (Terrace Gardens -- PGP L.P. and
Morning View Terrace -- PGP L.P.) that own and manage the properties. The
existing partners of the partnerships received an aggregate of approximately
266,000 limited partnership units in such partnerships valued at $5,596,000.
Beginning in June 1999, the limited partnership units can be tendered for
redemption to the Company. Upon tender, the Company, at its election, may either
issue common shares for the units on a one-for-one basis (subject to certain
adjustments) or pay cash for the units based on the then fair market value of
the Company's common shares. Since 1997, approximately 129,000 limited
partnership units were tendered for cash, the cost of which was capitalized to
the properties. As a result of the tender, the Company currently holds an
ownership interest of approximately 58% and 59% in Terrace Gardens -- PGP L.P
and Morning View Terrace -- PGP L.P., respectively. Net income from the
partnerships is allocated to the limited partners based on an amount equal to
the Company's dividend rate on common stock applied to the number of limited
partnership units held by stock partners and the remaining income is allocated
to the Company. Distributions are made to the extent of cash flow available.

  PGP Northern Industrial L.P.

     On October 20, 1997, the Company acquired a controlling general partner
interest in PGP Northern Industrial L.P., a California limited partnership ("PGP
Northern")which owns two industrial properties ("Eden Plaza/Eden Industrial")
containing approximately 501,000 leasable square feet located in Hayward,
California. The Company acquired such interest for a cash contribution of
approximately $3,977,000. The previous owners of Eden Plaza/Eden Industrial
became limited partners in PGP Northern and received 143,391 limited partnership
units valued at $2,869,000 in exchange for the contribution of the two
industrial properties. The limited partnership units can be tendered for
redemption to the Company. Upon tender, the Company, at its election, may either
issue common shares for the units on a one-for-one basis (subject to certain
adjustments) or pay cash for the units based on the then fair market value of
the common shares. At

                                      F-19
<PAGE>   49
                          PACIFIC GULF PROPERTIES INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 1999, the Company holds an ownership interest of approximately 59%.
Net income from the partnership is allocated to the limited partners based on an
amount equal to the Company's dividend rate on common stock applied to the
number of limited partnership units held by such partners and the remaining
income is allocated to the Company. Distributions are made to the extent of cash
flow available.

  PGP Southern Industrial II, L.P.

     On March 13, 1998, the company acquired a controlling general partner
interest in PGP Southern Industrial II, L.P., a California limited partnership
("PGP Southern") which owns a 168,000 square foot distribution facility located
in Garden Grove, California. The other partner in the partnership received an
aggregate of 404,950 limited partnership units in the partnership for an
aggregate value of $9,000,000. Beginning in March, 1999 the limited partnership
units can be tendered for redemption to the Company. Upon tender, the Company,
at its election, may either issue common shares for the units on a one-for-one
basis (subject to certain adjustments) or pay cash for the units based on the
then fair market value of the common shares. Net income from the partnerships is
allocated to the limited partners based on an amount equal to the Company's
dividend rate on common stock applied to the number of limited partnership units
held by stock partners and the remaining income is allocated to the Company.
Distributions are made to the extent of cash flow available.

     Condensed unaudited combined financial information for the consolidated
real estate partnerships as of December 31, 1999 and 1998 and for the years
ended December 31, 1999, 1998 and 1997 follows:

<TABLE>
<CAPTION>
                                                              1999            1998
                                                          ------------    ------------
<S>                                                       <C>             <C>
Real Estate Assets
  Land..................................................  $ 34,903,000    $ 34,903,000
  Building..............................................    97,632,000      96,087,000
                                                          ------------    ------------
                                                           132,535,000     130,990,000
Accumulated depreciation................................   (10,491,000)     (6,886,000)
                                                          ------------    ------------
                                                           122,044,000     124,104,000
Cash and other assets...................................    10,933,000       8,404,000
                                                          ------------    ------------
                                                          $132,977,000    $132,508,000
                                                          ============    ============
Liabilities (primarily tax-exempt and mortgage notes)...  $ 89,600,000    $ 90,749,000
Partners' Capital
  Company...............................................    25,300,000      23,947,000
  Minority interests....................................    18,077,000      17,812,000
                                                          ------------    ------------
                                                            43,377,000      41,759,000
                                                          ------------    ------------
                                                          $132,977,000    $132,508,000
                                                          ============    ============
</TABLE>

<TABLE>
<CAPTION>
                                                         YEARS ENDED DECEMBER 31,
                                                  ---------------------------------------
                                                     1999          1998          1997
                                                  -----------   -----------   -----------
<S>                                               <C>           <C>           <C>
Revenues........................................  $20,159,000   $18,505,000   $12,999,000
Expenses........................................   16,606,000    13,575,000    12,129,000
                                                  -----------   -----------   -----------
Net income......................................  $ 3,553,000   $ 4,930,000   $   870,000
                                                  ===========   ===========   ===========
Company's share of net income...................  $ 2,211,000   $ 3,906,000   $   698,000
Minority partners' interest in earnings of
  consolidated partnerships.....................    1,342,000     1,024,000       172,000
                                                  -----------   -----------   -----------
                                                  $ 3,553,000   $ 4,930,000   $   870,000
                                                  ===========   ===========   ===========
</TABLE>

                                      F-20
<PAGE>   50
                          PACIFIC GULF PROPERTIES INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 7. COMMITMENTS AND CONTINGENCIES

GENERAL MATTERS

     The Company's commitments and contingencies include the usual obligations
of real estate owners and operators in the normal course of business. In the
opinion of management, these matters will not have a material adverse effect on
the Company's consolidated financial statements.

