PACIFIC GULF PROPERTIES INC, DEF 14A, 1999-04-13

PACIFIC GULF PROPERTIES INC
DEF 14A, 1999-04-13
REAL ESTATE INVESTMENT TRUSTS

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<PAGE> 1

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934

Filed by the Registrant [X]

Filed by a party other than the Registrant [ ]

Check the appropriate box:

[ ] Preliminary proxy statement

[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))

[X] Definitive proxy statement

[ ] Definitive additional materials

[ ] Soliciting material pursuant to Section 240.14a-11(c) or
Section 240-14a-12

PACIFIC GULF PROPERTIES INC.
(Name of Registrant as specified In Its Charter)

PACIFIC GULF PROPERTIES INC.
(Name of Person(s) Filing Proxy Statement)

Payment of filing fee (Check the appropriate box):

[X] No fee required.

[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:

[ ] Fee paid previously with preliminary materials.

[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.

(1) Amount previously paid.
(2) Form, schedule or registration statement no.
(3) Filing party.
(4) Date filed.

<PAGE> 2

PACIFIC GULF PROPERTIES INC.
4220 VON KARMAN, SECOND FLOOR
NEWPORT BEACH, CALIFORNIA 92660

------------------------

NOTICE OF 1999 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 13, 1999

To our shareholders:

The 1999 annual meeting of shareholders of Pacific Gulf Properties Inc.
(the "Company") will be held Thursday, May 13, 1999, at the Four Seasons Hotel,
690 Newport Center Drive, Newport Beach, California, at 10:00 a.m. (Los Angeles
time), for the following purposes:

1. To have the holders of the Company's common stock and the holders
of the Company's Class A Preferred Stock, voting together as a single
class, elect one Class I Director for a term of two years and two Class II
directors for a term of three years, in each case and until their
successors are duly elected and qualified;

2. To have the holders of the Company's Class A Preferred Stock,
voting as a separate class, elect one Class II director for a term of three
years and until his successor is duly elected and qualified; and

3. To transact such other business as properly may come before the
meeting and any adjournment thereof.

Further information regarding the business to be transacted at the meeting
is given in the accompanying Proxy Statement.

Shareholders of record at the close of business on April 1, 1999 are
entitled to notice of, and to vote at, the meeting.

Please help the Company by promptly marking, dating, signing and returning
the enclosed Proxy Card in the envelope provided for your convenience. If you
attend the meeting and decide to vote in person, you may revoke your Proxy.

By Order of the Board of Directors

DONALD G. HERRMAN
Secretary

April 13, 1999

YOUR VOTE IS IMPORTANT. PLEASE PROMPTLY MARK, DATE, SIGN AND RETURN YOUR PROXY
IN THE ENCLOSED ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING.
<PAGE> 3

PACIFIC GULF PROPERTIES INC.
4220 VON KARMAN, SECOND FLOOR
NEWPORT BEACH, CALIFORNIA 92660

------------------------

PROXY STATEMENT
FOR
1999 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 13, 1999

------------------------

GENERAL INFORMATION

The Board of Directors of Pacific Gulf Properties Inc. ("PAG" or the
"Company") is soliciting the accompanying Proxy for use at the 1999 annual
meeting of shareholders (the "Annual Meeting") to be held Thursday, May 13,
1999, at the Four Seasons Hotel, 690 Newport Center Drive, Newport Beach,
California, at 10:00 a.m. (Los Angeles time), and at any and all adjournments or
postponements thereof. Any shareholder giving a Proxy has the right to revoke it
at any time before it is voted by giving written notice to the Secretary of PAG,
by delivering to the Secretary of PAG a duly executed proxy bearing a later
date, or by attending and voting in person at the Annual Meeting. At the Annual
Meeting, the designated proxy holders will vote the shares of common stock,
$0.01 par value per share (the "Common Shares"), represented by a Proxy which is
received and not revoked. Where the shareholder specifies a choice on the Proxy
Card with respect to any matter to be acted upon, the Common Shares will be
voted in accordance with the choice specified. Where no choice is specified, the
shares represented by a signed Proxy Card will be voted in favor of the
proposals set forth in the Notice attached hereto.

Shareholders are invited to attend the Annual Meeting. Whether or not you
expect to attend, you are urged to sign, date, and promptly return the enclosed
Proxy Card in the enclosed postage prepaid envelope. If your shares are held of
record by a broker, bank or other nominee and you wish to attend and vote your
shares at the Annual Meeting you must obtain a letter from the broker, bank or
nominee confirming your beneficial ownership of the shares and a written Proxy
from the holder issued in your name, and bring it to the Annual Meeting.

This Proxy Statement and the accompanying Proxy Card are first being mailed
to shareholders on or about April 13, 1999.

The cost of soliciting proxies will be borne by PAG. In addition to
solicitation by mail, and without additional compensation for such services,
proxies may be solicited personally, or by telephone or telegraph, by officers
or employees of PAG. PAG will also request banking institutions, brokerage
firms, custodians, trustees, nominees, fiduciaries and other like parties to
forward the solicitation materials to the beneficial owners of Common Shares
held of record by such persons, and PAG will upon request of such record holders
reimburse forwarding charges and expenses.

SHARES OUTSTANDING AND VOTE REQUIRED

At the close of business on April 1, 1999, the record date for
determination of shareholders entitled to notice of, and to vote at, the Annual
Meeting, approximately 20,037,346 Common Shares of PAG were outstanding. Each
whole Common Share is entitled to one vote. In addition, the holders of the
Company's Class A Preferred Stock have the right to vote with the holders of the
Common Shares on all matters, including the election of directors, and also has
the right to elect, as a separate class, a director. At April 1, 1999, the
holders of the Class A Preferred Stock had an aggregate of 2,763,116 votes
(equal to the number of such shares outstanding). There is no right to
cumulative voting. The holders of a majority of issued and outstanding Common
Shares and shares of Class A Preferred Stock represented in person or by proxy
will constitute a quorum at the Annual Meeting.

1
<PAGE> 4

Assuming the existence of a quorum, the three nominees for election as
directors (one Class I and two Class II) who receive the highest number of votes
therefor at the Annual Meeting will be elected as directors under Proposal 1.

Assuming the existence of a quorum, the nominee for the election as a
director who receives the highest number of Class A Preferred Stock votes
therefor at the Annual Meeting will be elected as a director under Proposal 2.

Representatives of PAG's transfer agent will assist PAG in the tabulation
of the votes. Abstentions and broker non-votes are counted as Common Shares
represented at the Annual Meeting for purposes of determining a quorum. An
abstention has the effect of a vote "withheld" with respect to the election of
directors under Proposal 1. Broker non-votes are not entitled to vote because
they indicate the withholding of power to vote on a specific matter and
therefore have no effect on the outcome of a proposal.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information regarding the beneficial
ownership of the Common Shares of the Company as of December 31, 1998 by each
person known by the Company to be the beneficial owner of more than five percent
(5%) of the Company's outstanding Common Shares, each director of the Company,
the officers of the Company, and by all directors and officers as a group. To
the Company's knowledge, each person named in the table has sole voting and
investment power with respect to all shares shown as beneficially owned by such
person, and the address of each person named is the same as the Company's unless
otherwise indicated in the accompanying notes.

