KRANZCO REALTY TRUST, 10-K, 1998-03-19

KRANZCO REALTY TRUST
10-K, 1998-03-19
REAL ESTATE INVESTMENT TRUSTS

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934. For the fiscal year ended December 31, 1997 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 1-11478

KRANZCO REALTY TRUST
(Exact name of registrant as specified in its charter)

MARYLAND
(State of incorporation)

23-2691327
(I.R.S. employer identification no.)

128 FAYETTE STREET, CONSHOHOCKEN, PA 19428
(Address of principal executive offices)

(610) 941-9292
(Registrant's telephone number)

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

COMMON SHARES OF BENEFICIAL INTEREST, $.01 PAR VALUE
(Title of Class)

NEW YORK STOCK EXCHANGE
(Name of exchange on which registered)

9.75% SERIES B-1 CUMULATIVE CONVERTIBLE PREFERRED
SHARES OF BENEFICIAL INTEREST, $.01 PAR VALUE
(Title of Class)

NEW YORK STOCK EXCHANGE
(Name of exchange on which registered)

9.50% SERIES D CUMULATIVE CONVERTIBLE PREFERRED
SHARES OF BENEFICIAL INTEREST, $.01 PAR VALUE
(Title of Class)

NEW YORK STOCK EXCHANGE
(Name of exchange on which registered)

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

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.

YES [X] NO [ ]

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

The aggregate market value of the voting stock held by non-affiliates of the
Registrant was approximately $194 million based on the closing price on the
New York Stock Exchange for such stock on March 17, 1998.

The number of shares of the Registrant's Common Shares of Beneficial Interest
outstanding was 10,427,212 as of March 17, 1998.

DOCUMENTS INCORPORATED BY REFERENCE.

Portions of the 1998 Kranzco Realty Trust Proxy Statement to be filed with the
Securities and Exchange Commission within 120 days after the year covered by
this Form 10-K with respect to the Annual Meeting of Shareholders to be held
on
June 3, 1998 are incorporated by reference into Part III.

<PAGE>

TABLE OF CONTENTS

Form 10-K
Item No. Report Page

PART I

1.Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
3.Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.Submission of Matters to a Vote of Security Holders . . . . . . . . . 9

PART II

5.Market for the Registrant's Common Equity and Related
Shareholder Matters . . . . . . . . . . . . . . . . . . . . . . . . .9
6.Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . .11
7.Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . .12
8.Financial Statements and Supplementary Data . . . . . . . . . . . . .16
9.Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures . . . . . . . . . . . . . . . . 16

PART III

10.Director and Executive Officers of the Registrant . . . . . . . . . 17
11.Executive Compensation . . . . . . . . . . . . . . . . . . . . . . 17
12.Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
13.Certain Relationships and Related Transactions . . . . . . . . . . .17

PART IV

14.Exhibits, Financial Statements, Schedules and Reports on Form 8-K ,
Property Table . . . . . . . . . . . . . . . . . . . . . . . . . . 17

<PAGE>

PART I

This Form 10-K, together with other statements and information publicly
disseminated by the Company, contains certain statements that may be deemed to
be "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of
the Securities Exchange Act of 1934, as amended. All statements, other than
statements of historical facts, included in this Form 10-K that address
activities, events or developments that the Company expects, believes or
anticipates will or may occur in the future, including such matters as future
capital expenditures, distributions and acquisitions (including the amount and
nature thereof), the use of proceeds of offerings, expansion and other
development trends of the real estate industry, business strategies, expansion
and growth of the Company's operations and other such matters are
forward-looking statements. Such statements are based on assumptions and
expectations which may not be realized and are inherently subject to risks and
uncertainties, many of which cannot be predicted with accuracy and some of
which might not even be anticipated. Prospective investors are cautioned
that any such statements are not guarantees of future performance and that
actual results or developments may differ materially from those anticipated in
the forward-looking statements. Risks and other factors that might cause such
differences, some of which could be material, include, but are not limited
to: the burden of the Company's substantial debt obligations; the necessity of
future financings to repay the "balloon" payments required at the maturity of
certain of the Company's debt obligations; the highly competitive nature of
the real estate leasing market; adverse changes in the real estate markets
including, among other things, competition with other companies; general
economic and business conditions, which will, among other things, affect
demand for retail space or retail goods, availability and creditworthiness of
prospective tenants and lease rents; financial condition and bankruptcy of
tenants, including disaffirmance of leases by bankrupt tenants; the
availability and terms of debt and equity financing; risks of real estate
acquisition, expansion and renovation; governmental actions and initiatives;
environmental/safety requirements; and other changes and factors referenced
herein under Item 1. Business and from time to time in the Company's reports
filed with the Securities and Exchange Commission or otherwise publicly
disseminated by the Company.

ITEM 1. BUSINESS

(a) General Description of Business

Kranzco Realty Trust (the "Trust") was formed on June 17, 1992 as a Maryland
real estate investment trust ("REIT").

On November 19, 1992, the Trust consummated an initial public offering (the
"IPO") of 6,400,000 of its common shares of beneficial interest (the
"Shares"). On December 15, 1992, the Trust sold an additional 361,900 Shares
as a result of the exercise of the over-allotment option granted to the
underwriters in connection with the IPO.

On October 7, 1993, the Trust consummated a second public offering (the
"Second Offering") of 2,200,000 Shares. On November 3, 1993, the Trust sold
an additional 50,000 Shares as a result of the exercise of the over-allotment
option granted to the underwriters in connection with the Second Offering.

The Trust and its consolidated subsidiaries are hereinafter referred to as the
"Company".

(b) Developments During the 1997 Fiscal Year

In February 1997, the Company completed the acquisition, through a merger, of
Union Property Investors, Inc. ("UPI"). UPI owned sixteen properties located
in eleven states that had a total of approximately 1.3 million square feet of
gross leasable area and were approximately 99% leased. The total purchase
price of approximately $65 million was paid by the assumption of approximately
$30.2 million of existing debt, the issuance of approximately $29.6 million of
convertible preferred stock, the issuance of approximately $3.6 million of
redeemable preferred stock and approximately $1.6 million in cash.

In July 1997, the Company filed a Registration Statement on Form S-3 with the
Securities and Exchange Commission to offer $100,000,000 of debt securities,
preferred shares, common shares, warrants and rights, separately or together,
at various times, in amounts, at prices and on terms to be set forth at a
later date. In connection therewith, the Company in December 1997 issued
1,800,000 shares of its 9 1/2% Series D Cumulative Redeemable Preferred Shares
of Beneficial Interest. The net proceeds were used for the acquisition of
shopping centers located in the Atlanta, Georgia area (the "Georgia
Properties"), the repayment of certain outstanding indebtedness, and for
general corporate purposes. As a result of the offering, the Company
currently has approximately $55,000,000 available under the shelf for future
issuances.

In December 1997, the Company completed the acquisition of four of the five
Georgia Properties. The fifth center was under contract at December 31, 1997
and is expected to close in April 1998. The Georgia Properties have a total
of approximately 650,000 square feet of gross leasable area and were 98%
leased at the time of acquisition. The total purchase price of the four
properties acquired in December of approximately $39.8 million was paid by the
assumption of approximately $21.8 million of existing debt, the issuance of
approximately $1.3 million of common stock and approximately $16.7 million in
cash. The acquisition further strengthened the Company's presence in the
Atlanta, Georgia market.

During 1997, three of the Company's anchor tenants, Bradlees, Caldor and
Rickels, were in bankruptcy under Chapter 11 of the bankruptcy code. In
general, in a Chapter 11 proceeding, the tenant is required to pay the full
rental to the landlord for the store on a current basis unless the lease is
disaffirmed.

The Bradlees stores are located in Bethlehem, Pennsylvania, Whitehall,
Pennsylvania and Groton, Connecticut and are approximately 85,899, 85,120 and
85,120 square feet, respectively. Stop & Shop Companies, Inc. is primarily
liable under all three leases. The Company believes that these three leases
are at or below market rental rates and, therefore, the Company would not have
significant difficulty in leasing these stores if the leases were rejected.
The average annual rent paid by Bradlees for these locations is approximately
$6.50 per square foot. Bradlees has informed the Company that it intends to
close its stores in Groton, Connecticut and Whitehall, Pennsylvania and to
seek potential assignees for the stores. In the event that Bradlees is unable
to obtain assignees for these stores on terms that are beneficial to Bradlees,
they have informed the Company that they intend to disaffirm the leases. In
the event that Bradlees disaffirms these leases, The Stop & Shop Companies,
Inc. shall remain primarily liable for all payments and other obligations set
forth in the leases.

The Caldor stores are located in Towson, Maryland, Bristol, Pennsylvania and
Hamilton Township, New Jersey and are approximately 94,600, 113,160 and
119,935 square feet, respectively. The Towson lease is guaranteed by The May
Company. Effective November 1, 1996, the Company entered into an agreement to
reduce the common area maintenance and real estate tax reimbursements at one
of the Caldor locations by approximately $230,000 for each year in a five year
period. The Company believes that these three leases are at or below market
rental rates and, therefore, the Company would not have significant difficulty
in leasing these stores if the leases were rejected. The average annual rent
paid by Caldor for these locations is approximately $6.15 per square foot.

The Rickels stores were located in Phillipsburg, New Jersey and Yonkers, New
York. Both were approximately 50,000 square feet. Rickels disaffirmed the
lease for the store located at Phillipsburg in November 1996. The rental for
this store amounted to approximately $300,000 per year including
reimbursements for operating expenses. The Company is actively pursuing a
replacement tenant for the vacant Phillipsburg location. Rickels affirmed the
lease at the Yonkers location. Rental for this store is approximately $1.1
million per year including reimbursements for operating expenses.

Effective February 29, 1996, Jamesway, a tenant in bankruptcy, disaffirmed
their leases at the two locations in which they had operated. The Jamesway
stores were located in Phoenixville, Pennsylvania and Bradford, Pennsylvania
and were approximately 60,138 and 76,000 square feet, respectively. The
Company has leased both of the locations to Ames Department Stores. The lease
for the Phoenixville location commenced in April 1997 and the projected
commencement date of the Bradford lease is April 1998.

Best Products, a tenant in bankruptcy at one of the Company's centers,
discontinued operations of all of its stores and closed the store in the
Company's portfolio in February 1997. In May 1997, the Company purchased the
lease from Best Products for approximately $650,000. The Company currently
has a signed lease with Filene's Basement, Inc. for a portion of the space
previously occupied by Best Products. The Company has several prospective
tenants for the additional space and expects to have leases signed during the
second quarter of 1998.

The Company is in the business of owning, managing, operating, leasing,
acquiring, developing, investing in and disposing of neighborhood and
community shopping centers and free-standing properties. See the Consolidated
Financial Statements and Notes thereto included in Item 8 of this Annual
Report on Form 10-K for certain financial information required by Item 1.

(d) Narrative Description of Business

General

At March 17, 1998, the Company owned and operated 59 neighborhood and
community shopping centers and free-standing properties (the "Properties")
aggregating approximately 7.6 million square feet of GLA located in Arizona,
Connecticut, Georgia, Kentucky, Maryland, Massachusetts, Michigan, Minnesota,
Mississippi, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island,
South Carolina and Virginia.

The Company is self-administered and self-managed and does not engage or pay a
REIT advisor because the Company provides management, leasing, accounting,
legal, design and construction expertise through its own personnel or, where
appropriate, through outside professionals.

The Company's executive offices are located at 128 Fayette Street,
Conshohocken, Pennsylvania 19428 and its telephone number is (610) 941-9292.

Operating Strategies

The Company's primary business objective is to achieve growth in its funds
from operations by enhancing the operating performance of the Properties and,
through selective acquisitions, the value of its protfolio. The Company's
operating strategies are to: (i) focus on the neighborhood and community
shopping center business; (ii) actively manage its properties for long-term
growth in funds from operations and capital appreciation; (iii) increase
portfolio occupancy by capitalizing on management's reputation and
long-standing relationships with national and regional tenants and extensive
experience in marketing to local tenants, as well as the negotiating leverage
inherent in a large portfolio of properties; (iv) maintain, renovate, expand
and reconfigure its properties; (v) optimize the tenant mix in each shopping
center; (vi) develop or ground lease outparcels or expansion areas existing
from time to time at its properties for use as restaurants, banks, auto
centers, cinemas or other facilities; and (vii) benefit from economies of
scale by spreading overhead expenses over a larger asset base.

Acquisition Strategies/Investment Strategies

The Company intends to make acquisitions in a manner consistent with the
requirements of the Internal Revenue Code of 1986, as amended (the "Code")
applicable to REITs and related regulations with respect to the composition of
the Company's portfolio and the derivation of income unless, because of
circumstances or changes in the Code (or any related regulation), the trustees
(the "Trustees") of the Company determine that it is no longer in the best
interests of the Company to qualify as a REIT. The Company's acquisition
strategy is to opportunistically acquire properties which need replacement
anchor tenants or where the Company's management expertise and reputation can
enhance value. That strategy includes acquiring and rehabilitating properties
in new markets with strong demographic characteristics in order to reduce the
Company's sensitivity to regional economic cycles. The Company does not
intend to invest in excess of 15% of its assets in any single property.

The Company will generally acquire 100% fee simple or leasehold interests in
real property consistent with the Company's acquisition strategies set forth
above. However, the Company may make equity investments through joint
ventures with developers, owners or other persons which may provide for, among
other terms, (i) a cumulative preference as to cash distributions; (ii) a
participation in net cash flows from operations; and (iii) a participation in
the appreciation of the value of the underlying real property. The Company
contemplates that it would maintain at least equal control over the underlying
real property to be operated by any joint venture (including possibly the
day-to-day management of the real property) and additional investments in or
sale or financing of such underlying real property. The Company may also
acquire investments in real property or real estate oriented companies through
issuance of debt or equity securities in exchange for investments or by such
other methods as the Trustees deem to be in the best interests of the Company.

Financing Strategies The Company intends to maintain a conservative ratio of
debt to estimated value of the Company's real estate assets (as determined by
the Trustees, taking into consideration the tenants in occupancy, gross rental
revenues, geographic location and other factors affecting the value of the
Company's properties) ("Debt Ratio") of generally not more than 50%. At
December 31, 1997, the Company had a Debt Ratio of approximately 49% and a
ratio of debt to total market capitalization, based upon the closing price of
the Company's stock on the New York Stock Exchange as of December 31, 1997, of
approximately 56%. The Company intends to finance acquisitions with the most
appropriate sources of capital, as determined by the Trustees, which may
include available cash flows from operations, the issuance of equity
securities, the sale of investments and, within the debt guidelines described
above, bank and other institutional borrowings and the issuance of debt
securities. Future borrowings by the Company for acquisitions may be either
on a secured or unsecured basis. In this regard, in addition to the
$181,700,000 real estate mortage loan (the "Mortgage Loan"), the Company has
obtained several credit facilities as described below.

In 1995, the Company obtained a $1.0 million unsecured credit facility from
Corestates Bank, N.A. (the "Corestates Facility"). Amounts borrowed under the
line of credit bear interest at the bank's prime rate. As of December 31,
1997, there were no borrowings outstanding under the Corestates Facility. The
facility was extended in 1997 through December 31, 1998.

In November 1996, the Company obtained a $3.0 million secured line of credit
facility from Bank Leumi Trust Company of New York (the "Bank Leumi
Facility"). Amounts borrowed under the Bank Leumi Facility will bear interest
at 50 basis points above that bank's reference rate. Borrowings under the
Bank Leumi Facility are secured by a first mortgage lien on the Golfland
Shopping Center in Orange, Connecticut. There was outstanding borrowings
under this facility of $1 million as of December 31, 1997. The expiration
date of the Bank Leumi Facility was extended in 1997 to June 30, 1998.

In February 1997, the Company obtained a secured first mortgage loan facility
of up to $50 million from Salomon Brothers Realty Corp.(the "Salomon
Facility"). Fourteen of the Company's properties secure the Salomon Facility.
Amounts borrowed under the Salomon Facility will bear interest at a rate
equal to the one month London Interbank Offering Rate ("LIBOR") plus a spread
of 175 basis points. The term of the Salomon Facility is for two years, with
an option for a one year renewal. As of December 31, 1997, the Company had
$14 million of outstanding borrowings under this facility.

Operating Practices

Virtually all operating and administrative functions, such as leasing, data
processing, maintenance, finance, accounting, construction and legal, are
centrally managed at the Company's headquarters. In addition, the Company
maintains regional offices at The Mall at Cross County in Yonkers, New York
and Marumsco Plaza, in Woodbridge, Virginia. On-site functions such as
security, maintenance, landscaping, sweeping, plumbing, electrical and other
similar activities are either performed by the Company or subcontracted. The
cost of these functions will be passed through to tenants to the extent
permitted by their respective leases.

The Company has proprietary sophisticated computer software systems designed
to support its operating and administrative functions and to optimize
management's ability to own, operate and manage additional properties without
significant increase in its general and administrative expenses. The
Company's systems allow instant access to floor plans, store availability,
lease data, tenants' sales history, cash flows and budgets. The Company
believes its systems to be as advanced as any in the industry.

Competition

All of the Company's properties are located in developed retail and commercial
areas. There are generally numerous other neighborhood and community shopping
centers within a five-mile radius of each of the properties. In addition,
with respect to some of the Company's properties there are one or more
regional malls within a 10-mile radius. The amount of rentable space in the
area could have a material effect on the Company's ability to rent space and
the rents charged. In addition, the Company will be competing with others who
may have greater financial resources and experience than the Company and its
officers and Trustees for tenants and acquisitions.