     As of December 31, 1999, 11% of the apartment units within the Company's
multifamily properties were required to be set aside for residents within
certain income levels and had limitations on the rent that could be charged to
such tenants.

GROUND LEASE COMMITMENTS

     One of the Company's industrial properties is subject to a ground lease
that expires in July 2035 which is accounted for as an operating lease. Monthly
ground lease payments total $22,000 and are subject to increases based on the
Consumer Price Index, with the next adjustment in September 2000. Ground lease
payments during 1999 and 1998 totaled $261,000 in each year. Two other
("PGBP -- Irvine" and "PGBP -- Cerritos") industrial properties acquired in
December 1997 are subject to ground leases which expire in August 2029 and April
2034, respectively. Monthly ground lease payments total $36,000 and $43,000 and
are subject to increases based on the Consumer Price Index, with the next
adjustment in April 2009 and October 2004 for Irvine and Cerritos, respectively.
Ground lease payments during 1999 and 1998 on the Irvine property totaled
$430,000 and $303,000 respectively and ground lease payments on the Cerritos
property totaled $473,000 and $455,000, respectively. During June 1998, the
Company acquired a property in Tustin which is subject to a ground lease which
expires in January 2044. Annual ground lease payments in the amount of $101,000
are due in January of each year; such payments are expected to increase in
January 2001 based on a reappraisal of the land value.

     The minimum future ground lease payments to be made for each of the next
five years ending December 31 and thereafter, are summarized as follows:

<TABLE>
<S>                                                           <C>
2000........................................................  $ 1,303,000
2001........................................................    1,303,000
2002........................................................    1,303,000
2003........................................................    1,303,000
2004........................................................    1,303,000
Thereafter..................................................   37,149,000
</TABLE>

LETTER OF CREDIT

     In December 1998 in conjunction with the sale of the Company's Washington
apartment communities, the Company restructured the existing indebtedness on the
Hampton Bay apartment community. The lender, a life insurance company, released
the Hampton Bay property as collateral and accepted a letter of credit in the
amount of $9,400 000 as substitution collateral. The Company replaced the letter
of credit by providing its City of Industry industrial project as replacement
collateral in May 1999.

 8. CAPITAL STOCK

COMMON SHARES

     In May 1998, the shareholders voted to approve an amendment to the
Company's Articles of Amendment and Restatement as filed with Maryland's State
Department of Assessments and Taxation (the "Charter") that increased the number
of authorized shares of Common Stock, par value $.01 per share from 25,000,000
shares to 100,000,000 shares, and to eliminate the 30,000,000 of Excess Stock
authorized.

                                      F-21
<PAGE>   51
                          PACIFIC GULF PROPERTIES INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SHELF REGISTRATION STATEMENT

     During 1998, the Company filed a shelf registration statement with the
Securities and Exchange Commission for the aggregate amount of $300,000,000,
covering the proposed issuance of debt, preferred or common stock securities and
warrants to purchase such securities of the Company (the "1998 Shelf
Registration Statement"). The 1998 Shelf Registration Statement was declared
effective April 23, 1998 by the Securities and Exchange Commission. Availability
under the 1998 Shelf Registration Statement at December 1999 was $300,000,000.

     During 1997, the Company filed a shelf registration statement with the
Securities and Exchange Commission for an aggregate amount of $250,000,000,
covering the proposed issuance of debt, preferred or common stock securities and
warrants to purchase such securities of the Company (the "1997 Shelf
Registration Statement"). The 1997 Shelf Registration Statement was declared
effective April 11, 1997 by the Securities and Exchange Commission. Availability
under the 1997 Shelf Registration Statement at December 31, 1999 was
$56,126,000.

PREFERRED STOCK

     In May 1998, the shareholders voted to approve an amendment to the
Company's Charter that (a) increased the authorized number of shares of
Preferred Stock, par value $.01 per share (the "Preferred Stock"), from
5,000,000 shares to 10,000,000 shares and (b) reclassified the issued and
outstanding shares of Class B Preferred Stock as additional shares of Class A
Preferred Stock and changed the liquidation preference of the Class A Preferred
Stock to $19.91 per share to reflect the economic terms of such reclassification
of the Class B Preferred Stock.

     The Class A Preferred Stock are convertible into shares of common stock, on
a one-for-one basis, subject to adjustment upon certain events. The annual
dividend per share on the Class A Preferred Stock is $1.70 from the date of
issuance until December 31, 1997 and thereafter, the greater of $1.70 per share
or 104% of the then current dividend on the Company's common stock. At its
option, the Company may redeem the Class A Preferred Stock beginning December
31, 2001 for cash at a premium of 6% over the initial $18.50 per share
liquidation value, decreasing to zero % by December 31, 2009. The Class A
Preferred Stock, or any shares of common stock into which such Class A Preferred
Stock could be converted, were nontransferable until June 30, 1998.

 9. GAINS ON SALE OF REAL ESTATE

     In December 1999, the Company sold a 16,848 square foot industrial property
located in Concord, California for $1,400,000. The net gain recognized was
$106,000.

     In October 1999, the Company sold a 302,020 square foot industrial property
located in Ontario, California for $11,160,000. The net gain recognized was
$2,514,000.

     In August 1999, the Company sold a 42,240 square foot industrial property
located in Seattle, Washington for $1,900,000. The net gain recognized was
$492,000.

