Exhibit 13

Annual report to security holders

The annual report to shareholders has not been completed as of this filing and will be furnished to the Securities and Exchange Commission in its entirety on or
before April 8, 2003.

The
financial section of the annual report, which is incorporated by reference, is final and is enclosed as Exhibit 13. This financial section includes all the information
incorporated by reference in Parts I, II and IV of this Form 10-K Annual Report for the fiscal year ended December 31, 2002.

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The Rouse Company and Subsidiaries  MANAGEMENT'S STATEMENT ON RESPONSIBILITIES FOR ACCOUNTING,  AUDITING AND FINANCIAL REPORTING

The financial statements and other information included in the financial review section of this annual report to shareholders have been prepared by management.
Financial information presented elsewhere in this report is consistent with the data presented in the financial review section.

The
consolidated financial statements have been prepared using accounting principles generally accepted in the United States of America considered appropriate in the circumstances.
Preparation of the financial statements and other financial information requires the use of estimation and judgment. We have made these estimates and judgments based on extensive experience and
substantive understanding of relevant events and transactions. The primary objective of financial reporting is to provide users of financial statements with sufficient, relevant information to enable
them to evaluate our financial position and results of operations.

In
fulfilling our responsibility for the reliability and integrity of financial information, we have established and maintain a system of internal control. We believe that this system
provides reasonable assurance regarding achievement of our objectives with respect to the reliability of financial reporting, the effectiveness and efficiency of operations and compliance with
applicable laws and regulations. This system is supported by our business ethics policy and is regularly tested by internal auditors. The independent auditors also consider the system of internal
control to the extent necessary to determine the nature, timing and extent of their audit procedures.

The
Audit Committee of the Board of Directors is composed of directors who are neither officers nor employees of the Company. The Committee meets periodically with management, our
internal auditors and the independent auditors to review the work and conclusions of each. The internal auditors and the independent auditors have full and free access to the Audit Committee and meet
with it, with and without management present, to discuss accounting, auditing and financial reporting matters. The Audit Committee recommends, and the Board of Directors appoints, the independent
auditors.

1

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The Rouse Company and Subsidiaries  CONSOLIDATED BALANCE SHEETS  December 31, 2002 and 2001  (in thousands, except common share data)

|                                                                                                                                      |                                                                                | 2002                                           |           | 2001      |          
|------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------ | ---------------------------------------------- | --------- | --------- | ---------
|Assets                                                                                                                                |                                                                                |                                                |           |           |          
|Property:                                                                                                                             |                                                                                |                                                |           |           |          
|                                                                                                                                      | Operating properties:                                                          |                                                |           |           |          
|                                                                                                                                      |                                                                                | Property and deferred costs of projects        |           | $         | 5,912,904
|                                                                                                                                      |                                                                                | Less accumulated depreciation and amortization |           |           | 981,676  
|                                                                                                                                      |                                                                                |                                                |           |           |          
|                                                                                                                                      |                                                                                |                                                | 4,931,228 |           |          
|                                                                                                                                      | Properties in development                                                      |                                                |           | 176,214   |          
|                                                                                                                                      | Investment land and land held for development and sale                         |                                                |           | 321,744   |          
|                                                                                                                                      |                                                                                |                                                |           |           |          
|                                                                                                                                      |                                                                                | Total property                                 |           |           | 5,429,186
|Investments in and advances to unconsolidated real estate ventures                                                                    |                                                                                |                                                | 442,405   |           |          
|Prepaid expenses, receivables under finance leases and other assets                                                                   |                                                                                |                                                | 383,914   |           |          
|Accounts and notes receivable                                                                                                         |                                                                                |                                                | 56,927    |           |          
|Investments in marketable securities                                                                                                  |                                                                                |                                                | 32,103    |           |          
|Cash and cash equivalents                                                                                                             |                                                                                |                                                | 41,633    |           |          
|                                                                                                                                      |                                                                                |                                                |           |           |          
|                                                                                                                                      |                                                                                | Total assets                                   |           | $         | 6,386,168
|                                                                                                                                      |                                                                                |                                                |           |           |          
|Liabilities                                                                                                                           |                                                                                |                                                |           |           |          
|Debt:                                                                                                                                 |                                                                                |                                                |           |           |          
|                                                                                                                                      | Property debt not carrying a Parent Company guarantee of repayment             |                                                | $         | 3,271,437 |          
|                                                                                                                                      | Parent Company debt and debt carrying a Parent Company guarantee of repayment: |                                                |           |           |          
|                                                                                                                                      |                                                                                | Property debt                                  |           |           | 158,258  
|                                                                                                                                      |                                                                                | Other debt                                     |           |           | 1,011,782
|                                                                                                                                      |                                                                                |                                                |           |           |          
|                                                                                                                                      |                                                                                |                                                | 1,170,040 |           |          
|                                                                                                                                      |                                                                                |                                                |           |           |          
|                                                                                                                                      |                                                                                | Total debt                                     |           |           | 4,441,477
|                                                                                                                                      |                                                                                |                                                |           |           |          
|Accounts payable, accrued expenses and other liabilities                                                                              |                                                                                |                                                | 696,267   |           |          
|Company-obligated mandatorily redeemable preferred securities of a trust holding solely Parent Company subordinated debt securities   |                                                                                |                                                | 136,340   |           |          
|Commitments and contingencies                                                                                                         |                                                                                |                                                |           |           |          
|Shareholders' equity                                                                                                                  |                                                                                |                                                |           |           |          
|Series B Convertible Preferred stock with a liquidation preference of $202,500                                                        |                                                                                |                                                | 41        |           |          
|Common stock of 1¢ par value per share; 250,000,000 shares authorized; issued 86,909,700 shares in 2002 and 69,354,169 shares in 2001 |                                                                                |                                                | 869       |           |          
|Additional paid-in capital                                                                                                            |                                                                                |                                                | 1,234,848 |           |          
|Accumulated deficit                                                                                                                   |                                                                                |                                                | (109,740  | )         |          
|Accumulated other comprehensive income (loss):                                                                                        |                                                                                |                                                |           |           |          
|                                                                                                                                      | Minimum pension liability adjustment                                           |                                                |           | (3,665    | )        
|                                                                                                                                      | Unrealized net losses on derivatives designated as cash flow hedges            |                                                |           | (10,269   | )        
|                                                                                                                                      |                                                                                |                                                |           |           |          
|                                                                                                                                      |                                                                                | Total shareholders' equity                     |           |           | 1,112,084
|                                                                                                                                      |                                                                                |                                                |           |           |          
|                                                                                                                                      |                                                                                | Total liabilities and shareholders' equity     |           | $         | 6,386,168
|                                                                                                                                      |                                                                                |                                                |           |           |          

The
accompanying notes are an integral part of these statements.

2

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The Rouse Company and Subsidiaries  CONSOLIDATED STATEMENTS OF OPERATIONS  AND COMPREHENSIVE INCOME  Years ended December 31, 2002, 2001 and 2000  (in thousands, except per share data)

|                                                                                                               |                                                                                                                                                                                                                      | 2002                                                |           | 2001    |      | 2000    |        
|-------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------- | --------- | ------- | ---- | ------- | -------
|Revenues                                                                                                       |                                                                                                                                                                                                                      | $                                                   | 1,104,734 |         | $    | 947,057 |        
|Operating expenses, exclusive of provision for bad debts, depreciation and amortization                        |                                                                                                                                                                                                                      |                                                     | 548,523   |         |      | 477,227 |        
|Interest expense                                                                                               |                                                                                                                                                                                                                      |                                                     | 245,321   |         |      | 223,286 |        
|Provision for bad debts                                                                                        |                                                                                                                                                                                                                      |                                                     | 8,994     |         |      | 8,685   |        
|Depreciation and amortization                                                                                  |                                                                                                                                                                                                                      |                                                     | 161,333   |         |      | 129,666 |        
|Other provisions and losses (gains), net                                                                       |                                                                                                                                                                                                                      |                                                     | 37,841    |         |      | 816     |        
|                                                                                                               |                                                                                                                                                                                                                      |                                                     |           |         |      |         |        
|                                                                                                               | Earnings before income taxes, equity in earnings of unconsolidated real estate ventures, net gains (losses) on operating properties, discontinued operations and cumulative effect of change in accounting
principle |                                                     |           | 102,722 |      |         | 107,377
|Income tax provisionprimarily deferred                                                                        |                                                                                                                                                                                                                      |                                                     | 29,975    |         |      | 27,367  |        
|Equity in earnings of unconsolidated real estate ventures                                                      |                                                                                                                                                                                                                      |                                                     | 33,259    |         |      | 32,561  |        
|                                                                                                               |                                                                                                                                                                                                                      |                                                     |           |         |      |         |        
|                                                                                                               | Earnings before net gains (losses) on operating properties, discontinued operations and cumulative effect of change in accounting principle                                                                          |                                                     |           | 106,006 |      |         | 112,571
|Net gains (losses) on operating properties                                                                     |                                                                                                                                                                                                                      |                                                     | 6,823     |         |      | (432    | )      
|                                                                                                               |                                                                                                                                                                                                                      |                                                     |           |         |      |         |        
|                                                                                                               | Earnings from continuing operations                                                                                                                                                                                  |                                                     |           | 112,829 |      |         | 112,139
|Discontinued operations                                                                                        |                                                                                                                                                                                                                      |                                                     | 27,022    |         |      | (1,022  | )      
|Cumulative effect at January 1, 2001 of change in accounting for derivative instruments and hedging activities |                                                                                                                                                                                                                      |                                                     |          |         |      | (411    | )      
|                                                                                                               |                                                                                                                                                                                                                      |                                                     |           |         |      |         |        
|                                                                                                               | Net earnings                                                                                                                                                                                                         |                                                     |           | 139,851 |      |         | 110,706
|Other items of comprehensive income (loss):                                                                    |                                                                                                                                                                                                                      |                                                     |           |         |      |         |        
|                                                                                                               | Minimum pension liability adjustment                                                                                                                                                                                 |                                                     |           | (750    | )    |         | (9     
|                                                                                                               | Unrealized net losses on derivatives designated as cash flow hedges                                                                                                                                                  |                                                     |           | (6,883  | )    |         | (3,386 
|                                                                                                               |                                                                                                                                                                                                                      |                                                     |           |         |      |         |        
|                                                                                                               | Comprehensive income                                                                                                                                                                                                 |                                                     | $         | 132,218 |      | $       | 107,311
|                                                                                                               |                                                                                                                                                                                                                      |                                                     |           |         |      |         |        
|                                                                                                               | Net earnings applicable to common shareholders                                                                                                                                                                       |                                                     | $         | 127,701 |      | $       | 98,556 
|                                                                                                               |                                                                                                                                                                                                                      |                                                     |           |         |      |         |        
|Earnings per share of common stock                                                                             |                                                                                                                                                                                                                      |                                                     |           |         |      |         |        
|                                                                                                               | Basic:                                                                                                                                                                                                               |                                                     |           |         |      |         |        
|                                                                                                               |                                                                                                                                                                                                                      | Continuing operations                               |           | $       | 1.17 |         | $      
|                                                                                                               |                                                                                                                                                                                                                      | Discontinued operations                             |           |         | .32  |         |        
|                                                                                                               |                                                                                                                                                                                                                      | Cumulative effect of change in accounting principle |           |         |     |         |        
|                                                                                                               |                                                                                                                                                                                                                      |                                                     |           |         |      |         |        
|                                                                                                               |                                                                                                                                                                                                                      |                                                     | Net       |         | $    | 1.49    |        
|                                                                                                               |                                                                                                                                                                                                                      |                                                     |           |         |      |         |        
|                                                                                                               | Diluted:                                                                                                                                                                                                             |                                                     |           |         |      |         |        
|                                                                                                               |                                                                                                                                                                                                                      | Continuing operations                               |           | $       | 1.15 |         | $      
|                                                                                                               |                                                                                                                                                                                                                      | Discontinued operations                             |           |         | .32  |         |        
|                                                                                                               |                                                                                                                                                                                                                      | Cumulative effect of change in accounting principle |           |         |     |         |        
|                                                                                                               |                                                                                                                                                                                                                      |                                                     |           |         |      |         |        
|                                                                                                               |                                                                                                                                                                                                                      |                                                     | Net       |         | $    | 1.47    |        
|                                                                                                               |                                                                                                                                                                                                                      |                                                     |           |         |      |         |        

The
accompanying notes are an integral part of these statements.

3

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The Rouse Company and Subsidiaries  CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY  Years ended December 31, 2002, 2001 and 2000  (in thousands, except per share data)

|                                                                                               |                                   | Series B
Preferred
stock |    | Common
stock |   | Additional
paid-in
capital |   | Accumulated
deficit |           | Accumulated
other
comprehensive
income (loss) |   | Total    |         
|---------------------------------------------------------------------------------------------- | --------------------------------- | ------------------------ | -- | ------------ | - | -------------------------- | - | ------------------- | --------- | --------------------------------------------- | - | -------- | --------
|Balance at December 31, 1999                                                                   |                                   | $                        | 41 |              | $ | 707                        |   | $                   | 808,277   |                                               | $ | (169,974 | )       
|Net earnings                                                                                   |                                   |                          |   |              |   |                           |   |                     |          |                                               |   | 170,485  |         
|Other comprehensive income (loss)                                                              |                                   |                          |   |              |   |                           |   |                     |          |                                               |   |         |         
|Dividends declared:                                                                            |                                   |                          |    |              |   |                            |   |                     |           |                                               |   |          |         
|                                                                                               | Common stock  $1.32 per share    |                          |    |             |   |                            |  |                     |           |                                              |   |          | (91,376 
|                                                                                               | Preferred stock  $3.00 per share |                          |    |             |   |                            |  |                     |           |                                              |   |          | (12,150 
|Purchases of common stock                                                                      |                                   |                          |   |              |   | (51                        | ) |                     | (126,264  | )                                             |   |         |         
|Common stock issued pursuant to Contingent Stock Agreement                                     |                                   |                          |   |              |   | 18                         |   |                     | 42,612    |                                               |   |         |         
|Proceeds from exercise of stock options                                                        |                                   |                          |   |              |   | 5                          |   |                     | 8,056     |                                               |   |         |         
|Lapse of restrictions on common stock awards                                                   |                                   |                          |   |              |   |                           |   |                     | 2,988     |                                               |   |         |         
|                                                                                               |                                   |                          |    |              |   |                            |   |                     |           |                                               |   |          |         
|Balance at December 31, 2000                                                                   |                                   |                          | 41 |              |   | 679                        |   |                     | 735,669   |                                               |   | (103,015 | )       
|Net earnings                                                                                   |                                   |                          |   |              |   |                           |   |                     |          |                                               |   | 110,706  |         
|Other comprehensive income (loss)                                                              |                                   |                          |   |              |   |                           |   |                     |          |                                               |   |         |         
|Dividends declared:                                                                            |                                   |                          |    |              |   |                            |   |                     |           |                                               |   |          |         
|                                                                                               | Common stock  $1.42 per share    |                          |    |             |   |                            |  |                     |           |                                              |   |          | (97,966 
|                                                                                               | Preferred stock  $3.00 per share |                          |    |             |   |                            |  |                     |           |                                              |   |          | (12,150 
|Purchases of common stock                                                                      |                                   |                          |   |              |   | (11                        | ) |                     | (28,188   | )                                             |   |         |         
|Common stock issued pursuant to Contingent Stock Agreement                                     |                                   |                          |   |              |   | 16                         |   |                     | 40,804    |                                               |   |         |         
|Proceeds from exercise of stock options                                                        |                                   |                          |   |              |   | 9                          |   |                     | 8,863     |                                               |   |         |         
|Common stock issued in acquisition of voting interests in majority financial interest ventures |                                   |                          |   |              |   | 1                          |   |                     | 3,499     |                                               |   |         |         
|Lapse of restrictions on common stock awards                                                   |                                   |                          |   |              |   |                           |   |                     | 2,704     |                                               |   |         |         
|                                                                                               |                                   |                          |    |              |   |                            |   |                     |           |                                               |   |          |         
|Balance at December 31, 2001                                                                   |                                   |                          | 41 |              |   | 694                        |   |                     | 763,351   |                                               |   | (102,425 | )       
|Net earnings                                                                                   |                                   |                          |   |              |   |                           |   |                     |          |                                               |   | 139,851  |         
|Other comprehensive income (loss)                                                              |                                   |                          |   |              |   |                           |   |                     |          |                                               |   |         |         
|Dividends declared:                                                                            |                                   |                          |    |              |   |                            |   |                     |           |                                               |   |          |         
|                                                                                               | Common stock  $1.56 per share    |                          |    |             |   |                            |  |                     |           |                                              |   |          | (135,016
|                                                                                               | Preferred stock  $3.00 per share |                          |    |             |   |                            |  |                     |           |                                              |   |          | (12,150 
|Purchases of common stock                                                                      |                                   |                          |   |              |   | (7                         | ) |                     | (21,181   | )                                             |   |         |         
|Common stock issued pursuant to Contingent Stock Agreement                                     |                                   |                          |   |              |   | 6                          |   |                     | 19,350    |                                               |   |         |         
|Proceeds from exercise of stock options                                                        |                                   |                          |   |              |   | 9                          |   |                     | 14,339    |                                               |   |         |         
|Other common stock issuances                                                                   |                                   |                          |   |              |   | 167                        |   |                     | 456,180   |                                               |   |         |         
|Lapse of restrictions on common stock awards                                                   |                                   |                          |   |              |   |                           |   |                     | 2,809     |                                               |   |         |         
|                                                                                               |                                   |                          |    |              |   |                            |   |                     |           |                                               |   |          |         
|Balance at December 31, 2002                                                                   |                                   | $                        | 41 |              | $ | 869                        |   | $                   | 1,234,848 |                                               | $ | (109,740 | )       
|                                                                                               |                                   |                          |    |              |   |                            |   |                     |           |                                               |   |          |         

The accompanying notes are an integral part of these statements.

4

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The Rouse Company and Subsidiaries  CONSOLIDATED STATEMENTS OF CASH FLOWS  Years ended December 31, 2002, 2001 and 2000  (in thousands)

|                                                                                               |                              | 2002                                             |          | 2001     |          | 2000     |         
|---------------------------------------------------------------------------------------------- | ---------------------------- | ------------------------------------------------ | -------- | -------- | -------- | -------- | --------
|Cash flows from operating activities                                                           |                              |                                                  |          |          |          |          |         
|Rents and other revenues received                                                              |                              | $                                                | 863,166  |          | $        | 743,394  |         
|Proceeds from land sales and notes receivable from land sales                                  |                              |                                                  | 231,220  |          |          | 193,064  |         
|Interest received                                                                              |                              |                                                  | 9,883    |          |          | 6,711    |         
|Operating expenditures                                                                         |                              |                                                  | (427,155 | )        |          | (353,972 | )       
|Land development expenditures                                                                  |                              |                                                  | (105,199 | )        |          | (99,407  | )       
|Interest paid                                                                                  |                              |                                                  | (233,403 | )        |          | (213,781 | )       
|Income taxes paid                                                                              |                              |                                                  | (1,409   | )        |          | (2,665   | )       
|Dividends, interest and other operating distributions from unconsolidated real estate ventures |                              |                                                  | 39,041   |          |          | 28,410   |         
|                                                                                               |                              |                                                  |          |          |          |          |         
|                                                                                               |                              | Net cash provided by operating activities        |          |          | 376,144  |          |         
|                                                                                               |                              |                                                  |          |          |          |          |         
|Cash flows from investing activities                                                           |                              |                                                  |          |          |          |          |         
|Expenditures for properties in development                                                     |                              |                                                  | (172,718 | )        |          | (146,103 | )       
|Expenditures for improvements to existing properties                                           |                              |                                                  | (53,751  | )        |          | (48,473  | )       
|Expenditures for acquisitions of interests in properties and other assets                      |                              |                                                  | (889,776 | )        |          |         |         
|Proceeds from dispositions of interests in operating properties                                |                              |                                                  | 252,036  |          |          | 4,594    |         
|Other distributions from other unconsolidated real estate ventures                             |                              |                                                  | 44,853   |          |          | 109,329  |         
|Expenditures for investments in other unconsolidated ventures                                  |                              |                                                  | (35,715  | )        |          | (45,955  | )       
|Net payments received on loans to unconsolidated majority financial interest ventures          |                              |                                                  |         |          |          |         |         
|Other                                                                                          |                              |                                                  | (8,640   | )        |          | 13       |         
|                                                                                               |                              |                                                  |          |          |          |          |         
|                                                                                               |                              | Net cash used by investing activities            |          |          | (863,711 | )        |         
|                                                                                               |                              |                                                  |          |          |          |          |         
|Cash flows from financing activities                                                           |                              |                                                  |          |          |          |          |         
|Proceeds from issuance of property debt                                                        |                              |                                                  | 195,164  |          |          | 259,401  |         
|Repayments of property debt:                                                                   |                              |                                                  |          |          |          |          |         
|                                                                                               | Scheduled principal payments |                                                  |          | (76,058  | )        |          | (58,681 
|                                                                                               | Other payments               |                                                  |          | (209,453 | )        |          | (234,381
|Proceeds from issuance of other debt                                                           |                              |                                                  | 812,691  |          |          | 28,000   |         
|Repayments of other debt                                                                       |                              |                                                  | (509,689 | )        |          | (37,872  | )       
|Purchases of common stock                                                                      |                              |                                                  | (21,188  | )        |          | (28,199  | )       
|Proceeds from issuance of common stock                                                         |                              |                                                  | 456,347  |          |          |         |         
|Proceeds from exercise of stock options                                                        |                              |                                                  | 14,348   |          |          | 8,872    |         
|Dividends paid                                                                                 |                              |                                                  | (147,166 | )        |          | (110,116 | )       
|Other                                                                                          |                              |                                                  | (17,919  | )        |          | 15,198   |         
|                                                                                               |                              |                                                  |          |          |          |          |         
|                                                                                               |                              | Net cash provided (used) by financing activities |          |          | 497,077  |          |         
|                                                                                               |                              |                                                  |          |          |          |          |         
|Net increase (decrease) in cash and cash equivalents                                           |                              |                                                  | 9,510    |          |          | 17,381   |         
|Cash and cash equivalents at beginning of year                                                 |                              |                                                  | 32,123   |          |          | 14,742   |         
|                                                                                               |                              |                                                  |          |          |          |          |         
|Cash and cash equivalents at end of year                                                       |                              | $                                                | 41,633   |          | $        | 32,123   |         
|                                                                                               |                              |                                                  |          |          |          |          |         

The
accompanying notes are an integral part of these statements.

5

---



The Rouse Company and Subsidiaries  CONSOLIDATED STATEMENTS OF CASH FLOWS  Years ended December 31, 2002, 2001 and 2000  (in thousands)

|                                                                                                                                                                            |                                                                                 | 2002 |         | 2001    |   | 2000    |        
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------- | ---- | ------- | ------- | - | ------- | -------
|Reconciliation of Net Earnings to Net Cash Provided by Operating Activities                                                                                                 |                                                                                 |      |         |         |   |         |        
|Net earnings                                                                                                                                                                |                                                                                 | $    | 139,851 |         | $ | 110,706 |        
|Adjustments to reconcile net earnings to net cash provided by operating activities:                                                                                         |                                                                                 |      |         |         |   |         |        
|                                                                                                                                                                            | Depreciation and amortization                                                   |      |         | 162,922 |   |         | 133,542
|                                                                                                                                                                            | Change in undistributed earnings of unconsolidated real estate ventures         |      |         | 5,763   |   |         | (4,151 
|                                                                                                                                                                            | Net losses (gains) on operating properties                                      |      |         | (39,835 | ) |         | 432    
|                                                                                                                                                                            | Certain other provisions and losses (gains), net                                |      |         | 18,168  |   |         | 451    
|                                                                                                                                                                            | Cumulative effect of change in accounting principle                             |      |         |        |   |         | 411    
|                                                                                                                                                                            | Participation expense pursuant to Contingent Stock Agreement                    |      |         | 52,870  |   |         | 32,904 
|                                                                                                                                                                            | Debt assumed by purchasers of land                                              |      |         | (16,186 | ) |         | (24,634
|                                                                                                                                                                            | Land development expenditures in excess of cost of land sales                   |      |         | (33,668 | ) |         | (12,025
|                                                                                                                                                                            | Provision for bad debts                                                         |      |         | 9,059   |   |         | 8,992  
|                                                                                                                                                                            | Deferred income taxes                                                           |      |         | 27,242  |   |         | 25,402 
|                                                                                                                                                                            | Decrease in accounts and notes receivable                                       |      |         | 24,049  |   |         | 11,213 
|                                                                                                                                                                            | Decrease in other assets                                                        |      |         | 8,393   |   |         | 5,571  
|                                                                                                                                                                            | Increase (decrease) in accounts payable, accrued expenses and other liabilities |      |         | 2,212   |   |         | 15,399 
|                                                                                                                                                                            | Other, net                                                                      |      |         | 15,304  |   |         | (2,459 
|                                                                                                                                                                            |                                                                                 |      |         |         |   |         |        
|Net cash provided by operating activities                                                                                                                                   |                                                                                 | $    | 376,144 |         | $ | 301,754 |        
|                                                                                                                                                                            |                                                                                 |      |         |         |   |         |        
|Schedule of Noncash Investing and Financing Activities                                                                                                                      |                                                                                 |      |         |         |   |         |        
|Common stock issued pursuant to Contingent Stock Agreement                                                                                                                  |                                                                                 | $    | 19,356  |         | $ | 40,820  |        
|Capital lease obligations incurred                                                                                                                                          |                                                                                 |      | 12,720  |         |   | 3,359   |        
|Lapse of restrictions on common stock awards                                                                                                                                |                                                                                 |      | 2,809   |         |   | 2,704   |        
|Debt assumed by purchasers of land and other assets                                                                                                                         |                                                                                 |      | 16,656  |         |   | 24,634  |        
|Debt and other liabilities assumed and consolidated in acquisition of assets from Rodamco North America N.V. and partners' interests in unconsolidated real estate ventures |                                                                                 |      | 915,976 |         |   | 547,531 |        
|Property and other assets contributed to unconsolidated real estate ventures                                                                                                |                                                                                 |      | 196,920 |         |   |        |        
|Debt and other liabilities related to property and other assets contributed to unconsolidated real estate ventures                                                          |                                                                                 |      | 129,801 |         |   |        |        
|Debt assumed or issued in other acquisitions of assets                                                                                                                      |                                                                                 |      |        |         |   | 105,195 |        
|Common stock issued in acquisition of voting interests in majority financial interest ventures                                                                              |                                                                                 |      |        |         |   | 3,500   |        
|Property and other assets obtained in acquisition of majority financial interest ventures                                                                                   |                                                                                 |      |        |         |   | 884,572 |        
|                                                                                                                                                                            |                                                                                 |      |         |         |   |         |        

The
accompanying notes are an integral part of these statements.

