SANTA ANITA REALTY ENTERPRISES INC - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(MARK ONE)
[X]JOINT ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-9109 COMMISSION FILE NUMBER 0-9110
SANTA ANITA OPERATING COMPANY
SANTA ANITA REALTY ENTERPRISES, INC. (EXACT NAME OF REGISTRANT AS
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
SPECIFIED IN ITS CHARTER) DELAWARE
(STATE OR OTHER JURISDICTION OF
DELAWARE INCORPORATION OR ORGANIZATION)
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION) 95-3419438
(I.R.S. EMPLOYER IDENTIFICATION NO.)
95-3520818
(I.R.S. EMPLOYER IDENTIFICATION NO.)
285 WEST HUNTINGTON DRIVE
301 WEST HUNTINGTON DRIVE, SUITE 405 ARCADIA, CALIFORNIA 91007
ARCADIA, CALIFORNIA 91007 (ADDRESS OF PRINCIPAL EXECUTIVE
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES INCLUDING ZIP CODE)
OFFICES INCLUDING ZIP CODE) (818) 574-7223
(REGISTRANT'S TELEPHONE NUMBER,
(818) 574-5550 INCLUDING AREA CODE)
(REGISTRANT'S TELEPHONE NUMBER,
INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
SANTA ANITA REALTY ENTERPRISES, INC. SANTA ANITA OPERATING COMPANY
COMMON STOCK $.10 PAR VALUE COMMON STOCK $.10 PAR VALUE
(TITLE OF CLASS) (TITLE OF CLASS)
NEW YORK STOCK EXCHANGE
NEW YORK STOCK EXCHANGE (NAME OF EACH EXCHANGE ON WHICH
(NAME OF EACH EXCHANGE ON WHICH REGISTERED)
REGISTERED)

SANTA ANITA REALTY ENTERPRISES, INC.
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
PREFERRED STOCK PURCHASE RIGHTS
(TITLE OF CLASS)
NONE NONE
(TITLE OF EACH CLASS) (TITLE OF EACH CLASS)
NEW YORK STOCK EXCHANGE

(NAME OF EACH EXCHANGE ON WHICH
REGISTERED)
Indicate by check mark whether the registrants (1) have 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
registrants were required to file such reports), and (2) have 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 paired voting stock of Santa Anita Realty
Enterprises, Inc. and of Santa Anita Operating Company held by nonaffiliates
on March 15, 1996 was $145,598,000.
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock, as of the close of business on March 15, 1996:

Santa Anita Realty Enterprises, Inc. Common Stock 11,383,000
Santa Anita Operating Company Common Stock 11,270,500

DOCUMENTS INCORPORATED BY REFERENCE
The following document is incorporated by reference in Part III of this
Joint Annual Report on Form 10-K: Joint proxy statement for the annual
meetings of shareholders of Santa Anita Realty Enterprises, Inc. and Santa
Anita Operating Company to be held on May 7, 1996.
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TABLE OF CONTENTS

PAGE
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PART I.................................................................... 3
Item 1.Business......................................................... 3
Introduction.......................................................... 3
General............................................................... 3
Realty................................................................ 5
Summary Financial Information....................................... 5
Real Estate Investments and Policies................................ 6
Santa Anita Racetrack............................................... 7
Regional Malls...................................................... 8
Santa Anita Fashion Park.......................................... 8
Towson Town Center................................................ 9
Neighborhood Shopping Centers....................................... 9
Office Buildings.................................................... 9
Land................................................................ 9
Pacific Gulf Properties Inc......................................... 9
Management of Properties............................................ 10
Competitive and Other Conditions.................................... 10
Environmental Matters............................................... 10
Employees........................................................... 11
Seasonal Variations in Business..................................... 11
Operating Company..................................................... 11
Santa Anita Racetrack............................................... 12
Wagering Commissions.............................................. 12
On-Track Wagering............................................... 13
Satellite Wagering--Southern California......................... 13
Satellite Wagering--Northern California......................... 13
Satellite Wagering--Out-of-State (Commingled Pools)............. 13
Satellite Wagering--Out-of-State (Separate Pools)............... 13
Competitive and Other Conditions.................................... 17
Dependence on Limited Number of Customers........................... 17
Employee and Labor Relations........................................ 17
Seasonal Variations in Business..................................... 18
Income Tax Matters.................................................... 18
Item 2.Properties....................................................... 20
Item 3.Legal Proceedings................................................ 20
Item 4.Submission of Matters to a Vote of Security Holders.............. 20
Item 4a. Executive Officers of Operating Company and Realty............. 20
PART II................................................................... 22
Item 5.Market for the Registrants' Common Equity and Related Shareholder
Matters........................................................... 22
Item 6.Selected Financial Data.......................................... 23
Item 7.Managements' Discussion and Analysis of Financial Condition and
Results of Operations............................................. 26
Item 8.Financial Statements and Supplementary Data...................... 32
Item 9.Disagreements on Accounting and Financial Disclosure............. 32
PART III.................................................................. 33
PART IV................................................................... 33
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-
K................................................................. 33
SIGNATURES................................................................ 34
INDEX TO FINANCIAL STATEMENTS............................................. 36
INDEX TO FINANCIAL STATEMENT SCHEDULES.................................... 37
EXHIBIT INDEX............................................................. 99

2

SANTA ANITA REALTY ENTERPRISES, INC.

SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES

PART I

ITEM 1. BUSINESS

INTRODUCTION

Santa Anita Realty Enterprises, Inc. ("Realty") and Santa Anita Operating
Company ("Operating Company") are two separate companies, the stocks of which
trade as a single unit under a stock-pairing arrangement on the New York Stock
Exchange (symbol SAR). Realty and Operating Company were each incorporated in
1979 and are the successors of a corporation originally organized in 1934 to
conduct thoroughbred horse racing in Southern California. As used herein, the
terms "Realty" and "Operating Company" include wholly owned subsidiaries of
Realty and Operating Company unless the context requires otherwise. References
to "The Santa Anita Companies" or "Companies" refer to Realty and Operating
Company, collectively. This document constitutes the annual report on Form 10-
K for both Realty and Operating Company.

GENERAL

The Companies own and operate the Santa Anita Racetrack ("Racetrack"), one
of the premier thoroughbred horse racing venues in North America. Operating
Company has conducted a winter live thoroughbred horse racing meet at the
Racetrack each year since 1934 (except for three years during World War II).
In addition, the Racetrack has been the site of a fall meet conducted by Oak
Tree Racing Association ("Oak Tree") which has leased the Racetrack from
Operating Company since 1969. The Racetrack was the location of the 1986 and
1993 Breeders' Cup Championships.

The 17-week 1995 Santa Anita winter meet, which concluded April 24, 1995,
generated average daily wagering of $11.2 million, one of the highest daily
wagering levels ever attained in North American thoroughbred horse racing.
Further, average daily purses during the same meet were among the largest
distributed in North American thoroughbred horse racing. Operating Company
believes that its exceptional purse structure enables it consistently to
attract top thoroughbred horses, owners, trainers and jockeys. Santa Anita's
live races are simulcast to 16 satellite wagering sites in Southern
California, 15 sites in Northern California and 851 sites in 38 other states
and seven foreign countries. Approximately 75% of wagering at Santa Anita's
1995 winter meet was through off-site satellite wagering sites. Operating
Company believes that it is well positioned to benefit from the continued
industry trend toward satellite wagering, which has been driven by
technological developments, legislative changes and customers' desire for
convenience.

A significant portion of thoroughbred horse racing wagering and purse
distribution are concentrated at the industry's largest and best established
racetracks. In 1995, approximately 50% of total wagering nationwide was
attributable to the industry's ten largest racetracks. Santa Anita is part of
the Southern California thoroughbred racing circuit which also includes
Hollywood Park, Del Mar and Pomona Fairplex. Live racing is conducted at one
of these racetracks from four to six days during each week in the year. During
1995, 279 total days of racing were held at these racetracks, comprising in
sequential order, the Santa Anita winter meet (88 days), the Hollywood Park
spring and summer meet (67 days), the Del Mar meet (43 days), the Pomona
Fairplex meet (19 days), the Oak Tree fall meet at the Racetrack (32 days) and
the Hollywood Park fall meet (30 days). Wagering at the Southern California
race meets approximated 24% of estimated total wagering on thoroughbred horse
racing nationwide in 1995. Wagering on race meets at the Racetrack ranked
first nationwide with approximately 10% of the 1995 estimated total wagering.
As an industry leader in thoroughbred horse racing and pari-mutuel wagering,
Operating Company believes that it will continue to benefit as smaller
racetracks and other wagering sites import satellite signals from larger
racetracks that have stronger regional and national reputations.

3

The Racetrack is part of Santa Anita Park, the Companies' approximately 400-
acre property located in Arcadia, California, 14 miles from downtown Los
Angeles, and close to major Southern California freeways leading to Orange
County and connecting to the San Fernando, San Gabriel and Pomona valleys.
Santa Anita Park's location offers access to more than 13 million people
within a fifty-mile radius and more than 5 million people within a twenty-mile
radius. In addition to the Racetrack, Santa Anita Park also includes Santa
Anita Fashion Park ("Fashion Park"), a one million square-foot regional mall
in which Realty has a 50% interest. Fashion Park completed a significant
expansion in August 1994, including the addition of Nordstrom as an anchor
store, and upgraded its mall tenant mix. In addition to Santa Anita Park,
Realty has a number of other commercial real estate investments including six
neighborhood shopping centers, three office buildings and a partial interest
in another major regional mall. In November 1995, Realty announced a program
for the orderly disposition of the six neighborhood centers and two office
buildings in order to reduce debt, improve financial flexibility and increase
Realty's focus on the development of its Arcadia property.

Realty has announced the proposed development of an Entertainment Center
within Santa Anita Park. The initial phase of the development is expected to
include a 25-screen AMC movie theater complex, a large screen theater, a book
superstore and other specialty retail stores and restaurants. In March 1995,
Realty submitted zoning and general plan amendment applications to the City of
Arcadia to commence the entitlement process for the development of the
Entertainment Center. While the applications provide for the development of as
many as 1.5 million leasable square feet, Santa Anita presently plans to
develop the Entertainment Center in a number of separate, independently viable
phases. It is currently Realty's expectation to receive necessary governmental
approvals by late 1996. Currently, plans for later phases of the development
contemplate expanded entertainment, restaurant and retail uses.

On May 2, 1995, Realty entered into a 20-year lease (with two ten-year
options) with AMC for an approximately 102,000 square-foot movie theater
complex at the Entertainment Center. The theater complex is expected to be one
of the largest developed by AMC, and is expected to include 25 screens and
5,500 seats and feature state-of-the art sound systems, stadium style seating
and deluxe amenities. Santa Anita is currently in lease discussions with
several other potential Entertainment Center tenants.

4

REALTY

Realty is incorporated under the laws of the State of Delaware. Realty's
principal executive offices are located at 301 West Huntington Drive, Suite
405, Arcadia, California 91007.

Realty operates as a real estate investment trust ("REIT") under the
provisions of the Internal Revenue Code of 1986, as amended (the "Code"). As
such, Realty is principally engaged in investing in and holding real property,
including Santa Anita Racetrack, the real estate underlying the Santa Anita
Fashion Park shopping center ("Fashion Park"), a 50 percent interest in the
operation of Fashion Park and a 32.5 percent interest in Towson Town Center
(major regional shopping centers) and a number of neighborhood shopping
centers and office buildings. Until February 18, 1994, Realty also owned 2,654
apartment units and 185,000 square feet of industrial space and until October
1, 1994 an additional 622,000 square feet of industrial space. Realty is a
self-administered equity REIT.

SUMMARY FINANCIAL INFORMATIOn

The following table sets forth certain unaudited financial information with
respect to Realty:

SUMMARY OF FINANCIAL INFORMATION
YEAR ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
---------------------------------------------
1995 1994 1993 1992 1991
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Revenues...................... $ 22,426 $26,232 (a) $41,961 $35,967 $31,499
Net income (loss)(b).......... (30,871) 5,545 2,619 10,211 9,699
Funds from operations(c)...... 13,424 14,513 17,872 18,238 16,671
Per share:
Net income (loss)........... (2.73) .49 .23 .91 .86
Dividends paid.............. .80 1.08 1.36 1.36 2.08
Dividends declared.......... .80 .94 1.36 1.36 1.90
Weighted average shares
outstanding.................. 11,326 11,256 11,256 11,256 11,257

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(a) The decline in revenues was due primarily to the sale of properties to
Pacific. See Item 1. "Business--Realty--Pacific Gulf Properties Inc."
(b) Net income (loss) for the years ended December 31, 1995, 1994 and 1993
each included several non-recurring items totaling a net charge of
$36,070,000, $1,782,000 and $5,240,000. Net income excluding nonrecurring
charges was $5,199,000, $7,327,000 and $7,859,000 for the years ended
December 31, 1995, 1994 and 1993.
(c) Calculated in accordance with the definition of funds from operations as
defined by the National Association of Real Estate Investment Trusts
("NAREIT"), except 1993 which excludes $5,734,000 received from the
California Franchise Tax Board related to the settlement of certain state
tax issues. Net income (computed in accordance with generally accepted
accounting principles), excluding gains (losses) from debt restructuring,
sales of property and nonrecurring items, plus depreciation and
amortization (including Realty's portion of depreciation from
unconsolidated joint ventures).

5

REAL ESTATE INVESTMENTS

Realty's portfolio of real estate investments (excluding its interests in
Pacific Gulf Properties Inc. and certain unconsolidated joint ventures) is
outlined below.

SUMMARY OF REAL ESTATE INVESTMENTS
AS OF DECEMBER 31, 1995

NET BOOK VALUE
PERCENT LEASABLE PERCENT (B) ENCUMBRANCES (C)
LEASED AREA (A) OWNERSHIP (IN THOUSANDS) (IN THOUSANDS)
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INVESTMENTS TO BE HELD
Racing Facility:
Santa Anita Racetrack. 100% 312 acres 100.0% $ 9,030 $ --
Office Building:
California
Medical Office
Building........... 97 75,000 100.0 12,701 8,796
Land:
California
Land underlying
Fashion Park....... 100 73 acres 100.0 346 3,831
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$22,077 $12,627
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INVESTMENTS TO BE SOLD
Shopping Centers:
California
Yorba Linda......... 91 53,000 100.0 $ 7,924 $ 3,453
Orange.............. 87 21,000 100.0 4,431 1,702
Encinitas........... 84 80,000 100.0 11,037 4,250
Arizona, Phoenix
Tatum and
Thunderbird........ 100 52,000 100.0 3,442 2,848
28th and Indian
School............. 89 31,000 100.0 2,087 1,659
67th and Indian
School............. 97 75,000 100.0 5,332 1,370
Office Buildings:
California
Civic Center Plaza
Towers............. 70 152,000 100.0 16,156 --
Upland.............. 81 36,000 100.0 4,563 --
Land:
California
Temecula............ N/A 24 acres 50.0 480 480
Allowance for loss on
disposition of non-core
real estate assets..... (27,800) --
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$27,652 $15,762
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(a) Square feet except as indicated.
(b) Net book value (total cost of project less accumulated depreciation) at
December 31, 1995.
(c) Amounts represent 100% of project encumbrances.

6

SANTA ANITA RACETRACK

Santa Anita Racetrack, which is leased by Realty to the Los Angeles Turf
Club, Incorporated ("LATC"), a subsidiary of Operating Company, is located on
approximately 312 acres, 14 miles northeast of downtown Los Angeles, adjacent
to major transportation routes. LATC conducts one of the largest thoroughbred
horse racing meets in the United States in terms of both average daily
attendance and average daily pari-mutuel wagering.

The Santa Anita Racetrack was opened for thoroughbred horse racing in 1934
by a group of investors led by Dr. Charles H. Strub. The Santa Anita Meet has
been held at Santa Anita Racetrack each year since its founding except for
three years during World War II. The physical plant consists of a large
grandstand structure occupying approximately 970,000 square feet, stalls for
approximately 2,000 horses, and a parking area covering approximately 128
acres which can accommodate approximately 20,000 automobiles. The grandstand
facilities include clubhouse accommodations, a general admission area, and
food and beverage facilities, which range from fast food stands to
restaurants, both at outdoor terrace tables and indoor dining areas. The
grandstand has seating capacity for 25,000 as well as standing room for
additional patrons. The structure also houses Operating Company's executive
and administrative offices. The grounds surrounding the grandstand are
extensively landscaped and contain a European-style paddock and infield
accommodations, including picnic facilities for special groups and the general
public.

During 1995, the lease rental payable to Realty by LATC was 1.5% of total
live on-track wagering at Santa Anita Racetrack, including live on-track
wagering during the meet conducted by Oak Tree. In addition, Realty receives
26.5% of LATC's revenues from satellite wagering (not to exceed 1.5% of such
wagering) and the simulcasting of races originating from Santa Anita Racetrack
after mandated payments to the State, to horse owners and to breeders. When
LATC operates as a satellite for Hollywood Park Racetrack and Del Mar
Racetrack, Realty receives 26.5% of LATC's wagering commissions as additional
rent. The lease with LATC which was scheduled to expire December 31, 1994, was
amended and extended for an additional five years, through December 31, 1999.
The previous lease provided for rent of 1.5% of the aggregate on-track
wagering on live races at Santa Anita Racetrack and 40% of LATC's wagering
commissions from satellite wagering on races originating at Santa Anita
Racetrack. Accordingly, the rental income which Realty receives from Santa
Anita Racetrack is directly affected by and dependent upon the racing
activities and the wagering by patrons (see Item 1. "Business--Operating
Company--Santa Anita Racetrack").

Based upon the rental formula, for the year ended December 31, 1995, Realty
received $11,342,000 in rental income from horse racing, compared with
$13,070,000 received for the year ended December 31, 1994 (see Item 1.
"Business--Operating Company--Santa Anita Racetrack"). If the amended lease
terms had been in effect for the year ended December 31, 1994, racetrack
rental revenues would have been $11,123,000.

The following table shows rental earned by Realty under the LATC lease for
the last five years:

YEAR ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT FOR RACING DAYS)
---------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------

Combined racing days................. 120 117 114 121 120
======= ======= ======= ======= =======
Rent from Racetrack.................. $11,342 $13,070 $11,634 $12,683 $11,817
======= ======= ======= ======= =======

For a further description of thoroughbred horse racing operations, see Item
1. "Business--Operating Company--Santa Anita Racetrack."

7

REGIONAL MALLS

SANTA ANITA FASHION PARK

Santa Anita Fashion Park is a completely enclosed, climate-controlled
regional mall located adjacent to Santa Anita Racetrack with 1,102,000 square
feet of leasable area. Fashion Park, apart from space occupied by anchor
tenants, is owned and operated by a partnership, Anita Associates, of which
Realty is a 50% limited partner. The general partner of Anita Associates is
Hahn-UPI, which in turn is a limited partnership of which The Hahn Company, a
developer of shopping centers, is the general partner.

Fashion Park completed a significant expansion in August 1994, including the
addition of a new 136,000 square foot Nordstrom store and an additional 40,000
square feet of mall stores. Other anchor tenants are Robinsons-May (165,000
square feet), J.C. Penney (215,000 square feet) and The Broadway (188,000
square feet). Since 1994, new mall tenants include The Disney Store, Williams
Sonoma, Ann Taylor and California Pizza Kitchen. During 1993, the Robinsons-
May store was expanded by approximately 40,000 square feet and a food court of
approximately 13,000 square feet was completed and opened. Since 1994, each of
the anchor department stores has completed a major remodeling of their stores.

In January 1994, Anita Associates refinanced its existing debt by entering
into a secured loan agreement with an insurance company. Funding under the
secured loan was made in two draws of $46,577,000 at 9.0% in January 1994 and
$15,778,000 at 9.25% in December 1994. The secured loan is due in January
2003. At December 31, 1995, $61,196,000 was outstanding under the agreement.

There are currently 135 tenants operating mall stores. Leases are generally
seven to ten years with clauses providing for escalation of the basic rent
every three years. Typically, leases with mall tenants are structured to
provide Anita Associates with overage rents upon attainment by the tenant of
certain sales levels, which are specified under the individual leases of the
various stores. Overage rents represent a fixed percentage of the gross sales
of a tenant less its base rent. With the addition of Nordstrom, Fashion Park
has been able to attract higher quality mall tenants at higher annual rental
rates.

Realty has leased the land underlying Fashion Park to Anita Associates and
to three of the major tenants of Fashion Park until 2037, with two additional
ten-year option periods and one additional five-year option period. The ground
rent is $527,000 annually until October 1996 when the annual rent will
increase to $795,000 through 2007. During the remaining 30-year term and the
three additional option periods, the annual ground rent may be increased up to
25% based upon the appraised value of the land. Under the provisions of the
ground leases, Anita Associates is responsible for real estate taxes and other
operating expenses. Robinsons-May, J.C. Penney, The Broadway and Nordstrom pay
their own real estate taxes.

The land underlying Fashion Park is security for a loan maturing in 2009
with a balance at December 31, 1995 of $3,831,000. Payments on this
indebtedness, which is without recourse to Realty, are approximately $473,000
annually. The security to the lender also includes an assignment of the ground
rents received by Realty and a collateral assignment of the ground leases.

The following table contains certain information pertaining to the mall
stores in Fashion Park (excluding major tenants):

YEAR ENDED DECEMBER 31,
-------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------

Number of mall tenants................... 135 130 116 107(a) 134
====== ====== ====== ====== ======
Average annual rental rates per square
foot including overage rents............ $20.81 $19.78 $16.42 $16.98 $15.80
====== ====== ====== ====== ======

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(a) Decline due primarily to certain leases not being renewed in anticipation
of the expansion completed in 1994.

8

TOWSON TOWN CENTER

Towson Town Center located in Towson, Maryland, is a 980,000 square-foot
regional mall which opened in 1991. Realty is a 50% partner with The Hahn
Company in H-T Associates, a joint venture which owns a 65% interest in a
partnership which owns the Towson Town Center. The anchor tenants at Towson
Town Center are Nordstrom (224,000 square feet) and Hecht's (193,000 square
feet) department stores.

There are 171 other tenants operating mall stores with original lease terms
varying up to 15 years. The average annual rental rate per square foot
including overage rents was $32.61 per square foot for the operating mall
stores. The mall tenant leases generally provide for escalation of the basic
rent every three years and are structured to provide Towson Town Center with
overage rents upon attainment by the tenant of certain sales levels, which are
specified under the individual leases of the various stores. Overage rents
represent a fixed percentage of the gross sales of a tenant less its base
rent.

Realty has executed joint and several guaranties of loans used to expand the
Towson Town Center in the amount of $66,135,000 and property adjacent to the
Towson Town Center in the amount of $8,247,000. Annually, the guarantors may
request a reduction in the amount of the guaranty based on the economic
performance of the regional mall (see "Notes to Financial Statements--Note 6--
Investments in Unconsolidated Joint Ventures").

NEIGHBORHOOD SHOPPING CENTERS

Realty owns six neighborhood shopping centers. The shopping centers
typically consist of a major supermarket, retail store or drugstore as a major
tenant and often include a variety or general merchandise store and smaller
service store tenants. In two centers the major tenant owns its building and
the underlying land, while in the four other centers, the land or improvements
are leased to the major tenant. Leases on the properties range from two to ten
years in duration but typically are from three to five years. They are
generally triple net leases (tenant pays all operating costs, insurance and
property taxes) and provide for future rental increases. At December 31, 1995,
the average occupancy of the three shopping centers located in California was
96% and the average occupancy of the three shopping centers located in Arizona
was 87%.

In November 1995, Realty announced its intention to dispose of the six
neighborhood shopping centers.

OFFICE BUILDINGS

Realty owns three office buildings located in Arcadia, Santa Ana and Upland,
California. The office buildings in Santa Ana and Upland are for general
office use and the building in Arcadia is a medical office building. Office
leases are typically for a period of five to ten years and are offered on a
full-service gross basis. In addition, tenants are given a tenant improvement
allowance and rental concessions in the form of additional tenant improvement
allowances or free rent. At December 31, 1995, the average occupancy of the
office buildings was 77%.

In November 1995, Realty announced its intention to dispose of the Santa Ana
and Upland office buildings.

LAND

Realty is a 50% partner in French Valley Ventures, a partnership which
acquired 24 acres of unimproved land located in Temecula, California. In
December 1994, the partnership negotiated a reduction in the maturing mortgage
on this property. Additionally, the carrying cost of the investment was
written down to its estimated market value which equals the amount of the
debt.

In November 1995, Realty announced its intention to dispose of its interest
in this property.

PACIFIC GULF PROPERTIES INC.

In November 1993, Realty entered into a Purchase and Sale Agreement to sell
its multifamily and industrial operations to Pacific Gulf Properties Inc.
("Pacific"), in conjunction with Pacific's proposed public offering of common
stock and debentures.

9

On February 18, 1994, Realty completed the first part of this transaction by
selling to Pacific ten multifamily properties, containing 2,654 apartment
units, located in Southern California, the Pacific Northwest, and Texas and
three industrial properties, containing an aggregate of 185,000 leasable
square feet of industrial space, located in the State of Washington (the
"Transferred Properties"). Realty's corporate headquarters building and
related assets were also acquired by Pacific.

In consideration of the sale of the Transferred Properties, Realty received
approximately $44.4 million in cash and 150,000 shares of common stock of
Pacific. In addition, Realty was relieved of approximately $44.3 million of
mortgage debt on the Transferred Properties.

In connection with the sale, the executive officers, various managers and
most other employees of Realty resigned and became officers and employees of
Pacific on February 18, 1994.

Effective October 1, 1994, Realty completed the second part of the
transaction, the sale of its interest in Baldwin Industrial Park to Pacific.
Effective October 31, 1994, Pacific delivered to Realty an additional 634,419
shares of Pacific common stock as consideration for the second part of the
transaction and the corporate headquarters and other net assets.

The two parts of the above transaction resulted in a loss of $10,974,000,
which was reflected in the Realty and The Santa Anita Companies statements of
operations for the year ended December 31, 1993.

As a result of the February 18, 1994 and October 1, 1994 sales to Pacific,
Realty owns 784,419 shares (or approximately 16.2%) of Pacific's outstanding
common shares at December 31, 1995. Pacific trades on the American Stock
Exchange (symbol PAG). On March 15, 1996, the closing price of Pacific's
common stock was $18.00.

On February 2, 1996, Realty notified Pacific of Realty's intent to sell the
Pacific shares in an orderly manner pursuant to privately negotiated or open
market transactions. Realty also exercised its right to have Pacific register
such shares pursuant to a Registration Rights Agreement dated as of February
1, 1994.

MANAGEMENT OF PROPERTIES

Realty manages its neighborhood shopping centers and office buildings
directly.

COMPETITIVE AND OTHER CONDITIONS

The regional shopping malls, neighborhood shopping centers and office
buildings owned by Realty encounter significant competition from similar or
larger regional shopping malls, shopping centers and office buildings
developed and owned by other companies.

Realty's income from its real estate assets is also affected by general
economic conditions. The recent recession adversely affected vacancy rates in
office buildings generally. Recessionary measures could adversely impact
vacancy rates, the nature of Realty's tenants, the rents Realty is able to
obtain from its tenants and its financial results.

Some of Realty's properties are located in Southern California, which is an
area subject to earthquakes and, therefore, there can be no assurance that any
earthquakes that may occur will not damage Realty's properties or negatively
impact the financial position or results of Realty.

ENVIRONMENTAL MATTERS

Under various federal, state and local laws, ordinances and regulations, an
owner of real estate is liable for the costs of removal or remediation of
certain hazardous or toxic substances on or in such property. Such laws often
impose such liability without regard to whether the owner knew of, or was
responsible for, the presence of such hazardous or toxic substances. The costs
of investigation, removal or remediation of such substances may be
substantial, and the presence of such substances, or the failure to properly
remediate such substances, may

10

adversely affect the owner's ability to sell or rent such property or to
borrow using such property as collateral. Persons who arrange for the disposal
or treatment of hazardous or toxic substances may also be liable for the costs
of removal or remediation of a release of such substances at a disposal
treatment facility, whether or not such facility is owned or operated by such
person. Certain environmental laws impose liability for release of asbestos-
containing materials ("ACMs") into the air and third parties may seek recovery
from owners or operators of real properties for personal injury associated
with ACMs. In connection with the ownership (direct or indirect), operation,
management and development of real properties, the Companies may be considered
an owner or operator of such properties or as having arranged for the disposal
or treatment of hazardous or toxic substances and therefore, potentially
liable for removal or remediation costs, as well as certain other related
costs, including governmental fines and injuries to persons and property.

EMPLOYEES

At December 31, 1995, Realty employed 22 persons on a full-time basis.

SEASONAL VARIATIONS IN BUSINESS

Realty is subject to significant seasonal variation in revenues due
primarily to the seasonality of thoroughbred horse racing. The following table
presents unaudited quarterly results of operations for Realty during 1995 and
1994:

QUARTERS ENDED
1995
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
--------------------------------
MARCH JUNE SEPT. DEC.
------- ------ -------- -------

Total revenues............................... $ 9,066 $4,795 $ 3,009 $ 5,556
Costs and expenses........................... 3,155 2,645 3,104 2,922
Interest and other........................... 1,120 1,118 1,074 1,009
Costs of equity offering..................... -- 700 -- --
Card club option write-off................... -- -- 2,000 --
Program for disposition of non-core real
estate assets............................... -- -- 34,500 4,000
------- ------ -------- -------
Income (loss) before extraordinary gain...... 4,791 332 (37,669) (2,375)
Extraordinary gain on early retirement of
debt........................................ -- -- -- 4,050
------- ------ -------- -------
Net income (loss)............................ $ 4,791 $ 332 $(37,669) $ 1,675
======= ====== ======== =======
Net income (loss) per common share
Before extraordinary gain.................. $ .43 $ .03 $ (3.31) $ (.21)
Extraordinary gain......................... -- -- -- .36
------- ------ -------- -------
$ .43 $ .03 $ (3.31) $ .15
======= ====== ======== =======

QUARTERS ENDED
1994
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
--------------------------------
MARCH JUNE SEPT. DEC.
------- ------ -------- -------

Total revenues............................... $12,717 $5,733 $ 2,711 $ 5,071
Costs and expenses........................... 4,712 2,056 2,245 4,701
Interest expense and other................... 1,941 1,287 1,362 1,340
Write-down of land held for development...... -- -- -- 1,043
------- ------ -------- -------
Net income (loss)............................ $ 6,064 $2,390 $ (896) $(2,013)
======= ====== ======== =======
Net income (loss) per common share........... $ .54 $ .21 $ (.08) $ (.18)
======= ====== ======== =======

OPERATING COMPANY

Operating Company is organized under the laws of the State of Delaware.
Operating Company's principal executive offices are located at Santa Anita
Racetrack, 285 West Huntington Drive, Arcadia, California 91007.

