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FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
 
COMMISSION FILE NUMBER: 001-13243

Registrant’s telephone number, including area code: (760) 727-1002
 
Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class		Name of Each Exchange on Which Registered
Common Stock, $0.01 par value		New York Stock Exchange

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

     Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (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 the shares of common stock held by non-affiliates was approximately $999,392,000 based upon the closing price on the New York Stock Exchange for such shares of $30.29 on March 18, 2002.

     As of March 18, 2002, the number of shares of the Registrant’s common stock outstanding was 33,277,564.

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DOCUMENTS INCORPORATED BY REFERENCE

     Part III of this report on Form 10-K incorporates by reference information from our definitive proxy statement for our 2002 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days of the close of our fiscal year.

PAN PACIFIC RETAIL PROPERTIES, INC.
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PART I

			Page
ITEM 1.	BUSINESS			1
ITEM 2.	PROPERTIES			9
ITEM 3.	LEGAL PROCEEDINGS			24
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS			24
PART II
ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS			24
ITEM 6.	SELECTED CONSOLIDATED FINANCIAL DATA			25
ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			26
ITEM 7A	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			32
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA			33
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE			33
PART III
ITEM 10.	DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT			34
ITEM 11.	EXECUTIVE COMPENSATION			34
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT			34
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS			34
PART IV
ITEM 14.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K			34
FINANCIAL PAGES				F-1

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PART I

ITEM 1. BUSINESS

     We are a self-administered and self-managed real estate investment trust, or REIT. Our portfolio consists principally of community and neighborhood shopping centers predominantly located in five key Western U.S. markets.

     As of December 31, 2001, we owned a portfolio comprised of 108 shopping center properties, of which 105 are located in the Western United States including 42 in Northern California, 15 in Southern California, 23 in Oregon, 13 in Nevada and 12 in Washington. The portfolio includes approximately 15.3 million square feet of retail space, which was 97.1% leased to a diverse mix of 2,370 tenants.

     On November 13, 2000, we acquired Western Properties Trust, a California real estate investment trust. The transaction was a stock for stock exchange whereby Western common shares and units were exchanged into newly issued Company common shares and operating subsidiary units, based upon a fixed exchange ratio of 0.62. In connection with this transaction, we assumed Western’s obligations under its senior notes and the indentures under which they were issued. As a result, we issued 10,754,776 shares of our common stock to holders of Western common shares and were obligated to issue 911,934 shares of our common stock upon the exchange of operating subsidiary units held by limited partners of Pan Pacific (Kienows), L.P., formerly Western/Kienow, L.P., and Pan Pacific (Pinecreek), L.P., formerly Western/Pinecreek, L.P.

     We employed 105 people as of December 31, 2001, including five executive officers and senior personnel, in the areas of administration, accounting services, property management, maintenance, leasing, acquisitions and business development. Our executive offices are located at 1631-B South Melrose Drive, Vista, California, and our telephone number is (760) 727-1002. In addition to personnel located at our executive offices, we operate regional offices in Las Vegas, Nevada; Kent, Washington; Portland, Oregon; and Sacramento, California. Each of our regional offices is responsible for property management, maintenance and leasing.

     We have elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended commencing with our taxable year ended December 31, 1997. We believe that, commencing with our taxable year ended December 31, 1997, we have been organized and have operated in such a manner so as to qualify for taxation as a REIT under the Internal Revenue Code, and we intend to continue to operate in such a manner, but we cannot assure you that we will continue to operate in such a manner so as to qualify or remain qualified. Even if we qualify for taxation as a REIT, we may be subject to certain federal, state and local taxes on our revenue and properties.

Business Strategies

     Our business strategies involve three fundamental practices:

	•		Owning, operating, acquiring, expanding and developing shopping centers in select markets with strong economic and demographic characteristics in order to establish and maintain a portfolio of real estate assets with stable income and the potential for long-term growth;
	•		Developing local and regional market expertise through the hands-on participation of senior management in property operations and leasing in order to capitalize on market trends, retailing trends and acquisition opportunities; and
	•		Establishing and maintaining a diversified and complementary tenant mix with an emphasis on tenants that provide day-to-day consumer necessities in order to provide steady rental revenue.

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Growth Strategies

     Our principal growth strategy is to acquire shopping centers that provide an opportunity to expand in current markets or which allows us to establish a presence in targeted markets with favorable economic and demographic characteristics.

	•		We seek to acquire properties that can benefit from our hands-on management, that may require repositioning, redevelopment or renovation, or which can be purchased at attractive capitalization rates and are consistent in terms of quality and location with our existing portfolio.
	•		We seek to continue to utilize our in-depth market knowledge within our five key markets to pursue our strategy of opportunistic acquisitions of shopping centers for long-term investment. We believe that significant opportunities continue to exist within these markets to acquire shopping center properties that are consistent with our existing portfolio in terms of quality of construction, positive submarket demographics and location attributes and that provide attractive initial investment yields with potential for growth in cash flow.
	•		We further believe we have certain competitive advantages which enhance our ability to identify and capitalize on acquisition opportunities, including: (i) long-standing relationships with institutional and other owners of shopping center properties in our five key markets; (ii) fully integrated real estate operations which enable us to respond quickly to acquisition opportunities and to capitalize on the resulting economies of scale; and (iii) access to capital as a public company.

     From the closing of our initial public offering on August 13, 1997 through October 31, 2000, we acquired 39 shopping centers totaling 5,230,374 square feet of retail space for approximately $435,800,000. In November 2000, through our acquisition of Western, we acquired 50 additional properties totaling 5,652,044 square feet of retail space for approximately $440,000,000 in stock and the assumption of Western’s debt. In 2001, we acquired another four properties. All of these 93 properties are located in our five key markets, and 70 of the shopping centers (75%) are anchored by grocery stores. We believe that all of these shopping centers are located in markets with strong demographic characteristics. We intend to add value to these retail properties through the application of our active, hands-on management and aggressive leasing strategies. We believe that current market conditions are generally favorable to acquisitions and, as such, we intend to continue acquiring properties as our primary growth strategy.