6

---



The Rouse Company and Subsidiaries  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  December 31, 2002, 2001 and 2000

(1) Summary of significant accounting policies

(a) Basis of presentation

The consolidated financial statements include the accounts of The Rouse Company, our subsidiaries and partnerships ("we," "Rouse" or "us") in which we have a
majority voting interest and control. We account for investments in other ventures using the equity or cost methods as appropriate in the circumstances. Significant intercompany balances and
transactions are eliminated in consolidation.

The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and judgments
that affect the reported amounts of assets and liabilities and disclosures of contingencies at the date of the financial statements and revenues and expenses recognized during the reporting period.
Significant estimates are inherent in the preparation of our financial statements in a number of areas, including evaluation of impairment of long-lived assets (including operating properties and
properties held for development or sale), evaluation of collectibility of accounts and notes receivable and the cost and completion percentages used for land sales. Actual results could differ from
those and other estimates.

In
October 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets." SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and Accounting Principles Board ("APB")
Opinion No. 30, "Reporting the Results of Operations  Reporting the Effects of Disposal of a Segment
of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." The Statement does not change the fundamental provisions of SFAS No. 121; however, it resolves various
implementation issues of SFAS No. 121 and establishes a single accounting model for long-lived assets to be disposed of by sale. It retains the requirement of APB Opinion No. 30 to report separately
discontinued operations, and extends that reporting for all periods presented to a component of an entity that, subsequent to or on January 1, 2002, either has been disposed of (by sale, abandonment,
or in distribution to owners) or is classified as held for sale. Additionally, SFAS No. 144 requires that assets and liabilities of components held for sale, if material, be disclosed separately in
the balance sheet. We adopted SFAS No. 144 effective January 1, 2002.

We
sold 11 community retail centers in April 2002 and Tampa Bay Center in December 2002 (see note 11). We decided to sell these properties because they did not meet one of our primary
business strategies of owning and operating large-scale premier shopping centers. In December 2002, we also sold a newly constructed community retail center that opened in August 2002 in Summerlin,
Nevada. We constructed this property with the intention of selling it. Under the provisions of SFAS No. 144, we reclassified the operating results of these properties to discontinued operations for
all periods

7

---

presented. The operating results of these properties do not materially affect the reported segment results in note 8 and are summarized as follows (in thousands):

|                                                                                        |                         | 2002 |        | 2001   |   | 2000   |       
|--------------------------------------------------------------------------------------- | ----------------------- | ---- | ------ | ------ | - | ------ | ------
|Revenues                                                                                |                         | $    | 5,401  |        | $ | 19,280 |       
|Operating expenses, exclusive of provision for bad debts, depreciation and amortization |                         |      | 3,692  |        |   | 9,122  |       
|Interest expense                                                                        |                         |      | 2,146  |        |   | 5,479  |       
|Provision for bad debts                                                                 |                         |      | 65     |        |   | 307    |       
|Depreciation and amortization                                                           |                         |      | 1,589  |        |   | 3,876  |       
|Other provisions and losses                                                             |                         |      | 5,136  |        |   |       |       
|Net gains (losses) on operating properties                                              |                         |      | 33,012 |        |   |       |       
|Deferred income tax benefit (provision)                                                 |                         |      | 1,237  |        |   | (1,518 | )     
|Equity in earnings of unconsolidated real estate ventures                               |                         |      |       |        |   |       |       
|                                                                                        |                         |      |        |        |   |        |       
|                                                                                        | Discontinued operations |      | $      | 27,022 |   | $      | (1,022
|                                                                                        |                         |      |        |        |   |        |       

In
order to conform to general industry practice, we have also reclassified certain building and land improvement costs that are recoverable from tenants from other assets to property.
These costs and related accumulated depreciation were $89.0 million and $45.9 million, respectively, at December 31, 2002 and $56.7 million and $35.5 million, respectively, at December 31, 2001.
Depreciation of these assets was reclassified from operating expenses to depreciation. Depreciation of these assets for 2002, 2001 and 2000 was $12.7 million, $8.0 million and $6.2 million,
respectively.

In
April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." Upon adoption of SFAS No.
145, we are required to apply the criteria in APB Opinion No. 30 in determining the classification of gains and losses resulting from the early extinguishment of debt.

SFAS
No. 145 is effective for us on January 1, 2003 with early adoption of the provisions related to the rescission of SFAS No. 4 encouraged. We adopted the provisions relating to the
rescission of SFAS No. 4 in 2002, determined that gains and losses we previously recognized on early extinguishments of debt were not extraordinary items under the criteria of APB 30 and reclassified
them as follows (in thousands):

2001

2000Other provisions and losses (gains), net

$
451

$
(2,200
)Equity in earnings of unconsolidated real estate ventures


245


Amount previously reported as extraordinary items

$
696

$
(2,200
)


Certain
other amounts for prior years have been reclassified to conform to the presentation methods used for 2002.

(b) Description of business

Through our subsidiaries and affiliates, we acquire, develop and manage income-producing properties located throughout the United States and develop and sell land
for residential, commercial and other uses. The income-producing properties consist of retail centers, office and industrial buildings and mixed-use and other properties. The retail centers are
primarily regional shopping centers in suburban market areas, but also include specialty marketplaces in certain downtown areas and several community retail centers. The office and industrial
properties are located primarily in the Columbia, Baltimore and Las Vegas market areas or are components of large-scale mixed-use properties (which include retail, parking and other uses) located in
other urban markets. We dispose of income-producing

8

---

properties that are not consistent with our business strategies and/or that are not meeting or are not considered to have the potential to continue to meet our investment criteria. Land development
and sales operations are predominantly related to large-scale, long-term community development projects in and around Columbia, Maryland and Summerlin, Nevada.

(c) Property

Properties to be developed or held and used in operations are carried at cost reduced for impairment losses, where appropriate. Acquisition, development and
construction costs of properties in development are capitalized including, where applicable, salaries and related costs, real estate taxes, interest and preconstruction costs. The preconstruction
stage of development of an operating property (or an expansion of an existing property) includes efforts and related costs to secure land control and
zoning, evaluate feasibility and complete other initial tasks which are essential to development. Provisions are made for costs of potentially unsuccessful preconstruction efforts by charges to
operations. Development and construction costs and costs of significant improvements, replacements and renovations at operating properties are capitalized, while costs of maintenance and repairs are
expensed as incurred.

Direct
costs associated with financing and leasing of operating properties are capitalized as deferred costs and amortized using the interest or straight-line methods, as appropriate,
over the periods benefited by the expenditures.

Depreciation
of operating properties is computed using the straight-line method. The annual rate of depreciation for most of the retail centers is based on a 55-year composite life and a
salvage value of approximately 10%. The other retail centers, all office buildings and other properties are generally depreciated using composite lives of 40 years.

If
events or circumstances indicate that the carrying value of an operating property to be held and used may be impaired, a recoverability analysis is performed based on estimated
undiscounted future cash flows to be generated from the property. If the analysis indicates that the carrying value is not recoverable from future cash flows, the property is written down to estimated
fair value and an impairment loss is recognized. Fair values are determined based on estimated future cash flows using appropriate discount and capitalization rates.

Properties
held for sale are carried at the lower of their carrying values (i.e., cost less accumulated depreciation and any impairment loss recognized, where applicable) or estimated
fair values less costs to sell. The net carrying values of operating properties are classified as properties held for sale when the properties are actively marketed, their sale is considered probable
within one year and various other criteria relating to their disposition are met. Depreciation of these properties is discontinued at that time, but operating revenues, interest and other operating
expenses continue to be recognized until the date of sale. If active marketing ceases or the properties no longer meet the criteria to be classified as held for sale, the properties are reclassified
as operating, depreciation is resumed, depreciation for the period the properties were classified as held for sale is recognized and deferred selling costs, if any, are charged to earnings.

(d) Sales of property

Gains from sales of operating properties and revenues from land sales are recognized using the full accrual method provided that various criteria relating to the
terms of the transactions and any subsequent involvement by us with the properties sold are met. Gains or revenues relating to transactions that do not meet the established criteria are deferred and
recognized when the criteria are met or using the installment or cost recovery methods, as appropriate in the circumstances. For land sale transactions under the terms of which we are required to
perform additional services and incur

9

---

significant costs after title has passed, revenues and cost of sales are recognized on a percentage of completion basis.

Cost
of land sales is generally determined as a specified percentage of land sales revenues recognized for each land development project. The cost ratios used are based on actual costs
incurred and estimates of development costs and sales revenues to completion of each project. The ratios are reviewed regularly and revised periodically for changes in estimates or development plans.
Significant changes in these estimates or development plans, whether due to changes in market conditions or other factors, could result in changes to the cost ratio used for a specific project. The
specific identification method is used to determine cost of sales for certain parcels of land.

(e) Leases

Leases which transfer substantially all the risks and benefits of ownership to tenants are considered finance leases and the present values of the minimum lease
payments and the estimated residual values of the leased properties, if any, are accounted for as receivables. Leases which transfer substantially all the risks and benefits of ownership to us are
considered capital leases and the present values of the minimum lease payments are accounted for as assets and liabilities.

In
general, minimum rent revenues are recognized when due from tenants; however, estimated collectible minimum rent revenues under leases which provide for varying rents over their terms
are averaged over the terms of the leases. Rents based on tenant sales are recognized when tenant sales exceed any contractual threshold.

(f) Income taxes

We elected to be taxed as a real estate investment trust ("REIT") pursuant to the Internal Revenue Code of 1986, as amended, effective January 1, 1998. In
general, a corporation that distributes at least 90% of its REIT taxable income to shareholders in any taxable year and complies with certain other requirements (relating primarily to the nature of
its assets and the sources of its revenues) is not subject to Federal income taxation to the extent of the income which it distributes. We believe that we met the qualifications for REIT status as of
December 31, 2002 and intend to meet the qualifications in the future and to distribute at least 90% of our REIT taxable income (determined after taking into account any net operating loss deduction)
to shareholders in 2003 and subsequent years. As discussed in notes 2 and 9, we acquired all of the voting stock of the majority financial interest ventures owned by a trust, of which certain
employees are beneficiaries ("Trust") in 2001. We and these subsidiaries made a joint election to treat the subsidiaries as taxable REIT subsidiaries ("TRS"), which are subject to Federal and state
income taxes. Except with respect to the TRS, we do not believe that we will be
liable for significant income taxes at the Federal level or in most of the states in which we operate in 2003 and future years.

Deferred
income taxes relate primarily to the TRS and are accounted for using the asset and liability method. Under this method, deferred income taxes are recognized for temporary
differences between the financial reporting bases of assets and liabilities of the TRS and their respective tax bases and for their operating loss and tax credit carryforwards based on enacted tax
rates expected to be in effect when such amounts are realized or settled. However, deferred tax assets are recognized only to the extent that it is more likely than not that they will be realized
based on consideration of available evidence, including tax planning strategies and other factors.

(g) Investments in marketable securities and cash and cash equivalents

Our investment policy defines authorized investments and establishes various limitations on the maturities, credit quality and amounts of investments held.
Authorized investments include U.S.

10

---

government and agency obligations, certificates of deposit, bankers acceptances, repurchase agreements, commercial paper, money market mutual funds and corporate debt and equity securities.

Debt
security investments with maturities at dates of purchase in excess of three months are classified as marketable securities and carried at amortized cost as it is our intention to
hold these investments until maturity. Short-term investments with maturities at dates of purchase of three months or less are classified as cash equivalents, except that any such investments
purchased with the proceeds of loans which may be expended only for specified purposes are classified as investments in marketable securities. Investments in marketable equity securities are
classified as trading securities and are carried at market value with changes in values recognized in earnings.

(h) Derivative financial instruments

Our use of derivative financial instruments is designed to reduce risk associated with movements in interest rates. We may choose to reduce cash flow and earnings
volatility associated with interest rate risk exposure on variable-rate borrowings and/or forecasted fixed-rate borrowings. In some instances, lenders may require us to do so. In order to limit
interest rate risk on variable-rate borrowings, we may enter into interest rate swaps or interest rate caps to hedge specific risks. In order to limit interest rate risk on forecasted borrowings, we
may enter into forward-rate agreements, forward starting swaps, interest rate locks and interest rate collars. We may also use derivative financial instruments to reduce risk associated with movements
in currency exchange rates if and when we are exposed to such risk. We do not use derivative financial instruments for speculative purposes.

Under
interest rate cap agreements, we make initial premium payments to the counterparties in exchange for the right to receive payments from them if interest rates exceed specified
levels during the agreement period. Under interest rate swap agreements, we and the counterparties agree to exchange the difference between fixed-rate and variable-rate interest amounts calculated by
reference to specified notional principal amounts during the agreement period. Notional principal amounts are used to express the volume of these transactions, but the cash requirements and amounts
subject to credit risk are substantially less.

Parties
to interest rate exchange agreements are subject to market risk for changes in interest rates and risk of credit loss in the event of nonperformance by the counterparty. We do
not require any collateral under these agreements but deal only with highly rated financial institution counterparties (which, in certain cases, are also the lenders on the related debt) and do not
expect that any counterparties will fail to meet their obligations.

Prior
to 2001, derivative financial instruments were designated as hedges and, accordingly, changes in their fair values were not recognized in the financial statements provided that
defined correlation and effectiveness criteria were met at inception and thereafter. Instruments that ceased to qualify for hedge accounting were marked-to-market with gains and losses recognized in
income. Premiums paid on interest rate cap agreements were amortized to interest expense over the terms of the agreements and payments receivable from the counterparties were accrued as reductions of
interest expense. Amounts receivable or payable under swap agreements were accounted for as adjustments to interest expense on the related debt. Effective January 1, 2001, we adopted SFAS No. 133,
"Accounting for Derivative Financial Instruments and Hedging Activities," as amended, which requires, among other things, that all derivative instruments be measured at fair value and recognized as
assets or liabilities in the balance sheet. Derivative instruments held by us at January 1, 2001 consisted solely of interest rate cap agreements designated as hedges of interest rates on specific
loans. The cumulative effect at January 1, 2001 of the change in accounting for derivative financial instruments and hedging activities was to increase liabilities and reduce net earnings by
approximately $0.4 million. The effect of the change on net earnings was not material for 2001. The effect of the change on other comprehensive income (loss) was a loss of approximately $3.4 million
in 2001.

11

---

All
of the interest rate swap agreements we used in 2002 and 2001 qualified as cash flow hedges under SFAS No. 133 and hedged our exposure to forecasted interest payments on
variable-rate LIBOR-based debt. Accordingly, the effective portion of the swaps' gains or losses are reported as a component of other comprehensive income and reclassified into earnings when the
related forecasted transaction affects earnings. Amounts receivable or payable under interest rate cap and swap agreements are accounted for as adjustments to interest expense on the related debt.

(i) Other information about financial instruments

Fair values of financial instruments approximate their carrying values in the financial statements except for debt and Company-obligated mandatorily redeemable
preferred securities, for which fair value information is provided in notes 6 and 7.

(j) Earnings per share of common stock

Basic earnings per share ("EPS") is computed by dividing net earnings applicable to common shareholders by the weighted-average number of common shares
outstanding. Diluted EPS is computed after adjusting the numerator and denominator of the basic EPS computation for the effects of all dilutive potential common shares during the period. The dilutive
effects of convertible securities are computed using the "if-converted" method and the dilutive effects of options, warrants and their equivalents (including fixed awards and nonvested stock issued
under stock-based compensation plans) are computed using the "treasury stock" method.

(k) Stock-based compensation

We apply the intrinsic value-based method of accounting prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations
to account for stock-based, employee compensation plans. Under this method, compensation cost is recognized for awards of shares of common stock or stock options to our directors, officers and
employees only if the quoted market price of the stock at the grant date (or other measurement date, if later) is greater than the amount the grantee must pay to acquire the stock. The following table
summarizes the pro forma effects on net earnings (in thousands) and earnings per share of common stock of using an optional fair value-based method, rather than the intrinsic value-based method, to
account for stock-based compensation awards made since 1995.

|                                                                                                                                                      |             | 2002 |         | 2001 |   | 2000    |     
|----------------------------------------------------------------------------------------------------------------------------------------------------- | ----------- | ---- | ------- | ---- | - | ------- | ----
|Net earnings, as reported                                                                                                                             |             | $    | 139,851 |      | $ | 110,706 |     
|Add: Stock-based employee compensation expense included in reported net earnings, net of related tax effects and amounts capitalized                  |             |      | 3,235   |      |   | 1,379   |     
|Deduct: Total stock-based employee compensation expense determined under fair value- based method, net of related tax effects and amounts capitalized |             |      | (10,237 | )    |   | (6,268  | )   
|                                                                                                                                                      |             |      |         |      |   |         |     
|Pro forma net earnings                                                                                                                                |             | $    | 132,849 |      | $ | 105,817 |     
|                                                                                                                                                      |             |      |         |      |   |         |     
|Earnings per share of common stock:                                                                                                                   |             |      |         |      |   |         |     
|Basic:                                                                                                                                                |             |      |         |      |   |         |     
|                                                                                                                                                      | As reported |      | $       | 1.49 |   | $       | 1.42
|                                                                                                                                                      | Pro forma   |      | $       | 1.41 |   | $       | 1.35
|Diluted:                                                                                                                                              |             |      |         |      |   |         |     
|                                                                                                                                                      | As reported |      | $       | 1.47 |   | $       | 1.40
|                                                                                                                                                      | Pro forma   |      | $       | 1.39 |   | $       | 1.35

12

---

The
per share weighted-average estimated fair values of options granted during 2002, 2001 and 2000 were $3.48, $3.41 and $3.46, respectively. These fair values were estimated on the
dates of each grant using the Black-Scholes option-pricing model with the following assumptions:

2002

2001

2000Risk-free interest rate

4.4
%
5.1
%
6.6
%Dividend yield

5.5

5.5

5.5Volatility factor

20.0

20.0

20.0Expected life in years

6.7

6.4

6.6


(2) Unconsolidated real estate ventures

Investments in and advances to unconsolidated real estate ventures at December 31, 2002 and 2001 were $442.4 million and $269.6 million, respectively. Our equity
in earnings of unconsolidated real estate ventures is summarized, based on the level of our financial interest, as follows (in thousands):

2002

2001

2000Majority financial interest ventures

$


$


$
86,637Other unconsolidated real estate ventures


33,259


32,561


41,408Total

$
33,259

$
32,561

$
128,045


(a) Majority financial interest ventures

Relying on the REIT Modernization Act (as more fully discussed in note 9), we negotiated an agreement to acquire the voting stock of the ventures owned by a
trust, of which certain employees are beneficiaries ("Trust"), an entity which is neither owned nor controlled by us. On January 2, 2001, we exchanged 137,928 shares of common stock for the Trust's
shares of voting common stock in the ventures. The voting shares acquired by us constituted all of the Trust's interests in the ventures. The fair value of the consideration exchanged was
approximately $3.5 million. As a result of this transaction, we own 100% of the voting common stock of the ventures and, accordingly, the ventures are consolidated in our financial statements from the
date of the acquisition. Subsequently, the Trust contributed the majority of the common stock to a charitable foundation.

The
majority financial interest ventures were initiated on December 31, 1997, when certain wholly owned subsidiaries issued 91% of their voting common stock to the Trust. These sales
were made at fair value and were part of our plan to meet the qualifications for REIT status. We retained the remaining voting stock of the ventures and held shares of nonvoting common and/or
preferred stock and, in certain cases, mortgage loans receivable from the ventures which, taken together, comprised substantially all (at least 98%) of the financial interest in them. As a result of
our disposition of the majority voting interest in the ventures, we began accounting for our investment in them using the equity method effective December 31, 1997. Due to our continuing financial
interest in the ventures, we recognized no gain on the sales of stock for financial reporting purposes. The assets of the ventures consisted primarily of land to be developed and sold as part of
community development projects in and around Columbia and Summerlin, other investment land, primarily in Nevada, certain office and retail properties, primarily in Columbia, investments in properties
owned jointly with us and contracts to manage various operating properties.

13

---

The
combined statement of operations of these ventures for the year ended December 31, 2000 is summarized as follows (in thousands):

Revenues

$
295,791Operating expenses


152,980Interest expense, excluding interest on borrowings from Rouse


5,684Interest expense on borrowings from Rouse


52,449Depreciation and amortization


13,534Loss on early extinguishment of debt


22,082Equity in earnings of unconsolidated real estate ventures


3,736Income taxes, primarily deferred


18,430Discontinued operations


1,511Net earnings

$
35,879


In
December 2000, one of the ventures partially repaid a loan from us prior to its scheduled maturity. We charged the venture a prepayment penalty of $22.1 million. The effect of the
transaction was eliminated in our equity in earnings of majority financial interest ventures.

Our
share of the net earnings of these ventures for the year ended December 31, 2000 is summarized as follows (in thousands):

Share of net earnings based on ownership interest

$
35,520Participation by others in our share of earnings


(35,322
)Interest on loans and advances, net


52,449Prepayment penalty on loan from Rouse


22,082Discontinued operations


(1,511
)Eliminations and other, net


13,419Equity in earnings of majority financial interest ventures

$
86,637


(b) Other unconsolidated real estate ventures

We own interests in other unconsolidated real estate ventures that own and/or develop properties. We use these ventures to limit our risk associated with
individual properties and to reduce our capital requirements. We may also contribute our interests in properties to unconsolidated ventures for cash distributions and interests in the ventures to
provide liquidity as an alternative to outright property sales. These ventures are accounted for using the equity or cost method, as appropriate. At December 31, 2002 and 2001, these ventures were
primarily partnerships and corporations which own retail centers. Most of these properties are managed by our affiliates. Certain agreements relating to these properties provide for preference returns
to us when operating results or sale or refinancing proceeds exceed specified levels. One of these ventures owns and operates the Village of Merrick Park, a large-scale mixed-use project that opened
in September 2002.

In
May 2002, we acquired partial, noncontrolling ownership interests in Oakbrook Center, Water Tower Place and certain other assets from Rodamco North America N.V. ("Rodamco") (see note
16). We report these interests as investments in unconsolidated real estate ventures. Additionally, we acquired from Rodamco the remaining interests in properties (Collin Creek, North Star, Perimeter
Mall and Willowbrook) in which we previously owned noncontrolling interests. As a result, we consolidated these properties in our financial statements from the date of the acquisition. Prior to this
acquisition, we reported our interests in these properties in unconsolidated real estate ventures. As a result of this transaction, the net increase in investments in unconsolidated real estate
ventures was $248.9 million.

We
received $44.9 million and $109.3 million of distributions of financing proceeds from unconsolidated real estate ventures in 2002 and 2001, respectively.

14

---

In
October 2002, we contributed our ownership interest in Perimeter Mall to a joint venture in exchange for a 50% interest in the venture and a distribution of $67.1 million. As a
result, we report our interest in this property in unconsolidated real estate ventures from the date of contribution.

In
November 2002, we acquired our partners' controlling financial interests in entities that own Ridgedale Center, a regional retail center in suburban Minneapolis, Minnesota, and
Southland Center, a regional retail center in suburban Detroit, Michigan, for an aggregate purchase price of $215.8 million (cash of $63.1 million and assumption of our partners' share of debt of
$152.7 million). We owned 10% noncontrolling interests in these entities prior to this transaction and our interests were reported in unconsolidated real estate ventures. We consolidated these
properties in our financial statements from the date of acquisition. We used our revolving credit facility to finance the acquisition.