     In August 1999, the Company recognized a deferred gain of $850,000 as a
result of the collection of a note receivable relating to the sale of the
Company's Texas properties in 1995.

     During the second quarter of 1999, the Company sold a 91,200 square foot
single-tenant industrial property locate in Anaheim, California and a 1.05 acre
parcel of land in Lake Forest, California, for $4,680,000 and $850,000,
respectively. The net gain recognized from these sales was $1,159,000.

     In February 1999, the Company sold a multifamily apartment property located
in Santa Ana, California, consisting of 196 apartment units for $11,000,000 and
recognized a gain on sale of $3,351,000.

                                      F-22
<PAGE>   52
                          PACIFIC GULF PROPERTIES INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     In December 1998, the Company sold five apartment properties located in
Washington consisting of 1,322 apartment units for $78,500,000 and recognized a
gain on sale of $28,913,000.

     In September 1998, the Company sold an apartment property located in
Washington consisting of 234 apartment units for $13,525,000 and recognized a
gain on sale of $6,379,000.

     In December 1997, the Company sold an apartment property located in Oregon
consisting of 279 apartment units for $15,575,000 and recognized a gain on sale
of $5,705,000.

     In April 1997, the Company sold its 7,000 square foot Corporate office in
Newport Beach, California for $850,000 and recognized a loss on the sale of
$111,000. The Company has relocated to a newly acquired 26,000 square foot
facility also located in Newport Beach, California.

10. EARNINGS PER SHARE

     The following table sets forth the computation of basic and diluted
earnings (loss) per share which have been restated to comply with Statement No.
128:
<TABLE>
<CAPTION>
                                        1999                                     1998
                       --------------------------------------   --------------------------------------
                                       WEIGHTED                                 WEIGHTED
                                        AVERAGE      EARNINGS                    AVERAGE      EARNINGS
                        EARNINGS        SHARES         PER       EARNINGS        SHARES         PER
                       (NUMERATOR)   (DENOMINATOR)    SHARE     (NUMERATOR)   (DENOMINATOR)    SHARE
                       -----------   -------------   --------   -----------   -------------   --------
                                            (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                    <C>           <C>             <C>        <C>           <C>             <C>
BASIC EPS
Income available to
  Common
  shareholders.......    $34,899        20,148        $1.73       $59,997        19,939        $3.01
                                                      =====                                    =====
EFFECT OF DILUTIVE
  SECURITIES
Stock options........                       11                                       31
Restricted stock.....                       98                                       86
Limited partnership
  units..............      1,342           868                      1,024           811
Convertible
  subordinated
  debentures.........        697           470                      1,171           660
Convertible preferred
  stock..............                                               4,856         2,763
                         -------        ------                    -------        ------
DILUTED EPS..........    $36,938        21,595        $1.71       $67,048        24,290        $2.76
                         =======        ======        =====       =======        ======        =====

<CAPTION>
                                        1997
                       --------------------------------------
                                       WEIGHTED
                                        AVERAGE      EARNINGS
                        EARNINGS        SHARES         PER
                       (NUMERATOR)   (DENOMINATOR)    SHARE
                       -----------   -------------   --------
                       (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                    <C>           <C>             <C>
BASIC EPS
Income available to
  Common
  shareholders.......    $20,603        13,686        $1.51
                                                      =====
EFFECT OF DILUTIVE
  SECURITIES
Stock options........                       17
Restricted stock.....                       63
Limited partnership
  units..............        172           363
Convertible
  subordinated
  debentures.........
Convertible preferred
  stock..............
                         -------        ------
DILUTED EPS..........    $20,775        14,129        $1.47
                         =======        ======        =====
</TABLE>

     Shares of senior cumulative convertible preferred stock, convertible into
2,763,116 shares of common stock, were issued and outstanding during 1999 and
1997 but were not included in computing diluted earnings per share. Including
these shares of preferred stock in the computations increases earnings per share
$.01, and are therefore considered antidilutive. Convertible subordinated
debentures, convertible into 682,000 shares of common stock, were outstanding
during 1997, but were not included in the computation of diluted earnings per
share because the effect would be antidilutive.

11. REPORTABLE SEGMENTS

     During the fourth quarter of 1998, the Company adopted the Financial
Accounting Standards Board's Statement of Financial Accounting Standards No.
131, Disclosures About Segments of an Enterprise and Related Information
("Statement No. 131"). Statement No. 131 superseded FASB Statement No. 14,
Financial Reporting for Segments of a Business Enterprise. Statement No. 131
establishes standards for the way that public business enterprises report
information regarding reportable operating segments. The adoption of Statement
No. 131 did not affect the results of operations or financial position of the
Company.

                                      F-23
<PAGE>   53
                          PACIFIC GULF PROPERTIES INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     The Company operates and develops industrial properties and multifamily
properties (consisting of active senior and family apartments). The properties
generate rental and other income through the leasing of industrial space and
apartment units to a diverse base of tenants.

     The Company separately evaluates the performance both of its industrial and
multifamily operating segments and allocates resources primarily based on net
operating income ("NOI"). NOI is defined by the Company as rental income less
rental property expenses. Accordingly, NOI excludes certain expenses such as
interest, depreciation and minority interests in consolidated partnerships which
are included in the determination of Net Income under generally accepted
accounting principles.

     NOI from industrial properties totaled $76,718,000, $59,525,000 and
$28,198,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
NOI from multifamily properties totaled $16,546,000, $23,107,000 and $20,342,000
for the years ended 1999, 1998 and 1997, respectively.