Employees

As of December 31, 1997, the Company had approximately 60 full and part-time
employees. None of the Company's employees are subject to a collective
bargaining agreement and the Company has experienced no labor-related work
stoppages. The Company considers its relations with its personnel to be good.

Business Issues

As the owner of real estate, the Company is subject to risks arising in
connection with the underlying real estate, including defaults under or
nonrenewal of tenant leases, tenant bankruptcies, competition, inability to
rent unleased space, failure to generate sufficient income to meet operating
expenses, including debt service including "balloon" payments on certain
financial obligations, capital expenditures and tenant improvements,
environmental matters, financing availability and costs, and changes in real
estate and zoning laws. The success of the Company also depends upon certain
key personnel, its ability to maintain its qualification as a REIT, compliance
with the terms and conditions of its mortgages and the credit facilities and
trends in the national and local economy, including income tax laws,
governmental regulations and legislation and population trends.

Tax Status

The Company has elected to be taxed as a REIT under Sections 856 through 860
of the Code. So long as the Company qualifies for taxation as a REIT, the
Company generally will not be subject to Federal income tax to the extent it
distributes at least 95% of its REIT taxable income to its shareholders. If
the Company fails to qualify as a REIT in any taxable year, the Company will
be subject to Federal income tax (including any applicable alternative minimum
tax) on its taxable income at regular corporate rates. Even if the Company
qualifies for taxation as a REIT, the Company may be subject to certain state
and local taxes on its income and property and to federal income and excise
taxes on its undistributed income.

ITEM 2. PROPERTIES

Shopping Center Properties

The Company owns and operates 59 neighborhood and community shopping centers
and free-standing properties located in Arizona, Connecticut, Georgia,
Kentucky, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, New
Jersey, New York, North Carolina, Pennsylvania, Rhode Island, South Carolina
and Virginia. The Properties were designed to attract local area customers
and are typically anchored by a supermarket, discount department store or
drugstore, and are diversified in size, ranging from 387,000 square feet of
gross leasable area to a free-standing restaurant of only 4,000 square feet of
gross leasable area. Typical tenants are A & P SuperFresh Supermarkets (at 3
Properties), Pathmark Supermarkets (5), The Sports Authority (2), Kmart (7),
Caldor (3), Food Lion (3), Goody's (3), Wal-Mart (2), Ames (2), Home Depot
(1), Fashion Bug (14), Marshalls (3), Cato (8), Eckerd Drug (6), Drug Emporium
(3), Radio Shack (12) Toys "R" Us (1) and Kids "R" Us (3). At 31 of the
Properties, free-standing restaurants, retail stores or banks, such as
McDonalds, Ponderosa, Pizza Hut, First Union National Bank, Auto Zone, Tire
America and Somerset Tire Service, are businesses located on Out-Parcels.
Three of the Properties are community malls of 287,000 square feet, 262,000
square feet and 174,000 square feet, respectively. One is anchored by Kmart
while another is anchored by Kids "R" Us, The Sports Authority, Circuit City
and TJ Maxx. The third is anchored by Ames Department Stores. Twenty four of
the Properties contain additional land for expansion of existing stores and
sixteen of the Properties have Out-Parcels available for development of
free-standing buildings for use as restaurants, banks, auto centers, cinemas
and other operations.

The Properties are smaller than regional malls, depend less on long travel
times and the sale of major consumer goods and focus on everyday purchases
from a smaller customer base. Discount stores and supermarkets attract
convenience goods shoppers and bring customers to the smaller satellite shops.
Shopping centers of this kind are typically less vulnerable to shifts in
population and traffic patterns and rely heavily on weekly advertising by the
anchor tenants.

Consistent with its intention to retain its shopping centers for long-term
investment, the Company intends to continue to pursue a program of regular
physical maintenance, together with major renovations and refurbishing, to
preserve and increase the value of the Properties. These projects usually
include or will include renovating existing facades, installing uniform
signage, resurfacing parking lots and increasing parking lot lighting.

A substantial portion of the income from the Properties consists of rent
received under long-term leases. Most of the leases provide for the payment
of fixed minimum rent monthly in advance and for the payment by tenants of a
pro rata share of the real estate taxes, insurance, utilities and common area
maintenance of the shopping center. Certain of the major tenant leases
provide that the landlord is obligated to pay certain of these expenses above
or below specific levels. Except for Pathmark Supermarkets, Caldor and
Bradlees, which represented approximately 5%, 4% and 4%, respectively, no
tenant represented more than 4% of the aggregate minimum rent of the
Properties as of December 31, 1997. Minimum rent revenues and operating
expense reimbursements accounted for approximately 97% of the total revenues
of the Company for the year ended December 31, 1997. A majority of the leases
associated with the Properties also provide for the payment of percentage rent
calculated as a percentage of a tenant's gross sales above predetermined
thresholds. Percentage rent accounted for appoximately 2% of the total
revenues of the Company for the year ended December 31, 1997.

The leases of space at the Properties typically require the landlord to
provide maintenance of a shopping center's common areas, including cleaning,
lighting, paving, security, landscaping and insurance, the costs of which are
typically reimbursed to the landlord by the tenants. The landlord is also
typically required to make roof and structural repairs as needed, which in
some cases are without reimbursement. The leases for larger shopping center
tenants often restrict the ability of tenants to assign or sublet their spaces
and require tenants to use the space they lease for the purposes designated in
the leases and to operate their businesses on a continuous basis. However,
certain of the leases with major tenants contain modifications of these
provisions as a result of the financial condition, stability or desirability
of such tenants. If a tenant assigns or subleases its space, the original
tenant generally will remain liable for the payment of rent under the lease.

Three of the Properties and a portion of another are subject to long-term
ground leases where a third party owns and has leased the underlying land to
the Company to operate a shopping center. The Company pays rent for the use
of the land and generally is responsible for all costs and expenses associated
with the building and improvements. At the end of the lease term, unless
extended, the land, together with all improvements thereon, will revert to the
land owner without compensation to the Company.

As of March 1, 1998, the occupancy rate for the Properties was approximately
92%. The property table set forth below gives more specific information with
respect to each of the Properties as of March 1, 1998.

<TABLE>
The following table sets forth certain information as of March 1, 1996 relating
to the Shopping Center Properties owned by the Company:
<CAPTION>
Gross Percent
Shopping Center Location of Year Ownership Land Leasable Leased
Property Shopping Developed Interest/ Area Area <F1> Anchor Tenants (lease expiration
Center or Aquired (expiration) (acres) (Sq. Ft.) /option expiration)

<S> <C> <C> <C> <C> <C> <C> <C>
ARIZONA
Sinclair Paints Tuscon 1997 Fee 0.77 14,840 100.00% Sinclair Paints (2000/2020)

CONNECTICUT
Golfland Orange 1984 Fee 6.20 60,580 100.00% Pathmark (2008/2038) <F1>
Groton Square Groton 1987 Fee 17.74 191,955 97.06% Bradlees (2007/2027),
Stop & Shop (2007/2027) <F1>
Manchester Kmart Plaza Manchester 1994 Fee 21.06 183,376 90.46% Kmart (1997/2022),
Stop & Shop (2018/2058),
Pep Boys (2016/2036)
Milford Milford 1966 Leasehold 3.00 25,200 100.00% Xpect Discount Drug (1999/2009)
(2020)
Orange Orange 1967 Leasehold 3.43 27,000 100.00% Pergament Express (2004/2004)
(2006)
Parkway Plaza I Hamden 1982 Fee 6.55 72,630 82.43% Pathmark (2007/2037) <F1>
Parkway Plaza II Hamden 1985 Fee 8.00 131,100 55.90% Kids R Us (2006/2026),
Rickels (2005/2035) <F1>
Stratford Square Stratford 1984 Fee 19.58 159,432 96.64% Pathmark (2009/2039) <F1>,
Marshalls (2000/2010)
GEORGIA
Bainbridge Town Center Bainbridge 1997 Fee 19.86 143,729 98.89% Kmart (2015/2065),
Food Lion (2010/2030)
Holcomb Bridge Roswell 1997 Fee 11.27 105,420 100.00% Cub Foods Inc. (2008/2033),
Georgetown Interiors (1998/2003)
Northpark Macon 1997 Fee 19.04 180,555 100.00% Kroger(2008/2028),
Kmart(2013/2063)
Tower Plaza Carrollton 1997 Fee 10.20 87,990 95.41% Bruno's (2007/2027)
Village at Mableton Mableton 1997 Fee 23.30 231,594 96.68% Kmart(2014/2064),
Bruno's (2009/2029),
CVS (2004/2019) <F1>
Park Plaza Douglasville 1997 Fee 8.30 46,495 100.00% Kroger(not owned by the Company)

KENTUCKY
Harrodsburg Marketplace Harrodsburg 1997 Fee 7.00 60,048 91.01% Kroger (2007/2027)

MARYLAND
Anneslie Baltimore 1993 Fee 9.26 134,543 100.00% Caldor (2011/2041)
Campus Village College Park 1995 Fee 1.89 25,434 86.93% None
Coral Hills Coral Hills 1995 Fee 7.00 86,050 90.12% Shoppers Food Warehouse (2004/2029)
Fox Run Prince Frederick 1994 Fee 40.87 293,492 100.00% Kmart (2016/2066),
Giant Foods (2021/2051),
Peebles (2012/2032),
Raley's Home Furnishings (2004/2014)
Hillcrest Plaza Frederick 1995 Fee 12.00 109,071 88.24% Shoppers Food Warehouse (1999/2024)

MASSACHUSETTS
Ames Center Raynham 1997 Fee 5.76 55,000 100.00% Ames (2011/2031)

MICHIGAN
Builder's Square Flint 1997 Fee 8.20 80,000 100.00% Builder's Square (2006/2026)
Musicland Livonia 1997 Fee 8.83 80,000 100.00% Media Play (2005/2025)

MINNESOTA
Baker's Square Minnetonka 1997 Fee 1.30 3,881 100.00% Baker's Square (2001/2021)
Baker's Square Roseville 1997 Fee 1.30 5,067 100.00% Baker's Square (2001/2021)

MISSISSIPPI
Brookway Village Brookhaven 1997 Fee 6.00 47,587 100.00% Delchamps (2008/2028) <F1>
Towne Square Columbus 1997 Fee 9.77 116,153 81.51% Goody's (1998/2008),
Jitney Jungle (2003/2003),
Gold's Gym (2000/2010)
NEW JERSEY
Collegetown Glassboro 1989 Fee 23.00 250,223 91.42% Kmart (2001/2021),
Acme (1999/2044)
Hillcrest Mall Phillipsburg 1985 Fee 18.00 220,985 53.23% Superfresh (1998/2008),
Staples (2010/2025),
R&S Strauss (2010/2025)
Suburban Plaza Hamilton 1994 Fee 23.15 239,723 100.00% Caldor (2013/2033),
Shop Rite (2002/2020)
NEW YORK
A & P Mamaroneck Mamaroneck 1976 Fee 2.17 24,978 100.00% A & P (2006/2016)
Cross County Square Yonkers 1986 Fee 10.07 262,218 93.02% Rickel Home Centers (2012/2032),
Kids R Us (2008/2018),
The Sports Authority (2010/2025),
T.J. Maxx (2004/2014),
Circuit City (2018/2038) <F1>
High Ridge Yonkers 1977 Fee 8.90 88,501 98.39% Pathmark (2003/2027)
North Ridge New Rochelle 1971 Fee 2.80 42,198 96.49% Harmon Cosmetics (2007/2017),
NRHMC (2011/2016)
Port Washington Port Washington 1968 Leasehold 1.00 19,600 100.00% North Shore Farms (1998/2033)
(2067)
Village Square Larchmont 1981 Fee 0.93 17,126 94.39% Trader Joe's (2008/2023)
NORTH CAROLINA
Cary Plaza Cary 1997 Fee 8.32 60,702 95.39% Food Lion (2010/2030),
Revco Drugs (2001/2026)
Magnolia Plaza Morganton 1997 Fee 17.14 104,026 100.00% Ingles Supermarket (2007/2062),
Goody's (1999/2004)
PENNSYLVANIA
69th Street Plaza Upper Darby 1994 Fee 2.96 42,500 100.00% Drug Emporium (2000/2000)
Barn Plaza Doylestown 1987 Fee 35.00 157,013 100.00% Acme (2007/2037),
Marshalls (2004/2019),
Family Toy Warehouse (2004/2014)
Bensalem Square Bensalem 1983 Fee 16.38 72,683 100.00% Pathmark (2009/2039)
Bethlehem Square Bethlehem 1987 Fee 48.00 386,820 100.00% Bradlees (2007/2025),
TJ Maxx (2006/2021),
Shop Rite (2010/2030),
Toy Works (2000/2015),
Home Depot (2010/2040)
Bradford Mall Bradford 1990 Fee <F2> 30.00 287,389 99.73% Kmart (2004/2049)
Consolidated Stores (2002/2012),
Ames (2008/2027)
Bristol Commerce Park Bristol 1992 Fee 50.00 273,133 99.36% Superfresh (2008/2038),
Caldor (2013/2033)
Franklin Center Chambersburg 1997 Fee 25.02 174,892 93.77% Food Lion (2010/2030),
Big Lots (1998/2008)
Lowe's (2010/2018)
MacArthur Road Whitehall 1993 Fee 4.74 51,100 100.00% Oak Works (2007/2017),
Frank's Nursery (2002/2032)
Park Hills Plaza Altoona 1985 Fee 24.00 279,856 100.00% Weis Market (2022/2037),
Dunham's Sporting Goods (2004/2014),
Carmlike Cinemas (2006/2016),
Toys R Us (2015/2035),
Staples (2010/2020),
Superpetz (2005/2015)
Pilgrim Gardens Drexel Hill 1986 Fee 5.00 83,268 98.56% Loehmann's (2003/2013),
QVC Network, Inc. (1999/1999)
Street Road Bensalem 1993 Fee 10.35 68,031 92.57% Drug Emporium (2002/2008),
Frank's Nursery (2007/2022)
Valley Fair <F3> Tredyffrin 1993 Fee 11.14 113,000 73.45% Staples (1998/2008)
Filene's Basement (2008/2018) <F1>
Valley Forge Mall Phoenixville 1985 Fee 18.00 173,562 63.96% Eckard Drug (2000/2010),
Ames (2017/2025)
Whitehall Square Whitehall 1986 Fee 30.44 298,023 99.63% Bradlees (2006/2024),
Phar Mor (2001/2016),
Today's Man (2002/2007),
The Sports Authority (2006/2036),
Kids R Us (2007/2027) <F1>
RHODE ISLAND
Wampanoag Plaza East Providence 1989 Fee 18.00 226,706 74.53% Rx Drug (2001/2016),
Cherry&Webb (2000/2005),
Marshalls (2001/2001),
Savers/TVI, Inc. (2010/2025) <F1>
SOUTH CAROLINA
East Main Centre Spartanburg 1997 Fee 23.06 171,595 100.00% Wal Mart (2009/2039),
Goody's (1999/2009)
Park Centre Columbia 1997 Fee 20.64 190,705 100.00% Wal Mart (2009/2039),
Harris Teeter (2012/2015)
VIRGINIA
Culpeper Town Mall Culpeper 1995 Fee 27.48 131,087 69.22% Central Tractor (2000/2010),
Schewel Furniture (2001/2006)
Marumsco-Jefferson Plz. Woodbridge 1995 Fee 36.00 333,000 75.37% Giant Food Store (2004/2024),
Peebles (1999/2004)
CVS (2002/2002),
Odd Lots (2002/2012)
Newbridge Square Richmond 1997 Fee 6.29 55,000 100.00% USA Auctions, Inc (1998/1998)
------ ---------
Total 855.45 7,657,190 92.07%
====== =========
<FN>
<F1>
Includes space for which rent is being paid but which is not presently occupied.
<F2>
84,692 square feet gross leasable area is subject to a ground lease which expires in 2004.
<F3>
Formerly Best Plaza
</FN>
</TABLE>

Corporate Headquarters

The Company leases from Norman M. Kranzdorf and his wife a three-story
building containing approximately 20,000 square feet located at 128 Fayette
Street, Conshohocken, Pennsylvania 19428, which serves as the Company's
headquarters. This lease expires on January 15, 1999 and provides that the
Company will pay a rental of $153,720 per annum. The lease also requires the
Company to pay for all real estate taxes, utilities, repairs and other costs
and expenses in connection with the use and occupancy of the building.

ITEM 3. LEGAL PROCEEDINGS

The Company is not presently involved in any material litigation nor, to its
knowledge, is any material litigation threatened against the Company or its
properties, other than routine litigation arising in the ordinary course of
business and which is expected to be covered by the Company's liability
insurance.

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

No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.

PART II

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

(a) Market Information

The Shares have been listed on the New York Stock Exchange ("NYSE") since
November 19, 1992 under the symbol "KRT." On March 17, 1998, the last
reported sale price of the Shares on the NYSE was $19.125. The following
table shows the high and low closing price for the Shares for the fiscal
periods indicated as reported by the New York Stock Exchange Composite Tape
and the cash distributions per Common Share paid by the Company with respect
to each such period.

1997 High Low Distributions
First Quarter $17.63 $15.38 $.48
Second Quarter $17.38 $15.75 $.48
Third Quarter $19.75 $16.88 $.48
Fourth Quarter $20.00 $18.50 $.48

1996 High Low Distributions
First Quarter $16.25 $14.75 $.48
Second Quarter $16.00 $14.13 $.48
Third Quarter $16.13 $14.13 $.48
Fourth Quarter $17.13 $14.88 $.48

(b) Holders

The approximate number of holders of record of the Shares was 902 as of March
17, 1998.

