<PAGE>

                                                                      Exhibit 13


                      Annual Report to Security Holders

The annual report to shareholders has not been completed as of this filing and
will be filed with the Securities and Exchange Commission in its entirety on or
before April 11, 2001.

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, 2000.

                                                                               1
















<PAGE>

                      The Rouse Company and Subsidiaries

                          CONSOLIDATED BALANCE SHEETS

                          December 31, 2000 and 1999

                       (in thousands, except share data)

<TABLE>
<CAPTION>
                                                                                       2000                1999
                                                                                    -----------         -----------
<S>                                                                                 <C>                 <C>
Assets
Property:
     Operating properties:

         Property and deferred costs of projects................................    $ 3,779,193         $ 3,594,316
         Less accumulated depreciation and amortization.........................        608,061             527,737
                                                                                    -----------         -----------

                                                                                      3,171,132           3,066,579
     Properties in development..................................................        115,243             282,751
     Properties held for sale...................................................          4,548              11,388
                                                                                    -----------         -----------

         Total property.........................................................      3,290,923           3,360,718

Investments in and advances to unconsolidated
     real estate ventures.......................................................        541,845             523,135
Prepaid expenses, receivables under finance leases and
     other assets...............................................................        260,615             238,685
Accounts and notes receivable...................................................         44,567              59,752
Investments in marketable securities............................................         22,846              23,321
Cash and cash equivalents.......................................................         14,742              27,490
                                                                                    -----------         -----------

     Total assets...............................................................    $ 4,175,538         $ 4,233,101
                                                                                    ===========         ===========

Liabilities
Debt:

     Property debt not carrying a Parent Company guarantee of repayment.........    $ 2,264,799         $ 2,339,589
     Parent Company debt and debt carrying a Parent Company guarantee
         of repayment:
         Property debt..........................................................         98,531             161,585
         Other debt.............................................................        682,439             643,275
                                                                                    -----------         -----------

                                                                                        780,970             804,860
                                                                                    -----------         -----------

         Total debt.............................................................      3,045,769           3,144,449
                                                                                    -----------         -----------

Accounts payable, accrued expenses and other liabilities........................        362,336             313,107

Company-obligated mandatorily redeemable preferred securities of a trust
     holding solely Parent Company subordinated debt securities.................        136,965             136,965

Commitments and contingencies

Shareholders' equity
Series B Convertible Preferred stock with a liquidation preference of $202,500..             41                  41

Common stock of 1(cent) par value per share; 250,000,000 shares authorized;
     issued 67,880,405 shares in 2000 and 70,693,789 shares in 1999.............            679                 707

Additional paid-in capital......................................................        735,669             808,277
Accumulated deficit.............................................................       (103,015)           (169,974)
Accumulated other comprehensive income (loss)...................................         (2,906)               (471)
                                                                                    -----------         -----------

     Total shareholders' equity.................................................        630,468             638,580
                                                                                    -----------         -----------

     Total liabilities and shareholders equity..................................    $ 4,175,538         $ 4,233,101
                                                                                    ===========         ===========
</TABLE>

The accompanying notes are an integral part of these statements.

                                                                               2
<PAGE>

                      The Rouse Company and Subsidiaries

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                           AND COMPREHENSIVE INCOME

                 Years ended December 31, 2000, 1999 and 1998

                     (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                         2000            1999           1998
                                                                      -----------    -----------     -----------
<S>                                                                   <C>            <C>             <C>
Revenues ..........................................................   $   633,738    $   635,878     $   613,801

Operating expenses, exclusive of provision for bad debts,
     depreciation and amortization.................................       294,040        291,855         313,160
Interest expense...................................................       236,744        233,866         201,343
Provision for bad debts............................................         6,683          7,972           7,042
Depreciation and amortization......................................        90,307         94,532          77,660
Other provisions and losses, net...................................           131          8,607           5,065
                                                                      -----------    -----------     -----------

     Earnings (loss) before income taxes, equity in earnings of
         unconsolidated real estate ventures, gains (losses) on
         operating properties, net, extraordinary items and
         cumulative effect of change in accounting principle.......         5,833           (954)          9,531

Current income tax benefit (provision).............................          (254)          (214)             91
Equity in earnings of unconsolidated real estate ventures..........       129,556        101,171         101,663
                                                                      -----------    -----------     -----------

     Earnings before gains (losses) on operating properties, net,
         extraordinary items and cumulative effect of change
         in accounting principle...................................       135,135        100,003         111,285

Gains (losses) on operating properties, net........................        33,150         41,173          (6,109)
                                                                      -----------    -----------     -----------

     Earnings before extraordinary items and cumulative effect
         of change in accounting principle.........................       168,285        141,176         105,176

Extraordinary gains (losses), net..................................         2,200         (5,879)          4,355
Cumulative effect at January 1, 1998 of change in accounting
     for participating mortgages...................................           ---            ---          (4,629)
                                                                      -----------    -----------     -----------

     Net earnings..................................................       170,485        135,297         104,902

Other items of comprehensive income (loss) - minimum
     pension liability adjustment..................................        (2,435)         1,355          (1,826)
                                                                      -----------     ----------     -----------
     Comprehensive income..........................................   $   168,050    $   136,652     $   103,076
                                                                      ===========    ===========     ===========
     Net earnings applicable to common shareholders................   $   158,335    $   123,147     $    92,752
                                                                      ===========    ===========     ===========

Earnings per share of common stock
     Basic:
         Earnings before extraordinary items and cumulative effect
             of change in accounting principle.....................   $      2.24    $      1.79     $      1.36
         Extraordinary items.......................................           .03           (.08)            .07
         Cumulative effect of change in accounting principle.......           ---            ---            (.07)
                                                                      -----------    -----------     -----------
              Total................................................   $      2.27    $      1.71     $      1.36
                                                                      ===========    ===========     ===========

     Diluted:
         Earnings before extraordinary items and cumulative effect
             of change in accounting principle.....................   $      2.21    $      1.77     $      1.34
         Extraordinary items.......................................           .03           (.08)            .07
         Cumulative effect of change in accounting principle.......           ---            ---            (.07)
                                                                      -----------    -----------     -----------
              Total................................................   $      2.24    $      1.69     $      1.34
                                                                      ===========    ===========     ===========
</TABLE>

The accompanying notes are an integral part of these statements.

                                                                               3
<PAGE>

                      The Rouse Company and Subsidiaries

          CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

                 Years ended December 31, 2000, 1999 and 1998

                   (in thousands, except per share amounts)


<TABLE>
<CAPTION>
                                                                                                         Accumulated
                                                      Series B              Additional                      other
                                                     Preferred     Common     paid-in    Accumulated    comprehensive
                                                       stock       stock      capital      deficit      income (loss)      Total
                                                    -----------  ---------  -----------  -------------  -------------      -----
<S>                                                 <C>          <C>        <C>          <C>            <C>              <C>
Balance at December 31, 1997.......................   $  41       $  669    $  686,976    $ (222,171)     $      ---     $ 465,515

Net earnings.......................................     ---          ---           ---       104,902             ---       104,902
Other comprehensive income (loss)..................     ---          ---           ---           ---          (1,826)       (1,826)
Dividends declared:
     Common stock -- $1.12 per share...............     ---          ---           ---       (77,101)            ---       (77,101)
     Preferred stock -- $3.00 per share............     ---          ---           ---       (12,150)            ---       (12,150)
Purchases of common stock..........................     ---          (21)      (65,412)          ---             ---       (65,433)
Conversion of convertible subordinated debentures..     ---            1         1,484           ---             ---         1,485
Common stock issued pursuant to Contingent
     Stock Agreement...............................     ---           21        65,002           ---             ---        65,023
Other common stock issued..........................     ---           50       143,378           ---             ---       143,428
Proceeds from exercise of stock options............     ---            3           484           ---             ---           487
Lapse of restrictions on common stock awards.......     ---          ---         4,596           ---             ---         4,596
                                                      -----      -------    ----------    ----------     -----------    ----------

Balance at December 31, 1998.......................      41          723       836,508      (206,520)         (1,826)      628,926

Net earnings.......................................     ---          ---           ---       135,297             ---       135,297
Other comprehensive income (loss)..................     ---          ---           ---           ---           1,355         1,355
Dividends declared:
     Common stock -- $1.20 per share...............     ---          ---           ---       (86,601)            ---       (86,601)
     Preferred stock -- $3.00 per share............     ---          ---           ---       (12,150)            ---       (12,150)
Purchases of common stock..........................     ---          (29)      (66,491)          ---             ---       (66,520)
Conversion of convertible subordinated debentures..     ---          ---            30           ---             ---            30
Common stock issued pursuant to Contingent
     Stock Agreement...............................     ---           13        34,478           ---             ---        34,491
Proceeds from exercise of stock options............     ---          ---            32           ---             ---            32
Lapse of restrictions on common stock awards.......     ---          ---         3,720           ---             ---         3,720
                                                      -----      -------    ----------    ----------     -----------    ----------

Balance at December 31, 1999.......................      41          707       808,277      (169,974)           (471)      638,580

Net earnings.......................................     ---          ---           ---       170,485             ---       170,485
Other comprehensive income (loss)..................     ---          ---           ---           ---          (2,435)       (2,435)
Dividends declared:
     Common stock -- $1.32 per share...............     ---          ---           ---       (91,376)            ---       (91,376)
     Preferred stock -- $3.00 per share............     ---          ---           ---       (12,150)            ---       (12,150)
Purchases of common stock..........................     ---          (51)     (126,264)          ---             ---      (126,315)
Common stock issued pursuant to Contingent
     Stock Agreement...............................     ---           18        42,612           ---             ---        42,630
Proceeds from exercise of stock options............     ---            5         8,056           ---             ---         8,061
Lapse of restrictions on common stock awards.......     ---          ---         2,988           ---             ---         2,988
                                                      -----      -------    ----------    ----------     -----------    ----------

Balance at December 31, 2000.......................   $  41       $  679     $ 735,669    $ (103,015)     $   (2,906)    $ 630,468
                                                      =====       ======     =========    ==========      ==========     =========
</TABLE>

The accompanying notes are an integral part of these statements.

                                                                               4
<PAGE>

                      The Rouse Company and Subsidiaries

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                 Years ended December 31, 2000, 1999 and 1998

                                (in thousands)

<TABLE>
<CAPTION>
                                                                            2000            1999           1998
                                                                         -----------    -----------     -----------
<S>                                                                      <C>            <C>             <C>
Cash flows from operating activities
Rents and other revenues received......................................  $   619,552    $   616,741     $   594,191
Proceeds from land sales and notes receivable from land sales..........       14,553         24,754          80,017
Interest received......................................................        6,686          8,549          14,038
Operating expenditures.................................................     (282,582)      (312,507)       (305,493)
Interest paid..........................................................     (233,714)      (230,495)       (194,255)
Dividends, interest and other operating distributions from
     unconsolidated majority financial interest ventures...............       91,816         59,170          45,907
Operating distributions from other unconsolidated real estate
     ventures..........................................................       36,605         26,317          24,893
                                                                         -----------    -----------     -----------

     Net cash provided by operating activities.........................      252,916        192,529         259,298
                                                                         -----------    -----------     -----------

Cash flows from investing activities
Expenditures for properties in development and improvements to
     existing properties funded by debt................................     (192,280)      (213,248)       (281,079)
Expenditures for property acquisitions.................................      (22,245)           ---        (882,404)
Expenditures for improvements to existing properties funded
     by cash provided by operating activities..........................      (17,370)       (16,576)        (21,095)
Proceeds from dispositions of properties and other investments.........      221,864        255,218         130,070
Payments received on loans (advances made) to unconsolidated
     majority financial interest ventures, net.........................       24,410        (49,304)         47,483
Expenditures for investments in other unconsolidated real estate
     ventures..........................................................      (10,704)        (5,924)        (24,881)
Other distributions from other unconsolidated real estate ventures.....          ---         67,500          13,750
Other..................................................................        4,374         (4,278)           (117)
                                                                         -----------    -----------     -----------

     Net cash provided (used) by investing activities..................        8,049         33,388      (1,018,273)
                                                                         -----------    -----------     -----------

Cash flows from financing activities
Proceeds from issuance of property debt................................      155,863        248,782         650,987
Repayments of property debt:
     Scheduled principal payments......................................      (55,467)       (49,599)        (49,411)
     Other payments....................................................     (186,679)      (140,103)       (347,725)
Proceeds from issuance of other debt...................................       54,750        200,000         588,250
Repayments of other debt...............................................      (15,811)      (316,948)        (15,287)
Proceeds from issuance of common stock.................................        8,061             32          43,915
Purchases of common stock..............................................     (126,315)       (66,520)        (65,433)
Dividends paid.........................................................     (103,526)       (98,751)        (89,251)
Other..................................................................       (4,589)       (14,282)          4,566
                                                                         -----------    -----------     -----------

     Net cash provided (used) by financing activities..................     (273,713)      (237,389)        720,611
                                                                         -----------    -----------     -----------

Net decrease in cash and cash equivalents..............................      (12,748)       (11,472)        (38,364)

Cash and cash equivalents at beginning of year.........................       27,490         38,962          77,326
                                                                         -----------    -----------     -----------

Cash and cash equivalents at end of year...............................  $    14,742    $    27,490     $    38,962
                                                                         ===========    ===========     ===========
</TABLE>

The accompanying notes are an integral part of these statements.