     All revenues are from external customers and no revenues are generated from
transactions between segments. There are no tenants which contributed 10% or
more of the Company's total revenues during 1999, 1998 or 1997. Interest expense
on debt is not allocated to the segments or individual properties even if such
debt is secured by the properties. Certain items in the consolidated statements
of operations such as minority interest in consolidated partnerships are not
allocated to the properties. Additionally, there is no provision for income
taxes as the Company is organized as a REIT under the Internal Revenue Code.

12. SELECTED QUARTERLY DATA (UNAUDITED)

     The following tables set forth the quarterly results of operations of the
Company for the years ended December 31, 1999 and 1998:

<TABLE>
<CAPTION>
                                                     FIRST    SECOND     THIRD    FOURTH
                                                    QUARTER   QUARTER   QUARTER   QUARTER
                                                    -------   -------   -------   -------
<S>                                                 <C>       <C>       <C>       <C>
1999
Revenues..........................................  $29,690   $30,864   $31,557   $32,057
Income before gains on sale of real estate........  $ 7,656   $ 8,064   $ 7,685   $ 7,993
Gains on sale of real estate......................  $ 3,351   $ 1,273   $ 1,228   $ 2,620
Income available to common shareholders...........  $ 9,771   $ 8,102   $ 7,677   $ 9,349
Earnings per share:
  Basic...........................................  $  0.49   $  0.41   $  0.38   $  0.46
  Diluted.........................................  $  0.48   $  0.40   $  0.38   $  0.45

1998
Revenues..........................................  $25,318   $27,799   $29,792   $30,220
Income before gains on sale of real estate........  $ 7,415   $ 7,643   $ 7,221   $ 7,282
Gains on sale of real estate......................  $    --   $    --   $ 6,427   $28,865
Income available to common shareholders...........  $ 6,208   $ 6,436   $12,441   $34,912
Earnings per share:
  Basic...........................................  $  0.31   $  0.32   $  0.62   $  1.75
  Diluted.........................................  $  0.31   $  0.32   $  0.58   $  1.51
</TABLE>

                                      F-24
<PAGE>   54

                                  SCHEDULE III

                          PACIFIC GULF PROPERTIES INC.
                    REAL ESTATE AND ACCUMULATED DEPRECIATION
<TABLE>
<CAPTION>
                                                                               COSTS
                                                                            CAPITALIZED
                                                    INITIAL COSTS TO       SUBSEQUENT TO         GROSS AMOUNT AT WHICH
                                                         COMPANY            ACQUISITION       CARRIED AT CLOSE OF PERIOD
                                                 -----------------------   -------------   ---------------------------------
                                                             BUILDINGS       LAND AND                  BUILDINGS
                                                                AND          BUILDING                     AND
                                   ENCUMBRANCE    LAND     IMPROVEMENTS    IMPROVEMENTS     LAND     IMPROVEMENTS     TOTAL
                                   -----------   -------   -------------   -------------   -------   -------------   -------
<S>                                <C>           <C>       <C>             <C>             <C>       <C>             <C>
INDUSTRIAL PROPERTIES
CALIFORNIA
Baldwin Industrial Park..........     11,270         999       27,876          1,042         8,155       21,762       29,917
Garden Grove Industrial Center...      5,293       4,230        4,564            973         4,230        5,537        9,767
PGDC -- Etiwanda.................                  5,310       10,801         (6,606)        2,549        6,956        9,505
PGBP -- Rancho Cucamonga.........      3,795       1,610        8,196            898         1,610        9,094       10,704
Crescent Business Center.........                  1,666        3,367            726         1,666        4,093        5,759
Vista Distribution Center........      7,789       3,465        7,896          1,126         3,465        9,022       12,487
PGBP -- Hoover...................                  3,905        3,016          1,193         3,905        4,209        8,114
PGDC -- Bell Ranch Road..........      2,475(d)    1,725        2,041            473         1,725        2,514        4,239
PGBP -- La Mirada................                  1,541        2,057            464         1,541        2,521        4,062
PGBP -- Pacific Park.............      4,425(d)    2,760        4,142            749         2,760        4,891        7,651
PGBP -- North County.............      4,125(d)    2,713        3,625            369         2,713        3,994        6,707
PGBP -- Bay San Marcos...........      2,700(d)    1,827        2,907            132         1,827        3,039        4,866
PGBC -- Escondido................      6,300(d)    3,782        6,614            919         3,782        7,533       11,315
PG Commerce Park -- Eden
 Landing.........................                  2,239        5,107          1,261         2,239        6,368        8,607
PGBP -- San Marcos...............                    825        1,838            406           825        2,244        3,069
PGBP -- Riverview Industrial
 Park............................      4,475(d)    1,147        5,320            846         1,147        6,166        7,313
PGDC -- City of Industry.........      7,406       5,774        2,155          8,427         6,686        9,670       16,356
PGBP -- Miramar..................                     --        7,287            774            --        8,061        8,061
Harbor Business Park.............                  1,924        7,231            683         1,924        7,914        9,838
Harbor Warner Business Park......                  1,299        4,257            409         1,299        4,666        5,965
Woodland Distribution Center.....                  1,824       11,002             82         1,824       11,084       12,908
PGDC -- Chino....................     33,973(f)    2,208        8,483            277         2,208        8,760       10,968
PGDC -- Downey...................           (f)    3,568        8,027            173         3,568        8,200       11,768
PGDC -- Fontana..................           (f)    2,801       11,422             66         2,801       11,488       14,289
PG Warm Springs Industrial
 Park............................           (f)    4,985       12,034            558         4,985       12,592       17,577
PGDC -- Rancho Bernardo..........           (f)    4,737        9,467            384         4,737        9,851       14,588
PG -- Spectrum Center............           (c)       --           --            113            --          113          113
PGDC -- Miramar Village..........           (g)    5,518       10,581          5,507         5,520       16,086       21,606
Concord Busn Park................                  1,593        6,054            541         1,593        6,595        8,188
PG -- Commerce Park Anaheim......                  1,589        5,333            506         1,589        5,839        7,428
PG -- Commerce Park Sacramento...                  2,642       12,928          1,097         2,642       14,025       16,667
PG -- Commerce Park San Tomas....                  6,279       14,694            985         6,279       15,679       21,958
PG -- Commerce Park Sunnyvale....                  2,864       11,482            332         2,864       11,814       14,678
Acacia Busn Center...............                  1,967        7,141             12         1,967        7,153        9,120
PGDC -- Anaheim..................                  2,509        3,630             51         2,509        3,681        6,190
Tower Park.......................                  2,069        7,515          2,675         2,069       10,190       12,259
PGBC -- Fullerton................                  1,197        4,336            217         1,197        4,553        5,750
Bradshaw Busn Center.............      2,725       2,087        6,637            164         2,087        6,801        8,888
Horn Road Busn Park..............                  2,788        6,739            326         2,788        7,065        9,853
PGBP -- Irvine...................                     --        7,020            432            --        7,452        7,452
PGBP -- Cerritos.................                     --        8,485            338            --        8,823        8,823
PGBP -- Montebello...............                  2,338        2,471            125         2,338        2,596        4,934
Norwood Indrl Pk.................                  1,216        3,500            345         1,216        3,845        5,061
Eden Plaza.......................     11,639(e)    2,062        4,617            962         2,062        5,579        7,641
Eden Rock #5.....................           (e)      653        1,462             54           653        1,516        2,169
Eden Rock #9.....................           (e)      653        1,462             52           653        1,514        2,167
Eden Rock #10....................           (e)    2,614        5,847          1,279         2,614        7,126        9,740
PGBP -- Lake Forest..............                  3,555       10,677          1,116         3,555       11,793       15,348
Mountain Ave Busn Park...........                  1,110        4,038            118         1,110        4,156        5,266
Lurline Industrial Park..........                  2,374        5,270            489         2,374        5,759        8,133
PGBP -- Los Alamitos.............                  1,082        6,169            375         1,082        6,544        7,626

