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

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

FORM 10-K

(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

COMMISSION FILE NO. 1-8815

EQK REALTY INVESTORS I
(Exact name of Registrant as specified in its Charter)

MASSACHUSETTS 23-2320360
--------------------------------- ------------------------------------

(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)

3424 PEACHTREE ROAD NE, SUITE 800, ATLANTA, GA 30326
---------------------------------------------- ----------

(Address of principal executive offices) (Zip Code)

(Registrant's telephone number, including area code) (404) 848-8600

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

TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- ----------------------------- -----------------------------------------

Shares of Beneficial Interest OTC Bulletin Board System

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

Indicate by checkmark 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 the 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. [X]

Indicate by checkmark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

The aggregate market value of Shares of Beneficial Interest held by
non-affiliates of the Registrant, based on the closing price of the Shares on
March 26, 1999 on the OTC Bulletin Board System of $0.50 per Share, is
$3,970,437. As of March 26, 1999, 9,632,212 Shares of Beneficial Interest were
outstanding. Officers and Trustees of the Trust (and certain of their family
members) and Lend Lease Portfolio Management, Inc., Advisor to the Trust, are
treated as affiliates for the purposes of this computation, with no admission
being made that such people or entities are actually affiliates.

DOCUMENTS INCORPORATED BY REFERENCE.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2

TABLE OF CONTENTS

PAGE
----

PART I
ITEM 1. Business.................................................... 1
ITEM 2. Properties.................................................. 6
ITEM 3. Legal Proceedings........................................... 10
ITEM 4. Submission of Matters to a Vote of Security Holders......... 10
ITEM 4A. Executive Officers of the Registrant........................ 10

PART II
ITEM 5. Market for the Registrant's Common Equity and Related
Stockholder Matters......................................... 12
ITEM 6. Selected Financial Data..................................... 13
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 13
ITEM 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 19
ITEM 8. Financial Statements and Supplementary Data................. 20
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 20

PART III
ITEM 10. Directors and Executive Officers of the Registrant.......... 21
ITEM 11. Executive Compensation...................................... 22
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 23
ITEM 13. Certain Relationships and Related Transactions.............. 24

PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 25

(i)
3

PART I

ITEM 1. BUSINESS.

General Development of Business

EQK Realty Investors I, a Massachusetts business trust (the "Trust"), was
formed pursuant to an Amended and Restated Declaration of Trust dated February
27, 1985, as amended on March 5, 1986 (the "Declaration of Trust"). Lend Lease
Portfolio Management, Inc. serves as the "Advisor" to the Trust. Jones Lang
LaSalle Management Services, Inc., an affiliate of LaSalle Partners
Incorporated, serves as the "Property Manager" for the Trust's sole remaining
asset, Harrisburg East Mall (the "Mall"). The Advisor is a wholly owned
subsidiary of Lend Lease Real Estate Investments, Inc. The principal executive
offices of the Trust and the Advisor is located at 3424 Peachtree Road, N.E.
Suite 800, Atlanta, Georgia 30326, and their telephone number is (404) 848-8600.

The Trust has adopted a fiscal and taxable year ending December 31. The
Trust has transacted its affairs so as to qualify as, and has elected to be
treated as, a real estate investment trust under applicable provisions of the
Internal Revenue Code. Under the Internal Revenue Code, a real estate investment
trust that meets applicable requirements is not subject to Federal income tax on
that portion of its taxable income that is distributed to its shareholders.

The Trust consummated the public offering of its Shares of Beneficial
Interest (the "Shares") on March 12, 1985. The net proceeds to the Trust from
such offering, net of underwriting discount, amounted to $170,856,000 before
deducting offering expenses of $1,062,000. Certain of those proceeds aggregating
$167,032,000 were expended to acquire certain properties on March 13, 1985
(which were comprised of the Mall as described below under "Narrative
Description of Business," as well as two properties subsequently sold: Castleton
Park or "Castleton," an office park in Indianapolis, Indiana, which was sold in
transactions in 1991 and 1995, and Peachtree Dunwoody Pavilion, or "Peachtree,"
an office complex in Atlanta, Georgia, which was sold in transactions in 1992
and 1993).

As discussed more completely below under "Harrisburg East Mall Disposition
Plan" and "Mortgage Debt", Management intends to dispose of its remaining real
estate investment, the Mall, as soon as commercially practicable. Management is
hopeful that such disposition will be completed prior to the June 15, 1999
expiration dates of its forbearance and extension arrangements with its lenders,
although no such assurances can be given at this time.

The Declaration of Trust provides for the Trust's existence and a maximum
holding period for its real estate investments of 14 years. The Declaration of
Trust further provides that this 14 year term may be extended by up to two years
upon the recommendation of the Trustees and the affirmative vote of a majority
of its shareholders. Recognizing that the disposition of the Mall would not be
completed prior to the initial maturity date of the Trust's term (March 5,
1999), the Board of Trustees recommended a two year extension of the Trust's
life (through March 5, 2001). This recommendation was approved by the
shareholders at a Special Meeting of Shareholders held on February 23, 1999.
(See Item 4, Submission of Matters to Vote of Security Holders.)

Proposed Merger with American Realty Trust

Effective December 23, 1997, the Trust entered into an Agreement and Plan
of Merger (the "Merger Agreement"), pursuant to which an affiliate of American
Realty Trust, Inc. ("ART") is to merge with and into the Trust (the "Merger"),
with the Trust being the surviving entity. The Merger contemplates, among other
things, a 20-year extension of the life of the Trust.

1
4

The Merger Agreement was amended on August 25, 1998 (the "Revised Merger
Agreement") to provide for, among other matters, the right of the Trust to sell
the Mall and distribute proceeds of such sale to the Trust's shareholders prior
to completing the Merger and a corresponding reduction in the Merger
consideration to be paid to the Trust's shareholders.

The Merger consideration will be comprised entirely of ART Series F
Cumulative Convertible Preferred Stock with a par value of $2.00 per share and a
liquidation value of $10.00 per share. ("ART Preferred Shares"). The merger will
be effected by (i) ART's acquisition of 4,376,056 shares currently held by four
EQK shareholders (the "Selling Shareholders") and (ii) ART's receipt of 673,976
shares newly issued by the Trust (which, together with shares currently
outstanding, constitutes "EQK Shares"), the combined effect of which will give
ART an approximate 49% interest in EQK. The Selling Shareholders will receive
for each EQK Share sold 0.030 of an ART Preferred Share with a corresponding
liquidation value of $0.30 per EQK Share sold. The remaining shareholders will
be entitled to retain their Shares at the time of the Merger, but will be
compensated for the dilution in their percentage ownership interest through the
receipt of 0.014 of an ART Preferred Share with a corresponding liquidation
value of $0.14 per EQK Share held. In addition, ART currently intends (but is
not legally obligated) to acquire the remaining EQK Shares from such other
shareholders at some time after the third anniversary of the consummation of the
Merger for not less than 0.0486 of an ART Preferred Share with a liquidation
value of $0.486 for each EQK Share tendered.

According to the terms of the Revised Merger Agreement, upon completion of
the sale of the Mall and receipt of shareholder approval, the Merger would be
completed. Immediately prior to the closing of the Merger, ART will convey one
of its properties to the Trust. The total consideration paid by the Trust to ART
for this property will be a $1,250,000 non-recourse five-year promissory note.
The Trust will also assume approximately $1,500,000 of existing debt.

ART has agreed to permit the Trust to continue to solicit, or respond to,
offers from third parties for the Trust. In the event the Trust accepts an offer
from a party other than ART and elects not to proceed with the Merger, the Trust
generally will be obligated to pay ART a break-up fee of $200,000 plus its share
of transaction expenses (collectively, the "Break-Up Consideration").

Because the Merger was not completed by December 15, 1998, the Revised
Merger Agreement is currently terminable by either ART or the Trust. The Revised
Merger Agreement also may be terminated by the Trust if: (i) the Trust secures a
more favorable offer from another party subject to the payment of the Break-Up
Consideration; or (ii) the Revised Merger Agreement in any way impairs or delays
the sale of the Mall, or is likely to result in a material reduction in
proceeds.

Proceeds from the sale of the Mall and, if applicable, the completion of
the Merger, will be distributed to the shareholders of the Trust in one or more
payments once the Trust's liabilities have been settled (including retirements
of its Mortgage Note and Term Loan) and related transaction costs have been
paid.

The Merger is contingent upon, among other things, ART's registration
statement relating to the ART Preferred Shares to be issued pursuant to the
Revised Merger Agreement being declared effective by the Securities Exchange
Commission, and the affirmative vote of the holders of 75% of the outstanding
Shares.

The Trust, its trustees, and its Advisor have been named as defendants in a
purported class action complaint filed in Massachusetts State court, which seeks
to enjoin the Merger. The complaint also seeks other relief including
unspecified damages. The Management of the Trust is pursuing its legal defenses
and believes that the disposition of this matter will not have a material
adverse effect on the financial position of the Trust. (See Item 3, Legal
Proceedings.)

Harrisburg East Mall Disposition Plan

2
5

available sources of financing for real estate transactions and by reduced
purchasing interest on the part of many traditional buyers, including many of
the public real estate investment trusts.

On March 5, 1999, the Trust announced that it has entered into a
non-binding letter of intent to sell the Mall to a private real estate group for
$51 million. The sale is anticipated to close during the second quarter of 1999.

Closing is subject to a number of conditions, including the satisfactory
completion of due diligence, the purchaser's obtaining financing and the
execution of a definitive purchase and sale agreement. Accordingly, there is no
assurance that a sale will be completed at the current price or at all. If the
sale is completed at this price, a distribution to shareholders of approximately
$0.37 per share is expected to be made. The distribution may be made in two or
more disbursements, and the actual distribution may be a materially different
amount. The amount may be decreased by, among other factors, a decrease in the
sale price of the Mall or an increase in transaction costs or other liabilities
beyond those currently estimated. The amount may be increased by, among other
factors, a favorable settlement of transaction costs and other liabilities
payable by the Trust. In the event the ART Merger is completed as described
above, the related Merger consideration will be in addition to the actual
distribution resulting from the Mall's disposition.

The letter of intent provides that the Trust may not solicit, negotiate or
execute other offers for the sale of the Mall prior to May 15, 1999, unless the
prospective purchaser terminates negotiations under the letter of intent prior
to that date.

The Trust understands that two of its former officers are affiliated with a
company that has entered into a relationship with the prospective buyer in
connection with this transaction.

Mortgage Debt

Since December 15, 1992, the Trust has had in place a "Mortgage Note" with
the Prudential Insurance Company of America ("Mortgage Note Lender"), which had
an initial balance of $75,689,000 and an original maturity date of December 15,
1995. The interest rates on the Mortgage Note averaged 9.79% over its initial
three-year term. However, the Mortgage Note required monthly payments of
interest only at the rate of 8.54% per annum.

The additional interest charges were accrued and added to principal over
this initial term of the Mortgage Note. Absent any prepayments of debt arising
from property dispositions, the amount of principal due on the original maturity
date of December 15, 1995 would have been $78,928,000. In December 1995, the
Trust used net proceeds from the sale of Castleton to retire a portion of the
Mortgage Note. The remaining principal balance of the Mortgage Note as of
December 15, 1995 was $44,125,000.

In connection with the December 15, 1992 debt financings, the Trust issued
1,675,000 previously repurchased Shares to its Advisor for consideration of
$6,700,000, or $4.00 per Share. The Trust may, at its discretion, reissue an
additional 423,343 Shares previously repurchased. Any issuance of Shares in
excess of the Shares previously repurchased would require shareholder approval.

Under the terms of the Mortgage Note, the Mortgage Note Lender received
warrants to purchase 367,868 Shares of the Trust for $.0001 per Share. On March
19, 1998, the Mortgage Note Lender exercised its warrants for 367,868 Shares at
$.0001 per Share. Such Shares were issued to the Mortgage Loan Lender on May 7,
1998 which brought the total number of issued and outstanding Shares of the
Trust to 9,632,212.

The Trust also has had a "Term Loan" with PNC Bank N.A. ("Term Loan
Lender") in place since December 15, 1992 bearing interest at 8.33% per annum
and requiring payments at the same annual rate of 8.54% as was required under
the Mortgage Note. The Term Loan is collateralized by a subordinate lien on the
Mall. The payments made in excess of the interest rate were applied to the
principal balance of the Term Loan such that the original principal balance of
$2,859,000 would have been reduced over its three year term to $2,839,000,
absent any prepayments arising from property dispositions. In December 1995, the
Trust used proceeds from the sale of Castleton to retire a portion of the Term
Loan. The remaining principal balance of the Term Loan as of December 15, 1995
was $1,587,000.

3
6

The Trust's Mortgage Note Lender and Term Loan Lender have agreed to extend
the maturity date of these loans twice; first, for a period of one year through
December 15, 1996, and second, for a period of 18 months through June 15, 1998.
The Mortgage Note remains collateralized by a first mortgage lien on the Mall,
an assignment of leases and rents, and certain cash balances. The Term Loan
remains collateralized by a subordinate lien on the Mall.

Following the June 15, 1998 scheduled maturity date, the Mortgage Note
Lender granted two six-month forbearance arrangements (through December 15, 1998
and then through June 15, 1999) wherein it agreed not to exercise remedies for
non-payment of the outstanding principal balance. The Term Loan Lender also has
granted two six-month extensions of its maturity dates so as to coincide with
such forbearance periods. The forbearance and extension arrangements are
conditioned upon, among other things, the Trust continuing to make timely debt
service payments in monthly amounts equal to those amounts stipulated in the
December 1996 debt extension agreements.

The Trust's expiration date of its forbearance and extension arrangements
is June 15, 1999. The Trust has entered into a non-binding letter of intent to
sell the Mall for approximately $51 million, although there is no assurance that
the sale will be completed. The Management of the Trust believes that the
proceeds from the sale of the Mall will be sufficient to allow the Trust to
repay the Mortgage Note and Term Loan, although there can be no assurance a sale
will be completed by June 15, 1999. In the event the sale of the Mall is not
completed by June 15, 1999, Management will propose to its lenders that further
forbearance and extensions be granted. However, no assurances can be given that
the lenders will grant such relief.