                                                                               5

<PAGE>

                      The Rouse Company and Subsidiaries

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                 Years ended December 31, 2000, 1999 and 1998

                                (in thousands)

Reconciliation of Net Earnings to Net Cash
     Provided by Operating Activities

<TABLE>
<CAPTION>
                                                                            2000            1999           1998
                                                                         -----------    -----------     -----------
<S>                                                                      <C>            <C>             <C>
Net earnings...........................................................  $   170,485    $   135,297     $   104,902
Adjustments to reconcile net earnings to net cash provided by
   operating activities:
     Depreciation and amortization.....................................       90,307         94,532          77,660
     Undistributed earnings of majority financial interest ventures....      (31,654)       (32,450)        (42,532)
     Undistributed earnings of other unconsolidated real estate
         ventures......................................................       (4,803)       (12,030)        (12,483)
     Losses (gains) on operating properties, net.......................      (33,150)       (41,173)          6,109
     Extraordinary (gains) losses, net.................................       (2,200)         5,879          (4,355)
     Cumulative effect of change in accounting principle...............          ---            ---           4,629
     Participation expense pursuant to Contingent Stock Agreement......       35,322         30,180          44,075
     Provision for bad debts...........................................        6,683          7,972           7,042
     Decrease (increase) in:
         Accounts and notes receivable.................................       10,392          1,071          32,816
         Other assets..................................................      (18,021)        (6,556)          4,793
     Increase (decrease) in accounts payable, accrued expenses
         and other liabilities.........................................       16,274           (192)          9,455
     Other, net........................................................       13,281          9,999          27,187
                                                                         -----------    -----------     -----------


Net cash provided by operating activities..............................  $   252,916    $   192,529     $   259,298
                                                                         ===========    ===========     ===========


Schedule of Noncash Investing and Financing Activities

Common stock issued pursuant to Contingent Stock
     Agreement.........................................................  $    42,630    $    34,491     $    65,023
Capital lease obligations incurred.....................................        4,189          3,196           2,743
Property and other assets contributed to unconsolidated
     real estate ventures..............................................      184,926        825,673             ---
Mortgage debt, other debt and other liabilities related to
     property and other assets contributed to
     unconsolidated real estate ventures...............................       76,577        423,387             ---
Mortgage and other debt assumed or issued in acquisitions of
     property interests................................................       23,823            ---         599,795
Other debt repaid on formation of an unconsolidated
     real estate venture...............................................          ---        271,233             ---
Mortgage debt assumed by purchaser of a property.......................          ---         40,000             ---
Common stock issued in acquisition of property interests...............          ---            ---         100,000
Mortgage debt extinguished on dispositions
     of interests in properties........................................          ---            ---          19,875
Termination of capital lease obligation................................          ---            ---          46,387
Common stock issued on conversion of convertible
   subordinated debentures.............................................          ---             30           1,485
                                                                         ===========    ===========     ===========
</TABLE>

                                                                               6
<PAGE>

                      The Rouse Company and Subsidiaries
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       December 31, 2000, 1999 and 1998

(1)  Summary of significant accounting policies

(a)  Description of business
Through its subsidiaries and affiliates, the Company acquires, develops and
manages income-producing properties located throughout the United States and
develops and sells 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 village centers, primarily in
Columbia, Maryland. 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. Land development and sales operations are
predominantly related to large-scale, long-term community development projects
in Columbia and Summerlin, Nevada.

(b)  Basis of presentation
The consolidated financial statements include the accounts of The Rouse Company,
all subsidiaries and partnerships in which it has a majority voting interest and
control. Investments in other ventures are accounted for 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 the Company's
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), determination of useful lives of assets subject to
depreciation or amortization, evaluation of collectibility of accounts and notes
receivable and measurement of pension and postretirement obligations. Actual
results could differ from those and other estimates.

     In the fourth quarter of 2000, the Company adopted the Emerging Issues Task
Force consensus on Issue 00-1, "Investor Balance Sheet and Income Statement
Display under the Equity Method for Investments in Certain Partnerships and
Other Ventures (EITF 00-1)." The consensus requires that the proportionate share
method of accounting (under which an entity records its share of the assets,
liabilities, revenues and expenses of partnerships and other ventures in which
it has joint interest and control) be discontinued, except in limited
circumstances. As a result of adopting this consensus, the Company's share of
the net assets of ventures in which it has joint interest and control is carried
in investments in and advances to unconsolidated real estate ventures in the
balance sheets and its share of their net earnings is carried in equity in
earnings of unconsolidated real estate ventures in the statements of operations
and comprehensive income.

     The adoption of EITF 00-1 affected previously reported balances as follows
(in thousands):

<TABLE>
<CAPTION>
                                                                                                    1999
Decrease in assets:                                                                               --------
<S>                                                                                               <C>
         Total property.................................................................          $164,271
         Investment in and advances to unconsolidated real estate ventures..............             8,775
         Other assets...................................................................            22,478
                                                                                                  --------
              Total.....................................................................          $195,524
                                                                                                  ========

Decrease in liabilities:
         Total debt ....................................................................          $189,971
         Other liabilities..............................................................             5,553
                                                                                                  --------
              Total.....................................................................          $195,524
                                                                                                  ========

<CAPTION>
                                                                                              1999         1998
                                                                                            -------      -------
<S>                                                                                         <C>          <C>
Decrease in:
         Revenues.......................................................................    $64,583      $64,964
         Operating expenses, exclusive of depreciation and amortization.................     24,269       25,192
         Interest expense...............................................................     11,833        9,642
         Depreciation and amortization..................................................      4,597        4,983
         Current income tax provision...................................................         72           65
                                                                                            -------      -------
Increase in equity in earnings of unconsolidated real estate ventures...................    $23,812      $25,082
                                                                                            =======      =======
</TABLE>

                                                                               7
<PAGE>

     In addition to reclassifications attributable to the adoption of EITF 00-1,
certain other amounts for prior years have been reclassified to conform to the
presentation for 2000.

(c)  Property
Properties to be developed or held and used in operations are carried at cost
reduced for impairment losses, where appropriate. Properties held for sale are
carried at cost reduced for valuation allowances, 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 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%, producing
an effective annual rate of depreciation for new properties of 1.6%. The other
retail centers, all office buildings and other properties are generally
depreciated using composite lives of 40 years, producing an effective annual
rate of depreciation for such properties of 2.5%.

     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 for sale. 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, the properties are reclassified as operating, depreciation is
resumed and deferred selling costs, if any, are expensed. Generally, revenues
and expenses related to property interests acquired with the intention to resell
are not recognized.

(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 the Company
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 the Company is required to perform additional services and incur
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
percentages used are based on estimates of development costs and sales revenues
to completion of each project and are revised periodically for changes in
estimates or development plans. The specific identification method is used to
determine cost of sales of 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 the Company are considered capital leases
and the present values of the minimum lease payments are accounted for as
property 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.

(f)  Income taxes
The Company 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. Management believes that the Company met the
qualifications for REIT status as of December 31, 2000 and intends for it to
meet the qualifications in the future and to distribute at least 90% of its REIT
taxable income (determined after taking into

                                                                               8
<PAGE>

account any net operating loss deduction) to shareholders in 2001 and subsequent
years. As discussed in note 9, the Company will elect to treat certain
subsidiaries as taxable REIT subsidiaries (TRS), which will be subject to
Federal and state income taxes beginning in 2001. As of December 31, 2000, most
states in which the Company operates have enacted legislation that would permit
a REIT to own TRS. The Company expects that the states that have not enacted
the legislation will do so during 2001 and thus, conform their state laws to the
Federal tax code that permits a REIT to own TRS. In addition, the Company
expects that this legislation will be made retroactive to January 1, 2001.
However, if conforming legislation is not enacted, the Company will be taxed as
a C-Corporation and may be required to provide for current and deferred taxes
for those states. Any required provisions for income taxes would be
insignificant to the Company's consolidated results of operations. Except with
respect to the TRS, management does not believe that the Company will be liable
for significant income taxes at the Federal level or in most of the states in
which it operates in 2001 and future years.

(g)  Investments in marketable securities and cash and cash equivalents
The Company's investment policy defines authorized investments and establishes
various limitations on the maturities, credit quality and amounts of investments
held. Authorized investments include U.S. government and agency obligations,
certificates of deposit, bankers acceptances, repurchase agreements, commercial
paper, money market mutual funds and corporate debt and equity securities.

     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
the Company's 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.

(h)  Derivative financial instruments
The Company makes limited use of interest rate exchange agreements, including
interest rate caps and swaps, to manage interest rate risk associated with
variable rate debt. The Company may also use other types of agreements to hedge
interest rate risk associated with anticipated project financing transactions.
These instruments are designated as hedges and, accordingly, changes in their
fair values are not recognized in the financial statements, provided that they
meet defined correlation and effectiveness criteria at inception and thereafter.
Instruments that cease to qualify for hedge accounting are marked-to-market with
gains or losses recognized in income.

     Under interest rate cap agreements, the Company makes initial premium
payments to the counterparties in exchange for the right to receive payments
from them if interest rates on the related variable rate debt exceed specified
levels during the agreement period. Premiums paid are amortized to interest
expense over the terms of the agreements using the interest method and payments
receivable from the counterparties are accrued as reductions of interest
expense. Under interest rate swap agreements, the Company 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. Amounts receivable or payable under swap agreements
are accounted for as adjustments to interest expense on the related debt.

     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. The Company does not require any collateral under these
agreements, but deals only with highly rated financial institution
counterparties (which, in certain cases, are also the lenders on the related
debt) and does not expect that any counterparties will fail to meet their
obligations.

     On January 1, 2001, the Company will adopt Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities." Information related to this accounting change is provided in note
17.

(i)  Other information about financial instruments
Fair values of financial instruments approximate their carrying values in the
financial statements except for debt for which fair value information is
provided in note 6.

(j)  Earnings per share of common stock
Basic earnings per share (EPS) is computed by dividing income available 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.

                                                                               9
<PAGE>

(k)  Stock-based compensation
The Company applies the intrinsic value-based method of accounting prescribed by
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations including FASB Interpretation No. 44,
"Accounting for Certain Transactions involving Stock Compensation (an
interpretation of APB Opinion No. 25)," issued in March 2000, 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 directors,
officers and employees of the Company and consolidated subsidiaries 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.
Information concerning the pro forma effects on net earnings and earnings per
share of common stock of using an optional fair value-based method, rather than
the intrinsic value method, to account for stock-based compensation plans is
provided in note 13.

(l)  Participating mortgages
Effective January 1, 1998, the Company adopted the American Institute of
Certified Public Accountants' Statement of Position 97-1 "Accounting by
Participating Mortgage Loan Borrowers." This Statement prescribes borrowers'
accounting for participating mortgage loans and requires, among other things,
that borrowers recognize liabilities for the estimated fair value of lenders'
participations in the appreciation in value (if any) of mortgaged real estate
projects and record such participations as interest over the terms of the
related loans. The Company had not previously recognized lenders' participations
in the appreciation in value of mortgaged properties. The cumulative effect of
this accounting change at January 1, 1998 was to reduce net earnings by
approximately $4.6 million ($.07 per share basic and diluted). The effect of
this change, excluding the cumulative effect of initial adoption, was not
material (approximately $.01 per share basic and diluted) in 1998.

(2)  Unconsolidated real estate ventures

Investments in and advances to unconsolidated real estate ventures at December
31, 2000 and 1999 are summarized, based on the level of the Company's financial
interest, as follows (in thousands):

<TABLE>
<CAPTION>
                                                                      2000         1999
                                                                    --------     --------
<S>                                                                 <C>          <C>
     Majority financial interest ventures.......................    $333,541     $350,081
     Other unconsolidated real estate  ventures.................     208,304      173,054
                                                                    --------     --------

             Total..............................................    $541,845     $523,135
                                                                    ========     ========
</TABLE>

     The equity in earnings of unconsolidated real estate ventures is
summarized, based on the level of the Company's financial interest, as follows
(in thousands):

<TABLE>
<CAPTION>
                                                                      2000         1999        1998
                                                                    --------     --------    --------
<S>                                                                 <C>          <C>         <C>
     Majority financial interest ventures......................     $ 88,148     $ 62,824    $ 64,287
     Other unconsolidated real estate  ventures................       41,408       38,347      37,376
                                                                    --------     --------    --------

             Total.............................................     $129,556     $101,171    $101,663
                                                                    ========     ========    ========
</TABLE>

     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 Rouse Company Incentive Compensation Statutory Trust (the Trust),
an entity which is neither owned nor controlled by the Company. These sales were
made at fair value and as part of the Company's plan to meet the qualifications
for REIT status. The Company 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 its disposition of the majority voting interest in the ventures, the
Company began accounting for its investment in them using the equity method
effective December 31, 1997. Due to the Company's continuing financial interest
in the ventures, it recognized no gain on the sales of stock for financial
reporting purposes. The assets of the ventures consist primarily of land to be
developed and sold as part of community development projects in Columbia and
Summerlin, other investment land, primarily in Nevada, certain office and retail
properties primarily in Columbia, investments in properties owned jointly with
the Company and contracts to manage various operating properties.

     Relying on the REIT Modernization Act (as more fully discussed in note 9),
the Company negotiated an agreement to reacquire the voting stock of the
ventures owned by the Trust and on January 2, 2001, the Company exchanged
137,928 shares of common stock for the Trust's shares of voting common stock in
the ventures. The voting shares acquired by the Company constitute 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, the Company
owns 100% of the voting common stock of the ventures and, accordingly, the
ventures will be consolidated in the Company's financial statements from the
date of the acquisition.

                                                                              10
<PAGE>

     The combined balance sheets of these ventures at December 31, 2000 and 1999
are summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                        2000               1999
                                                                                      ---------         ---------
<S>                                                                                   <C>               <C>
Assets:
         Operating properties, net ...........................................        $ 337,005         $ 332,234
         Properties in development ...........................................           23,582            26,920
         Land held for development and sale ..................................          250,510           257,773
         Investments in and advances to unconsolidated real
           estate ventures ...................................................          106,892           112,039
         Prepaid expenses, receivables under finance leases
           and other assets ..................................................           95,803            96,603
         Accounts and notes receivable .......................................           64,269            88,549
         Cash and cash equivalents ...........................................               15             7,784
                                                                                      ---------         ---------
                  Total ......................................................        $ 878,076         $ 921,902
                                                                                      =========         =========

Liabilities and shareholders' deficit:
         Loans and advances from the Company .................................        $ 450,710         $ 514,792
         Mortgages payable and other long-term debt ..........................          326,290           310,103
         Other liabilities ...................................................          101,887           117,622
         Redeemable Series A Preferred stock .................................           50,000            50,000
         Shareholders' deficit ...............................................          (50,811)          (70,615)
                                                                                      ---------         ---------
                  Total ......................................................        $ 878,076         $ 921,902
                                                                                      =========         =========
</TABLE>

     The combined statements of operations of these ventures are summarized as
follows (in thousands):

<TABLE>
<CAPTION>
                                                                                         2000              1999              1998
                                                                                      ---------         ---------         ---------
<S>                                                                                   <C>               <C>               <C>
Revenues, excluding interest on loans to the
         Company .............................................................        $ 312,056         $ 278,437         $ 248,801
Interest income on loans to the Company ......................................               --             2,647             9,067
Operating expenses ...........................................................         (159,691)         (160,497)         (142,550)
Interest expense, excluding interest on borrowings from
         the Company .........................................................          (10,470)           (7,504)          (11,884)
Interest expense on borrowings from the Company ..............................          (52,449)          (57,535)          (53,340)
Depreciation and amortization ................................................          (15,804)          (11,957)           (9,541)
Equity in earnings (loss) of unconsolidated real
         estate ventures .....................................................            3,736            (1,905)            2,164
Gains on operating properties, net ...........................................               --             2,635            15,879
Income taxes, primarily deferred .............................................          (28,150)          (19,693)          (22,060)
Extraordinary losses, net ....................................................          (13,349)               --            (1,127)
                                                                                      ---------         ---------         ---------

                  Net earnings ...............................................        $  35,879         $  24,628         $  35,409
                                                                                      =========         =========         =========
</TABLE>

     In December 2000, one of the ventures partially repaid a loan from the
Company prior to its scheduled maturity. The Company charged the venture a
prepayment penalty of $22.1 million and this amount, less related deferred
income tax benefits of $8.8 million, is classified as an extraordinary loss in
the combined statement of operations of the ventures. The effect of the
transaction is eliminated in the Company's equity in earnings of majority
financial interest ventures. The 1998 extraordinary loss is related to the
extinguishment of debt with other lenders. The Company's share of this
extraordinary loss is reflected in extraordinary gains (losses), net in the
Company's consolidated financial statements.