<CAPTION>
                                                                              MAXIMUM
                                                                                LIFE
                                                                              ON WHICH
                                                                            DEPRECIATION
                                                                             IN LATEST
                                                                               INCOME
                                   ACCUMULATED      DATE OF        DATE     STATEMENT IS
                                   DEPRECIATION   CONSTRUCTION   ACQUIRED     COMPUTED
                                   ------------   ------------   --------   ------------
<S>                                <C>            <C>            <C>        <C>
INDUSTRIAL PROPERTIES
CALIFORNIA
Baldwin Industrial Park..........      9,917       1983, 1985      1994       30 Years
Garden Grove Industrial Center...        949             1979      1994       40 Years
PGDC -- Etiwanda.................      1,525             1991      1994       40 Years
PGBP -- Rancho Cucamonga.........      1,842       1987, 1990      1994       40 Years
Crescent Business Center.........        663             1981      1994       40 Years
Vista Distribution Center........      1,756             1990      1994       40 Years
PGBP -- Hoover...................        771             1986      1996       40 Years
PGDC -- Bell Ranch Road..........        224             1981      1996       40 Years
PGBP -- La Mirada................        456             1975      1996       30 Years
PGBP -- Pacific Park.............        556             1988      1996       40 Years
PGBP -- North County.............        486       1987, 1988      1996       40 Years
PGBP -- Bay San Marcos...........        345             1988      1996       40 Years
PGBC -- Escondido................        944          1988-92      1996       40 Years
PG Commerce Park -- Eden
 Landing.........................      1,063          1972-74      1996       30 Years
PGBP -- San Marcos...............        288             1985      1996       30 Years
PGBP -- Riverview Industrial
 Park............................        703             1980      1996       30 Years
PGDC -- City of Industry.........      1,706              n/a      1996            n/a
PGBP -- Miramar..................        756             1981      1996       30 Years
Harbor Business Park.............        795       1974, 1976      1997       40 Years
Harbor Warner Business Park......        491       1974, 1976      1997       40 Years
Woodland Distribution Center.....        808              n/a      1997       40 Years
PGDC -- Chino....................        798             1988      1997       30 Years
PGDC -- Downey...................        721             1988      1997       30 Years
PGDC -- Fontana..................        955             1989      1997       30 Years
PG Warm Springs Industrial
 Park............................      1,109             1980      1997       30 Years
PGDC -- Rancho Bernardo..........        864             1990      1997       30 Years
PG -- Spectrum Center............         --             1989      1999       40 Years
PGDC -- Miramar Village..........      1,143       1980, 1997      1997       30 Years
Concord Busn Park................        577             1989      1997       30 Years
PG -- Commerce Park Anaheim......        405             1972      1997       40 Years
PG -- Commerce Park Sacramento...        800             1972      1997       40 Years
PG -- Commerce Park San Tomas....        906             1972      1997       40 Years
PG -- Commerce Park Sunnyvale....        683             1972      1997       40 Years
Acacia Busn Center...............        511             1980      1997       30 Years
PGDC -- Anaheim..................        202             1961      1997       40 Years
Tower Park.......................        616             1951      1997       40 Years
PGBC -- Fullerton................        259             1979      1997       40 Years
Bradshaw Busn Center.............        487       1988, 1989      1997       30 Years
Horn Road Busn Park..............        537             1988      1997       30 Years
PGBP -- Irvine...................        485             1979      1997       40 Years
PGBP -- Cerritos.................        654             1985      1997       30 Years
PGBP -- Montebello...............        200             1985      1997       30 Years
Norwood Indrl Pk.................        309             1988      1997       30 Years
Eden Plaza.......................        591             1974      1997       40 Years
Eden Rock #5.....................        105             1973      1997       40 Years
Eden Rock #9.....................        109             1973      1997       40 Years
Eden Rock #10....................        643             1973      1997       40 Years
PGBP -- Lake Forest..............        681             1998      1998       40 Years
Mountain Ave Busn Park...........        215             1977      1998       30 Years
Lurline Industrial Park..........        335          1976-78      1998       30 Years
PGBP -- Los Alamitos.............        348             1975      1998       30 Years
</TABLE>