11

Operating Company is engaged in thoroughbred horse racing. The thoroughbred
horse racing operation is conducted by a wholly owned subsidiary of Operating
Company, Los Angeles Turf Club, Incorporated ("LATC"), which leases Santa
Anita Racetrack from Realty.

SANTA ANITA RACETRACK

LATC conducts an annual 17-week thoroughbred horse racing meet which
commences the day after Christmas and continues through mid-April (the "Santa
Anita meet"). LATC conducts one of the largest thoroughbred horse racing meets
in the United States in terms of both average daily attendance and average
daily pari-mutuel wagering.

LATC leases the racetrack from Realty for the full year for a fee of 1.5% of
the on-track wagering on live races at Santa Anita Racetrack, which includes
the Oak Tree meet. In addition, LATC pays to Realty 26.5% of its wagering
commissions from satellite wagering (not to exceed 1.5% of such wagering).
When LATC operates as a satellite for Hollywood Park and Del Mar, LATC pays
26.5% of its wagering commissions as additional rent to Realty. LATC has
sublet the racetrack to Oak Tree to conduct Oak Tree's annual thoroughbred
horse racing meet (32 days in 1995), which commences in late September or
early October. Oak Tree races five weeks in even-numbered years and six weeks
in odd-numbered years.

Under a sublease which expires December 31, 1999, Oak Tree makes annual
rental payments to LATC equal to 1.5% of the total live on-track pari-mutuel
wagering from its racing meet and 25% of its satellite and simulcast revenues
after mandated payments to the State of California, to horse owners and to
breeders. LATC pays to Realty 26.5% of all satellite and simulcast revenues
received from Oak Tree. In addition, Oak Tree reimburses LATC an amount equal
to 0.8% of its on-track pari-mutuel wagering for certain expenses of operating
Santa Anita Racetrack on behalf of Oak Tree. LATC also receives supplemental
rent representing Oak Tree's adjusted profits above an agreed-upon level and
will rebate rent to Oak Tree if Oak Tree's adjusted profits fall below such
level (see Item 1. "Business--Operating Company--Santa Anita Racetrack--
Wagering Commissions").

WAGERING COMMISSIONS

The State has vested administrative authority for racing and wagering at
horse racing meets with the California Horse Racing Board. The California
Horse Racing Board, which consists of seven members appointed by the governor
of the State, is charged with the responsibility of regulating the form of
wagering, the length and conduct of meets and the distribution of the pari-
mutuel wagering within the limits set by the California legislature. The
California Horse Racing Board is also charged with the responsibility of
licensing horse racing associations on an annual basis to conduct horse racing
meets and of licensing directors, officers and persons employed by the
associations to operate such meets.

California law specifies the percentage distribution of pari-mutuel wagering
with the percentage varying based upon the total wagering for the meet, breed
of horse and type of wager. The following table sets forth the allocation of
the total pari-mutuel wagering, on- and off-track, by percentage and dollar
amount during the 1994-95 Santa Anita meet:

DISTRIBUTION OF PARI-MUTUEL WAGERING
------------------------------------
DOLLAR AMOUNT
PERCENTAGE (IN THOUSANDS)
----------------- --------------------

Return to Wagerers........... 80.86% $ 630,354
State of California.......... 3.62 28,272
Track Commissions to LATC.... 4.21 32,796
Horse Owners and Breeders.... 4.30 33,504
Satellite Operator and
Location Fees............... 6.77 52,770
Cities and Counties.......... .24 1,850
----------------- -------------------
100.00% $ 779,546
================= ===================

12

On-Track Wagering

All wagering on-track is pari-mutuel, meaning literally a mutual wager, or
wagering by individuals against each other. The racetrack acts as the broker
for the wagers made by the public and deducts a "take-out" or gross commission
which is fixed by the State and shared with the State, the racetrack operator,
the horse owners and breeders, and the municipality in which the racetrack is
located. The racetrack operator has no interest in which horse wins a given
race.

Satellite Wagering--Southern California

LATC and Oak Tree send televised racing signals to other racetracks in
Southern California, non-racing fair sites in Southern California and wagering
facilities on Indian reservation land in Southern California. Southern
California satellite facilities commingle their wagering with the wagering on-
track. LATC's and Oak Tree's share of this type of satellite wagering averages
approximately 4.4%.

During the Hollywood Park and Del Mar meets, LATC and other Southern
California racing associations and fairs operate as satellite facilities. In
addition to retaining about 1.9% of the pari-mutuel wagering at Santa Anita
Racetrack as its commission, LATC receives income from admissions, parking and
food and beverage sales. In 1995, Santa Anita Racetrack operated 140 days as a
satellite for Hollywood Park and Del Mar.

Satellite Wagering--Northern California

In the fall of 1993, California law permitted the limited exchange between
Southern and Northern California of televised racing signals on races with
purses exceeding $20,000. In the summer of 1994, a change in California law
permitted the unlimited exchange of racing signals between the Southern
California zone and the Northern California zone.

Racetracks operating a live thoroughbred race meet in the southern zone and
in the northern zone receive the out-of-zone racing signal and rebroadcast the
signal within their respective southern or northern zones. Each zone
commingles their wagering on the out-of-zone race with the other zone. While
operating a live race meeting, LATC and Oak Tree receive approximately 4.5% of
wagering on-track and at Southern California satellite facilities on Northern
California races. Also, during the live race meeting, LATC and Oak Tree
receive 1.25% of wagering in Northern California on Santa Anita races.

Satellite Wagering--Out-of-State (Commingled Pools)

Legislation has been enacted in certain states permitting the transmission
of pari-mutuel wagers across state lines. This format permits patrons wagering
in those states on races held at Santa Anita Racetrack to participate in the
same pari-mutuel pool payouts available to LATC's on-track patrons and
California satellite patrons. LATC currently participates in satellite
wagering with numerous sites in Nevada and additional locations in Alabama,
Arizona, Colorado, Connecticut, Delaware, Florida, Idaho, Illinois, Iowa,
Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Montana,
Nebraska, New Hampshire, New Jersey, North Dakota, Oregon, Pennsylvania, Rhode
Island, Texas, Washington, West Virginia and Wisconsin and receives a
negotiated percentage of the pari-mutuel wagering at such sites.

Out-of-state satellite wagering started in 1991 with total pari-mutuel
wagering of $39,445,000 which increased to $202,591,000 for 1995. LATC's share
of the commissions from out-of-state satellite wagering was $3,528,000 for
1995, or approximately 1.7% of the out-of-state wagering.

Satellite Wagering--Out-of-State (Separate Pools)

LATC and Oak Tree transmit their live racing signals to numerous locations
in the United States, Mexico, the Caribbean, Central America and Canada.
LATC's share of the commissions for transmitting its racing signal was
$1,599,000 in 1995 and $1,431,000 in 1994. During the Oak Tree meet, LATC
receives a percentage of Oak Tree's share of simulcasting revenues. LATC is
pursuing opportunities to transmit its signal to additional locations.

13

The following tables summarize key operating statistics for the 1991-1995
Santa Anita meets and the 1991-1995 Oak Tree meets, together with the
attendance and wagering statistics relating to the transmission of the Del Mar
and Hollywood Park signals to Santa Anita Racetrack.

RACING MEETS ENDED IN
-------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------

LIVE RACING
Santa Anita Meet:
Number of racing days...... 88 90 83 94 88
========= ========= ========= ========= =========
Attendance
On-track................. 1,144,568 1,257,909 1,215,208 1,531,538 2,014,618
Southern California
satellite
locations (a)........... 1,388,249 1,523,220 1,332,126 1,576,763 666,611
--------- --------- --------- --------- ---------
Total.................. 2,532,817 2,781,129 2,547,334 3,108,301 2,681,229
========= ========= ========= ========= =========
Average daily............ 28,782 30,901 30,691 33,067 30,469
========= ========= ========= ========= =========
Wagering ($000) (b)
On-track................. $ 244,271 $ 270,452 $ 250,729 $ 323,223 $ 470,471
Southern California
satellite
locations (a)........... 333,630 315,731 267,346 315,851 133,791
Northern California
satellite
locations (c)........... 96,187 37,639 -- -- --
Out-of-state locations... 309,305 263,235 135,815 112,871 72,239
--------- --------- --------- --------- ---------
Total.................. $ 983,393 $ 887,057 $ 653,890 $ 751,945 $ 676,501
========= ========= ========= ========= =========
Average daily............ $ 11,175 $ 9,856 $ 7,878 $ 7,999 $ 7,688
========= ========= ========= ========= =========
Oak Tree Meet:
Number of racing days (d).. 32 27 31 27 32
========= ========= ========= ========= =========
Attendance
On-track................. 394,251 377,007 499,617 425,774 506,833
Southern California
satellite
locations (a)........... 428,876 378,256 444,932 390,088 454,264
--------- --------- --------- --------- ---------
Total.................. 823,127 755,263 944,549 815,862 961,097
========= ========= ========= ========= =========
Average daily............ 25,723 27,973 30,469 30,217 30,034
========= ========= ========= ========= =========
Wagering ($000) (b)
On-track................. $ 80,084 $ 74,319 $ 99,789 $ 79,162 $ 102,740
Southern California
satellite
locations (a)........... 104,495 86,237 80,024 75,714 88,699
Northern California
satellite
locations (c)........... 27,000 21,715 6,403 -- --
Out-of-state locations... 110,646 65,107 75,426 28,581 24,935
--------- --------- --------- --------- ---------
Total.................. $ 322,225 $ 247,378 $ 261,642 $ 183,457 $ 216,374
========= ========= ========= ========= =========
Average daily............ $ 10,070 $ 9,162 $ 8,440 $ 6,795 $ 6,762
========= ========= ========= ========= =========

- --------
(a) Southern California satellite wagering expanded to include Hollywood Park
and Los Alamitos effective with the 1991 Oak Tree meet.
(b) Includes wagering on races originating at other racetracks.
(c) Northern California satellite wagering began in October 1993 and expanded
in August 1994.
(d) Oak Tree races five weeks in even-numbered years and six weeks in odd-
numbered years.

14

Total pari-mutuel wagering on the Santa Anita meet increased from $676.5
million in 1991 to $983.4 million in 1995. In 1991, $206.0 million of the
total amount wagered was wagered at satellite locations with $470.5 million
wagered on-track. In 1995, $739.1 million of the total amount wagered was
wagered at satellite locations with $244.3 million wagered on-track.

Total attendance was 2,681,000 in 1991, of which 667,000 was at satellite
locations. By 1995, total attendance had declined to 2,533,000. Although
1,388,000 and 1,523,000 patrons attended Southern California satellite
locations during the Santa Anita meets in 1995 and 1994, LATC does not share
in the revenues from admissions, parking and food and beverage sales at the
satellite locations.

Management anticipates that the general trend of increases in off-track
wagering will continue and the decrease experienced in on-track attendance and
on-track wagering will also continue, albeit at a slower rate. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Santa Anita Operating Company."

RACING MEETS ENDED IN
-------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- -------

AS A SATELLITE
Santa Anita as Satellite for Del
Mar:
Number of racing days........... 43 43 42 43 43
======== ======== ======== ======== =======
Attendance
Total......................... 200,725 212,817 223,599 242,947 273,333
======== ======== ======== ======== =======
Average daily................. 4,668 4,949 5,324 5,650 6,357
======== ======== ======== ======== =======
Wagering ($000)
Total......................... $ 51,589 $ 52,118 $ 54,928 $ 55,435 $66,068
======== ======== ======== ======== =======
Average daily................. $ 1,200 $ 1,212 $ 1,308 $ 1,289 $ 1,536
======== ======== ======== ======== =======
Santa Anita as Satellite for
Hollywood Park (a):
Number of racing days........... 97 102 99 101 32
======== ======== ======== ======== =======
Attendance
Total......................... 457,480 486,581 505,239 515,510 154,233
======== ======== ======== ======== =======
Average daily................. 4,716 4,770 5,103 5,104 4,820
======== ======== ======== ======== =======
Wagering ($000)
Total......................... $113,899 $117,661 $112,623 $114,858 $36,233
======== ======== ======== ======== =======
Average daily................. $ 1,174 $ 1,154 $ 1,138 $ 1,137 $ 1,132
======== ======== ======== ======== =======

- --------
(a)Began in November 1991.

During the last five years, 61% of the annual revenues of LATC resulted from
pari-mutuel and other wagering commissions. The remaining revenues resulted
from admissions, parking, food and beverage sales, sale of programs and
interest and other income.

15

The following table sets forth certain unaudited financial information with
respect to LATC:

YEAR ENDED DECEMBER 31,
(IN THOUSANDS)
---------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------

Revenues:
Wagering commissions:
On-track........................... $15,262 $16,831 $15,878 $18,695 $26,107
Southern California satellite
locations......................... 14,866 13,665 12,078 13,706 5,742
Northern California satellite
locations......................... 2,193 654 -- -- --
Out-of-state locations............. 5,127 4,719 3,238 2,792 2,379
Satellite for Del Mar and Hollywood
Park.............................. 3,210 3,310 3,391 3,422 2,005
Sublease income.................... 4,929 3,917 3,843 2,724 4,250
Admission related.................... 24,060 24,750 25,842 28,795 30,180
------- ------- ------- ------- -------
Revenues............................. 69,647 67,846 64,270 70,134 70,663
------- ------- ------- ------- -------
Costs and Expenses:
Horse racing operating costs......... 48,686 48,352 46,696 52,254 51,779
Depreciation and amortization........ 3,196 4,251 2,768 2,732 2,634
General and administrative........... 3,216 3,125 3,973 3,739 3,344
------- ------- ------- ------- -------
Costs and expenses................... 55,098 55,728 53,437 58,725 57,757
------- ------- ------- ------- -------
Income from operations before rent and
income taxes.......................... $14,549 $12,118 $10,833 $11,409 $12,906
======= ======= ======= ======= =======

The mix of revenues has changed significantly from 1991 to 1995 primarily as
a result of the introduction of satellite wagering on races originating at
Santa Anita Racetrack, operating as a satellite location for Del Mar and
Hollywood Park, changes in average daily pari-mutuel wagering, selective price
increases, the introduction of additional exotic wagering opportunities on
which the retention amount is higher than on conventional wagering and a new
lease with Oak Tree, all of which have largely offset declines in commissions
from on-track wagering.

LATC's total expenses decreased from $57.8 million in 1991 to $55.1 million
in 1995. The majority of these expenses are pari-mutuel wagering or
attendance-related, the result of operating as a satellite location for Del
Mar and Hollywood Park and the aggregate effect of a new lease with Oak Tree.
In 1991, costs and expenses included $1.1 million in earthquake damage. From
1991 to 1992, total costs and expenses increased primarily due to the fact
that LATC operated as a satellite location for the first time for Hollywood
Park's spring thoroughbred meet and the engagement of outside consultants in
the amount of $660,000 to review LATC's operations. From 1992 to 1993, total
costs and expenses decreased primarily due to fewer race days, lower on-track
attendance and wagering and an ongoing cost reduction program begun in 1992.
From 1993 to 1994, total costs and expenses increased primarily due to
additional race days and increased wagering. Depreciation expense of $4.3
million in 1994 is higher than in previous years due to a $1.4 million
accelerated depreciation charge on the Santa Anita turf course, which was
replaced in 1995.

Included in the results of operations are the revenues and expenses for five
charity days. As a condition of the issuance of a racing license, California
law requires that a certain number of days be conducted as charity days. The
net proceeds from these charity days are distributed to beneficiaries through
a nonprofit organization approved by the California Horse Racing Board.
California law limits the net proceeds to an amount equal to two-tenths of one
percent of the total on-track wagering on live races. Net proceeds in excess
of two-tenths of one percent are retained by LATC. LATC is required to conduct
five charity days.

For further information regarding operating results, see Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Santa Anita Operating Company."

16

COMPETITIVE AND OTHER CONDITIONS

The Southern California area offers a wide range of leisure time spectator
activities, including professional and college teams which participate in all
major sports. LATC and Oak Tree compete with such sporting events for their
share of the leisure time market and with other numerous leisure time
activities available to the community, some of which are broadcast on
television.

As an outdoor activity, horse racing is more susceptible to inclement
weather than some other leisure time activities. This is particularly true of
the Santa Anita meet which is held during the winter. Between 1952 and 1992,
LATC had never lost a racing day due to inclement weather. During the 1992-
1993 meet, LATC lost two full days and two partial days of racing because of
inclement weather. During the 1994-1995 meet, LATC lost two days of racing
because of inclement weather.

A local Arcadia ordinance limits live horse racing to daylight hours but
allows the importation of a horse racing broadcast signal two evenings per
week.

The California Horse Racing Board has annually licensed LATC and Oak Tree to
conduct racing meets at Santa Anita Racetrack. At present, the California
Horse Racing Board has not licensed other thoroughbred racetracks in Southern
California to conduct racing during these meets. Since 1972, however, night
harness racing and night quarterhorse meets have been conducted at other
racetracks in Southern California during portions of these meets. LATC and Oak
Tree could be adversely affected by legislative or California Horse Racing
Board action which would increase the number of competitive racing days,
reduce the number of racing days available to LATC and Oak Tree, or authorize
other forms of wagering.

The California State Lottery Act of 1984, which provided for the
establishment of a state-operated lottery, was implemented in 1985. In the
opinion of management, the State lottery has had an adverse impact and will
continue to have an adverse impact on total attendance and pari-mutuel
wagering at Santa Anita Racetrack (see Item 1 "Business--Operating Company--
Santa Anita Racetrack").

In the future, legislation could be enacted to allow casino gaming or other
forms of gaming which are competitive with pari-mutuel wagering at Santa Anita
Park. Under federal law, certain types of gaming are lawful on Indian lands if
conducted in conformance with a Tribal-State compact, which the applicable
state must negotiate with an Indian tribe in good faith. Certain Indian tribes
seeking to establish gaming in California have instituted litigation against
the State of California to compel the State to permit them to do so. In 1993,
one federal district court held that California has a public policy
prohibiting casino gaming and need not negotiate a compact with respect to
casino gaming. In 1994, a federal appellate court generally affirmed the
decision as to casino gaming but remanded the case to federal district court
to determine whether the existing State lottery uses gaming machines in such a
manner as to make gaming machines the proper subject of a compact. In March
1995, a State appellate court ruled that a provision of the State lottery's
keno game is the legal equivalent of a slot machine. The full ramifications of
these rulings at this time are unclear. However, federal law provides that
states must allow Indian tribes within its borders to conduct gambling
activities that are otherwise legal within the state, subject to the
negotiated compact. If casino gaming or other forms of gaming are permitted in
California, such gaming could have an adverse impact on LATC.

DEPENDENCE ON LIMITED NUMBER OF CUSTOMERS

No material part of Operating Company's business is dependent upon a single
customer or a few customers; therefore, the loss of any one customer would not
have a materially adverse effect on the business of Operating Company.

EMPLOYEE AND LABOR RELATIONS

During the year ended December 31, 1995, LATC regularly employed
approximately 1,600 employees. Substantially all are employed on a seasonal
basis in connection with live thoroughbred horse racing or satellite meets at
Santa Anita Racetrack. During the relatively short periods when live or
satellite racing meets at Santa

17

Anita Racetrack are not being conducted, LATC maintains a staff of
approximately 260 employees, most of whom are engaged in maintaining or
improving the physical facilities at Santa Anita Racetrack or are engaged in
preparing for the next live or satellite meet.

All of LATC's employees, except for approximately 84 full-time management
and clerical employees, are covered by collective bargaining agreements with
labor unions. Fifteen of the seventeen labor agreements covering racetrack
employees were renegotiated in 1995. The two remaining labor agreements are
currently under renegotiation.

SEASONAL VARIATIONS IN BUSINESS

Operating Company is also subject to significant seasonal variation. LATC
conducts an annual meet commencing the day after Christmas and continuing
through mid-April. This seasonal variation is indicated by the following
unaudited quarterly results of operations for Operating Company during 1995
and 1994:

QUARTERS ENDED
1995
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
-------------------------------
MARCH JUNE SEPT. DEC.
------- ------- ------ -------

Total revenues.............................. $37,003 $15,572 $6,269 $11,489
Costs and expenses.......................... 34,944 15,135 6,246 12,341
Interest.................................... 91 87 130 93
------- ------- ------ -------
Income (loss) before income taxes........... 1,968 350 (107) (945)
Income tax benefit.......................... -- -- -- 2,000
------- ------- ------ -------
Net income (loss)........................... $ 1,968 $ 350 $ (107) $ 1,055
======= ======= ====== =======
Net income (loss) per common share.......... $ .18 $ .03 $ (.01) $ .09
======= ======= ====== =======

QUARTERS ENDED
1994
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
-------------------------------
MARCH JUNE SEPT. DEC.
------- ------- ------ --------

Total revenues.............................. $36,207 $15,294 $5,599 $ 11,311
Costs and expenses.......................... 36,062 16,126 5,469 13,586
Interest.................................... 106 112 120 108
------- ------- ------ --------
Net income (loss)........................... $ 39 $ (944) $ 10 $(2,383)
======= ======= ====== ========
Net income per common share................. $ .00 $ (.08) $ .00 $ (.21)
======= ======= ====== ========

Operating Company records operating revenues associated with thoroughbred
horse racing at Santa Anita Racetrack on a daily basis, except for season
admissions which are recorded ratably over the racing season. Costs and
expenses associated with thoroughbred horse racing revenues are charged
against income in those interim periods in which the thoroughbred horse racing
revenues are recognized. Other costs and expenses are recognized as they
actually occur throughout the year. The rental fee paid by Operating Company
to Realty is recognized by both Realty and Operating Company as it is earned.

INCOME TAX MATTERS

In 1979, prior to the pairing of the stock of Realty and Operating Company,
the IRS issued a private letter ruling (the "Ruling") in which the IRS held,
in effect, that the stock-pairing arrangement between the Companies and the
operation of the Racetrack by an Operating Company subsidiary would not
preclude Realty's qualification as a REIT. Subsequent to the issuance of the
Ruling, Congress amended the Internal Revenue Code (the "Amendment") to
prohibit a stock-pairing arrangement between a REIT and an operating company.
However, the Amendment does not apply to the Companies since they were paired
prior to June 30, 1983, the

18

effective date of the legislation. Furthermore, the Amendment does not affect
Realty's Ruling. Realty is one of only three continuing REITs whose stock was
paired with an operating company prior to 1983 and is thus not subject to the
Amendment.

REALTY

In the opinion of management, Realty has operated in a manner which has
qualified it as a REIT under Sections 856 through 860 of the Code. Realty
intends to continue to operate in a manner which will allow it to qualify as a
REIT under the Code. If, as intended, Realty continues to qualify as a REIT,
it generally will not be subject to federal corporate income taxes on its
taxable income and gains that it distributes to its shareholders. This
treatment substantially eliminates the "double taxation" (once at the
corporate level and again at the stockholder level) that generally results
from investment in a typical corporation. Income and gains that are not so
distributed will be taxed to a REIT at regular corporate rates. In addition, a
REIT is subject to certain taxes on net income from "foreclosure property"
(which is, in general, property acquired on default of a lease of such
property), income from the sale of property held primarily for sale to
customers in the ordinary course of business and excessive unqualified income.
In order to qualify as a REIT, among other things, the rental income received
by Realty from LATC must qualify as "rents from real property" for REIT
purposes. One requirement for such qualification is that Realty may not own,
directly or constructively, 10% or more of the outstanding voting power or
total number of shares of stock of LATC. Realty would be treated as owning
shares of stock in LATC in violation of this 10% limit if any person owns,
directly or constructively, 10% or more by value of the shares of stock of
Realty and Operating Company. In such an event, the rent paid to Realty by
LATC could not qualify as income of the type that can be received by a REIT.

In order to prevent such a situation, which would likely result in Realty's
disqualification as a REIT, the by-laws of Realty and Operating Company
preclude any transfer of shares which would cause any person to own, actually
or constructively, shares of stock of the Companies in violation of the above
limitation.

OPERATING COMPANY

Operating Company pays ordinary corporate income taxes on its taxable
income. Any income, net of taxes, will be available for retention in Operating
Company's business or for distribution to shareholders as dividends. Any
dividends distributed by Operating Company will be subject to tax at ordinary
rates and generally will be eligible for the dividends received deduction for
corporate shareholders to the extent of Operating Company's current or
accumulated earnings and profits. Distributions in excess of current or
accumulated earnings and profits are treated first, as a return of investment
and then, to the extent that such distribution exceeds a shareholder's
investment, as gain from the sale or exchange of such shares. However, there
is no tax provision which requires Operating Company to distribute any of its
after-tax earnings and Operating Company does not expect to pay cash dividends
in the foreseeable future.

19

ITEM 2. PROPERTIES

Information concerning property owned by Realty and Operating Company
required by this Item is incorporated by reference to the information
contained in Item 1. "Business" of this Report.

ITEM 3. LEGAL PROCEEDINGS

Certain claims, suits and complaints arising in the ordinary course of
business have been filed or were pending against Realty and/or Operating
Company and its subsidiaries at December 31, 1995. In the opinion of the
managements of Realty and Operating Company, all such matters are adequately
covered by insurance or, if not so covered, are without merit or are of such
kind, or involve such amounts, as would not have a significant effect on the
financial position or results of operations of Realty and Operating Company if
disposed of unfavorably.

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

Not applicable.

ITEM 4A. EXECUTIVE OFFICERS OF OPERATING COMPANY AND REALTY

(a) The names, ages and business experience of Operating Company's executive
officers during the past five years are set forth below:

BUSINESS EXPERIENCE DURING
NAME AND AGE THE PAST FIVE YEARS
------------ --------------------------

Stephen F. Keller, 57....... Chairman of the Board of Directors, President
and Chief Executive Officer since 1993;
President and Chief Operating Officer 1991-
1993; Chairman of the Board of Directors of
Realty 1991-1996; Director of Realty since
1991.
Clifford C. Goodrich, 53.... Executive Vice President since 1995; Vice
President 1989-1995;
President, LATC, since 1989.
Richard D. Brumbaugh, 49.... Vice President--Finance and Chief Financial
Officer since 1994;
Vice President--Finance and Chief Financial
Officer, LATC,
since 1994; Controller, LATC, 1985-1994.
Thomas S. Robbins, 42....... Vice President--Racing since 1990; Vice
President--Racing,
LATC, since 1990.
Kathryn J. McMahon, 35...... General Counsel and Secretary since 1994;
Secretary, LATC,
since 1994; Attorney, Sheppard, Mullin,
Richter & Hampton 1986-1994.
Michael J. Manning, 48...... Vice President and Assistant General Manager,
LATC, since 1993;
Assistant General Manager, LATC, 1990-1993.
Mark T. Stephens, 32........ Vice President--Marketing and Customer
Relations, LATC, since 1994;
Director of Marketing, LATC, 1993-1994;
Director of Marketing,
Bay Meadows Operating Co., 1991-1992.

Each executive officer of Operating Company is appointed by the Board of
Directors annually and holds office until a successor is duly appointed.

20

(b) The names, ages and business experience of Realty's executive officers
during the past five years are set forth below:

BUSINESS EXPERIENCE DURING
NAME AND AGE THE PAST FIVE YEARS
------------ --------------------------

William C. Baker, 62........ Chairman of the Board and Chief Executive
Officer since 1996;
Chairman, Carolina Restaurant Enterprises,
Inc. since 1992; Chairman, Coast Newport
Properties since 1989; President, Red Robin
International, Inc., 1993-1995.
Sherwood C. Chillingworth, Executive Vice President since 1996; Vice
69......................... Chairman of the Board since 1994; Chief
Executive Officer, 1994-1996; Executive Vice
President, Oak Tree Racing Association since
1993; Vice President and General Counsel, Oak
Tree Racing Association, 1992; President,
Chillingworth Corporation, 1975-1992.
Christopher T. Stirling, 41. President and Chief Operating Officer since
1994; Vice President, Homart
Development Company, 1989-1994.
Brian L. Fleming, 52........ Executive Vice President, Chief Financial
Officer and Secretary since 1994; Senior Vice
President, Carter Hawley Hale Stores, Inc.
1987-1994.
Tom D. Austin, 54........... Vice President Design and Construction since
1995; Director of
Development 1995; Owner, Austin Affiliates,
1992-1994;
Vice President, Western Region Design and
Construction, Homart Development Company,
1989-1992.
Frederick B. Cordova, III, Vice President Development since 1995; Manager
39......................... of Land and Planning,
Kaufman & Broad South Bay, Inc., 1994-1995;
Chief Executive Officer, Cordova Chase
Company, 1987-1994.

Each executive officer of Realty is appointed by the Board of Directors
annually and holds office until a successor is duly appointed.

(c) Recent Developments

Effective April 1, 1996, the Board of Directors of Realty elected William C.
Baker Chairman and Chief Executive Officer of Realty. Mr. Baker has been a
director of both Realty and Operating Company since 1991. Mr. Chillingworth
will remain Vice Chairman of Realty and will also serve as Executive Vice
President. Mr. Keller will remain Chairman and Chief Executive Officer of
Operating Company.

21

PART II

ITEM 5. MARKET FOR THE REGISTRANTS' COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS

The paired Common Stock of Realty and Operating Company is traded on the New
York Stock Exchange as Santa Anita Realty Enterprises under the symbol SAR.
The following table sets forth the high and low closing prices for the paired
Common Stock on the New York Stock Exchange Composite Tape and the cash
dividends declared by Realty for the periods indicated. Operating Company has
not declared cash dividends.