The Mortgage Note was amended effective December 16, 1996 to provide for
monthly payments of interest only accruing at the rate of 8.88% per annum
($324,000 per month). This interest rate reflects an increase from the 8.54%
interest rate in effect during the initial extension period (December 16, 1995
to December 15, 1996).

The Term Loan reflects the same pay rate of 8.88%, effective December 16,
1996, that is applicable to the Mortgage Note, but accrues interest at a rate
that re-sets periodically. The accrual rate is computed at the Trust's
discretion at either 2 5/8% above the Euro-Rate (as defined) or 1 1/8% above the
Prime Rate (as defined). The accrual rate in effect as of March 15, 1999 was
7.69%. The difference between the accrual rate and the pay rate is reflected in
the principal balance of the Term Loan as of December 31, 1998.

In consideration for the extension of the maturity date of the Mortgage
Note through June 15, 1998, the Trust paid an up-front application fee of
$165,000 and agreed to pay a back-end fee of $272,900, plus interest thereon at
the contract rate of 8.88% at maturity. On June 15, 1998, the Trust paid the
back-end fee plus interest in the aggregate amount of $309,200 to the Mortgage
Note Lender. In consideration for the extension of the maturity date of the Term
Loan, the Trust paid an extension fee of $23,800 in 1997 and paid additional
loan fees of $88,100 to the Term Loan Lender on June 15, 1998.

In consideration for the extension of the forbearance agreement relating to
the Mortgage Note through June 15, 1999, the Trust paid an extension fee of
$25,000. In consideration for the extension of the maturity date of the Term
Loan through June 15, 1999, the Trust agreed to pay an extension fee of $8,000.

Other Matters

Apart from its original real estate investments and subject to certain
restrictions, the Trust is permitted to make additional real estate investments
involving the expansion of existing properties. The Trust currently has no
intention of acquiring additional real estate interests, but intends to make
certain capital expenditures required to maintain or enhance the value of the
Mall, including tenant allowances associated with leasing activity.

The Declaration of Trust permits the Trust to make secured or unsecured
borrowings to make distributions to its shareholders and for normal working
capital needs, including tenant alterations and/or allowances and the repair and
maintenance of properties in which it has invested. Management currently has no
intentions to secure additional credit facilities. The Declaration of Trust
prohibits the Trust's aggregate borrowings from exceeding 75% of its total asset
value, as defined.
4
7

The Trust will not engage in any business not related to its real estate
investments and, in that connection, the Declaration of Trust imposes certain
prohibitions and investment restrictions on various investment practices or
activities of the Trust. If the Merger is completed, the Declaration of Trust
would be amended to eliminate most of the restrictions described above.

Narrative Description of Business

As stated above, the Trust has completed the disposition of two of its
three real estate investments. The office buildings comprising Peachtree were
sold in three separate transactions in 1992 and 1993. Two of the office
buildings at Castleton were sold in 1991. The remaining office buildings at
Castleton were sold in 1995. The Trust's remaining real estate investment is a
regional mall located in Harrisburg, Pennsylvania. As discussed above,
Management has been pursuing the disposition of the Mall. The Trust anticipates
making certain capital expenditures in order to maintain or enhance the value of
the Mall. The Trust anticipates making capital expenditures in 1999 of
$1,690,000, which include budgeted tenant allowances of $1,337,000. Certain of
these expenditures are discretionary in nature and, therefore, may be deferred
into future periods.

Harrisburg East Mall

Location and Area Overview. The Mall is located in Dauphin County,
Pennsylvania, near the intersection of Paxton Street (U.S. Route 322) and
Interstate 83. The property is adjacent to Pennsylvania Route 441, approximately
five miles from the Pennsylvania Turnpike and three miles from the central
business district of Harrisburg. Access to the site from Interstate 83, the
major north-south traffic corridor serving Harrisburg, is provided by the Paxton
Street interchange. Access from the Pennsylvania Turnpike, the major east-west
traffic corridor serving Harrisburg, is provided by the Interstate 283
interchange.

Tenants. At December 31, 1998, the Mall had 82 in-line mall and outparcel
tenants (excluding anchor store tenants) occupying approximately 284,000 square
feet of gross leasable area, representing an occupancy rate of approximately
84%. Other than the anchor store spaces, which are occupied by JC Penney,
Hecht's and Lord & Taylor, only Toys 'R' Us, which occupies approximately 45,950
square feet of space as the anchor tenant in the Mall's outparcel building,
occupies more than five percent of the gross leasable area of the Mall. Other
than The Limited Inc., which operates seven stores at the Mall and which
contributed 14.2% of the Mall's 1998 rental revenues, no other tenants, or group
of affiliated tenants, contribute more than 10% to the Mall's total rental
revenues.

Anchor Department Stores. The Mall has three department stores, JC Penney
and two divisions of May Department Stores Co. ("May Company"), Hecht's and Lord
& Taylor. Hecht's replaced Hess' in October 1995. Lord & Taylor opened on March
10, 1997, replacing John Wanamaker, which had closed in October 1995 following
Woodward & Lothrop's (the owner of John Wanamaker) sale of certain department
stores in its retail chain to May Company pursuant to an August 1995 bankruptcy
court auction.

Competition. The following table provides selected information with
respect to the Mall's primary competitors. Each property is located within eight
miles of the property.

GROSS LEASABLE ANCHOR
SHOPPING CENTER TYPE OF CENTER AREA (SQ. FT.) STORES
- --------------- -------------- -------------- ------

Colonial Park Mall Enclosed one-level 775,000 Sears
regional mall The Bon-Ton
Boscov's

Capital City Mall Enclosed one-level 722,000 Sears
regional mall Hecht's
JC Penney

Camp Hill Shopping Center Enclosed one-level mall 506,000 Boscov's
Montgomery Ward
Giant Grocery Store

5
8

GROSS LEASABLE ANCHOR
SHOPPING CENTER TYPE OF CENTER AREA (SQ. FT.) STORES
- --------------- -------------- -------------- ------

Union Square Power Center 309,000 Dunham's Sports
Office Max
Gabriel Bros.
Weis
Chuck E. Cheese's

Colonial Commons Power Center 433,000 Giant Grocery Store
Service Merchandise
Montgomery Ward
AMC Theater
RX Place

Point Shopping Center Power Center 277,000 U.S. Factory Outlet
Burlington Coat
Factory
Lone Star Steakhouse

Competition Analysis. The boundaries of the trade area for the Mall are
influenced by the existence of natural boundaries, competing developments, and
demographic characteristics. The Susquehanna River splits the Mall's market in
two, creating the East and West shores. The Mall is located in Dauphin County in
the East shore area. Its primary trade area consists of all of Dauphin County,
while the secondary trade area includes sections of Lebanon and Lancaster
counties on the East shore and sections of Perry and Cumberland counties on the
West shore.

Primary competition for the Mall consists of three regional centers located
in the Harrisburg trade area: Colonial Park Mall, Capital City Mall, and Camp
Hill Shopping Center.

Colonial Park Mall, which opened in 1960, is located approximately five
miles north of the Mall in the primary trade area. It contains 775,000 square
feet of gross leasable area, 90 mall stores, and is anchored by Bon-Ton, Sears,
and Boscov's. This center was renovated and expanded with a food court and some
specialty shops during 1990. In addition, new skylights and some exterior
redesign have enhanced Colonial Park's appeal. Colonial Park continues to be the
Mall's primary competitor due to the strength of Boscov's and its in-line tenant
mix, which is comparable to that found at the Mall. The occupancy percentage for
this mall is 98%.

Capital City Mall, located ten miles to the west of the Mall's secondary
trade area, contains approximately 722,000 square feet of gross leasable area
and 94 mall stores. This center opened in 1974 and is anchored by Hecht's, JC
Penney, and Sears. The center was first renovated in 1986 and a second
renovation, completed in May 1998, included new flooring, plantings, seating,
skylights, and a food court area. This center is currently 90% occupied.

Camp Hill Shopping Center, a former community center was originally
constructed in 1958 and completely enclosed and renovated in 1986. This center
is located approximately ten miles west of the Mall in the secondary trade area,
and contains approximately 506,000 square feet of gross leasable area and 90
mall stores. The center is anchored by Boscov's and Montgomery Ward. The
occupancy is currently at 85%.

ITEM 2. PROPERTIES.

Harrisburg East Mall

General. The Mall is a two-level enclosed regional shopping mall located
approximately three miles from the central business district of Harrisburg,
Pennsylvania, the state capitol. It contains approximately 836,000 gross
leasable square feet and is anchored by three major department stores: JC
Penney, Hecht's, and Lord & Taylor. The Mall is located on a site of
approximately 64 acres with paved surface parking for approximately 4,933
automobiles (5.9 spaces per 1,000 gross leasable square feet).

6
9

The total building area of the Mall is allocated as shown in the table
below.

GROSS % OF
NUMBER OF LEASABLE TOTAL
STORE SPACES AREA BUILDING OCCUPANCY AT
DECEMBER 31, 1998 (SQ. FT.) AREA DECEMBER 31, 1998
----------------- --------- -------- -----------------

Gross leasable area
Anchor Stores.............................. 3 498,948 50.8% 100.0%
Mall Stores................................ 106 284,499 29.0 83.4
Free-standing building..................... 3 52,345 5.3 87.8
--- ------- ----- -----
Total gross leasable area.................... 112 835,792 85.1 93.6%
=== ------- ----- =====
Common area.................................. 146,371 14.9
------- -----
Total building area.......................... 982,163 100.0%
======= =====

Capital Requirements

The Trust will make certain capital expenditures to maintain or enhance the
value of the Mall, including tenant allowances associated with leasing activity.
The Trust anticipates making capital expenditures in 1999 of $1,690,000, which
include budgeted tenant allowances of $1,337,000. Certain of these expenditures
are discretionary in nature and, therefore, may be deferred into future periods.

One of the conditions of the Mortgage Note was the establishment of a
capital reserve account, which is maintained by a third-party escrow agent and
from which expenditures must be approved by the Mortgage Note Lender. The
balance of this account at December 31, 1998 was $1,425,000. The Trust believes
the current cash balance in this account, coupled with additional cash flows
projected to be generated from operations, will be sufficient to fund the Mall's
capital expenditure requirements.

Occupancy Data and Average Effective Annual Rent. Information regarding
occupancy rates and average effective annual rent for the property, including
anchor and outparcel tenants, is set forth below:

1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------

Occupancy Rate(a).......... 93.6% 92.8% 93.7% 73.6% 94.3%
========== ========== ========== ========== ==========
Total Annual Minimum
Rent(b).................. $5,146,957 $5,005,603 $4,902,122 $5,110,162 $5,973,828
Total Percentage Rent...... 272,421 122,298 179,474 269,558 294,591
---------- ---------- ---------- ---------- ----------
Total Annual Effective
Rent..................... $5,419,378 $5,127,901 $5,081,596 $5,379,720 $6,268,419
========== ========== ========== ========== ==========
Average Annual Rent Per
Square Foot:(c)
Mall Anchor Tenants........ $ 1.30 $ 1.29 $ 1.37 $ 1.32(d) $ 1.67
Outparcel Stores........... 8.12 7.38 7.44 6.91 5.69
Mall Tenants............... 18.44 18.18 17.08 16.46 16.55
All Tenants................ 6.91 6.58 6.26 6.44(d) 7.49

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

(a) Occupancy rate at December 31, 1995 reflects vacancy of the former John
Wanamaker anchor space. Excluding the effect of the vacancy, the occupancy
rate on a pro forma basis at December 31, 1995 was 95.8%. On May 13, 1996,
the Trust and May Company executed a lease agreement that provided for the
opening of a Lord & Taylor department store. The December 31, 1996 occupancy
rate includes the contractual occupancy of Lord & Taylor, which opened for
business on March 10, 1997.
(b) Total minimum annual rent represents actual tenant rental income for each
calendar year, and does not include non-cash adjustments for stipulated rent
increases in accordance with Generally Accepted Accounting Principles.

7
10

(c) Anchor and outparcel rent per square foot data is based on actual leased
square footage during each calendar year presented. Mall tenant rent per
square foot data is based on leased square footage at December 31 of each
year presented.
(d) The decrease in mall anchor tenant rent per square foot in 1995 and rent per
square foot for all tenants is due to the closure of the Hess department
store in November 1994 prior to the re-opening of Hecht's in October 1995.
Hecht's now occupies 187,280 square feet (which includes expansion space in
the adjacent basement area) and pays rent of $1.07 per square foot, whereas
Hess formerly occupied 139,656 square feet at $2.18 per square foot.

Lease Expirations. The lease expiration schedule for mall and outparcel
stores as of December 31, 1998 is shown below:

PERCENTAGE
NUMBER GROSS LEASED 1998 OF 1998
OF LEASES AREA MINIMUM MINIMUM
EXPIRING(1) (SQ. FT.) ANNUAL RENT ANNUAL RENT
----------- ------------ ----------- -----------

Month to month........................... 6 11,046 200,130 3.9%
1999..................................... 4 5,637 148,558 2.9
2000..................................... 10 32,761 535,452 10.4
2001..................................... 11 25,507 522,058 10.1
2002..................................... 6 15,452 223,406 4.3
2003..................................... 14 31,143 684,433 13.3
2004..................................... 5 8,794 225,516 4.4
2005..................................... 7 59,271 637,112 12.4
2006..................................... 6 24,874 457,584 8.9
2007..................................... 4 7,361 135,008 2.6
2008 and thereafter...................... 9 61,506 650,611 12.6
-- ------- --------- ----
Total.......................... 82 283,352 4,419,868 85.9%
== ======= ========= ====

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

(1) Assumes no renewal options will be exercised in order to present the
earliest point of termination of the leases.