     We also seek to maximize the cash flow from our properties by continuing to enhance the operating performance of each property through our in-house leasing and property management programs.

     We aggressively pursue:

	•		the leasing of currently available space;
	•		the renewal or releasing of expiring leases at higher rental rates which we believe currently are available based on current market conditions and our recent leasing activity; and
	•		economies of scale in the management and leasing of properties that may be realized by focusing our acquisition activities within our five key markets.

Financing Strategies

     Our financing strategies are to maintain a strong and flexible financial position by maintaining a prudent level of leverage, maintaining a pool of unencumbered assets and managing our variable interest rate exposure. We intend to finance future acquisitions with the most advantageous source of capital available to us at the time of an acquisition, which may include the sale of common stock, preferred stock or debt securities through public offerings or private placements, the incurrence of additional indebtedness through secured or unsecured borrowings and the issuance of operating units of a subsidiary in exchange for contributed property.

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     During 1998, we completed a secondary offering of 4,348,000 shares of common stock at $21.125 per share. The net proceeds to us were approximately $85,913,000. The proceeds were used primarily to pay down the Revolving Credit Agreement. We also obtained an increase to our Revolving Credit Agreement from $150,000,000 to $200,000,000 and a reduction in the top borrowing rate thereunder to LIBOR plus 1.375%.

     During 1998, we formed Pan Pacific (Portland), LLC with us as sole managing member. In the fourth quarter, Pan Pacific (Portland) acquired a portfolio of six shopping centers located in Oregon. In exchange for four properties which were contributed to Pan Pacific (Portland), 832,617 units were issued to certain non-managing members. Distributions are made to the non-managing members at a rate equal to the dividend distribution paid by us on a share of our common stock. A non-managing member can seek redemption of their units after the first anniversary. We may, at our option, redeem the units by either (i) issuing common stock at the rate of one share for each unit, or (ii) by paying cash for units based on a ten day average stock price. During 2001, 400,000 units were redeemed for common stock.

     During 1999, we completed a number of financing transactions. At the end of the second quarter, we closed a $35,000,000 financing transaction evidenced by notes, bearing interest at 7.2%, due in July 2006 and secured by deeds of trust on two properties, Rainbow Promenade and San Dimas Marketplace. At the beginning of the third quarter, we closed a second financing transaction for $56,300,000 evidenced by notes, bearing interest at 7.1%, due in August 2009 and secured by deeds of trust on four properties, Melrose Village Plaza, Monterey Plaza, Tustin Heights Shopping Center and Tanasbourne Village. The proceeds were used to pay down our unsecured credit facility.

     In the third quarter of 1999, we formed Pan Pacific (Rancho Las Palmas), LLC and Pan Pacific (RLP), Inc. in connection with the acquisition of Rancho Las Palmas. We and Pan Pacific (RLP) are co-managing members of Pan Pacific (Rancho Las Palmas). As part of the acquisition, and in exchange for an interest in the asset contributed to Pan Pacific (Rancho Las Palmas) by an individual, 314,587 units were issued to this individual, a non-managing member. Distributions are made to the non-managing member at a rate equal to dividend distributions paid by us on a share of our common stock. The non-managing member can seek redemption of its units after the first anniversary. We, at our option, may redeem the units by either (i) issuing common stock at the rate of one share for each unit, or (ii) by paying cash for units based on a ten day average stock price.

     In December 1999, we entered into a loan modification agreement with the lender on Chino Town Square. Pursuant to the terms of the modification agreement, the maturity date was extended to January 2010 and the interest rate was reduced from 8.00% to 7.72%. This loan previously had a maturity date of March 2000.

     In December 1999, we extended our $200,000,000 Unsecured Credit Facility for an additional three years. In October 1999, we received an investment grade credit rating from Standard & Poor’s. Because of this rating, the borrowing rate on the credit line was reduced to LIBOR plus 1.15%. In November 2000, we also received an investment grade credit rating from Moody’s Investors Service.

     In connection with our acquisition of Western in November 2000, we entered into new financing arrangements including a $300,000,000 Revolving Credit Agreement and a $100,000,000 Term Credit Agreement. The Revolving Credit Agreement matures in January 2004 and the Term Credit Agreement was repaid in full in July 2001. Our borrowing rate under the Revolving Credit Agreement is LIBOR plus 1.10% while the borrowing rate under the Term Credit Agreement was LIBOR plus 1.20%.

     In connection with our acquisition of Western, we assumed Western’s obligations including its Unsecured Senior Notes in principal amounts of $50,000,000 bearing interest at 7.875% due 2004, $25,000,000 bearing interest at 7.10% due 2006, $25,000,000 bearing interest at 7.20% due 2008 and $25,000,000 bearing interest at 7.30% due 2010, and the indentures under which these notes were issued. We also assumed a mortgage note bearing interest at 7.61% due May 2004 in the principal amount of $9,628,000, secured by a deed of trust on Lakewood Village.

     In April 2001, we issued $150,000,000 in aggregate principal amount of 7.95% senior notes due April 2011. We sold these notes at 99.225% of the principal amount. We used the net proceeds from the offering to pay off our Term Credit Agreement and to repay borrowings under our Revolving Credit Agreement.

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Dispositions

     During 1999, we disposed of three non-strategic assets. In June, we sold a single-tenant property in Hillsboro, Oregon. The net proceeds from the sale were used to repay indebtedness under our unsecured credit facility. In December, we sold Rosewood Village, a 50,000 square foot property in Northern California. The net proceeds were used to acquire the Cable Park property in a like-kind exchange transaction pursuant to Section 1031 of the Internal Revenue Code. Also in December, we sold Foothill Center, a 20,000 square foot property in Southern California. We took back a portion of the proceeds as a note receivable secured by a deed of trust. The balance of the net proceeds, received in cash, was used to repay indebtedness under our unsecured credit facility. During 2001, the note receivable was paid off in full.