                                      F-25
<PAGE>   55
                                  SCHEDULE III

                          PACIFIC GULF PROPERTIES INC.
              REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
<TABLE>
<CAPTION>
                                                                               COSTS
                                                                            CAPITALIZED
                                                    INITIAL COSTS TO       SUBSEQUENT TO         GROSS AMOUNT AT WHICH
                                                         COMPANY            ACQUISITION       CARRIED AT CLOSE OF PERIOD
                                                 -----------------------   -------------   ---------------------------------
                                                             BUILDINGS       LAND AND                  BUILDINGS
                                                                AND          BUILDING                     AND
                                   ENCUMBRANCE    LAND     IMPROVEMENTS    IMPROVEMENTS     LAND     IMPROVEMENTS     TOTAL
                                   -----------   -------   -------------   -------------   -------   -------------   -------
<S>                                <C>           <C>       <C>             <C>             <C>       <C>             <C>
Walnut Ave Busn Park.............                  1,686        3,148            153         1,686        3,301        4,987
Madison West Busn Park...........                  2,107        3,789            373         2,107        4,162        6,269
PGBC -- Garden Grove II..........      2,259       6,098        5,625            554         6,098        6,179       12,277
PBGC -- Irvine Cartwright........                  3,803        7,464              8         3,803        7,472       11,275
PGBC -- Tustin...................      9,000          --       19,069            527            --       19,596       19,596
PGDC -- Whittier.................                  2,505        6,625             46         2,505        6,671        9,176
Contra Costa Diablo Busn Park....                  3,243        4,835           (623)        2,765        4,691        7,455
Sierra Trinity Industrial Park...                  8,233       14,873            696         8,233       15,569       23,802
Hesperian Industrial Park........                  3,193        4,877            207         3,193        5,084        8,277
West Sacramento Industrial
 Center..........................                  1,288        5,158            130         1,288        5,288        6,576
Garden Grove Industrial-Hunt
 Ave.............................                  2,920        6,096            154         2,920        6,250        9,170
Hohokam 10 Industrial Park
 East............................                  4,527       10,870            282         4,527       11,152       15,679
Hohokam 10 Industrial Park
 West............................                  1,270        3,039             23         1,270        3,062        4,332
PGBP -- Geneva...................                  1,520        1,588            129         1,520        1,717        3,237
Broadwood Business Center........      6,500       2,333        5,617             23         2,333        5,640        7,973
PGDC -- Las Vegas................      4,365       4,707        9,511          4,520         6,149       12,589       18,738
Seattle Industrial -- 16th
 Avenue..........................                    401        1,028            293           401        1,321        1,722
Seattle Industrial -- South
 200th...........................                    974        2,497            488           974        2,985        3,959
PGBP -- Tukwila..................     11,004       6,684       10,677          3,020         6,684       13,697       20,381
PGDC -- Algona 1.................                  2,490        7,002             30         2,490        7,032        9,522
PGDC -- Algona 2.................                  2,864        5,916          2,781         2,864        8,697       11,561
PGBP -- Airport Busn Center......                  2,910        8,265            432         2,910        8,697       11,607
                                     -------     -------      -------         ------       -------      -------      -------
                                     141,518     185,379      486,389         49,263       191,651      529,380      721,031
                                     -------     -------      -------         ------       -------      -------      -------
MULTIFAMILY
PROPERTIES
Inn @ Laguna Hills...............      4,556       1,798        5,981            567         1,795        6,551        8,345
Terrace Gardens..................      7,837       2,064        8,075            407         2,064        8,482       10,546
Morning View Terrace.............     10,644       4,108       11,059            588         4,182       11,573       15,755
Tyler Springs....................      8,981       2,394       11,064            396         2,394       11,460       13,854
Sunnyside I......................      5,453       1,306        5,448            356         1,331        5,779        7,110
Sunnyside II.....................      1,760         322        2,232            162           326        2,390        2,716
Sunnyside III....................      2,847         385        3,223            199           391        3,416        3,807
Fountains........................      6,277       1,642           --          7,492         1,642        7,492        9,134
Applewood........................         --       6,985       18,581          2,025         6,985       20,606       27,591
Daisy 5..........................      1,253         558        1,466            113           569        1,568        2,137
Daisy 7..........................     10,028       3,958        8,048            831         4,034        8,803       12,837
Daisy 12.........................      3,570       1,695        3,520            332         1,727        3,820        5,547
Daisy 16.........................     11,305       3,856        9,848            831         3,930       10,605       14,535
Daisy 17.........................      6,542       2,390        6,123            621         2,436        6,698        9,134
Lariat...........................      1,155         432        1,312            146           440        1,450        1,890
Daisy 19.........................      6,444       2,273        5,626            577         2,316        6,160        8,476
Daisy 20.........................      7,396       2,654        5,671            701         2,705        6,321        9,026
Raintree.........................      6,695       1,749        4,525            267         1,749        4,792        6,541
                                     -------     -------      -------         ------       -------      -------      -------
                                     102,743      40,569      111,802         16,611        41,014      127,967      168,981
                                     -------     -------      -------         ------       -------      -------      -------
                                     244,261(g)  225,948      598,191         65,874       232,665      657,347      890,012
                                     =======     =======      =======         ======       =======      =======      =======