CASH
DIVIDENDS
HIGH LOW DECLARED
------- ------- ---------

1994
1st Quarter.................................. $20 1/2 $17 $.34
2nd Quarter.................................. 19 3/4 17 1/8 .20
3rd Quarter.................................. 18 16 5/8 .20
4th Quarter.................................. 17 13 3/8 .20
----
$.94(a)
====
1995
1st Quarter.................................. $17 1/2 $13 3/8 $.20
2nd Quarter.................................. 17 1/8 14 3/8 .20
3rd Quarter.................................. 15 13 3/8 .20
4th Quarter.................................. 13 5/8 11 7/8 .20
----
$.80
====
1996
1st Quarter (through March 15) $14 $12 $.20
====

- --------
(a) $.60 of the dividends paid per share during 1994 represented a return of
capital.

A regular quarterly dividend of $.20 per share is payable on March 29, 1996
to shareholders of record on March 8, 1996. The closing price of the paired
Common Stock on the New York Stock Exchange Composite Tape on March 15, 1996
was $13 3/4 per share. As of March 15, 1996, there were approximately 22,000
holders of the paired Common Stock, including the beneficial owners of shares
held in nominee accounts.

The current policy of the Board of Directors of Realty is to declare and pay
regular quarterly dividends equal to the greater of (i) $.20 per share
(provided sufficient funds are legally available and not required for other
purposes and provided further that such dividend payments are not prohibited
by the terms of any applicable credit agreements), or (ii) an amount
calculated to maintain Realty's qualification as a REIT under the Code by
effecting the distribution in each year of an amount approximating 95% of its
taxable income (other than net capital gains) (see item 1. "Business--Income
Tax Matters--Realty"). This policy is subject to review by the Board of
Directors from time to time in light of Realty's results of operations, its
financial condition, its cash requirements and such other factors as the Board
of Directors deems relevant.

Realty's revolving credit agreement contains restrictions on the payment of
dividends (see Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Santa Anita Realty Enterprises, Inc.--
Realty").

In order to retain earnings to finance its capital improvement program and
for the growth of its business, Operating Company has not paid cash dividends
since its formation and does not expect to pay cash dividends in the
foreseeable future.

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

22

ITEM 6. SELECTED FINANCIAL DATA

The financial data set forth on the following pages includes the information
for The Santa Anita Companies, Realty and Operating Company, for each of the
five years in the period ended December 31, 1995.

The separate results of operations and separate net income (loss) per share
of Realty and Operating Company cannot usually be added together to total the
results of operations and net income per share of The Santa Anita Companies,
because of adjustments and eliminations arising from inter-entity
transactions.

The following data should be read in conjunction with the information set
forth elsewhere herein regarding income tax matters (see Item 1. "Business--
Income Tax Matters").

The statements of operations of The Santa Anita Companies, Realty and
Operating Company for each of the five years in the period ended December 31,
1995 have been audited by Ernst & Young LLP, independent certified public
accountants. The selected financial data should be read in conjunction with
the other financial statements and related notes thereto included elsewhere in
this Joint Annual Report.

THE SANTA ANITA COMPANIES

AS OF AND FOR THE YEAR ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
----------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------

STATEMENTS OF OPERATIONS DATA:
Total revenues............... $ 81,206 $ 81,449 $ 95,011 $ 94,177 $ 91,583
Costs and expenses........... 114,761 79,135 97,133 86,958 81,630
-------- -------- -------- -------- --------
Income (loss) before income
taxes....................... (33,555) 2,314 (2,122) 7,219 9,953
Benefit (provision) for
income taxes................ 2,000 -- 2,523 158 (37)
-------- -------- -------- -------- --------
Income (loss) before
extraordinary gain.......... (31,555) 2,314 401 7,377 9,916
Extraordinary gain on early
retirement of debt.......... 4,050 -- -- -- --
-------- -------- -------- -------- --------
Net income (loss)............ $(27,505) $ 2,314 $ 401 $ 7,377 $ 9,916
======== ======== ======== ======== ========
Net income (loss) per common
share
Before extraordinary gain.. $ (2.81) $ .21 $ .04 $ .66 $ .89
Extraordinary gain......... .36 -- -- -- --
-------- -------- -------- -------- --------
$ (2.45) $ .21 $ .04 $ .66 $ .89
======== ======== ======== ======== ========
Dividends paid by Realty per
common share................ $ .80 $ 1.08 $ 1.36 $ 1.36 $ 2.08
======== ======== ======== ======== ========
Dividends declared by Realty
per common share............ $ .80 $ .94 $ 1.36 $ 1.36 $ 1.90
======== ======== ======== ======== ========
Weighted average shares
outstanding................. 11,214 11,143 11,141 11,141 11,141
======== ======== ======== ======== ========
BALANCE SHEET DATA:
Total assets(a)(b)........... $117,171 $149,844 $264,673 $254,698 $230,108
======== ======== ======== ======== ========
Loans payable(a)............. $ 51,074 $ 50,375 $153,131 $133,217 $100,954
======== ======== ======== ======== ========
Shareholders' equity(b)...... $ 31,701 $ 67,443 $ 75,522 $ 90,274 $ 98,051
======== ======== ======== ======== ========

- --------
(a) The decrease in total assets and loans payable in 1994 as compared with
1993 was due primarily to the sale of Realty's multifamily and industrial
properties in 1994 (see Item 1. "Business--Realty--Pacific Gulf Properties
Inc.").
(b) The decrease in total assets and shareholders' equity in 1995 as compared
with 1994 was due primarily to the nonrecurring charge of $38,500,000 in
1995 relating to Realty's plan to dispose of its non-core real estate
assets (see "Notes to Financial Statements--Note 2--Disposition of Non-
Core Real Estate Assets").

23

SANTA ANITA REALTY ENTERPRISES, INC.

AS OF AND FOR THE YEAR ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
-----------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------

STATEMENTS OF OPERATIONS DATA:
Revenues
Rental from racetrack..... $ 11,342 $ 13,070 $ 11,634 $ 12,683 $ 11,817
Rental property........... 8,447 11,054 25,105 21,164 17,369
Interest and other........ 2,637 2,108 5,222 2,120 2,313
-------- -------- -------- -------- --------
Total revenues.............. 22,426 26,232 41,961 35,967 31,499
-------- -------- -------- -------- --------
Costs and expenses
Rental property operating
expenses................. 2,671 4,182 11,039 8,405 6,612
Depreciation and
amortization............. 3,899 4,152 7,079 6,520 5,779
General and
administrative........... 3,420 4,148 4,244 4,156 4,292
Interest and other........ 4,321 5,930 9,866 9,303 8,687
Losses (earnings) from
unconsolidated joint
ventures................. 1,836 1,232 (446) (1,502) (2,472)
Minority interest in
losses of consolidated
joint ventures........... -- -- (891) (1,126) (1,098)
Costs of equity offering.. 700 -- -- -- --
Card club option write-
off...................... 2,000 -- -- -- --
Program for disposition of
non-core real estate
assets................... 38,500 -- -- -- --
Write-down of land held
for development.......... -- 1,043 -- -- --
Loss on disposition of
multifamily and
industrial operations.... -- -- 10,974 -- --
-------- -------- -------- -------- --------
Total costs and expenses.... 57,347 20,687 41,865 25,756 21,800
-------- -------- -------- -------- --------
Income (loss) before income
taxes and extraordinary
gain....................... (34,921) 5,545 96 10,211 9,699
Income tax benefit.......... -- -- 2,523 -- --
-------- -------- -------- -------- --------
Income (loss) before
extraordinary gain......... (34,921) 5,545 2,619 10,211 9,699
Extraordinary gain on early
retirement of debt......... 4,050 -- -- -- --
-------- -------- -------- -------- --------
Net income (loss)........... $(30,871) $ 5,545 $ 2,619 $ 10,211 $ 9,699
======== ======== ======== ======== ========
Net income (loss) per common
share
Before extraordinary gain. $ (3.09) $ .49 $ .23 $ .91 $ .86
Extraordinary gain........ .36 -- -- -- --
-------- -------- -------- -------- --------
$ (2.73) $ .49 $ .23 $ .91 $ .86
======== ======== ======== ======== ========
Dividends paid per common
share...................... $ .80 $ 1.08 $ 1.36 $ 1.36 $ 2.08
======== ======== ======== ======== ========
Dividends declared per
common share............... $ .80 $ .94 $ 1.36 $ 1.36 $ 1.90
======== ======== ======== ======== ========
Weighted average shares
outstanding................ 11,326 11,256 11,256 11,256 11,257
======== ======== ======== ======== ========
BALANCE SHEET DATA:
Total assets................ $ 83,367 $117,329 $228,092 $220,980 $196,239
======== ======== ======== ======== ========
Loans payable............... $ 49,339 $ 47,846 $149,877 $129,299 $100,954
======== ======== ======== ======== ========
Shareholders' equity........ $ 25,642 $ 63,784 $ 68,819 $ 81,509 $ 86,608
======== ======== ======== ======== ========

24

SANTA ANITA OPERATING COMPANY

AS OF AND FOR THE YEAR ENDED DECEMBER
31,
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------

STATEMENTS OF OPERATIONS DATA:
Revenues
Wagering commissions........... $45,587 $43,096 $38,428 $41,339 $40,483
Admission related.............. 24,060 24,750 25,842 28,795 30,180
Interest and other............. 686 565 571 747 1,457
------- ------- ------- ------- -------
Total revenues................... 70,333 68,411 64,841 70,881 72,120
------- ------- ------- ------- -------
Costs and expenses
Horse racing operating costs... 48,686 48,352 46,696 52,254 51,779
Depreciation and amortization.. 3,196 4,251 2,768 2,732 2,634
General and administrative..... 5,442 5,583 5,801 6,154 5,302
Interest....................... 401 446 493 194 179
Rental expense to Realty....... 11,342 13,057 11,315 12,686 11,930
------- ------- ------- ------- -------
Total costs and expenses......... 69,067 71,689 67,073 74,020 71,824
------- ------- ------- ------- -------
Income (loss) before income
taxes........................... 1,266 (3,278) (2,232) (3,139) 296
Benefit (provision) for income
taxes........................... 2,000 -- -- 243 (37)
------- ------- ------- ------- -------
Net income (loss)................ $ 3,266 $(3,278) $(2,232) $(2,896) $ 259
======= ======= ======= ======= =======
Net income (loss) per common
share........................... $ .29 $ (.29) $ (.20) $ (.26) $ .02
======= ======= ======= ======= =======
Dividends declared per common
share........................... $ -- $ -- $ -- $ -- $ --
======= ======= ======= ======= =======
Weighted average shares
outstanding..................... 11,214 11,143 11,141 11,141 11,141
======= ======= ======= ======= =======
BALANCE SHEET DATA:
Total assets..................... $39,370 $38,912 $42,152 $39,458 $39,828
======= ======= ======= ======= =======
Loans payable.................... $ 1,735 $ 2,529 $ 3,254 $ 3,918 $ --
======= ======= ======= ======= =======
Shareholders' equity............. $11,210 $ 9,000 $12,274 $14,506 $17,402
======= ======= ======= ======= =======

25

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

THE SANTA ANITA COMPANIES

COMBINED RESULTS OF OPERATIONS--1995 COMPARED WITH 1994 AND 1993

Combined results of operations before extraordinary gain for the year ended
December 31, 1995 was a loss of $31,555,000 or $2.81 per share, compared with
income for the year ended December 31, 1994 of $2,314,000 or $.21 per share
and income of $401,000 or $.04 per share for the year ended December 31, 1993.
All three years contained several nonrecurring charges and credits which make
comparison of the results of operations difficult. Management believes that
income before nonrecurring charges and extraordinary gain is a more meaningful
measure of the results of operations of the combined companies.

Income, before nonrecurring items and extraordinary gain, was $7,047,000 or
$0.63 per share in 1995, compared with $5,522,000, or $.50 per share in 1994
and $6,615,000 or $.59 per share in 1993, and reconciles to income (loss)
before extraordinary gain as follows:

1995 1994 1993
---------------- -------------- ---------------
INCOME PER INCOME PER INCOME PER
(LOSS) SHARE (LOSS) SHARE (LOSS) SHARE
-------- ------ ------- ----- -------- -----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Income before nonrecurring
items and extraordinary
gain:...................... $ 7,047 $ .63 $ 5,522 $ .50 $ 6,615 $ .59
Nonrecurring items:
Costs of equity offering.. (750) (.07) -- -- -- --
Card club option write-
off...................... (2,000) (.17) -- -- -- --
Program for disposition of
non-core real estate
assets................... (38,500) (3.43) -- -- -- --
Equity in Pacific real
estate gain.............. 1,080 .10 -- -- -- --
Write-down of land held
for development.......... -- -- (1,043) (.09) -- --
Debt repayment costs on
Fashion Park financing,
net of minority interest. -- -- (739) (.07) -- --
Write-down of turf course. (432) (.04) (1,426) (.13) -- --
Franchise tax adjustments,
refunds and interest..... 2,000 .17 -- -- 5,734 .53
Special deferred
compensation charge...... -- -- -- -- (974) (.09)
Loss on disposition of
multifamily and
industrial operations.... -- -- -- -- (10,974) (.99)
-------- ------ ------- ----- -------- -----
Income (loss) before
extraordinary gain......... $(31,555) $(2.81) $ 2,314 $ .21 $ 401 $ .04
======== ====== ======= ===== ======== =====

For additional information on the nonrecurring items, see separate
Management's Discussion and Analysis of Realty and Operating Company below.

SANTA ANITA REALTY ENTERPRISES, INC.

The following narrative discusses Realty's results of operations for the
years ended December 31, 1995, 1994 and 1993, together with liquidity and
capital resources as of December 31, 1995. Amounts for the years ended
December 31, 1994 and 1993 have been restated to conform to the amounts
reported for the year ended December 31, 1995 (see "Notes to Financial
Statements--Note 6--Investments in Unconsolidated Joint Ventures").

RESULTS OF OPERATIONS--1995 COMPARED WITH 1994

Realty's revenues are derived principally from the rental of real property.
Total revenues for the year ended December 31, 1995 were $22,426,000, compared
with $26,232,000 for the year ended December 31, 1994, a decrease of
$3,806,000. The lower 1995 revenues were due primarily to a decrease in
Racetrack rental revenues

26

and to Realty selling its multifamily and industrial operations to Pacific
Gulf Properties Inc. ("Pacific"), formerly a wholly-owned subsidiary, in 1994
(see Item 1. "Business--Realty--Pacific Gulf Properties Inc." and "Notes to
Financial Statements--Note 4--Disposition of Multifamily and Industrial
Properties").

The most significant source of rental revenue is the lease of Santa Anita
Racetrack. Racetrack rental revenues for 1995 were $11,342,000, a decrease of
13.2% from rental revenues of $13,070,000 in 1994. The decrease in rental
revenues resulted primarily from new lease terms with LATC. The lease with
LATC for the Santa Anita Racetrack expired in December 1994 and was amended
and extended through December 31, 1999. The new lease provides that Realty
will receive 1.5% of the aggregate on-track wagering on live races at Santa
Anita Racetrack and that the rental rate on wagering commissions from
satellite wagering on races originating at Santa Anita Racetrack will be
26.5%. In addition, Realty receives 26.5% of the wagering commissions from
satellite wagering on races originating from certain other racetracks. If the
amended lease terms had been in effect for the year ended December 31, 1994,
racetrack rental revenues would have been $11,123,000.

Rental revenues from other real estate investments for 1995 were $8,447,000,
a decrease of 23.6% from other rental revenues of $11,054,000 in 1994. The
decrease in 1995 was due primarily to Realty selling its multifamily and
industrial operations in 1994.

Costs and expenses for 1995 were $16,147,000, excluding nonrecurring costs
and expenses totaling $41,200,000, a decrease of 14.6% from costs and expenses
for 1994 of $18,905,000, excluding nonrecurring expenses of $1,782,000. The
decrease in 1995 was due primarily to the disposition of the multifamily and
industrial operations and a decrease in interest expense, partially offset by
an increase in losses from unconsolidated joint ventures.

RESULTS OF OPERATIONS--1994 COMPARED WITH 1993

Total revenues for the year ended December 31, 1994 were $26,232,000,
compared with $41,961,000 for the year ended December 31, 1993, a decrease of
37.5%. The lower 1994 revenues were due primarily to Realty selling its
multifamily and industrial operations to Pacific in 1994 and to nonrecurring
interest earned on a California Franchise Tax Board refund received in 1993
and discussed below.

Racetrack rental revenues for 1994 were $13,070,000, an increase of 12.3%
over revenues of $11,634,000 in 1993. The increase in rental revenues resulted
from an increase in average daily wagering and more racing days in 1994.

Rental revenues from other real estate investments for 1994 were
$11,054,000, a decrease of 56.0% from other rental revenues of $25,105,000 in
1993. The decrease in 1994 was due primarily to the 1994 sale by Realty to
Pacific of its multifamily and industrial operations.

Interest and other income was $2,108,000 in 1994, compared with $5,222,000
in 1993, a decrease of 59.6%. The decrease was primarily attributable to
interest income of $3,211,000 in 1993 related to a tax settlement with the
California Franchise Tax Board. The settlement was for tax years prior to 1980
related to Realty's predecessor. In addition to interest earned on the
settlement, there was an income tax benefit of $2,523,000 in 1993.

Costs and expenses for 1994 were $18,905,000, excluding nonrecurring
expenses totaling $1,782,000, a decrease of 38.8% from costs and expenses of
$30,891,000 in 1993, excluding a nonrecurring loss of $10,974,000 on the
disposition of multifamily and industrial operations. The decrease was due
primarily to the disposition of the multifamily and industrial operations and
was partially offset by increases in interest expense attributable to
continuing operations. The increase in continuing interest expense was due to
a steady increase in interest rates throughout 1994, an increase in borrowing
levels in the 1994 and 1993 fourth quarters and debt repayment costs in 1994.

27

LIQUIDITY AND CAPITAL RESOURCES

Realty has funds available from a combination of short- and long-term
sources. Short-term sources included cash of $167,000 at December 31, 1995.

The decrease in cash for the year ended December 31, 1995 was $2,084,000,
compared with a decrease in cash of $4,459,000 in 1994. The decline in the
decrease in cash of $2,375,000 was attributable to a decrease of $396,000 in
cash provided by operating activities, a decrease of $62,873,000 in cash
provided by investing activities and a decrease of $65,644,000 in cash used in
financing activities.

The decrease in cash provided by operating activities of $396,000 in 1995
was due primarily to a decrease in apartment and industrial operating income
of $997,000, due to the sale of the multifamily and industrial operations in
1994, a decrease in racetrack rental revenues of $1,728,000 in 1995, due to
new lease terms with LATC, and $700,000 of equity offering costs and $480,000
of Irwindale development costs charged to 1995 operating earnings. These
decreases in cash provided by operating activities were partially offset by a
decrease in interest expense of $1,609,000 in 1995 and a decrease in other
liabilities of $1,720,000 in 1994, compared with a decrease in other
liabilities of $40,000 in 1995.

The decrease in cash provided by investing activities of $62,873,000 in 1995
was due primarily to proceeds from the disposition of the multifamily and
industrial operations of $44,425,000 in 1994, a decrease in payments received
on loans receivable of $9,732,000, primarily repayment of Fashion Park
partnership advances in 1994, an increase in investments in and advances to
unconsolidated joint ventures of $2,622,000, a decrease in distributions from
unconsolidated joint ventures of $1,152,000 and an increase in additions to
other assets of $5,415,000 in 1995, primarily the purchase of the option on
the Bell casino and expenditures associated with the development of the Santa
Anita Entertainment Center. These decreases in cash provided by investing
activities were partially offset by an increase in dividends received from
Pacific of $1,224,000 in 1995.

The decrease in cash used in financing activities of $65,644,000 in 1995 was
due primarily to the repayment of bank loans payable of $77,913,000 in 1994,
primarily from proceeds from the disposition of the multifamily and industrial
operations. Other decreases in cash used in financing activities included
additional borrowings of $6,350,000 in 1995, under the revolving credit
agreement, a decrease in dividends paid of $3,061,000 in 1995 and the issuance
of common stock to Operating Company in 1995, valued at $1,810,000, for its
use in granting restricted stock awards. These decreases in cash used in
financing activities were partially offset by proceeds from real estate loans
payable of $24,400,000 in 1994, related to real estate loans on the six
shopping centers and refinancing the mortgage on the medical office building
and by a decrease in intercompany payables of $641,000 in 1995, compared with
an increase in intercompany payables of $1,525,000 in 1994.

In November 1994, Realty entered into a one-year $30,000,000 revolving
credit agreement with a commercial bank. In November 1995, the agreement was
extended to January 26, 1996 and in January 1996, an amendment to the
revolving credit agreement extended the term to June 30, 1996 and reduced
available borrowings to $20,000,000. Borrowings under the revolving credit
agreement bear interest, at Realty's option, at the prime rate, at LIBOR plus
1%, or at the 30-day, 60-day or 90-day certificate of deposit rate plus 1%.
Realty is in discussions with the commercial bank and expects the credit
agreement to be extended through December 31, 1996. Realty's Racetrack rental
revenues have been pledged as collateral under the credit agreement.

The revolving credit agreement contains a restriction on the payment of
dividends to the lesser of $.80 per share or $9,200,000 in any twelve-month
period beginning on or after July 1, 1994. Realty's current dividend policy is
in compliance with this dividend restriction. Additionally, at December 31,
1995, Realty was in compliance with the other financial ratio and maintenance
restrictions, except for the net worth restriction. Realty has obtained a
waiver of noncompliance from the commercial bank and has cured the
noncompliance as of January 31, 1996.

28

During 1995, Realty adopted a plan to dispose of its non-core real estate
assets and, accordingly, reduced the book value of these assets to their
estimated realizable values, resulting in a nonrecurring charge of
$38,500,000, of which $34,500,000 was recorded in the third quarter and
$4,000,000 was recorded in the fourth quarter. The disposition plan is being
undertaken in an orderly manner and was influenced by Realty's increased focus
on the development of its Arcadia property. The assets to be disposed of have
an adjusted carrying value of $27,652,000 at December 31, 1995 and consist of
six neighborhood shopping centers located in Southern California and Arizona;
commercial office buildings in Santa Ana and Upland, California; and an
investment in Joppa Associates, a partnership which owns a vacant retail
facility and undeveloped land adjacent to the Towson Town Center regional
shopping center in Maryland. Included in the results of operations for the
year ended December 31, 1995 is a loss of $1,261,000 relating to the non-core
real estate assets. Also included in the nonrecurring charge was a $2,500,000
reserve for loss on disposition of notes receivable.

In November 1995, Realty completed a negotiated, early and reduced payoff of
the mortgage loan on the Santa Ana office building. The mortgage holder agreed
to accept a cash payment of $7,500,000 as settlement in full of the 9.375%
note due in 1998. The prepayment resulted in a gain of $4,050,000, net of
miscellaneous closing expenses, which was reflected as an extraordinary gain
on early retirement of debt in The Santa Anita Companies and Realty statements
of operations.

Realty has executed a joint and several guaranty of a loan issued to expand
the Towson Town Center located in Towson, Maryland (owned 65% by H-T
Associates) in the amount of $66,135,000. Realty's two partners in the venture
have also each executed repayment guaranties, although one of the partners has
a limited repayment guaranty. The loan balance to which the guaranties relate
is $164,641,000. The repayment guaranties contain covenants which, among other
matters, require the guarantors to maintain certain minimum levels of net
worth. At December 31, 1995, Realty was in default under the minimum net worth
covenant. Realty is currently in discussions with its partners and the lender
to restructure the loan and modify the net worth requirement in the guaranty.
If the discussions prove to be unsatisfactory, the lender may, among other
things, foreclose on the assets of H-T Associates and pursue other remedies
under the guaranties. The outcome of the discussions cannot presently be
determined and no adjustment has been made in the financial statements.

Since neither Realty nor either of its partners expects to have sufficient
liquidity to pay the loan when due in 1999, it is expected that the loan will
be refinanced. Ability to refinance the loan is dependent on several factors,
including value of the property, interest rates and the credit environment at
the time of refinancing. There can be no assurance that the loan can be
refinanced when due.

Realty has also executed a joint and several guaranty of a loan on property
(owned 100% by Joppa Associates) adjacent to Towson Town Center in the amount
of $8,247,000. One of Realty's other two partners, The Hahn Company, has
executed a repayment guaranty for the full amount of the loan. The loan
balance to which the guaranties relate is $16,494,000. At December 31, 1995,
Realty was in compliance with the guaranty covenants.

Realty has agreed to provide Operating Company with up to $10,000,000 in
short-term advances, which is dependent upon Realty's liquidity and capital
resources. At December 31, 1995, Realty has guaranteed an Operating Company
capital lease in the amount of $1,735,000.

At December 31, 1995, Realty's secured real estate loans receivable were
carried at $10,954,000, net of $2,500,000 of realization reserves, and had
maturities ranging from 1996 to 2002. For the year ended December 31, 1995,
secured real estate loans receivable earned interest income of $1,058,000.

At December 31, 1995, Realty's investment in 784,419 shares of Pacific
common stock was carried at $12,967,000 and has a current annual dividend rate
of $1.60 per share. On February 2, 1996, Realty notified Pacific of Realty's
intent to sell the Pacific shares in an orderly manner pursuant to privately
negotiated or open market transactions. Realty also exercised its right to
have Pacific register such shares pursuant to a Registration Rights Agreement
dated as of February 1, 1994.

29

Realty expects that funds provided by operating activities and the sale of
non-core real estate assets and Pacific common stock will provide sufficient
liquidity to meet working capital needs and reduce outstanding borrowings
under the revolving credit agreement.

IMPACT OF INFLATION

Realty's management believes that, for the foreseeable future, revenues and
income from Santa Anita Racetrack and its other real estate investments should
not be adversely affected in a material way by inflationary pressures. Certain
leases include clauses enabling Realty to participate in tenants' future
increases and gross revenues and other leases include provisions which tie the
lease payments to the Consumer Price Index or include step-up provisions.

SANTA ANITA OPERATING COMPANY

The following narrative discusses Operating Company's results of operations
for the years ended December 31, 1995, 1994 and 1993 together with liquidity
and capital resources as of December 31, 1995.

RESULTS OF OPERATIONS--1995 COMPARED WITH 1994

Operating Company derives its revenues from thoroughbred horse racing
activities. Horse racing revenues were $69,647,000 in 1995, up 2.7% from
$67,846,000 in 1994, primarily due to an increase in racing days and total
wagering.

In 1995, live thoroughbred horse racing at Santa Anita Racetrack totaled 120
days compared with 117 days in 1994. Total on-track attendance at the live
racing events in 1995 was down 9.7% from the prior year and average daily
attendance declined 11.9%. Total and average daily wagering were up 12.0% and
9.2% in 1995 compared with 1994. On-track wagering decreased 6.3%, wagering at
Southern California satellite locations increased 8.8%, wagering at out-of-
state locations increased 20.3% and wagering at Northern California locations
increased 106.6% in 1995 compared with 1994.

Management anticipates that the movement from on-track attendance and
wagering to off-site is likely to continue. The growth rate in off-site
wagering is dependent primarily upon such factors as Operating Company's
ability to access new markets and the removal of various legal barriers which
inhibit or restrict entry into such markets.

Also, Santa Anita Racetrack operated 140 days in 1995 and 145 days in 1994
as a satellite wagering facility for Hollywood Park and Del Mar. Total and
average daily attendance as a satellite wagering facility were down 5.9% and
2.5% in 1995 compared with 1994. Total wagering was down 2.5%, while average
daily wagering was up 1.0% in 1995 compared with 1994.

Horse racing operating costs were $48,686,000 (or 69.9% of horse racing
revenues) in 1995 versus $48,352,000 (or 71.3% of horse racing revenues) in
1994. The operating margin improvement was primarily due to the implementation
of certain cost control measures.

Depreciation expense was $3,196,000 in 1995, $1,055,000 lower than the
$4,251,000 in 1994. Depreciation expense includes an accelerated depreciation
charge of $432,000 in 1995 and $1,426,000 in 1994 on the Santa Anita Racetrack
turf course, which was replaced in April 1995.

General and administrative expenses were $5,442,000 in 1995, a decrease of
2.5% from $5,583,000 in 1994 due to lower executive compensation expenses in
1995. Interest expense decreased to $401,000 in 1995 from $446,000 in 1994.

30

Rental expense to Realty was $11,342,000 in 1995 compared with $13,057,000
in 1994. The decrease in rental expense of 13.1% reflects the new lease terms
with Realty. Under the new lease terms, LATC pays to Realty 1.5% of the on-
track wagering on live races at Santa Anita Racetrack and 26.5% of its
wagering commissions from all satellite wagering. The old lease required LATC
to pay Realty the same 1.5% of the on-track wagering on live races at Santa
Anita Racetrack but required 40% of its wagering commissions from satellite
wagering during the live race meets.

An income tax benefit of $2,000,000 was recognized in 1995, as a result of
various items, the most significant of which, related to a draw down of
deferred taxes relating to an expected withdrawal of Franchise Tax Board
assessments for 1986 through 1988.

Due to the revenue and expense items previously discussed, Operating Company
reported net income of $3,266,000, or $.29 per share in 1995, compared with a
net loss of $3,278,000, or $.29 per share for the comparable period in 1994.

RESULTS OF OPERATIONS--1994 COMPARED WITH 1993

Horse racing revenues were $67,846,000 in 1994, up 5.6% from $64,270,000 in
1993, primarily due to an increase in racing days and total wagering.

In 1994, live thoroughbred horse racing at Santa Anita Racetrack totaled 117
days compared with 114 days in 1993. Total on-track attendance at the live
racing events in 1994 was down 5.5% from the prior year and average daily
attendance was down 7.9%. Total wagering and average daily wagering during the
Santa Anita Meet were up 20.1% and 17.0% in 1994 compared with 1993. On-track
wagering decreased 3.7%, wagering at Southern California satellite locations
increased 12.4%, wagering at out-of-state locations increased 63.1% and
wagering at Northern California satellite locations increased substantially in
1994 compared with 1993.