The
condensed, combined balance sheets of ventures accounted for using the equity method as of December 31, 2002 and 2001 and the condensed, combined statements of operations of these
ventures and others during periods that they were accounted for using the equity method during 2002, 2001 and 2000 are summarized as follows (in thousands):

|                                                   |                                         | 2002 |           | 2001     
|-------------------------------------------------- | --------------------------------------- | ---- | --------- | ---------
|Net property                                       |                                         | $    | 2,075,720 |          
|Investments in unconsolidated real estate ventures |                                         |      | 78,717    |          
|Accounts and notes receivable                      |                                         |      | 20,502    |          
|Prepaid expenses and other assets                  |                                         |      | 40,633    |          
|Cash and cash equivalents                          |                                         |      | 38,729    |          
|                                                   |                                         |      |           |          
|                                                   | Total assets                            |      | $         | 2,254,301
|                                                   |                                         |      |           |          
|Nonrecourse property debt                          |                                         | $    | 1,195,359 |          
|Property debt guaranteed by us                     |                                         |      | 175,180   |          
|Accounts payable and other liabilities             |                                         |      | 134,206   |          
|Venturers' equity                                  |                                         |      | 749,556   |          
|                                                   |                                         |      |           |          
|                                                   | Total liabilities and venturers' equity |      | $         | 2,254,301
|                                                   |                                         |      |           |          

|                                                    |              | 2002 |         | 2001   |   | 2000   
|--------------------------------------------------- | ------------ | ---- | ------- | ------ | - | -------
|Revenues                                            |              | $    | 307,486 |        | $ | 322,646
|Equity in earnings of unconsolidated investments    |              |      | 9,651   |        |   |       
|Operating and interest expenses                     |              |      | 207,263 |        |   | 219,183
|Depreciation and amortization                       |              |      | 49,020  |        |   | 41,105 
|Loss on early extinguishment of debt                |              |      | 260     |        |   | 556    
|Cumulative effect of change in accounting principle |              |      |        |        |   | 292    
|                                                    |              |      |         |        |   |        
|                                                    | Net earnings |      | $       | 60,594 |   | $      
|                                                    |              |      |         |        |   |        

We
have guaranteed the repayment of a construction loan of the unconsolidated real estate venture that developed the Village of Merrick Park. The maximum amount that may be borrowed
under the
loan is $200 million. The amount of the guarantee may be reduced to a minimum of 20% upon the achievement of certain lender requirements. Our venture partners have provided guarantees to us for their
share (60%) of the construction loan.

Distributions,
primarily from financing proceeds, from several of these ventures exceed our investments in them. At December 31, 2002 and 2001, these balances aggregated $26.3 million
and $89.7 million, respectively, and were included in other liabilities.

15

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(3) Property

Operating properties and deferred costs of projects at December 31, 2002 and 2001 are summarized as follows (in thousands):

2002

2001Buildings and improvements

$
5,019,394

$
3,931,166Land


664,326


408,122Deferred costs


201,959


123,917Furniture and equipment


27,225


20,978Total

$
5,912,904

$
4,484,183


Depreciation
expense for 2002, 2001 and 2000 was $144.9 million, $115.8 million and $86.4 million, respectively. Amortization expense for 2002, 2001 and 2000 was
$16.4 million, $13.9 million and $8.7 million, respectively.

Properties
in development include construction and development in progress and preconstruction costs. Construction and development in progress includes land and land improvements of
$55.3 million and $67.9 million at December 31, 2002 and 2001, respectively.

Investment
land and land held for development and sale at December 31, 2002 and 2001 is summarized as follows (in thousands):

2002

2001Land under development

$
208,675

$
171,460Finished land


63,753


62,707Investment and raw land


49,316


50,124Total

$
321,744

$
284,291


(4) Accounts and notes receivable

Accounts and notes receivable at December 31, 2002 and 2001 are summarized as follows (in thousands):

2002

2001Accounts receivable, primarily rents and income under tenant leases

$
66,853

$
70,522Notes receivable from sales of properties


538


3,294Notes receivable from sales of land


16,733


41,14384,124


114,959Less allowance for doubtful receivables


27,197


27,206Total

$
56,927

$
87,753


Accounts
and notes receivable due after one year were $8.8 million and $7.5 million at December 31, 2002 and 2001, respectively.

Credit
risk with respect to receivables from tenants is not highly concentrated due to the large number of tenants and the geographic diversification of our operating properties. We
perform credit evaluations of prospective new tenants and require security deposits or bank letters of credit in certain circumstances. Tenants' compliance with the terms of their leases is monitored
closely, and the allowance for doubtful receivables is established based on analyses of the risk of loss on specific tenant

16

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accounts, historical trends and other relevant information. Notes receivable from sales of land are primarily attributable to land sales in Las Vegas and Summerlin, Nevada. We perform credit
evaluations of the builders and generally require substantial down payments (at least 20%) on all land sales that we finance. These notes and notes from sales of operating properties are generally
secured by first liens on the related properties.

(5) Pension, postretirement and deferred compensation plans

We have a defined benefit pension plan ("funded plan") covering substantially all employees and separate, nonqualified unfunded retirement plans ("unfunded
plans") covering directors and
participants in the funded plan whose defined benefits exceed the plan's limits. Benefits under the pension plans are based on the participants' years of service and compensation. We also have a
retiree benefits plan that provides postretirement medical and life insurance benefits to full-time employees who meet minimum age and service requirements. We pay a portion of the cost of
participants' life insurance coverage and make contributions to the cost of participants' medical insurance coverage based on years of service, subject to a maximum annual contribution.

17

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Information
relating to the obligations, assets and funded status of the plans at December 31, 2002 and 2001 and for the years then ended is summarized as follows (dollars in thousands):

|                                                                                  |                                           | Pension Plans |        |        |   |        |       
|--------------------------------------------------------------------------------- | ----------------------------------------- | ------------- | ------ | ------ | - | ------ | ------
|
|
|
|Change in benefit obligations:                                                    |                                           |               |        |        |   |        |       
|Benefit obligations at beginning of year                                          |                                           | $             | 64,208 |        | $ | 55,480 |       
|Service cost                                                                      |                                           |               | 4,744  |        |   | 3,981  |       
|Interest cost                                                                     |                                           |               | 4,592  |        |   | 4,230  |       
|Plan amendment                                                                    |                                           |               | 2,398  |        |   | 67     |       
|Actuarial loss (gain)                                                             |                                           |               | 4,532  |        |   | 7,419  |       
|Benefits paid                                                                     |                                           |               | (226   | )      |   | (6,969 | )     
|                                                                                  |                                           |               |        |        |   |        |       
|                                                                                  | Benefit obligations before special events |               |        | 80,248 |   |        | 64,208
|Special events  settlements                                                      |                                           |               | (9,757 | )      |   |       |       
|                                                                                  |                                           |               |        |        |   |        |       
|                                                                                  | Benefit obligations at end of year        |               |        | 70,491 |   |        | 64,208
|                                                                                  |                                           |               |        |        |   |        |       
|Change in plan assets:                                                            |                                           |               |        |        |   |        |       
|Fair value of plan assets at beginning of year                                    |                                           |               | 57,808 |        |   | 57,501 |       
|Actual return on plan assets                                                      |                                           |               | (8,183 | )      |   | (2,492 | )     
|Employer contribution                                                             |                                           |               | 24,165 |        |   | 9,768  |       
|Benefits paid                                                                     |                                           |               | (226   | )      |   | (6,969 | )     
|Settlements                                                                       |                                           |               | (9,939 | )      |   |       |       
|                                                                                  |                                           |               |        |        |   |        |       
|                                                                                  | Fair value of plan assets at end of year  |               |        | 63,625 |   |        | 57,808
|                                                                                  |                                           |               |        |        |   |        |       
|Funded status                                                                     |                                           |               | (6,866 | )      |   | (6,400 | )     
|Unrecognized net actuarial loss                                                   |                                           |               | 39,925 |        |   | 30,176 |       
|Unamortized prior service cost                                                    |                                           |               | 5,655  |        |   | 4,128  |       
|Unrecognized transition obligation                                                |                                           |               | 199    |        |   | 267    |       
|                                                                                  |                                           |               |        |        |   |        |       
|                                                                                  | Net amount recognized                     |               | $      | 38,913 |   | $      | 28,171
|                                                                                  |                                           |               |        |        |   |        |       
|Amounts recognized in the balance sheets consist of:                              |                                           |               |        |        |   |        |       
|Prepaid benefit cost                                                              |                                           | $             | 38,913 |        | $ | 28,171 |       
|Accrued benefit liability                                                         |                                           |               |       |        |   |       |       
|Intangible asset                                                                  |                                           |               |       |        |   |       |       
|Accumulated other comprehensive income item minimum pension liability adjustment |                                           |               |       |        |   |       |       
|                                                                                  |                                           |               |        |        |   |        |       
|                                                                                  | Net amount recognized                     |               | $      | 38,913 |   | $      | 28,171
|                                                                                  |                                           |               |        |        |   |        |       
|Weighted-average assumptions as of December 31:                                   |                                           |               |        |        |   |        |       
|Discount rate                                                                     |                                           |               | 6.50   | %      |   | 7.25   | %     
|Lump sum rate                                                                     |                                           |               | 6.50   |        |   | 6.50   |       
|Expected rate of return on plan assets                                            |                                           |               | 8.00   |        |   | 8.00   |       
|Rate of compensation increase                                                     |                                           |               | 4.50   |        |   | 4.50   |       
|                                                                                  |                                           |               |        |        |   |        |       

The
assets of the funded plan consist primarily of fixed income and marketable equity securities. We increased our employer contributions during 2002 to fund accumulated benefit
obligations and to pay settlements related to the organizational changes and early retirement program discussed in note

18

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10. The organizational changes and early retirement program also resulted in a settlement loss which is included in our 2002 net pension cost.

The
amendment to the pension plans in 2002 changed the compensation base on which pension benefits are calculated. The amendment to the postretirement plan in 2002 reduced certain
medical and life insurance benefits.

The
net pension cost includes the following components (in thousands):

|                                               |                                        | 2002 |        | 2001   |   | 2000   |      
|---------------------------------------------- | -------------------------------------- | ---- | ------ | ------ | - | ------ | -----
|Service cost                                   |                                        | $    | 5,813  |        | $ | 4,890  |      
|Interest cost on projected benefit obligations |                                        |      | 6,255  |        |   | 5,719  |      
|Expected return on funded plan assets          |                                        |      | (4,690 | )      |   | (4,622 | )    
|Prior service cost recognized                  |                                        |      | 1,538  |        |   | 1,554  |      
|Net actuarial loss recognized                  |                                        |      | 2,525  |        |   | 1,712  |      
|Amortization of transition obligation          |                                        |      | 68     |        |   | 201    |      
|                                               |                                        |      |        |        |   |        |      
|                                               | Net pension cost before special events |      |        | 11,509 |   |        | 9,454
|Special events  settlement loss               |                                        |      | 8,324  |        |   |       |      
|                                               |                                        |      |        |        |   |        |      
|                                               | Net pension cost                       |      | $      | 19,833 |   | $      | 9,454
|                                               |                                        |      |        |        |   |        |      

The
net postretirement benefit cost includes the following components (in thousands):

|                                                 |                                 | 2002 |       | 2001  |   | 2000 
|------------------------------------------------ | ------------------------------- | ---- | ----- | ----- | - | -----
|Service cost                                     |                                 | $    | 342   |       | $ | 451  
|Interest cost on accumulated benefit obligations |                                 |      | 1,070 |       |   | 1,553
|Net actuarial loss recognized                    |                                 |      | 85    |       |   | 115  
|Amortization of prior service cost               |                                 |      | (241  | )     |   |     
|Amortization of transition obligation            |                                 |      |      |       |   | 333  
|                                                 |                                 |      |       |       |   |      
|                                                 | Net postretirement benefit cost |      | $     | 1,256 |   | $    
|                                                 |                                 |      |       |       |   |      

Assumed
health care cost trend rates have an effect on the amounts reported for the postretirement plan. A one-percentage-point change in assumed health care cost trend rates would have
the following effects (in thousands):

|                                                        |  | 1% Increase |     | 1% Decrease
|------------------------------------------------------- |  | ----------- | --- | -----------
|Effect on total of service and interest cost components |  | $           | 15  |            
|Effect on postretirement benefit obligation             |  | $           | 242 |            

In
2000, employees of the majority financial interest ventures participated in the pension and postretirement plans. These ventures reimbursed us $2.1 million for their share of the
annual benefit cost of the plans.

We
also have a deferred compensation program which permits directors and certain of our management employees to defer portions of their compensation on a pretax basis. Compensation
expense related to this program was insignificant in 2002, 2001 and 2000.

19

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(6) Debt

Debt is classified as follows:

With
respect to nonrecourse loans, we have in the past and may in the future, under some circumstances, support those subsidiary companies whose annual expenditures, including debt
service, exceed their operating revenues. At December 31, 2002 and 2001, nonrecourse loans include $278.2 million and $134.8 million, respectively, of subsidiary companies' mortgages and bonds which
are subject to agreements with lenders requiring us to provide support for operating and debt service costs, where necessary, for defined periods or until specified conditions relating to the
operating results of the related properties are met. At December 31, 2002, approximately $1.2 billion of the total debt was payable to one lender.

Debt
at December 31, 2002 and 2001 is summarized as follows (in thousands):

2002

2001Mortgages and bonds

$
3,410,257

$
2,717,898Medium-term notes


48,500


51,500Credit facility borrowings


242,690


222,000Other loans


740,030


497,422Total

$
4,441,477

$
3,488,820


Mortgages
and bonds are secured by deeds of trust or mortgages on properties and general assignments of rents. This debt matures at various dates through 2021 and, at December 31, 2002,
bears interest at a weighted-average effective rate of 6.3%. At December 31, 2002 and 2001, approximately $83.2 million and $84.0 million, respectively, of this debt provided for payments of
additional interest based on operating results of the related properties in excess of stated levels.

We
have issued unsecured, medium-term notes. The notes bear interest at fixed interest rates. The notes outstanding at December 31, 2002 mature at various dates from 2005 to 2015,
bear interest at a weighted-average effective rate of 8.3% and have a weighted-average maturity of three years.

We
have a credit facility with a group of lenders that provides for unsecured borrowings. During 2002, the maximum amount that may be borrowed under this facility increased from $375
million to $450 million. Advances under the facility bear interest at a variable-rate of LIBOR plus 1% (2.4% at December 31, 2002). The facility is available to December 2003, subject to
a one-year renewal option.

Other
loans at December 31, 2002 include $400 million of 7.20% Notes due in 2012 which we issued in September 2002 for net proceeds of $396.9 million under our effective shelf
registration statement. We used $220.4 million of the proceeds to repay a portion of the bridge loan facility used to fund the acquisition of the assets of Rodamco (see note 16). We used $116.2
million of the proceeds to repay $114.2 million of other debt (with prepayment penalties of $2.0 million) that was due in January 2003. We used the remaining proceeds and additional funds to repay $61
million of property debt due in 2003. Other loans also include $200 million of 8% Notes due in 2009, various property acquisition loans and certain other borrowings. These loans include aggregate
unsecured borrowings of $733.5

20

---

million and $490.1 million at December 31, 2002 and 2001, respectively, and at December 31, 2002, bear interest at a weighted-average effective rate of 7.5%.

The
agreements relating to various loans impose limitations on us. The most restrictive of these limit the levels and types of debt we and our affiliates may incur and require us and our
affiliates to maintain specified minimum levels of debt service coverage and net worth. The agreements also impose restrictions on the dividend payout ratio and on sale, lease and certain other
transactions, subject to various exclusions and limitations. These restrictions have not limited our normal business activities.

The
annual maturities of debt at December 31, 2002 are summarized as follows (in thousands):

|                   |       | Nonrecourse
Loans |           | Company and
Recourse Loans |   | Total  
|------------------ | ----- | ----------------- | --------- | -------------------------- | - | -------
|2003               |       | $                 | 295,484   |                            | $ | 252,957
|2004               |       |                   | 424,180   |                            |   | 125,480
|2005               |       |                   | 409,919   |                            |   | 103,417
|2006               |       |                   | 388,330   |                            |   | 12,502 
|2007               |       |                   | 532,884   |                            |   | 6,710  
|Subsequent to 2007 |       |                   | 1,220,640 |                            |   | 668,974
|                   |       |                   |           |                            |   |        
|                   | Total |                   | $         | 3,271,437                  |   | $      
|                   |       |                   |           |                            |   |        

The
annual maturities reflect the terms of existing loan agreements except where refinancing commitments from outside lenders have been obtained. In these instances, maturities are based
on the terms of the refinancing commitments. The debt due in 2003 consists of $242.7 million of borrowings under the credit line facility, $229.4 million of balloon payments on mortgages on two retail
centers and three office buildings and $76.3 million of regularly scheduled principal payments. The credit line facility may be extended for one year at our option. We expect to make balloon payments
at or before the scheduled maturity dates of the related loans from proceeds of property refinancings (including refinancings of the maturing mortgages), credit facility borrowings or other available
corporate funds. The regularly scheduled principal payments will be paid from operating cash flows.

We
have approximately $1.2 billion of variable interest rate debt ("variable-rate debt") at December 31, 2002. The interest rate on a portion of this variable-rate debt is based
on LIBOR plus a margin (typically between 1% and 2%). At December 31, 2002, the LIBOR rate was 1.4%. We had interest rate swap agreements and forward-starting swap agreements in place at
December 31, 2002 and we entered into similar agreements in January 2003. These swap agreements and forward-starting swap

21

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agreements effectively fix the LIBOR rate on a portion of our variable-rate debt and are summarized as follows:

|Notional Amount |               | Fixed
LIBOR Rate |      | Term
|--------------- | ------------- | ---------------- | ---- | ----
|$               | 34.4 million  |                  | 3.53 | %   
|                | 200.0 million |                  | 4.24 |     
|                | 26.3 million  |                  | 4.67 |     
|                | 55.0 million  |                  | 1.52 |     
|                | 432.0 million |                  | 1.37 |     
|                | 150.0 million |                  | 1.39 |     
|                | 40.0 million  |                  | 1.78 |     
|                | 432.0 million |                  | 1.63 |     
|                | 150.0 million |                  | 1.84 |     
|                | 161.5 million |                  | 2.35 |     
|                | 135.0 million |                  | 2.20 |     
|                | 135.0 million |                  | 2.85 |     
|                | 161.5 million |                  | 3.16 |     

In
accordance with SFAS No. 133, the net unrealized losses on derivatives designated as cash flow hedges (including our share of unrealized gains on derivatives held by unconsolidated
real estate ventures accounted for using the equity method) of $6.9 million and $3.4 million for 2002 and 2001, respectively, have been recognized as items of other comprehensive income (loss). We
expect $7.4 million of the amount recorded in other comprehensive income (loss) at December 31, 2002 to be recognized in net earnings during 2003 and the remainder before December 2006.
Interest rate exchange agreements did not have a material effect on the weighted-average effective interest rates on debt at December 31, 2002, 2001 and 2000 or interest expense for 2002, 2001
and 2000. The fair value of our derivative financial instruments was a liability of approximately $8.0 million at December 31, 2002. The fair value of interest rate cap agreements was insignificant at
December 31, 2002.

Total
interest costs were $283.5 million in 2002, $259.9 million in 2001 and $254.2 million in 2000, of which $38.2 million, $36.6 million and $19.7 million were capitalized,
respectively.

We
recognized losses on the early extinguishment of debt of $2.5 million in 2002 and $0.5 million in 2001. In 2000, we recognized a net gain of $2.2 million related to the substantial
modification of terms of certain property debt and to the extinguishment of debt prior to scheduled maturity. The sources of funds used to pay the debt and fund the prepayment penalties, where
applicable, were refinancings of properties and, in 2002, the issuance of the 7.20% Notes.

The
estimated fair value of debt is determined based on quoted market prices for publicly-traded debt and on the discounted estimated future cash payments to be made for other debt. The
discount rates used approximate current market rates for loans or groups of loans with similar maturities and credit quality. The estimated future payments include scheduled principal and interest
payments and lenders' participations in operating results, where applicable.

22

---

The
carrying amount and estimated fair value of our debt at December 31, 2002 and 2001 are summarized as follows (in thousands):

|                   |       | 2002 |           | 2001     
|------------------ | ----- | ---- | --------- | ---------
|
|Fixed-rate debt    |       | $    | 3,216,998 |          
|Variable-rate debt |       |      | 1,224,479 |          
|                   |       |      |           |          
|                   | Total |      | $         | 4,441,477
|                   |       |      |           |          

Fair
value estimates are made at a specific point in time, are subjective in nature and involve uncertainties and matters of significant judgment. Settlement of our debt obligations at
fair value may not be possible and may not be a prudent management decision.

(7) Company-obligated mandatorily redeemable preferred securities

The redeemable preferred securities consist of 5,453,600 and 5,478,600 Cumulative Quarterly Income Preferred Securities (preferred securities) at December 31,
2002 and 2001, respectively, with a liquidation amount of $25 per security, which were issued in November 1995 by a statutory business trust. The trust used the proceeds of the preferred securities
and other assets to purchase at par $141.8 million of our junior subordinated debentures ("debentures") due in November 2025, which are the sole assets of the trust.

Payments
to be made by the trust on the preferred securities are dependent on payments that we have undertaken to make, particularly the payments to be made by us on the debentures. Our
compliance with our undertakings, taken together, would have the effect of providing a full, irrevocable and unconditional guarantee of the trust's obligations under the preferred securities.

Distributions
on the preferred securities are payable from interest payments received on the debentures and are due quarterly at an annual rate of 9.25% of the liquidation amount,
subject to deferral for up to five years under certain conditions. Distributions payable are included in operating expenses. Redemptions of the preferred securities are payable at the liquidation
amount from redemption payments received on the debentures.

We
may redeem the debentures at par at any time, but redemptions at or prior to maturity are payable only from the proceeds of issuance of our capital stock or of securities
substantially comparable in economic effect to the preferred securities. During 1998, we repurchased 21,400 of the preferred securities for approximately $0.6 million. During 2002, we repurchased
25,000 of the preferred securities for approximately $0.6 million.

The
estimated fair value of the redeemable preferred securities was $216.7 million and $174.7 million at December 31, 2002 and 2001, respectively. Fair value estimates are made at a
specific point in time, are subjective in nature and involve uncertainties and matters of significant judgment. Settlement of the redeemable preferred securities at fair value may not be possible and
may not be a prudent management decision.

(8) Segment information

We have five business segments: retail centers, office and other properties, community development, commercial development and corporate. The retail centers
segment includes the operation and management of regional shopping centers, downtown specialty marketplaces, the retail components of mixed-use projects and community retail centers. The office and
other properties segment includes the
operation and management of office and industrial properties and the nonretail components of the mixed-use projects. The community development segment includes the development

23

---

and sale of land, primarily in large-scale, long-term community development projects in and around Columbia and Summerlin. The commercial development segment includes the evaluation of all potential
new projects (including expansions of existing properties) and acquisition opportunities and the management of them through the development or acquisition process. The corporate segment is responsible
for shareholder and director services, financial management, strategic planning and management and certain other general and support functions. Our business segments offer different products or
services and are managed separately because each requires different operating strategies or management expertise.

The
operating measure used to assess operating results for the business segments is Net Operating Income ("NOI"). Effective January 1, 2002, we revised our definition of NOI to exclude
ground rent expense and depreciation attributable to building and land improvement costs that are recoverable from tenants. NOI for all years has been presented in conformity with the revised
definition. We define NOI as segment revenues (exclusive of corporate interest income) less operating expenses (including provisions for bad debts, certain current income taxes and net losses (gains)
on sales of properties developed for sale, but excluding ground rent expense, distributions on Company-obligated mandatorily redeemable preferred securities and other subsidiary preferred stock and
real estate depreciation and amortization). Additionally, discontinued operations, equity in earnings of unconsolidated real estate ventures and minority interests are adjusted to reflect NOI on the
same basis.