<TABLE>
<CAPTION>
COMMON SHARES
BENEFICIALLY OWNED
-----------------------
PERCENT OF
BENEFICIAL OWNER AMOUNT CLASS(1)
---------------- --------- ----------
<S> <C> <C>
Five Arrows Realty Securities L.L.C.(2)..................... 2,763,116(2) 12.1%(2)
Morgan Stanley, Dean Witter & Co. .......................... 1,962,800(3) 9.8%
Glenn L. Carpenter.......................................... 274,077(4) 1.4%
Donald G. Herrman........................................... 175,186(5) *
J.R. Wetzel................................................. 90,000(6) *
Lonnie P. Nadal............................................. 129,107(7) *
Robert A. Dewey............................................. 85,350(8) *
Angela M. Wixted............................................ 77,350(9) *
Kimberly G. Solbakk......................................... 72,853(10) *
Peter L. Eppinga............................................ 28,296(11) *
Christine Garvey............................................ 10,000(12) *
Carl C. Gregory, III........................................ 19,500(13) *
John F. Kooken.............................................. 24,800(14) *
Donald E. Lange............................................. 11,000(12) *
Robert E. Morgan............................................ 49,554(15) *
James E. Quigley 3rd........................................ 14,200(13) *
Keith W. Renken............................................. 23,000(11) *
All officers and directors as a group (15 persons).......... 1,084,273 5.2%
</TABLE>

- ---------------
* Less than 1%.

(1) Except as otherwise stated in the notes below, all percentages shown are
without assuming conversion of any of the Company's Convertible
Subordinated Debentures or Preferred Stock into Common Shares. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission. In computing the number of shares beneficially owned
by a person and the percentage ownership of that person, Common Shares
subject to options held by that person that are currently exercisable or
exercisable within 60 days of December 31, 1998 are treated as outstanding.
Such shares, however, are not deemed outstanding for the purposes of
computing the percentage ownership of any other person.

2
<PAGE> 5

(2) As holder of 100% of the outstanding shares of preferred, Five Arrows
Realty Securities L.L.C. ("Five Arrows") maintains the contractual right to
elect one director to the Board, and Five Arrows has previously elected Mr.
James Quigley, 3rd to such position as a Class II director. The shares of
Class A Preferred Stock held by Five Arrows are immediately convertible
into Common Shares; pursuant to the Company's Charter, Five Arrows has the
right to vote such shares at the Annual Meeting. The percent of class with
respect to Five Arrows has been calculated assuming that all of the shares
of Class A Preferred Stock were converted into Common Stock.

(3) Morgan Stanley, Dean Witter & Co.'s ("Morgan Stanley") address is 1585
Broadway, New York, New York 10036. Information regarding ownership of
common shares by Morgan Stanley is included herein in reliance upon
information set forth in an Amended Schedule 13G filed by Morgan Stanley on
February 10, 1999. Morgan Stanley has indicated in such Schedule 13G that
all shares are owned by various investment advisory clients of Morgan
Stanley and that Morgan Stanley is deemed to be the beneficial owner of
such shares pursuant to Rule 13d-3 of the Securities Exchange Act of 1934,
as amended (the "Exchange Act").

(4) Includes 218,000 shares purchasable upon exercise of options granted under
the Company's 1993 Share Option Plan, 48,956 shares of restricted stock
granted under the Company's 1993 Share Option Plan, and 4,944 shares
allocated to Mr. Carpenter in the Company's Thrift Plan. (See "EXECUTIVE
COMPENSATION -- Share Option Plan" and "Thrift Plan.")

(5) Includes 147,500 shares purchasable upon exercise of options granted under
the Company's 1993 Share Option Plan, 24,476 shares of restricted stock
granted under the Company's 1993 Share Option Plan, and 3,210 shares
allocated to Mr. Herrman in the Company's Thrift Plan. (See "EXECUTIVE
COMPENSATION -- Share Option Plan" and "Thrift Plan.")

(6) Includes 75,000 shares purchasable upon exercise of options granted under
the Company's 1993 Share Option Plan and 15,000 shares of restricted stock
granted under the Company's 1993 Share Option Plan. (See "EXECUTIVE
COMPENSATION -- Share Option Plan.")

(7) Includes 117,000 shares purchasable upon exercise of options granted under
the Company's 1993 Share Option Plan, 10,683 shares of restricted stock
granted under the Company's 1993 Share Option Plan, and 924 shares
allocated to Mr. Nadal in the Company's Thrift Plan. (See "EXECUTIVE
COMPENSATION -- Share Option Plan" and "Thrift Plan.")

(8) Includes 76,000 shares purchasable upon exercise of options granted under
the Company's 1993 Share Option Plan, 8,521 shares of restricted stock
granted under the Company's 1993 Share Option Plan, and 753 shares
allocated to Mr. Dewey in the Company's Thrift Plan. (See "EXECUTIVE
COMPENSATION -- Share Option Plan" and "Thrift Plan.")

(9) Includes 71,000 shares purchasable upon exercise of options granted under
the Company's 1993 Share Option Plan and 5,246 shares of restricted stock
granted under the Company's 1993 Share Option Plan and 161 shares allocated
to Ms. Wixted in the Company's Thrift Plan. (See "EXECUTIVE
COMPENSATION -- Share Option Plan.")

(10) Includes 70,250 shares purchasable upon exercise of options granted under
the Company's 1993 Share Option Plan and 2,000 shares of restricted stock
granted under the Company's 1993 Share Option Plan and 287 shares allocated
to Ms. Solbakk in the Company's Thrift Plan. (See "EXECUTIVE
COMPENSATION -- Share Option Plan.")

(11) Includes 15,000 shares purchasable upon exercise of options granted under
the Company's 1993 Share Option Plan. (See "EXECUTIVE COMPENSATION -- Share
Option Plan.")

(12) Includes 10,000 shares purchasable upon exercise of options granted under
the Company's 1993 Share Option Plan. (See "EXECUTIVE COMPENSATION -- Share
Option Plan.")

(13) Includes 14,000 shares purchasable upon exercise of options granted under
the Company's 1993 Share Option Plan. (See "EXECUTIVE COMPENSATION -- Share
Option Plan.")

(14) Includes 12,000 shares purchasable upon exercise of options granted under
the Company's 1993 Share Option Plan. (See "EXECUTIVE COMPENSATION -- Share
Option Plan.")

(15) Includes 10,600 shares purchasable upon exercise of options granted under
the Company's 1993 Share Option Plan. (See "EXECUTIVE COMPENSATION -- Share
Option Plan.")

3
<PAGE> 6

PROPOSAL 1

ELECTION OF ONE CLASS I DIRECTOR
AND TWO CLASS II DIRECTORS

NOMINEES

PAG's Board of Directors (the "Board") consists of nine members, divided
into three classes which are designated Class I, Class II, and Class III.

There are currently three Class I directors, one of whom, Ms. Christine
Garvey, was appointed as such in 1998 by the Board to fill a vacancy resulting
from an increase in the size of the Board by one position. While the terms of
the other Class I directors do not expire until 2001, Ms. Garvey, as an
appointee of the Board and not an electee of the stockholders, must, under the
terms of the Company's Charter, stand for election at the first annual meeting
following her appointment by the Board, regardless of the scheduled expiration
of the class in which she serves. Management proposes the election of Ms. Garvey
as a Class I director of PAG, for a term of two years (expiring with the terms
of the other Class I directors in 2001) and until the election and qualification
of her successor.