On April 1, 1997, July 1, 1997, October 1, 1997 and January 1, 1998, 252, 235,
213 and 261 Shares (the "Trustee Shares"), respectively, were issued to each
of Peter Linneman, James Selonick and Donald Shapiro, non-employee trustees of
the Company. The estate of Irvin Maizlisch, a non-employee trustee who passed
away in the first quarter of 1997, received 126 Trustee Shares on April 1,
1997. Mr. Bernard Korman filled the vacancy left on the Board of Trustees and
received 176, 213 and 261 Trustee Shares on July 1, 1997, October 1, 1997 and
January 1, 1998, respectively, The Trustee Shares were issued to such
individuals in lieu of (i) their annual trustee fee of $12,000, and (ii) a fee
of $1,000 for each regular Board meeting attended. The Trustee Shares were
valued based on the closing price of the Shares on the New York Stock Exchange
on the last business day of the fiscal quarter preceding the date of grant.
No underwriter was used in connection with the issuance of the Trustee Shares.
For the fiscal year 1997, the non-employee trustees received an aggregate of
3,533 Shares having an aggregate value of $63,000 at the date of grant.

On July 1, 1997, the Company issued 7,711 restricted Shares (the "Employee
Shares") to certain employees. The Employee Shares were valued based on a per
share price of $16.25 and were issued as bonuses for performance. The
Employee Shares vest over a period of two years from the date of issuance,
although employees are immediately entitled to the respective dividends from
the date of grant. No underwriter was used in connection with the issuance of
the Employee Shares.

On December 19, 1997, the Company issued 67,369 Shares (the "GP Development
Shares") in connection with the purchase of four of the five Georgia
Properties. The GP Development Shares were valued at approximately $1.3
million and were issued to the seller of the properties. No underwriter was
used in connection with the issuance of these shares.

The issuance of the Trustee Shares, the Employee Shares and the GP Development
Shares were exempt from registration under the Securities Act of 1993, as
amended (the "Act"), as transactions by an issuer not involving any public
offering in accordance with Section 4(2) of the Act.

d) Distributions

The Company declared distributions to common shareholders aggregating $1.92
per Share during the fiscal year ended December 31, 1997. Of these
distributions, it was determined that $0.85 per share is a return of capital
and $1.07 per share is ordinary income.

The Company has paid regular quarterly cash distributions on the Shares since
it commenced operations as a REIT in November 1992.

Future distributions paid by the Company will be at the discretion of the
Trustees and will depend on the actual cash flow of the Company, its financial
condition, capital requirements, the annual distribution requirements under
the REIT provisions of the Code and such other factors as the Trustees deem
relevant.

The Company has adopted a dividend reinvestment plan pursuant to which
shareholders may elect to automatically reinvest their distributions in
Shares. To fulfill its obligations under this dividend reinvestment plan, the
Company will, from time to time, repurchase Shares in the open market or issue
new Shares.

ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth on a historical basis Selected Financial Data
for the Company. This information should be read in conjunction with the
financial statements of the Company (including the related notes thereto) and
Management's Discussion and Analysis of the Financial Condition and Results of
Operations. The historical Selected Financial Data for Kranzco Realty Trust
has been derived from the audited financial statements.

<TABLE>
KRANZCO REALTY TRUST
--------------------
<CAPTION>
Year Ended December 31--

1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(In thousands except share and per share data)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenue
Minimum rent $47,579 $41,665 $40,259 $33,166 $27,688
Percentage rent 1,163 1,042 1,044 1,000 695
Expense reimbursements 11,165 11,732 10,988 9,455 7,759
Interest income 278 624 902 985 948
Other income 127 117 277 434 2,619
------- ------- ------- ------- ------
Total Revenue 60,312 55,180 53,470 45,040 39,709

Operating expenses, exclusive
of interest, depreciation and
amortization 17,807 18,445 16,482 15,638 13,252
Interest expense 18,887 17,069 16,208 10,469 8,877
Depreciation and amortization 12,534 11,194 10,903 9,066 7,636
------- ------- ------- ------- ------
Income before
extraordinary items 11,084 8,472 9,877 9,867 9,944

Extraordinary loss on early
extinguishment of debt/debt
refinancing 467 11,052 0 0 0
------- ------- ------- ------- ------
Net income (loss) 10,617 (2,580) 9,877 9,867 9,944
Preferred share distributions 3,565 695 485 0 0
Net income (loss) for common
shareholders $7,052 ($3,275) $9,392 $9,867 $9,944
------- ------- ------- ------- ------
Basic earnings (loss) per
common share $0.68 ($0.32) $0.91 $0.96 $1.16
Diluted earnings (loss) per
common share $0.68 ($0.32) $0.91 $0.95 $1.14
------- ------- ------- ------- ------
Weighted average number of
Common Shares outstanding 10,341,958 10,327,795 10,319,464 10,315,497 8,590,850

BALANCE SHEET DATA:
Real estate, before
accumulated depreciation $484,741 $370,491 $368,073 $318,870 $258,166

Total assets $466,220 $359,157 $372,983 $331,779 $298,813
Total mortgages and
notes payable $255,124 $212,590 $204,247 $160,771 $118,566
</TABLE>

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

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1997 the Company had $11,423,000 of cash on hand. In addition
to its cash reserve, unused capacity under credit facilities totaled
$13,000,000 at year end.

As of December 31, 1997 the Company had total mortgages and notes payable of
$255,124,000 of which $232,792,000 bear interest at fixed rates ranging from
7.50% to 10.5%. The weighted average interest rate of all of the Company's
mortgages and notes payable as of December 31, 1997 was 8.13%. As of December
31, 1997, the Company is required to make aggregate principal payments on all
of its outstanding indebtedness of $2,114,000 in 1998, $21,637,000 in 1999,
$7,440,000 in 2000, $1,231,000 in 2001 and $3,600,000 in 2002.

In June 1996, the Company successfully completed the refinancing of
substantially all of its variable rate debt and a portion of its fixed rate
debt. The Company entered into a seven year, secured, fixed rate real estate
mortgage loan in the principal amount of $181,700,000 (the "Mortgage Loan"),
at a weighted average interest rate of 7.96%, which is inclusive of trustee
and servicer fees. The entire principal balance of the Mortgage Loan is due
in June 2003. The Mortgage Loan is secured by twenty-seven of the Company's
properties (the "Mortgaged Properties"). The Company recognized an
extraordinary loss of $11,052,000 in the second quarter of 1996, primarily due
to the write-off of unamortized deferred costs as well as premiums paid to
repurchase the original REMIC certificates related to the $100 million
adjustable rate mortgage loan.

As a condition of the Mortgage Loan, the Company was required to establish a
Sinking Fund Account and a Capital and TI Reserve Account. The balance in the
Sinking Fund Account was $204,000 as of December 31, 1997. All funds in the
Capital and TI Reserve Account may be used on a current basis to fund capital
improvements, repairs, alterations, tenant improvements and leasing
commissions at the Mortgaged Properties. The balance in the Capital and TI
Reserve Account was $182,000 as of December 31, 1997.

As of December 31, 1997, the Company has two floating rate mortgages with
principal outstanding of $7,332,000. The interest rate on both of the
mortgages is equal to the sum of Moody's A Corporate Bond Index Daily Rate
minus 0.125% per annum, rounded up to the next highest 1/8 percentage rate.
The rates are reset once a year. As of December 31, 1997, the rates of the
two mortgages were 7.75% and 7.50%.

In 1996, the Company obtained a $3.0 million secured line of credit from Bank
Leumi Trust Company of New York which expires in June 1998. This line is
secured by a property in Orange, CT. Amounts borrowed under the line bear
interest at 50 basis points above that bank's reference rate, which was 8.50%
as of December 31, 1997. There was $1,000,000 of outstanding borrowings under
this facility as of December 31, 1997.

In 1995 the Company obtained a $1.0 million unsecured line of credit from
Corestates Bank, N.A. Amounts borrowed under the line will bear interest at
the bank's prime rate, which was 8.50% at December 31, 1997. The facility was
extended through December 31, 1998, and there were no borrowings outstanding
under this facility as of December 31, 1997.

In February 1997, the Company obtained a secured first mortgage loan facility
of up to $50 million from Salomon Brothers Realty Corp. (the "Salomon
Facility"). Fourteen of the Company's properties secure the mortgage loan
facility. Amounts borrowed under the Salomon Facility will bear interest at a
rate equal to the one-month London Interbank Offering Rate ("LIBOR") plus a
spread of 175 basis points, which was 7.44% as of December 31, 1997. There
was $14,000,000 of outstanding borrowings under this facility as of December
31, 1997. The term of the Salomon Facility is for two years, with an option
for a one year renewal. The proceeds of the Salomon Facility were used by the
Company for funding property acquisitions, general corporate purposes and
capital needs.

In February 1997, the Company acquired, in a merger, Union Property Investors,
Inc. ("UPI") for approximately $65 million. UPI owned sixteen properties
located in eleven states that have a total of approximately 1.3 million square
feet of gross leasable area. The Company funded this purchase through the
assumption of approximately $30.2 million of existing debt and provided the
balance of the purchase price through the issuance of approximately $29.6
million of Kranzco Series B-1 and Series B-2 Cumulative Convertible Preferred
Shares (together the "Kranzco Series B Preferred Shares"), approximately $3.6
million of Kranzco Series C Redeemable Preferred Shares and approximately $1.6
million of cash. The Kranzco Series B Preferred Shares and the Kranzco Series
C Redeemable Preferred Shares have distribution rates of 9.75% and 8.0%,
respectively. The Kranzco Series C Redeemable Preferred Shares are required to
be redeemed in eight equal quarterly installments which commenced in April
1997.

In December 1997, the Company completed the acquisition of four of the five
Georgia Properties. The fifth center was under contract at December 31, 1997
and is expected to close in April 1998. The properties have approximately
650,000 square feet of gross leasable area and were approximately 98% leased
on the date of purchase. The Company funded the purchase of the four centers
in December through the assumption of approximately $21.8 million of debt, the
issuance of approximately $1.3 million of common shares of beneficial interest
and approximately $16.7 million in cash.

The acquisitions described above resulted in a 33% increase in the Company's
gross leasable square feet and enabled the Company to expand into nine
additional states and diversify their geographic presence and tenant base.

The National Association of Real Estate Investment Trusts ("NAREIT") defines
funds from operations as income before depreciation and amortization of real
estate assets and significant non-recurring events, less gains on sale of real
estate (the "new definition"). Funds from operations does not represent cash
flows from operations as defined by generally accepted accounting principles
and is not necessarily indicative as a measure of liquidity of the Company.
Also, funds from operations should not be construed as an alternative to net
income as defined by generally accepted accounting principles as an indicator
of the Company's operating performance. Funds from operations for common
shareholders increased $1,115,000 or 6% from $18,313,000 for the year ended
December 31, 1996 to $19,428,000 for the year ended December 31, 1997.

The Company has several tenants who are operating under Chapter 11 of the
United States Bankruptcy code. Among the tenants are Bradlees (three stores
representing approximately $2.2 million or 3.6% of the Company's annual
revenues) and Caldor (three stores representing approximately $2.5 million or
4.1% of the Company's annual revenues). Bradlees has informed the Company
that it intends to close its stores in Groton, Connecticut and Whitehall,
Pennsylvania and to seek potential assignees for the stores. In the event
that Bradlees is unable to obtain assignees for these stores on terms that are
beneficial to Bradlees, they have informed the Company that they intend to
disaffirm the leases. In the event that Bradlees disaffirms these leases, The
Stop & Shop Companies, Inc. shall remain primarily liable for all payments and
other obligations set forth in the leases. To date Caldor has not taken any
action to reject their leases and continues to pay current rent and operate
their stores located in the Company's centers. Effective November 1, 1996, the
Company entered into an agreement to reduce common area maintenance and real
estate tax reimbursements at one of the Caldor locations for a five year
period. Rickels disaffirmed the lease for the store located at the Hillcrest
Mall in Phillipsburg, NJ on November 30, 1996. The rental for this store
amounted to approximately $300,000 per year including reimbursements for
operating expenses. Rickels has affirmed the lease for The Mall at Cross
County. The rental for this store amounts to approximately $1.1 million per
year including reimbursements for operating expenses. Effective February 29,
1996, Jamesway disaffirmed their leases at the two locations in which they had
operated. The Jamesway stores were approximately 60,000 and 76,000 square
feet, respectively, and the Company has leased both locations to Ames
Department Stores. Other tenants in the Company's portfolio that continue to
pay current rent and operate their stores under Chapter 11 are individually
and in the aggregate less than 1% of the Company's annual revenues. The
Company believes that it is adequately reserved for these tenants.

During the year ended December 31, 1997, the Company invested approximately
$107,541,000 in the acquisition of new property and $6,709,000 in the
expansion and improvement of existing shopping center properties. The Company
expects to meet its short-term liquidity requirements through net cash flow
provided from operations, existing cash, long-term or short-term borrowings
and the Capital and TI Reserve account. The Capital and TI Reserve account
may be utilized by the Company for the funding of costs related to capital
improvements, repairs, alterations, tenant improvements and leasing
commissions in the centers secured by the Mortgage Loan. To meet its
long-term liquidity requirements, such as refinancing its balloon mortgages,
financing acquisitions and major capital improvements, the Company intends to
either utilize long-term borrowings, issue debt securities and/or issue
additional equity securities.

Management believes it has adequate access to capital to continue to meet its
short-term and long-term requirements and objectives.

The Company has established a Year 2000 compliance review process to assess
the impact on the Company's business, operations and financial condition. The
process encompasses internal information technology systems, property
mechanical operation systems and the potential impact from tenants and
vendors. Management believes that the Company has no material exposure to the
Year 2000 issues at this time.

RESULTS OF OPERATIONS

Year ended December 31, 1997 versus the year ended December 31, 1996

Net income (loss) for common shareholders increased $10,327,000 from a loss of
($3,275,000) or ($0.32) per common share in 1996 to net income of $7,052,000
or $0.68 per common share in 1997. Excluding the extraordinary losses on
early extinguishment of debt and debt refinancing, the net income for common
shareholders decreased $258,000 or 3% from $7,777,000, or $0.75 per common
share in 1996 to $7,519,000, or $0.73 per common share in 1997. This decrease
is due to a combination of factors as described below.

Minimum rent increased $5,914,000 or 14% from $41,665,000 for the year ended
December 31, 1996 to $47,579,000 for the year ended December 31, 1997. The
increase was primarily due to the additional rents from ten months of
operations of the sixteen centers acquired by the Company in February
1997(approximately $6,056,000), which was offset by a net decrease in the
minimum rents of approximately $142,000 from the other thirty-eight shopping
centers, excluding the Georgia Properties.

Expense reimbursements decreased $567,000 or 5% from $11,732,000 for the year
ended December 31, 1996 to $11,165,000 for the year ended December 31, 1997.
The decrease was primarily due to the common area maintenance expenses which
were significantly lower in 1997 due to the severe winter weather in the
Northeast portion of the United States in 1996, offset by the additional
reimbursements from ten months of operations for the sixteen centers acquired
by the Company during February 1997.

Interest income decreased $346,000 or 55% from $624,000 for the year ended
December 31, 1996 to $278,000 for the year ended December 31, 1997. The
decrease was primarily due to the sale of the Series A-2 Commercial Mortgage
Modified Pass - Through Interest Only Certificates (the "Series A-2
Certificates"). The Series A-2 Certificates provided for payment of interest
only at 65 basis points calculated on a notional amount of $100,000,000. The
Series A-2 Certificates were sold in connection with the debt refinancing in
June 1996.

Interest expense increased $1,818,000 or 11% from $17,069,000 for the year
ended December 31, 1996 to $18,887,000 for the year ended December 31, 1997.
The increase is primarily due to ten months of operations of the sixteen
centers acquired by the Company in February 1997 of approximately $2,285,000.
In addition, interest expense was reduced by capitalized interest on projects
under construction and land under development in the amount of $252,000 and
$947,000 during 1996 and 1997, respectively.

Depreciation and amortization increased $1,340,000 or 12% from $11,194,000 for
the year ended December 31, 1996 to $12,534,000 for the year ended December
31, 1997. The increase was primarily due to the additional depreciation of
approximately $1,191,000 for ten months of operations of the sixteen centers
acquired by the Company in February 1997.

Real estate taxes increased $511,000 or 8% from $6,073,000 for the year ended
December 31, 1996 to $6,584,000 for the year ended December 31, 1997. The
increase was primarily due to the additional real estate taxes of
approximately $342,000 for approximately ten months of operations of the
sixteen centers acquired by the Company in February 1997. The increase was
offset by the capitalization of real estate taxes on projects under
construction of $124,000 and $188,000 during the years 1996 and 1997,
respectively.

Operations and maintenance expenses decreased $1,127,000 or 12% from
$9,473,000 for the year ended December 31, 1996 to $8,346,000 for the year
ended December 31, 1997. The decrease was primarily due to the unusually high
snow removal costs incurred as a result of the severe winter experienced in
the first quarter of 1996 in the Northeast portion of the United States
(approximately $1 million).

General and administrative expenses increased $41,000 or 1% from $2,836,000
for the year ended December 31, 1996 to $2,877,000 for the year ended December
31, 1997. The increase is primarily due to additional salaries for new
employees in 1997.