Management anticipates that the movement from on-track attendance and
wagering to off-site is likely to continue. The growth rate in off-site
wagering is dependent primarily upon such factors as Operating Company's
ability to access new markets and the removal of various legal barriers which
inhibit or restrict entry into such markets.

Also, Santa Anita Racetrack operated 102 days in 1994 and 99 days in 1993 as
a satellite wagering facility for Hollywood Park and 43 days in 1994 and 42
days in 1993 as a satellite wagering facility for Del Mar. Total attendance as
a satellite wagering facility was down 4.0%, while wagering was up 1.3% in
1994 compared with 1993. Average daily attendance and average daily wagering
as a satellite wagering facility were down 6.7% and 1.5% in 1994 compared with
1993.

Horse racing operating costs were $48,352,000 (or 71.3% of horse racing
revenues) in 1994 versus $46,696,000 (or 72.7% of horse racing revenues) in
1993. The operating margin improvement was primarily due to the implementation
of certain cost control measures.

Depreciation expense was $4,251,000 in 1994, up 53.6% from the $2,768,000 in
1993. The $1,483,000 increase in depreciation expense was due primarily to the
accelerated depreciation charge on the Santa Anita Racetrack turf course,
which will be replaced in April 1995.

General and administrative expenses were $5,583,000 in 1994, a decrease of
3.8% from the $5,801,000 in 1993 due to the one-time charge of $759,000 in the
prior year for the post retirement benefits payable as a result of the death
of the former Chairman of the Board of Operating Company. Interest expense
decreased to $446,000 in 1994 from $493,000 in 1993. Rental expense to Realty
was $13,057,000 in 1994 compared with $11,315,000 in 1993. The increase in
rental expense of 15.4% reflects the overall increase in racing days and
wagering.

Due to the revenue and expense items previously discussed, Operating Company
reported a net loss of $3,278,000 or $.29 per share in 1994, compared with a
net loss of $2,232,000 or $.20 per share in 1993.

31

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1995, Operating Company's sources of liquidity included cash
and short-term investments of $13,710,000, together with a verbal commitment
from Realty to provide up to $10,000,000 in short-term advances. In addition,
Realty has guaranteed an Operating Company capital lease of $1,735,000.
Operating Company's ability to borrow from Realty is dependent upon Realty's
liquidity and capital resources (see Item 7. "Managements' Discussion and
Analysis of Financial Condition and Results of Operations--Santa Anita Realty
Enterprises, Inc.--Liquidity and Capital Resources"). As of the date of this
filing, Realty did not have sufficient liquidity and capital resources to
advance Operating Company funds. For the year ended December 31, 1995, short-
term investments earned interest income of $526,000.

The cash balances and related interest income from short-term investments
reflect seasonal variations associated with the Santa Anita meet. During the
meet, large cash balances and short-term investments are maintained by LATC,
including amounts to be disbursed for payment of license fees payable to the
state, purses payable to horse owners and un-cashed winning pari-mutuel
tickets payable to the public.

Operating Company generated $3,965,000 more cash from operations in 1995
than in 1994. Net cash provided by operating activities was $6,162,000 in 1995
compared with $2,197,000 in 1994. The increase in cash from operations was
primarily due to increased operating income from horse racing operations and
the non-cash charge resulting from the amortization of unearned compensation
expense.

Net cash used in investment activities was $5,142,000 in 1995 compared with
$1,496,000 in 1994. The $3,646,000 increase in cash used in investment
activities was attributable to a higher level of capital improvements at Santa
Anita Racetrack and the purchase of common stock of Realty for the grant of
restricted stock.

Net cash used in financing activities was $153,000 in 1995 compared with
$2,246,000 in 1994. In 1995, the repayment of a capital lease was partially
offset by the increase in the amount due from Realty.

IMPACT OF INFLATION

LATC's expenses are heavily labor-intensive with labor rates being covered
by negotiated contracts with labor unions. Labor contracts with the pari-
mutuel, service and operational employees were successfully renegotiated in
1995. Management continues to address cost containment and labor productivity
in all areas.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this Item is incorporated by reference to the
information listed in the Index to Financial Statements filed with this
Report.

ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

32

PART III

Pursuant to General Instruction G(3) to Form 10-K, the information called
for by this Part of Form 10-K is incorporated herein by reference to such
information contained in the registrants' definitive joint proxy statement to
be filed, pursuant to Regulation 14A, with the Securities and Exchange
Commission not later than 120 days after the end of the fiscal year ended
December 31, 1995.

PART IV

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

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

1. Financial Statements
See Index to Financial Statements

2. Financial Statement Schedules
See Index to Financial Statement Schedules

3.Exhibits
See Exhibit Index

(b) Reports on Form 8-K. No reports on Form 8-K have been filed during the
last quarter of the fiscal year ended December 31, 1995.

33

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, REALTY AND OPERATING COMPANY HAVE DULY CAUSED THIS REPORT
TO BE SIGNED ON THEIR BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.

SANTA ANITA REALTY ENTERPRISES, INC. SANTA ANITA OPERATING COMPANY

By: /s/ William C. Baker By: /s/ Stephen F. Keller
----------------------------------- --------------------------------
William C. Baker Stephen F. Keller
Chairman of the Board and Chairman of the Board, President
Chief Executive Officer and Chief Executive Officer
(Principal Executive Officer) (Principal Executive Officer)

Date: April 1, 1996 Date: April 1, 1996

By: /s/ Brian L. Fleming By: /s/ Richard D. Brumbaugh
----------------------------------- --------------------------------
Brian L. Fleming Richard D. Brumbaugh
Executive Vice President and Vice President--Finance and
Chief Financial Officer Chief Financial Officer
(Principal Financial and (Principal Financial and
Accounting Officer) Accounting Officer)

Date: April 1, 1996 Date: April 1, 1996

34

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
REGISTRANTS AND IN THE CAPACITIES AND ON THE DATE INDICATED.

SIGNATURE TITLE
--------- -----

/s/ Stephen F. Keller Chairman of the Board, President and Chief
___________________________________________ Executive Officer (Principal Executive
Stephen F. Keller Officer) of Operating Company and
Director of Realty

/s/ William C. Baker Chairman of the Board and Chief Executive
___________________________________________ Officer (Principal Executive Officer) of
William C. Baker Realty and Director of Operating Company

/s/ Thomas J. Barrack, Jr. Director of Operating Company and Director
___________________________________________ of Realty
Thomas J. Barrack, Jr.

/s/ Sherwood C. Chillingworth Executive Vice President and Director of
___________________________________________ Realty
Sherwood C. Chillingworth

/s/ Richard S. Cohen Director of Operating Company and Director
___________________________________________ of Realty
Richard S. Cohen

/s/ James P. Conn Director of Operating Company and Director
___________________________________________ of Realty
James P. Conn

/s/ Arthur Lee Crowe Director of Operating Company and Director
___________________________________________ of Realty
Arthur Lee Crowe

/s/ John C. Cushman, III Director of Operating Company and Director
___________________________________________ of Realty
John C. Cushman, III

/s/ Clifford C. Goodrich Executive Vice President and Director of
___________________________________________ Operating Company
Clifford C. Goodrich

/s/ Taylor B. Grant Director of Realty
___________________________________________
Taylor B. Grant

/s/ J. Terrence Lanni Director of Operating Company and Director
___________________________________________ of Realty
J. Terrence Lanni

/s/ Thomas P. Mullaney Director of Operating Company and Director
___________________________________________ of Realty
Thomas P. Mullaney

/s/ William D. Schulte Director of Operating Company and Director
___________________________________________ of Realty
William D. Schulte

Date: April 1, 1996

35

SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS

PAGE
----

INDEPENDENT AUDITORS' REPORT.............................................. 38

THE SANTA ANITA COMPANIES
Combined Balance Sheets as of December 31, 1995 and 1994................ 39
Combined Statements of Operations for the years ended December 31, 1995,
1994 and 1993.......................................................... 40
Combined Statements of Shareholders' Equity for the years ended December
31, 1995, 1994 and 1993................................................ 41
Combined Statements of Cash Flows for the years ended December 31, 1995,
1994 and 1993.......................................................... 42

SANTA ANITA REALTY ENTERPRISES, INC.
Consolidated Balance Sheets as of December 31, 1995 and 1994............ 43
Consolidated Statements of Operations for the years ended December 31,
1995, 1994 and 1993.................................................... 44
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1995, 1994 and 1993....................................... 45
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1994 and 1993.................................................... 46

SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets as of December 31, 1995 and 1994............ 47
Consolidated Statements of Operations for the years ended December 31,
1995, 1994 and 1993.................................................... 48
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1995, 1994 and 1993....................................... 49
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1994 and 1993.................................................... 50

NOTES TO FINANCIAL STATEMENTS............................................. 51

ANITA ASSOCIATES
Independent Auditor's Report............................................ 74
Financial Statements and Notes.......................................... 75

H-T ASSOCIATES
Independent Auditors' Report............................................ 86
Financial Statements and Notes.......................................... 87

PACIFIC GULF PROPERTIES INC.
Realty hereby incorporates by reference the consolidated financial
statements and schedule of Pacific Gulf Properties Inc. included in
such company's Annual Report on Form 10-K for the year ended December
31, 1995.

36

SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENT SCHEDULES

The schedules listed below relate to Realty and Operating Company as
indicated:

SCHEDULES FOR
------------------------------------
OPERATING
SCHEDULE REALTY COMPANY
- -------- ------ ---------
(REFERENCE IS TO PAGE NUMBER)

II Valuation and Qualifying Accounts as of
December 31, 1995 and 1994 71 Omitted
III Real Estate and Accumulated Depreciation as
of December 31, 1995 72 Omitted

Schedules not listed above have been omitted because either the conditions
under which they are required are absent, not applicable, or the required
information is included in the financial statements and related notes thereto.

37

INDEPENDENT AUDITORS' REPORT

To the Shareholders and Board of Directors
Santa Anita Realty Enterprises, Inc. and
Santa Anita Operating Company

We have audited the financial statements and schedules listed on pages 36
and 37 of:

(a) The Santa Anita Companies

(b) Santa Anita Realty Enterprises, Inc. ("Realty"); and

(c) Santa Anita Operating Company and Subsidiaries.

These financial statements and schedules are the responsibility of the
companies' management. Our responsibility is to express an opinion on these
financial statements and schedules based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the above-listed entities
at December 31, 1995 and 1994 and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1995,
in conformity with generally accepted accounting principles. Further, it is
our opinion that the schedules referred to above, when considered in relation
to the financial statements taken as a whole, present fairly in all material
respects the information set forth therein.

As discussed in Note 6, certain joint ventures previously consolidated by
Realty have been reported in 1995 using the equity method and, accordingly,
prior years' financial statements have been restated to conform to this
presentation.

Ernst & Young LLP

Los Angeles, California
March 7, 1996

38

THE SANTA ANITA COMPANIES

COMBINED BALANCE SHEETS

DECEMBER 31, 1995 AND 1994

ASSETS

1995 1994
------------ ------------
(RESTATED)

Real estate assets
Santa Anita Racetrack, less accumulated
depreciation of $20,216,000 and $19,431,000..... $ 9,030,000 $ 8,304,000
Commercial properties, less accumulated
depreciation of $3,631,000 and $3,323,000....... 10,342,000 10,612,000
Commercial properties to be sold, less
accumulated depreciation of $16,737,000 and
$15,449,000..................................... 27,337,000 54,105,000
Investments in and advances to unconsolidated
joint ventures.................................. 3,166,000 7,434,000
Real estate loans receivable..................... 10,954,000 13,911,000
------------ ------------
60,829,000 94,366,000
Cash............................................... 11,355,000 9,494,000
Short-term investments, at cost (approximates
market)........................................... 2,522,000 5,600,000
Accounts receivable................................ 3,771,000 3,037,000
Prepaid expenses and other assets.................. 6,494,000 5,056,000
Investment in Pacific Gulf Properties Inc.......... 12,967,000 12,825,000
Property, plant and equipment, at cost, less
accumulated depreciation of $24,968,000 and
$23,093,000....................................... 19,233,000 19,466,000
------------ ------------
$117,171,000 $149,844,000
============ ============

LIABILITIES AND SHAREHOLDERS' EQUITY

Real estate loans payable.......................... $ 28,389,000 $ 40,546,000
Bank loans payable................................. 22,685,000 9,829,000
Accounts payable................................... 11,208,000 11,389,000
Other liabilities.................................. 16,967,000 12,394,000
Income taxes....................................... 326,000 --
Dividends payable.................................. 2,277,000 2,251,000
Deferred revenues.................................. 2,379,000 2,427,000
Deferred income taxes.............................. 1,239,000 3,565,000
------------ ------------
85,470,000 82,401,000
------------ ------------
Shareholders' equity
Preferred stock, $.10 par value; authorized
6,000,000 shares; none issued................... -- --
Common stock, $.10 par value; authorized
19,000,000 shares; issued and outstanding
11,270,500 and 11,143,853 shares................ 2,253,000 2,227,000
Additional paid-in capital....................... 136,552,000 134,615,000
Unearned compensation expense.................... (1,209,000) --
Retained earnings (deficit)...................... (105,895,000) (69,399,000)
------------ ------------
31,701,000 67,443,000
------------ ------------
$117,171,000 $149,844,000
============ ============

See accompanying notes.

39

THE SANTA ANITA COMPANIES

COMBINED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

1995 1994 1993
------------ ----------- -----------
(RESTATED)

Revenues
Horse racing.......................... $ 69,647,000 $67,846,000 $64,270,000
Rental property....................... 8,447,000 11,054,000 25,105,000
Interest and other.................... 3,112,000 2,549,000 5,636,000
------------ ----------- -----------
81,206,000 81,449,000 95,011,000
------------ ----------- -----------
Costs and expenses
Horse racing operating costs.......... 48,686,000 48,339,000 46,377,000
Rental property operating expenses.... 2,671,000 4,182,000 11,039,000
Depreciation and amortization......... 6,905,000 8,232,000 9,676,000
General and administrative............ 8,812,000 9,731,000 10,045,000
Interest and other.................... 4,601,000 6,376,000 10,359,000
Losses (earnings) from unconsolidated
joint ventures....................... 1,836,000 1,232,000 (446,000)
Costs of equity offering.............. 750,000 -- --
Card club option write-off............ 2,000,000 -- --
Program for disposition of non-core
real estate assets................... 38,500,000 -- --
Minority interest in losses of
consolidated joint ventures.......... -- -- (891,000)
Write-down of land held for
development.......................... -- 1,043,000 --
Loss on disposition of multifamily and
industrial operations................ -- -- 10,974,000
------------ ----------- -----------
114,761,000 79,135,000 97,133,000
------------ ----------- -----------
Income (loss) before income taxes and
extraordinary gain..................... (33,555,000) 2,314,000 (2,122,000)
Income tax benefit...................... 2,000,000 -- 2,523,000
------------ ----------- -----------
Income (loss) before extraordinary gain. (31,555,000) 2,314,000 401,000
Extraordinary gain on early retirement
of debt................................ 4,050,000 -- --
------------ ----------- -----------
Net income (loss)....................... $(27,505,000) $ 2,314,000 $ 401,000
============ =========== ===========
Weighted average number of common shares
outstanding............................ 11,213,943 11,143,146 11,140,853
============ =========== ===========
Income (loss) per common share..........
Before extraordinary gain............. $ (2.81) $ .21 $ .04
Extraordinary gain.................... .36 -- --
------------ ----------- -----------
Net income (loss) per common share...... $ (2.45) $ .21 $ .04
============ =========== ===========
Dividends declared per common share..... $ .80 $ .94 $ 1.36
============ =========== ===========

See accompanying notes.

40

THE SANTA ANITA COMPANIES

COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

COMMON STOCK ADDITIONAL RETAINED UNEARNED
--------------------- PAID-IN EARNINGS COMPENSATION
SHARES AMOUNT CAPITAL (DEFICIT) EXPENSE TOTAL
---------- ---------- ------------ ------------- ------------ ------------

Combined balance,
December 31, 1992...... 11,140,853 $2,227,000 $134,554,000 $ (46,507,000) $ -- $ 90,274,000
Dividends declared on
common stock......... -- -- -- (15,153,000) -- (15,153,000)
Net income............ -- -- -- 401,000 -- 401,000
---------- ---------- ------------ ------------- ----------- ------------
Combined balance,
December 31, 1993...... 11,140,853 2,227,000 134,554,000 (61,259,000) -- 75,522,000
Stock issued in
connection with stock
option plan.......... 3,000 -- 61,000 -- -- 61,000
Dividends declared on
common stock......... -- -- -- (10,454,000) -- (10,454,000)
Net income............ -- -- -- 2,314,000 -- 2,314,000
---------- ---------- ------------ ------------- ----------- ------------
Combined balance,
December 31, 1994...... 11,143,853 2,227,000 134,615,000 (69,399,000) -- 67,443,000
Stock issued in
connection with
restricted stock
awards............... 126,647 26,000 1,937,000 -- (1,963,000) --
Amortization of
unearned compensation
expense.............. -- -- -- -- 754,000 754,000
Dividends declared on
common stock......... -- -- -- (8,991,000) -- (8,991,000)
Net loss.............. -- -- -- (27,505,000) -- (27,505,000)
---------- ---------- ------------ ------------- ----------- ------------
Combined balance,
December 31, 1995...... 11,270,500 $2,253,000 $136,552,000 $(105,895,000) $(1,209,000) $ 31,701,000
========== ========== ============ ============= =========== ============

See accompanying notes.

41

THE SANTA ANITA COMPANIES

COMBINED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

1995 1994 1993
------------ ----------- -----------
(RESTATED)

Cash flows from operating activities:
Net income (loss).................... $(27,505,000) $ 2,314,000 $ 401,000
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization...... 6,905,000 8,232,000 9,676,000
Amortization of unearned
compensation expense.............. 754,000 -- --
Deferred income taxes.............. (2,000,000) -- (108,000)
Minority interest in losses of
consolidated joint ventures....... -- -- (891,000)
Equity in losses (earnings) of
unconsolidated joint ventures..... 1,836,000 1,232,000 (446,000)
Equity in earnings from investment
in Pacific Gulf Properties Inc.... (1,374,000) (203,000) --
Card club option write-off......... 2,000,000 -- --
Program for disposition of non-core
real estate assets................ 38,500,000 -- --
Extraordinary gain on early
retirement of debt................ (4,050,000) -- --
Write-down of land held for
development....................... -- 1,043,000 --
Loss on disposition of multifamily
and industrial operations......... -- -- 10,974,000
Net (increase) decrease in certain
other assets...................... (184,000) 958,000 (543,000)
Net increase (decrease) in certain
other liabilities ................ 1,003,000 (1,294,000) 8,597,000
------------ ----------- -----------
Net cash provided by operating
activities.......................... 15,885,000 12,282,000 27,660,000
------------ ----------- -----------
Cash flows from investing activities:
Proceeds from disposition of
multifamily and industrial
operations.......................... -- 44,425,000 --
Payments received on loans
receivable.......................... 484,000 10,216,000 4,076,000
Origination of loans receivable...... (27,000) -- (8,163,000)
Additions and improvements to real
estate assets....................... (3,432,000) (2,911,000) (17,030,000)
Additions to property, plant and
equipment........................... (3,332,000) (1,553,000) (1,450,000)
Additions to certain other assets.... (5,415,000) -- --
Investments in and advances to
unconsolidated joint ventures....... (4,282,000) (1,660,000) (2,400,000)
Capital distributions from
unconsolidated joint ventures....... 1,862,000 3,014,000 3,829,000
Dividends received from Pacific Gulf
Properties Inc. .................... 1,224,000 203,000 --
------------ ----------- -----------
Net cash (used in) provided by
investing activities................ (12,918,000) 51,734,000 (21,138,000)
------------ ----------- -----------
Cash flows from financing activities:
Proceeds from real estate loans
payable............................. -- 24,400,000 --
Proceeds from bank loans payable..... 13,650,000 7,300,000 20,981,000
Repayment of real estate loans
payable............................. (8,074,000) (11,150,000) (403,000)
Repayment of bank loans payable...... (794,000) (78,638,000) (664,000)
Dividends paid....................... (8,966,000) (11,993,000) (15,152,000)
Proceeds from stock issued in
connection with exercise of stock
options and dividend reinvestment
plan................................ -- 61,000 --
Distributions to minority interest in
consolidated joint ventures, net.... -- -- (868,000)
------------ ----------- -----------
Net cash (used in) provided by
financing activities................ (4,184,000) (70,020,000) 3,894,000
------------ ----------- -----------
Net (decrease) increase in cash and
cash equivalents...................... (1,217,000) (6,004,000) 10,416,000
Cash and cash equivalents at beginning
of year .............................. 15,094,000 21,098,000 10,682,000
------------ ----------- -----------
Cash and cash equivalents at end of
year.................................. $ 13,877,000 $15,094,000 $21,098,000
============ =========== ===========

See accompanying notes.

42

SANTA ANITA REALTY ENTERPRISES, INC.

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 1995 AND 1994

ASSETS

1995 1994
------------ ------------
(RESTATED)

Real estate assets
Santa Anita Racetrack, less accumulated
depreciation of $20,216,000 and $19,431,000..... $ 9,030,000 $ 8,304,000
Commercial properties, less accumulated
depreciation of $4,068,000 and $3,699,000....... 13,047,000 13,378,000
Commercial properties to be sold, less
accumulated depreciation of $18,085,000 and
$16,668,000..................................... 27,652,000 56,212,000
Investments in and advances to unconsolidated
joint ventures.................................. 3,166,000 7,434,000
Real estate loans receivable..................... 10,954,000 13,911,000
------------ ------------
63,849,000 99,239,000
Cash............................................... 167,000 2,251,000
Accounts receivable................................ 658,000 655,000
Prepaid expenses and other assets.................. 5,726,000 2,359,000
Investment in Pacific Gulf Properties Inc. ........ 12,967,000 12,825,000
------------ ------------
$ 83,367,000 $117,329,000
============ ============

LIABILITIES AND SHAREHOLDERS' EQUITY

Real estate loans payable.......................... $ 28,389,000 $ 40,546,000
Bank loans payable................................. 20,950,000 7,300,000
Accounts payable................................... 420,000 589,000
Other liabilities.................................. 5,274,000 1,803,000
Dividends payable.................................. 2,277,000 2,251,000
Due to Operating Company........................... 415,000 1,056,000
------------ ------------
57,725,000 53,545,000
------------ ------------
Shareholders' equity
Preferred stock, $.10 par value; authorized
6,000,000 shares; none issued -- --
Common stock, $.10 par value; authorized
19,000,000 shares; issued and outstanding
11,383,000 and 11,256,353 shares................ 1,138,000 1,125,000
Additional paid-in capital....................... 118,881,000 117,084,000
Retained earnings (deficit)...................... (94,377,000) (54,425,000)
------------ ------------
25,642,000 63,784,000
------------ ------------
$ 83,367,000 $117,329,000
============ ============

See accompanying notes.

43

SANTA ANITA REALTY ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

1995 1994 1993
------------ ----------- -----------
(RESTATED)

Revenues
Rent from Racetrack................... $ 11,342,000 $13,070,000 $11,634,000
Shopping centers...................... 4,441,000 4,501,000 4,403,000
Office buildings...................... 4,006,000 4,301,000 4,521,000
Apartments and industrial............. -- 2,252,000 16,181,000
Interest and other.................... 2,637,000 2,108,000 5,222,000
------------ ----------- -----------
22,426,000 26,232,000 41,961,000
------------ ----------- -----------
Costs and expenses
Shopping centers...................... 1,045,000 1,065,000 1,225,000
Office buildings...................... 1,626,000 1,862,000 1,804,000
Apartments and industrial............. -- 1,255,000 8,010,000
Depreciation and amortization......... 3,899,000 4,152,000 7,079,000
General and administrative............ 3,420,000 4,148,000 4,244,000
Interest and other.................... 4,321,000 5,930,000 9,866,000
Losses (earnings) from unconsolidated
joint ventures....................... 1,836,000 1,232,000 (446,000)
Costs of equity offering.............. 700,000 -- --
Card club option write-off............ 2,000,000 -- --
Program for disposition of non-core
real estate assets................... 38,500,000 -- --
Minority interest in losses of
consolidated joint ventures.......... -- -- (891,000)
Write-down of land held for
development.......................... -- 1,043,000 --
Loss on disposition of multifamily and
industrial operations................ -- -- 10,974,000
------------ ----------- -----------
57,347,000 20,687,000 41,865,000
------------ ----------- -----------
Income (loss) before income taxes and
extraordinary gain..................... (34,921,000) 5,545,000 96,000
Income tax benefit...................... -- -- 2,523,000
------------ ----------- -----------
Income (loss) before extraordinary gain. (34,921,000) 5,545,000 2,619,000
Extraordinary gain on early retirement
of debt................................ 4,050,000 -- --
------------ ----------- -----------
Net income (loss)....................... $(30,871,000) $ 5,545,000 $ 2,619,000
============ =========== ===========
Weighted average number of common shares
outstanding............................ 11,326,443 11,256,353 11,256,353
============ =========== ===========
Income (loss) per common share..........
Before extraordinary item............. $ (3.09) $ .49 $ .23
Extraordinary item.................... .36 -- --
------------ ----------- -----------
Net income (loss) per common share...... $ (2.73) $ .49 $ .23
============ =========== ===========
Dividends declared per common share..... $ .80 $ .94 $ 1.36
============ =========== ===========

See accompanying notes.

44

SANTA ANITA REALTY ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

COMMON STOCK ADDITIONAL RETAINED
--------------------- PAID-IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
---------- ---------- ------------ ------------ ------------

Balance, December 31,
1992................... 11,256,353 $1,125,000 $117,084,000 $(36,700,000) $ 81,509,000
Dividends declared on
common stock......... -- -- -- (15,309,000) (15,309,000)
Net income............ -- -- -- 2,619,000 2,619,000
---------- ---------- ------------ ------------ ------------
Balance, December 31,
1993................... 11,256,353 1,125,000 117,084,000 (49,390,000) 68,819,000
Dividends declared on
common stock......... -- -- -- (10,580,000) (10,580,000)
Net income............ -- -- -- 5,545,000 5,545,000
---------- ---------- ------------ ------------ ------------
Balance, December 31,
1994................... 11,256,353 1,125,000 117,084,000 (54,425,000) 63,784,000
Stock issued to
Operating Company in
connection with
restricted stock
awards............... 126,647 13,000 1,797,000 -- 1,810,000
Dividends declared on
common stock......... -- -- -- (9,081,000) (9,081,000)
Net loss.............. -- -- -- (30,871,000) (30,871,000)
---------- ---------- ------------ ------------ ------------
Balance, December 31,
1995................... 11,383,000 $1,138,000 $118,881,000 $(94,377,000) $ 25,642,000
========== ========== ============ ============ ============

See accompanying notes.

45

SANTA ANITA REALTY ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

1995 1994 1993
------------ ------------ ------------
(RESTATED)

Cash flows from operating activities:
Net income (loss).................. $(30,871,000) $ 5,545,000 $ 2,619,000
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization.... 3,899,000 4,152,000 7,079,000
Minority interest in losses of
consolidated joint ventures..... -- -- (891,000)
Equity in losses (earnings) of
unconsolidated joint ventures... 1,836,000 1,232,000 (446,000)
Equity in earnings from
investment in Pacific Gulf
Properties Inc.................. (1,374,000) (203,000) --
Card club option write-off....... 2,000,000 -- --
Program for disposition of non-
core real estate assets......... 38,500,000 -- --
Extraordinary gain on early
retirement of debt.............. (4,050,000) -- --
Write-down of land held for
development..................... -- 1,043,000 --
Loss on disposition of
multifamily and industrial
operations...................... -- -- 10,974,000
Net (increase) decrease in
certain other assets............ (87,000) 160,000 (474,000)
Net (decrease) increase in
certain other liabilities....... (40,000) (1,720,000) 3,858,000
------------ ------------ ------------
Net cash provided by operating
activities........................ 9,813,000 10,209,000 22,719,000
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from disposition of
multifamily and industrial
operations........................ -- 44,425,000 --
Payments received on loans
receivable........................ 484,000 10,216,000 4,076,000
Origination of loans receivable.... (27,000) -- (8,163,000)
Additions and improvements to real
estate assets..................... (3,432,000) (2,911,000) (17,030,000)
Additions to certain other assets.. (5,415,000) -- --
Investments in and advances to
unconsolidated joint ventures..... (4,282,000) (1,660,000) (2,400,000)
Capital distributions from
unconsolidated joint ventures..... 1,862,000 3,014,000 3,829,000
Dividends received from Pacific
Gulf Properties Inc............... 1,224,000 203,000 --
------------ ------------ ------------
Net cash (used in) provided by
investing activities.............. (9,586,000) 53,287,000 (19,688,000)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from real estate loans
payable........................... -- 24,400,000 --
Proceeds from bank loans payable... 13,650,000 7,300,000 20,981,000
Repayment of real estate loans
payable........................... (8,074,000) (11,150,000) (403,000)
Repayment of bank loans payable.... -- (77,913,000) --
(Decrease) increase in due to
Operating Company................. (641,000) 1,525,000 (1,428,000)
Dividends paid..................... (9,056,000) (12,117,000) (15,309,000)
Issuance of common stock to
Operating Company in connection
with restricted stock awards...... 1,810,000 -- --
Distributions to minority interest
in consolidated joint ventures,
net............................... -- -- (868,000)
------------ ------------ ------------
Net cash (used in) provided by
financing activities.............. (2,311,000) (67,955,000) 2,973,000
------------ ------------ ------------
Net (decrease) increase in cash and
cash equivalents.................... (2,084,000) (4,459,000) 6,004,000
Cash and cash equivalents at
beginning of year................... 2,251,000 6,710,000 706,000
------------ ------------ ------------
Cash and cash equivalents at end of
year................................ $ 167,000 $ 2,251,000 $ 6,710,000
============ ============ ============

See accompanying notes.