There are currently three Class II directors, one of whom, Mr. James E.
Quigley, 3rd, was previously elected as such by the holders of the Class A
Preferred Stock, and one of whom, Mr. Donald E. Lange, was appointed as such by
the Board to fill a vacancy. All of the Class II directors are standing for
re-election at the Annual Meeting, with Mr. Quigley's election to be at the
direction of the holders of the Class A Preferred Stock, voting as a separate
class, under Proposal 2 described below. Management proposes the election of
directors Carl C. Gregory, III, and Donald E. Lange as Class II directors of
PAG, for a term of three years (expiring in 2002) and until the election and
qualification of their successors.

There are currently three Class III directors. Their terms expire in 2000.

Each nominee for director listed above has consented to being named in the
Proxy Statement and to serve if elected.

Unless the proxy holder directs otherwise, the Common Shares represented by
the accompanying Proxy will be voted for the election of the three nominees
named herein. Should any of the three nominees named herein become unavailable
for election, which is not anticipated, the Common Shares represented by the
accompanying Proxy will be voted for the election of another person recommended
by PAG.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE NAMED
NOMINEES AS DIRECTORS OF PAG.

PROPOSAL 2

ELECTION OF ONE CLASS II DIRECTOR BY THE HOLDERS OF THE
CLASS A PREFERRED STOCK

As noted above, there are currently three Class II directors, all of whom
are standing for re-election at the Annual Meeting. Two of the Class II
directors, directors Carl C. Gregory, III and Donald E. Lange, are standing for
re-election by the holder of the Company's common stock and the holders of the
Company's Class A Preferred Stock, voting together as a single class, under
Proposal 1. The third Class II director, Mr. James E. Quigley, 3rd, was
previously elected as such by the holders of the Class A Preferred Stock and is
standing for re-election by such holders, voting as a separate class, under this
Proposal 2. Management proposes the election of Mr. James E. Quigley, 3rd as a
Class II director of PAG, for a term of three years (expiring in 2002) and until
the election and qualification of his successor.

Each nominee for directors listed above has consented to being named in the
Proxy Statement and to serve if elected.

4
<PAGE> 7

Unless a proxy holder directs otherwise, the shares of Class A Preferred
Stock represented by any Proxy submitted by a holder of Class A Preferred Stock
will be voted for the election of Mr. Quigley described above. Should Mr.
Quigley become unavailable for election, which is not anticipated, the shares of
Class A Preferred Stock represented by any such Proxy will be voted for the
election of another person recommended by PAG.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE NAMED
NOMINEE AS A DIRECTOR OF PAG.

The following table sets forth certain information as to the nominees, as
well as other members of the Board whose terms do not expire in 1999, including
their ages, principal business experience during the past five years, the year
they each first became a director, Board Committee membership and other
directorships currently held in companies with a class of securities registered
pursuant to Section 12 of the Exchange Act or subject to the requirements of
Section 15(d) of that Act or any company registered as an investment company
under the Investment Company Act of 1940. (An asterisk in the chart denotes
ownership of less than 1% of the outstanding Common Shares.)

NOMINEE FOR ELECTION AS DIRECTOR -- CLASS I

NOMINEES FOR ELECTION AS DIRECTOR -- CLASS II

<TABLE>
<CAPTION>
PERCENT OF
PRINCIPAL BUSINESS EXPERIENCE COMMON STOCK OUTSTANDING
DURING PAST 5 YEARS AND ALL DIRECTOR BENEFICIALLY COMMON
DIRECTOR POSITIONS WITH PAG AGE SINCE OWNED STOCK
-------- ------------------------------- --- -------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Carl C. Gregory, III Chairman and Chief Executive 54 1998 19,500 *
Officer of West Capital
Financial Services, Inc.; past
Chairman and Chief Executive
Officer of MIP Properties,
Inc., formerly a publicly-
traded real estate investment
trust; director, Apex Mortgage
Capital, Inc.
Donald E. Lange President of Mortgage Bankers 53 1998 11,000 *
Association, President and
Chief Executive Officer of
Pacific Financial Services;
past President and Chief
Executive Officer of
Weyerhaeuser Financial
</TABLE>

5
<PAGE> 8

NOMINEE FOR ELECTION BY PREFERRED STOCKHOLDERS AS DIRECTOR -- CLASS II

CONTINUING DIRECTORS WHOSE TERMS EXPIRE IN 2000 -- CLASS III

<TABLE>
<CAPTION>
PERCENT OF
PRINCIPAL BUSINESS EXPERIENCE COMMON STOCK OUTSTANDING
DURING PAST 5 YEARS AND ALL DIRECTOR BENEFICIALLY COMMON
DIRECTOR POSITIONS WITH PAG AGE SINCE OWNED STOCK
-------- ------------------------------- --- -------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Peter L. Eppinga Practicing attorney 57 1994 28,296 *
specializing in corporate
securities and real estate;
former President of Laguna
Hills Properties, 1991 to 1994;
former Senior Vice President of
Sears Savings Bank
John F. Kooken Retired; former Vice Chairman 67 1994 24,800 *
and Chief Financial Officer of
Security Pacific Corporation,
1987 to 1992; director, The
Centris Group, Glendale Federal
Bank, Southern California
Healthcare Systems, and
Huntington Memorial Hospital
Robert E. Morgan Retired; former President, 79 1993 49,554 *
Coldwell Banker First Newport
Corporation; former President,
Coldwell Banker Real Estate
Finance Services; former
director of Santa Anita Realty
Enterprises and Operating
Company, 1975 to 1995
</TABLE>

CONTINUING DIRECTORS WHOSE TERMS EXPIRE IN 2001 -- CLASS I

<TABLE>
<CAPTION>
PERCENT OF
PRINCIPAL BUSINESS EXPERIENCE COMMON STOCK OUTSTANDING
DURING PAST 5 YEARS AND ALL DIRECTOR BENEFICIALLY COMMON
DIRECTOR POSITIONS WITH PAG AGE SINCE OWNED STOCK
-------- ------------------------------- --- -------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Glenn L. Carpenter Chairman of the Board since 56 1993 274,077 1.4%
January 1, 1996, President and
Chief Executive Officer since
inception of PAG; Chief
Executive Officer, Santa Anita
Realty Enterprises, Inc.,
February 1992 to February 1994;
President of Santa Anita Realty
Enterprises, Inc., December
1989 to February 1994
Keith W. Renken Retired; formerly Managing 63 1994 23,000 *
Partner of Los Angeles office
of Deloitte & Touche; director,
Coast Federal Bank; "Executive
in Residence" teaching program
at University of Southern
California's School of
Accounting
</TABLE>

6
<PAGE> 9

INFORMATION REGARDING THE BOARD OF DIRECTORS AND COMMITTEES

The Board of Directors has created and delegated certain authority to its
Executive Committee, Audit Committee, Compensation Committee and Nominating and
Corporate Governance Committee as follows:

Executive Committee. The Executive Committee consists of Directors Gregory,
Garvey, Eppinga, Kooken, Lange, and Quigley. The Executive Committee has the
authority to perform all functions of the full Board, subject to certain
limitations prescribed by the Board and by Maryland law, including approval of
all real estate investments. The Executive Committee held seven meetings during
the year ended December 31, 1998.

Audit Committee. The Audit Committee consists of Directors Kooken, Morgan
and Renken. The Audit Committee performs numerous functions, including review of
the annual financial statements with both management and the independent
auditors. The Audit Committee also recommends the engagement of the independent
accounting firm and meets with the independent accountants regarding the scope
and conduct of the annual audit. In addition, the Committee may inquire about
and discuss policies and procedures with respect to principles of business
conduct, financial and accounting controls, compliance with the Foreign Corrupt
Practices Act of 1977, areas of special concern and other related matters. The
Audit Committee met three times during the year ended December 31, 1998.