Year ended December 31, 1996 versus the year ended December 31, 1995

Net income (loss) for common shareholders decreased $12,667,000 from
$9,392,000 or $0.91 per common share in 1995 to ($3,275,000) or ($0.32) per
common share in 1996. Excluding the extraordinary loss on refinancing, the
net income for common shareholders decreased $1,615,000 or 17% from
$9,392,000, or $0.91 per common share in 1995 to $7,777,000, or $0.75 per
common share in 1996. Excluding the extraordinary loss on refinancing, the
decrease was primarily due to the unusually high snow removal costs incurred
in the first quarter of 1996 as a result of the severe winter weather
experienced in the Northeastern portion of the United States and a loss of
tenants at the Company's properties resulting in a reduction in the leased
percentage of the portfolio from 93% at December 31, 1995 to 90% at December
31, 1996. The Company also recognized a loss of $63,000 on the sale of real
estate in the first quarter of 1996 in connection with the sale of a 3.4 acre
parcel of land located in Philadelphia, Pennsylvania.

Minimum rent increased $1,406,000 or 4% from $40,259,000 for the year ended
December 31, 1995 to $41,665,000 for the year ended December 31, 1996. The
increase was primarily due to the additional rents from a full year of
operations for the five centers purchased by the Company in April 1995
($1,450,000).

Expense reimbursements increased $744,000 or 7% from $10,988,000 for the year
ended December 31, 1995 to $11,732,000 for the year ended December 31, 1996.
The increase was primarily due to the additional reimbursements from a full
year of operations for the five centers purchased by the Company during April
1995 combined with an increase in operating expenses at the centers and the
increased recovery of additional common area maintenance expenses due to the
snow removal costs.

Interest income decreased $278,000 or 31% from $902,000 for the year ended
December 31, 1995 to $624,000 for the year ended December 31, 1996. The
decrease was primarily due to the sale of the Series A-2 Commercial Mortgage
Modified Pass - Through Interest Only Certificates (the "Series A-2
Certificates"). The Series A-2 Certificates provided for payment of interest
only at 65 basis points calculated on a notional amount of $100,000,000. The
Series A-2 Certificates were sold in connection with the debt refinancing in
June 1996.

Interest expense increased $861,000 or 5% from $16,208,000 for the year ended
December 31, 1995 to $17,069,000 for the year ended December 31, 1996. The
increase is primarily due to a full year of interest expense being recorded on
the centers purchased in 1995. In addition, interest expense was reduced by
capitalized interest on projects under construction and land under development
in the amount of $320,000 and $252,000 during 1995 and 1996, respectively.

Depreciation and amortization increased $291,000 or 3% from $10,903,000 for
the year ended December 31, 1995 to $11,194,000 for the year ended December
31, 1996. The increase was primarily due to the additional depreciation for a
full year of operations for the five centers purchased by the Company during
1995.

Real estate taxes increased $125,000 or 2% from $5,948,000 for the year ended
December 31, 1995 to $6,073,000 for the year ended December 31, 1996. The
increase was primarily due to the additional real estate taxes for a full year
of operations for the five centers purchased by the Company during 1995. The
increase was offset by the capitalization of real estate taxes on projects
under construction of $144,000 and $124,000 during the years 1995 and 1996,
respectively.

Operations and maintenance expenses increased $1,868,000 or 25% from
$7,605,000 for the year ended December 31, 1995 to $9,473,000 for the year
ended December 31, 1996. The increase was primarily due to the unusually high
snow removal costs incurred as a result of the severe winter experienced in
the first quarter of 1996 in the Northeast portion of the United States
(approximately $1 million), as well as the additional costs incurred at the
five centers acquired in 1995.

General and administrative expenses decreased $93,000 or 3% from $2,929,000
for the year ended December 31, 1995 to $2,836,000 for the year ended December
31, 1996. The decrease is primarily due to capitalization of certain direct
labor costs in 1996 related to the merger of the Company with UPI.

INFLATION

Most of the retail tenant leases at the shopping center properties contain
provisions which will entitle the Company to receive percentage rents based on
the tenants' gross sales. Such percentage rents minimize the risk to the
Company of the adverse effects of inflation. Most of the leases at the
shopping center properties require the tenants to pay a substantial share of
operating expenses, such as real estate taxes, insurance and common area
maintenance costs, and thereby reduce the Company's exposure to increased
costs. In addition, many of the leases at the shopping center properties are
for terms of less than ten years, which may enable the Company to seek
increased rents upon renewal of existing leases.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The response to this Item 8 is included as a separate section of Item 14 in
Part IV of this Annual Report on Form 10-K.

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

None.

PART III

ITEM 10. DIRECTOR AND EXECUTIVE OFFICERS OF THE REGISTRANT

Incorporated herein by reference to the Company's definitive proxy statement
to be filed with the Securities and Exchange Commission within 120 days after
the year covered by this Form 10-K with respect to its Annual Meeting of
Shareholders to be held on June 3, 1998

ITEM 11. EXECUTIVE COMPENSATION

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

PART IV

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

(a) (1) Financial Statements

Kranzco Realty Trust
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1997 and 1996
Consolidated Statements Of Operations for the years ended
December 31, 1997, 1996 and 1995
Consolidated Statements Of Beneficiaries' Equity for the years ended
December 31, 1997, 1996 and 1995
Consolidated Statements Of Cash Flows for the years ended
December 31, 1997, 1996 and 1995
Notes To Consolidated Financial Statements

(2) Financial Statement Schedule

Kranzco Realty Trust
Report of Independent Public Accountants
Schedule III - Real Estate and Accumulated Depreciation - December 31, 1997
Notes to Schedule III

(3) Exhibits

2.1 Agreement and Plan of Merger, dated November 12, 1996, among Kranzco
Realty Trust, KRT Union Corp. and Union Property Investors, Inc. (Incorporated
by reference to Exhibit 2.1 of the Company's Registration Statement on Form
S-4 No. 333-18249.)

2.2 Amendment No. 1 to Agreement and Plan of Merger, dated December 18,
1996. (Incorporated by reference to Exhibit 2.2 of the Company's Registration
Statement on Form S-4 No. 333-18249.)

2.3 Amendment No. 2 to Agreement and Plan of Merger, dated February 26,
1997. (Incorporated by reference to Exhibit 2.3 of the Company's Current
Report on Form 8-K filed March 14, 1997.)

3.1 Amended and Restated Declaration of Kranzco Realty Trust.
(Incorporated by reference to Exhibit 3.4 of the Company's Registration
Statement No.33-49434.)

3.2 Bylaws, as amended. (Incorporated by reference to Exhibit 3.2 of the
Company's Registration Statement No.33-49434.)

3.3 Amendment of Amended and Restated Declaration of Trust, dated December
31, 1995. (Incorporated by reference to Exhibit 3.3 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996.)

3.4 Amendment No. 2 of Amended and Restated Declaration of Trust, dated
June 4, 1997. (Incorporated by reference to Exhibit 4.1(c) of the Company's
Registration Statement on Form S-3 filed July 31, 1997.)

4.1 Specimen certificate for Common Shares of Beneficial Interest.
(Incorporated by reference to Exhibit 4.1 of the Company's Registration
Statement No.33-49434.)

4.2 Articles Supplementary for the Series A Increasing Rate Cumulative
Convertible Preferred Shares of Beneficial Interest. (Incorporated by
reference to the Company's Report on Form 8-K dated May 4, 1995.)

4.3 Articles Supplementary Classifying 11,155 Shares of Beneficial Interest
as Series A-1 Increasing Rate Cumulative Convertible Preferred Shares of
Beneficial Interest. (Incorporated by reference to Exhibit 4.5 of the
Company's Registration Statement on Form S-4 No. 333-18249.)

4.4 Articles Supplementary for the Company's Series B-1 Cumulative
Convertible Preferred Shares of Beneficial Interest. (Incorporated by
reference to Exhibit 3.4 of the Company's Registration Statement on Form 8-A
dated February 27, 1997.)

4.5 Articles Supplementary for the Company's Series B-2 Cumulative
Convertible Preferred Shares of Beneficial Interest. (Incorporated by
reference to Exhibit 4.2 of the Company's Registration Statement on Form S-4
No. 333-18249.)

4.6 Articles Supplementary for the Company's Series C Cumulative Redeemable
Preferred Shares of Beneficial Interest. (Incorporated by reference to
Exhibit 4.3 of the Company's Registration Statement on Form S-4 No.
333-18249.)

4.7 Articles Supplementary for the Company's Series D Redeemable Preferred
Shares of Beneficial Interest. (Incorporated by reference to Exhibit 3.5 of
the Company's Registration Statement on Form 8-A filed December 10, 1997.)

4.8 Specimen of the Company Series D Redeemable Preferred Shares of
Beneficial Interest. (Incorporated by reference to Exhibit 4.1 of the
Company's Registration Statement on Form 8-A filed December 10, 1997.)

10.1 Kranzco Realty Trust 1992 Employees Share Option Plan, as amended.
(Incorporated by reference to Exhibit 10.10 of the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1992.)

10.2 Kranzco Realty Trust 1992 Employees Share Option Plan, amended.
(Incorporated by reference to Exhibit 10.11 of the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1992.)

10.3 Kranzco Realty Trust 1995 Incentive Plan. (Incorporated by reference
to Exhibit 4.4 of the Company's Registration Statement on Form S-8 No.
33-94294.)

10.4 Loan Agreement dated as of February 26, 1997 with Salomon Brothers
Realty Corp. (Incorporated by reference to Exhibit 10.1 of the Company's
Current Report on Form 8-K filed March 14, 1997.)

10.5 Global Promissory Note dated February 26, 1997 in the amount of
$50,000,000 executed in favor of Salomon Brothers Realty Corp. (Incorporated
by reference to Exhibit 10.2 of the Company's Current Report on Form 8-K filed
March 14, 1997.)

10.6 Unlimited Guaranty of Payment dated as of February 26, 1997 issued by
Kranzco Realty Trust in favor of Salomon Brothers Realty Corp. (Incorporated
by reference to Exhibit 10.3 of the Company's Current Report on Form 8-K filed
March 14, 1997.)

10.7 Exemplar Open End Fee and Leasehold Mortgage, Assignment of Leases and
Rents, Security Agreement and Fixture Filing dated as of February 26, 1997
issued in connection with the Line of Credit. (Incorporated by reference to
Exhibit 10.4 of the Company's Current Report on Form 8-K filed March 14,
1997.)

10.8 Trust and Servicing Agreement, dated as of June 18, 1996, among KRT
Origination Corp., GE Capital Management Corporation and State Street Bank and
Trust Company. (Incorporated by reference to Exhibit 10.43 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1996.)

10.9 Cash Collateral Account, Security, Pledge and Assignment Agreement,
dated as of June 18, 1996, among the Borrowers, State Street Bank and Trust
Company, as Agent, and KRT Origination Corp., as Lender. (Incorporated by
reference to Exhibit 10.44 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996.)

10.10 Cash Collateral Agreement, dated June 18, 1996, among the Borrowers,
and State Street Bank and Trust Company, as Agent. (Incorporated by reference
to Exhibit 10.45 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996)

10.11 $123,700,000.00 Class A Mortgage Note dated June 18, 1996 made by the
Borrowers in favor of KRT Origination Corp., as Lender. (Incorporated by
reference to Exhibit 10.46 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996.)

10.12 $20,600,000.00 Class B Mortgage Note dated June 18, 1996 made by the
Borrowers in favor of KRT Origination Corp., as Lender. (Incorporated by
reference to Exhibit 10.47 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996.)

10.13 $28,900,000.00 Class C Mortgage Note dated June 18, 1996 made by the
Borrowers in favor of KRT Origination Corp., as Lender. (Incorporated by
reference to Exhibit 10.48 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996.)

10.14 $8,500,000.00 Class D Mortgage Note dated June 18, 1996 made by the
Borrowers in favor of KRT Origination Corp., as Lender. (Incorporated by
reference to Exhibit 10.49 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996.)

10.15 Form of Indenture of Mortgage, Deed of Trust, Security Agreement,
Financing Statement, Fixture Filing and Assignment of Leases, Rents and
Security Deposits made by the Borrowers, as grantor, for the benefit of KRT
Origination Corp., as mortgagee, and filed in Connecticut, Maryland, New
Jersey, New York and Pennsylvania with respect to Groton Square in Groton,
Connecticut, Manchester Kmart in Manchester, Connecticut, Milford in Milford,
Connecticut, Orange in Orange, Connecticut, Fox Run in Prince Frederick,
Maryland, Hillcrest Plaza in Frederick, Maryland, Anneslie in Baltimore,
Maryland, Suburban Plaza in Hamilton, New Jersey, Collegetown in Glassboro,
New Jersey, Hillcrest Mall in Phillipsburg, New Jersey, The Mall at Cross
County in Yonkers, New York, Highridge Plaza in Yonkers, New York, North Ridge
in New Rochelle, New York, Village Square in Larchmont, New York, A&P
Mamaroneck in Mamaroneck, New York, Port Washington in Port Washington, New
York, Bethlehem in Bethlehem, Pennsylvania, Whitehall Square in Whitehall, ,
Pennsylvania, Bristol Commerce Park in Bristol, Pennsylvania, Park Hills Plaza
in Altoona, Pennsylvania, Barn Plaza in Doylestown, Pennsylvania, Best Plaza
in Tredyffrin, Pennsylvania, Bensalem Square in Bensalem, Pennsylvania, Street
Road in Bensalem, Pennsylvania, Pilgrim Gardens in Drexel Hill, Pennsylvania,
69th Street Plaza in Upper Darby, Pennsylvania and MacArthur Road in
Whitehall, Pennsylvania (the "Properties"). (Incorporated by reference to
Exhibit 10.50 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996.)

10.16 Form of Unrecorded Indenture of Mortgage, Deed of Trust, Security
Agreement, Financing Statement, Fixture Filing and Assignment of Leases, Rents
and Security Deposits made by the Borrowers, as grantor, for the benefit of
KRT Origination Corp., and held in escrow with respect to the Properties
located in Maryland and in New York. (Incorporated by reference to Exhibit
10.51 to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.)

10.17 Escrow Agreement made among KRT Origination Corp., the Borrowers and
Robinson Silverman Pearce Aronsohn & Berman LLP, as escrow agent, with respect
to the unrecorded second mortgages covering the Properties located in New York
and Maryland and referred to in Exhibit 10.52 above.

10.18 Severance Benefits Agreement dated as of March 28, 1997 by and
between Kranzco Realty Trust and Norman M. Kranzdorf. (Incorporated by
reference to Exhibit 10.1 of the Company's Form 10-Q for the quarter ended
June 30, 1997.)

10.19 Severance Benefits Agreement dated as of March 28, 1997 by and
between Kranzco Realty Trust and Robert H. Dennis. (Incorporated by reference
to Exhibit 10.2 of the Company's Form 10-Q for the quarter ended June 30,
1997.)

10.20 Severance Benefits Agreement dated as of March 28, 1997 by and
between Kranzco Realty Trust and Edmund Barrett. (Incorporated by reference
to Exhibit 10.3 of the Company's Form 10-Q for the quarter ended June 30,
1997.)

10.21 Severance Benefits Agreement dated as of March 28, 1997 by and
between Kranzco Realty Trust and Bengt Danielsson. (Incorporated by reference
to Exhibit 10.4 of the Company's Form 10-Q for the quarter ended June 30,
1997.)

10.22 Severance Benefits Agreement dated as of March 27, 1997 by and
between Kranzco Realty Trust and Michael Warrington. (Incorporated by
reference to Exhibit 10.5 of the Company's Form 10-Q for the quarter ended
June 30, 1997.)

10.23 Severance Benefits Agreement dated as of March 28, 1997 by and
between Kranzco Realty Trust and Michael Kranzdorf. (Incorporated by
reference to Exhibit 10.6 of the Company's Form 10-Q for the quarter ended
June 30, 1997.)

10.24 Severance Benefits Agreement dated as of March 28, 1997 by and
between Kranzco Realty Trust and Peter J. Linneman. (Incorporated by
reference to Exhibit 10.7 of the Company's Form 10-Q for the quarter ended
June 30, 1997.)

10.25 Severance Benefits Agreement dated as of March 28, 1997 by and
between Kranzco Realty Trust and James B. Selonick. (Incorporated by
reference to Exhibit 10.8 of the Company's Form 10-Q for the quarter ended
June 30, 1997.)

10.26 Severance Benefits Agreement dated as of March 28, 1997 by and
between Kranzco Realty Trust and E. Donald Shapiro. (Incorporated by
reference to Exhibit 10.9 of the Company's Form 10-Q for the quarter ended
June 30, 1997.)

10.27 Agreement dated October 30, 1997 between Kranzco Realty Trust and GP
Development Corporation. (Incorporated by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K dated November 25, 1997.)

10.28 Agreement and Plan of Merger dated October 30, 1997 between Kranzco
Realty Trust, GP Development Corporation, the shareholders of GP Development
Corporation and KR Atlanta, Inc. (Incorporated by reference to Exhibit 2.2 to
the Company's Current Report on Form 8-K dated November 25, 1997.)

10.29 Mortgage Note for $6,700,000.00, dated as of October 5, 1990, from
Holcomb Bridge Partners, L.P., a Georgia limited partnership ("Holcomb"), in
favor of Allstate Life Insurance Company ("Allstate") (relating to Holcomb
Bridge Crossing). (Incorporated by reference to Exhibit 2.3 to the Company's
Current Report on Form 8-K dated November 25, 1997.)

10.30 Modification of Mortgage Note, dated as of October 31, 1995, between
Holcomb and Harris Trust and Savings Bank ("Harris Trust") (relating to
Holcomb Bridge Crossing). (Incorporated by reference to Exhibit 2.4 to the
Company's Current Report on Form 8-K dated November 25, 1997.)

10.31 Deed to Secure Debt, Assignment of Leases, Rents and Contracts,
Security Agreement and Fixture Filing ("Deed to Secure Debt") from Holcomb to
Allstate, dated as of October 5, 1990 (relating to Holcomb Bridge Crossing).
(Incorporated by reference to Exhibit 2.5 to the Company's Current Report on
Form 8-K dated November 25, 1997.)