Anchor Tenants. The following chart presents tenants that occupy more than
10% of the property's rentable square footage, along with certain provisions
contained in their leases:

LEASED AREA RENT LEASE
TENANT (SQ. FT.) PER ANNUM EXPIRATION DATE RENEWAL OPTIONS (1)
------ ----------- --------- --------------- -------------------

Hecht's........................ 187,280 $200,000 1/31/2007 3-10 Year Options
JC Penney...................... 153,770 300,000 3/31/2001 6-5 Year Options
Lord & Taylor.................. 157,898 150,000 10/31/2005 3-10 Year Options

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

(1) Hecht's and Lord & Taylor have operating covenants that require them to
continue to remain open and operate through December 2004 and October 2005,
respectively. JC Penney's operating covenant has expired.

Debt. As discussed under Item 1 -- Business, the Mortgage Note and Term
Loan facilities provided for an original maturity of December 15, 1995. The
Trust's Mortgage Note Lender and Term Loan Lender have agreed to extend the
maturity date of these loans twice; first, for a period of one year through
December 15, 1996 and second, for a period of 18 months through June 15, 1998.
Following the June 15, 1998 scheduled maturity date, the Mortgage Note Lender
granted two six-month forbearance arrangements (through December 15, 1998 and
June 15, 1999). The Term Loan Lender has granted two extensions of its maturity
dates consistent with the forbearance periods. The following table sets forth
certain information regarding the outstanding debt. Both the Mortgage Loan and
the Term Loan may be prepaid in full without penalty.

8
11

PRINCIPAL
BALANCE
AS OF PRINCIPAL BALANCE
DECEMBER 31, ANNUAL DEBT AT
1998 SERVICE MATURITY
LOAN ANNUAL RATE (000'S) (000'S) MATURITY DATE (000'S)
---- ----------- ------------ ----------- ------------- -----------------

Mortgage................. 8.88%(1) $43,794 $3,888 6/15/99 $43,794
Term..................... 8.88%(2) 1,580 132 6/15/99 1,580

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

(1) The Mortgage Note requires monthly interest only payments of $324,000, at
8.88%.
(2) The Term Loan provides for the accrual interest rate to be re-set
periodically, and is computed at the Trust's discretion at either 2 5/8%
above the Euro-Rate (as defined) or 1 1/8% above the Prime Rate (as
defined). The accrual rate in effect as of March 15, 1999 was 7.69%. The
principal balance of the Term Loan is adjusted for the differential between
the accrual rate and the pay rate of 8.88%.

Depreciation. As of December 31, 1998, the Trust depreciated its assets
for Federal income tax purposes under the Accelerated Cost Recovery System and
the Modified Accelerated Cost Recovery System as follows:

Buildings:
Gross Federal Income Tax Basis............................ $50,527,000
Accumulated Depreciation.................................. $17,028,000
Depreciation Method....................................... Straight Line
Depreciable Life.......................................... 40 Years
Land Improvements:
Gross Federal Income Tax Basis............................ $3,020,000
Accumulated Depreciation.................................. $318,000
Depreciation Method....................................... Straight Line
Depreciable Life.......................................... 40 Years
Personal Property:
Gross Federal Income Tax Basis............................ $185,000
Accumulated Depreciation.................................. $128,000
Depreciation Method....................................... Straight Line*
Depreciable Life.......................................... 10 Years*

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

* Except for automobiles which are depreciated over a range of 3 to 7 years
using the double declining balance method.

Real Estate Taxes. Real estate taxes are levied for county and township,
and school tax purposes. County and township taxes are payable March 31 and
school taxes are payable on August 31. Harrisburg paid $1,046,000 in real estate
taxes in 1998. The millage rate for 1998 was 28.39. Through an appeal with
Dauphin County, the assessed value of the Mall was lowered in 1998. The decrease
in tax expense associated with the lower assessed value will be reflected in the
1999 real estate tax invoices. Real estate taxes are substantially reimbursed by
the tenants through real estate tax recovery billings.

Physical Improvements. Since acquiring the Mall in 1985, the Trust has
undertaken several physical improvement programs. In 1987, the Trust converted
approximately 51,400 square feet of space in the basement of the former Hess's
department store space into mall tenant space, at which time it was leased to
Toys 'R' Us. During 1988, a new food court with approximately 13,000 square feet
of gross leasable area was added. In 1991, the Trust completed the conversion of
47,960 square feet of space previously occupied by JC Penney into approximately
31,500 square feet of new leasable area leased at substantially higher rates.

In conjunction with the JC Penney conversion, the remaining area of the JC
Penney store was remodeled. In addition, the terms of the amended JC Penney
lease required the Trust to renovate the common areas and the exterior facade of
the Mall. This renovation was completed in 1993 for a cost of approximately
$4,000,000. The project included a complete refurbishment of the Mall's interior
common area, including new floors, finishes, and lighting throughout.

9
12

Upon the expansion of Hecht's into the basement space previously occupied
by Toys 'R' Us in 1995 (approximately 51,400 square feet), the Trust renovated
the Mall's out-parcel building (approximately 52,000 square feet) to accommodate
the relocation of Toys 'R' Us for a cost of approximately $3,440,000. In
addition to the expansion of the anchor tenant space, Hecht's performed an
interior renovation of its new department store space.

Lord & Taylor opened in March 1997 in the former John Wanamaker anchor
space. May Company (Lord & Taylor's parent company) completed a major renovation
of this anchor store location. The Trust believes that May Company spent
approximately $10,000,000 on renovations and improvements.

ITEM 3. LEGAL PROCEEDINGS.

On February 3, 1998, the Trust, its trustees, and its Advisor were named as
defendants in a purported class action complaint filed by a shareholder in
Massachusetts State court. The complaint seeks to enjoin the Merger and also
seeks other relief including unspecified damages. Management of the Trust is
pursuing its legal defenses and believes that the disposition of this matter
will not have a material adverse effect on the financial position of the Trust.

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

A Special Meeting of Shareholders was held on February 23, 1999 to consider
and vote upon a proposal to extend the Trust's existence for a maximum period of
two years in accordance with the Trust's Amended and Restated Declaration of
Trust. An affirmative vote of the majority of the shareholders was received in
favor of extending the Trust's existence for a period of two years beyond March
5, 1999.

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.

On August 18, 1998, certain officers of the Trust resigned from their
positions. Phillip Stephens resigned as President of the Trust, but remains a
member of the Board of Trustees. Linda Schear resigned as Secretary of the
Trust. Also on this date, Robert Welanetz was elected President of the Trust and
joined the Board of Trustees and Pamela Griffin was elected Secretary of the
Trust. Subsequently, on November 2, 1998, Gregory Greenfield resigned from his
position as Executive Vice President of the Trust. On January 15, 1999 Robert
Welanetz resigned as President of the Trust and as a member of the Board of
Trustees and William G. Brown, Jr. resigned as Vice President and Controller of
the Trust. On the same date, Samuel F. Hatcher was elected to succeed Robert
Welanetz as President of the Trust and member of the Board of Trustees and Don
Henry was elected to succeed William G. Brown, Jr. in his capacities.

The following table sets forth the names and positions of the executive
officers of the Trust. The term of office of each officer expires at the annual
meeting of the Board of Directors or when the respective successor is elected
and qualifies.

NAME POSITION
- ---- --------

Samuel F. Hatcher............................ President
Don Henry.................................... Vice President and Controller
Pamela Griffin............................... Secretary

Samuel F. Hatcher, age 53, has been a Senior Executive Vice President and
General Counsel of Lend Lease Real Estate Investments, Inc. (formerly ERE
Yarmouth, Inc.) since 1997. From 1993 to 1997, Mr. Hatcher was an Executive Vice
President and General Counsel. From 1989 to 1993 he was the Vice President and
Counsel to the Equitable Life Assurance Society of the United States, assigned
to and located at Equitable Real Estate Investment Management, Inc. Prior to
1989 and since 1971, he was a partner in the real estate practice group of
Alston & Bird, a law firm located in Atlanta, Georgia.

Don Henry, age 38, has been a Vice President in the asset and portfolio
management departments of Lend Lease Real Estate Investments, Inc. (formerly ERE
Yarmouth Retail, Inc.) since January 1996. He

10
13

was Director of Financial Reporting of Compass Retail, Inc. from September 1993
to December 1995. Prior to that date, and since June 1983, he was associated
with the accounting firm of Deloitte & Touche LLP.

Pamela Griffin, age 45, has been Vice President of Lend Lease Real Estate
Investments, Inc. (formerly ERE Yarmouth, Inc.) since December 1997. From 1992
through 1995, she was Senior Vice President and General Counsel of EQ Services,
Inc., a commercial mortgage loan servicing subsidiary of The Equitable Life
Assurance Society of the United States. In between those positions, she was Vice
President of the Winfield Group, a marketing research firm for non-profit
organizations. She has also served as in-house counsel for CIGNA Corporation and
as a partner in a Charlotte, North Carolina law firm.

11
14

PART II

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

Trading in the Trust's Shares on the New York Stock Exchange ("NYSE")
terminated on May 4, 1998, as the Trust did not meet the NYSE's continued
listing criteria. The Trust's Shares are currently traded on the OTC Bulletin
Board System. As of March 26, 1999, the record number of shareholders of the
Trust was 206. Although the Trust does not know the exact number of beneficial
holders of its Shares, it believes the number exceeds 1,500.

The following table presents the high and low prices of the Trust's Shares
based on the New York Stock Exchange daily composite transactions for the year
1997 and until May 4, 1998. From May 4, 1998 the following table presents the
high and low prices of the Trust's Shares based on the OTC Bulletin Board System
daily composite transactions.

HIGH LOW
------ ------

YEAR ENDED DECEMBER 31, 1998:
First Quarter............................................. $2.063 $1.000
Second Quarter............................................ 1.313 0.250
Third Quarter............................................. 1.063 0.625
Fourth Quarter............................................ 0.844 0.625
YEAR ENDED DECEMBER 31, 1997:
First Quarter............................................. $1.625 $1.375
Second Quarter............................................ 1.500 1.125
Third Quarter............................................. 1.250 1.062
Fourth Quarter............................................ 1.250 0.813

There were no distributions to shareholders during 1998 and 1997. It is the
Trust's current policy to reinvest all of its excess cash flow into its
remaining property to fund capital expenditures and leasing costs. The Trust
does not anticipate a change in this policy. In addition, the Trust's debt
agreements contain provisions restricting the payment of dividends.

12
15

ITEM 6. SELECTED FINANCIAL DATA.

AS OF AND FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------------
1998 1997 1996 1995 1994
-------------- -------------- -------------- -------------- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Revenues from rental operations(a).......... $ 6,191 $ 6,158 $ 6,174 $ 15,761 $ 16,512
Write down of investments in real
estate(b)................................. -- -- -- (3,200) --
Income (loss) before gain on sales of real
estate(c)................................. 150 (1,961) (1,488) (6,575) (3,459)
Gain on sales of real estate(d)............. -- -- -- 229 --
Net income (loss)........................... 150 (1,961) (1,488) (6,346) (3,459)
Total assets................................ 45,102 45,067 46,830 48,209 90,258
Long-term obligations:
Mortgage notes payable, net of imputed
interest and discount.................. 45,374 45,379 45,379 45,712 80,032
Shareholders' equity (deficit).............. (4,832) (4,982) (3,021) (1,533) 4,813
Per share data(e):
Income (loss) per share:
Income (loss) before gain on sales of
real estate.......................... $ 0.02 $ (0.21) $ (0.16) $ (0.71) $ (0.37)
Net income (loss)...................... 0.02 (0.21) (0.16) (0.68) (0.37)
Dividends declared..................... -- -- -- -- --

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

(a) The decline in revenues from operations for 1996 is mainly attributable to
the sale of Castleton Park, which accounted for revenues of $9,554,000 for
the year ended December 31, 1995.
(b) A write-down was recorded in 1995 related to the Trust's investment in
Castleton Park to adjust the net investment to the Trust's estimate of net
realizable value. As discussed in Note 2 to the financial statements, the
Trust reviews its investments for impairment on a quarterly basis, and
records write-downs or reserves when appropriate.
(c) The 1998 results reflect the cessation of depreciation and amortization of
the Mall's assets as a result of the Trust's real estate being classified as
"held for sale" as of April 1, 1998.
(d) In 1995, the Trust sold its remaining interest in Castleton Park and
recognized a gain on the sale of $229,000.
(e) Calculation is based on 9,264,344 weighted average Shares outstanding from
1994 through 1997 and 9,505,222 weighted average Shares outstanding for
1998. The Trust had 9,632,212 Shares outstanding as of December 31, 1998.

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

This discussion should be read in conjunction with the financial statements
and notes that appear immediately following the Signatures page.

FINANCIAL CONDITION

CAPITAL RESOURCES

Background

The Trust was formed pursuant to an Amended and Restated Declaration of
Trust dated February 27, 1985, as amended March 5, 1986, to acquire certain
income-producing real estate investments. On March 13, 1985, the Trust acquired
Harrisburg East Mall (the "Mall"), a regional shopping mall located in
Harrisburg, Pennsylvania; Castleton Park ("Castleton"), an office park located
in Indianapolis, Indiana; and Peachtree Dunwoody Pavilion ("Peachtree"), an
office park located in Atlanta, Georgia.

13
16

The Trust has completed the disposition of two of its three real estate
investments. The office buildings comprising Peachtree were sold in three
separate transactions during 1992 and 1993. Two of the office buildings at
Castleton were sold in 1991 while the remaining 44 office buildings at Castleton
were sold in December 1995.

As discussed more completely below under "Harrisburg East Mall Disposition
Plan" and "Mortgage Debt Extensions", Management intends to dispose of its
remaining real estate investment, the Mall, as soon as commercially practicable.
Management is hopeful that such disposition will be completed prior to the June
15, 1999 expiration dates of its forbearance and extension arrangements with its
lenders, although no such assurances can be given at this time.