Compensation Committee. The Compensation Committee currently consists of
Directors Eppinga, Kooken, Morgan, and Renken. The Compensation Committee
reviews the performance and effectiveness of the Chief Executive Officer and
recommends an annual compensation level for the Chief Executive Officer to the
Board of Directors. The Committee also sets the compensation level of all other
officers, approves all grants of stock options and restricted stock and
administers the Company's stock option and other employee benefit programs and
plans. The Compensation Committee met four times during the year ended December
31, 1998.

Nominating and Corporate Governance Committee. The Nominating and Corporate
Governance Committee consists of Directors Renken, Gregory, Morgan and Quigley.
The Nominating and Corporate Governance Committee reviews governance issues and
makes recommendations to the Board for committee assignments and chairmanships
of the committees. The Nominating Committee also considers candidates for
appointment to the Board and other such duties delegated to it. The Nominating
and Corporate Governance Committee met five times during the year ended December
31, 1998.

During the year ended December 31, 1998, all directors attended at least
75%, in the aggregate, of the meetings of the Board and Committees of which they
were members during the periods they were members. During the past year, the
Board of Directors met nine times.

COMPENSATION OF DIRECTORS

The Company pays its directors who are not officers of the Company fees for
their services as directors. Directors receive annual compensation of $20,000
plus a fee of $1,000 ($1,250 for the Chairman of each meeting) for attendance
(in person or by telephone) at each meeting of the Board of Directors and
committee meetings. Directors of the Company who are also employees or officers
are not paid director fees.

On each December 31, each director of the Company who is not otherwise an
employee of the Company or any of its subsidiaries or affiliates, automatically
receives an annual grant of options to purchase 5,000 shares of common stock at
an exercise price equal to 100% of the fair market value of the Common Shares on
the date of grant of such option. Upon appointment to the Board, non-employee
directors receive a grant of options to purchase 5,000 common shares at an
exercise price equal to the fair market value of the common shares on the date
of grant.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and officers, and persons who own more than ten percent (10%) of a
registered class of its equity securities, to file with the

7
<PAGE> 10

Securities and Exchange Commission and the New York Stock Exchange initial
reports of ownership and reports of changes in ownership of common stock and
other equity securities of the Company. Such officers, directors and beneficial
owners are also required by Securities and Exchange Commission rules and
regulations to furnish the Company with copies of all Section 16(a) forms they
file.

The Company is aware that the following director and officer tendered late
reports required by Section 16(a): Mr. Carl C. Gregory, III filed one delinquent
Form 4 report regarding one transaction; and Ms. Angela M. Wixted filed one
delinquent Form 4 report regarding one transaction. All delinquencies were
subsequently reported as a late Form 4 report, submitted for the months in which
the transactions occurred.

OFFICERS AND KEY EMPLOYEES

The executive officers and key employees of the Company are:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Glenn L. Carpenter................... 56 Chairman of the Board, President, Chief Executive
Officer and Director
Donald G. Herrman.................... 42 Executive Vice President, Chief Financial Officer and
Secretary
J.R. Wetzel.......................... 41 Executive Vice President of Operations
Lonnie P. Nadal...................... 43 Senior Vice President of Acquisitions
Robert A. Dewey...................... 39 Senior Vice President of Industrial Operations
Kimberly G. Solbakk.................. 43 Senior Vice President of Apartment Operations
Angela M. Wixted..................... 44 Senior Vice President and Treasurer
</TABLE>

The following is a biographical summary of experience for the executive
officers, and key employees of the Company:

GLENN L. CARPENTER has been Chairman of the Board since 1996 and President,
Chief Executive Officer and a director of the Company since its formation in
1993. Mr. Carpenter served as Chief Executive Officer of Santa Anita Realty
Enterprises, Inc. ("Realty") from January 1992 until February 1994, and as
President of Realty from December 1989 until February 1994. He was Chief
Operating Officer of Realty from 1989 until 1991, and was Executive Vice
President of Realty from 1988 until 1989. From 1986 until 1988, Mr. Carpenter
served as Senior Vice President -- Operations of Realty, and has held a number
of other positions with Realty since 1979. Mr. Carpenter has been a member of
the National Association of Real Estate Investment Trusts ("NAREIT") since 1980,
has served on NAREIT's board of governors and is a member of the Urban Land
Institute.

DONALD G. HERRMAN has been Executive Vice President of the Company since
May 1995, Senior Vice President, Secretary, and Chief Financial Officer of the
Company since its formation in 1993, and served as Treasurer of the Company from
February 1994 to October 1994. Mr. Herrman served as Vice President -- Finance
and Secretary of Realty from January 1992 until February 1994, and as Realty's
Treasurer from 1989 until February 1994. From 1985 until 1990, Mr. Herrman
served as Controller of Realty. Mr. Herrman is a certified public accountant in
California.

J.R. WETZEL has served as Executive Vice President of Operations since he
joined the Company in May 1998. Prior to that time, Mr. Wetzel had served as
Vice President -- Development/Western Region for Industrial Developments
International since April 1996, and had served in various executive positions
for O'Donnell Property Services since January 1994.

LONNIE P. NADAL has been Senior Vice President of Acquisitions since 1996
and Vice President of Acquisitions since the Company's formation in 1993. Mr.
Nadal served as Vice President -- Acquisitions of Realty from January 1992 to
February 1994, and as a Director of Operations from August 1991 until February
1994. From 1983 until 1991, Mr. Nadal was a partner of Lincoln Property Company,
a development and property management company.

8
<PAGE> 11

ROBERT A. DEWEY has served as Senior Vice President of Industrial
Operations since May 1998, Vice President of Industrial Operations since January
1995, and Vice President of Operations of the Company since its formation in
1993. Mr. Dewey served as Director of Asset Management for Realty from 1992
until February 1994. From 1991 to 1992, he was oversight manager of the Newport
Beach office of the Resolution Trust Corporation. From 1988 to 1990, Mr. Dewey
was a Commercial Manager for a development company.

KIMBERLY G. SOLBAKK has served as Senior Vice President of Apartment
Operations since December 1998, and Vice President of Apartment Operations since
January 1996. Ms. Solbakk served as Director of Apartment Operations and
Regional Manager for the Pacific Northwest apartment communities owned by the
Company from August 1993 to December 1995. From 1991 to August of 1993, Ms.
Solbakk served as a district manager for Lexford Properties in Irving, Texas.

ANGELA M. WIXTED has served as Senior Vice President and Treasurer since
December 1998, and Vice President and Treasurer since March 1997. From October
1994 to March 1997, she served as Treasurer and Controller. Ms. Wixted served as
a financial consultant for various clients from 1993 to 1994. From 1992 to 1993,
Ms. Wixted was Controller for O'Donnell Property Services. From 1986 to 1992,
Ms. Wixted served as CFO/Controller of SDC Investments, Inc. Ms. Wixted is a
certified public accountant in California.

EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE

The following table sets forth the annualized base salary the Company paid
for 1998 to its Chief Executive Officer and to each of the other most highly
compensated officers and key employees of the Company whose cash compensation
exceeded $100,000 on an annualized basis during the year ending December 31,
1998.