10.32 Modification to Deed to Secure Debt between Holcomb and Harris Trust,
dated as of October 31, 1995 (relating to Holcomb Bridge Crossing).
(Incorporated by reference to Exhibit 2.6 to the Company's Current Report on
Form 8-K dated November 25, 1997.)

10.33 Real Estate Note for $3,725,000.00, dated as of August 6, 1987, from
West Stewarts Mill Associates, Ltd., a Georgia limited partnership ("West
Stewarts"), in favor of Confederation Life Insurance Company, a mutual
insurance company incorporated in Canada ("Confederation"), first amendment
thereto dated as of November 27, 1987, second amendment thereto dated as of
November 1, 1993, third amendment thereto dated as of November 1, 1993 and
fourth amendment thereto dated as of February 21, 1995 (relating to Park
Plaza). (Incorparated by reference to Exhibit 2.7 to the Company's Current
Report on Form 8-K dated November 25, 1997.)

10.34 Deed to Secure Debt and Security Agreement between West Stewarts and
Confederation,dated as of August 6, 1987, first amendment thereto dated as of
November 27, 1987 and second amendment thereto dated as of November 1, 1993
(relating to Park Plaza). (Incorporated by reference to Exhibit 2.8 to the
Company's Current Report on Form 8-K dated November 25, 1997.)

10.35 Escrow Agreement, dated as of November 1, 1993, between Confederation
and West Stewarts. (Incorporated by reference to Exhibit 2.9 to the Company's
Current Report on Form 8-K dated November 25, 1997.)

10.36 Promissory Note for $10,670,000.00, dated as of July 31, 1996, from
Mableton Village Associates, L.L.C., a Georgia limited liability company
("Mableton Village"), in favor of Lehman Brothers Holdings, Inc. d/b/a Lehman
Capital ("Lehman") (relating to The Village at Mableton). (Incorporated by
reference to Exhibit 2.10 to the Company's Current Report on Form 8-K dated
November 25, 1997.)

10.37 Deed to Secure Debt and Security Agreement, dated as of July 31,
1996, between Mableton Village and Lehman (relating to The Village at
Mableton). (Incorporated by reference to Exhibit 2.11 to the Company's Current
Report on Form 8-K dated November 25, 1997.)

21.1 Subsidiaries of Kranzco Realty Trust.

23.1 Consent of Arthur Andersen LLP.

(4) Reports on Form 8-K

A Report on Form 8-K dated November 25, 1997 was filed by the Company with the
Securities and Exchange Commission on November 25, 1997. The Company reported
its intent to purchase five shopping centers in the Atlanta, GA metropolitan
area.

A Report on Form 8-K dated December 12, 1997 was filed by the Company with the
Securities and Exchange Commission on December 12, 1997. The Company reported
the issuance of its Series D Preferred Shares.

SIGNATURES

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

KRANZCO REALTY TRUST
(Registrant)

By: /s/ Norman M. Kranzdorf
Norman M. Kranzdorf
Chief Executive Officer

Dated: March 18, 1998

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

Signature Title Date

/s/ Norman M. Kranzdorf President, Chief Executive March 18, 1998
Norman M. Kranzdorf Officer and Trustee (Principal
Executive Officer)

/s/ Robert H. Dennis Chief Financial Officer, March 18, 1998
Robert H. Dennis Treasurer and Trustee (Principal
Financial and Accounting Officer)

/s/ Edmund Barrett Chief Operating Officer, Executive March 18, 1998
Edmund Barrett Vice President and Trustee

/s/ Dr. Peter D. Linneman Trustee March 18, 1998
Dr. Peter D. Linneman

/s/ E. Donald Shapiro Trustee March 18, 1998
E. Donald Shapiro

/s/ James B. Selonick Trustee March 18, 1998
James B. Selonick

/s/ Bernard J. Korman Trustee March 18, 1998
Bernard J. Korman

<PAGE>

INDEX TO FINANCIAL STATEMENTS

PAGE
FINANCIAL STATEMENTS

Kranzco Realty Trust

* Report of Independent Public Accountants F-1
* Consolidated Balance Sheets as of December 31, 1997 and 1996 F-2
* Consolidated Statements Of Operations for the years ended
December 31, 1997, 1996, and 1995 F-3
* Consolidated Statements Of Beneficiaries' Equity for the years
ended December 31, 1997, 1996, and 1995 F-4
* Consolidated Statements Of Cash Flows for the years ended
December 31, 1997, 1996, and 1995 F-5
* Notes To Consolidated Financial Statements F-6

FINANCIAL STATEMENT SCHEDULES

Kranzco Realty Trust

* Report of Independent Public Accountants S-1
* Schedule III - Real Estate and Accumulated Depreciation -
December 31, 1997 S-2
* Notes to Schedule III S-6

<PAGE>

<AUDIT-REPORT>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders and Trustees of Kranzco Realty Trust:

We have audited the accompanying consolidated balance sheets of Kranzco Realty
Trust (a Maryland trust) and subsidiaries as of December 31, 1997 and 1996,
and the related consolidated statements of operations, beneficiaries' equity
and cash flows for each of the three years in the period ended December 31,
1997. These financial statements are the responsibility of the Company's
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 Kranzco Realty Trust and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1997 in conformity with generally accepted accounting
principles.

Arthur Andersen LLP

Philadelphia, Pennsylvania
February 23, 1998

</AUDIT-REPORT>

<PAGE>

<TABLE>
Kranzco Realty Trust and Subsidiaries
Consolidated Balance Sheets
<CAPTION>
December 31, December 31,
1997 1996
----------- -----------
<S> <C> <C>

ASSETS:
Shopping center properties owned, at cost (Notes 1 and 9)
Buildings and improvements $369,969,000 $294,293,000
Land 114,772,000 76,198,000
----------- ---------
484,741,000 370,491,000
Less-accumulated depreciation 46,811,000 35,287,000
----------- -----------
437,930,000 335,204,000

Cash and cash equivalents (Note 1 ) 11,423,000 5,301,000
Restricted cash (Note 2) 883,000 329,000
Rents and other receivables, net of allowance of
$1,152,000 and $1,245,000, December 31,1997 and 1996 (Notes 1, 3 and 4) 9,210,000 9,661,000
Prepaid expenses 1,870,000 1,729,000
Deferred financing costs, net of accumulated amortization of $778,000
and $203,000, December 31,1997 and 1996 (Notes 1 and 2) 1,975,000 1,893,000
Deferred costs, net of accumulated amortization of $1,043,000
and $888,000, December 31,1997 and 1996 (Note 1) 2,119,000 1,793,000
Other assets 810,000 3,247,000
----------- -----------
Total assets $466,220,000 $359,157,000
============ ============

LIABILITIES:
Mortgages and notes payable (Notes 2 and 5) 255,124,000 212,590,000
Tenant security deposits 1,318,000 1,136,000
Accounts payable and accrued expenses 2,831,000 2,785,000
Other liabilities 597,000 527,000
Distributions payable (Note 10) 6,010,000 5,106,000
----------- -----------
Total liabilities 265,880,000 222,144,000

COMMITMENTS AND CONTINGENCIES (Notes 3 and 7)

REDEEMABLE PREFERRED SHARES, SERIES C, $0.01 PAR VALUE; 222,750 SHARES,
DECEMBER 31, 1997, NONE AT DECEMBER 31, 1996 (Notes 5 and 10) 2,228,000 0

BENEFICIARIES' EQUITY (Notes 5, 6 and 10):
Preferred shares of beneficial interest, Series A-1,
$0.01 par value; 11,155 shares,
December 31, 1997 and 1996 1,000 1,000
Preferred shares of beneficial interest, Series B-1 and B-2,
$0.01 par value; 1,183,331 shares,
December 31, 1997, none at December 31, 1996 12,000 0
Preferred shares of beneficial interest, Series D,
$0.01 par value; 1,800,000 shares,
December 31, 1997, none at December 31, 1996 18,000 0
Common shares of beneficial interest, $0.01 par value;
authorized 100,000,000 shares; issued and
outstanding, 10,415,427 and 10,332,784 as of December 31,
1997 and 1996, respectively 104,000 103,000
Capital in excess of par value 261,097,000 187,177,000
Cumulative net income available for common shareholders 33,806,000 26,754,000
Cumulative distributions on common shares of beneficial interest (96,771,000) (76,891,000)
----------- -----------
198,267,000 137,144,000
Unearned compensation on restricted shares of beneficial interest (Note 6) (155,000) (131,000)
----------- -----------
Total beneficiaries' equity 198,112,000 137,013,000

Total liabilities and beneficiaries' equity 466,220,000 359,157,000
=========== ===========

<FN>
The accompanying notes are an integral part of these statements.
</FN>

</TABLE>

<PAGE>

<TABLE>
Kranzco Realty Trust and Subsidiaries
Consolidated Statements of Operations
<CAPTION>
For the year ended December 31,

1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Minimum rent (Notes 1, 3 and 4) $47,579,000 $41,665,000 $40,259,000
Percentage rent (Note 1) 1,163,000 1,042,000 1,044,000
Expense reimbursements 11,165,000 11,732,000 10,988,000
Interest income 278,000 624,000 902,000
Other 127,000 117,000 277,000
----------- ----------- -----------
Total revenue 60,312,000 55,180,000 53,470,000
----------- ----------- -----------
EXPENSES:
Interest (Note 2) 18,887,000 17,069,000 16,208,000
Depreciation and amortization (Note 1) 12,534,000 11,194,000 10,903,000
Real estate taxes 6,584,000 6,073,000 5,948,000
Operations and maintenance 8,346,000 9,473,000 7,605,000
General and administrative (Notes 7 and 8) 2,877,000 2,836,000 2,929,000

----------- ----------- -----------
Total expenses 49,228,000 46,645,000 43,593,000
----------- ----------- -----------
INCOME BEFORE LOSS ON SALE OF REAL ESTATE AND
EXTRAORDINARY ITEM 11,084,000 8,535,000 9,877,000

Loss on sale of real estate 0 63,000 0
----------- ----------- -----------
INCOME BEFORE EXTRAORDINARY ITEM 11,084,000 8,472,000 9,877,000

Extraordinary loss on early extinguishment of
debt/debt refinancing (Notes 2, 5 and 9) 467,000 11,052,000 0
----------- ----------- -----------
NET INCOME (LOSS) 10,617,000 (2,580,000) 9,877,000

Preferred Share Distributions 3,565,000 695,000 485,000
----------- ----------- -----------
NET INCOME (LOSS) FOR COMMON SHAREHOLDERS $7,052,000 ($3,275,000) $9,392,000
=========== =========== ===========

Income Before Extraordinary Item Per Common Share
of Beneficial Interest $0.73 $0.75 $0.91

Extraordinary Loss on Early Extinguishment of
Debt/Debt Refinancing Per Common
Share of Beneficial Interest ($0.05) ($1.07) $0.00
----------- ----------- -----------
Basic and Diluted Earnings (Loss) Per Common Share of Beneficial
Interest $0.68 ($0.32) $0.91
=========== =========== ===========

<FN>
The accompanying notes are an integral part of these statements.
</FN>

</TABLE>

<PAGE>

<TABLE>
Kranzco Realty Trust and Subsidiaries
Consolidated Statements of Beneficiaries' Equity
For the years ended December 31, 1997, 1996 and 1995
<CAPTION>
Unearned
Cumulative Compensation
Preferred Cumulative Distributions on
Common Preferred Shares of Capital Net Income on Common Restricted
Shares of Shares of Beneficial In Excess Available Shares of Shares of
Beneficial Par Beneficial Interest of for Common Beneficial Beneficial
Interest Value Interest Par Value Par Value Shareholders Interest Interest
------------ -------- ---------- ---------- ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 10,315,497 $103,000 0 $0 $178,712,000 $20,637,000 ($37,248,000) $0

Issuance of common shares 8,062 - - - 145,000 - - (104,000)
Forfeiture of common shares (701) - - - (14,000) - - -
Issuance
of preferred shares, net - - 11,155 1,000 7,976,000 - - -
Accretion
of
discount
on preferred shares
of beneficial interest - - - - 95,000 (95,000) - -
Net income - - - - - 9,877,000 - -
Distributions
on preferred shares - - - - - (390,000) - -
Distributions
on common shares
of
beneficial
interest($1.92 per share) - - - - - - (19,813,000) -
------------ -------- ---------- ---------- ------------- ------------- -------------- -------------
BALANCE, DECEMBER 31, 1995 10,322,858 $103,000 11,155 $1,000 $186,914,000 $30,029,000 ($57,061,000) ($104,000)

Issuance of common shares 9,949 - - - 145,000 - - (93,000)
Forfeiture of common shares (23) - - - - - - -
Accretion
of
discount
on preferred shares
of beneficial interest - - - - 118,000 (118,000) - -
Accretion
of
unearned compensation on
restricted
shares
of beneficial interest - - - - - - - 66,000
Net loss - - - - - (2,580,000) - -
Distributions
on preferred shares - - - - - (577,000) - -
Distributions
on common shares
of
beneficial
interest($1.92 per share) - - - - - - (19,830,000) -
------------ -------- ---------- ---------- ------------- ------------- -------------- -------------
BALANCE, DECEMBER 31, 1996 10,332,784 $103,000 11,155 $1,000 $187,177,000 $26,754,000 ($76,891,000) ($131,000)

Issuance of common shares 82,697 1,000 - - 1,545,000 - - (125,000)
Forfeiture of common shares (54) - - - (1,000) - - -
Issuance
of
preferred
shares-Series B-1, B-2 - - 1,183,331 12,000 29,354,000 - - -
Issuance
of
preferred shares-Series D - - 1,800,000 18,000 42,927,000 - - -

Accretion
of
discount
on preferred shares
of beneficial interest - - - - 95,000 (95,000) - -
Accretion
of
unearned compensation on
restricted
shares
of beneficial interest - - - - - - - 101,000
Net income - - - - - 10,617,000 - -
Distributions
on preferred shares - - - - - (3,470,000) - -
Distributions
on common shares
of
beneficial
interest($1.92 per share) - - - - - - (19,880,000) -
------------ -------- ---------- ---------- ------------- ------------- -------------- -------------
BALANCE, DECEMBER 31, 1997 10,415,427 $104,000 2,994,486 $31,000 $261,097,000 $33,806,000 ($96,771,000) ($155,000)
============ ======== ========== ========== ============= ============= ============== =============
<FN>
The accompanying notes are an integral part of these statements.
</FN>

</TABLE>

<PAGE>

<TABLE>
Kranzco Realty Trust and Subsidiaries
Consolidated Statements of Cash Flows
<CAPTION>
For the year ended December 31,
1997 1996 1995
------------ ---------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $10,617,000 ($2,580,000) $9,877,000
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 12,534,000 11,194,000 10,903,000
Amortization of deferred interest costs 0 674,000 1,787,000
Amortization of unearned compensation on restricted
shares of beneficial interest 101,000 66,000 0
Loss on sale of real estate 0 63,000 0
Extraordinary loss on early extinguishment of
debt/debt refinancing 467,000 11,052,000 0
Changes in assets and liabilities:
(Increase) decrease in-
Rents and other receivables 451,000 (1,379,000) (1,930,000)
Prepaid expenses (141,000) 146,000 16,000
Other assets (30,000) 23,000 (111,000)
Increase (decrease) in-
Accounts payable and accrued expenses 469,000 (578,000) (398,000)
Tenant security deposits 182,000 7,000 185,000
Other liabilities 70,000 (229,000) 120,000
------------ ---------- -----------
Net cash provided by operating activities 24,720,000 18,459,000 20,449,000
------------ ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in shopping center properties (27,803,000) (2,418,000) (4,261,000)
Increase(decrease) in other assets 2,467,000 (2,329,000) (161,000)
(Decrease)increase in accrued acquisition costs (902,000) 1,500,000 0
Proceeds from sale of real estate 0 524,000 0
Decrease(increase) in marketable securities 0 273,000 (29,000)
(Increase)decrease in restricted cash (554,000) (113,000) 552,000
Increase in deferred costs (759,000) (496,000) (625,000)
------------ ---------- -----------
Net cash used in investing activities (27,551,000) (3,059,000) (4,524,000)
------------ ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions paid on common shares of beneficial interest (19,846,000 (19,830,000) (19,810,000)
Distributions paid on preferred shares of beneficial interest (2,604,000 (577,000) (251,000)
Issuance of common shares of beneficial interest, net 120,000 52,000 131,000
Issuance of preferred shares of beneficial interest, net 42,732,000 0 0
Redemption of redeemable preferred shares (1,336,000) 0 0
Proceeds from sale of interest rate protection agreements 0 3,935,000 0
Proceeds of mortgages and notes payable 20,404,000 181,700,000 8,000,000
Repayments of mortgages and notes payable (30,158,000) (179,500,000) (1,490,000)
Increase in accrued expenses for preferred share offering 479,000 0 0
Increase in deferred financing costs (838,000) (2,008,000) (300,000)
------------ ---------- -----------
Net cash provided by (used in) financing activities 8,953,000 (16,228,000) (13,720,000)
------------ ---------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6,122,000 (828,000) 2,205,000

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 5,301,000 6,129,000 3,924,000
------------ ---------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $11,423,000 $5,301,000 $6,129,000
============ ========== ===========

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:

Accretion of discount on increasing rate preferred shares $95,000 $118,000 $95,000
============ ========== ===========

Preferred and common shares issued as part of the purchase
price for the acquisition of real estate:

Fair value of assets acquired $86,447,000 $0 $44,969,000
Liabilities assumed 52,000,000 0 36,993,000
------------ ---------- -----------
Preferred shares issued $33,147,000 $0 $7,976,000

Common shares issued $1,300,000 $0 $0
============ ========== ===========

<FN>
The accompanying notes are an integral part of these statements.
</FN>

</TABLE>

<PAGE>

KRANZCO REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

BUSINESS AND NATURE OF OPERATIONS
Kranzco Realty Trust (a Maryland real estate investment trust) and its
subsidiaries ("KRT" or the "Company") are engaged in the ownership,
management, leasing, operation, acquisition, development, investment and
disposition of neighborhood and community shopping centers and free-standing
properties. The Company completed its initial public offering of shares of
beneficial interest and commenced operations on November 19, 1992. In
addition to its own properties, the Company may provide management services
for shopping centers owned by third parties. As of December 31, 1997, the
Company owned 59 properties in sixteen Northeastern, Southern and Mid-Atlantic
states.

PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of KRT
and its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.

USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of the date of the financial statements
and reported amounts of revenues and expenses during the reporting periods.
The ultimate results could differ from those estimates.

REAL ESTATE
Real estate assets and improvements or replacements are carried at depreciated
cost. Depreciation is computed using the straight-line method over the
estimated useful life of thirty years for buildings and the lesser of the
useful life or lease term of the improvements. Maintenance and repairs are
charged to expense as incurred. The Company determines potential impairment
losses in accordance with the provisions of Statement of Financial Accounting
Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and
Assets to Be Disposed Of."

CAPITALIZED CHARGES
Carrying charges, principally interest and taxes, of land under development
and buildings under construction are capitalized by the Company. Interest is
capitalized using an interest rate which equals a weighted average interest
rate on the Company's indebtedness. The Company capitalizes certain direct
labor charges on identifiable projects, such as acquisitions and certain
significant tenant leases. Capitalization ceases when construction activities
are completed and the property is available for occupancy by tenants and the
costs are then depreciated over the estimated useful life of the property.

DEFERRED COSTS
Deferred costs relate to the organization of the Company, amounts related to
the placement of debt and costs of leasing the shopping centers. Organization
costs are amortized on a straight-line basis over five years. Deferred
financing costs are amortized using the effective interest method over the
term of the related debt. Leasing costs are amortized on a straight-line
basis over the term of the related lease.

REVENUE RECOGNITION
Minimum rental income is recognized on a straight-line basis over the term of
the lease agreements regardless of when payments are due and accrued rents are
included in rents receivable. Certain lease agreements contain provisions
which provide for additional rents based on tenants' sales volume and
reimbursement of the tenants' share of real estate taxes and certain common
area maintenance costs. These additional rents are reflected on the accrual
basis.

EARNINGS PER SHARE DATA
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share" ("SFAS 128"). SFAS 128 establishes standards
for computing and presenting earnings per share ("EPS") and applies to
entities with publicly held common stock or potential common stock. This
statement simplifies the standards for computing EPS previously found in APB
Opinion No. 15, "Earnings per Share," and makes them comparable to
international EPS standards.

Basic EPS is based on the weighted average number of common shares of
beneficial interest outstanding. The weighted average number of shares
outstanding used in the Basic EPS computations was 10,341,958, 10,327,795
and 10,319,464 in 1997, 1996 and 1995, respectively. The Diluted EPS
computations have been adjusted to give effect to common share equivalents;
specifically, common share options outstanding. The weighted average number
of shares outstanding used in the Diluted EPS computations was 10,348,216,
10,327,925 and 10,319,464 in 1997, 1996 and 1995, respectively. The Company's
Series A-1 and B Preferred Shares and the majority of the Company's stock
options were not included in the Diluted EPS calculation because their impact
would be anti-dilutive based on current market prices.

STATEMENTS OF CASH FLOWS
Cash and cash equivalents include all cash and liquid investments with
original maturities of three months or less, primarily consisting of money
market accounts and government investments. Cash paid for interest was
$19,715,000, $16,870,000, and $14,532,000 for the years ended December 31,
1997, 1996 and 1995, respectively.

INCOME TAXES
The Company and its subsidiaries file a consolidated Federal income tax
return. KRT intends to maintain its election to be taxed as a Real Estate
Investment Trust ("REIT") under Sections 856 to 860 of the Internal Revenue
Code. Accordingly, no provision for Federal income taxes has been reflected
in the financial statements.

The Company is subject to a Federal excise tax computed on a calendar year
basis. The excise tax equals 4% of the excess, if any, of 85% of the
Company's ordinary income plus 95% of any capital gain income for the calendar
year over cash distributions during the calendar year, as defined. No
provision for excise tax has been reflected in the financial statements as no
tax was due.

Earnings and profits, which will determine the taxability of distributions to
shareholders, will differ from net income reported for financial reporting
purposes due to the differences in the cost basis for Federal income tax
purposes and in the estimated useful lives used to compute depreciation. The
cost basis of the shopping center properties for Federal income tax purposes
was $495,688,000 as of December 31, 1997.

2. INDEBTEDNESS:
At December 31, 1997 and 1996, the Company had mortgages and notes payable
outstanding of $255,124,000 and $212,590,000, respectively.

In June 1996, the Company completed a refinancing of substantially all of its
variable rate debt and a portion of its fixed rate debt with a new fixed rate
secured financing. The Company entered into a seven year, secured, fixed
rate real estate mortgage loan in the principal amount of $181,700,000 (the
"Mortgage Loan"), at a weighted average interest rate of 7.96%, which is
inclusive of trustee and servicer fees. The Mortgage Loan is secured by
twenty-seven shopping center properties (the "Mortgaged Properties"). The net
proceeds of the refinancing transaction of $177,662,000, after net costs of
$4,038,000, were used to retire the short-term funds borrowed to repurchase
the $100 million adjustable rate mortgage loan (the "$100 million REMIC")
issued in conjunction with the Company's initial public offering in November
1992 and to pay off the $60 million of additional adjustable rate debt. The
entire outstanding principal balance of the Mortgage Loan is due in June 2003.
The Company recorded an extraordinary loss on refinancing of $11,052,000
including the write-off of approximately $8,844,000 of unamortized deferred
finance costs related to the debt instruments repaid, as well as other costs
including prepayment fees, premiums paid on repurchase of the $100 million
REMIC certificates and professional fees. In connection with the repayment of
the $100 million REMIC, the Company sold its interest rate protection
agreements. The proceeds received on the sale of the agreements of
approximately $3,935,000 reduced the extraordinary loss on debt refinancing.
Interest expense for the years ended December 31, 1997, 1996 and 1995 on the
accompanying statements of operations is shown net of reimbursements of $0,
$275,000 and $1,310,000, respectively, relating to the interest rate
protection agreements and capitalized interest of $947,000, $252,000 and
$320,000, respectively.

As a condition of the Mortgage Loan, the Company was required to establish a
Sinking Fund Account and a Capital and TI Reserve Account. The balance in
the Sinking Fund Account as of December 31, 1997 and 1996 was $204,000 and
$66,000, respectively. All funds in the Capital and TI Reserve Account may be
used by the Company to fund capital improvements, repairs, alterations, tenant
improvements and leasing commissions at the Mortgaged Properties. The balance
in the Capital and TI Reserve Account was $182,000 and $263,000 as of
December 31, 1997 and 1996, respectively.

In addition, the Company has ten mortgages outstanding as of December 31, 1997
which were assumed in connection with the acquisition of certain shopping
centers. These mortgages have maturity dates ranging from 1999 through 2009.
Eight of the ten mortgages assumed have fixed interest rates ranging from
7.50% to 10.50%. The outstanding principal balance on these mortgages at
December 31, 1997 was approximately $51,092,000. The other two mortgages
have interest rates payable at a rate adjusted each year to equal the sum of
Moody's A Corporate Bond Index Daily Rate minus 0.125% per annum. The
outstanding principal balance on these mortgages at December 31, 1997 was
approximately $7,332,000.

In February 1997, the Company obtained a secured line of credit with Salomon
Brothers Realty Corp. for up to $50 million (the "Salomon Facility"). The
Salomon Facility has a term of two years, with a one year extension option,
and an interest rate of the 30-day London Interbank Offering Rate plus 175
basis points, which was 7.44% as of December 31, 1997. The weighted average
interest rate on the Salomon Facility was 7.39% for the year ending December
31, 1997. The Salomon Facility is secured by fourteen of the Company's
properties. There was $14 million outstanding under this facility as of
December 31, 1997.

The Company has a $3.0 million secured line of credit from Bank Leumi Trust
Company of New York that matures on June 30, 1998. Amounts borrowed under the
line will bear interest at 50 basis points above that bank's reference rate
which was 8.5% at December 31, 1997. The weighted average interest rate on the
Bank Leumi facility was 9.0% for the year ending December 31, 1997. There was
$1,000,000 outstanding under this facility as of December 31, 1997 and no
outstanding borrowings as of December 31, 1996.

The Company has a $1.0 million unsecured line of credit from Corestates Bank,
N.A. Amounts borrowed under the line will bear interest at that bank's prime
rate. The weighted average interest rate on the Corestates facility was 8.5%
for the year ending December 31, 1997. There were no outstanding borrowings
under this facility as of December 31, 1997 and 1996. The facility was
extended through December 31, 1998.

Aggregate principal payments on all outstanding indebtedness are due, as
follows:

1998 $ 2,114,000
1999 21,637,000
2000 7,440,000
2001 1,231,000
2002 3,600,000
Thereafter 219,102,000
------------
$255,124,000
------------

The carrying values of the long-term debt at December 31, 1997 and 1996 were
approximately equal to their respective fair values, as determined by using
year-end interest rates and market conditions.

3. RISKS AND UNCERTAINTIES:
The retailing industry has had numerous entities file for bankruptcy
protection. The Company has been affected by the bankruptcy filing of four
anchor tenants, Bradlees, Caldor, Jamesway and Rickels and several smaller
tenants at various properties in the portfolio.

The Company monitors each situation closely and believes that it maintains
adequate reserves against the risk of uncollectable amounts associated with
pre-petition rent, straight-line rental income and expense reimbursements for
certain of these tenants. The Company's releasing assumptions provide for
the related capital costs of retenanting including capital improvements,
tenant allowances and leasing commissions. Bradlees and Caldor each operate
three stores representing approximately $2.2 and $2.5 million, respectively,
of the Company's annual revenues. Bradlees has informed the Company that it
intends to close its stores in Groton, Connecticut and Whitehall, Pennsylvania
and to seek potential assignees for the stores. In the event that Bradlees is
unable to obtain assignees for these stores on terms that are beneficial to
Bradlees, they have informed the Company that they intend to disaffirm the
leases. In the event that Bradlees disaffirms these leases, The Stop & Shop
Companies, Inc. shall remain primarily liable for all payments and other
obligations set forth in the leases. Caldor has not taken any action to
reject the leases and continues to pay current rent and operate their stores
located in the Company's centers. Effective November 1996, the Company
entered into an agreement to reduce common area maintenance and real estate
tax reimbursements at one of the Caldor locations by approximately $230,000
per year for a five year period. Effective February 1996, Jamesway
disaffirmed their leases at the two locations for approximately 60,000 and
76,000 square feet, respectively, and the average rent paid by Jamesway for
these locations was approximately $2.60 per square foot. The Company has
leased both of the locations to Ames Department store. One of the leases
commenced in April of 1997 and the projected commencement date of the other
lease is April 1998. As of November 1996, Rickels disaffirmed their lease
at Hillcrest Mall and affirmed their lease at the Mall at Cross County. The
Rickels at Hillcrest Mall was approximately 50,000 square feet and the minimum
annual rent paid was $4.50 per square foot. The Company believes that in the
event certain leases are disaffirmed by the anchor tenants, the existing lease
terms are at or below market rental rates and could be relet.

4. OPERATING LEASES:
The Company's shopping centers are leased to tenants under operating leases
with expiration dates extending to the year 2022. Future minimum rentals
under noncancellable operating leases, excluding tenant reimbursements of
operating expenses and additional contingent rentals based on tenants' sales
volume as of December 31, 1997 are as follows:

1998 $50,903,000
1999 $47,519,000
2000 $43,448,000
2001 $40,344,000
2002 $35,463,000
Thereafter $208,210,000

The revenue resulting from straight-line rental income adjustments for the
years ended December 31, 1997, 1996 and 1995 was $946,000, $1,149,000 and
$1,214,000, respectively. No tenant represented more than 10% of the minimum
rental revenues for 1997, 1996 or 1995.

5. PREFERRED SHARES OF BENEFICIAL INTEREST:
In connection with the purchase of five shopping centers in April 1995, the
Company issued 11,155 shares of non-voting Series A-1 Increasing Rate
Cumulative Convertible Preferred Shares of Beneficial Interest, $0.01 par
value per share, of Kranzco Realty Trust (the "Series A-1 Preferred Shares")
at a face amount of $11,155,000. The Preferred Shares were valued for
accounting purposes based on the fair value of the assets acquired and
recorded at approximately $7,976,000, net of issuance costs. The Preferred
Shares have an initial distribution rate of 5.0% per annum with increases of
0.25% per annum up to a maximum rate of 6.5% per annum. As of December 31,
1997, the distribution rate on the Preferred Shares is 5.50%. The Company
recorded a discount of approximately $467,000 at the time of issuance which
represents the present value of the difference between the total distributions
to be paid in the seven year period prior to commencement of the perpetual
distribution and the perpetual distribution amount for that same seven year
period. This amount is accreted on an effective interest method over the
seven years through a charge to cumulative net income available for common
shareholders. The Preferred Shares are redeemable by the Company at any time
at their liquidation preference and are convertible into the Company's Common
Shares of Beneficial Interest (the "Common Shares"), at a rate of 16.67%
annually commencing in the fifth year, with a maximum of 50% convertible in
any one year. The Preferred Shares are convertible into that number of Common
Shares as would result in the holder receiving the same amount of
distributions from the Common Shares at the applicable conversion dates as
they received as a holder of the Preferred Shares, up to a maximum of the
greater of 500,000 Common Shares or 5% of the then outstanding Common Shares.

In connection with the UPI acquisition, the Company issued 1,183,331 shares of
Series B-1 and Series B-2 Cumulative Convertible Preferred Shares of
Beneficial Interest (the "Series B Preferred Shares"), par value $0.01 per
share, each with a $25.00 per share liquidation preference. These shares were
recorded, net of issuance costs, at approximately $29,366,000. The Series B
Preferred Shares have a distribution rate of 9.75% per annum and distributions
are paid quarterly in arrears for each calendar quarter on January 20, April
20, July 20 and October 20 of each year. The Series B-1 Preferred Shares are
convertible into Common Shares after February 1998 with the following
conversion prices: $19.175 in the first year, $18.69 in the second year,
$18.20 in the third year, $17.71 in the fourth year and thereafter. The
Series B-2 Preferred Shares automatically convert into Series B-1 Preferred
Shares after the third anniversary date and follow the conversion rates of the
Series B-1 Preferred Shares thereafter. The Company also issued 356,400
shares of Series C Cumulative Redeemable Preferred Shares of Beneficial
Interest (the "Series C Preferred Shares"), par value $0.01 per share, each
with a $10.00 liquidation preference. These shares were recorded, net of
issuance costs, at approximately $3,560,000. The Series C Preferred Shares
have a distribution rate of 8% per annum and distributions are payable
quarterly on the last day of January, April, July and October of each year
with respect to the immediately preceding calendar quarter. The Company was
required to redeem, commencing April 1997, in eight equal quarterly
installments all of the outstanding Series C Preferred Shares at a redemption
price equal to the $10.00 liquidation price plus an amount equal to the
accrued and unpaid distributions, if any, allocable to the Series C Preferred
Shares.

In December 1997, the Company issued 1,800,000 shares of 9 1/2% Series D
Cumulative Redeemable Preferred Shares of Beneficial Interest (the "Series D
Preferred Shares"), par value $0.01 per share, each with a $25.00 per share
liquidation preference. These shares were recorded, net of issuance costs, at
approximately $42,945,000. The proceeds of the issuance were used in
connection with the acquisition of four shopping centers in December
1997(approximately $15,774,000), to repay approximately $19,810,000 of
indebtedness and for general corporate purposes. In connection with the debt
repayment, the Company recorded an extraordinary loss on the early
extinguishment of debt of $467,000 including the write-off of approximately
$179,000 of unamortized deferred finance costs related to the repaid debt
instruments and prepayment fees. The distributions are paid quarterly in
arrears for each calendar quarter on January 20, April 20, July 20 and October
20 of each year. The Series D Preferred Shares are not redeemable prior to
December 11, 2002. On or after December 11, 2002, the Series D Preferred
Shares may be redeemed for cash at the option of the Company at a redemption
price of $25.00 per share, plus accrued and unpaid distributions, if any,
thereon to the redemption date.

There was no conversion of preferred shares into common shares of beneficial
interest during 1997 or 1996.

6. SHARE OPTION PLANS, INCENTIVE PLAN AND WARRANTS:
The Company has established share option plans for the employees and trustees
of the Company. The employees' plan has a maximum of 300,000 shares available
for issuance and the trustees' plan has a maximum of 700,000 shares available
for issuance. The options are exercisable at a price not less than fair
market value at the date of grant and expire ten years after the date of
grant.