The
accounting policies of the segments are the same as those described in note 1, except that:



Operating
results for the segments are summarized as follows (in thousands):

|     |                     | Retail
Centers |   | Office
and Other
Properties |         | Community
Development |         | Commercial
Development |   | Corporate |        | Total
|---- | ------------------- | -------------- | - | --------------------------- | ------- | --------------------- | ------- | ---------------------- | - | --------- | ------ | -----
|2002 |                     |                |   |                             |         |                       |         |                        |   |           |        |      
|     | Revenues            |                | $ | 775,513                     |         | $                     | 205,191 |                        | $ | 240,992   |        | $    
|     | Operating expenses* |                |   | 305,869                     |         |                       | 80,214  |                        |   | 155,771   |        |      
|     |                     |                |   |                             |         |                       |         |                        |   |           |        |      
|     |                     | NOI            |   | $                           | 469,644 |                       | $       | 124,977                |   | $         | 85,221 |      
|     |                     |                |   |                             |         |                       |         |                        |   |           |        |      
|2001 |                     |                |   |                             |         |                       |         |                        |   |           |        |      
|     | Revenues            |                | $ | 637,211                     |         | $                     | 203,716 |                        | $ | 218,322   |        | $    
|     | Operating expenses* |                |   | 261,561                     |         |                       | 75,772  |                        |   | 143,336   |        |      
|     |                     |                |   |                             |         |                       |         |                        |   |           |        |      
|     |                     | NOI            |   | $                           | 375,650 |                       | $       | 127,944                |   | $         | 74,986 |      
|     |                     |                |   |                             |         |                       |         |                        |   |           |        |      
|2000 |                     |                |   |                             |         |                       |         |                        |   |           |        |      
|     | Revenues            |                | $ | 631,703                     |         | $                     | 216,231 |                        | $ | 215,459   |        | $    
|     | Operating expenses* |                |   | 263,593                     |         |                       | 77,587  |                        |   | 148,679   |        |      
|     |                     |                |   |                             |         |                       |         |                        |   |           |        |      
|     |                     | NOI            |   | $                           | 368,110 |                       | $       | 138,644                |   | $         | 66,780 |      
|     |                     |                |   |                             |         |                       |         |                        |   |           |        |      

---

24

---

Reconciliations
of the total revenues and expenses reported above to the related amounts in the consolidated financial statements and of NOI reported above to earnings before net gains
(losses) on operating properties, discontinued operations and cumulative effect of change in accounting principle in the consolidated financial statements are summarized as follows (in thousands):

|                                                                                         |                                                                                                                                                                                                                            | 2002                                                                                                                                                                             |   | 2001      |           | 2000 |          
|---------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | --------- | --------- | ---- | ---------
|Revenues:                                                                                |                                                                                                                                                                                                                            |                                                                                                                                                                                  |   |           |           |      |          
|                                                                                         | Total reported above                                                                                                                                                                                                       |                                                                                                                                                                                  | $ | 1,221,696 |           | $    | 1,059,249
|                                                                                         | Our share of revenues of unconsolidated real estate ventures                                                                                                                                                               |                                                                                                                                                                                  |   | (117,123  | )         |      | (97,789  
|                                                                                         | Revenues of discontinued operations, including discontinued operations of majority financial interest ventures in 2000                                                                                                     |                                                                                                                                                                                  |   | (5,401    | )         |      | (19,280  
|                                                                                         | Other                                                                                                                                                                                                                      |                                                                                                                                                                                  |   | 5,562     |           |      | 4,877    
|                                                                                         |                                                                                                                                                                                                                            |                                                                                                                                                                                  |   |           |           |      |          
|                                                                                         |                                                                                                                                                                                                                            | Total in consolidated financial statements                                                                                                                                       |   | $         | 1,104,734 |      | $        
|                                                                                         |                                                                                                                                                                                                                            |                                                                                                                                                                                  |   |           |           |      |          
|Operating expenses, exclusive of provision for bad debts, depreciation and amortization: |                                                                                                                                                                                                                            |                                                                                                                                                                                  |   |           |           |      |          
|                                                                                         | Total reported above                                                                                                                                                                                                       |                                                                                                                                                                                  | $ | 571,208   |           | $    | 500,712  
|                                                                                         | Our share of operating expenses of unconsolidated real estate ventures                                                                                                                                                     |                                                                                                                                                                                  |   | (36,924   | )         |      | (27,979  
|                                                                                         | Participation by others in our share of earnings of majority financial interest ventures                                                                                                                                   |                                                                                                                                                                                  |   |          |           |      |         
|                                                                                         | Operating expenses of discontinued operations, including discontinued operations of majority financial interest ventures                                                                                                   |                                                                                                                                                                                  |   | (3,757    | )         |      | (9,429   
|                                                                                         | Other                                                                                                                                                                                                                      |                                                                                                                                                                                  |   | 17,996    |           |      | 13,923   
|                                                                                         |                                                                                                                                                                                                                            |                                                                                                                                                                                  |   |           |           |      |          
|                                                                                         |                                                                                                                                                                                                                            | Total in consolidated financial statements                                                                                                                                       |   | $         | 548,523   |      | $        
|                                                                                         |                                                                                                                                                                                                                            |                                                                                                                                                                                  |   |           |           |      |          
|Operating results:                                                                       |                                                                                                                                                                                                                            |                                                                                                                                                                                  |   |           |           |      |          
|                                                                                         | NOI reported above                                                                                                                                                                                                         |                                                                                                                                                                                  | $ | 650,488   |           | $    | 558,537  
|                                                                                         | Interest expense                                                                                                                                                                                                           |                                                                                                                                                                                  |   | (245,321  | )         |      | (223,286 
|                                                                                         | NOI of discontinued operations                                                                                                                                                                                             |                                                                                                                                                                                  |   | (5,968    | )         |      | (9,851   
|                                                                                         | Depreciation and amortization                                                                                                                                                                                              |                                                                                                                                                                                  |   | (161,333  | )         |      | (129,666 
|                                                                                         | Deferred and certain current income taxes                                                                                                                                                                                  |                                                                                                                                                                                  |   | (28,479   | )         |      | (24,267  
|                                                                                         | Other provisions, losses and gains, net                                                                                                                                                                                    |                                                                                                                                                                                  |   | (37,841   | )         |      | (816     
|                                                                                         | Our share of interest expense, depreciation and amortization, gains (losses) on operating properties, gains (losses) on early extinguishment of debt and deferred income taxes of unconsolidated real estate ventures,
net |                                                                                                                                                                                  |   | (46,940   | )         |      | (37,249  
|                                                                                         | Other                                                                                                                                                                                                                      |                                                                                                                                                                                  |   | (18,600   | )         |      | (20,831  
|                                                                                         |                                                                                                                                                                                                                            |                                                                                                                                                                                  |   |           |           |      |          
|                                                                                         |                                                                                                                                                                                                                            | Earnings before net gains (losses) on operating properties, discontinued operations and cumulative effect of change in accounting principle in consolidated financial statements |   | $         | 106,006   |      | $        
|                                                                                         |                                                                                                                                                                                                                            |                                                                                                                                                                                  |   |           |           |      |          

25

---

The
assets by segment at December 31, 2002, 2001 and 2000 are summarized as follows (in thousands):

|                            |       | 2002 |           | 2001      |   | 2000     
|--------------------------- | ----- | ---- | --------- | --------- | - | ---------
|Retail centers              |       | $    | 5,181,205 |           | $ | 3,457,956
|Office and other properties |       |      | 1,105,656 |           |   | 1,053,840
|Community development       |       |      | 461,403   |           |   | 472,226  
|Commercial development      |       |      | 67,228    |           |   | 134,503  
|Corporate                   |       |      | 148,070   |           |   | 124,232  
|                            |       |      |           |           |   |          
|                            | Total |      | $         | 6,963,562 |   | $        
|                            |       |      |           |           |   |          

Total
segment assets exceed total assets reported in the financial statements primarily because of the inclusion of our share of the assets of the proportionate share ventures and, in
2000, the consolidation of the majority financial interest ventures. The increase in total segment assets in 2002 is primarily attributable to the acquisition of assets from Rodamco (see note 16).

Additions
to long-lived assets of the segments are summarized as follows (in thousands):

|                                                      |                                           | 2002 |           | 2001      |  | 2000   
|----------------------------------------------------- | ----------------------------------------- | ---- | --------- | --------- |  | -------
|Retail centers:                                       |                                           |      |           |           |  |        
|                                                      | Redevelopment, expansions and renovations |      | $         | 128,660   |  | $      
|                                                      | Improvements for tenants and other        |      |           | 36,813    |  |        
|                                                      | Acquisitions                              |      |           | 864,776   |  |        
|                                                      |                                           |      |           |           |  |        
|                                                      |                                           |      | 1,030,249 |           |  | 170,445
|                                                      |                                           |      |           |           |  |        
|Office and other properties:                          |                                           |      |           |           |  |        
|                                                      | Improvements for tenants and other        |      |           | 19,381    |  |        
|                                                      | Acquisitions                              |      |           | 25,000    |  |        
|                                                      |                                           |      |           |           |  |        
|                                                      |                                           |      | 44,381    |           |  | 14,894 
|                                                      |                                           |      |           |           |  |        
|Community development  land development expenditures |                                           |      | 109,139   |           |  | 116,753
|Commercial development  costs of new projects        |                                           |      | 98,873    |           |  | 77,025 
|                                                      |                                           |      |           |           |  |        
|                                                      | Total                                     |      | $         | 1,282,642 |  | $      
|                                                      |                                           |      |           |           |  |        

Approximately
$75.0 million, $70.6 million and $150.1 million of the additions (exclusive of acquisitions) in 2002, 2001 and 2000, respectively, relate to property owned by
unconsolidated real estate ventures.

(9) Income taxes

The REIT Modernization Act ("RMA") was included in the Tax Relief Extension Act of 1999 ("Act"), which was enacted into law on December 17, 1999. RMA includes
numerous amendments to the provisions governing the qualification and taxation of REITs, and these amendments were effective January 1, 2001. One of the principal provisions included in the Act
provides for the creation of taxable REIT subsidiaries ("TRS"). TRS are corporations that are permitted to engage in nonqualifying REIT activities. A REIT is permitted to own up to 100% of the voting
stock of a TRS. Previously, a REIT could not own more than 10% of the voting stock of a corporation conducting nonqualifying activities. Relying on this legislation, in January 2001, we acquired all
of the voting stock of the majority financial interest ventures owned by a trust, of which certain employees are beneficiaries. Information related to the acquisition is included in note 2. We and
these subsidiaries made a joint election to treat the subsidiaries as TRS for Federal and certain state income tax purposes beginning January 2, 2001.

26

---

As
a REIT, we generally will not be subject to corporate level Federal income tax on taxable income we distribute currently to our stockholders. If we fail to qualify as a REIT in any
taxable year, we will be subject to Federal income taxes at regular corporate rates (including any applicable alternative minimum tax) and may not be able to qualify as a REIT for four subsequent
taxable years. Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income and property and to Federal income and excise taxes on our undistributed
taxable income. In addition, taxable income of a TRS is subject to Federal, state and local income taxes. Current Federal income taxes of the TRS are likely to increase in future years as we exhaust
the net loss carryforwards of certain TRS and complete certain land development projects. These increases could be significant.

In
connection with our election to be taxed as a REIT, we have also elected to be subject to the "built-in gain" rules on the assets of our Qualified REIT Subsidiaries ("QRS"). Under
these rules, taxes will be payable at the time and to the extent that the net unrealized gains on our assets at the date of conversion to REIT status are recognized in taxable dispositions of such
assets in the ten-year period following conversion. Such net unrealized gains were approximately $2.5 billion. We believe that we will not be required to make significant payments of taxes on built-in
gains throughout the ten-year period due to the availability of our net operating loss carryforward to offset built-in gains which might be recognized and the potential for us to make nontaxable
dispositions through like-kind exchanges, if necessary. It may be necessary to recognize a liability for such taxes in the future if our plans and intentions with respect to QRS asset dispositions, or
the related tax laws, change.

The
income tax provisions (benefits) for the years ended December 31, 2002 and 2001 are summarized as follows (in thousands):

|                         |                       | 2002 |       | 2001 
|------------------------ | --------------------- | ---- | ----- | -----
|
|Continuing operations:   |                       |      |       |      
|                         | Operating income      |      | $     | 1,496
|                         | Gains on dispositions |      |       |     
|Discontinued operations: |                       |      |       |      
|                         | Operating income      |      |       |     
|                         | Gains on dispositions |      |       |     
|                         |                       |      |       |      
|                         |                       | $    | 1,496 |      
|                         |                       |      |       |      

Income
tax expense attributable to continuing operations is reconciled to the amount computed by applying the Federal corporate tax rate as follows (in thousands):

2002

2001Tax at statutory rate on earnings before income taxes, net gains (losses) on operating properties and discontinued operations

$
47,593

$
48,978Increase in valuation allowance


3,039


1,613State income taxes, net of Federal income tax benefit


1,056


1,376Tax at statutory rate on earnings of QRS and other


(21,713
)

(24,600
)Income tax expense

$
29,975

$
27,367


27

---

A net deferred tax liability is included in other liabilities at December 31, 2002 and 2001 and is summarized as follows (in thousands):

2002

2001Total deferred tax assets

$
27,713

$
36,054Total deferred tax liabilities


(111,010
)

(75,200
)Valuation allowance


(9,115
)

(6,076
)Net deferred tax liability

$
(92,412
)
$
(45,222
)


The
tax effects of temporary differences and loss carryforwards included in the net deferred tax liability at December 31, 2002 and 2001 are summarized as follows (in thousands):

2002

2001Property, primarily differences in depreciation and amortization, the tax basis of land assets and treatment of interest and certain other costs

$
(90,639
)
$
(39,113
)Operating loss and tax credit carryforwards


13,111


16,713Other


(14,884
)

(22,822
)Total

$
(92,412
)
$
(45,222
)


As
indicated above, the deferred tax assets relate primarily to differences in the book and tax bases of property (particularly land assets) and to operating loss carryforwards for
Federal income tax purposes. A valuation allowance has been established due to the uncertainty of realizing operating loss carryforwards of certain TRS. Based on projections of future taxable income,
management believes that it is more likely than not that the deferred tax assets, net of the valuation allowance, will be realized. The amount of the deferred tax assets considered realizable could be
reduced in the near term; however, if estimates of future taxable income are reduced. Deferred income taxes will become payable as temporary differences reverse (primarily due to the completion of
land development projects) and net operating loss carryforwards are exhausted.

At
December 31, 2002, the income tax bases of our assets and liabilities were approximately $5.0 billion and $5.8 billion, respectively. The REIT net operating loss carryforward at
December 31, 2002 for Federal income tax purposes aggregated approximately $218.1 million and will expire from 2005 to 2011. The TRS net operating losses carried forward from December 31, 2002 for
Federal income tax purposes aggregated approximately $44.1 million and will begin to expire in 2007.

(10) Other provisions and losses (gains), net

Other provisions and losses (gains), net are summarized as follows (in thousands):

|                                                                                   |  | 2002 |        | 2001 |   | 2000 | 
|---------------------------------------------------------------------------------- |  | ---- | ------ | ---- | - | ---- | 
|Net losses (gains) on early extinguishment of debt                                 |  | $    | 2,543  |      | $ | 451  | 
|Provision for organizational changes, including early retirement and related costs |  |      | 21,816 |      |   |     | 
|Impairment of investment in MerchantWired                                          |  |      | 11,623 |      |   |     | 
|Net gain on foreign exchange derivatives                                           |  |      | (1,134 | )    |   |     | 
|Other                                                                              |  |      | 2,993  |      |   | 365  | 
|                                                                                   |  |      |        |      |   |      | 
|Other provisions and losses (gains), net                                           |  | $    | 37,841 |      | $ | 816  | 
|                                                                                   |  |      |        |      |   |      | 

We
recognized losses of $2.5 million and $0.5 million in 2002 and 2001, respectively, related to the extinguishment of debt prior to scheduled maturity. In 2000, we recognized a net gain
of $2.2 million

28

---

related to the substantial modification of terms of certain property debt and to the extinguishment of debt prior to scheduled maturity.

The
provision for organizational changes for 2002 related primarily to our consolidation of the management of our Property Operations and Commercial and Office Development divisions into
a single Asset Management Group. In connection with this organizational change, we initiated a plan to reduce the size of our workforce (including executive management) and adopted a voluntary early
retirement program in which employees who met certain criteria were eligible to participate. The costs relating to these organizational changes and the early retirement program, primarily severance
and other benefit costs, aggregated $21.8 million (including $12.5 million related to changes in executive management) in 2002.

MerchantWired
was an unconsolidated joint venture with other real estate companies to provide broadband telecommunication services to tenants. In the second quarter of 2002, we and the
other real estate companies decided to discontinue the operations of MerchantWired. Accordingly, we recorded an impairment provision for the entire amount of our net investment in the venture.

A
portion of the purchase price for the acquisition of assets from Rodamco (see note 16) was payable in euros. In January 2002, we acquired options to purchase 601 million euros at a
weighted-average per euro price of $0.8819. These transactions were executed to reduce our exposure to movements in currency exchange rates between the date of the purchase agreement and the closing
date. The contracts were scheduled to expire in May 2002 and had an aggregate cost of $11.3 million. In April 2002, we sold the contracts for net proceeds of $10.2 million and recognized a loss of
$1.1 million. We also executed and subsequently sold a euro forward contract and realized a gain of $2.2 million. As of December 31, 2002, we owned no foreign currency or financial instruments that
exposed us to risk of movements in currency exchange rates.

In
2002, we agreed to pay $3.0 million of costs incurred by an entity that sold us a portfolio of office and industrial buildings in 1998 to pay certain tax-related costs arising from
the transaction.

(11) Net gains (losses) on operating properties

Net gains (losses) on operating properties are summarized as follows (in thousands):

|                         |                                                            | 2002                    |        | 2001    |        | 2000 |     
|------------------------ | ---------------------------------------------------------- | ----------------------- | ------ | ------- | ------ | ---- | ----
|Continuing operations:   |                                                            |                         |        |         |        |      |     
|                         | Sales of interests in unconsolidated real estate ventures: |                         |        |         |        |      |     
|                         |                                                            | Community retail center |        | $       | 4,316  |      | $   
|                         |                                                            | Regional retail centers |        |         | 42,582 |      |     
|                         | Impairment losses on retail centers                        |                         |        | (42,124 | )      |      | (374
|                         | Other, net                                                 |                         |        | 2,049   |        |      | (58 
|                         |                                                            |                         |        |         |        |      |     
|                         |                                                            |                         | 6,823  |         |        | (432 | )   
|                         |                                                            |                         |        |         |        |      |     
|Discontinued operations: |                                                            |                         |        |         |        |      |     
|                         | Community retail centers                                   |                         |        | 30,469  |        |      |    
|                         | Regional retail center                                     |                         |        | 2,543   |        |      |    
|                         |                                                            |                         |        |         |        |      |     
|                         |                                                            |                         | 33,012 |         |        |     |     
|                         |                                                            |                         |        |         |        |      |     
|                         |                                                            | Total                   |        | $       | 39,835 |      | $   
|                         |                                                            |                         |        |         |        |      |     

The
net gains on operating properties in 2002 related primarily to gains recorded on the sale of our interests in retail centers. In April 2002, we sold our interests in 12 community
retail centers for net proceeds of $111.1 million. We recorded a gain on this transaction of approximately $32.0 million, net of deferred income taxes of $18.4 million. Our interests in one of the
community retail centers

29

---

were reported in unconsolidated real estate ventures and the gain on the sale of our interests in this property ($4.3 million, net of deferred income taxes of $2.0 million) is included in continuing
operations. The remaining gain on this transaction ($27.7 million, net of deferred income taxes of $16.4 million) is classified as a component of discontinued operations (see note 1). In April 2002,
we sold our interest in Franklin Park, a regional retail center in Toledo, Ohio, for $20.5 million and the buyer assumed our share of the center's debt ($44.7 million). Our interest in this property
was reported in unconsolidated real estate ventures and, accordingly, the gain of $42.6 million that we recorded on this transaction is included in continuing operations. In December 2002, we sold our
interest in Tampa Bay Center and our interest in a Summerlin community retail center for net proceeds of $22.8 million and $25.1 million, respectively. We recorded gains of $2.5 million and $2.8
million (net of deferred income taxes of $1.5 million), respectively, on these transactions and the gains are classified as a component of discontinued operations (see note 1). These gains were
partially offset by impairment losses on two retail centers ($42.1 million). In 2002, we changed our plans and intentions as to the manner in which these retail centers would be operated in the future
and revised estimates of the most likely holding periods. As a result, we evaluated the recoverability of the carrying amounts of the centers, determined that the carrying amounts of the centers were
not recoverable from future cash flows and recognized impairment losses.

The
net losses on operating properties in 2001 consisted primarily of an additional impairment provision we recorded on our investment in a retail center (Randhurst) that we and the
other venturer intend to dispose ($0.4 million).

The
net gains on operating properties in 2000 related primarily to the transfer to a joint venture controlled by Rodamco (in which we maintained a minority interest) of our ownership
interest in a retail center (North Star) ($37.1 million). This gain was partially offset by an impairment provision
recorded by us on our investment in a retail center (Randhurst) that we and the other venturer intend to dispose ($6.9 million) and an impairment loss on Tampa Bay Center ($0.7 million). We deferred
recognition of gains of approximately $25 million on the North Star transaction and approximately $15 million in connection with an unrelated transaction due to our continuing involvement with
the ventures. During 2002, we reacquired all of the interests in North Star in connection with the Rodamco transaction and reclassified the deferred gain as a reduction in the cost basis of the
property.

(12) Preferred stock

We have authorized 50,000,000 shares of Preferred stock of 1¢ par value per share of which (a) 4,505,168 shares have been classified as
Series A Convertible Preferred; (b) 4,600,000 shares have been classified as Series B Convertible Preferred; (c) 10,000,000 shares have been classified as Increasing Rate
Cumulative Preferred; and (d) 37,362 shares have been classified as 10.25% Junior Preferred, Series 1996.

The
shares of Series B Convertible Preferred stock have a liquidation preference of $50 per share and earn dividends at an annual rate of 6% of the liquidation preference. At the
option of the holders, each share of the Series B Convertible Preferred stock is convertible into shares of our common stock at a conversion rate of approximately 1.311 shares of common stock
for each share of Preferred stock, subject to adjustment in certain circumstances. In addition, these shares of Preferred stock are redeemable for shares of common stock at our option, subject to
certain conditions. There were 4,050,000 shares of Preferred stock issued and outstanding at December 31, 2002 and 2001.

Shares
of the Increasing Rate Cumulative Preferred stock are issuable only to former Hughes owners or their successors pursuant to the Contingent Stock Agreement described in
note 13. These shares are issuable only in limited circumstances and no shares have been issued. There were no shares of the Series A Convertible Preferred stock or 10.25% Junior
Preferred stock, Series 1996, outstanding at December 31, 2002 and 2001.

30

---

(13) Common stock

At December 31, 2002, shares of authorized and unissued common stock are reserved as follows: (a) 11,590,148 shares for issuance under the Contingent Stock
Agreement discussed below; (b) 15,880,664 shares for issuance under our stock option and stock bonus plans and (c) 5,309,955 shares for conversion of the Series B Convertible Preferred stock.

In
connection with the acquisition of The Hughes Corporation ("Hughes") in 1996, we entered into a Contingent Stock Agreement ("Agreement") for the benefit of the former Hughes owners or
their successors ("beneficiaries"). Under terms of the Agreement, additional shares of common stock (or in certain circumstances, Increasing Rate Cumulative Preferred stock) are issuable to the
beneficiaries based on the appraised values of four defined groups of acquired assets at specified "termination dates" to 2009 and/or cash flows generated from the development and/or sale of those
assets prior to the termination dates ("earnout periods"). The distributions of additional shares, based on cash flows, are determined and payable semiannually as of June 30 and December 31. At
December 31, 2002, approximately 683,000 shares ($21.1 million) were issuable to the beneficiaries, representing their share of cash flows for the semiannual period ended December 31, 2002.

The
Agreement is, in substance, an arrangement under which we and the beneficiaries will share in cash flows from development and/or sale of the defined assets during their respective
earnout periods, and we will issue additional shares of common stock to the beneficiaries based on the value, if any, of the defined asset groups at the termination dates. We account for the
beneficiaries' shares of earnings from the assets subject to the agreement as an operating expense. In 2000, substantially all of the remaining assets in the four defined asset groups were owned by
the majority financial interest ventures. However, we retained full responsibility for our obligations under the Agreement and, accordingly, we accounted for the beneficiaries' share of earnings from
the assets as a reduction of our equity in the earnings of the related ventures. We will account for any distributions to the beneficiaries as of the termination dates as additional investments in the
related assets (i.e., contingent consideration). At the time of acquisition of Hughes, we reserved 20,000,000 shares of common stock for possible issuance under the Agreement. The number of shares
reserved was determined based on estimates in accordance with the provisions of the Agreement. The actual number of shares issuable will be determined only from events occurring over the term of the
Agreement and could differ significantly from the number of shares reserved.

In
1999, our Board of Directors authorized the repurchase of common shares for up to $250 million, subject to certain pricing restrictions. During 2000, we repurchased approximately 2.8
million shares for $66 million. The average per share repurchase price was $23.57. No shares were repurchased under this program in 2002 or 2001. Other shares of common stock repurchased in 2002, 2001
and 2000 were subsequently issued pursuant to the Contingent Stock Agreement.

In
January and February 2002, we issued 16.675 million shares of common stock for net proceeds of $456.3 million ($27.40 per share less issuance costs) under our effective shelf
registration statement. We used the proceeds of the stock issuance to repay property and other debt and to fund a portion of the purchase price of the acquisition of the assets of Rodamco (see note
16).

Under
our stock option plans, options to purchase shares of common stock and stock appreciation rights may be awarded to our directors, officers and employees. Stock options are
generally granted with an exercise price equal to the market price of the common stock on the date of grant, typically vest over a three- to five-year period, subject to certain conditions, and have a
maximum term of ten

31

---

years. We have not granted any stock appreciation rights. Changes in options outstanding under the plans are summarized as follows:

|                             |  | 2002       |   | 2001 |       | 2000
|---------------------------- |  | ---------- | - | ---- | ----- | ----
|
|Balance at beginning of year |  | 8,813,085  |   | $    | 25.58 |     
|Options granted              |  | 2,769,932  |   |      | 29.14 |     
|Options exercised            |  | (1,307,854 | ) |      | 24.06 |     
|Options expired or cancelled |  | (151,159   | ) |      | 27.32 |     
|                             |  |            |   |      |       |     
|Balance at end of year       |  | 10,124,004 |   | $    | 26.72 |     
|                             |  |            |   |      |       |     

Information
about stock options outstanding at December 31, 2002 is summarized as follows:

|Options Outstanding |             | Options Exercisable
|------------------- | ----------- | -------------------
|
|$                   | 18.0022.75 |                    
|$                   | 23.3128.05 |                    
|$                   | 28.1433.29 |                    
|                    |             |                    
|                    |             |                    
|                    |             |                    

At
December 31, 2001 and 2000, options to purchase 3,728,711 and 2,934,907 shares, respectively, were exercisable at per share weighted-average prices of $26.95 and $25.18, respectively.

The
option prices were greater than or equal to the market prices at the date of grant for all of the options granted in 2002, 2001 and 2000 and, because we use the intrinsic value-based
method of accounting for stock options, no compensation cost has been recognized for stock options granted to our directors, officers and employees. Expense recognized for stock options granted to
employees of our unconsolidated ventures was insignificant.