                                                                              11
<PAGE>

     The Company's share of the net earnings of these ventures is summarized as
follows (in thousands):

<TABLE>
<CAPTION>
                                                                     2000        1999        1998
                                                                   --------    --------    --------
<S>                                                                <C>         <C>         <C>
Share of net earnings based on ownership interest................  $ 35,520    $ 24,382    $ 35,055
Participation by others in the Company's share of earnings ......   (35,322)    (28,796)    (24,152)
Interest on loans and advances, net..............................    52,449      54,888      44,273
Prepayment penalty on loan from the Company......................    22,082         ---         ---
Eliminations and other, net......................................    13,419      12,350       9,111
                                                                   --------    --------    --------
     Equity in earnings of majority financial interest ventures..  $ 88,148    $ 62,824    $ 64,287
                                                                   ========    ========    ========
</TABLE>

     The other unconsolidated real estate ventures are accounted for using the
equity or cost method, as appropriate. Most of these properties are managed by
affiliates of the Company. Certain agreements relating to these properties
provide for preference returns to the Company when operating results or sale or
refinancing proceeds exceed specified levels. At December 31, 2000 and 1999,
these ventures were primarily partnerships and corporations which own retail
centers. These ventures also include a joint venture formed in December 2000 in
connection with the Company's contribution of its ownership interest in a
development project and a joint venture formed in February 1999 in connection
with the Company's contribution of its ownership interests in four retail
centers. The condensed, combined balance sheets of other unconsolidated real
estate ventures at December 31, 2000 and 1999 and their condensed, combined
statements of operations are summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                                      2000         1999
                                                                   ----------   ----------
       <S>                                                         <C>          <C>
       Total assets, primarily property..........................  $1,905,264   $1,757,809
                                                                   ==========   ==========

       Liabilities, primarily long-term debt.....................  $1,355,984   $1,266,945
       Venturers' equity.........................................     549,280      490,864
                                                                   ----------   ----------
         Total liabilities and venturers' equity.................  $1,905,264   $1,757,809
                                                                   ==========   ==========
</TABLE>

<TABLE>
<CAPTION>
                                                                     2000         1999          1998
                                                                   --------     --------     ---------
       <S>                                                         <C>          <C>          <C>
       Revenues..................................................  $334,582     $365,518      $336,213
       Operating and interest expenses...........................   233,242      247,442       214,218
       Depreciation and amortization.............................    35,217       45,982        46,549
       Gains on operating properties.............................       ---       33,121        38,915
         Net earnings............................................  --------     --------      --------
                                                                   $ 66,123     $105,215      $114,361
                                                                   ========     ========      ========
</TABLE>

(3)  Property

Operating properties and deferred costs of projects at December 31, 2000 and
1999 are summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                                      2000          1999
                                                                   ----------    ----------
       <S>                                                         <C>           <C>
       Buildings and improvements................................  $3,294,225    $3,138,519
       Land......................................................     371,537       370,943
       Deferred costs............................................     102,494        74,719
       Furniture and equipment...................................      10,937        10,135
                                                                   ----------    ----------

         Total...................................................  $3,779,193    $3,594,316
                                                                   ==========    ==========
</TABLE>

     Depreciation expense for 2000, 1999 and 1998 was $81.6 million, $83.0
million and $69.0 million, respectively. Amortization expense for 2000, 1999 and
1998 was $8.7 million, $11.5 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 $40.2 million and $53.5 million at December 31,
2000 and 1999, respectively.

                                                                              12
<PAGE>

     Properties held for sale at December 31, 2000 and 1999 are summarized as
follows (in thousands):

<TABLE>
<CAPTION>
                                                          2000          1999
                                                       ---------     ---------
<S>                                                    <C>           <C>
Retails centers.....................................   $     ---     $  11,388
Office and other properties.........................       4,548           ---
                                                       ---------     ---------

  Total.............................................   $   4,548     $  11,388
                                                       =========     =========
</TABLE>

     Revenues relating to properties held for sale at December 31, 2000 were $.5
million in each of 2000 and 1999. Operating income from these properties was $.4
million in 2000 and $.3 million in 1999. The properties were purchased at the
end of 1998 and, accordingly, the revenues and operating income amounts for 1998
were insignificant. The properties held for sale at December 31, 2000 are
expected to be sold in 2001.

     Revenues relating to properties held for sale at December 31, 1999 were
$2.9 million in 1999 and $3.1 million in 1998. Operating income from these
properties was $.2 million in 1999 and they incurred an operating loss of $.9
million in 1998.

     In January 2001, management reviewed its disposition plans and decided to
cease actively marketing certain properties which had been classified as held
for sale during 2000. Accordingly, these properties, with a net carrying value
of $170.2 million, were reclassified to operating at December 31, 2000.


(4)   Accounts and notes receivable

Accounts and notes receivable at December 31, 2000 and 1999 are summarized as
follows (in thousands):

<TABLE>
<CAPTION>
                                                         2000          1999
                                                       --------      --------
<S>                                                    <C>           <C>
Accounts receivable, primarily accrued rents and
  income under tenant leases........................   $ 64,008      $ 65,025
Notes receivable from sales of properties...........      3,167         3,744
Notes receivable from sales of land.................        ---        14,553
                                                       --------      --------
                                                         67,175        83,322
Less allowance for doubtful receivables.............     22,608        23,570
                                                       --------      --------
  Total.............................................   $ 44,567      $ 59,752
                                                       ========      ========
</TABLE>

     Accounts and notes receivable due after one year were $2.5 million and
$10.4 million at December 31, 2000 and 1999, 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 the Company's operating properties. The Company performs
credit evaluations of prospective new tenants and requires security deposits 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 accounts, historical
trends and other relevant information. Notes receivable from sales of land were
primarily due from builders at the community development project in Summerlin.
The Company ceased financing land sales in 1998 when the Company's majority
interest ventures began conducting land sales operations. The Company performed
credit evaluations of the builders and generally required substantial down
payments (at least 20%) on all land sales that it financed. These notes and
notes from sales of operating properties are generally secured by first liens on
the related properties.

                                                                              13
<PAGE>

(5)   Pension, postretirement and deferred compensation plans

The Company has a defined benefit pension plan (the "funded plan") covering
substantially all employees and employees of certain affiliates and separate,
nonqualified unfunded retirement plans (the "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. The Company also has a retiree benefits plan that
provides postretirement medical and life insurance benefits to full-time
employees and employees of certain affiliates who meet minimum age and service
requirements. The Company pays a portion of the cost of participants' life
insurance coverage and makes contributions to the cost of participants' medical
insurance coverage based on years of service, subject to a maximum annual
contribution.

     Information relating to the obligations, assets and funded status of the
plans at December 31, 2000 and 1999 and for the years then ended is summarized
as follows (in thousands):

<TABLE>
<CAPTION>
                                                                        Pension Plans                      Postretirement
                                                        --------------------------------------------
                                                                Funded                Unfunded                  Plan
                                                        --------------------    --------------------    --------------------
                                                          2000        1999        2000        1999        2000        1999
                                                        --------    --------    --------    --------    --------    --------
<S>                                                     <C>         <C>         <C>         <C>         <C>         <C>
Change in benefit obligations:
Benefit obligations at beginning of year.............   $ 41,433    $ 58,829    $ 11,886    $ 13,515    $ 14,895    $ 15,887
Service cost.........................................      3,568       3,648         851         945         484         666
Interest cost........................................      3,631       3,812       1,314         993       1,312       1,086
Plan amendment.......................................      2,283           -       4,293           -           -           -
Actuarial loss (gain)................................      8,856      (7,297)      1,768        (350)      2,718      (1,892)
Benefits paid........................................     (4,291)       (625)       (255)     (4,550)       (938)       (852)
                                                        --------    --------    --------    --------    --------    --------
Benefit obligations before special events............     55,480      58,367      19,857      10,553      18,471      14,895
Settlements..........................................          -     (17,364)          -      (3,315)          -           -
Special terminations.................................          -         430           -       4,648           -           -
                                                        --------    --------    --------    --------    --------    --------
  Benefit obligations at end of year.................     55,480      41,433      19,857      11,886      18,471      14,895
                                                        --------    --------    --------    --------    --------    --------

Change in plan assets:
Fair value of plan assets at beginning of year.......     59,532      54,984           -          -            -           -
Actual return on plan assets.........................     (1,217)     12,199           -          -            -           -
Employer contribution................................      3,477      10,338         255       7,865         938         852
Benefits paid........................................     (4,291)       (625)       (255)     (4,550)       (938)       (852)
Settlements..........................................          -     (17,364)          -      (3,315)          -           -
                                                        --------    --------    --------    --------    --------    --------
  Fair value of plan assets at end of year...........     57,501      59,532           -           -           -           -
                                                        --------    --------    --------    --------    --------    --------

Funded status........................................      2,021      18,099     (19,857)    (11,886)    (18,471)    (14,895)
Unrecognized net actuarial (gain) loss...............     17,051       2,333       4,177       2,554         909      (1,809)
Unamortized prior service cost.......................      4,790       3,230       6,441       3,012           -           -
Unrecognized transition obligation...................        332         398         136         271       3,998       4,331
                                                        --------    --------    --------    --------    --------    --------
  Net amount recognized..............................   $ 24,194    $ 24,060    $ (9,103)   $ (6,049)   $(13,564)   $(12,373)
                                                        ========    ========    ========    ========    ========    ========

Amounts recognized in the balance sheets consist of:
Prepaid benefit cost.................................   $ 24,194    $ 24,060    $      -    $      -    $      -    $      -
Accrued benefit liability ...........................          -           -     (18,586)     (9,803)    (13,564)    (12,373)
Intangible asset.....................................          -           -       6,577       3,283           -           -
Accumulated other comprehensive income items.........          -           -       2,906         471           -           -
                                                        --------    --------    --------    --------    --------    --------
  Net amount recognized..............................   $ 24,194    $ 24,060    $ (9,103)   $ (6,049)   $(13,564)   $(12,373)
                                                        ========    ========    ========    ========    ========    ========

Weighted-average assumptions as of December 31:
Discount rate........................................       7.50%       8.00%       7.50%       8.00%       7.50%       8.00%
Expected rate of return on plan assets...............       8.00        7.25           -           -           -           -
Rate of compensation increase........................       4.50        4.50        4.50        4.50        4.50        4.50
                                                        ========    ========    ========    ========    ========    ========
</TABLE>

     The assets of the funded plan consist primarily of fixed income and
marketable equity securities. The amendment to the pension plans in 2000 changed
the compensation base on which pension benefits are calculated.

                                                                              14
<PAGE>

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

<TABLE>
<CAPTION>
                                                                    2000        1999       1998
                                                                  --------    --------   --------
      <S>                                                         <C>         <C>        <C>
      Service cost.............................................   $  4,419    $  4,593   $  4,609
      Interest cost on projected benefit obligations...........      4,945       4,805      4,549
      Expected return on funded plan assets....................     (4,737)     (4,049)    (3,479)
      Prior service cost recognized............................      1,587       1,410      1,410
      Net loss recognized......................................        237       1,408      1,281
      Amortization of transition obligation....................        201         201        201
                                                                  --------    --------   --------
         Net pension cost before special events................      6,652       8,368      8,571
      Settlement loss..........................................        ---       1,691        ---
      Special termination loss.................................        ---       5,078        ---
                                                                  --------    --------   --------
         Net pension cost......................................   $  6,652    $ 15,137   $  8,571
                                                                  ========    ========   ========
</TABLE>

     The settlement and special termination losses in 1999 relate to the
organizational changes and early retirement program more fully discussed in note
10.

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

<TABLE>
<CAPTION>
                                                                    2000        1999       1998
                                                                  --------    --------   --------
      <S>                                                         <C>         <C>        <C>
      Service cost.............................................   $    484    $    666   $    718
      Interest cost on accumulated benefit obligations.........      1,312       1,086      1,024
      Amortization of transition obligation....................        333         333        333
                                                                  --------    --------   --------
         Net postretirement benefit cost.......................   $  2,129    $  2,085   $  2,075
                                                                  ========    ========   ========
</TABLE>

     Because the Company's contributions to the cost of the majority of the
participants' medical insurance coverage are fixed, health care cost trend rates
do not significantly affect the benefit obligation or service cost under the
postretirement plan. Affiliates that participate in the pension and
postretirement plans reimburse the Company for their share of the annual benefit
cost of the plans. The affiliates' share of the benefit cost for 2000, 1999 and
1998 was $2.1 million, $3.9 million and $3.1 million, respectively.

     The Company also has a deferred compensation program which permits
directors and certain management employees of the Company and certain affiliates
to defer portions of their compensation on a pretax basis. Compensation expense
related to this program was not significant in 2000, 1999 and 1998.

(6)   Debt

Debt is classified as follows:

(a)   "Property debt not carrying a Parent Company guarantee of repayment" which
      is subsidiary company debt having no express written obligation which
      would require the Company to repay the principal amount of such debt
      during the full term of the loan (nonrecourse loans); and

(b)   "Parent Company debt and debt carrying a Parent Company guarantee of
      repayment" which is debt of the Company and subsidiary company debt with
      an express written obligation of the Company to repay the principal amount
      of such debt during the full term of the loan (Company and recourse
      loans).

     With respect to nonrecourse loans, the Company has 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, 2000 and 1999, nonrecourse loans include $162.8 million and $233.7
million, respectively, of subsidiary companies' mortgages and bonds which are
subject to agreements with lenders requiring the Company 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.

                                                                              15
<PAGE>

     Debt at December 31, 2000 and 1999 is summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                          2000           1999
                                                       ----------     ----------
      <S>                                              <C>            <C>
      Mortgages and bonds............................  $2,281,299     $2,382,526
      Medium-term notes..............................      81,500         91,500
      Credit facility borrowings.....................     198,000        174,000
      Other loans....................................     484,970        496,423
                                                       ----------     ----------
        Total........................................  $3,045,769     $3,144,449
                                                       ==========     ==========
</TABLE>

     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 2019 and, at December 31, 2000, bears interest at a weighted-average
effective rate of 7.96%, including lender participations in operations. At
December 31, 2000 and 1999, approximately $84.5 million and $309.1 million,
respectively, of this debt provided for payments of additional interest based on
operating results of the related properties in excess of stated levels.