On June 6, 1995 the shareholders approved the Company's 1995 Incentive Plan.
The purpose of the Incentive Plan is to align the interests of the Company's
trustees, executive officers, key employees, advisors and consultants with
those of the shareholders and to enable the Company to attract, compensate and
retain trustees, executive officers, key employees, advisors and consultants
and provide them with appropriate incentives and rewards for performance.
Awards under the Incentive Plan may take the form of share options
("Options"), including corresponding share appreciation rights ("SARs") and
reload options, and in the case of employees, restricted share awards, and
share purchase awards. Awards under the Incentive Plan may be granted in
combination with other awards. The maximum number of Common Shares that may be
the subject of awards under the Incentive Plan is 1,000,000 Common Shares.
The Incentive Plan provides that in any given year, the maximum number of
Common Shares with respect to which Options or SARs may be granted to any
employee is 100,000 Common Shares. During 1997 and 1996, 7,711 and 6,445
restricted shares, respectively, were issued to employees and officers of the
Company at the then market price of $16.25 and $14.50 per share, respectively.
The shares will vest with the employees and be recorded as compensation
expense over various periods of time. Compensation expense of $101,000 in
1997, $66,000 in 1996 and $21,000 in 1995 was recognized in connection with
these plans.

The following tables show the activity and balances for each share option plan
and the incentive plan:

<TABLE>
Trustee Plan Employee Plan
1997 1996 1995 1997 1996 1995
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 387,800 381,800 663,800 133,200 133,200 151,200
Granted at
$18.375 per share - - 3,000 - - -
$15.50 per share - 3,000 - - - -
$15.125 per share - 3,000 - - - -
$16.25 per share 43,000 - - 59,500 - -
Retired at prices ranging
from $16.25 to $20.00 per share - - (285,000) (1,150) - (18,000)
------- ------- ------- ------- ------- -------
Outstanding, end of year 430,800 387,800 381,800 191,550 133,200 133,200
------- ------- ------- ------- ------- -------
</TABLE>

<TABLE>
Incentive Plan
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Outstanding, beginning of year 297,000 285,000 0
Granted at
$20.00 per share - - 282,000
$17.125 per share - - 3,000
$15.25 per share - 12,000 -
$16.25 per share 4,500 - -
$16.00 per share 1,500 - -
------- ------- -------
Outstanding, end of year 303,000 297,000 285,000
------- ------- -------
</TABLE>

In connection with the acquisition of certain unaffiliated shopping center
properties, the Company issued 191,429 warrants in November 1992 to purchase
common shares of beneficial interest. These warrants were exercisable within
five years after issuance at $26 per share. No such warrants were exercised
and the warrants expired in November 1997.

During 1996, the Company adopted a new stock-based compensation accounting
standard, "Accounting for Stock-Based Compensation"("SFAS No. 123"). SFAS No.
123 encourages a fair value method of accounting for employee stock options
and similar equity instruments. The statement also allows an entity to
continue to account for stock-based compensation using the intrinsic value
based method in APB Opinion No. 25. As provided for in the statement, the
Company elected to continue the intrinsic value methodof expense recognition.
If compensation cost for these plans had been determined using the fair value
method prescribed by SFAS No. 123, the Company's net income (loss) would have
reflected the pro forma amounts indicated below.

1997 1996 1995
---- ---- ----
Net income (loss) for common
shareholders $6,935,000 ($3,295,000) $8,990,000
Earnings (loss) per common share $0.67 ($0.32) $0.87

The pro forma effect on results may not be representative of the impact in
future years because the fair value method was not applied to options granted
before 1995.

The fair value of each option was estimated on the grant date using the
Black-Scholes option pricing model and assumptions including the following
weighted-average information presented below.

1997 1996 1995
---- ---- ----
Expected life in years 2.99 2.33 2.75
Risk-free interest rate 6.20% 5.28% 5.68%
Volatility 19.65% 22.07% 22.07%
Dividend yield 9.01% 9.34% 9.34%

The weighted average fair value of options granted was $1.08 per option in
1997, $1.13 per option in 1996 and $1.41 per option in 1995.

7. COMMITMENTS AND CONTINGENCIES:
The Company rents office space in Conshohocken, Pennsylvania, under the terms
of a net lease from two officers of the Company. The minimum annual rental
under the lease is $154,000 and the lease expires January 15, 1999. During
1997, 1996 and 1995, the Company paid $154,000 in annual rent, respectively.

8. 401 (k) PLAN:
During 1993, the Company adopted a 401(k) Plan covering substantially all of
the officers and employees of the Company and subsidiaries which permits
participants to defer up to a maximum of 10% of their compensation. The
Company, at its discretion, may match up to 50% of the initial five percent of
the employees' contributions and may also make an additional discretionary
contribution. The employees' contributions, together with contributions from
the Company are generally fully vested and are fully funded as of December 31,
1997 and 1996. The Company's contributions to the Plan for the years ended
December 31, 1997, 1996 and 1995 were $70,000, $67,000 and $60,000,
respectively.

9. ACQUISITIONS:
The Company acquired twenty shopping centers during the year ended December
31, 1997 for approximately $104,000,000 which were accounted for by the
purchase method. The results of operations of each center were included from
the respective purchase date. The pro forma financial information presented
below may not be indicative of results that would have been reported if the
acquisitions had occurred on January 1, 1997 and 1996, respectively.
Extraordinary losses recorded in both 1997 and 1996 of $467,000 and
$11,052,000, respectively, as well as the $63,000 loss on sale of real estate
recorded in 1996, have been excluded from the pro forma presentation.

Year ended Year ended
December 31,1997 December 31,1996
(Unaudited) (Unaudited)
---------------- ----------------
Pro forma total revenues $67,067,000 $68,724,000
Pro forma net income available
for common shareholders $6,970,000 $5,502,000
Pro forma net income per common
share $0.67 $0.53

In 1995, the Company acquired five shopping centers for approximately
$49,300,000 which were accounted for by the purchase method. The results of
operations of each center were included from the respective purchase date.
The pro forma financial information presented below may not be indicative of
results that would have been reported if the acquisitions had occurred on
January 1, 1995.

Year ended December 31,1995 (Unaudited)
- --------------------------------------------
Pro forma total revenues $55,156,000
Pro forma net income available
for common shareholders $9,048,000
Pro forma net income per common
share $0.88

10. DISTRIBUTIONS ON COMMON AND PREFERRED SHARES OF BENEFICIAL INTEREST:
On December 11, 1997, the Trustees declared a cash distribution of $0.48 per
common share, payable to common shareholders of record on December 26, 1997.
The distribution of $4,999,000 was paid on January 21, 1998. The Company
declared distributions of $1.92 per common share for the year ended December
31, 1997. The Company determined that $1.07 per share of the distributions
represented ordinary income to the recipient and $0.85 per share represented a
return of capital in 1997.

In December 1996, the Trustees declared a cash distribution of $0.48 per
common share, payable to common shareholders of record on December 24, 1996.
The distribution of $4,960,000 was paid on January 20, 1997. The Company
declared distributions of $1.92 per common share for the year ended December
31, 1996. The Company determined that the entire distribution represented a
return of capital in 1996.

In December 1995, the Trustees declared a cash distribution of $0.48 per
common share, payable to common shareholders of record on December 28, 1995.
The distribution of $4,955,000 was paid on January 17, 1996. The Company
declared distributions of $1.92 per common share for the year ended December
31, 1995. The Company determined that $1.10 per share of the distributions
represented ordinary income to the recipient and $0.82 per share represented a
return of capital in 1995.

The Company accrued the quarterly distribution on the Series A-1 Preferred
Shares of $153,000, $146,000 and $139,000 as of December 31, 1997, 1996 and
1995, respectively. These distributions were paid on January 1, 1998, 1997
and 1996, respectively.

The Company accrued $571,000 of the distribution on the Series B Preferred
Shares as of December 31, 1997. The distribution was paid on January 20,
1998.

The Company accrued $45,000 of the distribution on the Series C Preferred
Shares as of December 31, 1997. The distribution was paid on January 30,
1998.

The Company accrued $242,000 of the distribution on the Series D Preferred
Shares as of December 31, 1997. The distribution was paid on January 20,
1998.

11. INTERIM RESULTS (Unaudited):
The following presents a summary of the unaudited quarterly financial
information for the years ended December 31, 1997 and 1996:

Net Income (Loss) Net Income (Loss)
For Common Per Common
Revenues Shareholders Share
----------- ----------------- -----------------
Year ended December 31, 1997
First Quarter $13,979,000 $2,001,000 $0.19
Second Quarter $15,259,000 $1,885,000 $0.18
Third Quarter $15,305,000 $1,818,000 $0.18
Fourth Quarter $15,769,000 $1,348,000 $0.13

Year ended December 31, 1996
First Quarter $14,578,000 $1,856,000 $0.18
Second Quarter $13,559,000 ($9,072,000) ($0.88)
Third Quarter $13,317,000 $1,877,000 $0.18
Fourth Quarter $13,726,000 $2,064,000 $0.20

Per share amounts are based on weighted average shares outstanding each
quarter and may not equate to the full year amounts due to increases in shares
outstanding.

<AUDIT-REPORT>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE

To the Shareholders and Trustees of
Kranzco Realty Trust:

We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of Kranzco Realty Trust and subsidiaries
included in this Form 10-K, and have issued our report thereon dated February
23, 1998. Our audit was made for the purpose of forming an opinion on those
statements taken as a whole. The financial statement schedule referred to in
Item 14 is the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commissions rules and
is not part of the basic financial statements. The financial statement
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.

ARTHUR ANDERSEN LLP

Philadelphia, Pennsylvania
February 23, 1998

</AUDIT-REPORT>

<PAGE>

<TABLE>
Kranzco Realty Trust
Real Estate and Accumulated Depreciation- December 31, 1997
Schedule III
<CAPTION>
Column A Column B Column C Column D Column E Column F Column G Column I
& H
Encumbrances
-------------------------------- Amount at
Balance Cost of Which Deprec-
at Initial Improvements Carried Date iable
Description Interest Maturity December Cost Net of December Accumulated Constructed Life
Rate Date 31, 1996 to Trust Retirements 31, 1996 Depreciation or Acquired (Yrs)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shopping Centers:
A & P Mamaroneck
Land <F1> <F1> 1,061,000 287,710 0 287,710
Buildings and improvements 1,150,837 65,731 1,216,568 200,296 11/19/92 30
Ames Center
Land <F6> <F6> 1,353,000 1,200,651 0 1,200,651
Buildings and improvements 800,434 0 800,434 22,234 02/21/97 30
Anneslie Shopping Center
Land <F1> <F1> 5,859,000 1,348,713 0 1,348,713
Buildings and improvements 5,394,854 505,643 5,900,497 885,339 06/29/93 30
Bainbridge Town Center
Land 0 2,328,145 0 2,328,145
Buildings and improvements 5,432,338 13,800 5,446,138 152,472 02/21/97 30
Bakers Square-Minnetonka
Land <F6> <F6> 0 670,656 0 670,656
Buildings and improvements 447,104 0 447,104 12,420 02/21/97 30
Bakers Square-Roseville
Land <F6> <F6> 0 847,112 0 847,112
Buildings and improvements 564,741 0 564,741 15,687 02/21/97 30
Barn Plaza Shopping Center
Land <F1> <F1> 9,164,000 1,284,790 11,423 1,296,213
Buildings and improvements 6,808,226 2,981,204 9,789,430 1,761,501 11/19/92 10-30
Barn Theater
Land <F6> <F6> 0 226,865 738,393 965,258
Buildings and improvements 584,818 61,745 646,563 51,984 09/01/94 30
Bensalem Square
Land <F1> <F1> 4,281,000 1,185,101 160,806 1,345,907
Buildings and improvements 4,532,826 37,730 4,570,556 783,523 11/19/92 30
Bethlehem Square
Land <F1> <F1> 16,249,000 4,816,318 146 4,816,464
Buildings and improvements 19,265,294 1,228,170 20,493,464 3,636,913 11/19/92 10-30
Bradford Mall
Land <F6> <F6> 0 1,518,627 107,601 1,626,228
Buildings and improvements 5,954,606 894,901 6,849,507 1,223,872 11/19/92 30
Bristol Commerce Park
Land <F1> <F1> 12,994,000 3,092,633 (15,872) 3,076,761
Buildings and improvements 13,959,722 1,452,575 15,412,297 2,584,660 11/19/92 10-30
Brookway Village
Land <F6> <F6> 1,423,000 854,647 0 854,647
Buildings and improvements 1,994,177 0 1,994,177 55,394 02/21/97 30
Builder's Square
Land 7.50% 10/01/06 2,826,000 2,476,656 0 2,476,656
Buildings and improvements 1,651,104 0 1,651,104 45,864 02/21/97 30
Campus Village
Land 8% 12/01/02 2,677,000 951,663 1,763 953,426
Buildings and improvements 3,013,600 15,197 3,028,797 272,778 04/19/95 30
Cary Plaza
Land 7.875% 02/01/09 1,460,000 945,387 0 945,387
Buildings and improvements 2,205,903 4,200 2,210,103 61,800 02/21/97 30
Collegetown Shopping Center
Land <F1> <F1> 5,487,000 1,901,831 9,704 1,911,535
Buildings and improvements 7,609,275 1,375,522 8,984,797 1,679,547 11/19/92 5-30
Coral Hills
Land 10.5% 08/01/99 6,524,000 3,086,879 6,104 3,092,983
Buildings and improvements 5,732,775 12,553 5,745,328 516,377 04/19/95 30
The Mall at Cross County
Land <F1> <F1> 20,283,000 5,330,148 0 5,330,148
Buildings and improvements 21,320,590 6,177,804 27,498,394 4,187,896 11/19/92 15-30
Culpeper
Land 0 1,172,766 199,122 1,371,888
Buildings and improvements 3,518,299 109,497 3,627,796 321,376 04/19/95 30
East Main Center
Land <F7> <F7> 2,829,000 2,133,090 7,753 2,140,843
Buildings and improvements 4,406,511 0 4,406,511 122,403 02/21/97 30
Fox Run
Land <F1> <F1> 14,069,000 7,945,202 218,403 8,163,605
Buildings and improvements 16,663,137 389,384 17,052,521 2,376,233 07/21/94 30
Franklin Center
Land <F6> <F6> 5,610,000 2,873,838 0 2,873,838
Buildings and improvements 6,705,622 0 6,705,622 186,267 02/21/97 30
Golfland
Land <F2> <F2> 1,000,000 997,368 0 997,368
Buildings and improvements 3,989,469 40,308 4,029,777 699,858 11/19/92 5-30
Groton Square
Land <F1> <F1> 2,174,000 3,490,394 0 3,490,394
Buildings and improvements 13,986,580 361,603 14,348,183 2,575,110 11/19/92 4-30
Harrodsburg Marketplace
Land <F6> <F6> 2,185,000 1,235,502 0 1,235,502
Buildings and improvements 2,882,839 2,500 2,885,339 80,093 02/21/97 30
Highridge Plaza
Land <F1> <F1> 7,242,000 1,564,430 611,382 2,175,812
Buildings and improvements 6,057,721 364,891 6,422,612 1,070,910 11/19/92 30
Hillcrest Mall
Land <F1> <F1> 5,384,000 1,415,066 0 1,415,066
Buildings and improvements 4,416,833 350,310 4,767,143 779,332 11/19/92 30
Hillcrest Plaza
Land <F1> <F1> 3,832,000 1,134,826 2,056 1,136,882
Buildings and improvements 5,957,835 56,717 6,014,552 547,473 04/19/95 30
Holcomb Bridge Center
Land 8.200% 11/01/00 6,515,000 2,483,409 0 2,483,409
Buildings and improvements 5,800,621 0 5,800,621 6,612 12/19/97 30
KR Development, LP
Land 0 0 0 0
Buildings and improvements 0 971,846 971,846 11,959 06/01/97 30
Lilac New York
Land <F6> <F6> 0 205,935 152,147 358,082
Buildings and improvements 0 2,615,762 2,615,762 7,256 11/21/97 30
Mableton Village
Land 9.220% 08/01/06 10,576,000 4,165,152 0 4,165,152
Buildings and improvements 9,724,688 0 9,724,688 11,102 12/19/97 30
Marumsco-Jefferson Plaza
Land 9.375% 07/01/04 15,801,000 5,487,073 10,785 5,497,858
Buildings and improvements 16,461,219 462,503 16,923,722 1,584,770 04/19/95 30
MacArthur Plaza
Land <F1> <F1> 2,308,000 682,696 (264) 682,432
Buildings and improvements 2,727,666 28,138 2,755,804 389,919 09/28/93 30
Magnolia
Land <F6> <F6> 1,304,000 1,747,286 0 1,747,286
Buildings and improvements 4,077,001 41,000 4,118,001 113,933 02/21/97 30
Manchester Kmart Plaza
Land <F1> <F1> 2,522,000 1,051,958 59,394 1,111,352
Buildings and improvements 3,092,778 380,532 3,473,310 398,810 05/24/94 30
Milford
Land <F1> <F1> 1,470,000 0 0 0
Buildings and improvements 2,123,804 8,813 2,132,617 363,402 11/19/92 30
Musicland
Land 0 2,787,494 0 2,787,494
Buildings and improvements 1,858,329 0 1,858,329 51,620 02/21/97 30
Newbridge
Land 0 313,978 0 313,978
Buildings and improvements 0 0 0 0 02/21/97 30
North Ridge Shopping Center
Land <F1> <F1> 2,597,000 590,343 0 590,343
Buildings and improvements 2,361,369 239,991 2,601,360 438,653 11/19/92 10-30
Northpark Center
Land 7.750% 01/01/03 4,713,000 3,738,602 0 3,738,602
Buildings and improvements 8,729,404 0 8,729,404 9,959 12/19/97 30
Orange
Land <F1> <F1> 786,000 0 0 0
Buildings and improvements 105,724 439 106,163 18,091 11/19/92 30
Park Center
Land <F8> <F8> 4,503,000 2,651,520 10,450 2,661,970
Buildings and improvements 5,478,753 28,925 5,507,678 156,625 02/21/97 30
Park Hills Plaza
Land <F1> <F1> 9,602,000 2,752,903 4,516 2,757,419
Buildings and improvements 9,976,436 1,509,731 11,486,167 1,783,834 11/19/92 30
Parkway Plaza I
Land <F6> <F6> 0 1,213,750 0 1,213,750
Buildings and improvements 4,854,998 108,929 4,963,927 859,317 11/19/92 30
Parkway Plaza II
Land 0 1,032,538 0 1,032,538
Buildings and improvements 3,930,151 20,593 3,950,744 673,055 11/19/92 30
Pilgrim Gardens
Land <F1> <F1> 4,058,000 1,056,600 0 1,056,600
Buildings and improvements 4,083,178 469,653 4,552,831 776,703 11/19/92 5-30
Port Washington
Land <F1> <F1> 446,000 50,000 0 50,000
Buildings and improvements 600,026 2,697 602,723 102,697 11/19/92 30
69th Street Drug
Emporium Plaza
Land <F1> <F1> 2,479,000 730,424 3,542 733,966
Buildings and improvements 2,921,696 33,054 2,954,750 387,770 02/15/94 30
Sinclair Paints
Land <F6> <F6> 0 484,782 0 484,782
Buildings and improvements 323,188 0 323,188 8,977 02/21/97 30
Stratford Square
Land 0 3,057,993 241,273 3,299,266
Buildings and improvements 12,231,971 77,016 12,308,987 2,099,629 11/19/92 10-30
Street Road Plaza
Land <F1> <F1> 4,127,000 1,796,172 32,963 1,829,135
Buildings and improvements 5,159,488 849,448 6,008,936 841,915 09/28/93 30
Suburban Plaza
Land <F1> <F1> 10,453,000 3,277,322 4,784 3,282,106
Buildings and improvements 13,109,289 18,736 13,128,025 1,713,749 02/15/94 30
Tower Plaza
Land 0 1,567,130 0 1,567,130
Buildings and improvements 3,662,636 0 3,662,636 4,163 12/19/97 30
Towne Square
Land 0 1,589,041 0 1,589,041
Buildings and improvements 3,707,763 26,082 3,733,845 105,474 02/21/97 30
Valley Fair
(Formerly Best Plaza)
Land <F1> <F1> 5,747,000 1,693,227 531 1,693,758
Buildings and improvements 6,772,906 2,123 6,775,029 961,599 09/28/93 30
Valley Forge Mall
Land <F6> <F6> 0 972,663 113,789 1,086,452
Buildings and improvements 4,006,745 417,400 4,424,145 697,347 11/19/92 30
Village Square
Land <F1> <F1> 1,850,000 371,566 0 371,566
Buildings and improvements 1,486,265 127,725 1,613,990 274,042 11/19/92 30
Wampanoag Plaza
Land <F6> <F6> 2,125,000 1,583,670 230 1,583,900
Buildings and improvements 8,606,897 1,442,933 10,049,830 1,895,806 11/19/92 5-30
Whitehall Square
Land <F1> <F1> 15,176,000 4,522,056 105,082 4,627,138
Buildings and improvements 18,088,227 511,846 18,600,073 3,153,087 11/19/92 30