Under
our stock bonus plans, shares of common stock may be awarded to our directors, officers and employees. Shares awarded under the plans are typically subject to forfeiture
restrictions which lapse at defined annual rates. Awards granted in 2002, 2001 and 2000 aggregated 146,950 shares, 266,850 shares and 89,700 shares, respectively, with a weighted-average market value
per share of $28.14, $24.84 and $21.62, respectively. In connection with certain stock bonus plan awards, we made loans (when permissible) to the recipients for the payment of related income taxes,
which loans were forgiven (when permissible) subject to the recipients' continued employment. The total loans outstanding at December 31, 2002, 2001 and 2000 were $0.1 million, $0.5 million and $1.3
million, respectively. We recognize amortization of the fair value of the stock awarded and any forgiven loans as compensation costs on a straight-line basis over the terms of the awards. Such costs
amounted to $5.5 million in 2002, $3.2 million in 2001 and $3.9 million in 2000.

The
tax status of dividends per share of common stock was as follows:

2002

2001

2000Ordinary income

$
1.56

$
1.27

$
1.32Return of capital





0.15


Total

$
1.56

$
1.42

$
1.32


32

---

(14) Earnings per share

Information relating to the calculations of earnings per share ("EPS") of common stock is summarized as follows (in thousands):

|                                                         |                                                 | 2002 |         | 2001 |   | 2000    |      
|-------------------------------------------------------- | ----------------------------------------------- | ---- | ------- | ---- | - | ------- | -----
|
|Earnings from continuing operations                      |                                                 | $    | 112,829 |      | $ | 112,829 |      
|Dividends on unvested common stock awards and other      |                                                 |      | (860    | )    |   | (860    | )    
|Dividends on convertible Preferred stock                 |                                                 |      | (12,150 | )    |   | (12,150 | )    
|Interest on convertible property debt                    |                                                 |      |        |      |   |        |      
|                                                         |                                                 |      |         |      |   |         |      
|Adjusted earnings from continuing operations             |                                                 | $    | 99,819  |      | $ | 99,819  |      
|                                                         |                                                 |      |         |      |   |         |      
|Weighted-average shares outstanding                      |                                                 |      | 84,954  |      |   | 84,954  |      
|Dilutive securities:                                     |                                                 |      |         |      |   |         |      
|                                                         | Options, unvested common stock awards and other |      |         |     |   |         | 1,492
|                                                         | Convertible property debt                       |      |         |     |   |         |     
|                                                         |                                                 |      |         |      |   |         |      
|Adjusted weighted-average shares used in EPS computation |                                                 |      | 84,954  |      |   | 86,446  |      
|                                                         |                                                 |      |         |      |   |         |      

Effects
of potentially dilutive securities are presented only in periods in which they are dilutive. In 2002, the convertible property debt was repaid.

(15) Leases

We, as lessee, have entered into operating leases, primarily for land at operating properties, expiring at various dates through 2076. Rents under such leases
aggregated $8.9 million in 2002, $9.1 million in 2001 and $10.8 million in 2000, including contingent rents, based on the operating performance of the related properties, of $2.2 million, $2.5 million
and $3.8 million, respectively. In addition, we are responsible for real estate taxes, insurance and maintenance expenses. Minimum rent payments due under operating leases in effect at
December 31, 2002 are summarized as follows (in thousands):

2003

$
6,0342004


6,0912005


6,1202006


6,1202007


6,120Subsequent to 2007


254,436Total

$
284,921


We
lease space in our operating properties to tenants primarily under operating leases. In addition to minimum rents, the majority of the retail center leases provide for percentage
rents when the tenants' sales volumes exceed stated amounts, and the majority of the retail center and office leases

33

---

provide for other rents which reimburse us for certain of our operating expenses. Rents from tenants are summarized as follows (in thousands):

2002

2001

2000Minimum rents

$
533,483

$
448,301

$
399,622Percentage rents


11,327


9,553


10,820Other rents, primarily reimbursements of operating expenses


256,673


209,520


181,386Total

$
801,483

$
667,374

$
591,828


Minimum rents to be received from tenants under operating leases in effect at December 31, 2002 are summarized as follows (in thousands):

2003

$
524,9592004


473,6332005


418,5172006


353,8332007


297,459Subsequent to 2007


837,515Total

$
2,905,916


Rents
under finance leases aggregated $8.7 million in 2002 and 2001 and $7.8 million in 2000. The net investment in finance leases at December 31, 2002 and 2001 is summarized as follows
(in thousands):

2002

2001Total minimum rent payments to be received over lease terms

$
103,113

$
111,848Estimated residual values of leased properties


788


788Unearned income


(38,857
)

(44,452
)Net investment in finance leases

$
65,044

$
68,184


Minimum
rent payments to be received from tenants under finance leases in effect at December 31, 2002 are summarized as follows (in thousands):

2003

$
8,7352004


8,9312005


8,9702006


8,4722007


8,444Subsequent to 2007


59,561Total

$
103,113


(16) Acquisition of assets from Rodamco

In January 2002, we, Simon Property Group, Inc. ("Simon") and Westfield America Trust ("Westfield") announced that affiliates of each (collectively, the
"Purchasers") entered into a Purchase Agreement with Rodamco North America N.V. ("Rodamco") to purchase substantially all of the assets of Rodamco for an aggregate purchase price of approximately 2.48
billion euros and the assumption of substantially all of Rodamco's liabilities. In connection with the Purchase Agreement, affiliates of the Purchasers entered into a Joint Purchase Agreement that
specified the assets each would acquire and

34

---

set forth the basis upon which the portion of the aggregate purchase price to be paid to Rodamco by each Purchaser would be determined. On May 3, 2002, the purchase closed.

The
primary assets we acquired include direct or indirect ownership interests in eight regional retail centers, leased primarily to national retailers, which we intend to continue to
operate, and are described below:

|Property                       |  | Interest
Acquired |  | Leasable
Mall
Square Feet |  | Department
Store
Square Feet |  | Location            
|------------------------------ |  | ----------------- |  | ------------------------- |  | ---------------------------- |  | --------------------
|Collin Creek (1)               |  | 70%               |  | 331,000                   |  | 790,000                      |  | Plano, TX           
|Lakeside Mall                  |  | 100%              |  | 516,000                   |  | 961,000                      |  | Sterling Heights, MI
|North Star (1)                 |  | 96%               |  | 435,000                   |  | 816,000                      |  | San Antonio, TX     
|Oakbrook Center (3)            |  | 47%               |  | 842,000                   |  | 1,425,000                    |  | Oakbrook, IL        
|Perimeter Mall (1), (4)        |  | 50%               |  | 502,000                   |  | 779,000                      |  | Atlanta, GA         
|The Streets at South Point (2) |  | 94%               |  | 590,000                   |  | 730,000                      |  | Durham, NC          
|Water Tower Place (3)          |  | 52%               |  | 310,000                   |  | 510,000                      |  | Chicago, IL         
|Willowbrook (1)                |  | 62%               |  | 500,000                   |  | 1,028,000                    |  | Wayne, NJ           

Notes:

Other
primary assets we acquired include a 100% interest in a parcel of land and building at Collin Creek that is leased to Dillard's department store and a 99% noncontrolling limited
partnership interest in an entity that leased land from us to redevelop a portion of Fashion Show (a retail center in Las Vegas, Nevada). The first phase of the redevelopment project opened in
November 2002. A subsidiary of a trust, of which certain employees are beneficiaries (an entity that we neither own nor control), owned the controlling interest in the limited partnership. Prior to
opening, we acquired the controlling interest for $0.1 million. In connection with the acquisition, we consolidated the accounts of the limited partnership, including $100.8 million of property debt.

The
Purchasers also jointly acquired interests in several other assets, including:



Our
share of these jointly held assets is 27.285%. The Purchasers intend to sell the interest in River Ridge, but plan to retain the other jointly held investments.

35

---

The
allocation of the purchase cost is summarized as follows (in thousands):

Property and deferred costs of projects

$
1,156,987Properties in development


2,059Investments in and advances to unconsolidated real estate ventures


248,928Prepaid expenses, receivables under finance leases and other assets


57,894Accounts and notes receivable


1,998Total assets


1,467,866LessDebt and other liabilities


652,577Cash required

$
815,289


We
paid approximately 605 million euros (approximately $546 million based on exchange rates then in effect) to Rodamco at closing. We also paid approximately $269 million to retire some
of the obligations of Rodamco and to pay our share of transaction costs. Our share of the debt secured by the operating properties in which we acquired interests was approximately $675 million,
including our share of debt of unconsolidated real estate ventures, and our share of subsidiary perpetual preferred stock assumed by the Purchasers was approximately $24 million. In addition, we
acquired a limited partnership interest in an entity that was redeveloping a portion of Fashion Show in Las Vegas, Nevada. Our share of the debt of this entity at the time of acquisition was
approximately $72 million. The debt encumbering jointly held assets totaled approximately $14 million. Our share of the purchase price was based on the allocated prices of the properties that we
acquired, directly or indirectly, our share of the jointly held assets and our share of Rodamco's obligations retired and the transaction expenses. The aggregate purchase price was determined as a
result of negotiations between Rodamco and the Purchasers; our portion of the aggregate purchase price was determined as a result of negotiations among the Purchasers.

Funds
for payment of our portion of the purchase price were provided as follows (in thousands):

Sale of Columbia community retail centers

$
111,120Sale of interest in Franklin Park


20,500Issuance of common stock in January and February 2002


279,347Borrowings under bridge loan facility


392,500Cash on hand


11,822Cash required

$
815,289


In
connection with the purchase, we borrowed $392.5 million under a bridge loan facility provided by Banc of America Securities, LLC and Banc of America Mortgage Capital Corporation. The
facility provided for no additional availability and had an initial maturity of November 2002 which was extended to May 2003. We repaid approximately $220.4 million of the bridge loan facility with a
portion of the proceeds from the issuance of the 7.20% Notes in September 2002 (see note 6). Additionally, in October 2002, we repaid $111.2 million of the facility with the distribution proceeds from
two unconsolidated real estate ventures (see note 2). In November and December 2002, we repaid the remaining borrowings under the facility using proceeds from borrowings under our revolving credit
facility.

The
consolidated statement of operations for the year ended December 31, 2002 includes revenues and costs and expenses of the assets acquired from Rodamco from the date of acquisition.
We prepared pro forma consolidated results of operations for the years ended December 31, 2002 and 2001, assuming the acquisition of assets from Rodamco and the sales of assets used to fund a portion
of the cash requirement of the acquisition occurred on January 1, 2001. The net gains related to the

36

---

sales of assets are excluded from the pro forma results. The unaudited pro forma results are summarized as follows (in thousands, except per share data):

|                                                                                                                                            |          | 2002                                                |              | 2001 |    
|------------------------------------------------------------------------------------------------------------------------------------------- | -------- | --------------------------------------------------- | ------------ | ---- | ---
|Revenues                                                                                                                                    |          | $                                                   | 1,156,751    |      | $  
|Equity in earnings of unconsolidated real estate ventures                                                                                   |          |                                                     | 32,995       |      |    
|Earnings before net gains (losses) on operating properties, discontinued operations and cumulative effect of change in accounting principle |          |                                                     | 115,968      |      |    
|Net earnings                                                                                                                                |          |                                                     | 77,438       |      |    
|                                                                                                                                            |          |                                                     |              |      |    
|Earnings per share of common stock                                                                                                          |          |                                                     |              |      |    
|                                                                                                                                            | Basic:   |                                                     |              |      |    
|                                                                                                                                            |          | Continuing operations                               |              | $    | .73
|                                                                                                                                            |          | Discontinued operations                             |              |      | .02
|                                                                                                                                            |          | Cumulative effect of change in accounting principle |              |      |   
|                                                                                                                                            |          |                                                     |              |      |    
|                                                                                                                                            |          |                                                     | Net earnings |      | $  
|                                                                                                                                            |          |                                                     |              |      |    
|                                                                                                                                            | Diluted: |                                                     |              |      |    
|                                                                                                                                            |          | Continuing operations                               |              | $    | .72
|                                                                                                                                            |          | Discontinued operations                             |              |      | .02
|                                                                                                                                            |          | Cumulative effect of change in accounting principle |              |      |   
|                                                                                                                                            |          |                                                     |              |      |    
|                                                                                                                                            |          |                                                     | Net earnings |      | $  
|                                                                                                                                            |          |                                                     |              |      |    

The
pro forma revenues, equity in earnings of unconsolidated real estate ventures and net earnings summarized above are not necessarily indicative of the results that would have occurred
if the acquisition and sales had been consummated at January 1, 2001 or of future results of operations.

(17) Other commitments and contingencies

Other commitments and contingencies (that are not reflected in the consolidated balance sheet) at December 31, 2002 are summarized as follows (in millions):

|Guarantee of debt of unconsolidated real estate ventures:                              |                                                                                                    |   |      
|-------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------- | - | -----
|                                                                                       | Village of Merrick Park                                                                            |   | $    
|                                                                                       | Hughes Airport-Cheyenne Centers                                                                    |   |      
|Construction contracts for properties in development:                                  |                                                                                                    |   |      
|                                                                                       | Consolidated subsidiaries, primarily related to Fashion Show                                       |   |      
|                                                                                       | Our share of unconsolidated real estate ventures, primarily related to the Village of Merrick Park |   |      
|Construction contracts for land development                                            |                                                                                                    |   | 36.0 
|Contract to purchase land                                                              |                                                                                                    |   | 20.8 
|Our share of long-term ground lease obligations of unconsolidated real estate ventures |                                                                                                    |   | 58.6 
|Bank letters of credit                                                                 |                                                                                                    |   | 9.9  
|                                                                                       |                                                                                                    |  
|                                                                                       |                                                                                                    | $ | 396.1
|                                                                                       |                                                                                                    |  

We
have guaranteed the repayment of a construction loan of the unconsolidated real estate venture that owns the Village of Merrick Park. The maximum amount that may be borrowed under the
loan is $200 million. The amount of the guarantee may be reduced to a minimum of 20% upon the achievement of certain lender requirements. Our venture partners have provided guarantees to us for their
share (60%) of the construction loan. The construction loan is due in October 2003. The venture

37

---

plans to repay the loan with proceeds from a new mortgage secured by the Village of Merrick Park. We and our venture partners may provide similar guarantees related to this new mortgage.

We
purchased 158 acres of land in January 2003 related to our Kendall Town Center property in development for approximately $20.8 million pursuant to a purchase commitment that existed
at December 31, 2002.

At
December 31, 2002, we had a shelf registration statement for the future sale of up to an aggregate of $1.03 billion (based on the public offering price) of common stock,
Preferred stock and debt securities. Securities may be issued pursuant to this registration statement in amounts and on terms to be determined at the time of offering. In January and February 2002, we
issued additional shares of common stock under this registration statement (see note 13). In September 2002, we issued additional debt under this registration statement (see note 6).

We
and certain of our subsidiaries are defendants in various litigation matters arising in the ordinary course of business, some of which involve claims for damages that are substantial
in amount. Some of these litigation matters are covered by insurance. We are also aware of claims arising from disputes in the ordinary course of business. In our opinion, adequate provision has been
made for losses with respect to litigation matters and other claims, where appropriate, and the ultimate resolution of these matters is not likely to have a material effect on our consolidated
financial position. It is not possible to predict, however, whether the resolution of these matters is likely to have a material effect on our net earnings in any period, and it is possible that the
resolution of these matters could have such an effect in any future quarter or year.

(18) Subsequent events

In February 2003, our Board of Directors approved modifications to curtail our defined benefit pension plans so that covered employees will not earn additional
benefits for future services. In a related action, our Board also approved a new defined contribution plan under which we intend to make discretionary contributions to covered employees' retirement
accounts. We expect additional settlements in 2003 related to the early retirement program offered in 2002 and a change in the senior management organizational structure. Accordingly, during 2003, we
expect to recognize curtailment and settlement losses associated with the defined benefit pension plans that could range from $15 million to $20 million.

On
March 7, 2003, we entered into an agreement to sell six retail centers in the Philadelphia metropolitan area. We also agreed to purchase a retail center in Delaware from an
affiliate of the purchaser. These transactions are expected to close in the second quarter of 2003. We expect to recognize gains in excess of $100 million on the sales of these centers.

(19) New financial accounting standards not yet adopted

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 addresses financial accounting and
reporting for costs associated with exit or disposal activities and clarifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity." SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. The provisions of SFAS No. 146
are effective for exit or disposal activities that are initiated after December 31, 2002. Management does not expect that the adoption of this statement will have a material effect on our results of
operations or financial condition.

In
November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." For
2002, the Interpretation requires certain disclosures which we have included in note 17. Beginning

38

---

in 2003, the Interpretation requires recognition of liabilities at their fair value for newly issued guarantees. We do not anticipate that adoption of Interpretation No. 45 will have a material
effect on our financial statements.

In
December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation  Transition and Disclosure." SFAS No. 148 amends SFAS No. 123, "Accounting for
Stock-Based Compensation." SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value-based method of accounting for stock-based compensation and requires
disclosure in both annual and interim financial statements about the method of accounting for stock-based compensation and the effect of the method used on reported results. We have adopted the
disclosure provisions of SFAS No. 148. We have not determined whether we will change to the fair value-based method of accounting for stock-based compensation and, if so, which of the alternative
methods of transition we would adopt.

In
January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities." This Interpretation addresses the consolidation of variable interest entities
("VIEs") in which the equity investors lack one or more of the essential characteristics of a controlling financial interest or where the equity investment at risk is not sufficient for the entity to
finance its activities without subordinated financial support from other parties. The Interpretation applies to VIEs created after January 31, 2003 and to VIEs in which we acquire an interest after
that date. Effective July 1, 2003, it also applies to VIEs in which we acquired an interest before February 1, 2003. We may apply the Interpretation
prospectively, with a cumulative effect adjustment as of July 1, 2003, or by restating previously issued financial statements with a cumulative effect adjustment as of the beginning of the first year
restated. We are in the process of evaluating the effects of applying Interpretation No. 46 in 2003. Based on our preliminary analysis, we believe that we may be required to consolidate certain of our
unconsolidated real estate ventures that we have accounted for using the equity method; however, we do not expect that this will involve any cumulative effect adjustment.

39

---

Five Year Comparison of Selected Financial Data (Notes 1, 2 and 3)
Years ended December 31, (in thousands, except per share data)

|                                                                  |                                                                                                         | 2002                 |        | 2001      |          | 2000   |           | 1999     |        | 1998      |         
|----------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------- | -------------------- | ------ | --------- | -------- | ------ | --------- | -------- | ------ | --------- | --------
|Operating results data:                                           |                                                                                                         |                      |        |           |          |        |           |          |        |           |         
|                                                                  | Revenues from continuing operations                                                                     |                      | $      | 1,104,734 |          | $      | 947,057   |          | $      | 624,425   |         
|                                                                  | Earnings from continuing operations                                                                     |                      |        | 112,829   |          |        | 112,139   |          |        | 170,315   |         
|                                                                  | Basic earnings from continuing operations applicable to common shareholders per share of common stock   |                      |        | 1.17      |          |        | 1.45      |          |        | 2.27      |         
|                                                                  | Diluted earnings from continuing operations applicable to common shareholders per share of common stock |                      |        | 1.15      |          |        | 1.43      |          |        | 2.24      |         
|Balance sheet data:                                               |                                                                                                         |                      |        |           |          |        |           |          |        |           |         
|                                                                  | Total assets                                                                                            |                      |        | 6,386,168 |          |        | 4,880,443 |          |        | 4,175,538 |         
|                                                                  | Debt and capital leases                                                                                 |                      |        | 4,461,901 |          |        | 3,501,398 |          |        | 3,058,038 |         
|                                                                  | Shareholders' equity                                                                                    |                      |        | 1,112,084 |          |        | 655,360   |          |        | 630,468   |         
|                                                                  | Shareholders' equity per share of common stock (note 4)                                                 |                      |        | 12.06     |          |        | 8.78      |          |        | 8.61      |         
|Other selected data:                                              |                                                                                                         |                      |        |           |          |        |           |          |        |           |         
|                                                                  | Net cash provided (used) by:                                                                            |                      |        |           |          |        |           |          |        |           |         
|                                                                  |                                                                                                         | Operating activities |        |           | 376,144  |        |           | 301,754  |        |           | 261,240 
|                                                                  |                                                                                                         | Investing activities |        |           | (863,711 | )      |           | (126,595 | )      |           | (275    
|                                                                  |                                                                                                         | Financing activities |        |           | 497,077  |        |           | (157,778 | )      |           | (273,713
|Dividends per share of common stock                               |                                                                                                         |                      | 1.56   |           |          | 1.42   |           |          | 1.32   |           |         
|Dividends per share of convertible Preferred stock                |                                                                                                         |                      | 3.00   |           |          | 3.00   |           |          | 3.00   |           |         
|Market price per share of common stock at year end                |                                                                                                         |                      | 31.70  |           |          | 29.29  |           |          | 25.50  |           |         
|Market price per share of convertible Preferred stock at year end |                                                                                                         |                      | 46.03  |           |          | 43.50  |           |          | 36.63  |           |         
|Weighted-average common shares outstanding (basic)                |                                                                                                         |                      | 84,954 |           |          | 68,637 |           |          | 69,475 |           |         
|Weighted-average common shares outstanding (diluted)              |                                                                                                         |                      | 86,446 |           |          | 69,694 |           |          | 72,064 |           |         

---

Notes:

40

---

Interim Financial Information (Unaudited)
Interim consolidated results of operations are summarized as follows (in thousands, except per share data):

|                                           |                                                     | Quarter ended |        
|------------------------------------------ | --------------------------------------------------- | ------------- | -------
|
|
|Revenues                                   |                                                     | $             | 313,425
|Operating income                           |                                                     |               | 32,444 
|Earnings (loss) from continuing operations |                                                     |               | (9,718 
|Net earnings (loss)                        |                                                     |               | (5,300 
|                                           |                                                     |               |        
|Earnings per common share                  |                                                     |               |        
|Basic:                                     |                                                     |               |        
|                                           | Continuing operations                               |               | $      
|                                           | Discontinued operations                             |               |        
|                                           | Cumulative effect of change in accounting principle |               |        
|                                           |                                                     |               |        
|                                           |                                                     | Total         |        
|                                           |                                                     |               |        
|Diluted:                                   |                                                     |               |        
|                                           | Continuing operations                               |               | $      
|                                           | Discontinued operations                             |               |        
|                                           | Cumulative effect of change in accounting principle |               |        
|                                           |                                                     |               |        
|                                           |                                                     | Total         |        
|                                           |                                                     |               |        

|Note: |  | Quarterly amounts have been restated to reflect consolidated properties that we sold in 2002, and where we did not have a continuing involvement, as discontinued operations. Net earnings for the second quarter of 2002 includes a gain on the
disposition of our interest in a retail center (Franklin Park) of $42.6 million ($0.50 per share basic, $0.45 per share diluted). Net earnings for the fourth quarter of 2002 includes impairment losses on two retail centers of $42.1 million ($0.49 per
share basic and diluted).
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Price of Common Stock and Dividends

Our common stock is traded on the New York Stock Exchange. The prices and dividends per share were as follows:

|          |  | Quarter ended
|--------- |  | -------------
|
|
|High      |  | $            
|Low       |  |              
|Dividends |  |              

Number of Holders of Common Stock

The number of holders of record of our common stock as of March 17, 2003 was 2,245.

41

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The Rouse Company and Subsidiaries  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION AND RESULTS OF OPERATIONS

General

Through our subsidiaries and affiliates, we acquire, develop and manage a diversified portfolio of income-producing properties located throughout the United States
and develop and sell land for residential, commercial and other uses, primarily in master-planned communities.

Income-Producing Properties

Our primary business strategies relating to income-producing properties include (1) owning and operating premier properties  shopping centers and
large-scale mixed-use projects in major markets across the United States and (2) owning and operating geographically concentrated office and industrial buildings, principally complementing community
development activities. In order to execute these strategies, we evaluate opportunities to acquire or develop properties and to redevelop, expand and/or renovate properties in our portfolio. We have
made and plan to continue making substantial investments to acquire, develop and expand and/or renovate properties as follows:



We
continually assess whether properties in which we own interests are consistent with our business strategies. We have disposed of interests in more than 40 retail centers and numerous
other properties since 1993 (primarily using tax-deferred exchanges or joint ventures) and may continue to dispose of selected properties that are not meeting or are not considered to have the
potential to continue to meet our investment criteria. We may also dispose of interests in properties for other reasons. In April 2002, we sold our interests in 12 community retail centers in Columbia
for net proceeds of $111.1 million. In anticipation of this transaction, we repaid $58.1 million of debt secured by these properties in March 2002 and incurred a loss on this repayment of $3.2 million
(net of income tax benefits of $2.1 million). Also in April 2002, we sold our interest in Franklin Park, a retail center in Toledo, Ohio, for $20.5 million and the buyer assumed our share of the
center's debt ($44.7 million). In October 2002, we contributed our ownership interest in Perimeter Mall (a regional retail center in Atlanta, Georgia) to a joint venture in exchange for a 50% interest
in the venture and a distribution of $67.1 million. The net proceeds from these transactions were used to fund a portion of the costs (including a partial repayment of a related bridge loan facility)
of the assets acquired from Rodamco. In 2000, we sold several office and industrial properties in the Baltimore-Washington corridor and contributed our ownership interests in industrial properties in
two Las Vegas business parks to a real estate venture in exchange for a cash distribution and a minority interest in the venture. Disposition decisions and related transactions and changes in expected
holding periods may cause us to recognize gains or losses that could have material effects on reported net earnings in future quarters or fiscal years, and, taken together with the use of sales
proceeds, may have a material effect on our overall consolidated financial position.

Community Development

Our primary business strategy relating to community development projects is to develop and sell land in our planned communities in a manner that increases the
value of the remaining land to be developed and sold and to provide current cash flows. Our major land development projects include communities in and around Columbia in Howard County, Maryland and in
Summerlin, Nevada. In addition, we are an investor in an unconsolidated real estate venture that is developing Fairwood, a planned community in Prince George's County, Maryland. To leverage our
experience and provide further growth, we are continuing to seek and evaluate opportunities to acquire new and/or existing community development projects. In addition to being a viable business
segment for us, the net cash flows from community development operations provide an additional source of funding for our other activities.