46

SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 1995 AND 1994

ASSETS

1995 1994
----------- -----------

Current assets
Cash.............................................. $11,188,000 $ 7,243,000
Short-term investments, at cost (approximates
market).......................................... 2,522,000 5,600,000
Accounts receivable............................... 3,113,000 2,382,000
Due from Realty................................... 415,000 1,056,000
Prepaid expenses and other assets................. 777,000 1,043,000
----------- -----------
Total current assets............................ 18,015,000 17,324,000
Investment in common stock of Realty................ 2,122,000 2,122,000
Property, plant and equipment, at cost, less
accumulated depreciation of $24,968,000 and
$23,093,000........................................ 19,233,000 19,466,000
----------- -----------
$39,370,000 $38,912,000
=========== ===========

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
Accounts payable.................................. $10,788,000 $10,800,000
Other liabilities................................. 11,693,000 10,591,000
Bank loans payable................................ 868,000 794,000
Income taxes...................................... 326,000 --
----------- -----------
Total current liabilities....................... 23,675,000 22,185,000
Bank loans payable.................................. 867,000 1,735,000
Deferred revenues................................... 2,379,000 2,427,000
Deferred income taxes............................... 1,239,000 3,565,000
----------- -----------
28,160,000 29,912,000
----------- -----------
Shareholders' equity
Preferred stock, $.10 par value; authorized
6,000,000 shares; none issued.................... -- --
Common stock, $.10 par value; authorized
19,000,000 shares; issued and outstanding
11,270,500 and 11,143,853 shares................. 1,127,000 1,114,000
Additional paid-in capital........................ 20,736,000 20,596,000
Unearned compensation expense..................... (1,209,000) --
Retained earnings (deficit)....................... (9,444,000) (12,710,000)
----------- -----------
11,210,000 9,000,000
----------- -----------
$39,370,000 $38,912,000
=========== ===========

See accompanying notes.

47

SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

1995 1994 1993
----------- ----------- -----------

Revenues
Wagering commissions................... $45,587,000 $43,096,000 $38,428,000
Admission related...................... 24,060,000 24,750,000 25,842,000
Interest and other..................... 686,000 565,000 571,000
----------- ----------- -----------
70,333,000 68,411,000 64,841,000
----------- ----------- -----------
Costs and expenses
Horse racing operating costs........... 48,686,000 48,352,000 46,696,000
Depreciation and amortization.......... 3,196,000 4,251,000 2,768,000
General and administrative............. 5,442,000 5,583,000 5,801,000
Interest............................... 401,000 446,000 493,000
Rental expense to Realty............... 11,342,000 13,057,000 11,315,000
----------- ----------- -----------
69,067,000 71,689,000 67,073,000
----------- ----------- -----------
Income (loss) before income taxes........ 1,266,000 (3,278,000) (2,232,000)
Income tax benefit....................... 2,000,000 -- --
----------- ----------- -----------
Net income (loss)........................ $ 3,266,000 $(3,278,000) $(2,232,000)
=========== =========== ===========
Weighted average number of common shares
outstanding............................. 11,213,943 11,143,146 11,140,853
=========== =========== ===========
Net income (loss) per common share....... $ .29 $ (.29) $ (.20)
=========== =========== ===========

See accompanying notes.

48

SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

COMMON STOCK ADDITIONAL RETAINED UNEARNED
--------------------- PAID-IN EARNINGS COMPENSATION
SHARES AMOUNT CAPITAL (DEFICIT) EXPENSE TOTAL
---------- ---------- ----------- ------------ ------------ -----------

Balance, December 31,
1992................... 11,140,853 $1,114,000 $20,592,000 $(7,200,000) $ -- $14,506,000
Net loss.............. -- -- -- (2,232,000) -- (2,232,000)
---------- ---------- ----------- ------------ ----------- -----------
Balance, December 31,
1993................... 11,140,853 1,114,000 20,592,000 (9,432,000) -- 12,274,000
Stock issued in
connection with stock
option plan 3,000 -- 4,000 -- -- 4,000
Net loss.............. -- -- -- (3,278,000) -- (3,278,000)
---------- ---------- ----------- ------------ ----------- -----------
Balance, December 31,
1994................... 11,143,853 1,114,000 20,596,000 (12,710,000) -- 9,000,000
Stock issued in
connection with
restricted stock
awards............... 126,647 13,000 140,000 -- (1,963,000) (1,810,000)
Amortization of
unearned compensation
expense.............. -- -- -- -- 754,000 754,000
Net income............ -- -- -- 3,266,000 -- 3,266,000
---------- ---------- ----------- ------------ ----------- -----------
Balance, December 31,
1995................... 11,270,500 $1,127,000 $20,736,000 $ (9,444,000) $(1,209,000) $11,210,000
========== ========== =========== ============ =========== ===========

See accompanying notes.

49

SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

1995 1994 1993
----------- ------------ -----------

Cash flows from operating activities:
Net income (loss).................... $ 3,266,000 $ (3,278,000) $(2,232,000)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization...... 3,196,000 4,251,000 2,768,000
Amortization of unearned
compensation expense.............. 754,000 -- --
Deferred income taxes.............. (2,000,000) -- (108,000)
Net (increase) decrease in certain
other assets...................... (96,000) 798,000 (69,000)
Net increase in certain other
liabilities....................... 1,042,000 426,000 4,739,000
----------- ------------ -----------
Net cash provided by operating
activities.......................... 6,162,000 2,197,000 5,098,000
----------- ------------ -----------
Cash flows from investing activities:
Additions to property, plant and
equipment........................... (3,332,000) (1,553,000) (1,450,000)
Purchase of common stock form Realty
in connection with grant of
restricted stock.................... (1,810,000) -- --
Decrease in investment in common
stock of Realty..................... -- 57,000 --
----------- ------------ -----------
Net cash used in investing
activities.......................... (5,142,000) (1,496,000) (1,450,000)
----------- ------------ -----------
Cash flows from financing activities:.
Repayment of bank loans payable...... (794,000) (725,000) (664,000)
Decrease (increase) in due from
Realty.............................. 641,000 (1,525,000) 1,428,000
Proceeds from stock issued in
connection with exercise of stock
options............................. -- 4,000 --
----------- ------------ -----------
Net cash (used in) provided by
financing activities................ (153,000) (2,246,000) 764,000
----------- ------------ -----------
Net increase (decrease) in cash and
cash equivalents...................... 867,000 (1,545,000) 4,412,000
Cash and cash equivalents at beginning
of year............................... 12,843,000 14,388,000 9,976,000
----------- ------------ -----------
Cash and cash equivalents at end of
year.................................. $13,710,000 $ 12,843,000 $14,388,000
=========== ============ ===========

See accompanying notes.

50

SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1995, 1994 AND 1993

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

Santa Anita Realty Enterprises, Inc. ("Realty") and Santa Anita Operating
Company and Subsidiaries ("Operating Company") are two separate companies, the
stocks of which trade as a single unit under a stock-pairing arrangement on
the New York Stock Exchange (symbol SAR). Realty and Operating Company were
each incorporated in 1979 and are the successors of a corporation originally
organized in 1934 to conduct thoroughbred horse racing in Southern California.

Currently, Realty is principally engaged in holding and investing in retail
and commercial property located primarily in Southern California, Phoenix,
Arizona and Towson, Maryland. During 1994, Realty disposed of its multifamily
and industrial properties. Realty operates as a real estate investment trust
("REIT") under the Internal Revenue Code of 1986 and, accordingly, pays no
income taxes on earnings distributed to shareholders.

Operating Company is engaged in thoroughbred horse racing. The thoroughbred
horse racing operation is conducted by a subsidiary of Operating Company, Los
Angeles Turf Club, Incorporated ("LATC"), which leases the Santa Anita
Racetrack from Realty.

Separate financial statements have been presented for Realty and for
Operating Company. Combined Realty and Operating Company financial statements
have been presented as The Santa Anita Companies. Realty and The Santa Anita
Companies use an unclassified balance sheet presentation.

The separate results of operations and the separate net income per share of
Realty and Operating Company cannot usually be added together to total the
combined results of operations and net income per share for The Santa Anita
Companies because of adjustments and eliminations arising from inter-entity
transactions. All significant intercompany and inter-entity balances and
transactions have been eliminated in consolidation and combination.

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.

Real Estate Assets

Investment properties are carried at the lower of cost or estimated net
realizable value and consist of land, buildings and related improvements.
Depreciation is provided on a straight-line basis over the estimated useful
lives of the properties, ranging primarily from 15 to 40 years.

Investments in Joint Ventures

Realty consolidates only those joint ventures in which it exercises control.

Investments in unconsolidated joint ventures are accounted for using the
equity method of accounting.

Cash and Cash Equivalents

Highly liquid short-term investments, with remaining maturities of three
months or less at the date of acquisition, are considered cash equivalents.

51

SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Property, Plant and Equipment

Depreciation of property, plant and equipment and the capital lease
obligation is provided primarily on the straight-line method generally over
the following estimated useful lives:

Buildings and
improvements............. 25 to 45 years
Machinery and other
equipment................ 5 to 15 years
Leasehold improvements.... 5 to 32 years

Expenditures which materially increase property lives are capitalized. The
cost of maintenance and repairs is charged to expense as incurred. When
depreciable property is retired or disposed of, the related cost and
accumulated depreciation is removed from the accounts and any gain or loss is
reflected in current operations.

Income Taxes

Realty and Operating Company adopted Financial Accounting Standard ("FAS")
No. 109, "Accounting for Income Taxes," issued by the Financial Accounting
Standards Board ("FASB") effective January 1, 1993. FAS No. 109 replaces FAS
No. 96, which the company adopted in 1988. The cumulative effect of adopting
FAS No. 109 was immaterial for the year ended December 31, 1993.

Deferred Revenues

Operating Company's deferred revenues consist of prepaid admission tickets
and parking, which are recognized as income ratably over the period of the
related race meet. Also, deferred revenue includes prepaid rent from Oak Tree
which is recognized over the remaining term of the lease.

Shareholders' Equity

The outstanding shares of Realty common stock and Operating Company common
stock are only transferable and tradable in combination as a paired unit
consisting of one share of Realty common stock and one share of Operating
Company common stock.

Operating Company's Revenues and Costs

Operating Company records operating revenues associated with thoroughbred
horse racing at Santa Anita Racetrack on a daily basis, except for season
admissions which are recorded ratably over the racing season. Costs and
expenses associated with thoroughbred horse racing revenues are charged
against income in those periods in which the thoroughbred horse racing
revenues are recognized. Other costs and expenses are recognized as they
actually occur throughout the year. The rental fee paid by Operating Company
to Realty is recognized by both Realty and Operating Company as it is earned.

Rental Property Revenues

Rental property revenues are recorded 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 or when the lease provides
for rent escalations during the lease term. Deferred rent is included in
prepaid expenses and other assets, evaluated for collectibility and amortized
over the remaining term of the lease.

52

SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Horse Racing Revenues and Direct Operating Costs

Operating Company's horse racing revenues and direct operating costs are
shown net of state and local taxes, stakes, purses and awards.

Concentration of Credit Risk

Financial instruments which potentially subject Realty and Operating Company
to concentrations of credit risk are primarily cash investments and
receivables. Realty and Operating Company place their cash investments in
investment grade short-term instruments and limit the amount of credit
exposure to any one commercial issuer. Concentrations of credit risk with
respect to accounts receivable are limited due to the number of retail and
commercial tenants, satellite locations and Santa Anita group event patrons.
Real estate receivables are secured by first trust deeds on commercial real
estate located in Southern California and Phoenix, Arizona.

Financial Instruments with Off-Balance Sheet Risk

Realty is an issuer of financial instruments with off-balance sheet risk in
the normal course of business which exposes Realty to credit risks. These
financial instruments include commitments to extend credit, financial
guarantees and letters of credit.

Fair Value of Financial Instruments

Management has estimated the fair value of its financial instruments using
available market information and appropriate valuation methodologies.
Considerable judgment is required in interpreting market data to develop
estimates of fair value. Accordingly, the estimated values for Realty and
Operating Company as of December 31, 1995 and 1994 are not necessarily
indicative of the amounts that could be realized in current market exchanges.

For those financial instruments for which it is practicable to estimate
value, management has determined that the carrying amounts of Realty's and
Operating Company's financial instruments approximate their fair value as of
December 31, 1995 and 1994.

Common Stock and Net Income (Loss) Per Common Share

Net income (loss) per common share is computed based upon the weighted
average number of common shares outstanding during each period for each
company. Stock options have not been included in the computation since they
have no material dilutive effect.

Operating Company holds shares of Realty's common stock which are unpaired
pursuant to a stock option plan approved by the shareholders. The shares held
totaled 112,500 as of December 31, 1995 and 1994 and 115,500 as of December
31, 1993. These shares affect the calculation of Realty's net income per
common share but are eliminated in the calculation of net income per common
share for The Santa Anita Companies.

Reclassifications

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

53

SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

NOTE 2--DISPOSITION OF NON-CORE REAL ESTATE ASSETS

During 1995, Realty adopted a plan to dispose of its non-core real estate
assets and, accordingly, reduced the book value of these assets to their
estimated realizable values, resulting in a nonrecurring charge of
$38,500,000, of which $34,500,000 was recorded in the third quarter and
$4,000,000 was recorded in the fourth quarter. The disposition plan is being
undertaken in an orderly manner and was influenced by Realty's increased focus
on the development of its Arcadia property. The assets to be disposed of have
an adjusted carrying value of $27,652,000 at December 31, 1995 and consist of
six neighborhood shopping centers located in Southern California and Arizona;
commercial office buildings in Santa Ana and Upland, California; and an
investment in Joppa Associates, a partnership which owns a vacant retail
facililty and undeveloped land adjacent to the Towson Town Center regional
shopping center in Maryland. Included in the results of operations for the
year ended December 31, 1995 is a loss of $1,261,000 relating to the non-core
real estate assets. Also included in the nonrecurring charge was a $2,500,000
reserve for loss on disposition of notes receivable.

In March 1995, the FASB issued FAS No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of". FAS No. 121
requires that impairment losses be recorded on long-lived assets used in
operations when events or changes in circumstances indicate that the
undiscounted cash flows to be generated by these assets are less than their
carrying amount. FAS No. 121 also requires that long-lived assets to be
disposed of be reported at the lower of their carrying amount or fair value,
less cost to sell. FAS No. 121 requires adoption in the first quarter of 1996.
Realty believes that adoption of the FAS No. 121 in 1996 will not have a
material effect on its financial condition and results of operations.

NOTE 3--CARD CLUB WRITE-OFFS

In August 1995, the management of Bell Jackpot Casino, which was not
affiliated with Realty, citing intense competition from larger and more
established nearby card clubs, closed the Bell Jackpot Casino in Bell,
California. As a result of this action, during the 1995 third quarter, Realty
wrote-off the $2,000,000 it paid for an option to acquire a 50% interest in
the operation of the casino. Additionally, in the 1995 third quarter, Realty
charged $480,000 of development costs for the proposed Irwindale Palace
Casino, in Irwindale, California, to general and administrative expense.
Realty discontinued its involvement in the card club following the defeat of
an October 1995 Irwindale ballot measure to permit card clubs in Irwindale.

NOTE 4--INVESTMENT IN PACIFIC GULF PROPERTIES INC.

In November 1993, Realty entered into a Purchase and Sale Agreement to sell
its multifamily and industrial operations to Pacific Gulf Properties Inc.
("Pacific"), in conjunction with Pacific's proposed public offering of common
stock and debentures.

On February 18, 1994, Realty completed the first part of this transaction by
selling to Pacific ten multifamily properties, containing 2,654 apartment
units, located in Southern California, the Pacific Northwest and Texas and
three industrial properties, containing an aggregate of 185,000 leasable
square feet of industrial space, located in the State of Washington (the
"Transferred Properties"). Realty's corporate headquarters building and
related assets were also acquired by Pacific.

In consideration of the sale of the Transferred Properties, Realty received
$44,425,000 in cash and 150,000 shares of the common stock of Pacific. In
addition, Realty was relieved of $44,290,000 of mortgage debt on the
Transferred Properties.

Effective October 1, 1994, Realty completed the second part of the
transaction, the sale of its interest in Baldwin Industrial Park to Pacific.
Effective October 31, 1994, Pacific delivered to Realty an additional 634,419
shares of Pacific common stock as consideration for the second part of the
transaction and the corporate headquarters and other net assets.

54

SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--INVESTMENT IN PACIFIC GULF PROPERTIES INC. (CONTINUED)

The above transactions resulted in a loss of $10,974,000, which was
reflected in the Realty and The Santa Anita Companies statements of operations
for the year ended December 31, 1993. If the transactions had occurred as of
January 1, 1994, Realty and The Santa Anita Companies revenues would have
decreased by $4,477,000, expenses would have decreased by $4,929,000 and net
income would have increased by $452,000, for the year ended December 31, 1994.

As of December 31, 1995 and 1994, Realty owned 16.2% and 16.3% of Pacific's
common stock and accounted for its investment by the equity method of
accounting. The closing price of Pacific's common stock, on the American Stock
Exchange, on the last trading day in 1995 was $16.25 per share.

Pacific's assets, liabilities and shareholders' equity at December 31, 1995
were $288,591,000, $216,611,000 and $71,980,000 and at December 31, 1994 were
$202,519,000, $131,659,000 and $70,860,000. Pacific's assets consist primarily
of real estate. Pacific's revenues and net income for the year ended December
31, 1995 were $37,091,000 and $8,403,000. Its revenues, income before
extraordinary item and net loss for the period from February 18, 1994, date of
inception, through December 31, 1994 were $23,857,000, $2,673,000 and
$(317,000).

On February 2, 1996, Realty notified Pacific of Realty's intent to sell the
Pacific shares in an orderly manner pursuant to privately negotiated or open
market transactions. Realty also exercised its right to have Pacific register
such shares pursuant to a Registration Rights Agreement dated as of February
1, 1994.

NOTE 5--INVESTMENTS IN CONSOLIDATED JOINT VENTURES

Realty's real estate properties include investments in the following
consolidated real estate joint venture at December 31, 1995:

OWNERSHIP
NAME PERCENTAGE PROJECT
---- ---------- ---------------

French Valley Ventures........................ 50% Industrial land

The financial condition and operations of the above joint venture are
consolidated with the financial statements of Realty and The Santa Anita
Companies.

Combined condensed financial information for the consolidated joint ventures
as of December 31, 1995, 1994 and 1993 and for the years then ended is as
follows:

1995 1994 1993
--------- ----------- -----------

Real estate assets.................. $ 280,000 $ 480,000 $19,306,000
========= =========== ===========
Liabilities
Secured real estate loans......... $ 480,000 $ 480,000 $12,679,000
Other............................. 2,000 2,000 390,000
--------- ----------- -----------
$ 482,000 $ 482,000 $13,069,000
========= =========== ===========
Partners' equity (deficit)
Realty............................ $(202,000) $ (2,000) $ 6,213,000
Others............................ -- -- 24,000
--------- ----------- -----------
$(202,000) $ (2,000) $ 6,237,000
========= =========== ===========
Revenues............................ $ -- $ -- $ 8,256,000
========= =========== ===========
Net income (loss)
Realty............................ $(266,000) $(1,043,000) $ (60,000)
Others............................ -- -- (892,000)
--------- ----------- -----------
$(266,000) $(1,043,000) $ (952,000)
========= =========== ===========

55

SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--INVESTMENTS IN CONSOLIDATED JOINT VENTURES (CONTINUED)

In December 1994, a decrease in a maturing note payable secured by land held
for development by French Valley Ventures was negotiated and the carrying cost
of the related land was written down to its estimated market value. The
resulting net charge of $1,043,000 has been reflected in "Write-down of land
held for development" in the Realty and The Santa Anita Companies statements
of operations.

Amounts reported in 1993 also included a consolidated joint venture in which
the minority interest was acquired in January 1994.

NOTE 6--INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES

Realty's investments in unconsolidated joint ventures include investments in
the following commercial real estate ventures at December 31, 1995:

OWNERSHIP
NAME PERCENTAGE PROJECT
---- ---------- -------------

Anita Associates................................. 50% Regional mall
H-T Associates................................... 50% Regional mall
Joppa Associates................................. 33 1/3% Retail

The Anita Associates partnership comprises the property associated with the
operations of Santa Anita Fashion Park in Arcadia, California. The H-T
Associates and Joppa Associates partnerships comprise the properties
associated with the operations of Towson Town Center in Towson, Maryland.

During 1995, Realty reevaluated its consolidation policy with respect to 50%
owned joint ventures that had been consolidated in prior years. Realty
determined that it does not have sufficient involvement in these joint
ventures to warrant consolidation and has reported these joint ventures on the
equity method at December 31, 1995. All prior year financial statements and
disclosures have been restated to conform to this presentation. The
restatement had no effect on prior years reported net income or shareholders
equity, but did have the effect of reducing Realty's assets and liabilities by
$60,804,000 in 1994 and $43,493,000 in 1993 and of reducing Realty's revenues
and expenses by $13,691,000 in 1994 and $13,352,000 in 1993.

56

SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES (CONTINUED)

Combined condensed financial statement information for the unconsolidated
joint ventures as of December 31, 1995, 1994 and 1993 and for the years then
ended is as follows:

1995 1994 1993
------------ ------------ ------------

Real estate assets.............. $258,952,000 $265,869,000 $268,243,000
============ ============ ============
Liabilities
Advances from Realty.......... $ -- $ 276,000 $ 10,243,000
Secured real estate loans..... 242,332,000 243,061,000 215,904,000
Other 5,515,000 7,929,000 20,763,000
------------ ------------ ------------
$247,847,000 $251,266,000 $246,910,000
============ ============ ============
Partners' equity
Realty........................ $ 6,157,000 $ 7,434,000 $ 13,291,000
Others........................ 4,948,000 7,169,000 8,042,000
------------ ------------ ------------
$ 11,105,000 $ 14,603,000 $ 21,333,000
============ ============ ============
Revenues........................ $ 36,130,000 $ 36,388,000 $ 33,657,000
============ ============ ============
Net income (loss)
Realty........................ $ (1,836,000) $ (1,232,000) $ 446,000
Others........................ (3,787,000) (4,362,000) (160,000)
------------ ------------ ------------
$ (5,623,000) $ (5,594,000) $ 286,000
============ ============ ============

Realty has executed a joint and several guaranty of a loan issued to expand
the Towson Town Center located in Towson, Maryland (owned 65% by H-T
Associates) in the amount of $66,135,000. Realty's two partners in the venture
have also each executed repayment guaranties, although one of the partners has
a limited repayment guaranty. The loan balance to which the guaranties relate
is $164,641,000. The repayment guaranties contain covenants which, among other
matters, require the guarantors to maintain certain minimum levels of net
worth. At December 31, 1995, Realty was in default under the minimum net worth
covenant. Realty is currently in discussions with its partners and the lender
to restructure the loan and modify the net worth requirement in the guaranty.
If the discussions prove to be unsatisfactory, the lender may, among other
things, foreclose on the assets of H-T Associates and pursue other remedies
under the guaranties. The outcome of the discussions cannot presently be
determined and no adjustment has been made in the financial statements.

Realty has also executed a joint and several guaranty of a loan on property
(owned 100% by Joppa Associates) adjacent to Towson Town Center in the amount
of $8,247,000. One of Realty's other two partners, The Hahn Company, has
executed a repayment guaranty for the full amount of the loan. The loan
balance to which the guaranties relate is $16,494,000. At December 31, 1995,
Realty was in compliance with the guaranty covenants.

57

SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

NOTE 7--REAL ESTATE LOANS RECEIVABLE

Realty's real estate loans receivable as of December 31, 1995 and 1994
consist of the following:

1995 1994
----------- -----------

7.6% to 8.5% loans receivable secured by trust
deeds on commercial real estate due through
2002......................................... $13,454,000 $13,635,000
Reserve for loss on disposition............... (2,500,000) --
----------- -----------
$10,954,000 $13,635,000
=========== ===========

Contractual principal repayments on real estate loans receivable as of
December 31, 1995 are due as follows:

1996......................... $ 1,526,000
1997......................... 5,158,000
1998......................... 212,000
1999......................... 231,000
2000......................... 251,000
Thereafter................... 3,576,000
-----------
$10,954,000
===========

NOTE 8--LOANS PAYABLE

Realty's real estate loans payable as of December 31, 1995 and 1994 consist
of the following:

1995 1994
----------- -----------

9.25% note, secured by real estate assets, due in
installments through 2001....................... $ 8,796,000 $ 8,892,000
8.5% note, secured by land with assignment of
ground lease and rent as collateral, due in
installments through 2009....................... 3,831,000 3,971,000
9.75% note, secured by real estate assets,
interest only, due in 2002...................... 480,000 480,000
9.375% note, secured by real estate assets,
interest only, due in 1998...................... -- 11,703,000
8.062% variable rate notes, secured by real
estate, due in installments through 2005........ 15,282,000 15,500,000
----------- -----------
$28,389,000 $40,546,000
=========== ===========

In November 1995, Realty completed a negotiated, early and reduced payoff of
the mortgage loan on the Santa Ana office building. The mortgage holder agreed
to accept a cash payment of $7,500,000 as settlement in full of the 9.375%
note due in 1998. The prepayment resulted in a gain of $4,050,000, net of
miscellaneous closing expenses, which was reflected as an extraordinary gain
on early retirement of debt in the Realty and The Santa Anita Companies
statements of operations.

In December 1994, Realty obtained secured loans on each of its six
neighborhood shopping centers. At December 31, 1995, these secured loans had
an outstanding balance of $15,282,000. The secured loans had initial variable
interest rates ranging from 8.25% to 9% and a 25-year amortization period. The
interest rates are subject

58

SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8--LOANS PAYABLE (CONTINUED)
to adjustment every six months based on the six-month certificate of deposit
rate in the secondary market as currently published in The Wall Street
Journal. The maximum interest rate adjustment over the life of the loans is 5%
and the increase in the monthly payment at each adjustment date is limited to
3.75%.

Principal payments due on real estate loans payable as of December 31, 1995
are as follows:

1996.......................................................... $ 531,000
1997.......................................................... 581,000
1998.......................................................... 632,000
1999.......................................................... 688,000
2000.......................................................... 747,000
Thereafter.................................................... 25,210,000
-----------
$28,389,000
===========

Bank loans payable consist of borrowings under the revolving credit
agreement of $20,950,000 and $7,300,000 as of December 31, 1995 and 1994.

In November 1994, Realty entered into a one-year $30,000,000 revolving
credit agreement with a commercial bank. In November 1995, the agreement was
extended to January 26, 1996 and in January 1996, an amendment to the
revolving credit agreement extended the term to June 30, 1996 and reduced
available borrowings to $20,000,000. Borrowings under the revolving credit
agreement bear interest, at Realty's option, at the prime rate, at LIBOR
(London Interbank Offered Rate) plus 1%, or at the 30-day, 60-day or 90-day
certificate of deposit rate plus 1%. At December 31, 1995, borrowings of
$17,700,000 were at a rate of 6.9% which was based on the 30-day certificate
of deposit rate plus 1% and borrowings of $3,250,000 were at the prime rate.
At December 31, 1994, borrowings were at a rate of 7.25% which was based on
the 30-day certificate of deposit rate plus 1%. Realty's Racetrack rental
revenues have been pledged as collateral under the credit agreement.

The revolving credit agreement contains a restriction on the payment of
dividends and certain other financial ratio and maintenance restrictions.
Dividends are limited to the lesser of $.80 per share or $9,200,000 in any
twelve-month period beginning on or after July 1, 1994. Realty's current
dividend policy is in compliance with this dividend restriction. Additionally,
at December 31, 1995, Realty was in compliance with the other financial ratio
and maintenance restrictions, except for the net worth restriction. Realty has
obtained a waiver of non-compliance from the commercial bank and has cured the
non-compliance as of January 31, 1996.

Operating Company entered into a sale-leaseback transaction related to the
financing of certain television, video monitoring and production equipment
under a five-year lease expiring in December 1997. This financing arrangement
is accounted for as a capital lease. Accordingly, the equipment and related
lease obligation are reflected as machinery and other equipment and bank loans
payable in the Operating Company and The Santa Anita Companies balance sheets.
Realty has guaranteed the capital lease obligation of $1,735,000.

Assets relating to the capital lease are as follows:

1995 1994
----------- -----------

Machinery and equipment......................... $ 4,000,000 $ 4,000,000
Accumulated amortization........................ (1,667,000) (1,154,000)
----------- -----------
$ 2,333,000 $ 2,846,000
=========== ===========

59

SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8--LOANS PAYABLE (CONTINUED)

Total future minimum lease payments under the capital lease and the present
value of the minimum lease payments as of December 31, 1995 are as follows:

For the year ending December 31,
1996........................................................ $ 989,000
1997........................................................ 907,000
----------
1,896,000
Less amount representing interest............................. (161,000)
----------
Present value of minimum lease payments....................... $1,735,000
==========
Current portion............................................... $ 868,000
Long-term portion............................................. 867,000
----------
$1,735,000
==========

Interest costs for the years ended December 31, 1995, 1994 and 1993 are as
follows:

DECEMBER 31, 1995
-------------------------------------
OPERATING THE SANTA ANITA
REALTY COMPANY COMPANIES
---------- --------- ---------------

Total incurred...................... $4,409,000 $401,000 $ 4,689,000
Capitalized......................... (88,000) -- (88,000)
---------- -------- -----------
Total interest expense.............. $4,321,000 $401,000 $ 4,601,000
========== ======== ===========
Total interest paid................. $4,259,000 $401,000 $ 4,539,000
========== ======== ===========

At December 31, 1995, $121,000 of inter-entity interest was
eliminated in The Santa Anita Companies financial statements.