     In December 2000, we disposed of a single-tenant non-strategic asset located in Santa Cruz, California. The asset was a part of the Western portfolio and was sold for an amount equal to its net book value. We took back a portion of the proceeds as a note receivable secured by a deed of trust. The balance of the net proceeds, received in cash, was placed with an exchanger and used to acquire a shopping center property in a like-kind exchange transaction pursuant to Section 1031 of the Internal Revenue Code.

     During 2001, we disposed of a non-strategic shopping center, five single tenant assets, a 30% interest we owned in a shopping center and four parcels of land. We took back a portion of the proceeds as a note receivable secured by a deed of trust on the sale of the non-strategic shopping center. The balance of the net proceeds on this sale, received in cash, was used to repay indebtedness under our Revolving Credit Agreement. The net proceeds on the sale of one of the single tenant assets was also received in cash and was used to repay indebtedness under our Revolving Credit Agreement. The net proceeds on the remaining sales were placed with an exchanger and used to acquire other strategic shopping center properties in like-kind exchange transactions pursuant to Section 1031 of the Internal Revenue Code.

     We may dispose of certain non-strategic assets over the next twelve months. However, if after taking into account the tax consequences of any disposition, including our continued ability to qualify as a REIT, we determine that a disposition would not be in our best interest, we will not dispose of such asset.

Certain Cautionary Statements

     Real Estate Investment Associated Risks. Real property investments are subject to varying degrees of risk. The yields available from equity investments in real estate depend in large part on the amount of income generated and expenses incurred. If our properties do not generate revenue sufficient to meet operating expenses, including debt service, tenant improvements, leasing commissions and other capital expenditures, we may have to borrow additional amounts to cover fixed costs. This would adversely affect our cash flow and ability to service our debt and make distributions to our stockholders.

     Our revenue and the value of our properties may be adversely affected by a number of factors, including:

	•		the national economic climate;
	•		the local economic climate;
	•		local real estate conditions;
	•		changes in retail expenditures by consumers;
	•		the perceptions of prospective tenants of the attractiveness of the properties;
	•		the success of our anchor tenants;
	•		our ability to manage and maintain the properties and secure adequate insurance; and
	•		increases in operating costs (including real estate taxes, insurance and utilities).

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     In addition, real estate values and income from properties are also affected by factors such as applicable laws, including tax laws, interest rate levels and the availability of financing.

     Our Potential Inability to Retain Tenants and Relet Space. We will be subject to the risks that, upon expiration or termination, leases may not be renewed, the space may not be relet or the terms of renewal or reletting (including the cost of required renovations) may be less favorable than current lease terms. Leases covering a total of approximately 7.1% and 48.5% of the leased gross leasable area, or GLA, of our properties will expire through the end of 2002 and 2006, respectively. We budget for renovation and reletting expenses, which takes into consideration our view of both the current and expected market conditions in the geographic regions in which our properties are located, but budgeted amounts may be insufficient to cover these costs. Our cash flow and ability to make expected distributions to stockholders could be adversely affected, if:

	•		we are unable to promptly relet or renew leases for all or a substantial portion of this space;
	•		the rental rates upon renewal or reletting are significantly lower than expected; or
	•		our budgeted amounts for these purposes prove inadequate.

     Dependence on Market Conditions in the Geographic Regions. We have 42 properties with total GLA of 5,908,000 square feet located in Northern California, 15 properties with total GLA of 2,268,000 square feet located in Southern California, 23 properties with total GLA of 2,557,000 square feet located in Oregon, 13 properties with total GLA of 2,091,000 square feet located in Nevada and 12 properties with total GLA of 2,092,000 square feet located in Washington. To the extent that general economic or other relevant conditions in these regions decline and result in a decrease in consumer demand in these regions, the results of our operations may be adversely affected.

     Potential Illiquidity of Real Estate. Equity real estate investments are relatively illiquid. This illiquidity limits our ability to adjust our portfolio promptly in response to changes in economic or other conditions. In addition, the Internal Revenue Code limits a REIT’s ability to sell properties held for fewer than four years, which may limit our ability to sell our properties at optimal times and for the highest price.

     Competition with Other Developers and Real Estate Companies. There are numerous commercial developers and real estate companies that compete with us in seeking tenants for properties, properties for acquisition and land for development. There are numerous shopping facilities that compete with our properties in attracting retailers to lease space. In addition, retailers at our properties face increasing competition from outlet stores, discount shopping clubs, and other forms of marketing of goods, such as direct mail, internet marketing and telemarketing. This competition may reduce properties available for acquisition or development, reduce percentage rents payable to us and may, through the introduction of competition, contribute to lease defaults or insolvency of tenants. Thus, competition could materially affect our ability to generate net income, service our debt and make distributions to our stockholders.

     Cost of Compliance with Changes in Laws. Because increases in income, service or transfer taxes are generally not passed through to tenants under leases, these increases may adversely affect our cash flow and our ability to service our debt and make distributions to stockholders. Our properties are also subject to various federal, state and local regulatory requirements, such as requirements of the Americans with Disabilities Act of 1990 and state and local fire and life safety requirements. Failure to comply with these requirements could result in the imposition of fines by governmental authorities or awards of damages to private litigants. In addition, these requirements may not be changed and new requirements may be imposed that would require significant unanticipated expenditures by us. Any of these events could adversely affect our cash flow and expected distributions.

     Reliance on Certain Tenants and Anchors. Our income and funds from operations could be adversely affected in the event of the bankruptcy or insolvency, or a downturn in the business, of any anchor store, or if any anchor tenant does not renew its lease when it expires. If tenant sales at our properties were to decline, tenants might be unable to pay their rent or other occupancy costs. In the event of default by a tenant, delays and costs in enforcing our rights could be experienced. In addition, the closing of one or more anchor-occupied stores or lease termination by one or more anchor tenants of a shopping center, whose leases may permit termination, could adversely impact that property and result in lease terminations or reductions in rent by other tenants, whose leases may permit termination or rent reduction in those circumstances. This could adversely affect our ability to re-lease the space that is vacated. Each of these developments could adversely affect our funds from operations and our ability to

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service our debt and make expected distributions to stockholders.