42

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2002 Acquisitions

In January 2002, we, Simon Property Group, Inc. ("Simon") and Westfield America Trust ("Westfield") announced that affiliates of each (collectively, the
"Purchasers") entered into a Purchase Agreement with Rodamco to purchase substantially all of the assets of Rodamco for an aggregate purchase price of approximately 2.48 billion euros and the
assumption of substantially all of Rodamco's liabilities. In
connection with the Purchase Agreement, affiliates of the Purchasers entered into a Joint Purchase Agreement that specified the assets each would acquire and set forth the basis upon which the portion
of the aggregate purchase price to be paid to Rodamco by each Purchaser would be determined. On May 3, 2002, the purchase closed.

The
primary assets we acquired include direct or indirect ownership interests in eight regional retail centers, leased primarily to national retailers, which we intend to continue to
operate, and are described below:

|Property                       |  | Interest
Acquired |  | Leasable Mall
Square Feet |  | Department
Store
Square Feet |  | Location            
|------------------------------ |  | ----------------- |  | ------------------------- |  | ---------------------------- |  | --------------------
|Collin Creek (1)               |  | 70%               |  | 331,000                   |  | 790,000                      |  | Plano, TX           
|Lakeside Mall                  |  | 100%              |  | 516,000                   |  | 961,000                      |  | Sterling Heights, MI
|North Star (1)                 |  | 96%               |  | 435,000                   |  | 816,000                      |  | San Antonio, TX     
|Oakbrook Center (3)            |  | 47%               |  | 842,000                   |  | 1,425,000                    |  | Oakbrook, IL        
|Perimeter Mall (1), (4)        |  | 50%               |  | 502,000                   |  | 779,000                      |  | Atlanta, GA         
|The Streets at South Point (2) |  | 94%               |  | 590,000                   |  | 730,000                      |  | Durham, NC          
|Water Tower Place (3)          |  | 52%               |  | 310,000                   |  | 510,000                      |  | Chicago, IL         
|Willowbrook (1)                |  | 62%               |  | 500,000                   |  | 1,028,000                    |  | Wayne, NJ           

Notes:

Other
primary assets acquired include a 100% interest in a parcel of land and building at Collin Creek that is leased to Dillard's department store and a 99% noncontrolling limited
partnership interest in an entity that leased land from us to redevelop a portion of Fashion Show (a retail center in Las Vegas, Nevada). The first phase of the redevelopment project opened in
November 2002. A subsidiary of a trust, of which certain employees are beneficiaries (an entity that we neither own nor control), owned the controlling interest in the limited partnership. Prior to
opening, we acquired the controlling interest for $0.1 million. In connection with this acquisition, we consolidated the accounts of the limited partnership, including $100.8 million of property debt.

The
Purchasers also jointly acquired interests in several other assets, including:



43

---



Our
share of these jointly held assets is 27.285%. The Purchasers intend to sell the interest in River Ridge, but plan to retain the other jointly held investments.

We
paid approximately 605 million euros (approximately $546 million based on exchange rates then in effect) to Rodamco at closing. We also paid approximately $269 million to retire some
of the obligations of Rodamco and to pay our share of transaction costs. Our share of the debt secured by the operating properties in which we acquired interests was approximately $675 million,
including our share of debt of unconsolidated real estate ventures, and our share of subsidiary perpetual preferred stock assumed by the Purchasers was approximately $24 million. In addition, we
acquired a limited partnership interest in an entity that was redeveloping a portion of Fashion Show in Las Vegas, Nevada. Our share of the debt of this entity at the time of acquisition was
approximately $72 million. The debt encumbering jointly held assets totaled approximately $14 million. Our share of the purchase price was based on the allocated prices of the properties that we
acquired, directly or indirectly, our share of the jointly held assets and our share of Rodamco's obligations retired and the transaction expenses. The aggregate purchase price was determined as a
result of negotiations between Rodamco and the Purchasers; our portion of the aggregate purchase price was determined as a result of negotiations among the Purchasers.

Funds
for payment of our portion of the purchase price were provided as follows (in millions):

Sale of Columbia community retail centers

$
111.1Sale of interest in Franklin Park


20.5Issuance of common stock in January and February 2002


279.3Borrowings under bridge loan facility


392.5Cash on hand


11.9Cash required

$
815.3


In
connection with the purchase, we borrowed $392.5 million under a bridge loan facility provided by Banc of America Securities, LLC and Banc of America Mortgage Capital Corporation. The
facility provided for no additional availability and had an initial maturity of November 2002 which was extended to May 2003. We repaid approximately $220.4 million of the facility with a portion of
the proceeds from the issuance of the 7.20% Notes in September 2002. Additionally, in October 2002, we repaid $111.2 million of the facility with distribution proceeds from two unconsolidated real
estate ventures. In November and December 2002, we repaid the remaining borrowings under the facility using proceeds from borrowings under our revolving credit facility.

We
also acquired our partners' controlling financial interests in entities that own Ridgedale Center and Southland Center. Ridgedale Center, a regional retail center in suburban
Minneapolis, Minnesota, has 343,000 square feet of leasable mall space and four department stores with space totaling 693,000 square feet. Southland Center, a regional retail center in suburban
Detroit, Michigan, has 322,000 square feet of leasable mall space and three department stores with space totaling 583,000 square feet. These retail centers were acquired for cash of $63.1 million and
our assumption of $152.7 million of our partners' share of mortgage debt.

44

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Summary of portfolio changes

We believe that space in high-quality, dominant retail centers in densely populated, affluent areas will continue to be in demand by retailers and that these
retail centers are better able to withstand difficult conditions in the overall economy and the real estate and retail industries. In addition to the acquisitions and dispositions noted above, during
2002, 2001 and 2000 we completed other acquisitions, numerous redevelopment/expansion projects, the development of new operating properties and several
disposition transactions (including contributions of interests in properties to unconsolidated real estate ventures) designed to upgrade the overall quality of the income-producing property portfolio
or to provide liquidity for acquisitions, development costs, and other uses.

Our
2002, 2001 and 2000 acquisition, disposition and development activity is summarized as follows:

Acquisitions

|Retail Centers                 |  | Interest Acquired |  | Interest After Acquisition |  | Acquisition Date
|------------------------------ |  | ----------------- |  | -------------------------- |  | ----------------
|Westdale Mall                  |  | 65%               |  | 85%                        |  | August 2000     
|Collin Creek                   |  | 70%               |  | 100%                       |  | May 2002        
|Lakeside Mall                  |  | 100%              |  | 100%                       |  | May 2002        
|North Star                     |  | 96%               |  | 100%                       |  | May 2002        
|Oakbrook Center (1)            |  | 47%               |  | 47%                        |  | May 2002        
|Perimeter Mall (2)             |  | 50%               |  | 100%                       |  | May 2002        
|The Streets at South Point (3) |  | 94%               |  | 94%                        |  | May 2002        
|Water Tower Place (1)          |  | 52%               |  | 52%                        |  | May 2002        
|Willowbrook                    |  | 62%               |  | 100%                       |  | May 2002        
|Ridgedale Center               |  | 90%               |  | 100%                       |  | November 2002   
|Southland Center               |  | 90%               |  | 100%                       |  | November 2002   

Notes:

Dispositions

|Retail Centers                                        |  | Disposition Date |  | Office and Other Properties                                                                                                             |  | Disposition Date                      
|----------------------------------------------------- |  | ---------------- |  | --------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------
|North Star (1)                                        |  | July 2000        |  | Hunt Valley Business Center                                                                                                             |  | June 2000                             
|Midtown Square                                        |  | October 2000     |  | (1 building)                                                                                                                            |  |                                       
|The Grand Avenue                                      |  | November 2000    |  | Midtown Office                                                                                                                          |  | October 2000                          
|12 Community Retail Centers
    in Columbia, Maryland |  | April 2002       |  | Owen Brown I & II
Hughes Airport Center                                                                                                 |  | November 2000
December 2000           
|Franklin Park                                         |  | April 2002       |  | (34 buildings) (2)                                                                                                                      |  |                                       
|Tampa Bay Center                                      |  | December 2002    |  | Hughes Cheyenne Center
    (3 buildings) (2)
Hunt Valley Business Center
    (2 buildings)
Hunt Valley Business Center
    (1 building) |  | December 2000
December 2000
April 2001

45

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Notes:

Development projects

|Retail Centers                                            |  | Date Opened           |  | Office and Other Properties            |  | Date Opened               
|--------------------------------------------------------- |  | --------------------- |  | -------------------------------------- |  | --------------------------
|Moorestown Mall Expansion
Pioneer Place Expansion         |  | March 2000
March 2000 |  | Summerlin Town Center
    (1 building) |  | January 2001
February 2001
|Exton Square Expansion                                    |  | May 2000              |  | Summerlin Town Center                  |  |                           
|Perimeter Mall Expansion                                  |  | July 2000             |  | (1 building)                           |  |                           
|Oviedo Marketplace Expansion                              |  | October 2000          |  |                                        |  |                           
|The Mall in Columbia Expansion                            |  | May 2001              |  |                                        |  |                           
|Centerpointe Plaza (1)                                    |  | September 2001        |  |                                        |  |                           
|Village of Merrick Park (2)                               |  | September 2002        |  |                                        |  |                           
|Fashion Show
    Redevelopment  Phase I                  |  | November 2002         |  |                                        |  |                           
|Canyon Pointe  Summerlin
    Community Retail Center (3) |  | August 2002           |  |                                        |  |                           

Notes:

Operating results

The following discussion and analysis of operating results covers each of our five business segments as management believes that a segment analysis provides the
most effective means of understanding our business. It also provides information about other elements of the consolidated statement of operations that are not included in the segment results. You
should refer to the consolidated statements of operations, note 8 to the consolidated financial statements and the Five Year Summary of Net Operating Income ("NOI") and Net Earnings on page 63 when
reading this discussion and analysis. As discussed in note 8, segment operating data are reported using the accounting policies used for internal reporting to management, which differ in certain
respects from those used for reporting under accounting principles generally accepted in the United States of America. The differences affect only the reported revenues and expenses of the segments
and have no effect on our reported net earnings or NOI. Revenues and operating expenses reported for the segments are reconciled to the related amounts reported in the consolidated statements of
operations in note 8.

Comparisons
of NOI and net earnings from one year to another are affected significantly by the property acquisition, disposition and development activity summarized above. As discussed
in more detail below, other factors that have contributed to our operating results in 2002, 2001 and 2000 include the following:



46

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Impact of the terrorist attacks of September 11, 2001:

We were largely spared direct losses caused by the terrorist attacks of September 11, 2001. Operations were disrupted only at South Street Seaport, a
retail center in lower Manhattan that we own and operate. The center was closed for a week following the attacks for use as a staging and rest area for rescue workers. It did not sustain significant
physical damage. Customer traffic, tenant sales and rents at South Street Seaport are generally affected by the level of pedestrian and other traffic and other commercial activity in lower Manhattan.
It is difficult to predict with certainty when, if ever, customer traffic, tenant sales and rents will return to historical levels. Customer traffic at our other retail centers was lighter than usual
for several days after the attacks but has generally returned to normal levels at our suburban properties. Traffic at our urban specialty marketplaces is more dependent on tourism and continues to be
lighter than usual at most of these properties. There can be no assurance that visitor activity at our urban specialty marketplaces will return to levels experienced before the attacks. Las Vegas,
where we have a substantial concentration of assets, experienced a significant decline in visitor activity in the weeks immediately following the attacks but has since largely recovered.

Business Segment Information

Income-producing Properties:We report the results of our income-producing properties in two
segments: (1) retail centers and (2) office and other properties. Our tenant leases provide the foundation for the performance of our operating properties. In addition to minimum rents,
the majority of retail and office tenant leases provide for other rents which reimburse us for certain operating expenses. Substantially all of our retail leases also provide for additional rent
(percentage rent) based on tenant sales in excess of stated levels. As leases expire, space is re-leased, minimum rents are generally adjusted to market rates, expense reimbursement provisions are
updated and new percentage rent levels are established for retail leases.

Some
portions of our discussion and analysis focus on "comparable" properties. In general, comparable properties exclude those that have been acquired or disposed of, newly developed or
undergone significant expansion in either of the two years being compared.

Retail Centers:Operating results of retail centers are summarized as follows (in millions):

2002

2001

2000Revenues

$
775.5

$
637.2

$
631.7Operating expenses, exclusive of ground rent expense and depreciation and amortization


305.9


261.6


263.6NOI

$
469.6

$
375.6

$
368.1


The
$138.3 million increase in revenues in 2002 was attributable primarily to:



47

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These
increases were partially offset by the effects of the sales of interests in properties in 2002 ($20.1 million) and lower lease termination income ($2.2 million) at comparable
properties. Our comparable properties had average occupancy levels of approximately 92.4% during 2002 and 2001.

The
$5.5 million increase in revenues in 2001 was attributable primarily to:



These
increases were partially offset by the following:



The
$44.3 million increase in operating expenses, exclusive of ground rent expense and depreciation and amortization, in 2002 was attributable primarily to:



The
$2.0 million decrease in operating expenses, exclusive of ground rent expense and depreciation and amortization, in 2001 was attributable primarily to the dispositions of interests
in properties in 2000 ($9.2 million). These decreases were partially offset by the following:



In
summary, the $94 million increase in NOI in 2002 was attributable primarily to:



These
increases in NOI were partially offset by dispositions of interests in properties ($12.6 million).

We
believe that the ability to increase rents and maintain high average occupancy levels at our comparable retail centers in spite of difficult economic conditions is indicative of the
high demand that retailers have for our space.

We
anticipate continued growth in NOI from retail centers in 2003, as we should continue to benefit from the properties acquired from Rodamco, the September 2002 opening of the Village
of Merrick Park and the November 2002 opening of the first phase of the Fashion Show redevelopment. Additionally, we are achieving higher average rents on the leasing commitments that we have secured
related to leases that expire in 2003.

48

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Office and Other Properties:Operating results of office and other properties are summarized as
follows (in millions):

2002

2001

2000Revenues

$
205.2

$
203.7

$
216.2Operating expenses, exclusive of ground rent expense and depreciation and amortization


80.2


75.8


77.6NOI

$
125.0

$
127.9

$
138.6


Revenues
increased $1.5 million in 2002 and decreased $12.5 million in 2001. The increase in 2002 was attributable to the acquisition of assets from Rodamco ($4.5 million) and higher
rents on re-leased space, partially offset by decreases due to lower average occupancy levels at comparable properties (88.4% in 2002 versus 91.9% in 2001). The decrease in 2001 was attributable
primarily to dispositions of interests in properties in 2000 ($21.4 million) and was partially offset by higher rents on re-leased space.

Total
operating expenses, exclusive of ground rent expense and depreciation and amortization, increased $4.4 million in 2002 and decreased $1.8 million in 2001. The increase in 2002 was
attributable to the acquisition of assets from Rodamco ($2.5 million) and higher general and administrative expenses. The decrease in 2001 was attributable to dispositions of interests in properties
in 2000 ($4.4 million). The decrease was partially offset by higher general and administrative expenses.

Difficult
general economic conditions and weakening office demand led to higher vacancy rates in our office portfolio. We expect NOI from our office and other properties segment to
decline in 2003, as we believe the national trend of weakened demand for office space will continue.

Community Development:Community development relates primarily to the communities of Summerlin,
Nevada, Columbia, Emerson and Stone Lake in Howard County, Maryland, and Fairwood in Prince George's County, Maryland. Generally, revenues and operating income from land sales are affected by such
factors as the availability to purchasers of construction and permanent mortgage financing at acceptable interest rates, consumer and business confidence, availability of saleable land for particular
uses and our decisions to sell, develop or retain land.

49

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Operating
results of community development are summarized as follows (in millions):

|                     |                               | 2002      |     | 2001  |       | 2000
|-------------------- | ----------------------------- | --------- | --- | ----- | ----- | ----
|Nevada Operations:   |                               |           |     |       |       |     
|                     | Revenues:                     |           |     |       |       |     
|                     |                               | Summerlin |     | $     | 129.7 |     
|                     |                               | Other     |     |       | 46.2  |     
|                     | Operating costs and expenses: |           |     |       |       |     
|                     |                               | Summerlin |     |       | 94.0  |     
|                     |                               | Other     |     |       | 37.4  |     
|                     |                               |           |     |       |       |     
|                     |                               |           | NOI |       | $     | 44.5
|                     |                               |           |     |       |       |     
|Columbia Operations: |                               |           |     |       |       |     
|                     | Revenues                      |           | $   | 65.1  |       | $   
|                     | Operating costs and expenses  |           |     | 24.4  |       |     
|                     |                               |           |     |       |       |     
|                     |                               |           | NOI |       | $     | 40.7
|                     |                               |           |     |       |       |     
|Total:               |                               |           |     |       |       |     
|                     | Revenues                      |           | $   | 241.0 |       | $   
|                     | Operating costs and expenses  |           |     | 155.8 |       |     
|                     |                               |           |     |       |       |     
|                     |                               |           | NOI |       | $     | 85.2
|                     |                               |           |     |       |       |     

Revenues
and NOI from land sales in Summerlin decreased $19.0 million and $4.2 million, respectively, in 2002. These decreases were attributable to a lower supply of saleable residential
land in 2002 due to our decision to temporarily reduce land development expenditures in anticipation of reduced demand for residential land following the events of September 11, 2001. In the second
half of 2002, we resumed our development pace and expect residential land available for sale to increase in 2003. Revenues and NOI from land sales in Summerlin increased $34.3 million and $21.0
million, respectively, in 2001. These increases were attributable primarily to higher levels of land sold for residential purposes. The increase in operating margins in 2002 and 2001 was due primarily
to the effects of favorable pricing resulting from higher demand. Our revenues and NOI relating to other Nevada operations land holdings in 2002 were attributable to sales of investment land and the
recognition of deferred revenue upon the collection of a subordinated note receivable from a 1997 sale of land in California. Our revenues and NOI relating to other Nevada operations land holdings in
2000 were attributable primarily to land sales at master planned business parks in Las Vegas.

Revenues
and NOI from Columbia operations land sales increased $1.1 million and $5.8 million, respectively, in 2002. Revenues and NOI increased $2.6 million from our share of earnings
from residential sales at Fairwood, a planned community in Prince George's County, Maryland. Land sales at the community began in the fourth quarter of 2001. This increase in revenues was partially
offset by a decrease in residential land sales in our other community development projects. This decrease was primarily attributable to a lower supply of saleable land as we began new development in
the communities of Emerson and Stone Lake. However, due to the sale of certain parcels of land with low cost bases and lower current taxes resulting from tax planning strategies, our NOI increased
despite the lower revenues from these communities. Revenues and NOI from Columbia operations land sales decreased $19.8 million and $12.2 million, respectively, in 2001. The decreases in 2001 were
attributable primarily to the effects of a sale of land in New Jersey in 2000 ($14.0 million in revenues and $7.5 million in NOI). We have no additional saleable land at the New Jersey site. The
remaining decreases in revenues and NOI for 2001 were attributable primarily to lower levels of sales for commercial uses in Columbia. Operating costs and expenses as a percentage of sales increased
in 2001 due to an increase in current income taxes, partially offset by higher profit margins on land sales resulting from favorable pricing.

50

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We
expect that results of community development should remain strong in 2003, assuming continued favorable market conditions in the Las Vegas and Howard County regions.

Commercial Development:Commercial development expenses were $13.0 million in 2002, $6.9 million in
2001 and $7.7 million in 2000. These costs consist primarily of preconstruction expenses and new business costs, net of gains on sales of properties we developed for sale.

Preconstruction
expenses relate to retail and office and other property development opportunities which may not go forward to completion. Preconstruction expenses were $7.0 million in
2002, $3.1 million in 2001 and $4.7 million in 2000. The higher level of expenses in 2002 was primarily attributable to costs for retail project opportunities which we decided not to pursue.

New
business costs relate primarily to the evaluation of potential acquisition and development projects and the management of acquisition transactions. These costs were $10.3 million in
2002, $5.5 million in 2001 and $3.0 million in 2000. New business costs increased in 2002 primarily as a result of internal effort costs related to the Rodamco transaction.

In
2002, we recognized a gain of $4.3 million (excluding related deferred income taxes) on the sale of a community retail center in Summerlin that we developed with the intent of
selling. In 2001, we recognized a gain of $1.5 million (excluding related deferred income taxes) on a build-to-suit office building that we sold upon completion of construction.

Corporate:Corporate operating expenses consist of costs associated with Company-wide activities
which include shareholder relations, the Board of Directors, financial management, strategic planning and management, and equity in operating results of corporate investments (primarily
MerchantWired). We invested in MerchantWired (an unconsolidated joint venture formed with other real estate companies to provide broadband telecommunication services to tenants) and began recognizing
our share of its operating results in the third quarter of 2000. In 2002, we and our joint venture partners decided to discontinue the operations of MerchantWired. Accordingly, we recorded an
impairment provision for the entire amount of our net investment in the venture (this impairment loss is included in other provisions and losses (gains), net).

Corporate
operating expenses were $16.4 million in 2002, $13.2 million in 2001 and $9.4 million in 2000. The increases in 2002 and 2001 were attributable primarily to costs incurred for
strategic planning and management initiatives and to our equity in losses of MerchantWired.

Other Operating Information

As discussed in note 2 to the consolidated financial statements, in January 2001, we acquired all of the shares of voting stock (91%) of the majority financial
interest ventures that we did not own. As a result of this transaction, we consolidated these ventures in our financial statements in 2001. In 2000, we accounted for our interests in them using the
equity method. This change does not affect comparisons of the operating results of our business segments because, as discussed in note 8 to the consolidated financial statements, we have consolidated
the ventures for segment reporting purposes in 2000. As discussed below, the change affects comparisons of certain other elements of our operating results significantly.

Interest:Interest expense was $245.3 million in 2002, $223.3 million in 2001 and $234.5 million in
2000. The increase in 2002 was attributable primarily to an increase in the average debt balance (primarily resulting from the Rodamco transaction), partially offset by lower average interest rates on
variable-rate debt. The decrease in 2001 was attributable primarily to lower average interest rates on both variable-rate debt and debt that was refinanced in 2001 and 2000. This decrease was
partially offset by interest expense of the acquired majority financial interest ventures.

51

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Depreciation and Amortization:Depreciation and amortization expense increased $31.7 million and
$34.5 million in 2002 and 2001, respectively. In 2002, the increase was attributable primarily to the acquisition of properties from Rodamco. In 2001, this change was attributable primarily to the
consolidation of the majority financial interest ventures and to the net effect of the changes in our portfolio of properties referred to above.

Other Provisions and Losses (Gains), Net:Other provisions and losses (gains), net are summarized as
follows (in millions):

|                                                                                   |  | 2002 |      | 2001 |   | 2000 | 
|---------------------------------------------------------------------------------- |  | ---- | ---- | ---- | - | ---- | 
|Net losses (gains) on early extinguishment of debt                                 |  | $    | 2.5  |      | $ | 0.5  | 
|Provision for organizational changes, including early retirement and related costs |  |      | 21.8 |      |   |     | 
|Impairment of investment in MerchantWired                                          |  |      | 11.6 |      |   |     | 
|Net gain on foreign exchange derivatives                                           |  |      | (1.1 | )    |   |     | 
|Other                                                                              |  |      | 3.0  |      |   | 0.3  | 
|                                                                                   |  |      |      |      |   |      | 
|Other provisions and losses (gains), net                                           |  | $    | 37.8 |      | $ | 0.8  | 
|                                                                                   |  |      |      |      |   |      | 

We
recognized losses of $2.5 million and $0.5 million in 2002 and 2001, respectively, related to the extinguishment of debt prior to scheduled maturity. In 2000, we recognized a net gain
of $2.2 million related to the substantial modification of terms of certain property debt and to the extinguishment of debt prior to scheduled maturity.

The
provision for organizational changes and early retirement costs for 2002 related primarily to our consolidation of the management of our Property Operations and Commercial and Office
Development divisions into a single Asset Management Group. In connection with this organizational change, we executed a plan to reduce the size of our workforce (including executive management) and
adopted a voluntary early retirement program in which employees who met certain criteria were eligible to participate. The costs relating to these organizational changes and the early retirement
program, primarily severance and other benefit costs, aggregated $21.8 million (including $12.5 million related to changes in executive management) in 2002.

MerchantWired
was an unconsolidated joint venture with other real estate companies to provide broadband telecommunication services to tenants. In the second quarter of 2002, we and the
other real estate companies decided to discontinue the operations of MerchantWired. Accordingly, we recorded an impairment provision for the entire amount of our net investment in the venture.

A
portion of the purchase price for the acquisition of assets from Rodamco was payable in euros. In January 2002, we acquired options to purchase 601 million euros at a weighted-average
per euro price of $0.8819. These transactions were executed to reduce our exposure to movements in currency exchange rates between the date of the purchase agreement and the closing date. The
contracts were scheduled to expire in May 2002 and had an aggregate cost of $11.3 million. In April 2002, we sold the contracts for net proceeds of $10.2 million and recognized a loss of $1.1 million.
We also executed and subsequently sold a euro forward contract and realized a gain of $2.2 million. As of December 31, 2002, we owned no foreign currency or financial instruments that exposed us to
risk of movements in currency exchange rates.

In
2002, we agreed to pay $3.0 million of costs incurred by an entity that sold us a portfolio of office and industrial buildings in 1998 to pay certain tax-related costs arising from
the transaction.