DECEMBER 31, 1994
-------------------------------------
OPERATING THE SANTA ANITA
REALTY COMPANY COMPANIES
---------- --------- ---------------

Total incurred...................... $6,012,000 $446,000 $ 6,458,000
Capitalized......................... (82,000) -- (82,000)
---------- -------- -----------
Total interest expense.............. $5,930,000 $446,000 $ 6,376,000
========== ======== ===========
Total interest paid................. $6,227,000 $446,000 $ 6,673,000
========== ======== ===========

DECEMBER 31, 1993
-------------------------------------
OPERATING THE SANTA ANITA
REALTY COMPANY COMPANIES
---------- --------- ---------------

Total incurred...................... $9,951,000 $493,000 $10,444,000
Capitalized......................... (85,000) -- (85,000)
---------- -------- -----------
Total interest expense.............. $9,866,000 $493,000 $10,359,000
========== ======== ===========
Total interest paid................. $9,930,000 $493,000 $10,423,000
========== ======== ===========

60

SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

NOTE 9--OTHER LIABILITIES

Other liabilities as of December 31, 1995 and 1994 consist of the following:

DECEMBER 31, 1995
--------------------------------------
OPERATING THE SANTA ANITA
REALTY COMPANY COMPANIES
---------- ----------- ---------------

Accrued salaries................... $ 146,000 $ 947,000 $ 1,093,000
Deferred compensation.............. 947,000 3,444,000 4,391,000
Accrued interest................... 279,000 -- 279,000
State license fees................. -- 1,542,000 1,542,000
Other.............................. 555,000 5,760,000 6,315,000
Unconsolidated joint ventures...... 3,347,000 -- 3,347,000
---------- ----------- -----------
$5,274,000 $11,693,000 $16,967,000
========== =========== ===========

DECEMBER 31, 1994
--------------------------------------
OPERATING THE SANTA ANITA
REALTY COMPANY COMPANIES
---------- ----------- ---------------

Accrued salaries................... $ 100,000 $ 878,000 $ 978,000
Deferred compensation.............. 1,045,000 3,705,000 4,750,000
Accrued interest................... 208,000 -- 208,000
State license fees................. -- 1,695,000 1,695,000
Other.............................. 450,000 4,313,000 4,763,000
---------- ----------- -----------
$1,803,000 $10,591,000 $12,394,000
========== =========== ===========

NOTE 10--INCOME TAXES

As a REIT, Realty is taxed only on undistributed REIT income. During each of
the years ended December 31, 1995, 1994 and 1993, Realty distributed at least
95% of its REIT taxable earnings to its shareholders. For the year ended
December 31, 1995, 100% of the dividends distributed to shareholders
represented ordinary income. For the years ended December 31, 1994 and 1993,
55.4% and 41.2%, of the dividends distributed to shareholders represented a
return of capital. Pursuant to Internal Revenue Code Section 857(b)(3)(C) and
the Regulations thereunder, for the year ended December 31, 1994, Realty
designated 44.6% of the dividends distributed as capital gains dividends. None
of the dividends distributed to shareholders during the year ended December
31, 1993 represented capital gains dividends.

In prior years, Realty had filed claims with the California Franchise Tax
Board for refunds with respect to the 1970 through 1979 tax years; LATC was
assessed California franchise tax and interest for the years 1980 through
1982; and, Operating Company was assessed additional franchise tax for the
years 1983 through 1985. In 1993, a refund of interest and taxes in the amount
of $6,082,000 was received from the California Franchise Tax Board in the
settlement of the above claims. Realty recognized $3,211,000 of interest
income, net of expenses of $120,000 and an income tax benefit of $2,523,000.
Operating Company recorded additional deferred taxes payable of $228,000.

61

SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--INCOME TAXES (CONTINUED)

The composition of Operating Company's income tax provision (benefit) and
income taxes paid for the years ended December 31, 1995, 1994 and 1993 are as
follows:

1995 1994 1993
----------- --------- ---------

Current provision (benefit)
Federal............................... $ 79,000 $ -- $ --
State................................. 247,000 -- 108,000
----------- --------- ---------
326,000 -- 108,000
----------- --------- ---------
Deferred provision (benefit)
Federal............................... (79,000) -- --
State................................. (2,247,000) -- (108,000)
----------- --------- ---------
(2,326,000) -- (108,000)
----------- --------- ---------
$(2,000,000) $ -- $ --
=========== ========= =========
Income taxes paid....................... $ 3,000 $ 25,000 $ 313,000
=========== ========= =========

Deferred income taxes arise from temporary differences in the recognition of
certain items of revenues and expenses for financial statement and tax
reporting purposes. The sources of temporary differences and their related tax
effect for the years ended December 31, 1995, 1994 and 1993 are as follows:

1995 1994 1993
----------- -------- -----------

Accelerated depreciation and
amortization methods utilized for
tax reporting purposes.............. $ (814,000) $(16,000) $ 109,000
Reinstatement of deferred taxes due
to tax net operating loss
carryovers.......................... 1,545,000 100,000 1,733,000
State income tax provision (benefit)
deductible when paid for federal
income tax purposes................. (2,100,000) (52,000) (485,000)
Deductions previously deducted for
book purposes, deductible for tax
purposes currently.................. (918,000) (66,000) --
Income previously included for book
purposes, not includable for tax
purposes currently.................. 11,000 -- --
Income resulting from settlement of
state unitary tax issues............ -- -- (1,426,000)
Decrease in valuation allowance for
deferred tax assets................. (50,000) 24,000 --
Other, net........................... -- 10,000 (39,000)
----------- -------- -----------
$(2,326,000) $ -- $ (108,000)
=========== ======== ===========

62

SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--INCOME TAXES (CONTINUED)

A reconciliation of Operating Company's total income tax provision for the
years ended December 31, 1995, 1994 and 1993 to the statutory federal
corporate income tax rate of 34% and the state rate of 9.3% is as follows:

1995 1994 1993
----------- ----------- ---------

Computed "expected" tax provision... $ 1,414,000 $(1,316,000) $(759,000)
State income taxes, net of federal
income taxes....................... 247,000 -- 34,000
Nondeductible political
contributions...................... 47,000 59,000 28,000
Decrease (increase) in cash
surrender value of life insurance.. 3,000 34,000 (269,000)
Establishment (use) of book net
operating loss carryforwards....... (1,316,000) 1,236,000 982,000
Deferred effect due primarily to
benefit from reduction of state
accrual............................ (2,326,000) -- --
Other, net.......................... (69,000) (13,000) (16,000)
----------- ----------- ---------
$(2,000,000) $ -- $ --
=========== =========== =========

The deferred tax assets and liabilities as of December 31, 1995 and 1994
consist of the following:

1995 1994
----------- -----------

Deferred tax assets
Compensation deductible for tax purposes when
paid........................................ $ 1,764,000 $ 1,487,000
Pension contribution deductible for tax
purposes when paid.......................... 490,000 170,000
Contribution carryover....................... 280,000 78,000
Other........................................ 143,000 24,000
Federal tax effect of state deferred
liabilities................................. 444,000 1,243,000
Federal net operating loss carryovers........ 2,211,000 2,901,000
State net operating loss carryovers.......... 129,000 185,000
Valuation allowance.......................... (4,117,000) (4,167,000)
----------- -----------
Total deferred assets........................ 1,344,000 1,921,000
----------- -----------
Deferred tax liabilities
Difference between tax and book depreciation. (790,000) (1,604,000)
Income previously included for book purposes,
not includable for tax purposes............. (148,000) (137,000)
State income tax deductible when paid for
federal tax purposes........................ (1,645,000) (3,745,000)
----------- -----------
Total deferred tax liabilities............... (2,583,000) (5,486,000)
----------- -----------
Net liability for deferred income taxes........ $(1,239,000) $(3,565,000)
=========== ===========

63

SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--INCOME TAXES (CONTINUED)

The Franchise Tax Board has audited the 1986 through 1988 tax years of
Operating Company. Operating Company has protested the proposed assessments.
These assessments have been accrued by Operating Company. In 1995, the
Franchise Tax Board proposed a withdrawal of the assessments for 1986 through
1988. In February 1994, the Franchise Tax Board initiated an audit of
Operating Company's 1989 through 1991 tax years. At December 31, 1994, the
agent has completed his review and has not proposed any adjustments for the
1989 through 1991 tax years. However, these years remain open pending
resolution of the proposed assessments for the 1986 through 1988 tax years.

At December 31, 1995, Operating Company's net operating loss carryforward,
for federal income tax purposes, was $6,503,000 of which $1,197,000 expires in
2002, $99,000 in 2003, $41,000 in 2004, $103,000 in 2005, $440,000 in 2006,
$3,000,000 in 2007 and $1,623,000 in 2009. Realty's net operating loss
carryforward at December 31, 1995 was $8,736,000 and expires in 2009.

NOTE 11--COMMITMENTS AND CONTINGENCIES

Realty's owned real estate investments consist of Santa Anita Racetrack,
various neighborhood shopping centers, and office buildings. The racetrack is
leased to LATC; the land underlying Fashion Park has been ground leased for 65
years to Anita Associates; each of the various neighborhood shopping centers
has been leased to non-anchor tenants with terms ranging from three to five
years; and, the office buildings have been leased with terms generally ranging
from two to ten years.

The minimum future lease payments to be received from Realty's owned real
estate investments (excluding rentals relating to Santa Anita Racetrack which
are paid by LATC to Realty) for the five years ended December 31, are as
follows:

1996.......................... $6,487,000
1997.......................... 4,912,000
1998.......................... 4,507,000
1999.......................... 3,702,000
2000.......................... 2,664,000

Substantially all of the retail leases provide for additional contingent
rentals based upon the gross income of the tenants in excess of stipulated
minimums. Realty's share of these contingent rentals totaled $104,000 in 1995,
$69,000 in 1994 and $115,000 in 1993.

Realty leases the Santa Anita Racetrack to Operating Company's subsidiary,
LATC, pursuant to a lease which expires December 31, 1999. The lease rental
amounts have been eliminated in The Santa Anita Companies statement of
operations.

Realty and Operating Company have entered into severance agreements with
certain officers. Under certain circumstances, the severance agreements
provide for a lump sum payment if there is a "change in control" of the
entities. No provision under these severance agreements has been accrued or
funded.

Certain other claims, suits and complaints arising in the ordinary course of
business have been filed or are pending against Realty and Operating Company.
In the opinion of management, all such matters are adequately covered by
insurance or, if not covered, are without merit or are of such kind or involve
such amounts as would not have a significant effect on the financial position
or results of operations if disposed of unfavorably.

64

SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

NOTE 12--STOCK OPTION PROGRAM, RESTRICTED STOCK AWARDS AND EMPLOYEE DEFINED
BENEFIT PLANS

Stock Option Program

During 1995, the shareholders approved the Realty 1995 Share Award Plan and
the Operating Company 1995 Share Award Plan. These plans replace the Realty
and Operating Company 1984 Stock Option Plans which expired on May 3, 1995. A
maximum 230,000 shares of common stock may be issued under the Realty 1995
Share Award Plan and a maximum of 780,000 shares of common stock may be issued
under the Operating Company 1995 Share Award Plan. For both Realty and
Operating Company, the maximum number of options and stock appreciation rights
that may be granted to an eligible person during any one-year period shall not
exceed 150,000. Under the 1995 Share Award Plans, shares are to be issued
either as options, dividend equivalents, stock appreciation rights, restricted
stock awards, performance share awards or stock bonuses. At December 31, 1995,
under the Realty and Operating Company 1995 Share Award Plans, 186,500 shares
and 575,173 shares were available for future grant.

Except as may be provided in the award agreement, no award made under the
1995 Share Award Plans shall be exercisable or shall vest for a period of six
months after the award date. Each award shall expire on such date as
determined by the Compensation Committee of the Board of Directors
("Committee"), but in the case of options or other rights to acquire shares of
paired common stock, not later than ten years after the award date. The
Committee may authorize the deferral of any payment of cash or issuance of
shares of paired common stock under the 1995 Share Award Plans at the election
and request of a participant.

Options granted under the 1995 Share Award Plans and the 1984 Stock Option
Plans are contingent upon continuous employment and are exercisable at any
time once vested, for up to three years after the date of retirement or death
and for up to 90 days after resignation. During 1995, all options granted were
under the 1995 Share Award Plans. Options outstanding at December 31, 1995
expire in 1996 through 2005.

Information with respect to shares under option as of December 31, 1995,
1994 and 1993 is as follows:

REALTY OPERATING COMPANY
-------------------------- -------------------------
SHARES
SHARES SUBJECT
SUBJECT TO TO
OPTION PRICE OPTION PRICE
---------- --------------- -------- ---------------

Balance, December 31,
1993..................... 114,506 $17.63 - $29.00 410,500 $17.38 - $29.00
Granted................. 122,500 $17.13 - $20.25 126,000 $17.13
Exercised............... -- (3,000)
Cancelled............... (75,000) $17.63 - $29.00 (125,000) $17.38 - $29.00
------- --------
Balance, December 31,
1994..................... 162,006 $17.13 - $29.00 408,500 $17.13 - $29.00
Granted................. 43,500 $12.63 78,200 $12.63
Exercised............... -- --
Cancelled............... (21,230) $17.13 - $29.00 (15,000) $17.13 - $24.75
------- --------
Balance, December 31,
1995..................... 184,276 $12.63 - $25.00 471,700 $12.63 - $29.00
======= ========

At the time of exercise of Realty options, employees also have to buy
directly from Operating Company shares of Operating Company stock at its fair
market value per share to pair with Realty shares.

In addition, Operating Company is required to purchase Realty shares to pair
with the Operating Company shares being purchased by its employees. Operating
Company has purchased 112,500 shares of Realty stock for this purpose.

65

SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12--STOCK OPTION PROGRAM, RESTRICTED STOCK AWARDS AND EMPLOYEE DEFINED
BENEFIT PLANS (CONTINUED)
Restricted Stock Awards

Under the 1995 Share Award Plans, Realty granted none and Operating Company
granted 126,647 shares of common stock as Restricted Stock Awards during 1995
at a value of $15.50 per paired share. Of the shares issued, 8,065 shares
vested in 1995. The remaining Restricted Stock Awards vest in 1996 through
2001.

Retirement Income Plan

Realty and Operating Company have a defined benefit retirement plan for the
year-round employees who are at least 21 years of age with one or more years
of service and who are not covered by collective bargaining agreements. Plan
assets consist of a group annuity contract with a life insurance company. 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 net periodic pension cost for Realty and Operating Company for 1995 was
$59,000 and $325,000; for 1994 was $85,000 and $390,000; and for 1993 was
$104,000 and $367,000. The provisions include amortization of past service
cost over 30 years. The present value of accumulated plan benefits (calculated
using a rate of return of 7.0%) at December 31, 1995 was $7,230,000 and the
plan's net assets available for benefits were $5,929,000.

Combined net periodic pension cost for the years ended December 31, 1995,
1994 and 1993 for the retirement income plan included the following
components:

1995 1994 1993
-------- -------- --------

Service cost............................... $228,000 $278,000 $288,000
Interest cost on projected benefit
obligation................................ 573,000 569,000 569,000
Actual return on plan assets............... (342,000) (378,000) (391,000)
Net amortization and deferral.............. (75,000) 6,000 5,000
-------- -------- --------
Net periodic pension cost................ $384,000 $475,000 $471,000
======== ======== ========

66

SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12--STOCK OPTION PROGRAM, RESTRICTED STOCK AWARDS AND EMPLOYEE DEFINED
BENEFIT PLANS (CONTINUED)

The following table sets forth the funded status of Realty's and Operating
Company's retirement income plan and amounts recognized in the balance sheets
at December 31, 1995 and 1994.

1995 1994
----------- -----------

Actuarial present value of accumulated benefit
obligations at December 31:
Vested....................................... $ 6,818,000 $ 5,906,000
Nonvested.................................... 412,000 126,000
----------- -----------
7,230,000 6,032,000
Additional amounts related to projected
compensation levels........................... 824,000 1,018,000
----------- -----------
Total actuarial projected benefit obligations
for service rendered.......................... 8,054,000 7,050,000
Plan assets at fair value at December 31....... 5,929,000 6,032,000
----------- -----------
Projected benefit obligations in excess of plan
assets........................................ (2,125,000) (1,018,000)
Unrecognized net actuarial loss from difference
in actuarial experience from that assumed..... 1,237,000 300,000
Unrecognized prior service cost................ 197,000 215,000
Initial unrecognized transition obligation
being recognized over 15 years................ 363,000 424,000
----------- -----------
Accrued pension cost........................... $ (328,000) $ (79,000)
=========== ===========

Assumptions used in determining the funded status of the retirement income
plan are as follows:

1995 1994 1993
---- ---- ----

Weighted average discount rate............................. 7.0% 8.5% 7.5%
Weighted average rate of increase in compensation levels... 3.5% 5.0% 5.0%
Expected long-term rate of return.......................... 8.5% 8.5% 8.5%

The measurement date and related assumptions for the funded status of
Realty's and Operating Company's retirement income plan were as of the end of
the year.

Deferred Compensation Plan

Realty and Operating Company have defined benefit deferred compensation
agreements which provide selected prior management employees with a fixed
benefit at retirement age. During 1995, the outstanding agreements for active
employees were curtailed and replaced by awards of restricted stock under the
1995 Share Award Plan. Plan benefits are based primarily on years of service
and qualifying compensation.

The net periodic pension cost for 1995 for Realty and Operating Company was
$91,000 and $300,000; for 1994 was $121,000 and $594,000; and for 1993 was
$263,000 and $860,000. It is the policy of Realty and Operating Company to
fund only amounts sufficient to cover current deferred compensation benefits
payable to covered retirees. The present value of accumulated plan benefits
(calculated using a rate of 7.0%) at December 31, 1995, was $4,817,000 and
Realty's and Operating Company's combined accrued liability was $4,391,000. At
December 31, 1995, there were no plan net assets available for benefits.

67

SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12--STOCK OPTION PROGRAM, RESTRICTED STOCK AWARDS AND EMPLOYEE DEFINED
BENEFIT PLANS (CONTINUED)

Net periodic pension cost for the years ended December 31, 1995, 1994 and
1993 for the deferred compensation plan included the following components:

1995 1994 1993
-------- -------- ----------

Service costs.............................. $ 24,000 $146,000 $ 152,000
Interest cost on projected benefit
obligation................................ 365,000 436,000 404,000
Nonrecurring charge resulting from the
death of an officer....................... -- -- 961,000
Expected return on plan assets............. -- -- (394,000)
Amortization of unrecognized net obligation
and experience losses .................... 2,000 133,000 --
-------- -------- ----------
Net periodic pension cost.................. $391,000 $715,000 $1,123,000
======== ======== ==========

The following table sets forth the funded status of Realty's and Operating
Company's deferred compensation plan and amounts recognized in the balance
sheets at December 31, 1995 and 1994:

1995 1994
----------- -----------

Actuarial present value of accumulated
benefit obligations at December 31:
Vested..................................... $ 4,817,000 $ 4,947,000
Nonvested.................................. -- 261,000
----------- -----------
4,817,000 5,208,000
Additional amounts related to projected
compensation levels......................... -- 301,000
----------- -----------
Total actuarial projected benefit obligations
for service rendered........................ 4,817,000 5,509,000
Plan assets at fair value at December 31..... -- --
----------- -----------
Projected benefit obligations in excess of
plan assets................................. (4,817,000) (5,509,000)
Unrecognized net obligation and experience
losses...................................... 426,000 759,000
Unrecognized prior service cost.............. -- --
----------- -----------
Accrued pension cost......................... $(4,391,000) $(4,750,000)
=========== ===========

Assumptions used in determining the funded status of the deferred
compensation plan are as follows:

1995 1994 1993
---- ---- -----

Weighted average discount rate............................ 7.0% 8.5% 7.5%
Weighted average rate of increase in compensation levels.. 3.5% 5.0% 5.0%
Expected long-term rate of return......................... -- -- 10.0%

The measurement date and related assumptions for the funded status of
Realty's and Operating Company's deferred compensation plan were as of the end
of the year.

68

SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

NOTE 13--SHAREHOLDER RIGHTS PLAN

Under a shareholder rights plan, one right was distributed in August 1989
for each outstanding share of common stock. Each right entitles the holder to
purchase from Realty, initially, one one-hundredth of a share of junior
participating preferred stock at a price of $100 per share, subject to
adjustment. The rights are attached to all outstanding common shares, and no
separate rights certificates will be distributed. The rights are not
exercisable or transferable apart from the common stock until the earlier of
ten business days following a public announcement that a person or group has
acquired beneficial ownership of 10% or more of Realty's general voting power
or ten business days following the commencement of, or announcement of the
intention to commence, a tender or exchange offer that would result in a
person or group beneficially owning 10% or more of Realty's general voting
power.

Upon the occurrence of certain other events related to changes in the
ownership of Realty's outstanding common stock or business combinations
involving a holder of more than 10% of Realty's general voting power, each
holder of a right would be entitled to purchase shares of Realty's common
stock, or an acquiring corporation's common stock, having a market value of
two times the exercise price of the right.

During such time as the stock-pairing arrangement between Realty and
Operating Company shall remain in effect, Operating Company will issue, on a
share-for-share basis, Operating Company common shares, or, as the case may
be, Operating Company junior participating preferred shares to each person
receiving Realty common shares or preferred shares upon exercise or in
exchange for one or more rights.

Realty is entitled to redeem the rights in whole, but not in part, at a
price of $.001 per right prior to the earlier of the expiration of the rights
in August 1999 or the close of business ten days after the announcement that a
10% position has been acquired.

NOTE 14--RELATED PARTY TRANSACTIONS

LATC leases the racetrack from Realty for the full year for a fee of 1.5% of
the on-track wagering on live races at Santa Anita Racetrack, which includes
the Oak Tree Racing Association ("Oak Tree") meet. In addition, LATC pays to
Realty 26.5% of its wagering commissions from satellite wagering (not to
exceed 1.5% of such wagering). When LATC operates as a satellite for Hollywood
Park Racetrack and Del Mar Racetrack, LATC pays 26.5% of its wagering
commissions as additional rent to Realty. LATC has sublet the racetrack to Oak
Tree to conduct Oak Tree's annual thoroughbred horse racing meet (32 days in
1995), which commences in late September or early October. Oak Tree races five
weeks in even-numbered years and six weeks in odd-numbered years. For the
years ended December 31, 1995, 1994 and 1993, LATC paid Realty (including
charity days) $11,342,000, $13,070,000, and $11,634,000 in rent. The lease
arrangement between LATC and Realty requires LATC to assume costs attributable
to taxes, maintenance and insurance.

The lease between LATC and Realty which was scheduled to expire December 31,
1994, was amended and extended through December 31, 1999. The previous lease
terms required LATC to pay rent based upon 1.5% of the aggregate live on-track
wagering and 40% of LATC's revenues received from simulcast and satellite
wagering on races originating at Santa Anita Racetrack. If the amended lease
terms had been in effect for the year ended December 31, 1994, LATC would have
paid Realty (including charity days) $11,123,000 in rent.

At times Realty and Operating Company have notes receivable outstanding from
certain officers and/or directors resulting from their exercise of stock
options. Such notes receivable as of December 31, 1995 and 1994, for Realty
were none and for Operating Company were $61,000 and $75,000.

69

SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)

NOTE 15--SUPPLEMENTAL CASH FLOW INFORMATION

The disposition by Realty of the multifamily and industrial operations
during 1994 involved the transfer of the following noncash items:

Real estate assets........................................... $98,305,000
Other assets................................................. 475,000
Real estate loans payable.................................... 44,290,000
Other liabilities............................................ 302,000

NOTE 16--COMBINED QUARTERLY FINANCIAL INFORMATION--UNAUDITED

Condensed unaudited combined quarterly results of operations for The Santa
Anita Companies are as follows:

NET INCOME
NET INCOME (LOSS) PER
QUARTER ENDED REVENUES (LOSS) COMMON SHARE
------------- ----------- ------------ ------------

1995
December 31...................... $14,834,000 $ 2,768,000 $ .25
September 30..................... 8,832,000 (37,755,000) (3.35)
June 30.......................... 17,971,000 702,000 .06
March 31......................... 39,569,000 6,780,000 .61
1994
December 31...................... $14,141,000 $ (4,376,000) $ (.39)
September 30..................... 8,289,000 (866,000) (.08)
June 30.......................... 17,926,000 1,449,000 .13
March 31......................... 41,093,000 6,107,000 .55
1993
December 31...................... $18,376,000 $(11,140,000) $(1.00)
September 30..................... 13,753,000 (170,000) (.02)
June 30.......................... 20,601,000 1,870,000 .17
March 31......................... 42,281,000 9,841,000 .88

The quarter ended December 31, 1995 includes an extraordinary gain on early
retirement of debt of $4,050,000 or $.36 per share.

Operating Company records operating revenues associated with thoroughbred
horse racing at Santa Anita Racetrack on a daily basis, except season
admissions which are recorded ratably over the racing season. Costs and
expenses associated with thoroughbred horse racing revenues are charged
against income in those interim periods in which the thoroughbred horse racing
revenues are recognized. Other costs and expenses are recognized as they
actually occur throughout the year. The rental fee paid by Operating Company
to Realty is recognized by both Realty and Operating Company as it is earned.

The total of the amounts shown as quarterly net income per common share may
differ from the amount shown on The Santa Anita Companies statement of
operations because the annual computation is made separately and is based upon
the average number of shares outstanding for the year.

The Santa Anita Companies is subject to significant seasonal variations in
revenues and net income (loss) due primarily to the seasonality of
thoroughbred horse racing.

70

SANTA ANITA REALTY ENTERPRISES, INC.

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
DECEMBER 31, 1995 AND 1994

ADDITIONS
----------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
----------- ----------- ----------- ---------- ----------- -----------

1995
Allowance for loss on
disposition of non-
core real estate
assets:
Deducted from
commercial
properties........ $ -- $27,800,000 $ -- $ -- $27,800,000
Deducted from
investment in
unconsolidated
joint ventures.... -- 8,200,000 -- -- 8,200,000
Deducted from real
estate loans
receivable........ -- 2,500,000 -- -- 2,500,000
----------- ----------- ---------- ----------- -----------
$ -- $38,500,000 $ -- $ -- $38,500,000
=========== =========== ========== =========== ===========
1994
Allowance for loss on
disposition of
multifamily and
industrial
operations:
Deducted from
commercial
properties........ $10,974,000 $ -- $ -- $10,974,000 $ --
=========== =========== ========== =========== ===========

71

SANTA ANITA REALTY ENTERPRISES, INC.

SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995

COSTS CAPITALIZED
SUBSEQUENT TO
INITIAL COSTS TO COMPANY ACQUISITION
------------------------ -------------------------
BUILDINGS
AND
DESCRIPTION ENCUMBRANCE LAND IMPROVEMENTS LAND IMPROVEMENTS
----------- ----------- ----------- ------------ ----------- ------------

INVESTMENTS TO BE HELD
Racing Facility:
Santa Anita Racetrack
(a).................. $ -- $ 549,000 $15,150,000 $ 3,545,000 $10,002,000
Office Building:
California
Arcadia............. 8,796,000 -- 9,122,000 -- 7,647,000
Land:
California
Land underlying
Fashion Park Mall.. 3,831,000 102,000 -- 244,000 --
----------- ----------- ----------- ----------- -----------
12,627,000 651,000 24,272,000 3,789,000 17,649,000
----------- ----------- ----------- ----------- -----------
INVESTMENTS TO BE SOLD
Shopping Centers
California
Yorba Linda......... 3,453,000 2,038,000 6,162,000 2,290,000
Orange.............. 1,702,000 1,800,000 3,275,000 256,000
Encinitas........... 4,250,000 2,842,000 8,954,000 1,070,000
Phoenix, Arizona
Tatum & Thunderbird. 2,848,000 728,000 1,672,000 233,000 1,857,000
28th and Indian
School............. 1,659,000 807,000 1,793,000 228,000
67th and Indian
School............. 1,370,000 1,751,000 3,396,000 1,665,000
Office Buildings
California
Santa Ana........... -- 6,670,000 16,130,000 200,000 858,000
Upland.............. -- 1,560,000 3,440,000 193,000 1,189,000
Land
California
Temecula............ 480,000 1,208,000 (728,000)
Reserve for loss on
disposition of non-core
real estate assets..... (27,800,000)
----------- ----------- ----------- ----------- -----------
15,762,000 19,404,000 44,822,000 (102,000) (18,387,000)
----------- ----------- ----------- ----------- -----------
$28,389,000 $20,055,000 $69,094,000 $3,687,000 $ (738,000)
=========== =========== =========== =========== ===========

- --------
(a) Initial costs December 31, 1979 book value

(b) Component depreciation used.