<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
----------------------------------------------
ANNUALIZED(1) RESTRICTED
-------------------------- AWARDS/OPTIONS STOCK ALL OTHER
NAME CAPACITIES YEAR SALARY BONUS GRANTED(2) GRANTED COMPENSATION(3)
---- ---------- ---- -------- -------- -------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Glenn L. Carpenter Chairman of the Board, 1998 $330,000 $203,000 40,000 $ 70,000(4) $7,500
Chief Executive Officer 1997 330,000 95,000 100,000 -- 2,025
and President 1996 300,000 120,000 3,000 117,000 6,930
Executive Vice
Donald G. Herrman President, 1998 200,000 106,800 25,000 115,000(4) 6,057
Chief Financial Officer 1997 175,000 55,000 70,000 -- 2,025
and Secretary 1996 156,000 46,800 2,500 84,000 4,350
J.R. Wetzel(5) Executive Vice 1998 200,000 91,000 75,000 301,000(4) --
President of Operations 1997 -- -- -- -- --
1996 -- -- -- -- --
Lonnie P. Nadal Senior Vice President 1998 188,800 97,320 15,000 15,000(4) 7,500
of Acquisitions 1997 160,000 49,000 65,000 -- 1,825
1996 135,200 42,000 2,000 67,000 4,056
Robert A. Dewey Vice President of 1998 150,000 74,300 15,000 15,000(4) 6,750
Industrial Operations 1997 125,000 22,500 45,000 42,250 1,544
1996 114,500 33,000 1,000 33,000 3,432
</TABLE>

- ---------------
(1) The Company provides automobiles and club memberships to certain key
employees, including certain officers listed above, the value of which is
not included in the table above and which in any case did not exceed the
lesser of $50,000 or 10% of the annual salary and bonus of any individual
for the applicable year.

(2) The amount shown represents the number of shares purchasable upon exercise
of an option granted under the Company's 1993 Share Option Plan. The options
shown as granted in 1998 were granted effective as of three dates: (a) May
11, 1998 with an exercise price of $22.563 with vesting occurring in equal
installments on each of the first five anniversaries of the date of grant;
(b) December 2, 1998 with an exercise price of $19.50 and vesting in equal
installments on each of the first five anniversaries of the date of grant;
and (c) December 9, 1998 with an exercise price of $19.938 and vesting in
equal installments on each of the first five anniversaries of the date of
the grant. The options granted in 1997 were granted effective as of two
dates: (a) March 5, 1997 with an exercise price of $23.125 with vesting
occurring in

9
<PAGE> 12

equal installments on each of the first five anniversaries of the date of
the grant and (b) December 1, 1997 with an exercise price of $22.625 and
vesting in equal installments on each of the first five anniversaries of
the date of the grant. The options granted in 1996 were granted effective
July 1, 1996 with an exercise price of $16.75 and vesting occurring in
equal installments on each of the first five anniversaries of the date of
grant. For additional details regarding option grants, see "Option Grants
in Last Fiscal Year" below.

(3) The amounts shown are those expensed for financial reporting purposes under
the Company's Thrift Plan. See "Thrift Plan" below for a description of such
Plan.

(4) Restricted Common Stock. The following table sets forth information
regarding the restricted common stock issued during 1998 to each of the
named officers and key employees (all of which grants were made under the
Share Option Plan).

RESTRICTED COMMON STOCK GRANTS
IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
DATE NUMBER OF
SHARES SHARES
NAME GRANTED GRANTED VESTING PERIOD
---- ------- --------- --------------------------
<S> <C> <C> <C>
Glenn L. Carpenter.................. 03/98 3,068 Equally over 3 year period
Donald G. Herrman................... 03/98 658 Equally over 3 year period
Donald G. Herrman................... 12/98 5,000 Equally over 5 year period
J.R. Wetzel......................... 05/98 10,000 Equally over 5 year period
J.R. Wetzel......................... 12/98 5,000 Equally over 5 year period
Lonnie P. Nadal..................... 03/98 658 Equally over 3 year period
Robert A. Dewey..................... 03/98 658 Equally over 3 year period
</TABLE>

The shares granted in March and December 1998 were issued as
performance-based compensation. Distributions will be paid on the shares of
restricted common stock issued.

(5) J.R. Wetzel commenced employment with the Company on May 10, 1998.

SHARE OPTION PLAN

The Company adopted the 1993 Share Option Plan (the "Share Option Plan") to
provide incentives to attract and retain officers and employees. In 1998, the
Company amended the Share Option Plan to increase the number of shares for which
options may be granted from 1,050,000 shares to 2,300,000 shares. The Share
Option Plan provides for grants of options to purchase a specified number of
shares of common stock, awards of restricted common stock, and grants of stock
appreciation rights. Under the Share Option Plan the total number of Common
Shares available to be granted is 2,300,000, 300,000 shares of which have been
reserved for awards to non-employee directors. Participants in the Share Option
Plan who are officers or any other employees of the Company are selected by the
Compensation Committee. Directors of the Company are also eligible to
participate, but, in the case of directors who are not also employees, only
pursuant to automatic grants under a specified formula set forth in the Share
Option Plan. No employee may receive a grant of options for more than 100,000
shares of Common Stock in any calendar year.

10
<PAGE> 13

STOCK OPTIONS. The following table sets forth (i) all individual grants of
stock options made by the Company during 1998 to each of the named officers and
key employees (all of which grants were made under the Share Option Plan), (ii)
the ratio that the number of options granted to each individual bears to the
total number of options granted to all employees of the Company, (iii) the
exercise price and expiration date of these options, and (iv) the estimated
potential realizable values assuming either a 5% or 10% annualized rate of
appreciation from the relevant date of grant.

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
% OF TOTAL RATES OF STOCK PRICE
NUMBER OF OPTIONS APPRECIATION FOR
COMMON SHARES GRANTED TO OPTION TERM(1)
UNDERLYING EMPLOYEES IN EXERCISE EXPIRATION -----------------------
NAME OPTIONS GRANTED FISCAL YEAR PRICE ($/SH) DATE 5% 10%
---- --------------- ------------ ------------ ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Glenn L. Carpenter....... 40,000 12% $19.938 12/08/08 $502,000 $1,271,000
Donald G. Herrman........ 25,000 7% 19.500 12/01/08 307,000 777,000
J.R. Wetzel.............. 50,000(2) 22% 22.563 05/10/08 709,000 1,798,000
25,000(2) 19.500 12/01/08 307,000 777,000
Lonnie P. Nadal.......... 15,000 4% 19.500 12/01/08 184,000 466,000
Robert A. Dewey.......... 15,000 4% 19.500 12/01/08 184,000 466,000
</TABLE>

- ---------------
(1) The amounts shown in these columns are based upon assumed rates of
appreciation over the option term which are prescribed by applicable SEC
regulations. Actual gains, if any, on stock option exercises are dependent
on the future performance of the Company's common stock, overall market
conditions and the option holder's continued employment through the
applicable vesting periods.

(2) In each case, the first amount shown relates to options granted as of May
10, 1998 and the second amount shown relates to options granted as of
December 9, 1998.

AGGREGATED OPTIONS EXERCISED IN FISCAL 1998
AND FISCAL YEAR-END OPTION VALUES

The following table sets forth the total number of all outstanding
unexercised options held by the named officers and key employees as of the end
of 1998. None of the named officers exercised any options during 1998. On
December 31, 1998, the fair market value per Common Share (based on the closing
price of the Common Shares on the NYSE) was $20.0625.