     Lack of Operating History With Respect to the Recent Acquisition and Development of Properties. At December 31, 2001, we owned and operated 108 properties, consisting of approximately 15.3 million square feet of space. Fifty-three of our properties were acquired during 2000, primarily through the acquisition of Western, and may have characteristics or deficiencies currently unknown to us that affect their value or revenue potential. It is also possible that the operating performance of these properties may decline under our management. As we acquire additional properties, we will be subject to risks associated with managing new properties, including lease-up and tenant retention. In addition, our ability to manage our growth effectively will require us to successfully integrate our new acquisitions into our existing management structure. We may not succeed with this integration or effectively manage additional properties. Also, newly acquired properties may not perform as expected.

     Dependence on Key Management Personnel. Our executive officers have substantial experience in owning, operating, managing, acquiring and developing shopping centers. We believe that our success will depend in large part upon their efforts. If any key management personnel do not remain in our employ, we could be materially adversely affected.

     Debt Financing and Existing Debt Maturities. We are subject to risks normally associated with debt financing, including:

	•		the risk that our cash flow will be insufficient to meet required payments of principal and interest;
	•		the risk that existing indebtedness on our properties (which in all cases will not have been fully amortized at maturity) will not be able to be refinanced; or
	•		the terms of any refinancing will not be as favorable as the terms of existing indebtedness.

     At December 31, 2001, we had outstanding indebtedness of approximately $668,235,000. Since we anticipate that only a small portion of the principal of the indebtedness will be repaid prior to maturity, and that we will not have funds on hand sufficient to repay the balance of the indebtedness in full at maturity, it will be necessary for us to refinance the debt either through additional borrowings or equity or debt offerings. If principal payments due at maturity cannot be refinanced, extended or paid with proceeds of other capital transactions, we expect that our cash flow will not be sufficient in all years to pay distributions at expected levels and to repay all of this maturing debt. Also, if prevailing interest rates or other factors at the time of refinancing (such as the reluctance of lenders to make commercial real estate loans) result in higher interest rates upon refinancing, the interest expense relating to refinanced indebtedness would increase. This could adversely affect our cash flow and our ability to make expected distributions to our stockholders. In addition, if we are unable to refinance the indebtedness on acceptable terms, we might dispose of properties upon disadvantageous terms, which might result in losses to us and might adversely affect funds available for distribution to stockholders.

     Potential Defaults Under Mortgage Financing. At December 31, 2001, we had approximately $229,135,000 of mortgage financing. The payment and other obligations under certain of the mortgage financing is secured by cross-collateralized and cross-defaulted first mortgage liens in the aggregate amount of approximately $54,545,000 on four properties, $52,004,000 on four other properties, $17,530,000 on three properties and $33,680,000 on two properties. If we are unable to meet our obligations under the mortgage financing, the properties securing that debt could be foreclosed upon. This could have a material adverse effect on us and our ability to make expected distributions and could threaten our continued viability.

     Rising Interest Rates and Variable-Rate Debt. Advances under our Revolving Credit Agreement bear interest at a variable-rate. In addition, we may incur other variable-rate indebtedness in the future. Increases in interest rates on that indebtedness would increase our interest expense, which could adversely affect our cash flow and our ability to service our debt and pay expected distributions to stockholders.

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     Tax Liabilities as a Consequence of Failure to Qualify as a REIT. Commencing with our taxable year ended December 31, 1997, we believe that we have qualified as a REIT under the Internal Revenue Code. Qualification as a REIT involves the satisfaction of numerous requirements (some on an annual and some on a quarterly basis) established under highly technical and complex Internal Revenue Code provisions for which there are only limited judicial and administrative interpretations. These requirements involve the determination of various facts and circumstances not entirely within our control. Legislation, new regulations, administrative interpretations or court decisions may significantly change the tax laws with respect to qualification as a REIT or the federal income tax consequences of such qualification.

     If we fail to qualify as a REIT in any taxable year, we would be subject to federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates. Moreover, unless we were entitled to relief under certain statutory provisions, we also would be disqualified from treatment as a REIT for the four taxable years following the year in which we lost our qualification. This treatment would significantly reduce our net earnings available for distribution to stockholders because of our additional tax liability for the years involved. In addition, distributions to stockholders would no longer be required.

     Acquisition and Development Investments May Not Perform as Expected. We intend to continue acquiring, developing and redeveloping shopping center properties. Acquisitions of retail properties entail risks that investments will fail to perform as expected. Estimates of development costs and costs of improvements, to bring an acquired property up to standards established for the market position intended for that property, may prove inaccurate.

     We intend to expand or renovate our properties from time to time. Expansion and renovation projects generally require expenditure of capital as well as various government and other approvals, which we may not receive. While our policies with respect to expansion and renovation activities are intended to limit some of the risks otherwise associated with such activities, we will still incur certain risks, including expenditures of funds on, and devotion of management’s time to, projects that may not be completed.

     We anticipate that future acquisitions, development and renovations will be financed through a combination of advances under our Revolving Credit Agreement and other forms of secured or unsecured financing. If new developments are financed through construction loans, there is a risk that, upon completion of construction, permanent financing for newly developed properties may not be available or may be available only on disadvantageous terms.

     It is possible that we will expand our business to new geographic markets in the future. We will not initially possess the same level of familiarity with new markets outside of the geographic areas in which our properties are currently located. This could adversely affect our ability to acquire, develop, manage or lease properties in any new localities.

     We also intend to develop and construct shopping centers in accordance with our business and growth strategies. Risks associated with our development and construction activities may include:

	•		abandonment of development opportunities;
	•		construction costs of a property exceeding original estimates, possibly making the property uneconomical;
	•		occupancy rates and rents at a newly completed property may not be sufficient to make the property profitable;
	•		financing may not be available on favorable terms for development of a property; and
	•		construction and lease-up may not be completed on schedule, resulting in increased debt service expense and construction costs.