<CAPTION>
                                                                              MAXIMUM
                                                                                LIFE
                                                                              ON WHICH
                                                                            DEPRECIATION
                                                                             IN LATEST
                                                                               INCOME
                                   ACCUMULATED      DATE OF        DATE     STATEMENT IS
                                   DEPRECIATION   CONSTRUCTION   ACQUIRED     COMPUTED
                                   ------------   ------------   --------   ------------
<S>                                <C>            <C>            <C>        <C>
Walnut Ave Busn Park.............        215             1990      1998       40 Years
Madison West Busn Park...........        311       1987, 1988      1998       40 Years
PGBC -- Garden Grove II..........        411             1973      1998       30 Years
PBGC -- Irvine Cartwright........        354             1979      1998       30 Years
PGBC -- Tustin...................        969       1974, 1976      1998       30 Years
PGDC -- Whittier.................        258       1959, 1998      1998       40 Years
Contra Costa Diablo Busn Park....        121       1980, 1984      1998       40 Years
Sierra Trinity Industrial Park...        431             1985      1998       40 Years
Hesperian Industrial Park........        133          1981-86      1998       40 Years
West Sacramento Industrial
 Center..........................        143             1981      1998       40 Years
Garden Grove Industrial-Hunt
 Ave.............................        363             1979      1998       40 Years
Hohokam 10 Industrial Park
 East............................        298             1980      1998       40 Years
Hohokam 10 Industrial Park
 West............................         79             1980      1998       40 Years
PGBP -- Geneva...................         10             1981      1999       40 Years
Broadwood Business Center........          3             1986      1999       40 Years
PGDC -- Las Vegas................        534          1976-79      1998       30 Years
Seattle Industrial -- 16th
 Avenue..........................        534             1981      1994       24 Years
Seattle Industrial -- South
 200th...........................      1,275             1981      1994       24 Years
PGBP -- Tukwila..................      2,379          1975-79      1995       40 Years
PGDC -- Algona 1.................        645             1989      1997       30 Years
PGDC -- Algona 2.................        774             1998      1997       40 Years
PGBP -- Airport Busn Center......        213          1979-86      1998       40 Years
                                      ------
                                      53,747
                                      ------
MULTIFAMILY
PROPERTIES
Inn @ Laguna Hills...............        927             1987      1994       40 Years
Terrace Gardens..................        743             1985      1997       30 Years
Morning View Terrace.............        974             1986      1997       30 Years
Tyler Springs....................        793             1987      1997       30 Years
Sunnyside I......................        672             1984      1995       40 Years
Sunnyside II.....................        292             1983      1995       40 Years
Sunnyside III....................        440             1985      1995       40 Years
Fountains........................        417          1997-98      1998       40 Years
Applewood........................      7,588             1972      1994       33 Years
Daisy 5..........................        197          1978-79      1995       40 Years
Daisy 7..........................      1,075             1979      1995       40 Years
Daisy 12.........................        464             1981      1995       40 Years
Daisy 16.........................      1,293             1981      1995       40 Years
Daisy 17.........................        831             1981      1995       40 Years
Lariat...........................        181             1981      1995       40 Years
Daisy 19.........................        778             1983      1995       40 Years
Daisy 20.........................        851             1982      1995       40 Years
Raintree.........................        451             1984      1996       40 Years
                                      ------
                                      18,968
                                      ------
                                      72,715(b)
                                      ======
</TABLE>

                                      F-26
<PAGE>   56
                                  SCHEDULE III

                          PACIFIC GULF PROPERTIES INC.
              REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)

     (a) The changes in total real estate for the years ended December 31, 1999,
         1998 and 1997 area as follows:

<TABLE>
<CAPTION>
                                                         1999       1998       1997
                                                       --------   --------   --------
<S>                                                    <C>        <C>        <C>
Balance at beginning of period.......................  $863,188   $700,949   $379,540
Acquisitions developments/improvements...............    32,265    201,160    332,324
Transfer of costs from properties under
  development........................................    18,175     23,746         --
Retirement of Washington family apartments...........              (62,667)        --
Sale of Oregon multifamily property..................                   --    (10,915)
Sale of California multifamily property..............    (8,196)        --         --
Sale of California industrial properties.............   (13,828)        --         --
Sale of Washington industrial property...............    (1,592)        --         --
                                                       --------   --------   --------
Balance at end of period.............................  $890,012   $863,188   $700,949
                                                       ========   ========   ========
</TABLE>

     (b) The changes in accumulated depreciation for the years ended December
         31, 1999, 1998 and 1997 are as follows:

<TABLE>
<S>                                                       <C>       <C>       <C>
Balance at beginning of period..........................  $49,776   $39,148   $28,844
Additions -- depreciation expense.......................   25,198    20,386    11,809
Retirement of Washington family apartments..............       --    (9,409)       --
Retirement of Oregon multifamily property...............       --        --    (1,505)
Sale of California industrial properties................     (971)       --        --
Sale of California multifamily property.................     (846)       --        --
Sale of Washington industrial property..................     (442)       --        --
Other...................................................       --      (349)       --
                                                          -------   -------   -------
Balance at end of period................................  $72,715   $49,776   $39,148
                                                          =======   =======   =======
</TABLE>

     (c) A portion of this property is currently under development.