Proposed Merger with American Realty Trust

The Merger consideration will be comprised entirely of ART Series F
Cumulative Convertible Preferred Stock with a par value of $2.00 per share and a
liquidation value of $10.00 per share ("ART Preferred Shares"). The merger will
be effected by (i) ART's acquisition of 4,376,056 shares currently held by four
EQK shareholders (the "Selling Shareholders") and (ii) ART's receipt of 673,976
shares newly issued by the Trust (which, together with shares currently
outstanding, constitutes "EQK Shares"), the combined effect of which will give
ART an approximate 49% interest in EQK. The Selling Shareholders will receive
for each EQK Share sold 0.030 of an ART Preferred Share with a corresponding
liquidation value of $0.30 per EQK Share sold. The remaining shareholders will
be entitled to retain their Shares at the time of the Merger, but will be
compensated for the dilution in their percentage ownership interest through the
receipt of 0.014 of an ART Preferred Share with a corresponding liquidation
value of $0.14 per EQK Share held. In addition, ART currently intends (but is
not legally obligated) to acquire the remaining EQK Shares from such other
shareholders at some time after the third anniversary of the consummation of the
Merger for not less than 0.0486 of an ART Preferred Share with a liquidation
value of $0.486 for each EQK Share tendered.

14
17

Merger, the Trust generally will be obligated to pay ART a break-up fee of
$200,000 plus its share of transaction expenses (collectively, the "Break-Up
Consideration").

The Trust, its trustees, and its Advisor have been named as defendants in a
purported class action complaint filed in Massachusetts State court, which seeks
to enjoin the Merger. The complaint also seeks other relief including
unspecified damages. Management of the Trust is pursuing its legal defenses and
believes that the disposition of this matter will not have a material adverse
effect on the financial position of the Trust. (See Item 3, Legal Proceedings.)

Harrisburg East Mall Disposition Plan

Management commenced marketing and sales activities relating to the Mall
during the second quarter of 1998, which included the retention of an outside
broker. Since the commencement of sales activities, changing conditions in the
capital markets have had an adverse effect on the market for real estate, and
especially on the market for regional shopping malls. This unfavorable
environment has been characterized by a reduction in available sources of
financing for real estate transactions and by reduced purchasing interest on the
part of many traditional buyers, including many of the public real estate
investment trusts.

The Trust understands that two of its former officers are affiliated with a
company that has entered into a relationship with the prospective buyer in
connection with this transaction.

Mortgage Debt Extensions

The Trust's debt structure is comprised of a Mortgage Note and a Term Loan
with outstanding principal balances of $43,794,000 and $1,585,000, respectively
at December 31, 1998. As described below, the
15
18

Mortgage Note Lender and the Term Loan Lender have granted the Trust relief
through June 15, 1999 from the debt instruments' initial maturity date of
December 15, 1995 through a series of extensions and forbearance arrangements.

The Mortgage Note and Term Loan facilities originated on December 15, 1992,
and provided for an initial maturity date of December 15, 1995. The Trust's
Mortgage Note Lender and Term Loan Lender have agreed to extend the maturity
date of these loans twice; first, for a period of one year through December 15,
1996, and second, for a period of 18 months through June 15, 1998. The Mortgage
Note remains collateralized by a first mortgage lien on the Mall, an assignment
of leases and rents, and certain cash balances. The Term Loan is collateralized
by a subordinate lien on the Mall.

The Trust's expiration date of its forbearance and extension arrangements
is June 15, 1999. The Trust has entered into a non-binding letter of intent to
sell the Mall for approximately $51 million, although there is no assurance that
the sale of the Mall will be completed. The Management of the Trust believes
that the proceeds from the sale of the Mall will be sufficient to allow the
Trust to repay the Mortgage Note and Term Loan, although there can be no
assurance a sale will be completed by June 15, 1999. In the event the sale of
the Mall is not completed by June 15, 1999, Management will propose to its
lenders that further forbearance and extensions be granted. However, no
assurances can be given that the Lenders will grant such relief.

In consideration for the extension of the forbearance agreement relating to
the Mortgage Note through June 15, 1999, the Trust paid an extension fee of
$25,000. In consideration for the extension of the maturity date of the Term
Loan through June 15, 1999 the Trust agreed to pay an extension fee of $8,000.

One of the conditions of the Mortgage Note was the establishment of a
capital reserve account, which is maintained by a third-party escrow agent and
from which expenditures must be approved by the Mortgage Note Lender. The cash
balance of the Trust's capital reserve account at December 31, 1998 was
$1,425,000. The Trust believes the current cash balance in this account, coupled
with additional cash flows projected to be generated from operations, will be
sufficient to fund the Mall's capital expenditure requirements discussed below.

16
19

Liquidity

General

The Trust's Mortgage Note Lender and Term Loan Lender have granted the
Trust relief through June 15, 1999 from the debt instruments' initial maturity
date of December 15, 1995 as discussed in Item 7 -- "Mortgage Debt Extensions".

During 1998, the Trust generated cash flows from operating activities of
$1,597,000, an increase of $1,365,000 from the prior year's operating cash flows
of $232,000. This increase is attributable to the timely receipt of real estate
tax ($385,000) and utility income ($288,000) recoveries for 1998. In addition,
the Trust received certain reimbursements from ART in accordance with the
Revised Merger Agreement ($367,000) and lease termination fees from a tenant
($200,000) in 1998.

During 1997, the Trust generated cash flows from operating activities of
$232,000, a decrease of $1,150,000 from the prior year's operating cash flow of
$1,382,000. Operating cash flow comparisons were impacted by two 1996
non-recurring events which essentially offset one another, the refund of
previously paid real estate taxes at Peachtree Dunwoody Pavilion ($268,000) and
the repayment of a $300,000 loan to the Advisor in 1996. The decrease in
operating cash flows from 1996 was primarily attributable to a decrease in the
Mall's cash flows from operations due to the receipt of lease cancellation
income ($451,000) in 1996. Also contributing to the decrease is an increase in
accounts receivable from certain anchor tenants of $390,000 due to the timing of
collection of the 1997-1998 tax reimbursements. Additionally, interest payments
in 1997 increased by $136,000 from 1996. The increase in interest is a result of
an increase in the Mortgage Note interest rate to 8.88% from 8.54% effective
with the December 15, 1996 Mortgage Note extension agreement.

Cash flows used in investing activities during 1998 were $652,000. The 1998
results reflect the payment of build out costs for certain tenants ($435,000),
costs associated with roof replacement ($148,000) and parking lot resurfacing
($69,000).

Cash flows used in investing activities during 1997 were $546,000. The 1997
results reflect the costs associated with a parking lot repavement project and
the payment of build out allowances to tenants at the Mall. Cash flows used in
investing activities during 1996 ($195,000) were primarily for the payment of
tenant allowances.

Cash flows used in financing activities during 1998 amounted to $407,000,
which represented payments made for loan fees to the Mortgage Note Lender
($298,000) and the Term Loan Lender ($104,000), and principal payments on the
Term Loan ($5,000). Cash flows used in financing activities during 1997
($24,000) were for payments of loan fees to the Term Loan Lender. Payments made
on the Mortgage Note for 1998 and 1997 were limited to interest payments,
pursuant to the mortgage debt extension effective December 15, 1996.

Cash flows used in financing activities during 1996 ($498,000) were
comprised of scheduled principal payments on the Trust's debt ($333,000) and
payments of loan fees ($165,000) to the Term Loan Lender.

In addition to capital expenditure requirements described above, liquidity
requirements for 1999 will also include principal and interest payments of
$2,015,000 through June 15, 1999 pursuant to existing loan extension and
forbearance agreements. These loan agreements are scheduled to be repaid on June
15, 1999, at which time the outstanding principal balance of approximately
$45,374,000 on the loans will be due.

The Trust's cash management agreement stipulates that all rental payments
from tenants are to be made directly to a third party escrow agent that also
funds monthly operating expenses in accordance with a budget approved by the
Mortgage Note Lender. The Trust believes that its cash flow for 1999 will be
sufficient to fund its various operating requirements, including budgeted
capital expenditures and monthly principal and interest payments, although its
discretion with respect to cash flow management will be limited by the terms of

17
20

the cash management agreement. The Trust believes that its current cash
reserves, coupled with additional cash flow projected to be generated from
operations, will permit the Trust to meet its operating, capital and monthly
debt service requirements.

The Trust intends to sell the Mall and, therefore, has classified its real
estate as held for sale at December 31, 1998. Accordingly, the investment in
real estate, including deferred leasing costs, is recorded at the lower of cost
or estimated fair market value, less estimated costs to sell. The Trust has not
written up the cost basis of its investment in the Mall to its substantially
higher fair value. Therefore, the Trust does not believe that its deficit in
shareholders' equity of $4,832,000 at December 31, 1998 is indicative of its
current liquidity or the net distribution that its shareholders would receive
upon liquidation.

Year 2000

The inability of computers, software and other equipment to recognize and
properly process data fields containing a two-digit year is commonly referred to
as the Year 2000 compliance issue ("Y2K"). As the year 2000 approaches, such
systems may be unable to accurately process certain date-based information.

Y2K exposures of the Trust and the Mall are currently being assessed.
Potential critical exposures include reliance on third party vendors and
building systems that are not Y2K compliant. The Trust has begun to communicate
with its third party service vendors such as Lend Lease and LaSalle Partners
Incorporated in an effort to assess their Y2K compliance status and the adequacy
of their Y2K efforts.

The Mall is being assessed in an effort to identify Y2K issues. Any
required remediation strategy will depend on the outcome of the assessment and
therefore will not be developed until the assessment is complete. The Trust
anticipates the majority of critical property assessments to be completed and
remediation efforts to be underway by the end of the second quarter of 1999.

Neither the Trust nor the Mall has incurred any material costs to date
relating to Y2K; therefore, no costs were accrued at December 31, 1998. The
total assessment cost is expected to total approximately $16,000. Remediation
costs cannot be reasonably estimated until the assessment is complete and a
remediation strategy is determined.

The failure to adequately address the Year 2000 issue may result in the
closure of the Mall. In order to reduce the potential impact on the operations
of the Trust and the Mall, contingency plans are expected to be developed once
Y2K exposures have been assessed.

A building contingency plan is expected to be developed once the assessment
has been completed. A contingency plan may involve but not be limited to the
engagement of additional security services, the disconnect of system interfacing
(that does not significantly impact Mall operations) and the identification and
engagement of alternative service vendors.

RESULTS OF OPERATIONS

For the year ended December 31, 1998, the Trust reported net income of
$150,000 ($.02 per share) compared to net losses of $1,961,000 ($.21 per share)
and $1,488,000 ($.16 per share) for the years ended December 31, 1997 and 1996,
respectively.

The Trust's revenues for 1998 were $6,191,000, which represents a $33,000
increase from the 1997 amount of $6,158,000. Percentage rents increased by
$150,000 as a result of increased sales by percentage-rent-paying tenants at the
Mall for 1998. In addition, in 1998 the Trust recognized a non-recurring lease
cancellation fee of approximately $200,000. These increases in income are
substantially offset by a decrease in income in 1998 due to a non-recurring
adjustment made in 1997 to record the recovery of income from one of the Mall's
anchor stores. This offset also includes other decreases in income, none of
which are individually significant.

The Trust's revenues for 1997 were $6,158,000, which represented a $16,000
decrease from the 1996 amount of $6,174,000. Rental revenues in 1997 increased
by approximately $379,000 over 1996. A portion of this increase, $103,000, was a
result of increased rent payments from certain tenants whose payment
18
21

obligations had been reduced in prior years pursuant to the exercise of
co-tenancy provisions in their lease agreements and short-term rent relief
agreements associated with anchor store vacancies. With the opening of Lord &
Taylor on March 10, 1997, such provisions and agreements expired and these
tenants reverted to paying fixed minimum rent. The remaining increase in rental
revenues from 1996 ($276,000) is attributable to a non-cash adjustment to
straight-line rents made in 1996. The increases in 1997 rental revenues,
however, were offset by the non-recurrence of lease termination fees and other
miscellaneous income recorded in 1996.

Operating expenses (net of reimbursements from tenants) for 1998 were
$769,000, which represents a decrease of $314,000 from the 1997 amount of
$1,083,000. This decrease is primarily due to an increase in common area
maintenance expense recoveries ($130,000) due to a higher reimbursement ratio
for 1998. The higher reimbursement ratio is attributable to a higher average
occupancy ratio at the Mall as compared to the prior year. This variance is also
due to a decrease in bad debt expense over the prior year due to several tenant
bankruptcies that occurred in 1997. Also contributing to this variance is the
sum of other operating expense variances, none of which is individually
significant.

Operating expenses (net of reimbursements from tenants) for 1997 were
$1,083,000, which represented an increase of $196,000 from the 1996 amount of
$887,000. This increase is primarily due to a decrease in common area
maintenance expense recoveries of $84,000 due to lower average occupancy levels
in 1997. Also, bad debt expenses increased by $82,900 from 1996 due to tenant
bankruptcies.

Depreciation and amortization expense for 1998 ($588,000) was significantly
lower than the expense for 1997 ($2,181,000) due to the cessation of
depreciation and amortization expense relating to the real estate investment and
deferred leasing costs effective April 1, 1998.

Other income of $268,000 was recorded in 1996 relating to refunds of
previously paid real estate taxes for Peachtree Dunwoody Pavilion and Castleton.
No such similar events occurred during 1998 and 1997.

Interest expense for 1998, 1997 and 1996 was $4,219,000, $4,397,000 and
$4,075,000, respectively. Interest expense decreased in 1998 compared to 1997
due to lower amortization of deferred financing costs in 1998 since the majority
of these costs were fully amortized by June 1998. A full year of amortization
was recognized during 1997. The increase in interest expense in 1997 as compared
to 1996 is due to an increase in the Mortgage Note interest rate to 8.88% from
8.54% effective with the December 15, 1996 Mortgage Note extension agreement.

Other expenses-net consists of portfolio management fees, other costs
related to the operation of the Trust, and interest income earned on cash
balances. Other expenses in 1998 were not materially different from 1997. Other
expenses decreased $298,000 in 1997 from 1996 amounts. This decrease is
primarily attributable to the recognition of imputed interest on deferred
advisory fees in 1996 of $302,000.