     In addition, new development activities, regardless of whether they would ultimately be successful, typically require a substantial portion of management’s time and attention. Development activities would also be subject to risks relating to our inability to obtain, or delays in obtaining, all necessary zoning, land use, building, occupancy, and other required governmental permits and authorizations.

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     Our Properties May Be Subject to Unknown Environmental Liabilities. Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real estate may be required to investigate and clean up hazardous or toxic substances or petroleum product releases at the property. They may also be held liable to a governmental entity or to third parties for property damage and for investigation and clean-up costs incurred by these parties in connection with the contamination. These laws typically impose clean-up responsibility and liability without regard to whether the owner knew of or caused the presence of the contaminants. Liability under these laws may still be imposed even when the contaminants were associated with previous owners or operators and the liability under these laws has been interpreted to be joint and several, unless the harm is divisible and there is a reasonable basis for allocation of responsibility. The costs of investigation, remediation or removal of these substances may be substantial, and the presence of these substances, or the failure to properly remediate the contamination on the property, may adversely affect the owner’s ability to sell or rent the property or to borrow using the property as collateral. The presence of contamination at a property can impair the value of the property even if the contamination is migrating onto the property from an adjoining property. Those who arrange for the disposal or treatment of hazardous or toxic substances at a disposal or treatment facility may also be liable for the costs of removal or remediation of a release of hazardous or toxic substances at the disposal or treatment facility, whether or not the facility is owned or operated by them. In addition, some environmental laws create a lien on the contaminated site in favor of the government for damages and costs incurred in connection with the contamination. Sometimes, the remedy to remediate contamination may include deed restriction or institutional control, which can restrict how the property may be used. Finally, the owner of a site may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination stemming from the site.

     Some federal, state and local laws, regulations and ordinances govern the removal, encapsulation or disturbance of asbestos containing materials, or ACMs, when these materials are in poor condition or in the event of construction, remodeling, renovation or demolition of a building. These laws may impose liability for release of ACMs and may allow third parties to seek recovery from owners or operators of real properties for personal injury associated with ACMs. In connection with our ownership and operation of our properties, we may be potentially liable for these costs.

     Shopping centers may have businesses such as dry cleaners and auto repair or servicing businesses that handle, store and generate small quantities of hazardous wastes. The operation may result in spills or releases from time-to-time that can result in soil or groundwater contamination. Independent environmental consultants have conducted or updated Phase I Environmental Assessments at our properties. These Phase I Assessments have included, among other things, a visual inspection of our properties and the surrounding area and a review of relevant state, federal and historical documents.

     Phase I Assessments of our properties have not revealed any environmental liability that we believe would have a material adverse effect on our business, assets or results of operations taken as a whole, nor are we aware of any material environmental liability.

     It is still possible that our Phase I Assessments do not reveal all environmental liabilities or that there are material environmental liabilities of which we are unaware. Moreover, future laws, ordinances or regulations may impose material environmental liability and the current environmental condition of our properties may be affected by tenants, by the condition of land or operations in the vicinity of our properties (such as the presence of underground storage tanks), or by third parties unrelated to us.

     No Limitation on Amount of Indebtedness We May Incur. At December 31, 2001, our debt to total market capitalization ratio was approximately 40.8% (assuming the conversion of all operating subsidiary units). We currently have a Board of Directors approved policy of incurring debt only if upon incurrence the debt to total market capitalization ratio would be 50% or less. It should be noted, however, that our organizational documents do not contain any limitation on the amount of indebtedness we may incur. Accordingly, our board of directors could alter or eliminate this policy. If this policy were changed, we could become more highly leveraged, resulting in an increase in debt service that could adversely affect our cash flow and, consequently, reduce the amount available for distribution to stockholders. This could also increase the risk of default on our indebtedness.

     Certain Types of Losses May Exceed Insurance Coverage. We carry comprehensive liability, public area liability, fire, earthquake, flood, boiler and machinery, extended coverage and rental loss insurance covering our properties, with policy specifications and insured limits that we believe are adequate and appropriate under the circumstances. There are, however, certain types of losses that are not generally insured because it is not

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economically feasible to insure against these losses. If an uninsured loss or a loss exceeding insured limits occurs, we could lose our capital invested in the property, as well as the anticipated future revenue from the property. In the case of debt which is with recourse to us, we would remain obligated for any mortgage debt or other financial obligations related to the property. In these circumstances, any loss would adversely affect us.

     Disposition of Properties with Built-In Gain. In connection with our formation in 1997, certain entities taxable as “C” corporations were merged either into us or into our subsidiaries which qualified as “qualified REIT subsidiaries”. Certain of these entities held 13 properties with “built-in gain” at the time the entities were merged into us or into our subsidiaries. A property has “built-in gain” if (i) on the day it was acquired, the former owner’s tax basis in the property was less than the property’s fair market value, and (ii) it was acquired in a transaction in which our tax basis in the property was determined by reference to the former owner’s tax basis in the property. Under recently promulgated Treasury Regulations, if these properties are sold within 10 years of the date we acquired them, we will be required to pay taxes on the built-in gain that would have been realized if the merging “C” corporation had liquidated on the day before the date of the mergers. Therefore, we may have less flexibility in determining whether or not to dispose of these properties. If we desire to dispose of these properties at some future date within this 10 year period, we may be subject to tax on the built-in gain.

ITEM 2. PROPERTIES

General

     As of December 31, 2001, we operated 108 neighborhood and community shopping centers containing 15.3 million square feet of which 13.6 million square feet is owned by us with the balance owned by certain retailers. These properties are primarily situated in five key Western U.S. markets including Northern California, Southern California, Oregon, Nevada and Washington, each of which we believe has attractive economic and demographic characteristics. The largest concentration of properties, consisting of 39% of the owned gross leasable area, is located in Northern California. Another 14% of the owned gross leasable area is located in Southern California, 18% in Oregon, 15% in Nevada and 12% in Washington. In addition, properties consisting of the remaining 2% of the owned gross leasable area are located in New Mexico, Tennessee and Kentucky. As of December 31, 2001, 97.1% of our total gross leasable area was leased by 2,370 tenants.