     (d) These properties collateralize borrowings under the same mortgage note
         payable totaling $24,500,000.

     (e) These properties collateralize borrowings under the same mortgage note
         payable totaling $11,639,000.

     (f) These properties collateralize borrowings under the same mortgage note
         payable totaling $33,973,000.

     (g) Excludes construction loans of $50,432,000.

                                      F-27
<PAGE>   57

                                 EXHIBIT INDEX

<TABLE>
<C>      <S>
 3.1     Articles of Amendment and Restatement of Charter(1)
 3.2     Bylaws(2)
10.1     1999 Long-Term Stock Compensation Plan.
10.2     Employment Contract by and between the Company and Glenn L.
         Carpenter dated September 1, 1998.(1)
10.3     1993 Share Option Plan.
10.4     Amended and Restated Agreement of Limited Partnership of PGP
         Inland Communities, L.P., dated as of August 15, 1995.(3)
10.5     Master Contribution Agreement, dated as of August 15, 1995,
         regarding formation of PGP Inland Communities, L.P.(3)
10.6     Dividend Reinvestment Plan of the Company dated May 9,
         1995.(4)
10.7     Investment Agreement, dated December 31, 1996, between the
         Company and Five Arrows Realty Securities L.L.C.(5)
10.8     Articles Supplementary, dated January 1997, classifying
         1,351,351 Shares of Preferred Stock as Class A Senior
         Cumulative Convertible Preferred Stock of the Company.(5)
10.9     Operating Agreement, dated January 1997, between the Company
         and Five Arrows Realty Securities L.L.C.(5)
10.10    Amendment to 1993 Share Option Plan dated May 8, 1996.(6)
10.11    Amendment to 1993 Share Option Plan dated May 7, 1997.(12)
10.12    Investment Agreement, dated May 27, 1997, between Company
         and Five Arrows Realty Securities L.L.C.(7)
10.13    Articles Supplementary classifying 1,411,765 Shares of
         Preferred Stock as Class B Senior Cumulative Convertible
         Preferred Stock.(7)
10.14    Form of Amended and Restated Agreement and Waiver, between
         the Company and Five Arrows Realty Securities L.L.C.(7)
10.15    Rights Agreement, dated December 11, 1997, between the
         Company and Harris Trust Company of California, as Rights
         Agent.(8)
10.16    Form of Restricted Stock Agreement.
10.17    Form of Change of Control Agreement.(2)
10.18    Agreement of Limited Partnership of PGP Northern Industrial,
         L.P.(2)
10.19    Agreement of Limited Partnership of Morning View
         Terrace -- PGP, L.P.(2)
10.20    Agreement of Limited Partnership Terrace Gardens -- PGP,
         L.P.(2)
10.21    Agreement of Limited Partnership of PGP Southern Industrial
         II, L.P.(9)
10.22    Credit Agreement among Pacific Gulf Properties Inc., a
         Maryland corporation, as Borrower and Wells Fargo Bank,
         National Association Together with the other Lenders named
         herein and such other assignees becoming parties hereto
         pursuant to Section 11.12, as Lenders and Wells Fargo Bank,
         National Association, as Agent dated as of April 9, 1998.(9)
10.23    Purchase Agreement and Escrow Instructions and related
         amendments between Pacific Gulf Properties Inc. (as seller)
         and SAP II Originating LLC (as buyer) for the sale of the
         Northwest Multifamily Properties.(10)
10.24    Amendment to 1993 Share Option Plan dated May 13, 1998.(11)
21.01    Subsidiaries.(4)
</TABLE>

                                      F-28
<PAGE>   58
<TABLE>
<C>      <S>
23.01    Consent of Ernst & Young LLP
27.00    Financial Data Schedule
</TABLE>

---------------
 (1) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
     for the quarter ended September 30, 1998.

 (2) Incorporated by reference from the Company's Annual Report on Form 10-K of
     the Company for the year ended December 31, 1997.

 (3) Incorporated by reference from the Company's Annual Report on Form 10-K of
     the Company for the year ended December 31, 1995.

 (4) Incorporated by reference from the Company's registration statement on Form
     S-3 (33-92082) filed on May 9, 1995.

 (5) Incorporated by reference from the Company's Current Report on Form 8-K
     filed on January 14, 1997.

 (6) Incorporated by reference from the Company's Proxy Statement filed on or
     about April 5, 1996.

 (7) Incorporated by reference form the Company's Current Report on Form 8-K
     filed on June 26, 1997.

 (8) Incorporated by reference from the Company's registration statement on Form
     8-A filed on December 17, 1997.

 (9) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
     for the quarter ended March 31, 1998.

(10) Incorporated by reference from the Company's Current Report on Form 8-K
     filed on January 7, 1999.

(11) Incorporated by reference from the Company's Proxy Statement filed on or
     about April 16, 1998.

(12) Incorporated by reference from the Company's Proxy Statement filed on or
     about April 7, 1997.

                                      F-29