Income Taxes:As discussed in notes 2 and 9 to the consolidated financial statements, in January
2001, we acquired all of the voting stock of the majority financial interest ventures owned by a trust, of which certain employees are beneficiaries. On January 2, 2001, we and these subsidiaries made
a joint election to treat the subsidiaries as taxable REIT subsidiaries ("TRS") for Federal and certain state

52

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income tax purposes. With respect to the TRS, we are liable for income taxes at the Federal and state levels. The income tax provisions from continuing operations (excluding taxes related to gains on
sales of operating properties) were $30.0 million and $27.4 million in 2002 and 2001, respectively, and related primarily to the earnings of TRS.

At
December 31, 2002, our net deferred tax liability was approximately $92.4 million. Deferred income taxes will become payable as temporary differences reverse (primarily due to the
completion of land development projects) and net operating loss carryforwards are exhausted.

Equity in Earnings of Unconsolidated Real Estate Ventures:For segment reporting purposes and in this
analysis, our share of the NOI of unconsolidated real estate ventures is included in the operating results of retail centers, office and other properties, community development and commercial
development. Equity in earnings of the unconsolidated real estate ventures increased $0.7 million in 2002 and decreased $95.5 million in 2001. In 2002, the increase was primarily attributable to the
Rodamco transaction. As a result of this transaction, we acquired interests in several properties and other investments that are accounted for as unconsolidated real estate ventures (Oakbrook Center,
Water Tower Place, River Ridge, Kravco Investments, L.P. and Westin Hotel). The increase in equity in earnings from these properties and other investments was partially offset by the acquisition from
Rodamco of the remaining interests in properties (Collin Creek, North Star, Perimeter Mall and Willowbrook) in which we previously had a noncontrolling interest and accounted for as unconsolidated
real estate ventures. The 2002 change also reflects the effects of the opening of the Village of Merrick Park in September 2002, the disposition of a 50% interest in Perimeter Mall in October 2002,
and the acquisition of the controlling financial interests in Ridgedale Center and Southland Center in November 2002. The decrease in 2001 was due primarily to the consolidation of the majority
financial interest ventures and the effects of a disposition of a substantial portion of our interest in a retail center (North Star) in 2000.

Net Gains (Losses) on Operating Properties:Net gains (losses) on operating properties are summarized
as follows (in millions):

|                         |                                                            | 2002                    |      | 2001  |      | 2000 |     
|------------------------ | ---------------------------------------------------------- | ----------------------- | ---- | ----- | ---- | ---- | ----
|Continuing operations:   |                                                            |                         |      |       |      |      |     
|                         | Sales of interests in unconsolidated real estate ventures: |                         |      |       |      |      |     
|                         |                                                            | Community retail center |      | $     | 4.3  |      | $   
|                         |                                                            | Regional retail centers |      |       | 42.6 |      |     
|                         | Impairment losses on retail centers                        |                         |      | (42.1 | )    |      | (0.4
|                         | Other, net                                                 |                         |      | 2.0   |      |      |    
|                         |                                                            |                         |      |       |      |      |     
|                         |                                                            |                         | 6.8  |       |      | (0.4 | )   
|                         |                                                            |                         |      |       |      |      |     
|Discontinued operations: |                                                            |                         |      |       |      |      |     
|                         | Community retail centers                                   |                         |      | 30.5  |      |      |    
|                         | Regional retail center                                     |                         |      | 2.5   |      |      |    
|                         |                                                            |                         |      |       |      |      |     
|                         |                                                            |                         | 33.0 |       |      |     |     
|                         |                                                            |                         |      |       |      |      |     
|                         |                                                            | Total                   |      | $     | 39.8 |      | $   
|                         |                                                            |                         |      |       |      |      |     

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The net gains on operating properties in 2002 related primarily to gains recorded on the sale of our interests in retail centers. In April 2002, we sold our interests in 12 community
retail centers for net proceeds of $111.1 million. We recorded a gain on this transaction of approximately $32.0 million, net of deferred income taxes of $18.4 million. Our interests in one of the
community retail centers were reported in unconsolidated real estate ventures and the gain on the sale of our interests in this property ($4.3 million, net of deferred income taxes of $2.0 million) is
included in continuing operations. The remaining gain on this transaction ($27.7 million, net of deferred income taxes of $16.4 million) is classified as a component of discontinued operations. In
April 2002, we sold our interest in Franklin Park, a regional retail center in Toledo, Ohio, for $20.5 million and the buyer assumed our share of the center's debt ($44.7 million). Our interest in
this property was reported in unconsolidated real estate ventures and, accordingly, the gain of $42.6 million that we recorded on this transaction is included in continuing operations. In December
2002, we sold our interest in Tampa Bay Center and our interest in a Summerlin community retail center for net proceeds of $22.8 million and $25.1 million, respectively. We recorded gains of $2.5
million and $2.8 million (net of deferred income taxes of $1.5 million), respectively, on these transactions and these gains are classified as a component of discontinued operations. These gains were
partially offset by impairment losses on two retail centers ($42.1 million). In 2002, we changed our plans and intentions as to the manner in which these retail centers would be operated in the future
and revised estimates of the most likely holding periods. As a result, we evaluated the recoverability of the carrying amounts of the centers, determined that the carrying amounts of the centers were
not recoverable from future cash flows and recognized impairment losses. We are negotiating with the holder of a mortgage secured by one of these properties in an effort to settle the mortgage for
less than its carrying amount.

The
net losses on operating properties in 2001 consisted primarily of an additional impairment provision we recorded on our investment in a retail center (Randhurst) that we and the
other venturer intend to dispose ($0.4 million).

The
net gains on operating properties in 2000 related primarily to the transfer to a joint venture controlled by Rodamco (in which we maintained a minority interest) of our ownership
interest in a retail center (North Star) ($37.1 million). This gain was partially offset by an impairment provision recorded by us on our investment in a retail center (Randhurst) that we and the
other venturer intend to dispose ($6.9 million) and an impairment loss on Tampa Bay Center ($0.7 million). We deferred recognition of gains of approximately $25 million on the North Star transaction
and approximately $15 million in connection with an unrelated transaction due to our continuing involvement with the ventures. During 2002, we reacquired all of the interests in North Star in
connection with the Rodamco transaction and reclassified the deferred gain of $25 million as a reduction in the cost basis of the property.

Discontinued Operations:Discontinued operations includes the operating results of 11 community
retail centers in Columbia, Maryland and Tampa Bay Center, net gains (losses) on their sales as discussed above and the effects of the sale of a newly constructed community retail center in Summerlin,
Nevada. We constructed this property with the intention of selling it. For segment reporting purposes, our share of the NOI of the properties classified in discontinued operations is included in the
operating results of retail centers and the gain on the sale of the community retail center in Summerlin (excluding related deferred income taxes) is included in commercial development, as discussed
above.

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The operating results of properties classified as discontinued operations are summarized as follows (in thousands):

|                                                                                        |                         | 2002 |        | 2001   |   | 2000   |       
|--------------------------------------------------------------------------------------- | ----------------------- | ---- | ------ | ------ | - | ------ | ------
|Revenues                                                                                |                         | $    | 5,401  |        | $ | 19,280 |       
|Operating expenses, exclusive of provision for bad debts, depreciation and amortization |                         |      | 3,692  |        |   | 9,122  |       
|Interest expense                                                                        |                         |      | 2,146  |        |   | 5,479  |       
|Provision for bad debts                                                                 |                         |      | 65     |        |   | 307    |       
|Depreciation and amortization                                                           |                         |      | 1,589  |        |   | 3,876  |       
|Other provisions and losses                                                             |                         |      | 5,136  |        |   |       |       
|Net gains (losses) on operating properties                                              |                         |      | 33,012 |        |   |       |       
|Deferred income tax benefit (provision)                                                 |                         |      | 1,237  |        |   | (1,518 | )     
|Equity in earnings of unconsolidated real estate ventures                               |                         |      |       |        |   |       |       
|                                                                                        |                         |      |        |        |   |        |       
|                                                                                        | Discontinued operations |      | $      | 27,022 |   | $      | (1,022
|                                                                                        |                         |      |        |        |   |        |       

Net Earnings:Net earnings were $139.9 million in 2002, $110.7 million in 2001 and $170.5 million in
2000. Net earnings for each year were affected by acquisition and disposition transactions and unusual and/or nonrecurring items discussed above in other provisions and losses (gains), net gains
(losses) on operating properties and discontinued operations.

Financial condition, liquidity and capital resources

We believe that our liquidity and capital resources are adequate for our near-term and longer-term requirements. We had cash and cash equivalents and investments
in marketable securities totaling $73.7 million and $54.3 million at December 31, 2002 and 2001, respectively. Net cash provided by operating activities was $376.1 million, $301.8 million and $261.2
million in 2002, 2001 and 2000, respectively. The changes in net cash provided by operating activities were due primarily to the factors discussed above in the analysis of operating results, including
the effects of the Rodamco transaction in 2002 and the majority financial interest ventures acquisition in 2001. The level of net cash provided by operating activities is also affected by the timing
of receipt of rents and other revenues, including proceeds of land sales and the payment of operating and interest expenses and land development costs. The level of cash provided by operating
distributions from unconsolidated real estate ventures is affected by the timing of receipt of their revenues (including land sales revenues), payment of operating and interest expenses and other
sources and uses of cash.

We
rely primarily on fixed-rate, nonrecourse loans from private institutional lenders to finance our operating properties. We have also made use of the public equity and debt markets to
meet our capital needs, principally to repay or refinance corporate and project-related debt and to provide funds for project development and acquisition costs and other corporate purposes. We have a
credit facility with a group of lenders that provides for unsecured borrowings of up to $450 million. The facility is available to December 2003, subject to a one-year renewal option. We are
continually evaluating sources of capital and believe that there are satisfactory sources available for all requirements. Selective dispositions of properties and interests in properties are expected
to provide capital resources in 2003 and may also provide them in subsequent years.

Most
of our debt consists of mortgages collateralized by operating properties. Scheduled principal payments on property debt were $76.1 million, $58.7 million and $55.5 million in 2002,
2001 and 2000, respectively.

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Our
contractual cash obligations and construction cost commitments are summarized as follows at December 31, 2002 (in millions):

|                          |                                                              | 2003       |    | 2004 |     | 2005 |     | 2006 |   | 2007 |     | After 2007
|------------------------- | ------------------------------------------------------------ | ---------- | -- | ---- | --- | ---- | --- | ---- | - | ---- | --- | ----------
|Debt:                     |                                                              |            |    |      |     |      |     |      |   |      |     |           
|                          | Scheduled principal payments (through 2007)                  |            | $  | 76   |     | $    | 79  |      | $ | 78   |     | $         
|                          | Balloon payments and scheduled principal payments after 2007 |            |    | 472  |     |      | 471 |      |   | 435  |     |           
|                          |                                                              |            |    |      |     |      |     |      |   |      |     |           
|                          |                                                              | Total debt |    |      | 548 |      |     | 550  |   |      | 513 |           
|Capital lease obligations |                                                              |            | 4  |      |     | 3    |     |      | 1 |      |     | 1         
|Operating leases          |                                                              |            | 6  |      |     | 6    |     |      | 6 |      |     | 6         
|Land purchase commitment  |                                                              |            | 21 |      |     |     |     |      |  |      |     |          
|Construction commitments: |                                                              |            |    |      |     |      |     |      |   |      |     |           
|                          | Properties in development                                    |            |    | 48   |     |      | 3   |      |   |     |     |           
|                          | Land development                                             |            |    | 36   |     |      |    |      |   |     |     |           
|                          |                                                              |            |    |      |     |      |     |      |   |      |     |           
|                          |                                                              | Total      |    | $    | 663 |      | $   | 562  |   | $    | 520 |           
|                          |                                                              |            |    |      |     |      |     |      |   |      |     |           

The
balloon payments due in 2003 consist of $229 million of mortgages on two retail centers and three office buildings and $243 million of borrowings due under the credit facility. The
balloon payments due in 2004 consist of $471 million of debt related primarily to five retail centers and one office building. We expect to repay the mortgages with proceeds from property
refinancings, credit facility borrowings, proceeds from property dispositions or other available corporate funds. We also have an option to extend the credit facility to December 2004.

We
expect to spend more than $200 million (including the construction commitments set forth above) for new developments, expansions and improvements to existing properties in 2003. A
substantial portion of these expenditures relates to new retail properties and retail center redevelopment/expansions, and it is expected that most of these costs will be financed by debt, including
borrowings under existing property-specific construction loans and/or our credit facility. In addition, we are an investor in several unconsolidated joint ventures that are developing certain
projects, with the other venturers funding a portion of development costs. We expect to invest approximately $21 million in these joint ventures in 2003.

Expenditures
for properties in development and improvements to existing properties were $226.5 million, $194.6 million and $218.0 million in 2002, 2001 and 2000, respectively. These
expenditures related primarily to project development activity, primarily retail property redevelopment/expansions and development of new office and industrial properties in Las Vegas. A substantial
portion of the costs of properties in development was financed with construction or similar loans and/or credit facility borrowings. In some cases, long-term fixed-rate debt financing is arranged
before completion of construction. Improvements to existing properties consist primarily of costs of renovation and remerchandising programs and other tenant improvement costs.

Expenditures
for investments in other unconsolidated real estate ventures were approximately $35.7 million in 2002, $46.0 million in 2001 and $10.7 million in 2000 and consisted
primarily of investments in unconsolidated ventures developing the Village of Merrick Park and the community of Fairwood.

Expenditures
for acquisitions of interests in properties were $889.8 million in 2002 and $22.2 million in 2000. The acquisitions in 2002 consisted primarily of the Rodamco transaction
and the acquisition of the other partners' interests in Ridgedale Center and Southland Center. The acquisitions in 2000 consisted primarily of commercial sites adjacent to the Village of Merrick Park
and department store sites at existing properties.

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In
addition to our unrestricted cash and cash equivalents and investments in marketable securities, we have other sources of capital. Availability under our credit facility was $207
million at December 31, 2002. This credit facility can be used for various purposes, including land and project development costs, property acquisitions, liquidity and other corporate needs. Also, we
have an effective shelf registration statement for the sale of up to an aggregate of approximately $2.25 billion (based on the public offering price) of common stock, Preferred stock and debt
securities. At December 31, 2002, we had issued approximately $1.22 billion of common stock and debt securities under the shelf registration statement. In January and February of 2002, we issued
16.675 million shares of common stock for net proceeds of $456.3 million ($27.40 per share less issuance costs) under the shelf registration statement. We used these proceeds to fund a portion of the
purchase price of the acquisition of the assets of Rodamco. In September 2002, we issued $400 million of 7.20% Notes due in 2012 for net proceeds of $396.9 million under our effective shelf
registration statement. We used $220.4 million of the proceeds to repay a portion of the bridge loan facility used to fund the acquisition of the assets of Rodamco. We used $116.2 million of the
proceeds to repay $114.2 million of other debt (with prepayment penalties of $2.0 million) that was due in January 2003. We used the remaining proceeds and other funds to repay $61 million of property
debt due in 2003. We had approximately $1.03 billion of availability under the shelf registration statement at December 31, 2002.

Proceeds
from dispositions of interests in operating properties were $252.0 million in 2002, $4.6 million in 2001 and $221.9 million in 2000. Proceeds from these transactions in 2002
related to the sales of our interests in 12 community retail centers in Columbia, Maryland, Franklin Park and Tampa Bay Center and distributions from a venture to which we contributed the ownership
interest in Perimeter Mall in October 2002. We also received a 50% interest in the venture. Proceeds from these transactions in 2001 related primarily to the sale of an office building. Proceeds from
these transactions in 2000 consisted primarily of cash distributions from ventures to which we contributed ownership interests in a retail center (North Star), industrial buildings in two business
parks (Hughes Airport Center and Hughes Cheyenne Center) and a property under development (Village of Merrick Park). We also received minority interests in the ventures.

At
December 31, 2002, we were not holding any income-producing properties for sale, but we may sell interests in properties as opportunities arise. We also consider certain investment
and other land assets as significant sources of liquidity.

Net
proceeds from the issuance of other debt were $303.0 million in 2002 and $38.9 million in 2000. Net repayments of other debt were $9.9 million in 2001. The net proceeds in 2002
consisted primarily of the issuance of $400 million of 7.20% Notes due in 2012 under our shelf registration statement, partially offset by the repayment of other corporate debt that was due in January
2003.

Net
repayments of property debt, excluding scheduled principal repayments, were $14.3 million in 2002 and $30.8 million in 2000. The net repayments in 2002 and 2000 consisted primarily
of repayments associated with the sales of the properties securing the debt, partially offset by borrowings on construction loans on retail properties in development. In 2002, we also repaid $61
million of property debt due in 2003 primarily using proceeds from the issuance of 7.20% Notes due in 2012. In 2000, we also had repayments associated with the substantial modification of terms of
certain loans. Excluding scheduled principal payments, net proceeds of property debt were $25.0 million in 2001 and consisted primarily of proceeds from the issuance of Special Improvement District
bonds used to fund community development costs in Summerlin. We also received distributions of financing proceeds from unconsolidated real estate ventures of $44.9 million in 2002 and $109.3 million
in 2001.

In
1999, our Board of Directors authorized the repurchase, subject to certain pricing restrictions, of up to $250 million of common stock. As of December 31, 2002, we had repurchased
approximately 4.4 million shares under this program for approximately $101 million, including purchases of approximately 2.8 million shares for approximately $66 million in 2000. We did not repurchase
shares

57

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under this program in 2002 or 2001. The average per share repurchase price was $23.57 in 2000. Other shares of common stock purchased in 2002, 2001 and 2000 were subsequently issued pursuant to the
Contingent Stock Agreement.

The
agreements relating to various loans impose limitations on us. The most restrictive of these limit the levels and types of debt we may incur and require us to maintain specified
minimum levels of debt service coverage and net worth. The agreements also impose restrictions on our dividend payout ratio and on sale, lease and certain other transactions, subject to various
exclusions and limitations. These restrictions have not limited our normal business activities and are not expected to do so in the foreseeable future.

Unconsolidated ventures

We have interests in unconsolidated real estate ventures that own and/or develop properties. We use these ventures to limit our risk associated with individual
properties and to reduce capital requirements. We may also contribute our interests in properties to unconsolidated ventures for cash distributions and interests in the ventures to provide liquidity
as an alternative to outright property sales. These ventures are accounted for using the equity or cost methods as appropriate. Summarized financial statements for these ventures accounted for using
the equity method and information about our investments in them is included in note 2 to the consolidated financial statements. In general, these ventures own retail centers managed by us for a
fee and are controlled jointly by our venture partners and us.

At
December 31, 2002, we had other commitments and contingencies related to unconsolidated ventures. These commitments and contingencies are detailed as follows (in millions):

Guarantee of debt:Village of Merrick Park

$
175.2Hughes Airport-Cheyenne Centers


28.8Construction contracts for properties in development


15.4Long-term ground lease obligations


58.6$
278.0


We
have guaranteed the repayment of the construction loan of the venture that developed the Village of Merrick Park. The maximum amount that may be borrowed under the loan is $200
million. The amount of the guarantee may be reduced to a minimum of 20% upon the achievement of certain lender requirements. Our partners in the venture have provided guarantees to us for their share
(60%) of the construction loan. The construction loan is due in October 2003. The venture plans to repay the loan with proceeds from a new mortgage secured by the Village of Merrick Park. We and our
venture partners may provide similar guarantees related to this new mortgage loan.

Market risk information

The market risk associated with financial instruments and derivative financial and commodity instruments is the risk of loss from adverse changes in market prices
or rates. Our market risk arises primarily from interest rate risk relating to variable-rate borrowings used to maintain liquidity (e.g., credit facility advances) or finance project development costs
(e.g., construction loan advances). Our interest rate risk management objective is to limit the impact of interest rate changes on earnings and cash flows. In order to achieve this objective, we rely
primarily on long-term, fixed-rate nonrecourse loans from institutional lenders to finance our operating properties. We also use interest rate exchange agreements, including interest rate swaps and
caps, to mitigate our interest rate risk on variable-rate debt. The fair value of these and other derivative financial instruments was a liability of approximately

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$8.0 million at December 31, 2002. We do not enter into interest rate exchange agreements for speculative purposes.

Our
interest rate risk is monitored closely by management. The table below presents the annual maturities, weighted-average interest rates on outstanding debt at the end of each year
(based on a LIBOR rate of 1.4%) and fair values required to evaluate our expected cash flows under debt agreements and our sensitivity to interest rate changes at December 31, 2002. Information
relating to debt maturities is based on expected maturity dates and is summarized as follows (in millions):

|                         |  | 2003 |     | 2004 |   | 2005 |   | 2006 |     | 2007 |   | Thereafter |   | Total |     | Fair
Value
|------------------------ |  | ---- | --- | ---- | - | ---- | - | ---- | --- | ---- | - | ---------- | - | ----- | --- | ----------
|Fixed-rate debt          |  | $    | 138 |      | $ | 288  |   | $    | 241 |      | $ | 387        |   | $     | 279 |           
|Average interest rate    |  |      | 7.5 | %    |   | 7.5  | % |      | 7.4 | %    |   | 7.3        | % |       | 7.3 | %         
|Variable-rate LIBOR debt |  | $    | 410 |      | $ | 262  |   | $    | 272 |      | $ | 14         |   | $     | 261 |           
|Average interest rate    |  |      | 3.0 | %    |   | 3.0  | % |      | 2.6 | %    |   | 2.6        | % |       | 3.3 | %         

At December 31, 2002, approximately $322 million of our variable-rate LIBOR debt relates to borrowings under construction loans that we expect to
repay with proceeds of long-term, fixed-rate debt in 2003 and 2004 when we expect to complete construction of the related projects.

We
have approximately $1.2 billion of variable interest rate debt ("variable-rate debt") at December 31, 2002. The interest rate on a portion of this variable-rate debt is based on LIBOR
plus a margin (typically between 1% and 2%). At December 31, 2002, the LIBOR rate was 1.4%. We had interest rate swap agreements and forward-starting swap agreements in place at December 31, 2002 and
we entered into similar agreements in January 2003. These swap agreements and forward-starting swap agreements effectively fix the LIBOR rate on a portion of our variable-rate debt and are summarized
as follows:

|Notional Amount |               | Fixed
LIBOR Rate |      | Term
|--------------- | ------------- | ---------------- | ---- | ----
|$               | 34.4 million  |                  | 3.53 | %   
|                | 200.0 million |                  | 4.24 |     
|                | 26.3 million  |                  | 4.67 |     
|                | 55.0 million  |                  | 1.52 |     
|                | 432.0 million |                  | 1.37 |     
|                | 150.0 million |                  | 1.39 |     
|                | 40.0 million  |                  | 1.78 |     
|                | 432.0 million |                  | 1.63 |     
|                | 150.0 million |                  | 1.84 |     
|                | 161.5 million |                  | 2.35 |     
|                | 135.0 million |                  | 2.20 |     
|                | 135.0 million |                  | 2.85 |     
|                | 161.5 million |                  | 3.16 |     

2003 developments

In February 2003, our Board of Directors approved modifications to curtail our defined benefit pension plans so that covered employees will not earn additional
benefits for future services. In a related action, our Board also approved a new defined contribution plan under which we intend to make discretionary contributions to covered employees' retirement
accounts. We expect additional settlements in 2003 related to the early retirement program offered in 2002 and a change in the senior management organizational structure. Accordingly, during 2003, we
expect to recognize curtailment and settlement losses associated with the defined benefit pension plans that could range from $15 million to $20 million.

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On
March 7, 2003, we entered into an agreement to sell six retail centers in the Philadelphia metropolitan area. We also agreed to purchase a retail center in Delaware from an affiliate
of the purchaser. These transactions are expected to close in the second quarter of 2003. We expect to use the proceeds from the sales towards the purchase of the retail center in Delaware and to
repay property debt and borrowings under our revolving credit facility. We expect to recognize gains in excess of $100 million on the sales of these centers.

Critical accounting policies

Critical accounting policies are those that are both important to the presentation of our financial condition and results of operations and require management's
most difficult, complex or subjective judgments. Our critical accounting policies are those applicable to the evaluation of impairment of long-lived assets, the evaluation of the collectibility of
accounts and notes receivable and profit recognition on land sales.

Impairment of long-lived assets:If events or changes in circumstances indicate that the carrying
values of operating properties, properties in development or land held for development and sale may be impaired, a recovery analysis is performed based on the estimated undiscounted future cash flows
to be generated from the property. If the analysis indicates that the carrying value of the tested property is not recoverable from estimated future cash flows, the property is written down to
estimated fair value and an impairment loss is recognized. Fair values are determined based on estimated future cash flows using appropriate discount and capitalization rates. The estimated cash flows
used for the impairment analyses and to determine estimated fair values are based on our plans for the tested asset and our views of market and economic conditions. The estimates consider matters such
as current and historical rental rates, occupancies for the tested property and comparable properties and recent sales data for comparable properties. Changes in estimated future cash flows due to
changes in our plans or views of market and economic conditions could result in recognition of impairment losses which, under the applicable accounting guidance, could be substantial.

Properties
held for sale, including land held for sale, are carried at the lower of their carrying values (i.e., cost less accumulated depreciation and any impairment loss recognized,
where applicable) or estimated fair values less costs to sell. Accordingly, decisions by us to sell certain operating properties, properties in development or land held for development and sale will
result in impairment losses if carrying values of the specific properties exceed their estimated fair values less costs to sell. The estimates of fair value consider matters such as recent sales data
for comparable properties and, where applicable, contracts or the results of negotiations with prospective purchasers. These estimates are subject to revision as market conditions and our assessment
of them change.