<TABLE>
<CAPTION>
NUMBER OF COMMON SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT DECEMBER 31, 1998 AT DECEMBER 31, 1998(A)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Glenn L. Carpenter....................... 79,200 138,800 $152,000 $26,000
Donald G. Herrman........................ 53,000 94,500 100,000 29,000
J.R. Wetzel.............................. -- 75,000 -- 14,000
Lonnie P. Nadal.......................... 30,800 86,200 61,000 33,000
Robert A. Dewey.......................... 14,400 61,600 31,000 24,000
</TABLE>

- ---------------
(a) Market value of underlying securities at December 31, 1998, minus the
exercise price of "in-the-money" options.

DEFERRED COMPENSATION PLAN

The Company has established a deferred compensation plan (the "Deferred
Compensation Plan") pursuant to which certain highly-compensated or management
employees of the Company may elect to defer payment of a percentage of the
compensation payable to them by the Company. Pursuant to the Deferred

11
<PAGE> 14

Compensation Plan, the Company may make certain matching contributions equal to
the amounts of compensation elected to be deferred under the Deferred
Compensation Plan, and may also make other discretionary contributions. All
amounts deferred by employees and all contributions made by the Company under
the Deferred Compensation Plan are held in an investment fund. The Deferred
Compensation Plan is intended to be a nonqualified plan under the Code.

Mr. Carpenter received credit under the Deferred Compensation Plan for
years of service with Realty. The Company assumed the obligations of Realty and
Mr. Carpenter is fully vested. Annualized examples of the benefits, commencing
at age 65, are set forth below. The examples assume retirement as of December
31, 1998 after assumed years of service.

<TABLE>
<CAPTION>
YEARS OF SERVICE
---------------------------------------------------------
SALARY 5 10 15 20 25 30
- -------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
$100,000 $21,203 $17,406 $13,609 $ 9,812 $ 6,015 $ 7,218
125,000 26,416 21,582 16,748 11,914 7,080 8,496
150,000 31,630 25,759 19,888 14,017 8,146 9,775
175,000 37,465 31,179 24,893 18,608 12,322 14,787
200,000 43,715 37,429 31,143 24,858 18,572 22,287
225,000 49,965 43,679 37,393 31,108 24,822 29,787
250,000 56,215 49,929 43,643 37,358 31,072 37,287
275,000 62,465 56,179 49,893 43,608 37,322 44,787
300,000 68,715 62,429 56,143 49,858 43,572 52,287
325,000 74,965 68,679 62,393 56,108 49,822 59,787
350,000 81,215 74,929 68,643 62,358 56,072 67,287
</TABLE>

RETIREMENT INCOME PLAN

The Company has established a defined benefit retirement income plan (the
"Retirement Income Plan") that is noncontributory. Benefits are determined
regardless of position under a formula applied uniformly to all employees of the
Company (except as otherwise required under the Code's "top-heavy" rules
relating to "key" employees), and depend upon the employee's length of service,
and the employee's highest consecutive five year average earnings up to $160,000
less certain social security benefits.

Employees are eligible to participate in the plan after attaining age 21
and completing one year of service. The plan currently provides for 100% vesting
of an employee's interest after five years of service, except to the extent
faster vesting is required under the Code's "top-heavy" rules.

The following table illustrates the estimated annual retirement benefit
payable under the Retirement Income Plan at age 65, after reduction for certain
social security benefits, for participants with compensation and credited years
of service shown. The benefits shown assume retirement at age 65 as of December
31, 1998, subject to the maximum annual benefit of $130,000 shown below. This
maximum annual amount is actuarially increased to participants who retire after
age 65.

- ---------------
** As the annual compensation increases, the estimated annual retirement benefit
payable will remain constant due to the $160,000 compensation limit invoked
by the IRS.

12
<PAGE> 15

Participants will receive credit under the Retirement Income Plan for
employment by Realty. The officers and their salaries covered under these plans
and their years of service for purposes of these plans are as follows:

<TABLE>
<CAPTION>
DEFERRED
ANNUAL YEARS OF RETIREMENT COMPENSATION
NAME SALARY SERVICE(1) INCOME PLAN AGREEMENT
---- -------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Mr. Carpenter........................ $330,000 27 Yes Yes
Mr. Herrman.......................... 200,000 14 Yes No
Mr. Nadal............................ 188,800 8 Yes No
</TABLE>

- ---------------
(1) Includes years of service at Realty.

THRIFT PLAN

The Company has established a thrift plan under which employees may elect
to contribute up to 21% of their annual compensation on a combination
before-and-after tax basis, excluding bonuses. Contributions by the employee are
matched by the Company at a 75% rate with total matching contributions not
exceeding a maximum of 4 1/2% of the contributing employee's annual
compensation. Matching contributions are in the form of cash, which may be used
by the trustee to purchase common shares of the Company. Employee contributions
are invested in a fixed income fund, various growth funds, or a combination
thereof, according to the employee's choice. The Plan provides for 20% vesting
of contributions by the Company for each full year of service, increasing to
100% vesting after five years of service. (See "Compensation" above for the
amounts contributed by the Company during 1998 for the benefit of its officers.)

EMPLOYMENT AGREEMENT

Mr. Carpenter has an employment agreement with the Company that has an
initial term of five years, which commenced September 1, 1998, and is subject to
an automatic one year extension at the end of each year during the initial term
of the agreement unless terminated by the Company or Mr. Carpenter. The
agreement provides for annual base compensation, subject to any increases in
base compensation recommended by the Compensation Committee and approved by the
Board of Directors. Mr. Carpenter and the other officers of the Company will
also receive incentive compensation in accordance with criteria to be
established by the Compensation Committee and approved by the Board of
Directors, which the Company expects will be determined primarily on the basis
of Funds from Operations growth per common share and in some cases on the basis
of division or other performance goals.

Mr. Carpenter's employment agreement provides for certain severance
payments in the event of death or disability or upon termination by the Company
without good cause or termination by Mr. Carpenter with good reason. Mr.
Carpenter's employment agreement also provides for certain payments and other
benefits in the event he is terminated following a "Change of Control," which is
defined in the employment agreement to include (i) certain acquisitions by
persons not affiliated with the Company of 20% or more of the Company's
outstanding voting securities; (ii) the replacement of at least a majority of
the individuals who were members of the Company's Board of Directors on the
effective date of Mr. Carpenter's employment agreement (the "Incumbent Board");
(iii) a merger, consolidation or reorganization involving the Company, unless:
(x) the Company's stockholders as constituted immediately prior to such
transaction own at least 50% of the outstanding voting securities of the
corporation resulting from such transaction (the "Surviving Corporation") in
substantially the same proportion to their ownership of the Company's voting
securities prior to the transaction, (y) the individuals who comprised the
Incumbent Board immediately prior to the execution of the agreement relating to
such a transaction constitute at least a majority of the board of the Surviving
Corporation and (z) other than certain persons and plans affiliated with the
Company and persons who beneficially owned 15% or more of the Company's
outstanding voting securities immediately prior to such transaction, no person
owns 15% or more of the outstanding voting securities of the Surviving
Corporation; (iv) a complete liquidation or dissolution of the voting securities
of the Surviving Corporation; and (v) a sale of substantially all of the
Company's assets to any person other than a subsidiary of the Company. If

13
<PAGE> 16

Mr. Carpenter's employment were to be terminated for any reason within 36 months
following a Change of Control, Mr. Carpenter would be entitled to certain
benefits, including the immediate vesting of all stock options and other awards
issued by the Company to Mr. Carpenter and of all unvested employer
contributions in Mr. Carpenter's 401(k) account, as well as the payment of cash
of a severance payment equal to three times the sum of (i) Mr. Carpenter's base
salary then in effect and (ii) the highest annual bonus received by Mr.
Carpenter during the five fiscal years ended prior to the Change of Control.