     These properties are regionally managed under active central control by our executive officers. Property management, leasing, capital expenditures, construction and acquisition decisions are centrally administered at the Company’s corporate office. We also employ property managers at each of our regional offices to oversee and direct the day-to-day operations of these properties, as well as on-site personnel. Property managers communicate daily with our corporate offices to implement our policies and procedures.

     As a result of our in-house leasing program, these properties benefit from a diversified merchandising mix. At December 31, 2001, 60% of the total leased gross leasable area was leased to national tenants, 20% leased to regional tenants and 20% to local tenants. To promote stability and attract non-anchor tenants, we generally enter into long-term leases (typically 15 to 20 years) with major or anchor tenants which usually contain provisions permitting tenants to renew their leases at rates which often include fixed rent increases or consumer price index adjustments from the prior base rent. At December 31, 2001, anchor tenants leased 58% of the total leased gross leasable area, with only 58% of anchor-leased gross leasable area (34% of the total leased gross leasable area) scheduled to expire within the next 10 years. To take advantage of improving market conditions and changing retail trends, we generally enter into shorter term leases (typically three to five years) with non-anchor tenants. Our leases are generally on a triple-net basis, which require the tenants to pay their pro rata share of all real property taxes, insurance and property operating expenses.

     The following tables provide information about our properties, our tenants and lease expirations.

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Property Summary
12/31/01

			Year				Company				Tenant								% Leased				Total #								Ann. Base
			Completed				Owned				Owned				Total				as of				Tenants				Annual				Rent/Leased
Property and Location			/Renovated				(Sq. Ft.)				(Sq. Ft.)				(Sq. Ft.)				12/31/01(4)				12/31/01(4)				Base Rent(1)				Sq. Ft.(3)				Major Retailers
	NORTHERN CALIFORNIA
	Anderson Square Anderson, CA			1977				67,480				34,604				102,084				88.4				12				407,520				6.83			Safeway Supermarket(2), Rite Aid
	Angels Camp Town Center Angels Camp, CA			1986				70,323				3,000				73,323				96.0				11				539,671				7.99			Save Mart Supermarket, Rite Aid
	Blossom Valley Plaza Turlock, CA			1988				111,612				0				111,612				98.1				20				1,182,514				10.80			Raley's Supermarket, Jo-Ann Fabrics & Crafts
	Brookvale Shopping Center Fremont, CA			1968 1989				131,242				0				131,242				100.0				19				1,431,335				10.91			Albertson's Supermarket, Long's Drugs
	Cable Park Sacramento, CA			1987				160,811				0				160,811				100.0				34				1,383,334				8.60			Albertson's Supermarket, Long's Drugs
	Canal Farms Los Banos, CA			1987				110,535				0				110,535				100.0				18				934,973				8.46			Save Mart Supermarket, Rite Aid
	Centennial Plaza Hanford, CA			1991				132,086				132,293				264,379				99.1				28				1,252,026				9.56			Wal-Mart(2), Food 4 Less Supermarket
	Century Center Modesto, CA			1979				214,772				0				214,772				100.0				35				1,807,281				8.41			Raley's Supermarket, Gottschalks
	Chico Crossroads Chico, CA			1988 1994				267,735				0				267,735				99.6				17				2,136,499				8.02			Food 4 Less Supermarket
	Cobblestone Redding, CA			1984				122,091				0				122,091				90.2				25				975,267				8.85			Raley's Supermarket
	Commonwealth Square Folsom, CA			1987				141,310				0				141,310				100.0				47				2,011,335				14.23			Raley's Supermarket
	Country Gables Shopping Center Granite Bay, CA			1993				140,184				0				140,184				98.1				35				1,641,615				11.93			Raley's Supermarket
	Creekside Center Hayward, CA			1968				80,911				0				80,911				96.4				17				799,978				10.25			Albertson's Supermarket, Big Lots
	Currier Square Oroville, CA			1989				131,472				0				131,472				99.1				15				1,034,252				7.93			Raley's Supermarket
	Dublin Retail Center Dublin, CA			1980				154,728				0				154,728				100.0				8				1,654,063				10.69			Orchard Supply, Marshall's, Ross Dress for Less, Michael's Arts & Crafts
	Eastridge Plaza Porterville, CA			1985				81,010				0				81,010				98.2				14				565,403				7.11			Save Mart Supermarket(5)
	Elverta Crossing Shopping Center Sacramento, CA			1991				119,998				0				119,998				98.8				25				1,467,705				12.38			Food 4 Less Supermarket, Rite Aid, Factory 2 U
	Fairmont Shopping Center Pacifica, CA			1988				104,281				0				104,281				100.0				30				1,363,266				13.07			Albertson's Supermarket, Rite Aid
	Fashion Faire Place San Leandro, CA			1987				95,255				0				95,255				100.0				17				1,383,897				14.53			Pure Foods Supermarket, Ross Dress for Less, Michael's Arts & Crafts
	Glen Cove Center Vallejo, CA			1990				66,000				0				66,000				100.0				11				872,008				13.21			Safeway Supermarket & Drug
	Glenbrook Shopping Center Sacramento, CA			1990				63,340				0				63,340				94.1				14				457,892				7.68			Albertson's Supermarket
	Heritage Park Shopping Center Suisun City, CA			1989				162,999				0				162,999				98.2				35				1,665,573				10.41			Raley's Supermarket
	Heritage Place Tulare, CA			1986				119,412				1				119,413				98.8				22				1,058,871				8.97			Save Mart Supermarket, Rite Aid
	K-Mart Center Sacramento, CA			1966 1983				132,630				0				132,630				98.8				16				478,023				3.65			K-Mart, Big Lots
	Laguna 99 Plaza Elk Grove, CA			1992				89,600				116,200				205,800				100.0				24				1,498,558				16.72			Safeway Supermarket(6), Wal-Mart(2)
	Laguna Village Sacramento, CA			1996				114,433				0				114,433				98.1				14				1,916,634				17.07			United Artists Theatres, 24 Hour Fitness
	Lakewood Shopping Center Windsor, CA			1988				107,769				0				107,769				100.0				28				1,091,991				10.13			Raley's Supermarket, U.S. Post Office
	Lakewood Village Windsor, CA			1992				127,237				0				127,237				99.2				38				1,935,571				15.34			Safeway Supermarket, Long's Drugs
	Manteca Marketplace Manteca, CA			1972 1988				172,435				0				172,435				100.0				27				1,859,234				10.78			Save Mart Supermarket, Rite Aid, Stadium 10 Cinemas, Ben Franklin Crafts
	Mission Ridge Plaza Manteca, CA			1992				96,657				99,641				196,298				100.0				16				1,358,167				14.05			Safeway Supermarket(6), Wal-Mart(2), Mervyn's(2)
	Monterey Plaza San Jose, CA			1990				183,180				49,500				232,680				100.0				31				2,853,568				15.58			Wal-Mart, Albertson's Supermarket(2), Walgreen's
	Northridge Plaza Fair Oaks, CA			1990				98,625				0				98,625				91.1				18				732,865				8.16			Raley's Supermarket