As discussed in the liquidity section above, the Trust believes that its
existing cash reserves and its anticipated cash flow generated from operations
will be sufficient to meet its capital and monthly debt service requirements.
This belief is predicated upon the Trust completing the sale of the Mall and
repaying its Mortgage Note and Term Loan prior to their June 15, 1999 maturity
dates, or in the event such sale is not completed by June 15, 1999, securing
further relief from its lenders. Losses incurred in prior years are primarily a
result of the effects of non-cash accounting (principally depreciation and
amortization). With the cessation of depreciation and amortization expense as a
result of the Trust's investment in real estate being reclassified as "held for
sale" in May 1998, the Trust believes it will generate some level of net income
in future periods. There is no assurance that future results will not be
materially affected (positively or negatively) by, among other factors, changes
in mall occupancy and rental rates, significant deviations in operating
expenses, changes in interest rates and transaction costs incurred in connection
with sale and financing transactions.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

A 10% change in the fixed and variable interest rate would not have a
material effect on the Trust's financial statements due to the related terms of
its debt instruments.

19
22

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The Registrant's financial statements and supplementary data listed in Item
14(a) appear immediately following the signatures page.

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

None.

20
23

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The Trustees, their terms served and their professional interests outside
the Trust are profiled below. The Trustees are elected to office at the Trust's
annual meeting each year.

Biographic information with respect to Samuel F. Hatcher is set forth in
Item 4a -- Executive Officers of the Registrant.

Sylvan M. Cohen, age 84, has been a Trustee since 1988. Mr. Cohen has been
Chairman and Trustee of Pennsylvania Real Estate Investment Trust, a New York
Stock Exchange-listed real estate investment trust, since 1994, and also served
as Chief Executive Officer from 1994 to October 1997. He was President and
Trustee since its inception in 1960. Mr. Cohen has been Of Counsel to the law
firm Drinker Biddle & Reath since 1995. For more than five years prior thereto,
Mr. Cohen was a partner in the Philadelphia law firm of Cohen, Shapiro,
Polisher, Shiekman and Cohen. Mr. Cohen is formerly a director of Fidelity Bank,
Philadelphia, Pennsylvania, and is currently a director of Orleans Homebuilder,
Inc. (formerly the FPA Corporation), an American Stock Exchange-listed real
estate development company, and was a managing trustee of Arbor Property Trust,
a New York Stock Exchange-listed real estate investment trust and successor in
interest to EQK Green Acres, L.P, until it was acquired in December 1997. He
formerly served as President of the National Association of Real Estate
Investment Trusts and the International Council of Shopping Centers.

Alton G. Marshall, age 77, has been a Trustee since the Trust's inception
in 1985. Mr. Marshall has been President of Alton G. Marshall Associates, Inc. a
New York City real estate investment firm since 1971. He was formerly a Senior
Fellow of the Nelson A. Rockefeller Institute of Government in Albany, New York.
He was also Chairman of the Board and Chief Executive Officer of The Lincoln
Savings Bank, FSB from March 1984 through December 1990. From 1971 to 1981, he
was President of the Rockefeller Center, Inc., a real estate, manufacturing and
entertainment company. Mr. Marshall is currently a director of the New York
State Electric & Gas Corp. He previously served as a director of the Hudson
River Trust and as a managing trustee of Arbor Property Trust, until it was
acquired in December 1997. He was an independent partner of Equitable Capital
and Equitable Capital Retirement Fund.

George R. Peacock, age 75, has been a Trustee since 1988. Mr. Peacock has
been sole-owner and President of Carluke, Inc., a real estate investment
consulting firm, since 1988. Mr. Peacock had retired from Equitable Real Estate
Investment Management, Inc. ("Equitable Real Estate"), a wholly-owned subsidiary
of The Equitable Life Assurance Society of the United States ("Equitable") in
August 1988 after serving as Chairman and Chief Executive Officer. Mr. Peacock
is a past member of Equitable's Investment Policy Committee. Prior to his
retirement, he was also a Senior Vice President of Equitable for approximately
twelve years. He is also a former director of Equitable Real Estate and was a
managing trustee of Arbor Property Trust until it was acquired in December 1997.

Phillip E. Stephens, age 51, has been a Trustee since 1990. Mr. Stephens is
the President and the Chief Executive Officer of Stephens Property Group, LLC a
developer of shopping centers in the Southeastern United States. Mr. Stephens
was Chairman and Chief Executive Officer of Compass Retail, Inc., a subsidiary
of Equitable Real Estate, from February 1996 to June 1997 and was President and
Chief Executive Officer from January 1992 to January 1996. Mr. Stephens was
Executive Vice President of the Compass Retail division of Equitable Real Estate
from January 1990 to December 1991. He also served as President of Equitable
Realty Portfolio Management, Inc. ("ERPM"), the Trust's Advisor and a
wholly-owned subsidiary of ERE Yarmouth, Inc. (formerly Equitable Real Estate),
from December 1989 to June 1997. Prior to that date and since October 1987, he
was President of EQK Partners, the predecessor in interest to ERPM. Prior to
that date and since its inception in September 1983, he was Senior Vice
President and subsequently President of EQK Partners. He was also a managing
trustee of Arbor Property Trust until it was acquired in December 1997.

21
24

Robert C. Robb, Jr., age 53, has been a Trustee since 1991. Mr. Robb has
been President of and partner in the management and financial consulting firm of
Lewis, Eckert, Robb & Company since 1981. Mr. Robb is currently a director of
Provident Institutional Funds and Brynwood Partners, a Trustee of the Medical
College of Pennsylvania, Hahnemann University, and is a former director of
Brinks, Inc. of Darien, Connecticut and PNC Bank, N.A., Pittsburgh,
Pennsylvania.

Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Trust's officers and directors and persons who own more than ten
percent of a registered class of the Trust's equity securities (collectively,
the "Reporting Persons") to file reports of ownership and changes in ownership
with the Securities and Exchange Commission and to furnish the Company with
copies of these reports.

Based on the Trust's review of the copies of these reports received by it,
and written representations received from Reporting Persons, the Trust believes
that all filings required to be made by the Reporting Persons with respect to
transactions from January 1, 1998 through December 31, 1998 were made on a
timely basis.

During 1998, there were eleven meetings of the Trustees.

Other than the audit committee, the Trust has no standing nominating,
compensation or other committees.

ITEM 11. EXECUTIVE COMPENSATION.

The Trust currently pays each unaffiliated Trustee a fee of $10,000 per
year for serving as a Trustee and $1,000 for each day spent by a Trustee on the
Trust's business, including meetings of the Trustees (including conference call
meetings) and of any committee of Trustees which such Trustee attends. Mr.
Hatcher is affiliated with the Trust's Advisor, and therefore is not eligible to
receive payment from the Trust for the services described above. In addition,
the Trust currently reimburses each of the Trustees (both affiliated and
unaffiliated) for travel and other expenses incurred in connection with their
duties as Trustee of the Trust. No salaries are paid to the officers of the
Trust for acting in such capacity.

22
25

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The following table shows the beneficial shareholdings as of December 31,
1998 of all persons known by the Trust to be beneficial owners of more than 5%
of its outstanding Shares (based upon filings made by such persons pursuant to
Section 13(d) of the Exchange Act), of all Trustees and nominees individually
and of all Trustees and officers as a group.

PERCENTAGE OF
NUMBER OF OUTSTANDING
NAME ADDRESS SHARES SHARES
- ---- ------- --------- -------------

Lend Lease Portfolio Management, Inc. 3424 Peachtree Road, NE 1,685,556 17.5%
Suite 800
Atlanta, GA 30326

Sutter Opportunity Fund, LLC 595 Market Street 919,400 9.5%
Suite 2100
San Francisco, CA 94105

Summit Venture, L.P. 717 Morten Avenue 916,900 9.4%
Suite 220
Phoenix, AZ 85020

E.I. duPont de Nemours Wilmington Trust Co. 906,600 9.4%
Co., Inc. Trust Fund 1100 North Market Street
Wilmington, DE 19890

Maurice A. Halperin 2500 North Military Trail 847,100 8.8%
Suite 225
Boca Raton, FL 33431

Sylvan M. Cohen Drinker Biddle & Reath -- (2)
Philadelphia National Bldg
1345 Chestnut Street
Philadelphia, PA 19107

Alton G. Marshall 136 East 79th Street -- (2)
New York, NY 10021

George R. Peacock Monarch Plaza 1,728(1) (2)
3414 Peachtree Road, NE
Suite 416
Atlanta, GA 30326

Robert C. Robb Lewis, Eckert, Robb and 2,000 (2)
Co.
One Plymouth Meeting
Suite 425
Plymouth Meeting, PA 19462

Phillip E. Stephens Seven Piedmont Center 2,055 (2)
Suite 500
Atlanta, GA 30305

Samuel F. Hatcher 3424 Peachtree Road, NE -- (2)
Suite 800
Atlanta, GA 30326

All Trustees and Executive Officers as a 5,783 (2)
Group (8 persons)

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

(1) These Shares are owned by Mr. Peacock's wife and son and Mr. Peacock
disclaims beneficial ownership of these Shares.
(2) The number of Shares represents less than 1% of the outstanding Shares.

23
26

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Lend Lease Portfolio Management, Inc., (formerly ERE Yarmouth Portfolio
Management, Inc.), a wholly-owned subsidiary of Lend Lease Real Estate
Investments, Inc. (formerly ERE Yarmouth, Inc.), serves as the "Advisor" to the
Trust. For the year ended December 31, 1998, the Advisor earned portfolio
management fees in the amount of $232,000, of which $150,000 was paid currently
as described below.

Effective January 1, 1990, the Advisor agreed to reduce the rate of its
annual portfolio management fees as an accommodation to the Trust's efforts to
reduce its costs of operations. The basis of the fee calculation was changed
from .85% to .425% of the sum of (i) the average daily per share closing price
of the Trust's Shares, multiplied by the average number of Shares outstanding on
each day and (ii) the average daily outstanding balance of the Trust's long-term
indebtedness. Given that the Shares of the Trust are no longer traded on a
market with readily available market values, the Trustees have agreed on a
stipulated rate of $0.75 per Share to be used for purposes of calculating the
portfolio management fee for the period of May 4, 1998 through December 31,
1998. In addition, certain provisions which subordinated the payment of the fee
to a specified dividend distribution were eliminated. The Advisor also agreed to
forgive one-half of the total of $5.4 million of deferred annual portfolio
management fees owed by the Trust to the Advisor for the years 1985 through
1989. The remaining deferred fees of $2.7 million will be paid upon the
disposition of the Trust's remaining property, the Mall.

Pursuant to the Mortgage Loan Modification Agreement executed in December
1995, which extended the maturity date of the Trust's mortgage indebtedness by
one year to December 15, 1996, and continuing with subsequent extension and
forbearance arrangements as described in "Item 1 -- Business", the Advisor
agreed to a partial deferral of its fees. The computation of the fee will remain
unchanged as described above; however, fees in excess of $37,500 per quarter
will be deferred and paid to the Advisor upon the repayment of such mortgage
indebtedness, either through a refinancing or from an application of proceeds
from the sale of the Mall. As of December 31, 1998, the balance of deferred
advisory fees owed to the Advisor was $299,000. In connection with the December
15, 1996 extension of debt, the Advisor earned a refinancing fee of $50,000,
which is to be paid upon the retirement of debt. Total deferred advisor and
refinancing fees owed to the Advisor at December 31, 1998 were $349,000.

Upon the sale of all or any portion of the Trust's remaining real estate
investment, the Advisor will be entitled to a disposition fee equal to 2% of the
gross sale price (including outstanding indebtedness taken subject to or assumed
by the buyer and any purchase money indebtedness taken back by the Trust). The
disposition fee will be reduced by the amount of any brokerage commissions and
legal expenses incurred by the Trust in connection with such sales.

Pursuant to its property management agreement for the Mall, ERE Yarmouth
Retail, Inc. earned approximately $228,000 in property management fees for the
nine months ended September 30, 1998. On September 30, 1998, ERE Yarmouth
Retail, Inc. was sold to LaSalle Partners Incorporated ("LaSalle"), which is not
affiliated with the Trust or the Advisor. An affiliate of LaSalle continues to
manage the Mall.

24
27

PART IV

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

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

1. Financial Statements
Balance Sheets at December 31, 1998 and 1997 Statements of Operations for
the years ended December 31, 1998, 1997 and 1996
Statements of Shareholders' Deficit for the years ended December 31,
1998, 1997 and 1996
Statements of Cash Flows for the years ended December 31, 1998, 1997 and
1996
Notes to financial statements
2. Financial Statement Schedule
Schedule III: Real Estate and Accumulated Depreciation
Independent Auditors' Report
All other schedules are omitted as the required information is
inapplicable or the information is presented in the financial statements,
or the related notes thereto.
3. Exhibits
(2) None.
(3) (a) Form of Amended and Restated Declaration of Trust, as
amended(2)
(b) Trustees' Regulations, as amended(2)
(4) Form of certificate for Shares of Beneficial Interest(1)
(9) None.
(10) (a) Form of Advisory Agreement between the Registrant and EQK
Partners(1)
(e) Property management agreement between Salomon Brothers
Peachtree Properties Inc. and Equitable Real Estate
Investment Management, Inc. with respect to
Peachtree-Dunwoody Pavilion(1)
(f) Form of property management agreement between the Registrant
and Castleway Management Corp. with respect to Castleton
Commercial Park(1)
(k) Mortgage encumbering Harrisburg East Mall in favor of
Continental Assurance Company and related documents(1)
(m) Mortgage encumbering Harrisburg East Mall in favor of The
Philadelphia Savings Fund Society and related documents(1)
(n) Amended and Restated Zero Coupon Mortgage Note due December
1992 in the principal amount of $45,000,000(1)
(o) Mortgage encumbering Harrisburg East Mall in favor of
Salomon Brothers Realty Corp.(2)
(p) Mortgages encumbering Peachtree-Dunwoody Pavilion in favor
of Salomon Brothers Realty Corp.(2)
(q) Mortgages encumbering Castleton Commercial Park in favor of
Salomon Brothers Realty Corp.(2)
(r) Zero Coupon Mortgage Note due December 1992 in the principal
amount of $5,000,000(3)
(s) Form of Amendments dated February 4, 1988 to Exhibits 10(o),
10(p) and 10(q)(3)
(t) Form of Mortgages securing 10(r)(3)
(u) First Amendment to Advisory Agreement dated as of December
31, 1989(4)
(v) Form of property management agreement between Registrant and
Compass Retail, a division of Equitable Real Estate
Investment Management, Inc.(5)