CHANGE OF CONTROL AGREEMENTS

The Company has entered into Change of Control Agreements (the "Change of
Control Agreements") with the following executive officers: Mr. Herrman, Mr.
Wetzel, Mr. Nadal, and Mr. Dewey (each, a "Covered Executive" and, collectively,
the "Covered Executives"). The following summary of the material terms of the
Change of Control Agreements is qualified in its entirety by reference to the
full text of the Form of Change of Control Agreement, a copy of which has been
filed as an exhibit to the Company's Annual Report on Form 10-K filed with the
Commission on or about March 30, 1998.

The Change of Control Agreements were effective as of March 16, 1998 and
expire on December 31, 2000, subject to automatic one-year extensions unless
terminated by either the Company or a Covered Executive; provided, however, that
the Change of Control Agreements may not expire prior to the expiration of 24
months after the occurrence of a "Change of Control." A Change of Control, for
purposes of the Change of Control Agreements, includes (i) certain acquisitions
by persons not affiliated with the Company of 20% or more of the Company's
outstanding voting securities; (ii) the replacement of at least a majority of
the individuals who were members of the Company's Board on the effective date of
the Change of Control Agreements (the "Incumbent Board"); (iii) a merger,
consolidation or reorganization involving the Company, unless: (x) the Company's
stockholders as constituted immediately prior to such transaction own at least
50% of the outstanding voting securities of the corporation resulting from such
transaction (the "Surviving Corporation") in substantially the same proportion
to their ownership of the Company's voting securities prior to the transaction,
(y) the individuals who comprised the Incumbent Board immediately prior to the
execution of the agreement relating to such a transaction constitute at least a
majority of the board of the Surviving Corporation and (z) other than certain
persons and plans affiliated with the Company and persons who beneficially owned
15% or more of the Company's outstanding voting securities immediately prior to
such transaction, no person owns 15% or more of the outstanding voting
securities of the Surviving Corporation; (iv) a complete liquidation or
dissolution of the Company; and (v) a sale of substantially all of the Company's
assets to any person other than a subsidiary of the Company.

The Change of Control Agreements provide for the payment of certain
benefits to any Covered Executive whose employment with the Company is
terminated within 24 months following a Change of Control. The Change of Control
Agreements provide that, if a Covered Executive's employment with the Company is
terminated within such period for any reason other than for "Cause,"
"Disability," death or by the Covered Executive other than for "Good Reason"
(all terms as defined in the Change of Control Agreement), the Covered Executive
shall be entitled to certain benefits, including the immediate vesting of all
stock options issued under the Company's Share Plan and the payment of a
severance payment equal to twice the sum of (i) the Covered Executive's annual
base salary and (ii) the Covered Executive's annual bonus for the fiscal year
immediately preceding the fiscal year in which the Change of Control occurred.

COMPENSATION COMMITTEE REPORT ON COMPENSATION

GENERAL

The Compensation Committee of the Board of Directors (the "Committee")
administers the company's executive compensation program. The Committee is
composed entirely of outside directors. The Compensation Committee was appointed
following the closing of the Company's initial public offering on February 18,
1994 and the appointment of the Company's independent directors. Accordingly,
the Compensation Committee did not participate in the determination of
compensation for the Company's officers

14
<PAGE> 17

and managerial employees at the outset, or in the negotiation of the employment
contracts with any of the Company's officers or in the award of stock options to
any such persons in connection with the Company's initial public offering.

The objective of the Company's executive compensation program is to develop
and maintain reward programs which contribute to the enhancement of shareholder
value, while attracting, motivating and retaining key personnel who are
essential to the long-term success of the Company. As discussed in detail below,
the Company's executive compensation program consists of both fixed (base
salary) and variable (incentive) compensation elements. Variable compensation
consists of annual cash incentives, restricted share grants and stock option
grants, and may be in the form of short term and long term arrangements. These
elements are designed to operate on an integrated basis and together comprise
total compensation value.

The Compensation Committee believes that competitive base salaries are
necessary to retain and attract talented officers and managerial employees.
Subject to minimal levels specified in employment contracts, the Compensation
Committee intends that the base salaries paid to officers and managerial
employees of the Company will continue to be comparable to base salaries
received by employees occupying positions of similar responsibility in
comparable companies in the same industry. To ensure comparability, the
Compensation Committee has in the past retained, and expects in the future to
retain, the services of one or more independent compensation consultants.

The Committee reviewed executive compensation in light of the Company's
performance during 1998 and compensation data relating to companies that were
considered comparable. In this regard, the Committee considered a variety of
factors, including the achievement of operational and financial goals during
1998.

It is the Compensation Committee's belief that none of the Company's
officers or key employees will be affected by the provisions of Section 162(m)
of the Internal Revenue Code (the "Code"), which limits the deductibility of
certain executive compensation during 1998. Therefore, the Committee has not
adopted a policy as to compliance with the requirements of Section 162(m).

BASE SALARY

Base salary levels for the Company's officers are determined through annual
employment evaluations, submitted to the Committee by the Chief Executive
Officer ("CEO"), along with comparisons of companies in the real estate
industry. Salary information about comparable companies is surveyed by reference
to public disclosures made by companies in the real estate industry. In
addition, the Committee from time to time obtains information about comparable
salary levels from an outside compensation consultant. The base salary level for
the CEO is determined by the Board of Directors based upon an annual evaluation
of the performance of the CEO and recommendation from the Compensation
Committee.

ANNUAL CASH INCENTIVES

The annual cash incentive is designed to provide a short-term (one-year)
incentive to officers and key employees based on a percentage of the
individual's base salary. Incentive awards are based on the achievement of
predetermined corporate and individual performance goals. For the CEO, the
relative weights of the corporate and individual performance measures are 100%
to the Company's goals. For the Executive Vice Presidents, the relative weights
are 90% to the Company's goals and 10% to the individual's goals; for the Senior
Vice President -- Acquisitions, the relative weights are 80% Company's goals and
20% to the individual's goals; and for the Senior Vice President -- Operations
the relative weights are 70% Company's goals and 30% to the individual's goals.
Specific individual goals for each individual are established at the beginning
of the year (by the Committee in the case of the CEO and by the CEO in all other
cases) and are tied to the functional responsibilities of each individual.
Individual goals may include objective and subjective factors, such as improving
the performance of assets managed by the individual, successful acquisitions or
sales, development of leadership skills and personal training and education. The
Company's goals are based on operating performance, as measured by a
predetermined increase in funds from operations. Other than the allocation
between individual and Company goals, no specific weights are assigned to the
individual goals. In addition, no bonus awards are made if a minimum level of
funds from operations is not met.
15
<PAGE> 18

In addition to the annual cash incentive described above, a discretionary
incentive award will be awarded if the Company exceeds its predetermined
corporate performance goal. The total incentive pool available to the officers
and key employees will be determined based on a variable percentage of the total
annual cash incentive available to the officers and key employees. The
percentage will be calculated based on the amount the Company exceeds the
predetermined corporate performance goal. The discretionary incentive award may
be awarded in cash or restricted stock or a combination of cash and restricted
stock. The discretionary incentive award is awarded at the sole and absolute
discretion of the Compensation Committee as to all officers and key employees
other than the CEO and the Board of Directors as to the CEO.