     The Company has registered unsecured, medium-term notes which may be issued
to the public from time to time. The notes may be issued, subject to market
conditions, for varying terms (nine months to 30 years) and at fixed or variable
interest rates based on market indices at the time of issuance. The notes
outstanding at December 31, 2000 mature at various dates from 2001 to 2015, bear
interest at a weighted-average effective rate of 8.09% (including an average
rate of 7.53% on $10 million of variable rate notes) and have a weighted-average
maturity of 3.2 years. At December 31, 2000, an additional $29.7 million of the
notes are issuable under the related registration statement.

     In December 2000, the Company obtained a credit facility with a group of
lenders that provides for unsecured borrowings of up to $375 million. This
credit facility replaced a previous credit facility obtained in 1998. Advances
under the facility bear interest at a variable rate of LIBOR plus 1% (7.6% at
December 31, 2000). The facility is available to December 2003, subject to a
one-year renewal option. Payment of borrowings under the credit facility is
guaranteed by certain of the majority financial interest ventures.

     Other loans include $114.2 million of 8.5% unsecured notes due in 2003,
$200 million of 8% Senior Debt due in 2009, various property acquisition loans
and certain other borrowings. These loans include aggregate unsecured borrowings
of $460.8 million and $472.1 million at December 31, 2000 and 1999,
respectively, and at December 31, 2000, bear interest at a weighted-average
effective rate of 8.0%.

     At December 31, 2000, approximately $897.4 million of the mortgages and
bonds and $58 million of the other loans were payable to one lender.

     The agreements relating to various loans impose limitations on the Company.
The most restrictive of these limit the levels and types of debt the Company and
its affiliates may incur and require the Company and its 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 the Company's normal business activities.

     The annual maturities of debt at December 31, 2000 are summarized as
follows (in thousands):

<TABLE>
<CAPTION>
                                     Nonrecourse    Company and
                                        Loans      Recourse Loans       Total
                                     -----------   --------------    -----------
      <S>                            <C>           <C>               <C>
      2001.........................  $   171,407     $  55,127       $   226,534
      2002.........................      209,824        43,855           253,679
      2003.........................      192,952       313,886           506,838
      2004.........................      301,386        32,872           334,258
      2005.........................      325,576        64,881           390,457
      Subsequent to 2005...........    1,063,654       270,349         1,334,003
                                     -----------     ---------       -----------
        Total......................  $ 2,264,799     $ 780,970       $ 3,045,769
                                     ===========     =========       ===========
</TABLE>

     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 determined based on the terms of the refinancing
commitments.

     At December 31, 2000, the Company had interest rate cap agreements which
effectively limit the average interest rate on $36 million of variable rate
LIBOR debt maturing in 2002 to 9.1% and the average rate on $5 million of
variable rate LIBOR debt maturing in 2010 to 8.7%. Interest rate exchange
agreements did not have a material effect on the weighted-average effective
interest rates on debt at December 31, 2000 and 1999 or interest expense for
2000, 1999 and 1998. The fair values of interest rate exchange agreements were
insignificant at December 31, 2000 and 1999.

     Total interest costs were $256.4 million in 2000, $253.6 million in 1999,
and $220.8 million in 1998, of which $19.7 million, $19.7 million, and $19.5
million were capitalized, respectively.

                                                                              16
<PAGE>

     In 2000, the Company recognized net extraordinary gains 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 Company recognized
net extraordinary losses of $5.9 million in 1999 and net extraordinary gains of
$3.7 million (before deferred income tax benefits of $.7 million) in 1998
related 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 the 8% Senior Debt issued in
1999.

     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.

     The carrying amount and estimated fair value of the Company's debt at
December 31, 2000 and 1999 are summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                        2000                        1999
                                               -----------------------     -----------------------
                                                Carrying    Estimated      Carrying      Estimated
                                                 Amount     Fair Value      Amount      Fair Value
                                               ----------   ----------     ----------   ----------
      <S>                                      <C>          <C>            <C>          <C>
      Fixed rate debt........................  $2,425,583   $2,436,623     $2,620,668   $2,511,649
      Variable rate debt.....................     620,186      620,186        523,781      523,781
                                               ----------   ----------     ----------   ----------
         Total...............................  $3,045,769   $3,056,809     $3,144,449   $3,035,430
                                               ==========   ==========     ==========   ==========
</TABLE>

     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 Company's 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 5,500,000 Cumulative Quarterly
Income Preferred Securities (preferred securities), 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 junior subordinated debentures (debentures)
of the Company 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 the Company has undertaken to make, particularly the payments
to be made by the Company on the debentures. Compliance by the Company with its
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.

     The Company may redeem the debentures at par at any time after November 27,
2000, but redemptions at or prior to maturity are payable only from the proceeds
of issuance of capital stock of the Company or of securities substantially
comparable in economic effect to the preferred securities. During 1998, the
Company repurchased 21,400 of the preferred securities for approximately $.5
million.

(8)   Segment information

The Company has five reportable segments: retail centers, office and other
properties, land sales operations, development and corporate. In 2000, the
Company reclassified segment operating results and assets of the retail
components of its five mixed-use projects to retail centers. In connection
therewith, the office, mixed-use and other properties segment was renamed office
and other properties. Segment information for 1999 and 1998 has been restated to
reflect this change. In addition to the retail components of mixed-use projects,
the retail centers segment also includes the operation and management of other
retail centers, including regional shopping centers, downtown specialty
marketplaces and village 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 land sales operations
segment includes the development and sale of land, primarily in large-scale,
long-term community development projects in Columbia and Summerlin. The
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 cash and investment management and certain
other general and support functions. The Company's reportable segments offer
different products or services and are managed separately because each requires
different operating strategies or management expertise.

                                                                              17
<PAGE>

     Segment operating results are measured and assessed based on a performance
measure referred to as Funds from Operations (FFO). The Company defines FFO as
net earnings (computed in accordance with accounting principles generally
accepted in the United States of America), excluding cumulative effects of
changes in accounting principles, extraordinary items, gains (losses) on
operating properties, depreciation and amortization and deferred income taxes.
Additionally, equity in earnings of unconsolidated real estate ventures and
minority interests are adjusted to reflect FFO on the same basis. The Company
revised its definition of FFO in 2000 to include deductions for other provisions
and losses and, accordingly, FFO for prior periods has been presented in
conformity with the revised definition. The exclusion of deferred income taxes
results in the Company's definition differing from the definition adopted by the
National Association of Real Estate Investment Trusts. Also, the Company's
definition of FFO may differ from those used by other REITs. FFO is not a
measure of operating results or cash flows from operating activities as measured
by accounting principles generally accepted in the United States of America. It
is not necessarily indicative of cash available to fund cash needs and should
not be considered as an alternative to cash flows as a measure of liquidity.

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

     .    real estate ventures in which the Company holds substantially all (at
          least 98%) of the financial interest but does not own a majority
          voting interest (majority financial interest ventures) are accounted
          for on a consolidated basis rather than using the equity method;

     .    real estate ventures in which the Company has joint interest and
          control and certain other minority interest ventures (proportionate
          share ventures) are accounted for using the proportionate share method
          rather than the equity method;

     .    the Company's share of FFO of other unconsolidated minority interest
          ventures (other ventures) is included in revenues.

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

<TABLE>
<CAPTION>
                                             Office
                                  Retail    and Other   Land Sales
                                  Centers   Properties  Operations   Development  Corporate      Total
                                 --------   ----------  ----------   -----------  ---------   ----------
<S>                              <C>        <C>         <C>          <C>          <C>         <C>
2000
----
   Revenues...................   $631,014    $216,756    $215,459     $    ---    $    948    $1,064,177
   Operating expenses*........    283,858      81,076     148,679        7,701      17,130       538,444
   Interest expense...........    184,254      83,687       2,941          ---       2,273       273,155
                                 --------    --------    --------     --------    --------    ----------
      FFO.....................   $162,902    $ 51,993    $ 63,839     $( 7,701)   $(18,455)   $  252,578
                                 ========    ========    ========     ========    ========    ==========

1999
----
   Revenues...................   $626,596    $205,896    $197,159     $    ---    $  1,676    $1,031,327
   Operating expenses*........    286,852      77,936     146,097        3,707      28,234       542,826
   Interest expense...........    184,276      83,164       3,151          ---      (5,522)      265,069
                                 --------    --------    --------     --------    --------    ----------
      FFO.....................   $155,468    $ 44,796    $ 47,911     $ (3,707)   $(21,036)   $  223,432
                                 ========    ========    ========     ========    ========    ==========

1998
----
   Revenues...................   $586,410    $162,938    $198,786     $    ---    $  2,789    $  950,923
   Operating expenses*........    277,903      67,367     150,749        7,383      22,841       526,243
   Interest expense...........    165,786      64,871       4,201          ---      (8,405)      226,453
                                 --------    --------    --------     --------    --------    ----------
      FFO.....................   $142,721    $ 30,700    $ 43,836     $ (7,383)   $(11,647)   $  198,227
                                 ========    ========    ========     ========    ========    ==========
</TABLE>

* Operating expenses include provisions for bad debts, current income taxes and
other provisions and losses, net and exclude depreciation and amortization.

                                                                              18
<PAGE>

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

<TABLE>
<CAPTION>
                                                                              2000           1999           1998
                                                                          -----------    -----------    -----------
<S>                                                                       <C>            <C>            <C>
Revenues:
  Total reported above .............................................      $ 1,064,177    $ 1,031,327    $   950,923
  Revenues of majority financial interest ventures, excluding
      interest on advances to the Company ..........................         (312,056)      (278,437)      (248,801)
  Share of revenues of proportionate share ventures ................         (110,126)      (108,474)       (80,067)
  Company's share of Funds from Operations of other ventures .......           (8,531)        (8,538)        (9,743)
  Other ............................................................              274             --          1,489
                                                                          -----------    -----------    -----------

      Total in consolidated financial statements ...................      $   633,738    $   635,878    $   613,801
                                                                          ===========    ===========    ===========

Operating expenses, exclusive of depreciation and amortization:
  Total reported above .............................................      $   538,444    $   542,826    $   526,243
  Operating expenses of majority financial interest ventures .......         (159,691)      (160,497)      (142,550)
  Share of operating expenses of proportionate share ventures ......          (39,788)       (43,038)       (31,216)
  Provision for bad debts ..........................................           (6,683)        (7,972)        (7,042)
  Other provisions and losses, net .................................             (131)        (8,607)        (5,065)
  Current income taxes .............................................             (254)          (214)            91
  Participation by others in the Company's share of earnings of
      majority financial interest ventures .........................          (35,322)       (28,796)       (24,152)
  Other.............................................................           (2,535)        (1,847)        (3,149)
                                                                          -----------    -----------    -----------

      Total in consolidated financial statements ...................      $   294,040    $   291,855    $   313,160
                                                                          ===========    ===========    ===========

Interest expense:
  Total reported above .............................................      $   273,155    $   265,069    $   226,453
  Interest expense of majority financial interest ventures,
      excluding interest on borrowings from the Company ............          (10,470)        (7,504)       (11,884)
  Share of interest expense of proportionate share ventures ........          (25,941)       (23,699)       (13,226)
                                                                          -----------    -----------    -----------

      Total in consolidated financial statements ...................      $   236,744    $   233,866    $   201,343
                                                                          ===========    ===========    ===========

Operating results:
  FFO reported above ...............................................      $   252,578    $   223,432    $   198,227
  Depreciation and amortization ....................................          (90,307)       (94,532)       (77,660)
  Depreciation and amortization, gains on operating properties, net
      and deferred income taxes of unconsolidated real estate
      ventures, net ................................................          (27,136)       (28,897)        (9,282)
                                                                          -----------    -----------    -----------

    Earnings before gains (losses) on operating properties, net,
      extraordinary items and cumulative effect of change in
      accounting principle in consolidated financial statements           $   135,135    $   100,003    $   111,285
                                                                          ===========    ===========    ===========
</TABLE>

                                                                              19
<PAGE>

     The assets by segment at December 31, 2000, 1999 and 1998 are summarized as
follows (in thousands):

<TABLE>
<CAPTION>
                                                                               2000           1999         1998
                                                                            ----------     ----------   ----------
<S>                                                                         <C>            <C>          <C>
   Retail centers.....................................................      $3,372,114     $3,286,590   $3,887,943
   Office and other properties........................................       1,086,187      1,214,125    1,214,718
   Land sales operations..............................................         374,668        436,863      448,444
   Development........................................................          72,673         33,371        5,593
   Corporate..........................................................         119,609        113,311       77,419
                                                                            ----------     ----------   ----------
            Total.....................................................      $5,025,251     $5,084,260   $5,634,117
                                                                            ==========     ==========   ==========
</TABLE>

     Total segment assets exceeds total assets reported in the financial
statements primarily because of the consolidation of the majority financial
interest ventures and the inclusion of the Company's share of the assets of the
proportionate share ventures.

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

<TABLE>
<CAPTION>
                                                                               2000           1999         1998
                                                                            ----------     ----------   ----------
<S>                                                                         <C>            <C>          <C>
Retail centers:
   Expansions and renovations.........................................      $  143,874     $  172,993   $  231,607
   Improvements for tenants and other.................................          23,893         23,682       18,576
   Acquisitions.......................................................          13,569            ---    1,042,846
                                                                            ----------     ----------   ----------
                                                                               181,336        196,675    1,293,029
                                                                            ----------     ----------   ----------

Office and other properties:
   Expansions and renovations.........................................             ---         27,893       24,390
   Improvements for tenants and other.................................          15,962         17,931       10,688
   Acquisitions.......................................................           8,676            ---      288,694
                                                                            ----------     ----------   ----------
                                                                                24,638         45,824      323,772
                                                                            ----------     ----------   ----------

Land sales operations:
   Development expenditures...........................................          95,156         73,240       82,656
   Acquisitions.......................................................             ---            ---       16,993
                                                                            ----------     ----------   ----------
                                                                                95,156         73,240       99,649
                                                                            ----------     ----------   ----------

Development:
   Costs of new projects..............................................          81,614         71,890      112,184
                                                                            ----------     ----------   ----------

            Total.....................................................      $  382,744     $  387,629   $1,828,634
                                                                            ==========     ==========   ==========

</TABLE>

     Approximately $149.2 million, $171.5 million and $196.7 million of the
additions in 2000, 1999 and 1998, respectively, relate to property owned by
unconsolidated real estate ventures.

(9)  Income taxes

At December 31, 2000, the income tax bases of the Company's assets and
liabilities were approximately $3.6 billion and $3.8 billion, respectively. The
net operating loss carryforward at December 31, 2000 for Federal income tax
purposes aggregated approximately $254 million and will expire from 2005 to
2011.

     In connection with its election to be taxed as a REIT, the Company has also
elected to be subject to the "built-in gain" rules. Under these rules, taxes
will be payable at the time and to the extent that the net unrealized gains on
the Company's 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. Management believes
that the Company will not be required to make significant payments of taxes on
built-in gains throughout the ten-year period due to the availability of its net
operating loss carryforward to offset built-in gains which might be recognized
and the potential for the Company to make nontaxable dispositions, if necessary.
It may be necessary to recognize a liability for such taxes in the future if
management's plans and intentions with respect to asset dispositions, or the
related tax laws, change.