<FN>
<F1>
Total REMIC of $181,700,000 with interest rate of 7.960% and maturity date 6/2003.
<F2>
Property secures $3,000,000 line of credit with Bank Leumi Trust Company of New York,
with an interest rate of 50 basis points above that bank's reference rate.
<F3>
The aggregate cost for Federal income tax purposes is $495,688,000.
<F4>
Reconciliation of amount shown in column E:
Balance at beginning of period, December 31, 1996 $370,491,139

Additions during period:
Land $38,574,175
Buildings and improvements 75,676,175
-----------
114,250,350
Deductions during the period
Retirements 0
Properties sold 0
-----------
0
------------
Balance December 31, 1997 $484,741,489
============

<F5>
Reconciliation of amount shown in column F:
Balance at beginning of period, December 31, 1996 $35,287,346

Additions during period:

Buildings and improvements $11,524,143
-----------
11,524,143
Deductions during the period
Retirements 0
Properties sold 0
-----------
0
------------
Balance December 31, 1997 $46,811,489
============

<F6>
Property is available as collateral on the Salomon Brothers Realty Corp.
secured line of credit of up to $50 million.
Interest rate is 1 month LIBOR plus 175 basis points. Maturity date 2/99.

<F7>
Annual rate adjusted each year to equal the sum of Moody's A Corporate Bond
Index Daily Rate minus 0.125% per annum, rounded
up to the next highest 1/8 percentage rate, but in no event shall
the rate exceed 11.5% prior to 1/1/98.
Also, no prepayment penalty from 1/1-1/16 in any year.

<F8>
Annual rate adjusted each year to equal the sum of Moody's A Corporate Bond
Index Daily Rate minus 0.125% per annum, rounded
up to the next highest 1/8 percentage rate, but in no event shall
the rate exceed 11.375% prior to 2/25/98.
Also, no prepayment penalty from 4/1-4/16 in any year.

</FN>
</TABLE>

<PAGE>

EXHIBIT INDEX

Sequentially
Exhibit Numbered
No. Description Page
- --- ----------- ------------
2.1 Agreement and Plan of Merger, dated November 12, 1996, among Kranzco
Realty Trust, KRT Union Corp. and Union Property Investors, Inc.
(Incorporated by reference to Exhibit 2.1 of the Company's Registration
Statement on Form S-4 No. 333-18249.)

2.2 Amendment No. 1 to Agreement and Plan of Merger, dated December 18, 1996.
(Incorporated by reference to Exhibit 2.2 of the Company's Registration
Statement on Form S-4 No. 333-18249.)

2.3 Amendment No. 2 to Agreement and Plan of Merger, dated February 26, 1997.
(Incorporated by reference to Exhibit 2.3 of the Company's Current Report on
Form 8-K filed March 14, 1997.)

3.1 Amended and Restated Declaration of Kranzco Realty Trust. (Incorporated
by reference to Exhibit 3.4 of the Company's Registration Statement
No.33-49434.)

3.2 Bylaws, as amended. (Incorporated by reference to Exhibit 3.2 of the
Company's Registration Statement No.33-49434.)

3.3 Amendment of Amended and Restated Declaration of Trust, dated December 31,
1995. (Incorporated by reference to Exhibit 3.3 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1996.)

3.4 Amendment No. 2 of Amended and Restated Declaration of Trust, dated June
4, 1997. (Incorporated by reference to Exhibit 4.1(c) of the Company's
Registration Statement on Form S-3 filed July 31, 1997.)

4.1 Specimen certificate for Common Shares of Beneficial Interest.
(Incorporated by reference to Exhibit 4.1 of the Company's Registration
Statement No.33-49434.)

4.3 Articles Supplementary Classifying 11,155 Shares of Beneficial Interest as
Series A-1 Increasing Rate Cumulative Convertible Preferred Shares of
Beneficial Interest. (Incorporated by reference to Exhibit 4.5 of the
Company's Registration Statement on Form S-4 No. 333-18249.)

4.4 Articles Supplementary for the Company's Series B-1 Cumulative Convertible
Preferred Shares of Beneficial Interest. (Incorporated by reference to
Exhibit 3.4 of the Company's Registration Statement on Form 8-A dated February
27, 1997.)

4.5 Articles Supplementary for the Company's Series B-2 Cumulative Convertible
Preferred Shares of Beneficial Interest. (Incorporated by reference to
Exhibit 4.2 of the Company's Registration Statement on Form S-4 No.
333-18249.)

4.8 Specimen of the Company Series D Redeemable Preferred Shares of Beneficial
Interest. (Incorporated by reference to Exhibit 4.1 of the Company's
Registration Statement on Form 8-A filed December 10, 1997.)

10.3 Kranzco Realty Trust 1995 Incentive Plan. (Incorporated by reference to
Exhibit 4.4 of the Company's Registration Statement on Form S-8 No. 33-94294.)

10.4 Loan Agreement dated as of February 26, 1997 with Salomon Brothers Realty
Corp. (Incorporated by reference to Exhibit 10.1 of the Company's Current
Report on Form 8-K filed March 14, 1997.)

10.9 Cash Collateral Account, Security, Pledge and Assignment Agreement, dated
as of June 18, 1996, among the Borrowers, State Street Bank and Trust Company,
as Agent, and KRT Origination Corp., as Lender. (Incorporated by reference to
Exhibit 10.44 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996.)

10.10 Cash Collateral Agreement, dated June 18, 1996, among the Borrowers, and
State Street Bank and Trust Company, as Agent. (Incorporated by reference to
Exhibit 10.45 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996)

10.18 Severance Benefits Agreement dated as of March 28, 1997 by and between
Kranzco Realty Trust and Norman M. Kranzdorf. (Incorporated by reference to
Exhibit 10.1 of the Company's Form 10-Q for the quarter ended June 30, 1997.)

10.19 Severance Benefits Agreement dated as of March 28, 1997 by and between
Kranzco Realty Trust and Robert H. Dennis. (Incorporated by reference to
Exhibit 10.2 of the Company's Form 10-Q for the quarter ended June 30, 1997.)

10.20 Severance Benefits Agreement dated as of March 28, 1997 by and between
Kranzco Realty Trust and Edmund Barrett. (Incorporated by reference to
Exhibit 10.3 of the Company's Form 10-Q for the quarter ended June 30, 1997.)

10.21 Severance Benefits Agreement dated as of March 28, 1997 by and between
Kranzco Realty Trust and Bengt Danielsson. (Incorporated by reference to
Exhibit 10.4 of the Company's Form 10-Q for the quarter ended June 30, 1997.)

10.22 Severance Benefits Agreement dated as of March 27, 1997 by and between
Kranzco Realty Trust and Michael Warrington. (Incorporated by reference to
Exhibit 10.5 of the Company's Form 10-Q for the quarter ended June 30, 1997.)

10.23 Severance Benefits Agreement dated as of March 28, 1997 by and between
Kranzco Realty Trust and Michael Kranzdorf. (Incorporated by reference to
Exhibit 10.6 of the Company's Form 10-Q for the quarter ended June 30, 1997.)

10.24 Severance Benefits Agreement dated as of March 28, 1997 by and between
Kranzco Realty Trust and Peter J. Linneman. (Incorporated by reference to
Exhibit 10.7 of the Company's Form 10-Q for the quarter ended June 30, 1997.)

10.25 Severance Benefits Agreement dated as of March 28, 1997 by and between
Kranzco Realty Trust and James B. Selonick. (Incorporated by reference to
Exhibit 10.8 of the Company's Form 10-Q for the quarter ended June 30, 1997.)

10.26 Severance Benefits Agreement dated as of March 28, 1997 by and between
Kranzco Realty Trust and E. Donald Shapiro. (Incorporated by reference to
Exhibit 10.9 of the Company's Form 10-Q for the quarter ended June 30, 1997.)

10.31 Deed to Secure Debt, Assignment of Leases, Rents and Contracts, Security
Agreement and Fixture Filing ("Deed to Secure Debt") from Holcomb to Allstate,
dated as of October 5, 1990 (relating to Holcomb Bridge Crossing).
(Incorporated by reference to Exhibit 2.5 to the Company's Current Report on
Form 8-K dated November 25, 1997.)

10.37 Deed to Secure Debt and Security Agreement, dated as of July 31, 1996,
between Mableton Village and Lehman (relating to The Village at Mableton).
(Incorporated by reference to Exhibit 2.11 to the Company's Current Report on
Form 8-K dated November 25, 1997.)

21.1 Subsidiaries of Kranzco Realty Trust.

23.1 Consent of Arthur Andersen LLP.

EXHIBIT 21.1

KRANZCO REALTY TRUST
SUBSIDIARIES OF THE REGISTRANT AS OF DECEMBER 31, 1997

Kranzco Realty Trust is the sole shareholder of the following entities:

SUBSIDIARY OWNERSHIP
- ---------- ---------
KRT Property Holdings, Inc. Maryland
Parkway Plaza II Corp. Maryland
KR Trust One, Inc. Maryland
Lilac Connecticut Corp. Connecticut
Lilac New York Corp. New York
KRT Union Corp. Delaware
KR Hillcrest Mall, Inc. New Jersey
KR Collegetown, Inc. New Jersey
KR Orange, Inc. Connecticut
KR Brookhaven, Inc. Mississippi
KR Harrodsburg, Inc. Kentucky
KR Minnetonka, Inc. Minnesota
Kranzco Raynham, Inc. Massachusetts
KR Roseville, Inc. Minnesota
KR Tucson, Inc. Arizona
KR Bainbridge, Inc. Georgia
KR Cary, Inc. North Carolina
KR Morganton, Inc. North Carolina
KR Columbia, Inc. South Carolina
KR Columbus, Inc. Mississippi
KR Flint, Inc. Michigan
KR Livonia, Inc. Michigan
KR Richmond, Inc. Virginia
KR Spartanburg, Inc. South Carolina
KR Parkway Plaza I Corp. Connecticut
KR Wampanoag, Inc. Rhode Island
KR Atlanta, Inc. Georgia
KR Holcomb, Inc. Georgia
KR Park Plaza, Inc. Georgia
KR Northpark, Inc. Georgia
KR Tower, Inc. Georgia
KR Mableton, Inc. Georgia

KR Development, Inc. 5/97 100% PA corp.
KR Development, L.P. 5/97 99% PA ltd. partnership
(KR Development, Inc. is 1% General Partner in Limited Partnership)

KR Best Associates, Inc. 9/93 100% PA corp.
KR Best Associates, L.P. 9/93 99% PA ltd. partnership
(KR Best Associates, Inc. is 1% General Partner in Limited Partnership)

KR Street, Inc. 9/93 100% PA corp.
KR Street Associates, L.P. 9/93 99% PA ltd. partnership
(KR Street, Inc. is 1% General Partner in Limited Partnership)

KR MacArthur, Inc. 9/93 100% PA corp.
KR MacArthur Associates,L.P. 9/93 99% PA ltd. partnership
(KR MacArthur, Inc. is 1% General Partner in Limited Partnership)

KR Manchester, Inc. 4/94 100% CT corp.

KR Suburban, Inc. 1/94 100% NJ corp.
KR Suburban, LP 1/94 99% NJ limited partnership
(KR Suburban, Inc. is 1% General Partner in Limited Partnership)

KR 69th Street, Inc. 1/94 100% PA corp.
KR 69th Street, LP 1/94 99% PA limited partnership
(KR 69th Street, Inc. is 1% General Partner in Limited Partnership)

KR Fox Run, Inc. 7/94 100% MD corp.
Fox Run, Limited
Partnership Acquired 7/94 99% AL limited partnership
(KR Fox Run, Inc. is 1% General Partner)

KR Marumsco, Inc. 3/95 100% MD corp.
KR Marumsco II, Inc. 4/95 100% MD corp.
(Note: KR Marumsco, Inc. owns 99% GP interest and KR Marumsco II, Inc. owns 1%
GP interest in Marumsco-Jefferson Joint Venture, a VA general partnership -
purchased by the two corps in 4/95)

KR Culpeper, Inc. 3/95 100% MD corp.
KR Culpeper II, Inc. 4/95 100% MD corp.
(Note: KR Culpeper, Inc. owns 99% GP interest and KR Culpeper II, Inc. owns 1%
GP interest in Culpeper Shopping Center Joint Venture, a MD general partnership
- purchased by the two corps in 4/95)

KR Campus, Inc. 3/95 100% MD corp.
KR Campus II, Inc. 4/95 100% MD corp.
(Note: KR Campus, Inc. owns 99% GP interest and KR Campus II, Inc. owns 1% GP
interest in Campus Village Shopping Center Joint Venture, a MD general
partnership - purchased by the two corps in 4/95)

KR Hillcrest, Inc. 3/95 100% MD corp.
Hillcrest Plaza
Limited Ptnrshp Acquired 4/95 99% LPMD limited partnership
(KR Hillcrest, Inc. is 1% general partner in Hillcrest Plaza Limited
Partnership)

KR Coral Hills, Inc. 3/95 100% MD corp.
Coral Hills Assoc.
Limited Ptnrshp Acquired 4/95 99% LPMD limited partnership
(KR Coral Hills, Inc. is 1% general partner in Coral Hills Associates Limited
Partnership)

KR Pilgrim, Inc 6/96 100% PA corp.
KR Pilgrim, LP 6/96 99% PA LP
(Note: KR Pilgrim, Inc. is 1% General Partner in limited partnership)

KR Bradford Mall, Inc. 6/96 100% PA corp.
KR Bradford Mall, LP 6/96 99% PA LP
(Note: KR Bradford, Inc. is 1% General Partner in limited partnership)

KR Valley Forge, Inc. 6/96 100% PA corp.
KR Valley Forge, LP 6/96 99% PA LP
(Note: KR Valley Froge, Inc. is 1% General Partner in limited partnership)

**KR Barn, Inc. 2/21/97 100% PA corp.
KR Barn, L.P. 2/21/97 99% PA LP
(Note: KR Barn, Inc. is 1% General Partner in limited partnership - ** NOTE
THAT THIS ENTITY OWNS ONLY THE CINEMA PORTION OF THE BARN PROPERTY)

EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation of
our reports dated February 23, 1998 included in this Form 10-K, into the
Companys previously filed: Form S-3 Registration Statements File Nos.
33-75554 and 33-72076 and Form S-8 Registration Statements File Nos. 33-56990
and 33-94294.

ARTHUR ANDERSEN LLP

Philadelphia, Pennsylvania
March 18, 1998

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0
78,079,000
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