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Property Summary
12/31/01

			Year				Company				Tenant								% Leased				Total #								Ann. Base
			Completed				Owned				Owned				Total				as of				Tenants				Annual				Rent/Leased
Property and Location			/Renovated				(Sq. Ft.)				(Sq. Ft.)				(Sq. Ft.)				12/31/01(4)				12/31/01(4)				Base Rent(1)				Sq. Ft.(3)				Major Retailers
	Park Place Vallejo, CA			1987				150,766				0				150,766				96.3				29				1,803,779				12.43			Raley's Supermarket, 24 Hour Fitness
	Pine Creek Shopping Center Grass Valley, CA			1988				213,035				0				213,035				100.0				39				2,321,910				10.90			Raley's Supermarket, JC Penney
	Plaza 580 Shopping Center Livermore, CA			1993				104,363				192,739				297,102				98.9				28				1,847,013				17.90			Target(2), Mervyn's(2), Ross Dress for Less, Big 5
	Raley’s Shopping Center Yuba City, CA			1983				135,114				0				135,114				99.0				16				1,088,461				8.14			Raley's Supermarket, Toys R Us
	Shops at Lincoln School Modesto, CA			1988				81,443				0				81,443				98.3				17				778,223				9.72			Save Mart Supermarket
	Sky Park Plaza Chico, CA			1985				176,182				4,642				180,824				95.9				28				1,573,270				9.31			Raley's Supermarket, Ross Dress for Less, Jo-Ann Fabrics & Crafts
	Ukiah Crossroads Ukiah, CA			1986				110,565				0				110,565				97.9				19				1,070,625				9.89			Raley's Supermarket
	Victorian Walk Fresno, CA			1990				102,581				1				102,582				93.7				22				866,376				9.02			Save Mart Supermarket, Rite Aid
	Westwood Village Shopping Center South Redding, CA			1981 1998				102,375				0				102,375				90.5				19				661,658				7.14			Holiday Supermarket, Rite Aid
	Yreka Junction Yreka, CA			1984				127,148				0				127,148				100.0				19				1,115,270				8.77			Raley's Supermarket, JC Penney
Region Total/Weighted Average								5,275,725				632,621				5,908,346				98.2				957			$	54,877,471.52			$	10.59
	SOUTHERN CALIFORNIA
	Arlington Courtyard Riverside, CA			1991				12,221				0				12,221				81.8				4				110,199				11.02			Harvest Christian Bookstore
	Brookhurst Center Anaheim, CA			1982				181,949				0				181,949				99.4				41				1,926,739				10.65			Ralph's Supermarket, Rite Aid, Jo-Ann Fabrics & Crafts
	Canyon Square Plaza Santa Clarita, CA			1988				96,727				7,472				104,199				99.0				30				1,237,746				12.93			Albertson's Supermarket & Drug
	Chino Town Square Chino, CA			1987				337,119				188,064				525,183				95.2				49				4,464,515				13.91			Wal-Mart, Ross Dress for Less, Nordstrom Rack, Target(2), Mervyn's(2)
	Encinitas Marketplace Encinitas, CA			1981				118,432				0				118,432				100.0				27				1,599,308				13.50			Albertson's Supermarket
	Granary Square Valencia, CA			1982				136,985				0				136,985				95.7				31				1,844,767				14.07			Ralph's Supermarket, Long's Drugs
	Laurentian Center Ontario, CA			1988				97,131				0				97,131				100.0				25				1,220,289				12.56			Pep Boys, 24 Hour Fitness, Abbey Carpet
	Marina Village Huntington Beach, CA			1996				149,107				0				149,107				99.0				33				1,812,235				12.28			Von's Supermarket, Sav-on Drugs
	Melrose Village Plaza Vista, CA			1990				132,674				0				132,674				98.9				32				1,612,071				12.28			Albertson's Supermarket, Sav-on Drugs
	Palmdale Center Palmdale, CA			1975				81,050				0				81,050				100.0				14				579,178				7.15			Smart & Final, Dollar Tree, Big Lots
	Rancho Las Palmas Rancho Mirage, CA			1980				165,156				10,815				175,971				99.2				40				2,246,542				13.71			Von's Supermarket, Long's Drugs
	San Dimas Marketplace San Dimas, CA			1997				154,020				117,000				271,020				100.0				23				2,326,574				15.11			Trader Joe's Market, Target(2), Ross Dress for Less, Office Max, Petco
	Sycamore Plaza Anaheim, CA			1976				105,085				0				105,085				99.1				25				874,091				8.39			Stater Bros. Supermarket, Sav-on Drugs
	Tustin Heights Shopping Center Tustin, CA			1983				131,518				0				131,518				100.0				21				1,706,655				12.98			Ralph's Supermarket, Long's Drugs, Michael's Arts & Crafts
	Vineyard Village Ontario, CA			1992				45,200				0				45,200				100.0				4				397,849				8.80			Sears, Dunn Edwards Paints
Region Total/Weighted Average								1,944,374				323,351				2,267,725				98.4				399			$	23,958,757.03			$	12.52