                                                                              20
<PAGE>

     The REIT Modernization Act ("RMA") was included in the Tax Relief Extension
Act of 1999 ("the 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 are 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 in 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, the Company acquired all of the voting
stock of the majority financial interest ventures owned by the Trust.
Information related to the acquisition is included in note 2. The Company and
these subsidiaries will make a joint election to treat the subsidiaries as TRS
for Federal and certain state income tax purposes beginning January 2, 2001.

(10)  Other provisions and losses, net

In 1999, other provisions and losses, net relates primarily to the Company's
consolidation of the management and administration of its Retail Operations and
Office and Mixed-Use Operations divisions into a single Property Operations
Division during the second quarter and the integration of certain operating,
administrative and support functions of the Hughes Division into other
divisions. The costs relating to these organizational changes, primarily
severance and other benefits to terminated employees, aggregated approximately
$6.6 million. Also, in October 1999, the Company adopted a voluntary early
retirement program in which employees who met certain criteria were eligible to
participate. The Company recorded a provision of approximately $2.5 million for
costs associated with this program for employees who accepted early retirement
prior to December 31, 1999.

     In 1998, other provisions and losses, net relates primarily to a fourth
quarter loss of $6.4 million on a treasury lock contract that no longer
qualified for hedge accounting because the Company determined that the related
anticipated financing transaction would not occur under the terms and timing
originally expected.

(11)  Gains (losses) on operating properties, net

The net gains on operating properties in 2000 relate primarily to the transfer
to a joint venture (in which the Company maintains a minority interest) of the
Company's ownership interest in a retail center in the third quarter ($37.1
million). The Company deferred recognition of approximately $25 million of gain
on this transaction and approximately $15 million in connection with an
unrelated transaction due to its continuing involvement with the ventures. This
gain was partially offset by an impairment provision recorded by the Company on
its investment in a retail center that the Company and the other venturer intend
to dispose ($6.9 million).

     The net gains on operating properties in 1999 relate primarily to a gain on
a retail center sold in the fourth quarter ($61.9 million) and a gain on another
property sold in the second quarter ($6.4 million), partially offset by
impairment losses on two retail centers ($28.1 million). During the fourth
quarter, the Company changed its plans and intentions as to the manner in which
these two centers would be operated in the future and revised estimates of the
most likely holding periods. As a result, the Company 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 1998 relate primarily to a loss
on disposal of a retail center.

(12)  Preferred stock

The Company has authorized 50,000,000 shares of Preferred stock of 1(cent) 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 the Company's 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, beginning April 1, 2000, the shares of Preferred stock are
redeemable for shares of common stock at the option of the Company, subject to
certain conditions. There were 4,050,000 shares of Preferred stock issued and
outstanding at December 31, 2000 and 1999.

     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, 2000 and 1999.

                                                                              21
<PAGE>

(13)  Common stock

At December 31, 2000, shares of authorized and unissued common stock are
reserved as follows: (a) 13,756,658 shares for issuance under the Contingent
Stock Agreement discussed below; (b) 13,570,446 shares for issuance under the
Company's stock option and stock bonus plans; (c) 5,309,955 shares for
conversion of the Series B Convertible Preferred stock; and (d) 1,608,000 shares
for conversion of convertible property debt.

     In connection with the acquisition of The Hughes Corporation (Hughes) in
1996, the Company entered into a Contingent Stock Agreement ("Agreement") for
the benefit of the former Hughes owners or their successors (the 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" from 2000 to 2009 and/or cash flows
generated from the development and/or sale of those assets prior to the
termination dates (the "earnout periods"). The distributions of additional
shares, based on cash flows, are payable semiannually as of June 30 and December
31. At December 31, 2000, approximately 817,000 shares ($20.7 million) were
issuable to the beneficiaries, representing their share of cash flows and the
appraised value of certain parcels of land with a December 31, 2000 termination
date.

     The Agreement is, in substance, an arrangement under which the Company and
the beneficiaries will share in cash flows from development and/or sale of the
defined assets during their respective earnout periods and the Company 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. Substantially all
of the remaining assets in the four defined asset groups were owned by
subsidiaries in which the Company sold a majority voting interest to The Rouse
Company Incentive Compensation Statutory Trust on December 31, 1997. However,
the Company retained full responsibility for its obligations under the Agreement
and, accordingly, it accounts for the beneficiaries' share of earnings from the
assets as a reduction of its equity in the earnings of the related ventures. The
Company will account for any distributions to the beneficiaries as of the
termination dates as an additional investment in the related assets (i.e.,
contingent consideration). At the time of acquisition of Hughes, the Company
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, the Board of Directors authorized the repurchase of common shares
for up to $250 million, subject to certain pricing restrictions. During 2000 and
1999, the Company repurchased approximately 2.8 million and 1.6 million shares,
respectively, for $66 million and $35 million, respectively. The average per
share repurchase price was $23.57 in 2000 and $21.88 in 1999.

     Under the Company's stock option plans, options to purchase shares of
common stock and stock appreciation rights may be awarded to directors, officers
and employees of the Company and certain affiliates. 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 years. The Company has not
granted any stock appreciation rights. Changes in options outstanding under the
plans are summarized as follows:

<TABLE>
<CAPTION>
                                                         2000                        1999                        1998
                                                 -----------------------    ---------------------      ------------------------
                                                               Weighted-                Weighted-                     Weighted-
                                                                 average                 average                       average
                                                                Exercise                 Exercise                     Exercise
                                                  Shares         Price       Shares       Price          Shares         Price
                                                 ---------    ----------    --------    ---------      ----------    ----------
     <S>                                         <C>          <C>           <C>         <C>            <C>           <C>
     Balance at beginning of year............    6,263,228    $    25.54    5,434,214   $   25.91      4,670,138     $    24.90

     Options granted.........................    2,576,499         22.00    1,125,641       22.90      1,210,402          29.06

     Options exercised.......................     (758,904)        20.67     (128,232)      16.89       (263,076)         19.48

     Options expired or cancelled............     (238,942)        27.76     (168,395)      26.38       (183,250)         30.36
                                                 ---------    ----------    ---------   ---------      ---------     ----------
     Balance at end of year..................    7,841,881    $    24.78    6,263,228   $   25.54      5,434,214     $    25.91
                                                 =========    ==========    =========   =========      =========     ==========
</TABLE>

                                                                              22
<PAGE>

Information about stock options outstanding at December 31, 2000 is summarized
as follows:

<TABLE>
<CAPTION>
                              Options Outstanding                              Options Exercisable
         --------------------------------------------------------------    ---------------------------
                                           Weighted-
              Range of                     average          Weighted-                      Weighted-
              Exercise                    Remaining         average                         average
               Prices         Shares     Life (Years)    Exercise Price      Shares     Exercise Price
         ----------------    ---------   ------------    --------------    ---------    --------------
         <S>                 <C>         <C>             <C>               <C>          <C>
         $13.50 to $19.88    1,134,813        3.9             $19.25       1,034,813         $19.18
         $20.94 to $31.38    6,369,870        7.6              25.36       1,864,930          28.30
         $31.50 to $32.88      337,198        7.1              32.71          35,164          32.22
                             ---------        ---             ------       ---------         ------
                             7,841,881        7.0             $24.78       2,934,907         $25.18
                             =========        ===             ======       =========         ======
</TABLE>

     At December 31, 1999 and 1998, options to purchase 2,982,732 and 1,930,918
shares, respectively, were exercisable at per share weighted-average prices of
$23.77 and $21.56, respectively.

     The per share weighted-average estimated fair values of options granted
during 2000, 1999 and 1998 were $3.46, $3.15, and $3.17, respectively. These
fair values were estimated on the dates of each grant using the Black-Scholes
option-pricing model with the following assumptions:

                                                  2000        1999       1998
                                                  ----        ----       ----

           Risk-free interest rate.............    6.6%        5.4%       4.6%
           Dividend yield......................    5.5         5.5        6.0
           Volatility factor...................   20.0        20.0       21.8
           Expected life in years..............    6.6         6.7        6.6
                                                  ====        ====       ====

     The option prices were greater than or equal to the market prices at the
date of grant for all of the options granted in 2000, 1999 and 1998 and,
accordingly, no compensation cost has been recognized for stock options granted
to directors, officers and employees of the Company. Expense recognized for
stock options granted to employees of certain nonconsolidated affiliates of the
Company was not material.

     If the Company had applied a fair value-based method to recognize
compensation cost for stock options, net earnings and earnings per share of
common stock would have been adjusted as indicated below (in thousands):

<TABLE>
<CAPTION>
                                                  2000        1999       1998
                                                  ----        ----       ----
          <S>                                   <C>         <C>        <C>
          Net earnings:
            As reported........................ $170,485    $135,297   $104,902
            Pro forma..........................  163,108     129,763     99,653
          Earnings per share of common stock:
            Basic:
              As reported......................     2.27        1.71       1.36
              Pro forma........................     2.17        1.63       1.28
            Diluted:
              As reported......................     2.24        1.69       1.34
              Pro forma........................     2.14        1.62       1.27
                                                ========    ========   ========
</TABLE>

     Under the Company's stock bonus plans, shares of common stock may be
awarded to officers and employees of the Company and certain affiliates. Shares
awarded under the plans are typically subject to forfeiture restrictions which
lapse at defined annual rates. Awards granted in 2000 and 1998 aggregated 89,700
and 164,850 shares, respectively, with a weighted-average market value per share
of $21.62 and $27.54, respectively. No awards were granted in 1999. In
connection with certain stock bonus plan awards, the Company makes loans to the
recipients for the payment of related income taxes, which loans are forgiven in
installments subject to the recipients' continued employment. The total loans
outstanding at December 31, 2000, 1999 and 1998 were $1.3 million, $2.5 million
and $4.0 million, respectively. The Company recognizes amortization of the fair
value of the stock awarded, any forgiven loan installments and certain related
costs as compensation costs on a straight-line basis over the terms of the
awards. Such costs amounted to $3.9 million in 2000, $5.1 million in 1999 and
$5.6 million in 1998.

                                                                              23
<PAGE>

(14)  Earnings per share

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

<TABLE>
<CAPTION>
                                                     2000                     1999                       1998
                                            -----------------------   -----------------------   -----------------------
                                              Basic       Diluted       Basic       Diluted        Basic      Diluted
                                              -----       -------       -----       -------        -----      -------
<S>                                         <C>          <C>          <C>          <C>          <C>         <C>
Earnings before extraordinary items
  and cumulative effect of change
  in accounting principle................   $ 168,285    $ 168,285    $ 141,176    $ 141,176    $ 105,176   $ 105,176
Dividends on unvested common
  stock awards and other ................        (437)        (321)        (466)        (909)        (622)       (427)
Dividends on Preferred stock ............     (12,150)     (12,150)     (12,150)     (12,150)     (12,150)    (12,150)
Interest on convertible
  property debt .........................          --        3,076           --           --           --          --
Interest on convertible
  subordinated debentures ...............          --           --           --        3,222           --          --
                                            ---------    ---------    ---------    ---------    ---------   ---------
Adjusted earnings before
  extraordinary items and
  cumulative effect of change in
  accounting principle used in
  EPS computation .......................   $ 155,698    $ 158,890    $ 128,560    $ 131,339    $  92,404   $  92,599
                                            =========    =========    =========    =========    =========   =========

Weighted-average shares outstanding......      69,475       69,475       71,705       71,705       67,874      67,874
Dilutive securities:
  Options, warrants and unvested
    common stock awards..................          --          659           --          563           --         985
    Convertible property debt............          --        1,930           --           --           --          --
    Convertible subordinated
        debentures.......................          --           --           --        1,931           --          --
                                            ---------    ---------    ---------    ---------    ---------   ---------
Adjusted weighted-average shares
  used in EPS computation................      69,475       72,064       71,705       74,199       67,874      68,859
                                            =========    =========    =========    =========    =========   =========
</TABLE>

     Effects of potentially dilutive securities are presented only in periods in
which they are dilutive.

(15)  Leases

The Company, as lessee, has entered into operating leases expiring at various
dates through 2076. Rents under such leases aggregated $10.8 million in 2000,
$10.5 million in 1999 and $7.1 million in 1998, including contingent rents,
based on the operating performance of the related properties, of $3.8 million,
$4.5 million and $1.6 million, respectively. In addition, real estate taxes,
insurance and maintenance expenses are obligations of the Company. Minimum rent
payments due under operating leases in effect at December 31, 2000 are
summarized as follows (in thousands):

<TABLE>
<S>                                               <C>
         2001...................................  $  6,823
         2002...................................     6,854
         2003...................................     6,835
         2004...................................     6,466
         2005...................................     6,011
         Subsequent to 2005.....................   241,088
                                                  --------

              Total.............................  $274,077
                                                  ========
</TABLE>

                                                                              24
<PAGE>

     Space in the Company's operating properties is leased 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
provide for other rents which reimburse the Company for certain of its operating
expenses. Rents from tenants are summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                  2000             1999           1998
                                                                               ----------       ----------     ----------
         <S>                                                                   <C>              <C>            <C>
         Minimum rents..................................................       $  403,088       $  398,520     $  349,119
         Percentage rents...............................................           10,895           10,970         11,683
         Other rents....................................................          183,903          186,240        177,718
                                                                               ----------       ----------     ----------
                  Total.................................................       $  597,886       $  595,730     $  538,520
                                                                               ==========       ==========     ==========
</TABLE>

     Minimum rents to be received from tenants under operating leases in effect
at December 31, 2000 are summarized as follows (in thousands):

<TABLE>
          <S>                                                                                    <C>
          2001.................................................................                  $  348,802
          2002.................................................................                     308,583
          2003.................................................................                     266,025
          2004.................................................................                     229,268
          2005.................................................................                     192,097
          Subsequent to 2005...................................................                     560,902
                                                                                                 ----------
                     Total.....................................................                  $1,905,677
                                                                                                 ==========
</TABLE>

     Rents under finance leases aggregated $7.8 million in 2000, $8.5 million in
1999 and $8.7 million in 1998. The net investment in finance leases at December
31, 2000 and 1999 is summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                  2000             1999
                                                                               ----------       ---------
          <S>                                                                  <C>              <C>
          Total minimum rent payments to be received
              over lease terms..........................................       $ 120,442        $ 128,219
          Estimated residual values of leased properties................             788              788
          Unearned income...............................................         (50,238)         (56,112)
                                                                               ---------        ---------
                       Net investment in finance leases.................       $  70,992        $  72,895
                                                                               =========        =========
</TABLE>

     Minimum rent payments to be received from tenants under finance leases in
effect at December 31, 2000 are summarized as follows (in thousands):

<TABLE>
          <S>                                                                                    <C>
          2001.................................................................                  $   8,655
          2002.................................................................                      8,719
          2003.................................................................                      8,719
          2004.................................................................                      8,916
          2005.................................................................                      8,955
          Subsequent to 2005...................................................                     76,478
                                                                                                 ---------
                     Total  ...................................................                  $ 120,442
                                                                                                 =========
</TABLE>

(16) Other commitments and contingencies

Commitments for the construction and development of properties in the ordinary
course of business and other commitments not set forth elsewhere amount to
approximately $80 million at December 31, 2000.