25
28

(w) Agreement of sale dated June 25, 1991 between McCready and
Keene, Inc. and the Registrant(6)
(x) Agreement for release of collateral between The Prudential
Insurance Company of America and the Registrant dated August
30, 1991(6)
(y) Agreement of sale dated September 23, 1991 between the
Wesleyan Church Corporation and the Registrant(6)
(z) Agreement of sale dated June 24, 1992 between Computer
Generation Incorporated and the Registrant(7)
(aa) Purchase and Sale Agreement dated October 21, 1992 between
Minneapolis Investment Associates L.P. and the Registrant(7)
(bb) Second Amended and Restated Note dated as of December 16,
1992 from the Registrant to The Prudential Insurance Company
of America(7)
(cc) Cash Management and Security Agreement dated as of December
15, 1992, among the Registrant, The Prudential Insurance
Company of America and First Union National Bank of
Georgia(7)
(dd) Amended and Restated Deed to Secure Debt and Security
Agreement (Peachtree) dated as of December 16, 1992 by
Successor Trustees of the Registrant as Debtor in favor of
The Prudential Insurance Company of America as Secured
Party(7)
(ee) Amended and Restated Open-End Mortgage and Security
Agreement (Harrisburg) dated as of December 15, 1992 by
Successor Trustees of the Registrant as Debtor in favor of
The Prudential Insurance Company of America as Secured
Party(7)
(ff) Amended and Restated Mortgage and Security Agreement
(Castleton) dated as of December 15, 1992 by the Registrant
as Debtor in favor of The Prudential Insurance Company of
America as Secured Party(7)
(gg) Absolute Assignment of Leases and Rents and Rental
Collection Agreement (Peachtree) dated as of December 16,
1992 among Successor Trustees of the Registrant as Assignor,
The Prudential Insurance Company of America as Assignee and
First Union National Bank of Georgia as Rental Collection
Agent(7)
(hh) Absolute Assignment of Leases and Rents and Rental
Collection Agreement (Harrisburg) dated as of December 16,
1992 among Successor Trustees of the Registrant as Assignor,
The Prudential Insurance Company of America as Assignee and
First Union National Bank of Georgia as Rental Collection
Agent(7)
(ii) Absolute Assignment of Leases and Rents and Rental
Collection Agreement (Castleton) dated as of December 15,
1992 among the Registrant as Assignor, The Prudential
Insurance Company of America as Assignee and First Union
National Bank of Georgia as Rental Collection Agent(7)
(jj) Warrant Agreement dated as of December 18, 1992 between the
Registrant and The Prudential Insurance Company of
America(7)
(kk) Subordination and Intercreditor Agreement dated as of
December 16, 1992 among Provident National Bank, The
Prudential Insurance Company of America and the
Registrant(7)
(ll) Second Amended and Restated Loan Agreement dated as of
December 16, 1992 from the Registrant to Provident National
Bank(7)
(mm) Amended and Restated Note dated as of December 16, 1992 from
the Registrant to Provident National Bank(7)
(nn) Mortgage and Security Agreement (Castleton) dated as of
December 16, 1992 between the Registrant and Provident
National Bank(7)
(oo) Deed to Secure Debt and Security Agreement (Peachtree) dated
as of December 16, 1992 between the Registrant and Provident
National Bank(7)

26
29

(pp) Open-End Mortgage and Security Agreement (Harrisburg) dated as of December 16, 1992
between the Registrant and Provident National Bank(7)
(qq) Assignment of Lessor's Interest in Leases (Castleton) dated as of December 16, 1992
between the Registrant and Provident National Bank(7)
(rr) Assignment of Lessor's Interest in Leases (Peachtree) dated as of December 16, 1992
between the Registrant and Provident National Bank(7)
(ss) Assignment of Lessor's Interest in Leases (Harrisburg) dated as of December 16,
1992 between the Registrant and Provident National Bank(7)
(tt) Assignment of Cash Collateral Account and Security Agreement dated as of December
16, 1992 between the Registrant and Provident National Bank(7)
(uu) Purchase and Sale Agreement dated July 6, 1993 between Lawrence E. Cooper and the
Registrant(8)
(vv) Amendment dated October 1, 1993 to Exhibit 10(cc)(8)
(ww) Amendment dated December 3, 1993 to Exhibits 10(ll) and 10(mm)(8)
(xx) Purchase Agreement for Real Property and Escrow Instructions(9)
(yy) Note, Mortgage, and Modification agreement dated December 15, 1995 between the
Registrant and The Prudential(10) Insurance Company of America
(zz) Mutual Estoppel and Modification Agreement dated December 15, 1995 between the
Registrant and The Prudential Insurance Company of America(10)
(aaa) Amended Mutual Estoppel and Modification Agreement dated December 15, 1995 between
the Registrant, PNC Bank, National Association, and The Prudential Insurance
Company of America(10)
(bbb) Extension and Partial Paydown of loan from PNC Bank National Association, dated
December 15, 1995 to EQK Investors I(10)
(ccc) Second Amendment to Second Amended and Restated Loan Agreement from PNC Bank
National Association dated December 15, 1996(11)
(ddd) Third Amended and Restated Note from PNC Bank National Association dated December
15, 1996(11)
(eee) First Amended Note, Mortgage and Note Modification Agreement from the Prudential
Insurance Company of America dated December 15, 1996(11)
(fff) Mutual Estoppel and Modification Agreement dated December 15, 1996 between the
Registrant and the Prudential Insurance Company of America and PNC Bank National
Association(11)
(ggg) Agreement and Plan of Merger dated December 23, 1997 by and among the Registrant,
American Realty Trust Inc., ART Newco, LLC, Basic Capital Management, Inc.,
Equitable Realty Portfolio Management Inc., and Compass Retail, Inc.(12)
(hhh) Cost Sharing Agreement dated July 9, 1997 between the Registrant and American
Realty Trust(12)
(iii) Agreement between EQK Realty Investors I and Prudential Insurance Company of
America dated April 9, 1998(13)
(jjj) Amended and Restated Agreement and Plan of Merger dated August 25, 1998 by and
among the Registrant, American Realty Trust, Inc., ART Newco, LLC, Basic Capital
Management, Inc., EQK Realty Investors I, and Lend Lease Portfolio Management,
Inc.(13)
(kkk) Agreement between EQK Realty Investors I and Prudential Insurance Company of
America dated April 8, 1998
(lll) Third Amendment to Second Amended and Restated Loan Agreement from PNC Bank
National Association dated June 15, 1998
(mmm) Fourth Amended and Restated Note from PNC Bank Association dated June 15, 1998

27
30

(nnn) Mutual Estoppel and Modification Agreement dated June 15,
1998 between the Registrant and the Prudential Insurance
Company of America and PNC Bank National Association
(ooo) Disclosure for Confession of Judgment from PNC Bank National
Association dated June 15, 1998
(ppp) Agreement between EQK Realty Investors I and Prudential
Insurance Company of America dated November 30, 1998
(qqq) Fourth Amendment to Second Amended and Restated Loan
Agreement from PNC Bank National Association dated December
15, 1998
(rrr) Fifth Amended and Restated Note from PNC Bank Association
dated December 15, 1998
(sss) Mutual Estoppel and Modification Agreement dated December
15, 1998 between the Registrant and the Prudential Insurance
Company of America and PNC Bank National Association
(ttt) Disclosure for Confession of Judgment from PNC Bank National
Association dated December 15, 1998
(11) See Note 2 to the Financial Statements.
(12) Inapplicable.
(13) Inapplicable.
(16) None.
(18) None.
(21) None.
(22) None.
(23) None.
(24) None.
(27) Included in EDGAR transmission only.
(28) None.

(b) Reports on Form 8-K

None

(d) See paragraph (a) 2. above
- ---------------

(1) Incorporated herein by reference to exhibit filed with Registrant's
Registration Statement on Form S-11, File No. 2-93936.
(2) Incorporated herein by reference to exhibit filed with Registrant's Form
10-K dated for fiscal year ended December 31, 1985.
(3) Incorporated herein by reference to exhibit filed with Registrant's Form
10-K dated for fiscal year ended December 31, 1987.
(4) Incorporated herein by reference to exhibit filed with Registrant's Form
10-K for fiscal year ended December 31, 1989.
(5) Incorporated herein by reference to exhibit filed with Registrant's Form
10-K for fiscal year ended December 31, 1990.
(6) Incorporated herein by reference to exhibit filed with Registrant's Form
10-K for fiscal year ended December 31, 1991.
(7) Incorporated herein by reference to exhibit filed with Registrant's Form
10-K for fiscal year ended December 31, 1992.
(8) Incorporated herein by reference to exhibit filed with Registrant's Form
10-K for fiscal year ended December 31, 1993.
(9) Incorporated herein by reference to exhibit filed with Registrant's Form
8-K dated November 22, 1995.
(10) Incorporated herein by reference to exhibit filed with Registrant's Form
10-K for fiscal year ended December 31, 1995.

28
31

(11) Incorporated herein by reference to exhibit filed with Registrant's Form
10-K for fiscal year ended December 31, 1996.
(12) Incorporated herein by reference to exhibit filed with Registration
Statement on January 6, 1998 on Form S-4 filed by American Realty Trust,
Inc. (Registration Statement Number 333-43777).
(13) Incorporated herein by reference to exhibit filed with Registration
Statement on September 3, 1998 on Amendment #2 to Form S-4 filed by
American Realty Trust, Inc. (Registration Statement Number 333-43777).

29
32

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, on the 26th day of
March, 1999.

EQK Realty Investors I

By: /s/ SAMUEL F. HATCHER
------------------------------------
Samuel F. Hatcher
President (Principal Executive
Officer) and Trustee

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed on March 26, 1999 by the following persons on behalf of
the Registrant and in the capacities indicated.

SIGNATURES TITLE
---------- -----

/s/ SAMUEL F. HATCHER President (Principal Executive Officer) and
- ----------------------------------------------------- Trustee
Samuel F. Hatcher

/s/ DON HENRY Vice President (Principal Financial Officer)
- ----------------------------------------------------- and Controller
Don Henry

/s/ SYLVAN M. COHEN Trustee
- -----------------------------------------------------
Sylvan M. Cohen

/s/ ALTON G. MARSHALL Trustee
- -----------------------------------------------------
Alton G. Marshall

/s/ GEORGE R. PEACOCK Trustee
- -----------------------------------------------------
George R. Peacock

/s/ ROBERT C. ROBB, JR. Trustee
- -----------------------------------------------------
Robert C. Robb, Jr.

/s/ PHILLIP E. STEPHENS Trustee
- -----------------------------------------------------
Phillip E. Stephens

30
33

INDEPENDENT AUDITORS' REPORT

Board of Trustees and Shareholders
EQK Realty Investors I:

We have audited the accompanying balance sheets of EQK Realty Investors I
(a Massachusetts business Trust) as of December 31, 1998 and 1997 and related
statements of operations, shareholders' deficit, and cash flows for each of the
three years in the period ended December 31, 1998. Our audits also included the
financial statement schedule listed in the Index at Item 14. These financial
statements and the financial statement schedule are the responsibility of the
Trust's management. Our responsibility is to express an opinion on the financial
statements and the financial statement schedule 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 our audits provide a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of EQK Realty Investors I as of December 31,
1998 and 1997 and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1998 in conformity with
generally accepted accounting principles. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth herein.

The accompanying financial statements have been prepared assuming the Trust
will continue as a going concern. As discussed in Note 3 to the financial
statements, the Trust's existing mortgage note and term loan mature on June 15,
1999. The potential inability of the Trust to refinance this debt or to generate
sufficient proceeds from property sales to repay the debt raises substantial
doubt about the Trust's ability to continue as a going concern. Management's
plans concerning these matters are also described in Note 3. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

Atlanta, Georgia
March 26, 1999

31
34

EQK REALTY INVESTORS I

BALANCE SHEETS

DECEMBER 31, DECEMBER 31,
1998 1997
-------------- --------------
(IN THOUSANDS, EXCEPT SHARE DATA)

ASSETS

Real estate held for sale................................... $ 39,360 $ --

Investment in real estate, at cost.......................... -- 58,466

Less accumulated depreciation............................. -- 19,170
--------- ---------

Investment in real estate, net.............................. -- 39,296

Cash and cash equivalents:
Cash Management Agreement................................. 3,390 2,486
Other..................................................... 471 837

Accounts receivable and other assets (net of allowance of
$67 and $214, respectively)............................... 1,881 2,448
--------- ---------

Total Assets...................................... $ 45,102 $ 45,067
========= =========

LIABILITIES AND DEFICIT IN SHAREHOLDERS' EQUITY

Liabilities:

Mortgage note payable..................................... $ 43,794 $ 43,794

Term loan payable to bank................................. 1,580 1,585

Accounts payable and other liabilities (including amounts
due affiliates of $3,107 and $3,117, respectively)..... 4,560 4,670
--------- ---------

49,934 50,049

Commitments and Contingencies (Note 7)

Deficit in Shareholders' Equity:

Shares of beneficial interest, without par value:
10,055,555 shares authorized, 9,632,212 and 9,264,344
shares issued and outstanding in 1998 and 1997,
respectively......................................... 135,875 135,875

Accumulated deficit.................................... (140,707) (140,857)
--------- ---------

(4,832) (4,982)
--------- ---------

Total Liabilities and Deficit in Shareholders'
Equity.......................................... $ 45,102 $ 45,067
========= =========

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

32
35

EQK REALTY INVESTORS I

STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)

Revenues from rental operations............................. $6,191 $ 6,158 $ 6,174

Operating expenses, net of tenant reimbursements (including
property management fees earned by an affiliate of $228,
$307, and $297, respectively)............................. 769 1,083 887

Depreciation and amortization............................... 588 2,181 2,212

Other income................................................ -- -- (268)
- ----------------------------------------------------------------------------------------------