In 1998, the Company exceeded its performance objectives and the individual
officers' performance targets. Cash bonuses of $640,045 were awarded to the
officers, including the CEO, for 1998.

STOCK OPTIONS AND RESTRICTED SHARES

Stock options are designed to provide long-term (up to ten year) incentives
and rewards tied to the price of the Company's Common Shares. Given the
fluctuations of the stock market, stock price performance and financial
performance are not always consistent. The Committee believes that stock
options, which provide value to participants only when the Company's
shareholders benefit from stock price appreciation, are an important component
of the Company's annual executive compensation program. The number of options or
shares currently held by an officer is not a factor in determining individual
grants, and the Committee has not established any target level of ownership of
Company stock by the Company's officers. However, accumulation and retention of
shares of Company stock by officers is encouraged.

Stock options may be awarded annually. The Company does not adhere to
firmly established formulas for the issuance of options. During fiscal 1998,
each officer received stock option grants. The Summary Compensation Table shows
the options granted to the named officers for the past three years, including
the CEO. In determining the size of the grants to the CEO and the other named
officers, the Committee assessed relative levels of responsibility and the
long-term incentive practices of other comparable companies.

In accordance with the provisions of PAG's 1993 Share Option Plan, the
exercise price of all options granted was equal to the market value of the
underlying Common Shares on the date of grant. Accordingly, the value of these
grants to the officers was dependent solely upon the future growth and share
value of the Company's Common Shares.

The Committee also awards restricted shares as a compensation vehicle and
to retain key individuals. Currently each of the officers hold awards. The
number of restricted shares covered by each award is determined by the Committee
in its discretion and generally reflects the extent of the officer's success in
achieving the Company's goals during the preceding year and the level of the
officer's responsibility. The Summary Compensation Table shows restricted share
awards made to the named officers since 1995, including the CEO.

All awards of restricted shares provide for vesting over three years or
longer, subject to certain events of forfeiture. Since the holder of restricted
shares would generally forfeit them if he or she were to leave PAG prior to
vesting, the Committee believes these awards are a significant factor in the
retention of key employees and support a long-term view among the officers.

The foregoing report is given by the members of the Compensation Committee,
namely:

Robert E. Morgan
Peter L. Eppinga
Keith W. Renken

16
<PAGE> 19

COMPARATIVE STOCK PERFORMANCE

The line graph below compares the cumulative total shareholder return on
Common Stock of the Company since February 10, 1994, the date of PAG's initial
public offering, with the cumulative total return on the S&P 500 Index and the
NAREIT All Equity REIT Total Return Index over the same period. This comparison
assumes that the value of the investment in the Company's Common Shares and in
each index was $100 in February of 1994 and that all dividends were reinvested.

PACIFIC GULF PROPERTIES, INC.
TOTAL RETURN PERFORMANCE

<TABLE>
<CAPTION>
PACIFIC GULF PROPERTIES INC. S&P 500 NAREIT ALL EQUITY INDEX
---------------------------- ------- -----------------------
<S> <C> <C> <C>
2/09/94 100.00 100.00 100.00
12/31/94 85.87 99.67 101.58
12/31/95 105.14 137.12 117.04
12/31/96 137.66 168.47 160.69
12/31/97 180.24 224.70 194.68
12/31/98 165.02 288.91 162.32
</TABLE>

(1) Indicates appreciation of $100 invested in February 1994 in PAG Common
Shares, S&P 500 and NAREIT All Equity REIT Total Return Index assuming
reinvestment of dividends.

ANNUAL REPORT

The Annual Report of PAG for the year ended December 31, 1998, including
financial statements audited by Ernst & Young, LLP, independent auditors, and
their report thereon, is being mailed to all shareholders with this Proxy
Statement. The Annual Report does not constitute a part of the proxy
solicitation material. In addition, a copy of PAG's Annual Report on Form 10-K
for the year ended December 31, 1998, as filed with the SEC, will be sent to any
shareholder without charge upon written request to PAG, 4220 Von Karman, Second
Floor, Newport Beach, California 92660.

17
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SHAREHOLDER PROPOSALS

Any proposal by a shareholder of PAG intended to be presented at the 2000
Annual meeting of shareholders must be received by PAG at its principal
executive offices not later than December 4, 1999 for inclusion in PAG's proxy
statement and form of proxy relating to that meeting.

OTHER MATTERS

PAG is not aware of any business or matter other than those indicated above
which may properly be presented at the Annual Meeting. If, however, any other
matter properly comes before the Annual Meeting, the proxy holders will, in
their discretion, vote thereon in accordance with their best judgment.

By Order of the Board of Directors,

DONALD G. HERRMAN
Secretary

April 13, 1999

18
<PAGE> 21

PROXY PROXY

PACIFIC GULF PROPERTIES INC.

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
1999 ANNUAL MEETING OF SHAREHOLDERS -- MAY 13, 1999

Glenn L. Carpenter and Donald G. Hermann, and each of them, are hereby
appointed proxies, with full power of substitution, and are hereby authorized to
represent and vote all shares of common stock of the undersigned at the Annual
Meeting of Shareholders of Pacific Gulf Properties Inc. to be held at the Four
Seasons Hotel, Newport Beach, California, on May 13, 1999, and at any
postponements or adjournments thereof, in the manner indicated below, and in
their discretion on any other matter which may properly come before the Meeting.

This Proxy will be voted in accordance with the instructions given. In this
absence of instructions, the Proxy will be voted "FOR" Proposal No. 1 and in the
discretion of the persons hereby appointed as proxies with respect to any other
matters that may properly come before the Meeting or any postponements or
adjournments thereof.

SHAREHOLDERS ARE URGED TO COMPLETE, DATE, SIGN AND RETURN THIS PROXY
PROMPTLY IN THE ENVELOPE PROVIDED WHICH REQUIRES NO POSTAGE
IF MAILED WITHIN THE UNITED STATES

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<PAGE> 22

PACIFIC GULF PROPERTIES INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. O

The Board of Directors recommends a vote "FOR" Proposal No. 1.

1. Election of one Class I Director and election of two Class II Directors:

For Withheld For All
All All Except

O O O

_____________________________________________________________________________
(Instruction: to withhold authority to vote for any one or more nominee(s),
write the name(s) of such nominee(s) above.)

Nominees: Christine Garvey, Carl C. Gregory, III and Donald E. Lange

2. Proposal 2 omitted as it is subject to the vote of the Company's Class A
Preferred Stock.

3. In their discretion, upon such other matter or matters which may properly
come before the meeting or any postponements or adjournments thereof.

The undersigned hereby revokes any proxy heretofore
given to vote at the Annual Meeting and acknowledges
receipt of the Notice of Annual Meeting of Shareholders
and Proxy Statement dated _________________, 1999, and
the Company's 1998 Annual Report to Shareholders.

_______________________________________________________
Signature of Shareholder(s)

Dated:_________________________________________, 1999

Please sign exactly as your name or names appears
herein. A proxy executed by a corporation should be
signed in the name(s) of its authorized officer(s).
Executors, administrators and trustees should so
indicate when signing.

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