     At December 31, 2000, subsidiaries of the Company have contingent
liabilities of approximately $17.5 million with respect to future minimum rents
under long-term lease obligations of certain unconsolidated real estate
ventures, approximately $11.1 million with respect to bank letters of credit
issued to secure their obligations under certain agreements and approximately
$29 million with respect to mortgage obligations of certain unconsolidated real
estate ventures.

                                                                              25
<PAGE>

     At December 31, 2000, the Company had a shelf registration statement for
the future sale of up to an aggregate of $1.9 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.

     The Company and certain of its 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. In the opinion of management,
adequate provision has been made for losses with respect to litigation matters,
where appropriate, and the ultimate resolution of such litigation matters is not
likely to have a material effect on the consolidated financial position of the
Company. Due to the Company's fluctuating net earnings, it is not possible to
predict whether the resolution of these matters is likely to have a material
effect on the Company's net earnings and it is, therefore, possible that the
resolution of these matters could have such an effect in any future quarter or
year.

(17) New financial accounting standards not yet adopted

In June 1999, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 137 (Statement 137), an amendment to
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (Statement 133), issued in June 1998.
Statement 137 deferred the adoption date of Statement 133 for the Company to no
later than January 1, 2001. In June 2000, the FASB issued Statement of Financial
Accounting Standards No. 138, which provides additional guidance with respect to
and amends Statement 133. The Company's use of derivative instruments has
consisted primarily of interest rate cap and swap agreements related to specific
debt financings. The Company will adopt Statement 133, as amended, effective
January 1, 2001. Derivative instruments held by the Company at December 31, 2000
consisted solely of interest rate cap and swap agreements used to hedge interest
rate risk associated with specific variable rate loans. The cap agreements have
been designated as hedges of specific loans, and the fair values of derivative
instruments were not significant at December 31, 2000. Adoption of Statement
133, as amended, will result in a cumulative effect at January 1, 2001 of a
change in accounting for derivative instruments and hedging activities of
approximately $.6 million ($.01 per share basic and diluted).

                                                                              26
<PAGE>

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------

Five Year Comparison of Selected Financial Data Years ended December 31,
(in thousands, except per share data)
-----------------------------------------------------------------------------------------------------------------------------------
                                                                2000          1999           1998           1997            1996
                                                            -----------    -----------    -----------    -----------    -----------
<S>                                                         <C>            <C>            <C>            <C>            <C>
Operating results data:
       Revenues from continuing operations ..............   $   633,738    $   635,878    $   613,801    $   916,771    $   821,036
       Earnings from continuing operations ..............       168,285        141,176        105,176        189,892         17,886
       Basic earnings from continuing operations
            applicable to common shareholders
            per share of common stock ...................          2.24           1.79           1.36           2.70            .13
       Diluted earnings from continuing operations
            applicable to common shareholders per share
            of common stock .............................          2.21           1.77           1.34           2.59            .12
Balance sheet data:
       Total assets .....................................     4,175,538      4,233,101      5,033,331      3,483,650      3,545,559
       Debt and capital leases ..........................     3,058,038      3,155,312      3,943,902      2,586,260      2,801,885
       Shareholders' equity .............................       630,468        638,580        628,926        465,515        177,149
       Shareholders' equity per share of
            common stock (note 1) .......................          8.61           8.40           8.11           6.45           2.65
Other selected data:
       Funds from Operations (note 2) ...................       252,578        223,432        198,227        178,336        147,134
       Net cash provided (used) by:
            Operating activities ........................       252,916        192,529        259,298        182,989        166,765
            Investing activities ........................         8,049         33,388     (1,018,273)      (326,051)      (182,157)
            Financing activities ........................      (273,713)      (237,389)       720,611        180,878        (35,764)
Dividends per share of common stock .....................          1.32           1.20           1.12           1.00            .88
Dividends per share of convertible
       Preferred stock ..................................          3.00           3.00           3.00           2.65           2.44
Market price per share of common stock
       at year end ......................................         25.50          21.25          27.50          32.75          31.75
Market price per share of convertible
       Preferred stock at year end ......................         36.63          32.63          43.38          50.50           --
Weighted-average common shares
       outstanding (basic) ..............................        69,475         71,705         67,874         66,201         54,913
Weighted-average common shares
       outstanding (diluted) ............................        72,064         74,199         68,859         76,005         55,311
</TABLE>

Notes:
(1)---For 2000, 1999, 1998 and 1997, shareholders' equity per share of common
      stock assumes conversion of the Series B Convertible Preferred stock
      issued in 1997.

(2)---Funds from Operations (FFO) is not a measure of operating results or cash
      flows from operating activities as defined by accounting principles
      generally accepted in the United States of America. Additionally, FFO is
      not necessarily indicative of cash available to fund cash needs, including
      the payment of dividends, and should not be considered as an alternative
      to cash flows as a measure of liquidity. See the "Funds from Operations"
      section of Management's Discussion and Analysis of Financial Condition and
      Results of Operations on page 34 for further discussion of FFO.

                                                                              27
<PAGE>

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Interim Financial Information (Unaudited)
Interim consolidated results of operations are summarized as follows (in thousands, except per share data):
------------------------------------------------------------------------------------------------------------------------------------
                                                                               Quarter ended
                                       ---------------------------------------------------------------------------------------------
                                       December   September      June        March      December   September      June       March
                                       31, 2000    30, 2000    30, 2000    31, 2000     31, 1999    30, 1999    30, 1999    31, 1999
                                       --------    --------    --------    --------     --------   ---------    --------    --------
<S>                                   <C>         <C>         <C>          <C>         <C>         <C>          <C>        <C>
Revenues .........................    $ 166,698   $ 163,285   $ 150,719    $ 153,036   $ 161,952   $ 156,496    $ 157,590  $ 159,840
Operating income .................       30,715      32,628      35,733       36,059      22,932      26,635       23,104     27,332
Earnings before extraordinary
 items ...........................       32,228      70,180      34,509       31,368      56,631      26,657       29,962     27,926
Net earnings .....................       31,230      74,100      33,787       31,368      51,665      26,654       29,052     27,926
                                      =========   =========   =========   ==========   =========   =========   ==========   ========

Earnings per common share
Basic:
  Earnings before extraordinary
         items ...................    $     .42    $    .96   $     .45   $      .40   $     .75   $     .33   $      .37   $    .34
  Extraordinary gains (losses)....         (.01)        .06        (.01)          --        (.07)         --         (.01)        --
                                      ---------    --------   ---------   ----------   ---------   ---------   ----------   --------
              Total ..............    $     .41    $   1.02   $     .44   $      .40   $     .68   $     .33   $      .36   $    .34
                                      =========    ========   =========   ==========   =========   =========   ==========   ========

Diluted:
  Earnings before extraordinary
         items ...................    $     .42    $    .91   $     .45   $      .40   $     .73   $     .32   $      .37   $    .34
     Extraordinary gains (losses)          (.01)        .05        (.01)          --        (.07)         --         (.01)        --
                                      ---------    --------   ---------   ----------   ---------   ---------   ----------   --------
              Total                   $     .41    $    .96   $     .44   $      .40  $      .66   $     .32   $      .36   $    .34
                                      =========    ========   =========   ==========  ==========   =========   ==========   ========
</TABLE>

Note--- Extraordinary gains (losses) relate to early extinguishments of and
        substantial modification of terms of debt. Net earnings for the third
        quarter of 2000 includes a gain on the transfer of substantially all of
        the Company's interest in a retail center of $37,082,000 ($.53 per share
        basic, $.51 per share diluted). Net earnings for the fourth quarter of
        1999 includes a gain on sale of a retail center of $61,970,000 ($.86 per
        share basic, $.84 per share diluted) and provisions for impairment
        losses on two retail centers of $28,142,000 ($.39 per share basic, $.38
        per share diluted).

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
Price of Common Stock and Dividends
The Company's common stock is traded on the New York Stock Exchange. The prices and dividends per share were as follows:
-----------------------------------------------------------------------------------------------------------------------------------
                                                                              Quarter ended
                                     ----------------------------------------------------------------------------------------------
                                     December   September      June        March     December    September      June       March
                                     31, 2000    30, 2000    30, 2000    31, 2000    31, 1999     30, 1999    30, 1999    31, 1999
                                     --------    --------    --------    --------    --------    ---------    --------    --------
<S>                                  <C>        <C>          <C>         <C>         <C>         <C>          <C>         <C>
High .......................         $  26.56   $   27.13    $  25.69    $  22.94    $  23.25    $   25.19    $  27.06    $  27.44
Low ........................            24.19       23.63       20.88       20.31       19.88        22.56       21.25       21.94
Dividends ..................              .33         .33         .33         .33         .30          .30         .30         .30

-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

Number of Holders of Common Stock
The number of holders of record of the Company's common stock as of February 22,
2001 was 2,409.

                                                                              28
<PAGE>

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



General

Through its subsidiaries and affiliates, the Company acquires, develops and
manages a diversified portfolio of retail centers, office and industrial
buildings and mixed-use and other properties located throughout the United
States and develops and sells land for residential, commercial and other uses,
primarily in Columbia, Maryland, and Summerlin, Nevada.

     A primary business strategy of the Company is to own and operate premier
operating properties - shopping centers, major mixed-use projects, and
geographically concentrated office and industrial buildings (principally
complementing community development activities) in major markets across the
United States. In order to achieve this objective, management is continually
evaluating opportunities to acquire properties and evaluating the outlook for
properties in its portfolio. This includes considering opportunities to expand
and/or renovate the properties and assessing whether particular properties are
meeting or have the potential to meet the Company's investment criteria. The
Company plans to continue making substantial investments to expand and/or
renovate leasable mall space and/or add new department stores and/or other
anchor tenants to its existing properties to meet its objective. Also, the
Company is continually evaluating opportunities to acquire or develop operating
properties it believes have prospects consistent with its objectives. The
Company has disposed of interests in more than 40 projects since 1993 and
intends to continue to dispose of properties that are not meeting and/or are not
considered to have the potential to continue to meet its investment criteria.

     The Company and its affiliates have significant experience in developing
and managing large scale land development projects, including the communities of
Columbia, Maryland and Summerlin, Nevada. The Company's objective is to deploy
funds provided by land sales operations to support other activities. Also, the
Company is continually evaluating opportunities for new land development
projects.

     In September 1999, the Company announced that it would pursue developing a
strategy to sell interests in certain office and industrial properties and land
parcels, and use the proceeds to repay debt, fund development costs and
repurchase (subject to certain price restrictions) up to $250 million of the
Company's common stock. In January 2000, the Company completed disposition and
transaction structuring plans and began marketing interests in the identified
properties. In 2000, the Company sold several of the identified buildings in the
Baltimore-Washington corridor and contributed its ownership interests in
industrial properties in two Las Vegas business parks to a real estate venture
for which the Company received a cash distribution and a minority interest in
the venture. The Company used a portion of the cash proceeds from these and
other transactions to repurchase approximately $66 million (2.8 million shares)
of its common stock. Since 1999, the Company has repurchased approximately $101
million (4.4 million shares) of its common stock. In January 2001, the Company
ceased actively marketing substantially all of the remaining buildings in the
Baltimore-Washington corridor as a result of the Company pursuing other
strategies to obtain additional liquidity. However, the Company may dispose of
these and other properties as opportunities arise. Disposition decisions and
related transactions may cause the Company 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 the overall consolidated financial position of the Company.

     The Company believes 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 real estate and retail industries. In 2000, 1999 and 1998, the Company
and its affiliates completed several acquisitions and sale/transfer/exchange
(collectively, "disposition") transactions designed to upgrade the overall
quality of the property portfolio. This acquisition and disposition activity is
summarized as follows:

<TABLE>
<CAPTION>
                                              Acquisitions
                                              ------------

Retail Centers                 Date Acquired       Office and Other                         Date Acquired
--------------                 -------------       ----------------                         -------------
<S>                           <C>                 <C>                                      <C>
Park Meadows (1)               August 1998         Inglewood Business Center (2)            December 1998
Fashion Place (1)              October 1998        Hunt Valley Business Center (2)          December 1998
Fashion Show (3)               October 1998        Rutherford Business Center (2)           December 1998
Towson Town Center (1)         October 1998        Senate Plaza (2)                         December 1998
Governor's Square (3)          November 1998
Bridgewater Commons (1)        December 1998
Westdale Mall(4)               August 2000
</TABLE>

                                                                              29
<PAGE>

<TABLE>
<CAPTION>
                                               Dispositions
                                               ------------

Retail Centers                 Disposition Date    Office and Other                         Disposition Date
--------------                 ----------------    ----------------                         ----------------
<S>                            <C>                 <C>                                      <C>
Eastfield Mall                 April 1998          Columbia Inn                             March 1998
Salem Mall                     June 1998           Cross Keys Inn                           March 1998
College Square (5)             June 1998           Howard Hughes Center (1 building)        March 1998
Marshall Town Center (5)       June 1998           Gateway Commerce Center                  June 1998
Muscatine Mall (5)             June 1998              (2 buildings)
North Grand (5)                June 1998           Lucky's Center                           June 1999
Westland Mall (5)              June 1998           Hunt Valley Business Center              June 2000
Greengate Mall                 August 1998            (1 building)
St. Louis Union Station        September 1998      Midtown Office                           October 2000
Northwest Arkansas Mall (5)    December 1998       Owen Brown I & II                        November 2000
Santa Monica Place             October 1999        Hughes Airport Center                    December 2000
North Star (6)                 July 2000              (34 buildings) (6)
Midtown Square                 October 2000        Hughes Cheyenne Center                   December 2000
The Grand Avenue               November 2000          (3 buildings) (6)
                                                   Hunt Valley Business Center              December 2000
                                                      (2 buildings)
</TABLE>

Notes:
(1)  Properties were contributed to a joint venture in which the Company
     retained a 35% ownership interest in February 1999.
(2)  Properties are primarily office and industrial buildings (64 in total) in
     the Baltimore- Washington metropolitan area which were acquired from an
     entity in which the Company held a 5% ownership interest.
(3)  The Company purchased partners' ownership interests.
(4)  The Company acquired a 65% interest in August 2000, increasing its interest
     to 85%.
(5)  The Company held a 5% ownership interest in these properties.
(6)  The Company contributed its interests to entities in which it retained
     minority interests.