Income from rental operations............................... 4,834 2,894 3,343

Interest expense............................................ 4,219 4,397 4,075

Other expenses, net of interest income (including portfolio
management fees earned by an affiliate of $232, $242, and
$250, respectively)....................................... 465 458 756
- ----------------------------------------------------------------------------------------------

Net income (loss)........................................... $ 150 $(1,961) $(1,488)
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------

Net income (loss) per share................................. $ 0.02 $ (0.21) $ (0.16)
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

33
36

EQK REALTY INVESTORS I

STATEMENTS OF SHAREHOLDERS' DEFICIT

NUMBER OF SHARES OF
SHARES ISSUED BENEFICIAL ACCUMULATED
AND OUTSTANDING INTEREST DEFICIT TOTAL
--------------- ---------- ----------- -------
(IN THOUSANDS, EXCEPT SHARE DATA)

Balance, December 31, 1995....................... 9,264,344 $135,875 $(137,408) $(1,533)
- -------------------------------------------------------------------------------------------------------

Net loss......................................... -- -- (1,488) (1,488)

Balance, December 31, 1996....................... 9,264,344 135,875 (138,896) (3,021)
- -------------------------------------------------------------------------------------------------------

Net loss......................................... -- -- (1,961) (1,961)

Balance, December 31, 1997....................... 9,264,344 135,875 (140,857) (4,982)
- -------------------------------------------------------------------------------------------------------

Shares Issued.................................... 367,868 -- -- --

Net income....................................... -- -- 150 150

Balance, December 31, 1998....................... 9,632,212 $135,875 $(140,707) $(4,832)
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

34
37

EQK REALTY INVESTORS I

STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31,
--------------------------
1998 1997 1996
------ ------- -------
(IN THOUSANDS)

Cash flows from operating activities:
Net income (loss)......................................... $ 150 $(1,961) $(1,488)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization.......................... 588 2,181 2,212
Amortization of deferred financing costs............... 186 351 179
Imputed and deferred interest.......................... -- -- 302
Changes in assets and liabilities:
Increase in accounts payable and other liabilities..... 252 198 140
(Increase) decrease in accounts receivable and other
assets................................................ 421 (537) 37
- ----------------------------------------------------------------------------------------
Net cash provided by operating activities................... 1,597 232 1,382
- ----------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to real estate investments...................... (652) (546) (195)
- ----------------------------------------------------------------------------------------
Net cash used in investing activities....................... (652) (546) (195)
- ----------------------------------------------------------------------------------------
Cash flows from financing activities:
Scheduled repayments of debt.............................. (5) -- (333)
Payment of deferred financing costs....................... (402) (24) (165)
- ----------------------------------------------------------------------------------------
Net cash used in financing activities....................... (407) (24) (498)
- ----------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents............ 538 (338) 689
Cash and cash equivalents beginning of year................. 3,323 3,661 2,972
- ----------------------------------------------------------------------------------------
Cash and cash equivalents end of year....................... $3,861 $ 3,323 $ 3,661
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Interest paid............................................... $4,058 $ 4,022 $ 3,886
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

35
38

EQK REALTY INVESTORS I

NOTES TO FINANCIAL STATEMENTS

NOTE 1: DESCRIPTION OF BUSINESS

EQK Realty Investors I, a Massachusetts business trust (the "Trust"), was
formed pursuant to an Amended and Restated Declaration of Trust dated February
27, 1985, as amended on March 5, 1986, to acquire certain income-producing real
estate investments. Commencing with the period beginning April 1, 1985, the
Trust qualified for and elected real estate investment trust ("REIT") status
under the provisions of the Internal Revenue Code. Lend Lease Portfolio
Management, Inc. (formerly ERE Yarmouth Portfolio Management, Inc.) serves as
the "Advisor" to the Trust.

At December 31, 1998, the Trust's remaining real estate investment is
Harrisburg East Mall (the "Mall"), a regional shopping center in Harrisburg,
Pennsylvania, which is currently held for sale. On December 8, 1995, the Trust
sold its remaining interest in Castleton Park ("Castleton"), an office park in
Indianapolis, Indiana. The Trust sold office buildings comprising an office
complex located in Atlanta, Georgia, formerly known as Peachtree-Dunwoody
Pavilion ("Peachtree") during 1992 and 1993. In 1991, the Trust completed the
sale of two office buildings at Castleton.

The Declaration of Trust provides for the Trust's existence and a maximum
holding period for its real estate investments of 14 years. The Declaration of
Trust further provides that this 14-year term may be extended by up to two years
upon the recommendation of the Trustees and the affirmative vote of a majority
of its shareholders. Recognizing that the disposition of the Mall would not be
completed prior to the initial maturity date of the Trust's term (March 5,
1999), the Board of Trustees recommended a two-year extension of the Trust's
life (through March 5, 2001). As discussed in Note 9, this recommendation was
approved by the shareholders at a Special Meeting of Shareholders held on
February 23, 1999.

The Merger consideration will be comprised entirely of ART Series F
Cumulative Convertible Preferred Stock with a par value of $2.00 per share and a
liquidation value of $10.00 per share. ("ART Preferred Shares"). The merger will
be effected by (i) ART's acquisition of 4,376,056 shares currently held by four
EQK shareholders (the "Selling Shareholders") and (ii) ART's receipt of 673,976
shares newly issued by the Trust (which, together with Shares currently
outstanding, constitutes "EQK Shares"), the combined effect of which will give
ART an approximate 49% interest in EQK. The Selling Shareholders will receive
for each EQK Share sold 0.030 of an ART Preferred Share with a corresponding
liquidation value of $0.30 per EQK Share sold. The remaining shareholders will
be entitled to retain their Shares at the time of the Merger, but will be
compensated for the dilution in their percentage ownership interest through the
receipt of 0.014 of an ART Preferred Share with a corresponding liquidation
value of $0.14 per EQK Share held. In addition, ART currently intends (but is
not legally obligated) to acquire the remaining EQK Shares from such other
shareholders at some time after the third anniversary of the consummation of the
Merger for not less than 0.0486 of an ART Preferred Share with a liquidation
value of $0.486 for each EQK Share tendered.

36
39
EQK REALTY INVESTORS I

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

for this property will be a $1,250,000 non-recourse five-year promissory note.
The Trust will also assume approximately $1,500,000 of existing debt.

Because the Merger was not completed by December 15, 1998, the Revised
Merger Agreement is currently terminable by either ART or the Trust. The Revised
Merger Agreement also may be terminated by the Trust if (i) the Trust secures a
more favorable offer from another party subject to the payment of the Break-Up
Consideration; or (ii) the Revised Merger Agreement in any way impairs or delays
the sale of the Mall, or is likely to result in a material reduction in
proceeds.

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CAPITALIZATION, DEPRECIATION AND AMORTIZATION

Property additions are recorded at cost. Costs directly associated with
major renovations and improvements, including interest on funds borrowed to
finance construction, are capitalized to the point of substantial completion.
Costs incurred in connection with the execution of a new lease including leasing
commissions, costs associated with the acquisition or buyout of existing leases
and legal fees are deferred and amortized over the term of the new lease.

Depreciation of real estate investments was provided on a straight-line
basis over the estimated useful lives of the related assets, ranging generally
from 5 to 40 years. Tenant improvements were amortized over their estimated
useful lives, which do not exceed the terms of the respective tenant leases.
Intangible assets are amortized on a straight-line basis over their estimated
useful lives.

The Trust discontinued recording depreciation and amortization expense on
its investment in real estate when the investment was transferred to real estate
held for sale on April 1, 1998.

Additional depreciation recorded in the fourth quarter of 1998 represents
the write off a non-recoverable tenant allowance.

37
40
EQK REALTY INVESTORS I

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Deferred financing costs are included in accounts receivable and other
assets on the Balance Sheets. Deferred financing costs are amortized over the
life of the related debt and such amortization is included in interest expense
on the Statements of Operations.

VALUATION OF REAL ESTATE

At December 31, 1997 the investment in real estate was recorded at cost
less accumulated depreciation. In accordance with Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," the Trust considers, on a
quarterly basis, whether events or changes in circumstances indicate that the
carrying amount of its real estate investments may not be recoverable based on
estimates of future undiscounted cash flows without interest expense. In the
event such projected undiscounted future cash flows are less than the
depreciated cost of the property, the investment in real estate is written down
to its estimated fair market value.

The Trust is actively attempting to sell the Mall and, therefore, has
classified its investment in real estate on the balance sheet as held for sale
beginning April 1, 1998. Accordingly, all real estate assets, including deferred
leasing costs, are recorded at the lower of cost or estimated fair market value,
less estimated costs to sell. Depreciation is not recorded for real estate
assets held for sale. Therefore, the Trust discontinued recording depreciation
and amortization of real estate assets on April 1, 1998.

REVENUE RECOGNITION

Minimum rents are recognized on a straight-line basis over the term of the
related leases. Percentage rents are recognized on an accrual basis.

NET INCOME (LOSS) PER SHARE

The net income (loss) per Share calculation is based on the weighted
average number of Shares outstanding during the year, which was 9,505,222 for
1998 and 9,264,344 for both 1997 and 1996.

Share warrants issued in connection with the Trust's 1992 debt
restructuring (see Note 3) are considered common share equivalents. On March 19,
1998, The Prudential Insurance Company of America (Mortgage Note Lender)
exercised its warrants for 367,868 Shares of the Trust at $.0001 per Share. Such
Shares were issued to the Mortgage Note Lender on May 7, 1998, bringing the
total number of issued and outstanding Shares of the Trust to 9,632,212. As
such, these Shares were included in the net income per Share calculation for
1998. In 1997 and 1996, the warrants were not included in the net loss per Share
calculation since the effect on such calculation would be anti-dilutive.

INCOME TAXES

The Trust has complied with all applicable provisions established by the
Internal Revenue Code for maintaining its REIT status. Accordingly, no income
tax provision or benefit has been recognized in the accompanying financial
statements.

CASH EQUIVALENTS

Cash equivalents include short-term investments with an original maturity
of three months or less.

FAIR VALUES OF FINANCIAL INSTRUMENTS

The Trust values its financial instruments as required by Statement of
Financial Accounting Standards No. 107, "Disclosure about Fair Values of
Financial Instruments". Based on rates currently available to the

38
41
EQK REALTY INVESTORS I

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Trust for comparable financial instruments, the Trust believes the carrying
amounts of cash and cash equivalents, the Mortgage Note and the Term Loan
approximate fair value.

RECLASSIFICATIONS

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

MANAGEMENT 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, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

NOTE 3: MORTGAGE DEBT AND RESTRUCTURING ACTIVITIES

Since December 15, 1992, the Trust has had in place a "Mortgage Note" with
the Mortgage Note Lender, which had an initial balance of $75,689,000, and an
original maturity date of December 15, 1995. The interest rates on the Mortgage
Note averaged 9.79% over its initial three year term. However, the Mortgage Note
required monthly payments of interest only at the rate of 8.54% per annum.

In connection with the December 15, 1992 debt financings, the Trust issued
1,675,000 previously repurchased shares of its stock to its Advisor for
consideration of $6,700,000, or $4.00 per share. The Trust may, at its
discretion, reissue additional 423,343 shares previously repurchased. Any
issuance of shares in excess of the shares previously repurchased would require
shareholder approval.

Under the terms of the Mortgage Note, the Mortgage Note Lender received
warrants to purchase 367,868 Shares of the Trust at $.0001 per share. On March
19, 1998, the Mortgage Note Lender exercised the warrants. (See Note 2.)

The Trust also has had a "Term Loan" with PNC Bank N.A. ("Term Loan
Lender") in place since December 15, 1992 bearing interest at 8.33% per annum
and requiring payments at the same annual rate of 8.54% as was required under
the Mortgage Note. The Term Loan is collateralized by a subordinate lien on the
Mall. The payments made in excess of the interest rate were applied to the
principal balance of the Term Loan such that the original principal balance of
$2,859,000 would have been reduced over its three-year term to $2,839,000,
absent any prepayments arising from property dispositions. In December 1995, the
Trust used proceeds from the sale of Castleton to retire a portion of the Term
Loan. The remaining principal balance of the Term Loan as of December 15, 1995
was $1,587,000.

As part of the 1992 restructuring, the Trust entered into a Cash Management
Agreement with the Mortgage Note Lender and assigned all lease and rent receipts
to the Mortgage Note Lender as additional collateral. Pursuant to this
agreement, a third-party escrow agent has been appointed to receive all rental
payments from tenants and to fund monthly operating expenses in accordance with
a budget approved by the Mortgage Note Lender. As of December 31, 1998, a
balance of $1,965,000, was held by the third-party escrow agent in accordance
with the Cash Management Agreement. The agreement also provides for the
establishment of a capital reserve account, which is maintained by the escrow
agent. Disbursements from this account,

39
42
EQK REALTY INVESTORS I

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

which is funded each month with any excess operating cash flow, are limited to
capital expenditures approved by the Mortgage Note Lender. As of December 31,
1998 the balance of the capital reserve account was $1,425,000.

EXTENSIONS OF DEBT

The Trust's Mortgage Note Lender and Term Loan Lender have agreed to extend
the maturity date of the loans twice; first, for a period of one year through
December 15, 1996, and second, for a period of 18 months through June 15, 1998.
The Mortgage Note remains collateralized by a first mortgage lien on the Mall,
an assignment of leases and rents, and certain cash balances. The Term Loan
remains collateralized by a subordinate lien on the Mall.

Following the June 15, 1998 scheduled maturity date, the Mortgage Note
Lender granted two six-month forbearance arrangements (through December 15, 1998
and then through June 15, 1999) wherein it agreed not to exercise remedies for
non-payment of the outstanding principal balance. The Term Loan Lender has
granted two six-month extensions of its maturity dates so as to coincide with
such forbearance periods. The forbearance and extension arrangements are
conditioned upon, among other things, the Trust continuing to make timely debt
service payments in monthly amounts equal to those amounts stipulated in the
December 1996 debt extension agreements.