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Property Summary
12/31/01

			Year				Company				Tenant								% Leased				Total #								Ann. Base
			Completed				Owned				Owned				Total				as of				Tenants				Annual				Rent/Leased
Property and Location			/Renovated				(Sq. Ft.)				(Sq. Ft.)				(Sq. Ft.)				12/31/01(4)				12/31/01(4)				Base Rent(1)				Sq. Ft.(3)				Major Retailers
	WASHINGTON
	Auburn North Auburn, WA			1977 1999				171,032				0				171,032				100.0				25				1,383,995				8.09			Albertson's Supermarket, Rite Aid, Office Depot
	Blaine International Center Blaine, WA			1991				127,572				0				127,572				78.3				15				923,834				9.25			Cost Cutter Supermarket, Rite Aid
	Canyon Ridge Plaza Kent, WA			1995				86,909				181,300				268,209				97.6				18				1,045,099				12.32			Target(2), Top Foods Supermarket(2), Ross Dress for Less
	Claremont Village Plaza Everett, WA			1955 1994				88,770				0				88,770				100.0				16				1,252,805				14.11			QFC Supermarket & Drug
	Garrison Square Vancouver, WA			1989				69,790				0				69,790				100.0				15				708,566				10.15			Nature's Supermarket, Hi School Pharmacy
	Gateway Shopping Center Mill Creek, WA			1995				96,671				0				96,671				95.8				20				1,650,673				17.82			Safeway Supermarket
	Olympia Square Olympia, WA			1988				168,121				0				168,121				98.9				40				2,075,499				12.49			Albertson's Supermarket & Drug, Ross Dress for Less
	Olympia West Center Olympia, WA			1980 1995				69,212				3,800				73,012				100.0				6				1,266,751				18.30			Barnes & Noble, Good Guys, Petco
	Pacific Commons Spanaway, WA			1987				151,233				55,241				206,474				100.0				23				1,538,370				10.17			The Marketplace Supermarket, K-Mart(2)
	Panther Lake Kent, WA			1989				69,090				44,237				113,327				100.0				22				893,672				12.93			Albertson's Supermarket(2), Rite Aid
	Sunset Square Bellingham, WA			1989				376,023				10,634				386,657				98.4				41				3,103,837				8.39			Cost Cutter Supermarket, K-Mart, Jo-Ann Fabrics & Crafts, Rite Aid
	Tacoma Central Tacoma, WA			1987 1994				156,916				165,519				322,435				100.0				22				1,980,871				12.62			Target(2), Top Food & Drug(2), Petsmart, Office Depot, TJ Maxx
Region Total/Weighted Average								1,631,339				460,731				2,092,070				97.4				263			$	17,823,970.03			$	11.21
	OREGON
	Albany Plaza Albany, OR			1977 1998				114,465				30,998				145,463				94.1				18				841,034				7.80			Albertson's Supermarket, Rite Aid, Big Lots, Dollar Tree, Factory 2 U
	Bear Creek Plaza Medford, OR			1977 1998				183,850				0				183,850				96.8				26				1,335,926				7.51			Bi-Mart Drug, TJ Maxx, Big Lots, Dollar Tree
	Canby Square Shopping Center Canby, OR			1993				115,701				0				115,701				97.9				13				1,062,007				9.38			Safeway Supermarket, Rite Aid, Factory 2 U
	East Burnside Plaza Portland, OR			1999				38,363				0				38,363				100.0				7				618,311				16.12			QFC Supermarket
	Foster Square Portland, OR			1970				33,808				0				33,808				100.0				3				225,322				6.66			Dollar Tree, Phoenix Drugs
	Hermiston Plaza Hermiston, OR			1998				150,396				0				150,396				95.4				23				940,295				6.55			Safeway Supermarket & Drug, Big Lots, Dollar Tree
	Hood River Shopping Center Hood River, OR			1967 1999				108,764				0				108,764				93.7				12				626,266				6.15			Rosauer's Supermarket, Hi School Pharmacy
	Menlo Park Plaza Portland, OR			1995				112,755				0				112,755				92.7				16				1,226,107				11.74			Walgreen's, Staples
	Milwaukie Marketplace Milwaukie, OR			1989				185,859				10,323				196,182				90.5				26				1,514,154				9.00			Albertson's Supermarket, Rite Aid, Jo-Ann Fabrics & Crafts
	Oregon City Shopping Center Oregon City, OR			1999				246,796				0				246,796				92.8				35				1,866,761				8.15			Emporium, Rite Aid, Fisherman's Marine Supply, Michael's Arts & Crafts
	Oregon Trail Shopping Center Gresham, OR			1977 1999				208,284				0				208,284				95.4				31				2,020,101				10.17			Nature's Supermarket, Office Depot, Big 5 Sporting Goods, Big Lots, Michael's Arts & Crafts
	Pioneer Plaza Springfield, OR			1988				96,027				4,294				100,321				100.0				23				926,605				9.65			Safeway Supermarket & Drug
	Powell Valley Junction Gresham, OR			1990				107,583				0				107,583				95.2				7				895,152				8.74			Food 4 Less Supermarket, Cascade Athletic Club
	Powell Villa Portland, OR			1997				63,607				0				63,607				100.0				8				802,950				12.62			Ace Hardware
	Raleigh Hills Plaza Portland, OR			1988				39,520				0				39,520				100.0				3				937,086				23.71			New Season's Supermarket, Walgreen's
	Rockwood Plaza Gresham, OR			2000				92,098				0				92,098				94.7				14				730,290				8.37			Dollar Tree