                                                                              30
<PAGE>

     In 2000, 1999 and 1998, the Company and its affiliates/partners completed a
number of development projects to enhance the operating property portfolio.
These development projects are summarized as follows:

<TABLE>
<CAPTION>
                                             Development projects
                                             --------------------

Retail Centers                      Date Opened              Office and other                            Date Opened
--------------                      -----------              ---------------                             -----------
<S>                                 <C>                      <C>                                         <C>
Summerlin Village Centers           February 1998            Hughes Airport Center (2 buildings)         February 1998
Perimeter Mall Expansion            February 1998            Arizona Center Cinema                       March 1998
Augusta Mall Expansion              March 1998               Summerlin Commercial (2 buildings)          March 1998
Oviedo Marketplace                  March 1998               Hughes Center (3 buildings)                 May 1998
Paramus Park Expansion              July 1998                Park Square, Columbia Office                January 1999
White Marsh Expansion               September 1998           Hughes Airport Center (1 building)          May 1999
Echelon Mall Expansion              October 1998             Summerlin Commercial (3 buildings)          September 1999
Mall St. Matthews Expansion         October 1998             Hughes Center (1 building)                  October 1999
The Mall in Columbia
       Expansion-Phase I            November 1998
Owings Mills Expansion              November 1998
Plymouth Meeting Expansion          December 1998
Columbia Village Center
       Redevelopment                Various 1998
Oakwood Center Expansion            March 1999
The Mall in Columbia
       Expansion-Phase II           September 1999
Exton Square Expansion-Phase I      November 1999
Moorestown Mall Expansion -
       Phase I                      November 1999
Moorestown Mall Expansion -
       Phase II                     March 2000
Pioneer Place Expansion             March 2000
Exton Square Expansion-Phase II     May 2000
Perimeter Mall Expansion            July 2000
Oviedo Marketplace Expansion        October 2000
</TABLE>

     Funds from Operations ("FFO"), which is defined and discussed below,
increased 13% in each of 2000 and 1999, including increases of 5% and 9%,
respectively, from retail centers, 16% and 46%, respectively, from office and
other properties and 33% and 9%, respectively, from land sales operations. These
results are attributable to several factors, including:

     .    the acquisition, disposition and development activities referred to
          above;
     .    high occupancy levels in retail and office properties;
     .    higher rents on re-leased space;
     .    strong demand for land in Columbia and Summerlin;
     .    corporate cost reduction measures;
     .    refinancings of project-related debt at lower interest rates; and
     .    repayments of certain project-related and corporate debt.

     Management believes the outlook is for continued growth in FFO in 2001. The
prospects for retail center growth remain positive as the Company should benefit
from properties expanded in 2000 and 1999, and continued high occupancy levels
in existing projects. The Company expects results from the office and other
properties segment to decline as a result of dispositions of interests in
properties completed in 2000. Results from land sales should remain strong in
2001, assuming continued favorable market conditions in Columbia and Summerlin.

                                                                              31

<PAGE>

Operating results

This discussion and analysis of operating results covers each of the Company's
five business segments as management believes that a segment analysis provides
the most effective means of understanding the business. Note 8 to the
consolidated financial statements and the information relating to revenues and
expenses in the Five Year Summary of Funds from Operations and Net Earnings on
page 39, should be referred to when reading this discussion and analysis. As
discussed in note 8, segment operating data are reported using the accounting
policies followed by the Company for internal reporting to management. These
policies are the same as those followed for external reporting except that:

 .    real estate ventures in which the Company holds substantially all (at least
     98%) of the financial interest but does not own a majority voting interest
     (majority financial interest ventures) are accounted for on a consolidated
     basis rather than using the equity method;
 .    real estate ventures in which the Company has joint interest and control
     and certain other real estate ventures (proportionate share ventures) are
     accounted for using the proportionate share method rather than the equity
     method; and
 .    the Company's share of FFO of other unconsolidated real estate ventures
     (other ventures) is included in revenues.

These differences affect only the reported revenues and operating and interest
expenses of the segments, and have no effect on the reported net earnings or FFO
of the Company. Revenues and operating and interest expenses reported for the
segments are reconciled to the related amounts reported in the consolidated
financial statements in note 8.

Operating Properties: The Company reports the results of its operating
properties in two segments: retail centers and office and other properties. The
Company's tenant leases provide the foundation for the performance of its
operating properties. In addition to minimum rents, the majority of retail and
office tenant leases provide for other rents which reimburse the Company for
certain of its operating expenses. Substantially all of the Company's 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.

     Most of the Company's operating properties are financed with long-term,
fixed rate, nonrecourse debt and, accordingly, their operating results are not
directly affected by changes in interest rates. Although the interest rates on
this debt do not fluctuate, certain loans provide for additional payments to the
lenders based on operating results of the related properties in excess of stated
levels.

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

<TABLE>
<CAPTION>
                                                                            2000          1999       1998
                                                                          --------      --------   --------
           <S>                                                            <C>           <C>        <C>
           Revenues................................................       $  631.0      $  626.6   $   586.4
           Operating expenses, exclusive of
              depreciation and amortization .......................          283.9         286.8       277.9
           Interest expense........................................          184.2         184.3       165.8
                                                                          --------      --------   ---------
                                                                             162.9         155.5       142.7
           Depreciation and amortization  .........................           78.9          79.5        64.3
                                                                          --------      --------   ---------

           Operating income........................................       $   84.0      $   76.0   $    78.4
                                                                          ========      ========   =========
</TABLE>

     Revenues increased $4.4 million in 2000 and $40.2 million in 1999. The
increase in 2000 was attributable primarily to properties opened or expanded
(approximately $19.0 million) and acquired (approximately $3.9 million) in 2000
and 1999 and higher rents on re-leased space. These increases were partially
offset by dispositions of interests in properties in 2000 and 1999
(approximately $27.8 million) and slightly lower average occupancy levels at
comparable properties (94.0% in 2000 as compared to 94.3% in 1999). The increase
in 1999 was attributable primarily to properties opened or expanded
(approximately $16.8 million) and acquired (approximately $32.0 million) in 1999
and 1998, higher average occupancy levels in comparable properties (94.5% in
1999 as compared to 92.5% in 1998) and higher rents on re-leased space. These
increases were partially offset by dispositions of interests in properties in
1999 and 1998 (approximately $18.1 million).

     Total operating and interest expenses (exclusive of depreciation and
amortization) decreased $3.0 million in 2000 and increased $27.4 million in
1999. The decrease in 2000 was attributable primarily to dispositions of
interests in properties in 2000 and 1999 (approximately $22.0 million). These
decreases were partially offset by properties opened or expanded (approximately
$18.2 million) and acquired (approximately $3.0 million) in 2000 and 1999. The
increase in 1999 was

                                                                              32
<PAGE>

attributable primarily to properties opened and expanded (approximately $19.8
million) and acquired (approximately $22.9 million) in 1999 and 1998. These
increases were partially offset by dispositions of interests in properties in
1999 and 1998 (approximately $17.7 million). Depreciation and amortization
expense decreased $.6 million in 2000 and increased $15.2 million in 1999. These
changes were due primarily to the net effect of changes in the Company's
portfolio of retail centers referred to above.

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

<TABLE>
<CAPTION>
                                                                            2000      1999       1998
                                                                         --------   --------   ---------
           <S>                                                           <C>        <C>        <C>
           Revenues................................................      $  216.8   $  205.9   $   162.9
           Operating expenses, exclusive of
              depreciation and amortization........................          81.1       77.9        67.3
           Interest expense........................................          83.7       83.2        64.9
                                                                         --------   --------   ---------
                                                                             52.0       44.8        30.7
           Depreciation and amortization...........................          35.9       40.3        29.9
                                                                         --------   --------   ---------

           Operating income........................................      $   16.1   $    4.5   $      .8
                                                                         ========   ========   =========
</TABLE>

     Revenues increased $10.9 million in 2000 and $43.0 million in 1999. The
increase in 2000 was attributable primarily to new properties opened in 2000 and
1999 (approximately $3.7 million) and higher rents on re-leased space. These
increases were partially offset by dispositions of properties in 2000 and 1999
(approximately $1 million). The increase in 1999 was attributable primarily to
properties acquired in 1998 (approximately $38.0 million).

     Total operating and interest expenses (exclusive of depreciation and
amortization) increased $3.7 million in 2000 and $28.9 million in 1999. The
increase in 2000 was attributable primarily to new properties opened in 2000 and
1999 (approximately $3.1 million). These increases were partially offset by
dispositions of properties in 2000 and 1999 (approximately $.2 million). The
increase in 1999 was attributable primarily to the properties acquired in 1998
(approximately $32.0 million) and opened (approximately $5.0 million) in 1999
and 1998. These increases were partially offset by dispositions of properties in
1999 and 1998 (approximately $6.0 million) and by lower expenses due to the
integration of certain operating, administrative and support functions of the
Hughes Division into other divisions. Depreciation and amortization expense
decreased $4.4 million in 2000 and increased $10.4 million in 1999. These
changes were attributable primarily to the net effect of the changes in the
Company's portfolio of office and other properties referred to above, including
the effect of classifying a number of properties as held for sale in 2000.

Land Sales Operations: Land sales operations relate primarily to the communities
of Columbia, Maryland, and Summerlin, Nevada. 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 salable land
for particular uses and decisions to sell, develop or retain land. The Company
expects to accelerate its land development and sales activities in 2001,
particularly in Summerlin, in order to meet high demand for land for residential
and other uses.

                                                                              33
<PAGE>

     Operating results from land sales operations are summarized as follows (in
millions):

<TABLE>
<CAPTION>
          Hughes Land Operations:                                            2000         1999          1998
                                                                           --------     --------      --------
             <S>                                                         <C>          <C>           <C>
               Revenues:
                   Summerlin.........................................      $  114.3     $  111.3      $  99.6
                   Other.............................................          17.3         21.8         53.7
               Operating costs and expenses:
                   Summerlin.........................................          95.5         90.5         82.5
                   Other.............................................          15.7         19.0         42.6
               Interest expense......................................            .1           .2           .3
                                                                           --------     --------      -------

               Operating income......................................      $   20.3     $   23.4      $  27.9
                                                                           ========     ========      =======

          Columbia and Other:
               Revenues..............................................      $   83.8     $   64.1      $  45.5
               Operating costs and expenses..........................          37.5         36.6         25.7
               Interest expense......................................           2.8          3.0          3.9
                                                                           --------     --------      -------

               Operating income......................................      $   43.5     $   24.5      $  15.9
                                                                           ========     ========      =======

          Total Land Sales Operations:
               Revenues..............................................      $  215.4     $  197.2      $ 198.8
               Operating costs and expenses..........................         148.7        146.1        150.8
               Interest expense......................................           2.9          3.2          4.2
                                                                           --------     --------      -------

               Operating income......................................      $   63.8     $   47.9      $  43.8
                                                                           ========     ========      =======
</TABLE>

     The increase in operating costs and expenses in 2000 relating to Summerlin
was attributable primarily to slightly higher levels of land sales and higher
current Federal income taxes.

     The increases in revenues and operating income in 1999 relating to
Summerlin were attributable to higher levels of land sold for residential
purposes. The decreases in revenues and operating income relating to other
Hughes land holdings in 1999 were attributable to lower levels of land sales at
master planned business parks.

     Revenues and operating income from land sales in Columbia and other land
holdings increased $19.7 million and $19.0 million, respectively, in 2000 and
$18.6 million and $8.6 million, respectively, in 1999. The increases in 2000
were attributable primarily to higher levels of sales of land in New Jersey and
in Columbia at higher profit margins. There is no remaining salable land at the
New Jersey site. The increases in 1999 were attributable primarily to higher
levels of land sales for commercial purposes.

Development: Development expenses were $7.7 million in 2000, $3.7 million in
1999 and $7.4 million in 1998. These costs consist primarily of preconstruction
expenses and new business costs.

     Preconstruction expenses relate to retail and mixed-use property
development opportunities which may not go forward to completion.
Preconstruction expenses were $4.7 million in 2000, $1.9 million in 1999 and
$1.7 million in 1998. The higher level of expenses in 2000 was primarily
attributable to higher costs for new retail projects which are not likely to go
forward to completion. New business costs relate primarily to the initial
evaluation of potential acquisition and development projects in preconstruction.
These costs were $3.0 million in 2000, $1.8 million in 1999 and $5.7 million in
1998. The higher levels of new business costs in 2000 and 1998 were attributable
to the Company's focus on acquisition efforts.

Corporate: Corporate revenues consist primarily of interest income earned on
short-term investments, including investments of unallocated proceeds from
refinancings of certain properties. Corporate interest income was $.9 million in
2000, $1.7 million in 1999 and $2.8 million in 1998.

     Corporate expenses consist of certain interest and operating expenses, as
discussed below, reduced by costs capitalized or allocated to other business
segments. Interest is capitalized on corporate funds invested in projects under
development, and interest on corporate borrowings and distributions on the
Company-obligated mandatorily redeemable preferred securities which are used for
other segments are allocated to those segments. Corporate interest expense
consists primarily of interest on the 8% Senior Debt issued in the second
quarter of 1999, the convertible subordinated debentures retired in the second
quarter of 1999, the unsecured 8.5% notes, the medium-term notes, credit
facility borrowings and unallocated proceeds from refinancings of certain
properties, net of interest capitalized on development projects or allocated to
other segments. Corporate operating expenses consist primarily of general and
administrative costs, distributions on the redeemable preferred securities and
other provisions and losses, net.

                                                                              34
<PAGE>

     Corporate operating expenses were $17.1 million in 2000, $28.2 million in
1999 and $22.8 million in 1998. In the second quarter of 1999, the Company
announced and initiated the consolidation of the management and administration
of its Retail Operations and Office and Mixed-Use divisions into a single
Property Operations Division and the integration of certain operating,
administrative and support functions of the Hughes Division into other
divisions. The costs relating to these organizational changes, primarily
severance and other benefits to terminated employees of the Company and its
affiliates, aggregated approximately $7.4 million in 1999. Also, in October
1999, the Company and its affiliates adopted early retirement programs in which
employees who met certain criteria were eligible to participate. The Company and
its affiliates recognized expenses of approximately $4.0 million for costs
associated with this program for employees who accepted early retirement prior
to December 31, 1999. There were no similar costs in 2000. In 1998, corporate
operating expenses included a loss on a treasury lock contract ($6.4 million)
that no longer qualified for hedge accounting because the Company determined
that the related anticipated financing transaction would not occur under the
terms and timing originally expected.

     Corporate interest costs were $21.3 million in 2000, $8.8 million in 1999
and $6.5 million in 1998. Interest of $19.0 million, $14.3 million, and $14.9
million was capitalized in 2000, 1999 and 1998, respectively, on funds invested
in development projects. The increases in corporate interest costs in 2000 and
1999 were attributable primarily to interest expense incurred on the 8% Senior
Debt issued in May 1999, partially offset by lower interest expense on the
convertible subordinated debentures that were repaid using a portion of the
proceeds from the issuance of the 8% Senior Debt. In addition, allocations of
interest costs to other segments were lower in 2000 as a result of certain
dispositions of property interests.