The Mortgage Note has been amended effective December 16, 1996 to provide
for monthly payments of interest only accruing at the rate of 8.88% per annum
($324,000 per month). This interest rate reflects an increase from the 8.54%
interest rate in effect during the initial extension period (December 16, 1995
to December 15, 1996).

In consideration for the extension of the maturity date of the Mortgage
Note through June 15, 1998, the Trust paid an up-front application fee of
$165,000 and agreed to pay a back-end fee of $272,900, plus interest thereon at
the contract rate of 8.88% at maturity. On June 15, 1998, the Trust paid the
back-end fee plus interest in the aggregate amount of $309,200 to the Mortgage
Note Lender. In consideration for the extension of the maturity date of the Term
Loan the Trust paid an extension fee of $23,800 in 1997 and paid additional loan
fees of $88,100 to the Term Loan Lender on June 15, 1998.

In consideration for the extension of the forbearance agreement relating to
the Mortgage Note through June 15, 1999, the Trust paid an extension fee of
$25,000. In consideration for the extension of the maturity date of the Term
Loan through June 15, 1999 the Trust agreed to pay an extension fee of $8,000.

As discussed above, the Trust's expiration date of its forbearance and
extension arrangements is June 15, 1999. The potential inability of the Trust to
refinance this debt or to generate sufficient proceeds from the sale of the Mall
to repay the debt raises substantial doubt about the Trust's ability to continue
as a going concern. The Trust has entered into a non-binding letter of intent to
sell the Mall for approximately $51 million (see Note 9), although there is no
assurance that the sale of the Mall will be completed. The Management of the
Trust believes that the proceeds from the sale of the Mall will be sufficient to
allow the Trust to repay the Mortgage Note and Term Loan, although there can be
no assurance a sale will be completed by June 15, 1999. In the event the sale of
the Mall is not completed by June 15, 1999, Management will propose to its
lenders that further forebearance and extensions be granted. However, no
assurance can be given that the lenders will grant such relief. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
40
43
EQK REALTY INVESTORS I

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 4: LEASING ARRANGEMENTS

The Trust leases shopping center space generally under non-cancelable
operating leases, some of which contain renewal options. The shopping center
leases generally provide for minimum rentals, plus percentage rentals based upon
the retail stores' sales volume. Percentage rentals amounted to $272,000,
$122,000, and $179,000 for the years ended December 31, 1998, 1997, and 1996,
respectively. In addition, the tenants pay certain utility charges to the Trust.
In most leases, tenants reimburse their proportionate share of real estate taxes
and common area expenses. Recoveries of common area and real estate tax expenses
amounted to $2,418,000, $2,299,000, and $2,313,000 for the years ended December
31, 1998, 1997, and 1996, respectively.

Future minimum rentals under existing, non-cancelable leases at December
31, 1998 are as follows:

YEARS ENDING DECEMBER 31, AMOUNT
------------------------- -----------

1999................................................. $ 4,828,000
2000................................................. 4,590,000
2001................................................. 3,864,000
2002................................................. 3,464,000
2003................................................. 3,039,000
Thereafter........................................... 9,468,000
-----------
$29,253,000
===========

The Limited Inc. operates seven stores at the Mall. Revenues from these
tenants represented approximately 14.2% and 13.0% of the Mall's total revenues
in 1998 and 1997, respectively. No other individual tenant, or group of
affiliated tenants, contributed more than 10% to the Mall's total revenues in
any of the three years in the period ended December 31, 1998.

Prior to 1998, due to the temporary closure of two of the anchor stores
operating at the Mall, certain tenants exercised the right, as provided for
under co-tenancy provisions set forth in their respective leases, to pay
percentage rent in lieu of fixed minimum rents which amounted to $228,000 and
$663,000, for the years ended December 31, 1997 and 1996, respectively. The
rental payment obligations of substantially all of these tenants reverted back
to fixed minimum rent upon the March 10, 1997 opening of a Lord & Taylor
department store at the Mall.

NOTE 5: INVESTMENT IN REAL ESTATE

The Trust's investment in real estate at December 31, 1997 consisted of the
following:

Land........................................................ $ 4,700,000
Buildings and improvements.................................. 45,356,000
Deferred leasing costs...................................... 5,692,000
Tenant improvements......................................... 2,555,000
Personal property........................................... 163,000
-----------
$58,466,000
===========

Additions to real estate investments in 1997 primarily consisted of minor
building and tenant improvements to the Mall.

Deferred leasing costs include a 1990 payment of $5,500,000 made to an
anchor tenant at the Mall in exchange for the tenant relinquishing space that
was subsequently converted into leasable area for mall shops.

41
44
EQK REALTY INVESTORS I

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 6: ADVISORY AND MANAGEMENT AGREEMENTS

ADVISORY AGREEMENT

The Advisor is a wholly owned subsidiary of Lend Lease Real Estate
Investments, (formerly ERE Yarmouth, Inc.). The Advisor makes recommendations to
the Trust concerning investments, administration and day-to-day operations.

Under the terms of the advisory agreement, as amended in December 1989, the
Advisor receives a management fee that is based upon the average daily per share
price of the Trust's shares plus the average daily balance of outstanding
mortgage indebtedness. Such fee is calculated using a factor of 42.5 basis
points (0.425%) and generally has been payable monthly without subordination.
However, given the Shares of the Trust are no longer traded on a market with
readily available market values, the Trustees have agreed on a stipulated rate
of $0.75 per share to be used for purposes of calculating the management fee for
the period of May 4, 1998 through December 31, 1998.

Commencing with the December 1995 extension of debt and continuing with the
December 1996 debt extension (See Note 3), the Mortgage Note Lender has
requested, and the Advisor has agreed to, a partial deferral of payment of its
fee. Whereas the fee continues to be computed as described above, payments to
the Advisor are limited to $37,500 per quarter. Accrued but unpaid amounts will
be eligible for payment upon the repayment of the Mortgage Note. For the years
ended December 31, 1998, 1997 and 1996, portfolio management fees were $232,000,
$242,000, and $250,000, respectively. The balance of deferred advisory fees at
December 31, 1998 was $299,000.

As of December 31, 1989, portfolio management fees of $5,440,000 payable to
the Advisor were deferred in accordance with subordination provisions contained
in the original advisory agreement. Pursuant to the amended advisory agreement,
the Advisor forgave one-half, or $2,720,000, of the deferred balance. The
remaining deferred fees are to be paid upon the disposition of the Trust's
properties. As of December 31, 1998, the liability for deferred management fees
was $2,720,000.

Upon the sale of all or any portion of any real estate investment of the
Trust, the Advisor will receive a disposition fee equal to 2% of the gross sale
price (including outstanding indebtedness taken subject to or assumed by the
buyer and any purchase money indebtedness taken back by the Trust). The
disposition fee will be reduced by the amount of any brokerage commissions and
legal expenses incurred by the Trust in connection with such sales. The Trust
incurred no disposition fees during the years ended December 31, 1998, 1997, and
1996.

In connection with the December 15, 1996 extension of debt (See Note 3),
the Advisor earned a refinancing fee of $50,000, which will be paid upon the
retirement of the debt.

PROPERTY MANAGEMENT AGREEMENTS

The Trust has also entered into an agreement with ERE Yarmouth Retail, Inc.
(the "Manager"), formerly Compass Retail, Inc., for the on-site management of
the Mall. ERE Yarmouth Retail, Inc. is a wholly owned subsidiary of Lend Lease
Real Estate Investments, Inc. On September 30, 1998, Lend Lease Real Estate
Investments, Inc. sold the Manager to LaSalle Partners, Incorporated
("LaSalle"), which is not affiliated with the Trust or the Advisor. An affiliate
of LaSalle will continue to manage the Mall pursuant to the terms of the
original management agreement.

Management fees paid to the Manager are generally based upon a percentage
of rents and certain other charges. The Trust believes that such fees and
commissions are comparable to those charged by unaffiliated third-party
management companies providing comparable services. The Manager earned
management fees of $228,000 during the nine months ended September 30, 1998. For
the years ended December 31, 1997 and 1996, management fees paid to the Manager
were $307,000, and $297,000, respectively.

42
45
EQK REALTY INVESTORS I

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

SHARE OWNERSHIP

In connection with a debt restructuring in December 1992, the Trust issued
1,675,000 previously repurchased Shares to its Advisor for $6,700,000, or $4.00
per Share. In total, the Advisor owns 1,685,556 Shares, or 17.5% of the total
Shares outstanding.

NOTE 7: COMMITMENTS AND CONTINGENCIES

On February 3, 1998, the Trust, its trustees, and its Advisor were named as
defendants in a purported class action complaint filed by a shareholder in
Massachusetts State court. The complaint seeks to enjoin the Merger and also
seeks other relief including unspecified damages. The Trust is vigorously
pursuing its legal defenses and believes that the disposition of this matter
will not have a material adverse affect on the financial position of the Trust.

NOTE 8: SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

The following is a summary of selected quarterly financial data for the
years ended December 31, 1998 and 1997:

QUARTER ENDED
---------------------------------------------------
1998 MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
- ---- --------- -------- ------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Revenues from rental operations........... $1,553 $1,337 $1,619 $1,682
Income from rental operations............. 760 968 1,429 1,677
Net income (loss)(1)...................... (335) (145) 282 348
Net income (loss) per share............... (.04) (.02) .03 .05

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

(1) The 1998 results reflect the cessation of depreciation and amortization of
the Mall's assets as a result of the Trust's real estate being classified as
"held for sale" as of April 1, 1998.

QUARTER ENDED
---------------------------------------------------
1997 MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
- ---- --------- -------- ------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Revenues from rental operations........... $1,413 $1,557 $1,545 $1,643
Income from rental operations............. 628 727 625 563
Net loss.................................. (478) (375) (565) (543)
Net loss per share........................ (.05) (.04) (.06) (.06)

NOTE 9: SUBSEQUENT EVENTS

A Special Meeting of Shareholders was held on February 23, 1999, to
consider and vote upon a proposal to extend the Trust's existence for a period
of two years in accordance with the Trust's Amended and Restated Declaration of
Trust. An affirmative vote of the majority of the shareholders was received in
favor of extending the Trust's existence for a period of two years beyond March
5, 1999.

On March 5, 1999, the Trust entered into a non-binding letter of intent to
sell the Mall to a private real estate group for approximately $51 million. The
sale is expected to close during the second quarter of 1999. Closing is subject
to a number of conditions, however, including satisfactory completion of due
diligence, the purchaser's obtaining financing and the execution of a definitive
purchase and sale agreement. Accordingly, there is no assurance that a sale will
be completed at the current price or at all. The letter of intent provides that
the Trust may not solicit, negotiate or execute other offers for the sale of the
Mall prior to May 15, 1999, unless the prospective purchaser terminates
negotiations under the letter of intent prior to that date.

43
46
EQK REALTY INVESTORS I

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

FINANCIAL STATEMENT SCHEDULE
DECEMBER 31, 1998
(IN THOUSANDS)

SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION(5)

COST
CAPITALIZED
SUBSEQUENT
TO
ACQUISITION
------------ GROSS AMOUNT AT WHICH CARRIED
AT CLOSE OF PERIOD(3)
INITIAL COST DEFERRED -----------------------------------------
------------------ LEASING DEFERRED
BLDG & COSTS & BLDG. & LEASING
DESCRIPTION ENCUMBRANCE LAND IMPROVE. IMPROVEMENTS LAND IMPROVE. COSTS TOTAL
- ----------- ----------- ------ -------- ------------ ------ -------- -------- -------

Harrisburg East Mall...... $45,374(1) $4,700(2) $31,287(2) $23,131 $4,700(2) $ 48,726 $5,692(6) $59,118
Harrisburg, PA
------- ------ ------- ------- ------ -------- ------ -------
Totals.................... $45,379 $4,700 $31,287 $23,131 $4,700 $ 48,726 $5,692 $59,118
======= ====== ======= ======= ====== ======== ====== =======

LIFE ON WHICH
DEPRECIATION
ACCUM. IN LATEST
DEPRECIATION DATE OF DATE INCOME STMT.
DESCRIPTION & AMORTIZATION CONSTRUCTION ACQUIRED IS COMPUTED
- ----------- -------------- ------------ -------- -------------

Harrisburg East Mall...... $19,758 1969(4) 3/13/85 30 yrs.
Harrisburg, PA
------- ---- ------- -------
Totals.................... $19,758
======= ==== ======= =======

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

(1) Encumbrance is a mortgage note payable constituting first lien on the Mall
and a term loan payable to a bank constituting subordinated lien on the
property.
(2) Initial cost is net of imputed interest of $5,280 at date of acquisition.
(3) The aggregate tax basis of the Trust's land and building is $54 million as
of December 31, 1998.
(4) Renovation of the Mall was completed in 1993.
(5) As discussed in Note 1, the Trust intends to sell the Mall and as such, its
investment in real estate is presented on the balance sheet as held for sale
at December 31, 1998. This asset includes deferred leasing costs, and is
carried at the lower of cost or fair value less cost to sell. Depreciation
and amortization of the Mall's assets ceased beginning April 1, 1998.
(6) Included in deferred leasing costs is a 1990 payment of $5,500,000 made to
an anchor tenant at the Mall in exchange for the tenant relinquishing space
that was subsequently converted into leasable are for mall shops.

RECONCILIATION OF GROSS CARRYING AMOUNT OF REAL ESTATE:
Balance, December 31, 1995...................... $57,725
Improvements and Additions.................... 195
-------
Balance, December 31, 1996...................... 57,920
Improvements and Additions.................... 546
-------
Balance, December 31, 1997...................... 58,466
Improvements and Additions.................... 652
-------
Balance, December 31, 1998...................... $59,118
=======
RECONCILIATION OF ACCUMULATED DEPRECIATION &
AMORTIZATION:
Balance, December 31, 1995...................... $14,777
Depreciation & amortization expense........... 2,212
-------
Balance, December 31, 1996...................... 16,989
Depreciation & amortization expense........... 2,181
-------
Balance, December 31, 1997...................... 19,170
Depreciation & amortization expense........... 588
-------
Balance, December 31, 1998...................... $19,758
=======