72

LIFE ON
GROSS AMOUNT AT WHICH CARRIED WHICH
AT CLOSE OF PERIOD DEPRECIATION
--------------------------------------- IN LATEST
BUILDINGS INCOME
AND ACCUMULATED DATE OF DATE STATEMENT IS
DESCRIPTION LAND IMPROVEMENTS TOTAL DEPRECIATION CONSTRUCTION ACQUIRED COMPUTED
----------- ----------- ------------ ------------ ------------ ------------ -------- ------------

INVESTMENTS TO BE HELD
Racing Facility:
Santa Anita Racetrack
(a).................. $ 4,094,000 $ 25,152,000 $ 29,246,000 $ 20,216,000 1934 1934 5-35 Years(b)
Office Building:
California
Arcadia............. -- 16,769,000 16,769,000 4,068,000 1986 1987 5-45 Years
Land:
California
Land underlying
Fashion Park Mall.. 346,000 -- 346,000 -- 1934
----------- ------------ ------------ ------------ ----
4,440,000 41,921,000 46,361,000 24,284,000
----------- ------------ ------------ ------------ ----
INVESTMENTS TO BE SOLD
Shopping Centers
California
Yorba Linda......... 2,038,000 8,452,000 10,490,000 2,566,000 1985 1985 3-40 Years
Orange.............. 1,800,000 3,531,000 5,331,000 900,000 1986 1985 3-40 Years
Encinitas........... 2,842,000 10,024,000 12,866,000 1,829,000 1985 1985 3-40 Years
Phoenix, Arizona
Tatum & Thunderbird. 961,000 3,529,000 4,490,000 1,048,000 1981 1983 3-40 Years
28th and Indian
School............. 807,000 2,021,000 2,828,000 741,000 1979 1983 3-40 Years(b)
67th and Indian
School............. 1,751,000 5,061,000 6,812,000 1,480,000 1968 1986 3-40 Years
Office Buildings
California
Santa Ana........... 6,870,000 16,988,000 23,858,000 7,702,000 1980 1984 5-40 Years
Upland.............. 1,753,000 4,629,000 6,382,000 1,819,000 1982 1984 5-35 Years
Land
California
Temecula............ 480,000 480,000 1989
Reserve for loss on
disposition of non-core
real estate assets..... (27,800,000) (27,800,000)
----------- ------------ ------------ ------------ ----
19,302,000 26,435,000 45,737,000 18,085,000
----------- ------------ ------------ ------------
$23,742,000 $ 69,356,000 $ 92,098,000 (c) $ 42,369,000(d)
=========== ============ ============ ============

- --------

1995 1994 1993
------------ ------------- ------------

(c)Balance at beginning of period... $117,692,000 $ 223,483,000 $223,028,000
Additions--capital expenditures... 3,432,000 2,911,000 17,030,000
Disposals......................... (1,226,000) (1,409,000) (5,601,000)
Allowance for loss on disposition
of non-core real estate assets... (27,800,000) -- --
Allowance for loss on disposition
of multifamily and industrial
operations....................... -- -- (10,974,000)
Disposition of multifamily and
industrial operations............ -- (107,293,000) --
------------ ------------- ------------
Balance at end of period.......... $ 92,098,000 $ 117,692,000 $223,483,000
============ ============= ============
(d)Balance at beginning of period... $ 39,798,000 $ 45,184,000 $ 42,524,000
Additions--depreciation expense,
net of amortization expense...... 3,797,000 3,602,000 7,079,000
Disposals......................... (1,226,000) -- (4,419,000)
Disposition of multifamily and
industrial operations............ -- (8,988,000) --
------------ ------------- ------------
Balance at end of period.......... $ 42,369,000 $ 39,798,000 $ 45,184,000
============ ============= ============

73

Independent Auditors' Report
----------------------------

To the General Partner
Anita Associates:

We have audited the accompanying balance sheets of Anita Associates (a
California limited partnership) as of December 31, 1995 and 1994, and the
related statements of income, partners' deficit, and cash flows for each of the
years in the three-year period ended December 31, 1995. These financial
statements are the responsibility of Anita Associates' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Anita Associates as of December
31, 1995 and 1994, and the results of its operations and its cash flows for each
of the years in the three-year period ended December 31, 1995, in conformity
with generally accepted accounting principles.

KPMG Peat Marwick LLP

San Diego, California
February 9, 1996

74

ANITA ASSOCIATES
----------------
(a California limited partnership)

BALANCE SHEETS
--------------

December 31,
ASSETS 1995 1994
------ ------------ ------------

SHOPPING CENTER PROPERTY (Notes C and D):
Land $ 2,703,982 $ 2,703,982
Buildings and improvements 60,302,510 59,359,379
Deferred charges 3,678,022 3,475,675
66,684,514 65,539,036
------------ ------------

Less accumulated depreciation and amortization (15,674,492) (13,475,806)
------------ ------------
51,010,022 52,063,230

CASH AND CASH EQUIVALENTS (Note F) 2,218,502 3,179,431

ACCOUNTS AND NOTES RECEIVABLE
less allowance for doubtful accounts
of $339,719 (1995) and $178,503 (1994) 166,879 330,878

DEFERRED RECEIVABLE 1,977,913 1,288,062

PREPAID EXPENSES 612,103 567,305

OTHER ASSETS (Note C) 654,262 665,304
------------ ------------

$ 56,639,681 $ 58,094,210
============ ============

LIABILITIES AND PARTNERS' DEFICIT
---------------------------------

NOTES PAYABLE (Note C) $ 61,195,750 $ 61,925,386
PARTNER ADVANCES (Note E) - 551,787

ACCOUNTS PAYABLE TO:
Ernest W. Hahn, Inc. 36,760 80,133
Tenants 326,408 203,434
Others 1,747,081 1,821,790
------------ ------------

63,305,999 64,582,530
COMMITMENTS (Notes D and F)

PARTNERS' DEFICIT
General partner (3,335,203) (3,246,204)
Limited partner (3,331,115) (3,242,116)
------------ ------------
(6,666,318) (6,488,320)

$ 56,639,681 $ 58,094,210
=========== ============

See accompanying notes to financial statements

75

ANITA ASSOCIATES
----------------
(a California limited partnership)

STATEMENTS OF INCOME
--------------------

Year ended December 31,
---------------------------------------
1995 1994 1993
----------- ----------- ----------

REVENUES:
Minimum rent (Note D) $ 7,701,809 $ 6,592,561 $ 5,695,309
Overage rent (Note D) 149,783 192,454 257,710
Recoveries from tenants (Note D) 5,113,622 4,654,608 3,713,624
Other income 524,204 482,452 546,809
----------- ----------- -----------
13,489,418 11,922,075 10,213,452
----------- ----------- -----------

EXPENSES (Note F):
Recoverable operating expenses (Note D) 2,561,243 2,421,907 1,858,764
Payroll and related benefits
paid to an affiliate 1,444,816 1,427,973 1,259,781
Office expense 27,728 140,591 145,121
Management fee paid to an affiliate 329,474 259,957 253,408
Promotion 67,575 117,310 117,950
Professional services 42,412 59,782 44,711
Ground rent 505,465 505,465 228,193
Bad debt expense 161,216 139,819 146,056
Other expenses 247,604 157,755 97,721
Property taxes 786,404 414,612 381,436
----------- ----------- -----------

6,173,937 5,645,171 4,533,141
----------- ----------- -----------

INCOME FROM OPERATIONS 7,315,481 6,276,904 5,680,311
----------- ----------- -----------

NON-OPERATING REVENUE:
Interest income 258,980 359,370 71,348
----------- ----------- -----------

NON-OPERATING EXPENSES:
Interest expense (Notes C and E) 5,341,999 3,498,533 2,137,514
Depreciation and amortization 2,205,710 1,457,869 1,170,332
Net write-off of improvements
and deferred charges 710 10,747 113,308
----------- ----------- -----------

7,548,419 4,967,149 3,421,154
----------- ----------- -----------

INCOME BEFORE EXTRAORDINARY ITEM 26,042 1,669,125 2,330,505

Extraordinary loss from early extinguishment
of debt (Note C) - (1,477,754) -
----------- ----------- -----------

NET INCOME $ 26,042 $ 191,371 $ 2,330,505
=========== =========== ===========

See accompanying notes to financial statements

76

ANITA ASSOCIATES
----------------
(a California limited partnership)

STATEMENTS OF PARTNERS' DEFICIT
-------------------------------

Limited
General Partner Partner
--------------------------------------------- ------------
Hahn - UPI
(a limited partnership) Santa Anita
--------------------------------------------- Realty
Ernest W. UPI Total General Enterprises,
Hahn, Inc. Associates Partner Inc. Total
- ------------------------ ----------- ----------- ------------- ----------- -----------

DEFICIT,
January 1, 1993 $(1,264,728) $(417,746) $(1,682,474) $(1,678,388) $(3,360,862)

Net income 924,744 240,508 1,165,252 1,165,253 2,330,505

Cash contributions 264,818 68,874 333,692 333,692 667,384

Cash distributions (1,111,040) (288,960) (1,400,000) (1,400,000) (2,800,000)
----------- --------- ----------- ----------- -----------
DEFICIT,
December 31, 1993 (1,186,206) (397,324) (1,583,530) (1,579,443) (3,162,973)

Net income 75,936 19,749 95,685 95,686 191,371

Cash contributions 171,926 44,715 216,641 216,641 433,282

Cash distributions (1,567,360) (407,640) (1,975,000) (1,975,000) (3,950,000)
----------- --------- ----------- ----------- -----------

DEFICIT,
December 31, 1994 (2,505,704) (740,500) (3,246,204) (3,242,116) (6,488,320)

Net income 10,333 2,688 13,021 13,021 26,042

Cash contributions 253,770 66,001 319,771 319,771 639,542

Cash distributions (334,733) (87,058) (421,791) (421,791) (843,582)
----------- --------- ----------- ----------- -----------

DEFICIT,
December 31, 1995 $(2,576,334) $(758,869) $(3,335,203) $(3,331,115) $(6,666,318)
=========== ========= =========== =========== ===========

See accompanying notes to financial statements

77

ANITA ASSOCIATES
----------------
(a California limited partnership)

STATEMENTS OF CASH FLOWS
------------------------

Year ended December 31,
-------------------------------------------
1995 1994 1993
------------ ----------- ------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 26,042 $ 191,371 $ 2,330,505
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 2,205,710 1,457,869 1,170,332
Net write-off of deferred charges 710 10,747 113,308
Net write-off of deferred charges included
in extraordinary item - 113,700 -
Provision for doubtful accounts receivable 161,216 139,819 146,056
Changes in assets and liabilities:
Accounts and notes receivable from:
Tenants 2,783 (224,467) (6,602)
Partners - 22,356 170,179
Deferred receivable (689,851) (441,197) (96,802)
Prepaid expenses (44,798) 308,328 (43,108)
Other assets 11,042 (639,287) 61,662
Accounts payable to:
Ernest W. Hahn, Inc. (43,373) 20,979 (65,681)
Tenants 122,974 94,642 (91,457)
Others (74,709) 419,972 (172,211)
----------- ------------ ------------

Net cash provided by operating activities 1,677,746 1,474,832 3,516,181
----------- ------------ ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to shopping center property (1,153,212) (3,480,713) (550,628)
Additions to property under development - (7,581,179) (16,004,049)
Accrued construction cost - (528,207) 528,207
----------- ------------ ------------
Net cash used in investing activities (1,153,212) (11,590,099) (16,026,470)
----------- ------------ ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from new debt - 62,355,000 -
Payments of notes payable (729,636) (25,743,163) (473,063)
Good faith deposit - 1,247,100 (1,247,100)
Repayments to partners (551,787) (21,687,479) 16,513,264
Contributions from partners 639,542 433,282 667,384
Distributions to partners (843,582) (3,950,000) (2,800,000)
----------- ------------ ------------

Net cash (used in) provided by
financing activities (1,485,463) 12,654,740 12,660,485
----------- ------------ ------------

NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (960,929) 2,539,473 150,196

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 3,179,431 639,958 489,762
----------- ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,218,502 $ 3,179,431 $ 639,958
=========== ============ ============

See accompanying notes to financial statements

78

ANITA ASSOCIATES
----------------
(a California limited partnership)

STATEMENTS OF CASH FLOWS (CONTINUED)
------------------------------------

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
------------------------------------------------

Years ended December 31,
------------------------------------
1995 1994 1993
---------- ---------- ----------

Interest paid on notes payable
(net of amounts capitalized) $5,225,886 $5,112,657 $2,140,984

SUPPLEMENTAL DISCLOSURE RELATED TO NON-CASH INVESTING
-----------------------------------------------------
AND FINANCING ACTIVITIES
------------------------

Upon completion of the development project in 1994, the Partnership transferred
$30,924,057 from Property Under Development to Shopping Center Property.

At December 31, 1994, $997,233 of tenant improvements were completed but unpaid
and are included in Shopping Center Property and Accounts Payable - Others.

In addition to the above, the following non-cash activities occurred:

Reduction in
Reduction Accumulated
Write off of assets: in Property Amortization
- ----------------------- ------------------------------- -------------------------------
1995 1994 1993 1995 1994 1993
------ -------- ---------- ------ -------- ----------

Buildings and
improvements $ - $ - $ 85,263 $ - $ - $ 25,579
Deferred charges 7,734 254,792 1,441,117 7,024 130,345 1,387,493
------ -------- ---------- ------ -------- ----------

Total $7,734 $254,792 $1,526,380 $7,024 $130,345 $1,413,072
====== ======== ========== ====== ======== ==========

See accompanying notes to financial statements

79

ANITA ASSOCIATES
----------------
(a California limited partnership)

NOTES TO FINANCIAL STATEMENTS
-----------------------------

YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
--------------------------------------------

A. Organization and Accounting Policies:
------------------------------------

Anita Associates (the "Partnership") is a California limited partnership
consisting of Hahn-UPI, the general partner, and Santa Anita Realty
Enterprises, Inc. (the "Limited Partner"), formed to develop and operate a
regional shopping center in Arcadia, California. Hahn-UPI is a limited
partnership consisting of Ernest W. Hahn, Inc. ("Hahn"), the general partner,
and UPI Associates ("UPI"), the limited partner. UPI does not have
responsibility for, or participation in, any duties, obligations or rights of
approval assumed by Hahn-UPI as general partner of Anita Associates. The
partnership agreement provides that the Partnership shall continue from year
to year until the partners elect to terminate the Partnership. Profits and
losses are shared as follows:

Hahn-UPI:
Ernest W. Hahn, Inc. 39.68%
UPI Associates 10.32%

Santa Anita Realty Enterprises, Inc. 50.00%

Certain reclassifications of prior year amounts have been made in order to
conform to the current year presentation.

The Partnership's accounting policies are as follows:

1. Shopping center property and property under development are recorded at
cost and include direct construction costs, interest, construction loan
fees, property taxes and related expenses capitalized during the pre-
opening period, as these amounts are expected to be recovered from
operations.

2. The costs of shopping center buildings and improvements, less a 5%
salvage value, are depreciated using the straight-line method over the
estimated useful life of 40 years.

3. Direct costs of obtaining leases and permanent financing are deferred and
are being amortized over the lease and loan periods, respectively.

4. Maintenance and repairs are charged to operations as incurred.

5. Expenditures for betterments are capitalized and depreciated over the
remaining depreciable life of the property.

80

ANITA ASSOCIATES
----------------
(a California limited partnership)

NOTES TO FINANCIAL STATEMENTS
-----------------------------

YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
--------------------------------------------

A. Organization and Accounting Policies (Continued):
------------------------------------------------

6. Costs incurred in connection with early termination of a tenant lease
are amortized over the life of the lease with the replacement tenant.
To the extent payments received from an incoming tenant do not
represent future rentals or cost recoveries for tenant improvements,
they are recorded as income when received.

7. Taxable income or loss of the Partnership is reported by and is the
responsibility of the respective partners. Accordingly, the
Partnership makes no provision for income taxes.

8. The Partnership recognizes scheduled rent increases on a straight-line
basis. Accordingly, a deferred receivable and deferred payable for
rents which are to be received or paid in subsequent years,
respectively, are reflected in the accompanying balance sheets. The
deferred payable is included in accounts payable to others.

9. The Partnership considers all highly liquid debt instruments purchased
with a maturity of three months or less to be cash equivalents.

10. The Partnership agreement does not designate investment interests in
units. Investment interests are calculated on a percentage basis.
Accordingly, earnings or losses per unit is not presented in the
accompanying financial statements.

11. The Partnership has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period to prepare these financial statements in conformity
with generally accepted accounting principles. Actual results could
differ from those estimates.

12. The Partnership financial instruments that are exposed to
concentrations of credit risk consist primarily of cash and cash
equivalents and trade and deferred receivables. The Partnership places
its temporary cash investments with high credit quality institutions
and cash accounts with federally insured institutions. Cash balances
with any one institution may be in excess of federally insured limits.
The Partnership has not experienced any losses in such investments or
accounts and believes it is not exposed to any significant credit
risk. Management routinely assesses the financial strength of its
tenants and as a consequence, believes that its trade and deferred
receivable credit risk exposure is limited.

81

ANITA ASSOCIATES
----------------
(a California limited partnership)

NOTES TO FINANCIAL STATEMENTS
-----------------------------

YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
--------------------------------------------

B. Fair Value of Financial Instruments:
-----------------------------------

Statement of Financial Accounting Standards No. 107 "Disclosures about Fair
Value of Financial Instruments" requires that the fair values be disclosed
for the Partnership's financial instruments. The carrying amount of cash and
cash equivalents, accounts receivable, notes receivable and accounts payable
are reasonable estimates of their fair values because of the short maturity
of these instruments. The carrying amount of notes payable is a reasonable
estimation of fair value based on management's belief that, on average,
fixed interest rates are not materially different than market rates
available to the Partnership.

C. Notes Payable:
-------------

The notes payable (collectively "the loan") at December 31, 1995 are payable
in monthly payments of $527,338 including interest, with a balloon payment
of $51,929,396 due January 2003. The loan was funded in two draws of
$46,577,193 and $15,777,807, bearing interest at 9.0% and 9.25%,
respectively. The loan is secured by a first lien on the leasehold estate
and improvements. In connection with the funding of the final draw in
December 1994, the Partnership executed a pledge agreement and deposited
$638,933 in a restricted interest bearing account. This amount is included
in other assets at December 31, 1995 and December 31, 1994.

As part of the extinguishment of the existing debt on January 25, 1994, the
Partnership was required to pay a prepayment penalty of $1,364,054. This
penalty, along with the write-off of unamortized finance costs related to
the extinguished debt, was recognized as an extraordinary loss during 1994.

Annual principal payments are scheduled as follows:

Year ending December 31, Amount
------------------------ -----------

1996 $ 814,710
1997 891,684
1998 975,935
1999 1,068,145
2000 1,169,069
Thereafter 56,276,207
-----------

$61,195,750
===========

82

ANITA ASSOCIATES
----------------
(a California limited partnership)

NOTES TO FINANCIAL STATEMENTS
-----------------------------

YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
--------------------------------------------

D. Commitments:
-----------

Partnership as Lessor:
---------------------

The Partnership leases space to tenants in the shopping center for which it
charges minimum rents and receives reimbursement for real estate taxes and
certain other operating expenses. The terms of the leases range from 4 to 25
years, and the majority of the leases also provide for additional overage
rents during any year in which a tenant's gross sales exceed a stated
amount.

Future minimum rental revenues to be received under leases in force at
December 31, 1995 are as follows:

Year ending December 31, Amount
------------------------ -----------

1996 $ 7,520,600
1997 7,608,856
1998 7,218,329
1999 6,775,746
2000 6,300,422
Thereafter 21,668,192
-----------
$57,092,145
===========

In the ordinary course of business, the Partnership is, from time to time,
involved in various litigation. Although the final outcome of these legal
matters cannot be determined, it is management's opinion, based in part upon
advise from legal counsel, that the final resolution of these matters will
not have a material adverse effect on the Partnership's financial position
and results of operations.

83

ANITA ASSOCIATES
----------------
(a California limited partnership)

NOTES TO FINANCIAL STATEMENTS
-----------------------------

YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
--------------------------------------------

E. Partner Advances:
----------------

In 1994, the Partnership substantially completed a $32,000,000 expansion of
the shopping center. The expansion included the addition of a major
department store as well as other tenant leasable area.

The Partners made advances to fund the expansion cost until construction
loan funds could be obtained. Such advances bore interest at 10% per annum,
compounded monthly. Advances outstanding at December 31, 1995, 1994 and 1993
were $0, $551,787 and $22,239,266, respectively. Interest incurred on
partner advances was $16,738, $1,671,528 and $1,211,718 for the years ended
December 31, 1995, 1994 and 1993, respectively.

Interest costs capitalized as part of the shopping center totaled $297,392,
$2,189,255 and $1,396,033 during 1995, 1994 and 1993, respectively, of which
$0, $1,262,587 and $1,211,718 related to advances from partners for 1995 and
1994, respectively.

F. Related Party Transactions:
--------------------------

Operating Costs
---------------

Hahn and its wholly-owned subsidiary, Hahn Property Management Corporation
("HPMC"), provide property management, leasing and various legal services to
the Partnership. A summary of costs and fees incurred by Hahn and HPMC
during 1995, 1994 and 1993 is presented below:

Year ended December 31,
------------------------------------
1995 1994 1993
---------- ---------- ----------

Management fee $ 329,474 $ 259,957 $ 253,408
Development fee - 68,758 308,030
Payroll and related benefits 1,444,816 1,427,973 1,259,781
Leasing commissions 339,398 543,276 340,825
Professional services 15,078 5,941 17,446
Legal 50,544 151,405 58,698
---------- ---------- ----------

$2,179,310 $2,457,310 $2,238,188
========== ========== ==========

84

ANITA ASSOCIATES
----------------
(a California limited partnership)

NOTES TO FINANCIAL STATEMENTS
-----------------------------

YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
--------------------------------------------

F. Related Party Transactions (Continued):
--------------------------------------

Ground Lease
------------

The shopping center was developed on approximately 70 acres of land leased
from the Limited Partner. The leased property consists of four parcels, each
covered by a separate ground lease, requiring total annual rentals of
$762,497, during 1995 and 1994. Three of the parcels are subleased to major
department stores located in the shopping center for aggregate rentals of
$257,032 annually. The sublease terms, which commenced with the opening of
the shopping center and continue through October 2017 with two ten-year
renewal options, are identical to the primary lease. The subleases to the
major department stores are assigned to the Limited Partner. The Partnership
remains the lessee on the fourth parcel. In 1993, the ground leases were
amended and the area of the fourth parcel was increased by an additional 8.2
acres; consequently, the monthly rental increased from $18,321 to $22,488.

Net rental expense amounted to $505,465 in 1995 and 1994, respectively and
$228,193 in 1993. The minimum annual rental payments under the lease, net of
sublease rentals, are as follows:

Year ending December 31, Amount
------------------------ -----------

1996 $ 323,116
1997 537,255
1998 537,255
1999 537,255
2000 537,255
Thereafter 9,026,330
----------
$11,498,466
===========

Cash Equivalents:
----------------

At December 31, 1995 and 1994, the Partnership had $1,193,598 and
$1,900,000, respectively, invested in thirty day bank credit-enhanced
commercial paper issued by an entity in which Hahn owns an interest.

85

Independent Auditors' Report
----------------------------

To the Partners
H-T Associates:

We have audited the accompanying consolidated balance sheets of H-T Associates
(a Maryland general partnership) and subsidiary (a Maryland general partnership)
as of December 31, 1995 and 1994, and the related consolidated statements of
operations, partners' capital (deficit) and cash flows for each of the years in
the three-year period ended December 31, 1995. These consolidated financial
statements are the responsibility of H-T Associates' management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of H-T Associates and
subsidiary as of December 31, 1995 and 1994, and the results of their operations
and their cash flows for each of the years in the three-year period ended
December 31, 1995 in conformity with generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming
that the Partnership will continue as a going concern. As discussed in Note H
to the consolidated financial statements, the Partnership's subsidiary, Towson
Town Center Associates, is in technical default on its notes payable at December
31, 1995. As such, those notes may be callable at the lender's discretion. As
Towson Town Center Associates is the primary subsidiary of the Partnership,
this technical default raises substantial doubt about the Partnership's ability
to continue as a going concern. Management's plan in regard to this matter is
also described in Note H to the consolidated financial statements. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

KPMG Peat Marwick LLP

San Diego, California
February 9, 1996

86

H-T ASSOCIATES
--------------
(a Maryland general partnership)
AND SUBSIDIARY
(a Maryland general partnership)

CONSOLIDATED BALANCE SHEETS
---------------------------

December 31,
---------------------------
ASSETS 1995 1994
------

SHOPPING CENTER PROPERTY (Note C):

Land $ 11,726,213 $ 11,726,213
Buildings and improvements 178,667,284 177,767,286
Deferred charges 2,961,418 2,525,485
------------ ------------
193,354,915 192,018,984
Less accumulated depreciation and
amortization (28,659,166) (22,074,284)
------------ ------------
164,695,749 169,944,700

CASH 2,284,753 2,841,563

ACCOUNTS RECEIVABLE, less allowance for
doubtful accounts of $447,379 (1995)
and $559,939 (1994) 1,122,092 1,442,306

NOTES RECEIVABLE 171,122 194,463

CONSTRUCTION COSTS RECEIVABLE FROM TENANTS - 64,714

DEFERRED RENT RECEIVABLE 3,493,647 3,056,173

PREPAID EXPENSES 1,350,500 1,203,429

OTHER ASSETS 49,116 44,409
------------ ------------
$173,166,979 $178,791,757
============ ============

LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
- -------------------------------------------

NOTES PAYABLE (Note C) $164,641,000 $164,641,000

ADVANCES FROM PARTNERS (Note E)
Ernest W. Hahn, Inc. 4,821,988 4,366,127
Santa Anita Realty Enterprises, Inc. 4,810,292 4,355,621

ACCOUNTS PAYABLE TO:
Ernest W. Hahn, Inc. 51,243 91,694
Tenants 136,569 141,907
Others 1,287,018 877,489
------------ ------------
175,748,110 174,473,838
COMMITMENTS (Note D)

MINORITY INTEREST 2,168,603 4,266,956

PARTNERS' CAPITAL (DEFICIT) (Note F) (4,749,734) 50,963
------------ ------------
$173,166,979 $178,791,757
============ ============

See notes to consolidated financial statements.

87

H-T ASSOCIATES
--------------
(a Maryland general partnership)
AND SUBSIDIARY
(a Maryland general partnership)

CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------

Years ended December 31,
----------------------------------------
1995 1994 1993
----------- ----------- -----------

REVENUES:
Minimum rent (Note D) $15,168,774 $14,639,567 $14,198,970
Overage rent (Note D) 418,254 377,726 366,600
Recoveries from tenants (Note D) 6,091,553 5,642,854 4,845,865
Other income 1,183,397 730,436 579,235
----------- ----------- -----------

22,861,978 21,390,583 19,990,670
----------- ----------- -----------
EXPENSES (Note G):
Operating expenses 3,077,479 2,673,305 2,246,574
Payroll and related benefits
paid to an affiliate 1,536,176 1,585,083 1,444,592
Property taxes 1,251,126 1,223,371 1,212,191
Office expense 2,309 273,673 249,677
Management fee paid to an affiliate 670,033 598,697 545,964
Promotion 90,121 153,908 134,078
Professional services 68,860 145,265 46,339
Professional services paid to an affiliate 37,045 9,056 33,071
Other expenses 178,501 211,565 652,589
----------- ----------- -----------

6,911,650 6,873,923 6,565,075
----------- ----------- -----------

INCOME FROM OPERATIONS 15,950,328 14,516,660 13,425,595
----------- ----------- -----------

NON-OPERATING REVENUE:
Interest income 213,404 127,290 233,305
----------- ----------- -----------
NON-OPERATING EXPENSES:
Interest expense (Notes C and E) 14,468,360 12,864,667 11,923,884
Depreciation and amortization 6,585,518 6,455,406 6,350,407
Net write-off of assets 8,904 26,444 39,186
----------- ----------- -----------

21,062,782 19,346,517 18,313,477
----------- ----------- -----------

LOSS BEFORE MINORITY INTEREST (4,899,050) (4,702,567) (4,654,577)

MINORITY INTEREST 1,398,353 1,403,391 1,382,472
----------- ----------- -----------

NET LOSS $(3,500,697) $(3,299,176) $(3,272,105)
=========== =========== ===========

See notes to consolidated financial statements.

88

H-T ASSOCIATES
--------------
(a Maryland general partnership)
AND SUBSIDIARY
(a Maryland general partnership)

CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
-----------------------------------------------------

YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
--------------------------------------------

Santa Anita
Ernest W. Realty
Hahn, Inc. Enterprises, Inc. Total
----------- ----------------- -----------

BALANCE, January 1, 1993 $ 4,654,871 $ 4,654,872 $ 9,309,743

Net loss (1,636,052) (1,636,053) (3,272,105)

Cash distributions (Note F) (1,100,000) (1,099,999) (2,199,999)
----------- ----------- -----------

BALANCE, December 31, 1993 1,918,819 1,918,820 3,837,639

Net loss (1,649,588) (1,649,588) (3,299,176)

Cash distributions (Note F) (243,750) (243,750) (487,500)
----------- ----------- -----------

BALANCE, December 31, 1994 25,481 25,482 50,963

Net loss (1,750,348) (1,750,349) (3,500,697)

Cash distributions (Note F) (650,000) (650,000) (1,300,000)
----------- ----------- -----------

BALANCE, December 31, 1995 $(2,374,867) $(2,374,867) $(4,749,734)
=========== =========== ===========

See notes to consolidated financial statements.

89

H-T ASSOCIATES
--------------
(a Maryland general partnership)
AND SUBSIDIARY
(a Maryland general partnership)

CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------

Years ended December 31,
--------------------------------------------
1995 1994 1993
----------- ----------- -----------

CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss $(3,500,697) $(3,299,176) $(3,272,105)
Adjustments to reconcile net loss
to net cash provided by
operating activities:
Depreciation and amortization 6,585,518 6,455,406 6,350,407
Provision for doubtful accounts
receivable (13,546) 44,832 531,345
Net write-off of assets 8,904 26,444 39,186
Interest accrued on partner
advances 910,532 684,469 540,553
Minority interest (1,398,353) (1,403,391) (1,382,472)
Changes in assets and liabilities:
Accounts receivable 333,760 (714,087) (376,955)
Notes receivable 23,341 196,098 177,267
Deferred rent receivable (437,474) (513,292) (1,186,021)
Prepaid expenses (147,071) 160,870 1,080,653
Other assets (4,707) (11,045) (803)
Accounts payable to:
Ernest W. Hahn, Inc. (40,451) (28,153) (28,810)
Tenants (5,338) 59,228 (26,981)
Others 409,529 (93,302) (38,533)
----------- ----------- -----------

Net cash provided by operating
activities 2,723,947 1,564,901 2,406,731
----------- ----------- -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to shopping center
property (1,345,471) (871,192) (1,573,048)
Decrease in construction
costs receivable from tenants 64,714 25,892 51,126
Decrease in accrued construction costs - - (20,000)
----------- ----------- -----------

Net cash used in investing
activities (1,280,757) (845,300) (1,541,922)
----------- ----------- -----------

(continued)

See notes to consolidated financial notes.

90

H-T ASSOCIATES
--------------
(a Maryland general partnership)
AND SUBSIDIARY
(a Maryland general partnership)

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
-------------------------------------------------

Years ended December 31,
----------------------------------------
1995 1994 1993
----------- ---------- -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable - - 5,168,000
Distributions to minority interest (700,000) (262,500) (4,706,354)
Distributions to partners (1,300,000) (487,500) (2,199,999)
----------- ---------- -----------

Net cash used in financing
activities (2,000,000) (750,000) (1,738,353)
----------- ---------- -----------

NET DECREASE IN CASH (556,810) (30,399) (873,544)

CASH, BEGINNING OF YEAR 2,841,563 2,871,962 3,745,506
----------- ---------- -----------

CASH, END OF YEAR $ 2,284,753 $2,841,563 $ 2,871,962
=========== ========== ===========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
------------------------------------------------

Interest paid $13,681,570 $12,244,079 $10,443,161

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES
-------------------------------------------------------

During 1995 and 1994, the following non-cash activity occurred:

Reduction in
Accumulated
Depreciation
Reduction and
Write-off of assets: in Property Amortization
---------------- ---------------
1995 1994 1995 1994
------ ------- ----- -------

Buildings and improvements $ - $18,296 $ - $18,296
Deferred charges 9,540 28,650 636 2,206
------ ------- ----- -------

Total $9,540 $46,946 $ 636 $20,502
====== ======= ===== =======

See notes to consolidated financial statements.