Collectibility of accounts and notes receivable:The allowance for doubtful accounts and notes
receivable is established based on quarterly analysis of the risk of loss on specific accounts. The analysis places particular emphasis on past-due accounts and considers information such as the
nature and age of the receivables, the payment history of the tenants or other debtors, the financial condition of the tenants and management's assessment of their ability to meet their lease
obligations, the basis for any disputes and the status of related negotiations, among other things. Our estimate of the required allowance is subject to revision as these factors change and is
sensitive to the effects of economic and market conditions on tenants.

Profit recognition on land sales:Cost of land sales is determined as a specified percentage of land
sales revenues recognized for each development project. The cost ratios are based on actual costs incurred and estimates of development costs and sales revenues to completion of each project and are
reviewed regularly and revised periodically for changes in estimates or development plans. Significant changes in
these estimates or development plans, whether due to changes in market conditions or other factors, could result in changes to the cost ratio used for a specific project.

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New accounting standards not yet adopted

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 addresses financial accounting and
reporting for costs associated with exit or disposal activities and clarifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity." SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. The provisions of SFAS No. 146
are effective for exit or disposal activities that are initiated after December 31, 2002. Management does not expect that the adoption of this statement will have a material effect on our results of
operations or financial condition.

In
November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." For
2002, the Interpretation requires certain disclosures which we have included in note 17 to the consolidated financial statements. Beginning in 2003, the Interpretation requires recognition of
liabilities at their fair value for certain newly issued guarantees. We do not anticipate that adoption of Interpretation No. 45 will have a material effect on our financial statements.

In
December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation  Transition and Disclosure." SFAS No. 148 amends SFAS No. 123, "Accounting for
Stock-Based Compensation." SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value-based method of accounting for stock-based compensation and requires
disclosure in both annual and interim financial statements about the method of accounting for stock-based compensation and the effect of the method used on reported results. We have adopted the
disclosure provisions of SFAS No. 148. We have not determined whether we will change to the fair value-based method of accounting for stock-based compensation and, if so, which of the alternative
methods of transition we will adopt.

In
January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities." This Interpretation addresses the consolidation of variable interest entities
("VIEs") in which the equity investors lack one or more of the essential characteristics of a controlling financial interest or where the equity investment at risk is not sufficient for the entity to
finance its activities without subordinated financial support from other parties. The Interpretation applies to VIEs created after January 31, 2003 and to VIEs in which we acquire an interest after
that date. Effective July 1, 2003, it also applies to VIEs in which we acquired an interest before February 1, 2003. We may apply the Interpretation prospectively, with a cumulative effect adjustment
as of July 1, 2003, or by restating previously issued financial statements with a cumulative effect adjustment as of the beginning of the first year restated.
We are in the process of evaluating the effects of applying Interpretation No. 46 in 2003. Based on our preliminary analysis, we believe that we may be required to consolidate certain of our
unconsolidated real estate ventures that we have accounted for using the equity method; however, we do not expect that this will involve any cumulative effect adjustment.

Impact of inflation

The major portion of our operating properties, our retail centers, are substantially protected from declines in the purchasing power of the dollar. Retail leases
generally provide for minimum rents plus percentage rents based on sales over a minimum base. In many cases, increases in tenant sales (whether due to increased unit sales or increased prices from
demand or general inflation) will result in increased rental revenue. A substantial portion of the tenant leases (retail and office) also provide for other rents which reimburse us for certain
operating expenses; consequently, increases in these costs do not have a significant impact on our operating results. We have a significant amount of fixed-rate debt which, in a period of inflation,
will result in a holding gain since debt will be paid off with dollars having less purchasing power.

Information relating to forward-looking statements

This Annual Report to Shareholders includes forward-looking statements which reflect our current views with respect to future events and financial performance.
Such forward-looking statements include, among others, statements regarding demand for retail space, expectations as to operating results from our retail centers, our office and other properties, and
our community development activities, expectations relating to the opening of the second phase of our Fashion Show redevelopment project, expectations regarding income taxes in future years and our
beliefs as to our liquidity and capital resources and as to our expenditures for new developments, expansions and improvements.

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Forward-looking
statements are subject to certain risks and uncertainties, including those identified below which could cause actual results to differ materially from historical results
or those anticipated. The words "will," "plan," "believe", "expect", "anticipate," "target" and similar expressions identify forward-looking statements. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of their dates. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. The following are among the factors that could cause actual results to differ materially from historical results or those anticipated: (1) changes in
the economic climate; (2) dependence on rental income from real property; (3) lack of geographical diversification; (4) possible environmental liabilities; (5) real estate
development and investment risks; (6) effect of uninsured loss; (7) cost and adequacy of insurance; (8) liquidity of real estate investments; (9) competition; (10) real estate
investment trust risks; (11) changes in tax laws or regulations; and (12) risks associated with the acquisition of assets from
Rodamco. Further, domestic or international incidents could affect general economic conditions and our business. For a more detailed discussion of these and other factors, see Exhibit 99.2 of
our Form 10-K for the fiscal year ended December 31, 2002.

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The Rouse Company and Subsidiaries  FIVE YEAR SUMMARY OF NET OPERATING INCOME AND  NET EARNINGS  Years ended December 31, (in thousands)

|                                                                |                                | 2002 |           | 2001    |   | 2000      |         | 1999 |           | 1998    |  
|--------------------------------------------------------------- | ------------------------------ | ---- | --------- | ------- | - | --------- | ------- | ---- | --------- | ------- | -
|Revenues:                                                       |                                |      |           |         |   |           |         |      |           |         |  
|Retail centers:                                                 |                                |      |           |         |   |           |         |      |           |         |  
|                                                                | Minimum and percentage rents   |      | $         | 454,277 |   | $         | 367,756 |      | $         | 369,253 |  
|                                                                | Other rents and other revenues |      |           | 321,236 |   |           | 269,455 |      |           | 262,450 |  
|                                                                |                                |      |           |         |   |           |         |      |           |         |  
|                                                                |                                |      | 775,513   |         |   | 637,211   |         |      | 631,703   |         |  
|                                                                |                                |      |           |         |   |           |         |      |           |         |  
|                                                                | Office and other properties:   |      |           |         |   |           |         |      |           |         |  
|                                                                | Minimum and percentage rents   |      |           | 156,407 |   |           | 157,831 |      |           | 167,033 |  
|                                                                | Other rents and other revenues |      |           | 48,784  |   |           | 45,885  |      |           | 49,198  |  
|                                                                |                                |      |           |         |   |           |         |      |           |         |  
|                                                                |                                |      | 205,191   |         |   | 203,716   |         |      | 216,231   |         |  
|                                                                |                                |      |           |         |   |           |         |      |           |         |  
|Community development                                           |                                |      | 240,992   |         |   | 218,322   |         |      | 215,459   |         |  
|                                                                |                                |      |           |         |   |           |         |      |           |         |  
|                                                                |                                |      | 1,221,696 |         |   | 1,059,249 |         |      | 1,063,393 |         |  
|                                                                |                                |      |           |         |   |           |         |      |           |         |  
|Operating expenses, exclusive of depreciation and amortization: |                                |      |           |         |   |           |         |      |           |         |  
|Retail centers                                                  |                                |      | 305,869   |         |   | 261,561   |         |      | 263,593   |         |  
|Office and other properties                                     |                                |      | 80,214    |         |   | 75,772    |         |      | 77,587    |         |  
|Community development                                           |                                |      | 155,771   |         |   | 143,336   |         |      | 148,679   |         |  
|Commercial development                                          |                                |      | 12,986    |         |   | 6,872     |         |      | 7,701     |         |  
|Corporate                                                       |                                |      | 16,368    |         |   | 13,171    |         |      | 9,365     |         |  
|                                                                |                                |      |           |         |   |           |         |      |           |         |  
|                                                                |                                |      | 571,208   |         |   | 500,712   |         |      | 506,925   |         |  
|                                                                |                                |      |           |         |   |           |         |      |           |         |  
|Net operating income by segment:                                |                                |      |           |         |   |           |         |      |           |         |  
|Retail centers                                                  |                                |      | 469,644   |         |   | 375,650   |         |      | 368,110   |         |  
|Office and other properties                                     |                                |      | 124,977   |         |   | 127,944   |         |      | 138,644   |         |  
|Community development                                           |                                |      | 85,221    |         |   | 74,986    |         |      | 66,780    |         |  
|Commercial development                                          |                                |      | (12,986   | )       |   | (6,872    | )       |      | (7,701    | )       |  
|Corporate                                                       |                                |      | (16,368   | )       |   | (13,171   | )       |      | (9,365    | )       |  
|                                                                |                                |      |           |         |   |           |         |      |           |         |  
|Net Operating Income (note 1)                                   |                                | $    | 650,488   |         | $ | 558,537   |         | $    | 556,468   |         | $
|                                                                |                                |      |           |         |   |           |         |      |           |         |  

63

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|Reconciliation to net earnings:                                                                                                                                                                                                       |  |   |          |   |   |          |   |   |          |   |   |          |   |   |          |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | - | -------- | - | - | -------- | - | - | -------- | - | - | -------- | - | - | -------- | -
|Net operating income (note 1)                                                                                                                                                                                                         |  | $ | 650,488  |   | $ | 558,537  |   | $ | 556,468  |   | $ | 534,199  |   | $ | 451,411  |  
|Ground rent, interest and other financing expenses (note 2)                                                                                                                                                                           |  |   | (293,233 | ) |   | (274,786 | ) |   | (295,745 | ) |   | (291,464 | ) |   | (244,741 | )
|Depreciation and amortization                                                                                                                                                                                                         |  |   | (161,333 | ) |   | (129,666 | ) |   | (95,121  | ) |   | (100,067 | ) |   | (83,466  | )
|Deferred income taxes applicable to operations                                                                                                                                                                                        |  |   | (28,479  | ) |   | (23,884  | ) |   |         |   |   |         |   |   |         |  
|Certain current income taxes                                                                                                                                                                                                          |  |   |         |   |   | (383     | ) |   |         |   |   |         |   |   |         |  
|Net gains (losses) on operating properties                                                                                                                                                                                            |  |   | 6,823    |   |   | (432     | ) |   | 33,844   |   |   | 63,092   |   |   | (6,109   | )
|Our share of depreciation and amortization, gains (losses) on operating properties, gains (losses) on early extinguishment of debt and deferred income taxes of unconsolidated real estate ventures and discontinued operations,
 net |  |   | 3,426    |   |   | (17,453  | ) |   | (31,161  | ) |   | (55.465  | ) |   | (13,034  | )
|Other (provisions and losses) gains, net                                                                                                                                                                                              |  |   | (37,841  | ) |   | (816     | ) |   | 2,200    |   |   | (14,998  | ) |   | 5,470    |  
|Cumulative effect at January 1, 2001 of change in accounting for derivative instruments and hedging activities                                                                                                                        |  |   |         |   |   | (411     | ) |   |         |   |   |         |   |   |         |  
|Cumulative effect at January 1, 1998 of change in accounting for participating mortgages                                                                                                                                              |  |   |         |   |   |         |   |   |         |   |   |         |   |   | (4,629   | )
|                                                                                                                                                                                                                                      |  |   |          |   |   |          |   |   |          |   |  
|Net earnings                                                                                                                                                                                                                          |  | $ | 139,851  |   | $ | 110,706  |   | $ | 170,485  |   | $ | 135,297  |   | $ | 104,902  |  
|                                                                                                                                                                                                                                      |  |   |          |   |   |          |   |   |          |   |  

Notes:

64

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Exhibit 13

PROJECTS OF THE ROUSE COMPANY

|                                                      |  |             |  |                                                                                                    |  | Retail Square Footage
|----------------------------------------------------- |  | ----------- |  | -------------------------------------------------------------------------------------------------- |  | ---------------------
|
|
|Augusta Mall, Augusta, GA                             |  | 8/78        |  | Rich's; JCPenney; Sears; Dillard's                                                                 |  | 1,074,000            
|The Shops at Arizona Center, Phoenix, AZ              |  | 11/90       |  | AMC Arizona Center 24                                                                              |  | 189,000              
|Bayside Marketplace, Miami, FL                        |  | 4/87        |  |                                                                                                   |  | 227,000              
|Beachwood Place, Cleveland, OH                        |  | 8/78        |  | Saks Fifth Avenue; Dillard's; Nordstrom                                                            |  | 930,000              
|Cherry Hill Mall, Cherry Hill, NJ (Note 3)            |  | 10/61       |  | Strawbridge's; Macy's; JCPenney                                                                    |  | 1,283,000            
|Collin Creek, Plano, TX                               |  | 9/95        |  | Dillard's; Foley's; JCPenney; Sears; Mervyn's                                                      |  | 1,121,000            
|The Mall in Columbia, Columbia, MD                    |  | 8/71        |  | Nordstrom; Hecht's; JCPenney; Sears; Lord & Taylor; L.L.Bean                                       |  | 1,335,000            
|Echelon Mall, Voorhees, NJ (Note 3)                   |  | 9/70        |  | Strawbridge's; Boscov's                                                                            |  | 1,141,000            
|Exton Square, Exton, PA (Note 3)                      |  | 3/73        |  | Strawbridge's; Boscov's; Sears; JCPenney                                                           |  | 994,000              
|Faneuil Hall Marketplace, Boston, MA                  |  | 8/76        |  |                                                                                                   |  | 208,000              
|Fashion Place, Salt Lake City, UT                     |  | 10/98       |  | Dillard's; Nordstrom; Sears                                                                        |  | 905,000              
|Fashion Show, Las Vegas, NV                           |  | 6/96        |  | Neiman Marcus; Saks Fifth Avenue; Macy's; Dillard's; Robinsons-May; Nordstrom; Bloomingdale's Home |  | 1,587,000            
|The Gallery at Harborplace, Baltimore, MD             |  | 9/87        |  |                                                                                                   |  | 145,000              
|The Gallery at Market East, Philadelphia, PA (Note 3) |  | 8/77        |  | Strawbridge's; Kmart                                                                               |  | 1,009,000            
|Governor's Square, Tallahassee, FL                    |  | 8/79        |  | Burdines; Dillard's; Sears; JCPenney                                                               |  | 1,043,000            
|Harborplace, Baltimore, MD                            |  | 7/80        |  |                                                                                                   |  | 138,000              
|Hulen Mall, Ft. Worth, TX                             |  | 8/77        |  | Foley's; Dillard's; Sears                                                                          |  | 938,000              
|The Jacksonville Landing, Jacksonville, FL            |  | 6/87        |  |                                                                                                   |  | 125,000              
|Lakeside Mall, Sterling Heights, MI                   |  | 5/02        |  | Marshall Fields Men & Home; Marshall Field's Women; Lord & Taylor; Sears; JCPenney                 |  | 1,477,000            
|Mall St. Matthews, Louisville, KY                     |  | 3/62        |  | Dillard's (two stores); JCPenney; Lord & Taylor                                                    |  | 1,110,000            
|Mondawmin Mall/Metro Plaza, Baltimore, MD             |  | 1/78; 12/82 |  |                                                                                                   |  | 434,000              
|Moorestown Mall, Moorestown, NJ (Note 3)              |  | 12/97       |  | Strawbridge's; Boscov's; Sears; Lord & Taylor                                                      |  | 1,030,000            
|North Star Mall, San Antonio, TX                      |  | 5/02        |  | Saks Fifth Avenue; Macy's; Foley's; Dillard's; Mervyn's                                            |  | 1,251,000            
|Oakwood Center, Gretna, LA                            |  | 10/82       |  | Sears; Dillard's; JCPenney; Mervyn's; Marshalls                                                    |  | 960,000              
|Oviedo Marketplace, Orlando, FL                       |  | 3/98        |  | Dillard's; Burdines; Sears; Regal Cinemas 22                                                       |  | 965,000              
|Owings Mills, Baltimore, MD                           |  | 7/86        |  | Macy's; Hecht's; JCPenney; AMC Owings Mills 17                                                     |  | 1,223,000            
|Paramus Park, Paramus, NJ                             |  | 3/74        |  | Macy's; Sears; Fortunoff                                                                           |  | 784,000              
|Pioneer Place, Portland, OR                           |  | 3/90        |  | Saks Fifth Avenue                                                                                  |  | 374,000              
|Plymouth Meeting, Plymouth Meeting, PA (Note 3)       |  | 2/66        |  | Strawbridge's; Boscov's; AMC Plymouth Meeting 12                                                   |  | 802,000              
|Ridgedale Center, Minneapolis, MN                     |  | 1/89        |  | Marshall Field's Men & Home; Marshall Field's Women; JCPenney; Sears                               |  | 1,036,000            
|Riverwalk, New Orleans, LA                            |  | 8/86        |  |                                                                                                   |  | 197,000              
|South Street Seaport, New York, NY                    |  | 7/83        |  |                                                                                                   |  | 260,000              
|Southland Center, Taylor, MI                          |  | 1/89        |  | Marshall Field's; Mervyn's; JCPenney                                                               |  | 889,000              
|The Streets at South Point, Durham, NC                |  | 5/02        |  | Nordstrom; Hecht's; Belk; Sears; JCPenney                                                          |  | 1,320,000            
|Village of Cross Keys, Baltimore, MD                  |  | 9/65        |  |                                                                                                   |  | 81,000               
|Westdale Mall, Cedar Rapids, IA                       |  | 10/98       |  | JCPenney; Von Maur; Younkers                                                                       |  | 910,000              
|Westlake Center, Seattle, WA                          |  | 10/88       |  |                                                                                                   |  | 111,000              
|White Marsh, Baltimore, MD                            |  | 8/81        |  | Macy's; JCPenney; Hecht's; Sears; Lord & Taylor                                                    |  | 1,161,000            
|Willowbrook, Wayne, NJ                                |  | 9/69        |  | Bloomingdale's; Lord & Taylor; Macy's; Sears                                                       |  | 1,528,000            
|Woodbridge Center, Woodbridge, NJ                     |  | 3/71        |  | Lord & Taylor; Sears; Macy's; JCPenney; Fortunoff                                                  |  | 1,540,000            
|                                                      |  |             |  |                                                                                                    |  |                      
|                                                      |  |             |  | Total Consolidated Centers in Operation                                                            |  | 33,835,000           
|                                                      |  |             |  |                                                                                                    |  |                      

65

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|                                          |  |       |  |                                                                  |  | Retail Square Footage
|----------------------------------------- |  | ----- |  | ---------------------------------------------------------------- |  | ---------------------
|
|
|Bridgewater Commons, Bridgewater, NJ      |  | 12/98 |  | Bloomingdale's; Lord & Taylor; Macy's                            |  | 887,000              
|Highland Mall, Austin, TX                 |  | 8/71  |  | Dillard's (two stores); Foley's; JCPenney                        |  | 1,085,000            
|Oakbrook Center, Oak Brook, IL            |  | 5/02  |  | Nieman Marcus; Nordstrom; Marshall Field's; Lord & Taylor; Sears |  | 2,027,000            
|Park Meadows, Littleton, CO               |  | 7/98  |  | Dillard's; Foley's; Lord & Taylor; Nordstrom; JCPenney; Galyan's |  | 1,571,000            
|Perimeter Mall, Atlanta, GA               |  | 8/71  |  | Rich's; Macy's; Nordstrom                                        |  | 1,281,000            
|Towson Town Center, Baltimore, MD         |  | 10/98 |  | Hecht's; Nordstrom                                               |  | 968,000              
|Village Centers in Summerlin, NV (3)      |  |      |  |                                                                 |  | 383,000              
|Village of Merrick Park, Coral Gables, FL |  | 9/02  |  | Nieman Marcus; Nordstrom                                         |  | 712,000              
|Water Tower Place, Chicago, IL            |  | 5/02  |  | Marshall Field's; Lord & Taylor                                  |  | 737,000              
|                                          |  |       |  |                                                                  |  |                      
|                                          |  |       |  | Total Proportionate Share Centers in Operation                   |  | 9,651,000            
|                                          |  |       |  |                                                                  |  |                      
|Other                                     |  |       |  |                                                                  |  |                      
|Staten Island Mall, Staten Island, NY     |  | 11/80 |  | Sears; Macy's; JCPenney                                          |  | 1,229,000            
|                                          |  |       |  |                                                                  |  |                      
|                                          |  |       |  | Total Retail Centers in Operation                                |  | 44,715,000           
|                                          |  |       |  |                                                                  |  |                      

|Office and Other Properties in Operation
Consolidated Office and Other Properties (Note 1) |                                 | Location                                       |  | Square Feet
|------------------------------------------------------------------------------------------ | ------------------------------- | ---------------------------------------------- |  | -----------
|Arizona Center                                                                             |                                 | Phoenix, AZ                                    |  |            
|                                                                                           | Garden Office Pavilion          |                                                |  |            
|                                                                                           | One Arizona Center Office Tower |                                                |  |            
|                                                                                           | Two Arizona Center Office Tower |                                                |  |            
|The Gallery at Harborplace                                                                 |                                 | Baltimore, MD                                  |  |            
|                                                                                           | Office Tower                    |                                                |  |            
|                                                                                           | Renaissance Hotel               |                                                |  |            
|Pioneer Place                                                                              |                                 | Portland, OR                                   |  |            
|                                                                                           | Office Tower                    |                                                |  |            
|Village of Cross Keys                                                                      |                                 | Baltimore, MD                                  |  |            
|                                                                                           | Village Square Offices          |                                                |  |            
|                                                                                           | Quadrangle Offices              |                                                |  |            
|Westlake Center                                                                            |                                 | Seattle, WA                                    |  |            
|                                                                                           | Office Tower                    |                                                |  |            
|Columbia Office (12 buildings)                                                             |                                 | Columbia, MD                                   |  | 1,137,000  
|Columbia Industrial (6 buildings)                                                          |                                 | Columbia, MD                                   |  | 307,000    
|Hughes Center (16 buildings)                                                               |                                 | Las Vegas, NV                                  |  | 1,175,000  
|Summerlin Commercial (26 buildings)                                                        |                                 | Summerlin, NV                                  |  | 1,000,000  
|Owings Mills Town Center (4 buildings)                                                     |                                 | Baltimore, MD                                  |  | 729,000    
|Inglewood Business Center (7 buildings)                                                    |                                 | Prince George's County, MD                     |  | 538,000    
|Hunt Valley Business Center (20 buildings)                                                 |                                 | Baltimore, MD                                  |  | 1,483,000  
|Rutherford Business Center (20 buildings)                                                  |                                 | Baltimore, MD                                  |  | 783,000    
|Other Office Projects (5 buildings)                                                        |                                 | Various                                        |  | 305,000    
|                                                                                           |                                 |                                                |  |            
|                                                                                           |                                 | Total Consolidated Office and Other Properties |  | 9,413,000  
|                                                                                           |                                 |                                                |  |            

|Proportionate Share Office and Other Properties (Note 2) |  | Location                                              |  | Square Feet
|-------------------------------------------------------- |  | ----------------------------------------------------- |  | -----------
|Oakbrook Center Office                                   |  | Oakbrook, IL                                          |  | 240,000    
|Water Tower Place Office                                 |  | Chicago, IL                                           |  | 93,000     
|                                                         |  |                                                       |  |            
|                                                         |  | Total Proportionate Share Office and Other Properties |  | 333,000    
|                                                         |  |                                                       |  |            
|                                                         |  | Total Office and Other Properties in Operation        |  | 9,746,000  
|                                                         |  |                                                       |  |            

---

Note 1Includes
projects wholly owned by subsidiaries of the Company and projects in which the Company has a majority interest and control.
Note 2Includes projects owned by joint ventures or partnerships in which the Company's interest is at least 30%.
Note 3In March 2003, the Company entered into an agreement to sell our interests in these properties.

66

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|                                                    |  |                                                     |  | Project Square Footage
|--------------------------------------------------- |  | --------------------------------------------------- |  | ----------------------
|
|Bridgewater Commons Expansion, Bridgewater, NJ      |  | Bloomingdale's Home                                 |  | 250,000               
|Fashion Show, Las Vegas, NV (Phase II)              |  | Las Vegas Boulevard Promenade; Lord & Taylor        |  | 255,000               
|Kendall Town Center, Miami, FL                      |  | Dillard's; Sears                                    |  | 1,200,000             
|The Mall in Columbia, Columbia, MD                  |  | AMC Theatres                                        |  | 65,000                
|Perimeter Mall, Atlanta, GA                         |  | Dillard's                                           |  | 200,000               
|The Shops at La Cantera, San Antonio, TX            |  | Neiman Marcus; Nordstrom; Dillard's; Foley's        |  | 1,300,000             
|Staten Island Mall, Staten Island, NY               |  | Macy's Home Store                                   |  | 50,000                
|Summerlin Centre, Summerlin, NV (Phase I)           |  | Robinsons-May; Lord & Taylor; Dillard's; Macy's     |  | 1,050,000             
|Village of Merrick Park, Coral Gales, FL (Phase II) |  | Retail                                              |  | 55,000                
|Village of Merrick Park, Coral Gables, FL           |  | Office                                              |  | 110,000               
|Woodbridge Center, Woodbridge, NJ                   |  | Galyan's                                            |  | 100,000               
|Corporate Pointe, Summerlin, NV                     |  | Office/Industrial                                   |  | 115,000               
|The Crossing Business Center, Summerlin, NV         |  | Office/Industrial                                   |  | 55,000                
|                                                    |  |                                                     |  |                       
|                                                    |  | Total Projects Under Construction or in Development |  | 4,805,000             
|                                                    |  |                                                     |  |                       

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