91

H-T ASSOCIATES
--------------
(a Maryland general partnership)
AND SUBSIDIARY
(a Maryland general partnership)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------

DECEMBER 31, 1995, 1994 AND 1993
--------------------------------

A. Organization and Accounting Policies:
------------------------------------

H-T Associates (the "Partnership") is a Maryland general partnership formed
on July 28, 1987. Its primary asset is a 65% ownership in Towson Town Center
Associates ("TTCA"), formed to develop and operate a regional shopping
center near Baltimore, Maryland. The general partners of the Partnership are
Ernest W. Hahn, Inc. and Santa Anita Realty Enterprises, Inc. The
Partnership is to continue until December 31, 2087, unless terminated
earlier. Profits and losses are shared as follows:

Ernest W. Hahn, Inc. ("Hahn") 50%
Santa Anita Realty Enterprises, Inc.
("Santa Anita") 50%

The consolidated financial statements of the Partnership include the
accounts of the Partnership and TTCA. TTCA is a Maryland general partnership
comprised of the Partnership and DeChiaro Associates ("DeChiaro") as 65% and
35% general partners, respectively. DeChiaro's interest is recorded as
minority interest in the accompanying consolidated financial statements. All
significant intercompany balances and transactions have been eliminated.

Certain reclassifications of prior year amounts have been made in order to
conform to the current year presentation.

The Partnership's accounting policies are as follows:

1. Shopping center property is recorded at cost and includes direct
construction costs, interest, construction loan fees, property taxes
and related costs capitalized during the construction period, as these
amounts are expected to be recovered from operations.

2. The costs of shopping center buildings and improvements, less a 5%
salvage value, are depreciated using the straight-line method over the
estimated useful life of 40 years.

3. Direct costs of obtaining leases and permanent financing are deferred
and are being amortized over the lease and loan periods, respectively.

4. Maintenance and repairs are charged to operations as incurred.

5. Expenditures for betterments are capitalized and depreciated over the
remaining depreciable life of the property.
(continued)

92

H-T ASSOCIATES
--------------
(a Maryland general partnership)
AND SUBSIDIARY
(a Maryland general partnership)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------

A. Organization and Accounting Policies (Continued):
------------------------------------------------

6. Costs incurred in connection with the early termination of a tenant
lease are amortized over the life of the lease with the replacement
tenant. To the extent payments received from an incoming tenant do not
represent future rentals or cost recoveries for tenant improvements,
they are recorded as income when received.

7. Taxable income or loss of the Partnership is reported by, and is the
responsibility of, the respective partners. Accordingly, the
Partnership makes no provision for income taxes.

8. The Partnership recognizes scheduled rent increases on a straight-line
basis. Accordingly, a deferred receivable for rents which are to be
received in subsequent years is reflected in the accompanying
consolidated balance sheets.

9. The differential to be paid or received under interest rate swap
agreements is accrued as interest rates change, and is recognized over
the life of the agreements (Note C).

10. The Partnership has made a number of estimates and assumptions relating
to the reporting of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting period to
prepare these financial statements in conformity with generally
accepted accounting principles. Actual results could differ from those
estimates.

11. The Partnership agreement does not designate investment interests in
units. Investment interests are calculated on a percentage basis.
Accordingly, earnings or losses per unit is not presented in the
accompanying consolidated financial statements.

12. The Partnership's financial instruments that are exposed to
concentrations of credit risk consist primarily of cash and trade and
deferred receivables. The Partnership places its temporary cash
investments with high credit quality institutions and cash accounts
with federally insured institutions. Cash balances with any one
institution may be in excess of federally insured limits. The
Partnership has not experienced any losses in such investments or
accounts and believes it is not exposed to any significant credit risk.
Management routinely assesses the financial strength of its tenants and
as a consequence, believes that its trade and deferred receivable
credit risk exposure is limited.

93

H-T ASSOCIATES
--------------
(a Maryland general partnership)
AND SUBSIDIARY
(a Maryland general partnership)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------

B. Fair Value of Financial Instruments:
------------------------------------

Statement of Financial Accounting Standards No. 107 "Disclosures about Fair
Value of Financial Instruments" requires that the fair values be disclosed
for the partnerships' financial instruments. The carrying amount of cash,
accounts receivable, and accounts payable are reasonable estimates of their
fair values due to the short-term nature of these instruments.

The carrying amount of the notes receivable is a reasonable estimation of
fair value based on management's belief that the interest rates on which the
notes bear interest is not materially different than interest rates that
would be used on loans to tenants with similar credit ratings.

The carrying amount of the notes payable and advances from partners is a
reasonable estimation of fair value as the notes and advances bear interest
based on a variable market rate.

The fair value of interest rate swaps (used for hedging purposes) is the
estimated amount that the Partnership would pay to terminate the swap
agreements at the reporting date, taking into account current interest rates
and the current credit worthiness of the swap counterparties. The fair value
of the interest rate swaps as of December 31, 1995 is a net payable of
approximately $9,100,000.

C. Notes Payable:
-------------

In 1990, TTCA entered into a building loan agreement with a commercial bank,
secured by an indemnity deed of trust encumbering the property. TTCA can
borrow up to $170,000,000. The agreement, as amended, requires principal
payments of $1,741,000 in 1998, and $162,900,000 in 1999. The agreement
provides that TTCA can: (1) obtain funds at the then current prime rate of
the commercial bank; (2) obtain funds based on the then current London
Interbank Offered Rate ("LIBOR") plus a spread (as defined); or, (3) obtain
funds through the issuance of commercial paper at rates based upon the
interest rates offered in the commercial paper market plus letter of credit
fees. For the years ended December 31, 1995 and 1994, all funds were
obtained under the commercial paper option for a total outstanding balance
of $164,641,000. Interest is payable monthly. The variable interest rate in
effect on the outstanding balance as of December 31, 1995 and 1994 was 6.0%
and 5.8%, respectively.

In connection with the loan, Hahn and Santa Anita each executed a repayment
guaranty of $66,135,000 and DeChiaro executed a limited repayment guaranty
of $4,513,000. The repayment guaranties contain covenants which, among other
matters, require the guarantors to maintain certain minimum levels of net
worth (Note H).

94

H-T ASSOCIATES
--------------
(a Maryland general partnership)
AND SUBSIDIARY
(a Maryland general partnership)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------

C. Notes Payable (Continued):
-------------------------

TTCA has also entered into interest rate swap agreements to reduce the
impact of changes in interest rates on its loan (Note B). As of December 31,
1995 and 1994, TTCA had two interest rate swap agreements outstanding with a
commercial bank which have a total notional principal amount of $82,000,000.
The agreements provide for TTCA to pay fixed rates of interest of 9.3% and
8.8% on swaps of $45,000,000 and $37,000,000, respectively, and to receive
floating interest based on 30 day commercial paper rates. The variable rate
of interest in effect on the swap agreements as of December 31, 1995 was
5.8%. The interest rate swap agreements mature at the time the building loan
matures. TTCA is exposed to credit loss in the event of nonperformance by
the commercial bank with respect to the interest rate swap agreements.

The net effective interest rate on amounts outstanding under the building
loan agreement at December 31, 1995, 1994 and 1992, after giving effect to
the interest rate swaps, was 8.2%, 7.4% and 6.9%, respectively.

The differential between the amounts paid and received under the interest
rate contract is included as either an addition to, or a reduction in,
interest incurred. Total interest incurred was $13,557,828, $12,180,199 and
$11,383,329, for the years ended December 31, 1995, 1994 and 1993,
respectively.

D. Commitments:
-----------

Partnership as Lessor:
---------------------

TTCA leases space to tenants in the shopping center for which it charges
minimum rents and receives reimbursement for real estate taxes and certain
other operating expenses. The terms of the leases range from five to thirty
years and generally provide for additional overage rents during any year
that tenants' gross sales exceed stated amounts.

(continued)

95

H-T ASSOCIATES
--------------
(a Maryland general partnership)
AND SUBSIDIARY
(a Maryland general partnership)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------

D. Commitments (Continued):
------------------------

Partnership as Lessor (Continued):
---------------------------------

Future minimum rental revenues to be received under leases in force at
December 31, 1995 are as follows:

Year ending December 31 Amount
----------------------- ------------

1996 $15,017,857
1997 14,931,927
1998 15,087,664
1999 14,985,425
2000 14,656,553
Thereafter 42,867,062
-----------
$117,546,488
=============

In the ordinary course of business, the Partnership is, from time to time,
involved in various litigation. Although the final outcome of these legal
matters cannot be determined, it is management's opinion, based in part upon
advise from legal counsel, that the final resolution of these matters will not
have a material adverse effect on the Partnership's financial position and
results of operations.

Property Under Development:
--------------------------

During 1991, TTCA completed a major expansion and renovation of the previously
existing shopping center. Pursuant to the Development Manager's Agreement
between TTCA and Hahn, Hahn received $5,080,619 as compensation for managing the
development of the project through 1993.

E. Advances from Partners:
----------------------

Hahn and Santa Anita have both made advances to the Partnership to finance
certain construction funding requirements and other cash flow needs. These
advances bear interest at 1% above the prime rate and are required to be repaid
prior to any distributions to the partners, other than distributions of Net Cash
Flow from Operations (Note F). Interest incurred on the advances totaled
$910,532, $684,469 and $540,553 for the years ended December 31, 1995, 1994 and
1993, respectively. The prime rate was 8.8%, 8.5% and 6.0% at December 31,
1995, 1994 and 1993, respectively.

96

H-T ASSOCIATES
--------------
(a Maryland general partnership)
AND SUBSIDIARY
(a Maryland general partnership)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------

F. Partnership Distributions:
-------------------------

Distributions of Net Cash Flow from Operations of the Partnership (as defined
by the Amended and Restated Partnership Agreement) are subject to certain
priorities. The period from inception of the Partnership through October 16,
1992 (the Grand Opening Date of the shopping center) is referred to as the
Initial Term. During the Initial Term, both partners were entitled to a
cumulative, compounded return (at the Prime Rate, as defined) on their capital
contributions. A $500,000 distribution was made during the Initial Term. The
"Primary Term" follows the Initial Term, and ends when cash flow for a
consecutive 12 month period exceeds the sum of $1,192,000 plus any unpaid
cumulative returns. During the "Primary Term", Santa Anita receives a
cumulative return of $447,000 for the first year, $521,500 for the second year,
and $596,000 for each year thereafter. Hahn receives non-cumulative returns of
the same amounts. Following the Primary Term, distributions of Net Cash Flow
from Operations are made to the partners in accordance with their percentage
interests.

G. Related Party Transactions:
--------------------------

Hahn and its wholly-owned subsidiary, Hahn Property Management Corporation
("HPMC"), provide property management, leasing and various legal services to
TTCA. A summary of costs and fees incurred by Hahn and HPMC by TTCA during 1995,
1994 and 1993 is presented below:

Years ended December 31
------------------------------------
1995 1994 1993
--------- ---------- ----------

Payroll and related benefits $1,536,176 $1,585,083 $1,444,592
Management fee 670,033 598,697 545,964
Professional services 37,045 9,056 33,071
Leasing commissions 416,174 484,074 399,345
Legal 53,628 71,745 111,043
Development fee - - 38,827

Related Property:
- ----------------

Certain property adjacent to TTCA's regional shopping center is owned by Joppa
Associates ("Joppa"). The partners of TTCA are also the partners of Joppa.
TTCA has benefited from Joppa's ownership of the adjacent property.

97

H-T ASSOCIATES
--------------
(a Maryland general partnership)
AND SUBSIDIARY
(a Maryland general partnership)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------

H. Ability to Continue as a Going Concern and Management's Plan:
------------------------------------------------------------

As discussed in Note C, the Partnership's repayment guaranty agreement
contains restrictive covenants which include a requirement for the guarantors to
maintain certain minimum levels of net worth. Santa Anita failed to meet this
covenant requirement which has placed the Partnership in technical default.
Consequently, the notes payable may be callable at the lender's discretion. The
partners are currently negotiating with the lender to restructure the loan and
modify the net worth requirement in the guaranty. There is no assurance that
these negotiations will be completed on terms satisfactory to the Partnership.

98

EXHIBIT INDEX

SEQUENTIAL
EXHIBIT PAGE
NUMBER DOCUMENT DESCRIPTION NUMBER
------- -------------------- ----------

3.1 Certificate of Incorporation of Santa Anita Realty
Enterprises, Inc., as amended through October 1993
(incorporated by reference to Exhibit 3.1 to the Joint
Annual Report on Form 10-K of Santa Anita Realty
Enterprises, Inc. and Santa Anita Operating Company for
the year ended December 31, 1993).
3.2 Certificate of Incorporation of Santa Anita Operating
Company, as amended through October 1993 (incorporated by
reference to Exhibit 3.2 to the Joint Annual Report on
Form 10-K of Santa Anita Realty Enterprises, Inc. and
Santa Anita Operating Company for the year ended December
31, 1993).
3.3 By-laws of Santa Anita Realty Enterprises, Inc., as
amended through February 1996.
3.4 By-laws of Santa Anita Operating Company, as amended
through February 1996.
4.1 Pairing Agreement by and between Santa Anita Realty
Enterprises, Inc. and Santa Anita Operating Company,
dated as of December 20, 1979 (incorporated by reference
to Exhibit 5 to Registration Statement on Form 8-A of
Santa Anita Operating Company filed February 5, 1980).
4.2 Rights Agreement, dated June 15, 1989, among Santa Anita
Realty Enterprises, Inc., Santa Anita Operating Company,
and Union Bank, as Rights Agent (incorporated by
reference to Exhibit 2.1 to Registration Statement on
Form 8-A of Santa Anita Realty Enterprises, Inc. filed
June 19, 1989).
4.3 Credit Agreement dated as of November 9, 1994 between
First Interstate Bank of California and Santa Anita
Realty Enterprises, Inc. (incorporated by reference to
Exhibit 10.4 of the Joint Quarterly Report on Form 10-Q
of Santa Anita Realty Enterprises, Inc. and Santa Anita
Operating Company for the quarter ended September 30,
1994).
4.4 First Amendment dated as of May 31, 1995, to Credit
Agreement dated as of November 9, 1994 between First
Interstate Bank of California and Santa Anita Realty
Enterprises, Inc.
4.5 Second Amendment dated as of January 26, 1996, to Credit
Agreement dated as of November 9, 1994 between First
Interstate Bank of California and Santa Anita Realty
Enterprises, Inc.

Each other outstanding long-term indebtedness of Santa Anita Realty
Enterprises, Inc. and each outstanding long-term indebtedness of Santa Anita
Operating Company and its subsidiaries does not exceed 10% of the total assets
of Santa Anita Realty Enterprises, Inc. or Santa Anita Operating Company and
its subsidiaries on a consolidated basis, as the case may be. Each such company
agrees to furnish copies of such instruments to the Securities and Exchange
Commission upon request.

10.1 Anita Associates Articles of Limited Partnership dated as
of April 6, 1972 (incorporated by reference to Exhibit
6(c) to Registration Statement No. 2-65894).
10.2 First Amendment to Articles of Limited Partnership of
Anita Associates, dated December 26, 1979 (incorporated
by reference to Exhibit 10.13 to Registration Statement
No. 2-72866).
10.3 Form of Compensation Agreement of certain officers of
Santa Anita Realty Enterprises, Inc. and Santa Anita
Operating Company (incorporated by reference to Exhibit
10.3 to Registration Statement No. 33-27011).
10.4 Form of Salary Reduction and Deferral Agreement of
certain officers of Santa Anita Realty Enterprises, Inc.
and Santa Anita Operating Company (incorporated by
reference to Exhibit 10.4 to Registration Statement No.
33-27011).

99

SEQUENTIAL
EXHIBIT PAGE
NUMBER DOCUMENT DESCRIPTION NUMBER
------- -------------------- ----------

10.5 Ground lease between Santa Anita Realty Enterprises, Inc.
and Anita Associates, dated as of April 6, 1972
(incorporated by reference to Exhibit 10.5 to Joint
Annual Report on Form 10-K of Santa Anita Realty
Enterprises, Inc. and Santa Anita Operating Company for
the year ended December 31, 1992).
10.6 Second Amendment to ground lease between Santa Anita
Realty Enterprises, Inc. and Anita Associates dated as of
December 29, 1993 (incorporated by reference to Exhibit
10.6 to the Joint Annual Report on Form 10-K of Santa
Anita Realty Enterprises, Inc. and Santa Anita Operating
Company for the year ended December 31, 1993).
10.7 Amended and Restated Lease, dated as of November 9, 1994,
by and between Santa Anita Realty Enterprises, Inc. and
Los Angeles Turf Club, Incorporated (incorporated by
reference to Exhibit 10.3 to the Joint Quarterly Report
on Form 10-Q of Santa Anita Realty Enterprises, Inc. and
Santa Anita Operating Company for the quarter ended
September 30, 1994).
10.8 Santa Anita Realty Enterprises, Inc. 1984 Stock Option
Plan (as amended and restated September 22, 1988)
(incorporated by reference to Exhibit 4.2 to Registration
Statement No. 2-95228).
10.9 Amendment 1993-1 to Santa Anita Realty Enterprises, Inc.
1984 Stock Option Program (incorporated by reference to
Exhibit 10.11 to the Joint Annual Report on Form 10-K of
Santa Anita Realty Enterprises, Inc. and Santa Anita
Operating Company for the year ended December 31, 1993).
10.10 Santa Anita Operating Company 1984 Stock Option Program
(as amended and restated September 22, 1988)
(incorporated by reference to Exhibit 4.3 to Registration
Statement No. 2-95228).
10.11 Amendment 1993-1 to Santa Anita Operating Company 1984
Stock Option Program (incorporated by reference to
Exhibit 4.3 to Registration Statement on Form S-8 No. 33-
51843).
10.12 Limited Partnership Agreement, dated as of March 16,
1988, among Southern California Off Track Wagering
Incorporated and the limited partners listed therein
(incorporated by reference to Exhibit 10.17 to
Registration Statement No. 33-27011).
10.13 Amended and Restated Partnership Agreement of H-T
Associates, dated as of July 28, 1987, between Ernest W.
Hahn, Inc. and Santa Anita Realty Enterprises, Inc.
(incorporated by reference to Exhibit 10.18 to
Registration Statement No. 33-27011).
10.14 Amended and Restated Agreement of Joppa Associates, dated
as of April 14, 1988, between Ernest W. Hahn, Inc., Santa
Anita Realty Enterprises, Inc. and DeChiaro Associates, a
Maryland general partnership (incorporated by reference
to Exhibit 10.19 to Registration Statement No. 33-27011).
10.15 Amendment dated November 1, 1989, to Partnership
Agreement of H-T Associates (incorporated by reference to
Exhibit 10.21 of the Joint Annual Report on Form 10-K of
Santa Anita Realty Enterprises, Inc. and Santa Anita
Operating Company for the year ended December 31, 1989).
10.16 Partnership Agreement of French Valley Ventures dated
November 1989, between Santa Anita Realty Enterprises,
Inc. and William J. Rousey, Jr. (incorporated by
reference to Exhibit 10.23 to the Joint Annual Report on
Form 10-K of Santa Anita Realty Enterprises, Inc. and
Santa Anita Operating Company for the year ended December
31, 1989).

100

SEQUENTIAL
EXHIBIT PAGE
NUMBER DOCUMENT DESCRIPTION NUMBER
------- -------------------- ----------

10.17 Indenture of Lease by and between Los Angeles Turf Club,
Incorporated and Oak Tree Racing Association, dated as of
January 1, 1990 (incorporated by reference to Exhibit
10.21 to the Joint Annual Report on Form 10-K of Santa
Anita Realty Enterprises, Inc. and Santa Anita Operating
Company for the year ended December 31, 1990).
10.18 Form of Severance Agreement of Certain Officers of Santa
Anita Realty Enterprises, Inc. and Santa Anita Operating
Company (incorporated by reference to Exhibit 10.22 to
the Joint Annual Report on Form 10-K of Santa Anita
Realty Enterprises, Inc. and Santa Anita Operating
Company for the year ended December 31, 1992).
10.19 Schedule of omitted documents and differences in material
details regarding Severance Agreements of Certain
Officers of Santa Anita Realty Enterprises, Inc. and
Santa Anita Operating Company (incorporated by reference
to Exhibit 10.1 of the joint Quarterly Report on Form 10-
Q of Santa Anita Realty Enterprises, Inc. and Santa Anita
Operating Company for the quarter ended September 30,
1994).
10.20 Purchase and Sale Agreement, dated as of November 15,
1993, between Santa Anita Realty Enterprises, Inc., and
Pacific Gulf Properties Inc. (incorporated by reference
to Exhibit 1 to the Current Report on Form 8-K of Santa
Anita Realty Enterprises, Inc., dated February 18, 1994).
10.21 Registration Rights Agreement, dated as of February 1,
1994, between Santa Anita Realty Enterprises, Inc. and
Pacific Gulf Properties Inc. (incorporated by reference
to Exhibit 10.24 to the Joint Annual Report on Form 10-K
of Santa Anita Realty Enterprises, Inc. and Santa Anita
Operating Company for the year ended December 31, 1993).
10.22 Closing Agreement dated as of October 1, 1994, by and
between Santa Anita Realty Enterprises, Inc. and Pacific
Gulf Properties Inc. (incorporated by reference to
Exhibit 10.2 of the Joint Quarterly Report on Form 10-Q
of Santa Anita Realty Enterprises, Inc. and Santa Anita
Operating Company for the quarter ended September 30,
1994).
10.23 Employment Agreement between Santa Anita Realty
Enterprises, Inc. and Sherwood C. Chillingworth dated as
of March 16, 1994 (incorporated by reference to Exhibit
10.25 to the Joint Annual Report on Form 10-K of Santa
Anita Realty Enterprises, Inc. and Santa Anita Operating
Company for the year ended December 31, 1993).
10.24 Employment Agreement between Santa Anita Operating
Company, Los Angeles Turf Club, Incorporated and Clifford
C. Goodrich dated as of January 1, 1994 (incorporated by
reference to Exhibit 10.1 of the Joint Quarterly Report
on Form 10-Q of Santa Anita Realty Enterprises, Inc. and
Santa Anita Operating Company for the quarter ended June
30, 1994).
10.25 Employment Agreement between Santa Anita Operating
Company and Stephen F. Keller dated as of January 1, 1994
(incorporated by reference to Exhibit 10.2 of the Joint
Quarterly Report on Form 10-Q of Santa Anita Realty
Enterprises, Inc. and Santa Anita Operating Company for
the quarter ended June 30, 1994).
10.26 Employment Agreement between Santa Anita Realty
Enterprises, Inc. and Christopher T. Stirling dated as of
March 25, 1994 (incorporated by reference to Exhibit 10.3
of the Joint Quarterly Report on Form 10-Q of Santa Anita
Realty Enterprises, Inc. and Santa Anita Operating
Company for the quarter ended June 30, 1994).
10.27 Employment Agreement between Santa Anita Realty
Enterprises, Inc. and Brian L. Fleming dated as of May 9,
1994 (incorporated by reference to Exhibit 10.4 of the
Joint Quarterly Report on Form 10-Q of Santa Anita Realty
Enterprises, Inc. and Santa Anita Operating Company for
the quarter ended June 30, 1994).

101

SEQUENTIAL
EXHIBIT PAGE
NUMBER DOCUMENT DESCRIPTION NUMBER
------- -------------------- ----------

10.28 Santa Anita Realty Enterprises, Inc. 1995 Share Award
Plan (incorporated by reference to Exhibit 10.28 of the
Joint Annual Report on Form 10-K of Santa Anita Realty
Enterprises, Inc. and Santa Anita Operating Company for
the year ended December 31, 1994).
10.29 Santa Anita Operating Company 1995 Share Award Plan
(incorporated by reference to Exhibit 10.29 of the Joint
Annual Report on Form 10-K of Santa Anita Realty
Enterprises, Inc. and Santa Anita Operating Company for
the year ended December 31, 1994).
10.30 Exchange Agreement between Santa Anita Operating Company
and Stephen F. Keller, dated as of December 15, 1994
(without appendix), as amended by Amendment I to the
Exchange Agreement, dated as of December 15, 1994, among
Santa Anita Operating Company, Stephen F. Keller and the
Keller Family Trust (with appendix) (incorporated by
reference to Exhibit 10.30 of the Joint Annual Report on
Form 10-K of Santa Anita Realty Enterprises, Inc. and
Santa Anita Operating Company for the year ended December
31, 1994).
10.31 Exchange Agreement between Santa Anita Operating Company
and Clifford C. Goodrich, dated as of December 15, 1994
(with appendix) (incorporated by reference to Exhibit
10.31 of the Joint Annual Report on Form 10-K of Santa
Anita Realty Enterprises, Inc. and Santa Anita Operating
Company for the year ended December 31, 1994).
10.32 Form of Indemnity Agreement between Santa Anita Operating
Company and its directors and officers and schedule of
omitted documents relating thereto (incorporated by
reference to Exhibit 10.2 of the Joint Quarterly Report
on Form 10-Q of Santa Anita Realty Enterprises, Inc. and
Santa Anita Operating Company for the quarter ended March
31, 1995).
10.33 Form of Indemnity Agreement between Santa Anita Realty
Enterprises, Inc. and its directors and officers and
schedule of omitted documents relating thereto
(incorporated by reference to Exhibit 10.3 of the Joint
Quarterly Report on Form 10-Q of Santa Anita Realty
Enterprises, Inc. and Santa Anita Operating Company for
the quarter ended March 31, 1995).
10.34 Form of Consulting Agreement between Santa Anita
Operating Company and its directors and schedule of
omitted documents relating thereto (incorporated by
reference to Exhibit 10.4 of the Joint Quarterly Report
on Form 10-Q of Santa Anita Realty Enterprises, Inc. and
Santa Anita Operating Company for the quarter ended March
31, 1995).
10.35 Form of Consulting Agreement between Santa Anita Realty
Enterprises, Inc. and its directors and schedule of
omitted documents relating thereto (incorporated by
reference to Exhibit 10.5 of the Joint Quarterly Report
on Form 10-Q of Santa Anita Realty Enterprises, Inc. and
Santa Anita Operating Company for the quarter ended March
31, 1995).
10.36 Restricted Stock Agreement dated as of April 1, 1995
between Santa Anita Operating Company, Stephen F. Keller
and the Keller Family Trust (incorporated by reference to
Exhibit 10.6 of the Joint Quarterly Report on Form 10-Q
of Santa Anita Realty Enterprises, Inc. and Santa Anita
Operating Company for the quarter ended March 31, 1995).

102

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EXHIBIT PAGE
NUMBER DOCUMENT DESCRIPTION NUMBER
------- -------------------- ----------

10.37 Restricted Stock Agreement dated as of April 1, 1995
between Santa Anita Operating Company and Clifford C.
Goodrich (incorporated by reference to Exhibit 10.7 of
the Joint Quarterly Report on Form 10-Q of Santa Anita
Realty Enterprises, Inc. and Santa Anita Operating
Company for the quarter ended March 31, 1995).
10.38 Lease dated as of May 2, 1995 between Santa Anita Realty
Enterprises, Inc. and American Multi-Cinema, Inc.
(incorporated by reference to Exhibit 10.8 of the Joint
Quarterly Report on Form 10-Q of Santa Anita Realty
Enterprises, Inc. and Santa Anita Operating Company for
the quarter ended March 31, 1995).
10.39 Repayment Guaranty dated as of May 18, 1990 between Santa
Anita Realty Enterprises, Inc. and The Mitsubishi Bank,
Limited.
10.40 First Amendment dated as of August 10, 1993 to Repayment
Guaranty dated as of May 18, 1990 between Santa Anita
Realty Enterprises, Inc. and The Mitsubishi Bank,
Limited.
10.41 Unconditional Guaranty of Payment dated as of December
31, 1992 between Santa Anita Realty Enterprises, Inc. and
Bank of America National Trust and Savings Association.
22 Subsidiaries of Santa Anita Operating Company
(incorporated by reference to Exhibit 22 to the Joint
Annual Report on Form 10-K of Santa Anita Realty
Enterprises, Inc. and Santa Anita Operating Company for
the year ended December 31, 1992).
23.1 Consent of Ernst & Young LLP (to be incorporated by
reference into the Prospectus contained in Registration
Statement No. 2-95228, the Prospectus contained in
Registration Statement No. 33-51843 and the Prospectus
contained in Registration Statement No. 33-58995).
23.2 Consent of Ernst & Young LLP (to be incorporated by
reference into the Prospectus contained in Registration
Statement No. 2-95228, the Prospectus contained in
Registration Statement No. 33-51843 and the Prospectus
contained in Registration Statement No. 33-58995).
23.3 Consent of KPMG Peat Marwick LLP (to be incorporated by
reference into the Prospectus contained in Registration
Statement No. 2-95228, the Prospectus contained in
Registration Statement No. 33-51843 and the Prospectus
contained in Registration Statement No. 33-58995).
23.4 Consent of KPMG Peat Marwick LLP (to be incorporated by
reference into the Prospectus contained in Registration
Statement No. 2-95228, the Prospectus contained in
Registration Statement No. 33-51843 and the Prospectus
contained in Registration Statement No. 33-58995).
27(a) Financial Data Schedule for Santa Anita Realty
Enterprises, Inc.
27(b) Financial Data Schedule for Santa Anita Operating
Company.
99.1 Consolidated financial statements and schedule of Pacific
Gulf Properties Inc. included in such company's Annual
Report on Form 10-K for the fiscal year ended December
31, 1995 (to be filed by amendment).

103