Gains (Losses) on Operating Properties, Net: Gains (losses) on operating
properties, net, including the Company's share of those recorded by
unconsolidated real estate ventures, was $33.2 million in 2000, $44.0 million in
1999 and $12.3 million in 1998.

     The net gains on operating properties in 2000 consisted primarily of a gain
on the disposition of an interest in a retail center ($37.1 million), partially
offset by an impairment provision recorded by the Company on its investment in a
retail center that the Company and the other venturer intend to dispose ($6.9
million).

     The net gains on operating properties in 1999 consisted primarily of a gain
on a retail center sold in the fourth quarter ($61.9 million) and gains on three
other properties sold during the year ($8.9 million), partially offset by
impairment losses on two retail centers ($28.1 million). During the fourth
quarter, the Company changed its plans and intentions as to the manner in which
these centers would be operated in the future and revised estimates of the most
likely holding periods. As a result, the Company evaluated the recoverability of
the carrying amounts of the centers, determined that the carrying amounts were
not recoverable from future cash flows and recognized impairment losses.

     The net gains on operating properties in 1998 consisted primarily of gains
on a hotel and industrial properties sold by an affiliate ($15.9 million) and a
gain on the sale of an interest in a portfolio of retail centers ($2.7 million),
partially offset by a loss on the disposal of a retail center ($7.7 million).

Extraordinary Items, Net of Related Income Tax Benefits: The extraordinary gains
resulting from extinguishments or substantial modification of terms of debt were
$2.2 million and $3.7 million in 2000 and 1998, respectively, before deferred
income tax benefits of $.7 million in 1998. In 1999, the Company recognized net
extraordinary losses from extinguishment of debt of $5.9 million.

Net Earnings: The Company had net earnings of $170.5 million in 2000, $135.3
million in 1999 and $104.9 million in 1998. The Company's operating income
(after depreciation and amortization) was $135.1 million in 2000, $100.0 million
in 1999 and $111.3 million in 1998. The changes in operating income were due
primarily to the factors discussed above. Net earnings for each year was also
affected by unusual and/or nonrecurring items discussed above in corporate,
gains (losses) on operating properties, net, and extraordinary items, net of
related income tax benefits.

Funds from Operations: The Company uses a supplemental performance measure along
with net earnings to report its operating results. This measure is referred to
as Funds from Operations ("FFO"). The Company defines FFO as net earnings
(computed in accordance with accounting principles generally accepted in the
United States of America), excluding cumulative effects of changes in accounting
principles, extraordinary items, gains (losses) on operating properties,
depreciation and amortization and deferred income taxes. Additionally, equity in
earnings of unconsolidated real estate ventures and minority interests are
adjusted to reflect FFO on the same basis. The definition used by the Company to
compute FFO excludes deferred taxes, which causes it to differ from the
definition adopted by the National Association of Real Estate Investment Trusts
(NAREIT). Additionally, the Company's definition may differ from those used by
other REITs. During 2000, the Company revised its definition of FFO to include
other provisions and losses, net; and FFO for prior periods has been presented
in conformity with this revision. FFO is not a measure of operating results or
cash flows from operating activities as defined by accounting principles
generally accepted in the United States of

                                                                              35
<PAGE>

America. Additionally, FFO is not necessarily indicative of cash available to
fund cash needs and should not be considered as an alternative to cash flows as
a measure of liquidity. However, the Company believes that FFO provides relevant
information about its operations and is necessary, along with net earnings, for
an understanding of its operating results.

     The Company excludes deferred income taxes from FFO because payments of
income taxes have not been significant. Current Federal and state income taxes
are included as reductions of FFO. FFO is reconciled to net earnings in the Five
Year Summary of Funds from Operations and Net Earnings on page 42.

     FFO was $252.6 million in 2000, $223.4 million in 1999 and $198.2 million
in 1998. The increases in FFO in 2000 and 1999 were due primarily to the
property acquisitions, expansions and dispositions referred to above, higher
occupancy levels, higher rents from re-leased space, and higher levels of land
sales. The reasons for significant changes in revenues and expenses comprising
FFO by segment are discussed above.

Financial condition, liquidity and capital resources

Management believes that the Company's liquidity and capital resources are
adequate for near-term and longer-term requirements. Shareholders' equity
decreased to $630.5 million at December 31, 2000 from $638.6 million at December
31, 1999. The decrease was due primarily to net repurchases of common stock and
the payment of regular quarterly dividends on the common and Preferred stocks,
partially offset by net earnings.

     The Company had cash and cash equivalents and investments in marketable
securities totaling $37.6 million and $50.8 million at December 31, 2000 and
1999, respectively.

     Net cash provided by operating activities was $252.9 million, $192.5
million and $259.3 million in 2000, 1999 and 1998, respectively. The changes in
net cash provided by operating activities were due primarily to the factors
discussed above in the analysis of operating results. 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 financed by the
Company prior to 1998) and distributions from unconsolidated real estate
ventures and the payment of operating and interest expenses. The level of cash
provided by operating distributions from unconsolidated real estate ventures is
affected by the timing of receipt of their land sales and other revenues,
payment of operating and interest expenses and other sources and uses of cash.

     The Company relies primarily on fixed rate nonrecourse loans from private
institutional lenders to finance its operating properties and expects that it
will continue to do so in the future. The Company has also made use of the
public equity and debt markets to meet its capital resource 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. In
December 2000, the Company obtained a credit facility with a group of lenders
that provides for unsecured borrowings of up to $375 million. This credit
facility replaced a previous credit facility obtained in 1998. The facility is
available until December 2003 and is subject to a one-year renewal option. The
Company is continually evaluating sources of capital and management believes
that there are satisfactory sources available for all requirements without
necessitating sales of operating properties. However, selective dispositions of
properties are expected to provide capital resources in 2001 and may also
provide them in subsequent years.

     Most of the Company's debt consists of mortgages collateralized by
operating properties. Scheduled principal payments on property debt were $55.5
million, $49.6 million and $49.4 million in 2000, 1999 and 1998, respectively.

     The annual maturities of debt for the next five years are as follows (in
millions):

<TABLE>
<CAPTION>
                                            Scheduled     Balloon
                                            Payments      Payments      Total
                                            --------      --------    ----------
<S>                                         <C>           <C>         <C>
            2001.......................     $    51       $   176     $     227
            2002.......................          55           199           254
            2003.......................          59           448           507
            2004.......................          61           273           334
            2005.......................          60           330           390
                                            -------       -------     ---------
                                            $   286       $ 1,426     $   1,712
                                            =======       =======     =========
</TABLE>

     The balloon payments due in 2001 consist of a $104 million construction
loan on an expanded retail center, a $52 million mortgage on a retail center and
$20 million of medium-term notes. The Company expects to refinance the
construction loan and mortgage at or before their scheduled maturity dates. The
Company expects to repay the medium-term notes from proceeds from property
refinancings, credit facility borrowings or other available corporate funds.

                                                                              36
<PAGE>

     Cash expenditures for properties in development and improvements to
existing properties funded by debt were $192.3 million, $213.2 million and
$281.1 million in 2000, 1999 and 1998, respectively. These expenditures relate
primarily to project development activity, primarily new retail properties,
retail property expansions and development of new office and industrial
properties in Las Vegas. A substantial portion of the costs of properties in
development is financed with construction or similar loans and/or credit
facility borrowings. In some cases, long-term fixed rate debt financing is
arranged concurrently with the construction financing or before completion of
construction.

     Improvements to existing properties funded by debt consist primarily of
costs of renovation and remerchandising programs and other tenant improvement
costs. The Company's share of these costs has been financed primarily from
proceeds of refinancings of the related properties or other properties and
credit facility borrowings.

     Due to the size and number of projects in development, the Company
anticipates that the level of capital expenditures for new development and
improvements to existing properties will exceed $200 million in 2001. A
substantial portion of these expenditures relates to new retail properties or
retail center expansions and it is expected that a majority of these costs will
be financed by debt, including property-specific construction loans and/or
credit facility borrowings. The Company will also develop certain of these
projects in joint ventures, with the other venturers funding a portion of
development costs.

     Cash expenditures for acquisitions of interests in properties were $22.2
million in 2000 and $882.4 million in 1998. The acquisitions in 2000 consisted
primarily of commercial properties adjacent to a development project and
department store sites. The acquisitions in 1998, consisting of the interests in
the retail centers, office and industrial buildings and the land assets referred
to above, had combined purchase prices of approximately $1.58 billion, including
approximately $492 million of mortgage debt secured by the acquired properties
and assumed by the Company. The Company issued $100 million of common stock,
$108 million of mortgage and other debt and $882.4 million of cash to the
sellers as payment. The cash payments were funded by approximately $234 million
of additional mortgage debt secured by the acquired properties, proceeds of $91
million from the sale of three of the acquired office buildings and by
borrowings under bridge loan and credit facilities.

     In addition to its unrestricted cash and cash equivalents and investments
in marketable securities, the Company has other sources of capital. Availability
under the Company's credit facility was $177 million at December 31, 2000. This
credit facility can be used for various purposes, including land and project
development costs, property acquisitions, liquidity and other corporate needs.
In addition, under an effective registration statement, the Company may issue
additional medium-term notes of up to $29.7 million. Also, the Company has a
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, 2000, the Company had issued
approximately $358 million of common stock and debt securities under the shelf
registration statement, with a remaining availability of approximately $1.9
billion.

     Proceeds from sales of operating properties and other investments were
$221.9 million in 2000, $255.2 million in 1999 and $130.1 million in 1998.
Proceeds from these transactions in 2000 consisted primarily of cash
distributions from ventures to which the Company contributed ownership interests
in a retail center, industrial buildings in two business parks and a property
under development. The Company also received minority interests in the ventures.
Proceeds from these transactions in 1999 consisted primarily of cash received
from the sales of two retail centers, one of which the Company purchased in 1998
with the intent to sell. Proceeds from these transactions in 1998 consisted
primarily of cash received from the sales of certain acquired office properties.

     At December 31, 2000, the Company is holding an industrial property for
sale and may sell interests in other operating properties as opportunities
arise. The Company and its affiliates also consider certain investment and other
land assets as significant sources of cash flows and may decide to accelerate
sales in order to provide cash for other purposes, including the funding of
development activities.

     Excluding scheduled principal payments, the net repayments of property debt
were $30.8 million in 2000, and consisted primarily of repayments associated
with the sales of the properties securing the debt and repayments associated
with the substantial modification of terms of certain loans. These repayments
were partially offset by borrowings on construction loans on retail properties
in development. Net proceeds of property debt were $108.7 million in 1999 and
$303.3 million in 1998. The net proceeds in 1999 consisted primarily of
borrowings on construction loans and mortgages on properties in development. The
net proceeds in 1998 consisted primarily of additional mortgage debt secured by
acquired properties as discussed above.

     Net proceeds from the issuance of other debt were $38.9 million in 2000 and
$573.0 million in 1998. The net proceeds in 1998 consisted primarily of
borrowings under bridge loan and other credit facilities used to fund certain of
the property acquisitions described above. Net repayments of other debt in 1999
were $116.9 million and consisted primarily of the repayment of the convertible
subordinated debentures and outstanding bridge loan borrowings, partially offset
by the issuance of the 8% Senior Debt.

     As discussed above, the Company has approval to repurchase, subject to
certain pricing restrictions, up to $250 million of common stock. As of December
31, 2000, the Company had repurchased approximately 4.4 million shares under
this program for approximately $101 million, including purchases of
approximately 2.8 million shares for approximately

                                                                              37
<PAGE>

$66 million in 2000. The average per share repurchase price was $23.57 in 2000
and $21.88 in 1999. Other common stock purchased in 2000, 1999 and 1998 was
subsequently issued pursuant to the Contingent Stock Agreement.

     In January 2001, the Company issued 137,928 shares of common stock to The
Rouse Company Incentive Compensation Statutory Trust (the Trust) in exchange for
the Trust's shares of the voting stock of the majority financial interest
ventures. The shares acquired by the Company constitute all of the Trust's
interests in the ventures. As a result of this transaction, the Company owns
100% of the voting common stock of the ventures.

     The agreements relating to various loans impose limitations on the Company.
The most restrictive of these limit the levels and types of debt the Company and
its affiliates may incur and require the Company and its 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 the Company's normal business activities and are
not expected to do so in the foreseeable future.

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. The Company's 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). The Company's 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, the Company relies primarily on
long-term, fixed rate nonrecourse loans from institutional lenders to finance
its operating properties. The Company also makes limited use of interest rate
exchange agreements, including interest rate swaps and caps, to mitigate its
interest rate risk on variable rate debt. The Company does not enter into
interest rate exchange agreements for speculative purposes and the fair value of
these and other derivative financial instruments is insignificant at December
31, 2000.

     The Company's 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 and fair values required to evaluate
the expected cash flows of the Company under debt and related agreements and its
sensitivity to interest rate changes at December 31, 2000. Information relating
to debt maturities is based on expected maturity dates which consider
anticipated refinancing or other transactions and is summarized as follows
(dollars in millions):

<TABLE>
<CAPTION>
                                                                                                                               Fair
                                            2001        2002        2003        2004        2005    Thereafter     Total       Value
                                            ----        ----        ----        ----        ----    ----------     -----       -----
<S>                                       <C>         <C>         <C>         <C>         <C>       <C>           <C>         <C>
Fixed rate debt                           $  120      $  119      $  305      $  277      $  283        $1,322    $2,426      $2,437
Average interest rate                        7.8%        7.8%        7.8%        7.8%        7.6%          7.6%      7.7%

Variable rate LIBOR debt                  $  107      $  135      $  202      $   57      $  107        $   12    $  620      $  620
Average interest rate                        8.2%        8.0%        8.6%        8.6%        8.4%          8.4%      8.1%
</TABLE>

     At December 31, 2000, approximately $112.4 million of the Company's
variable rate debt relates to borrowings under project construction loans. The
borrowings under project construction loans are expected to be repaid from
proceeds of long-term, fixed rate loans in 2001 to 2002 when construction of the
related projects is scheduled to be completed. At December 31, 2000, the Company
had interest rate cap agreements which effectively limit the average interest
rate on $36 million of the variable rate LIBOR debt maturing in 2002 to 9.1% and
the average interest rate on $5 million of the variable rate LIBOR debt maturing
in 2010 to 8.7%.

     As the table incorporates only those exposures that exist as of December
31, 2000, it does not consider exposures or positions which could arise after
that date. As a result, the Company's ultimate realized gain or loss with
respect to interest rate fluctuations will depend on the exposures that arise
after December 31, 2000, the Company's hedging strategies during that period and
interest rates.

                                                                              38
<PAGE>

New accounting standards not yet adopted

In June 1999, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 137 (Statement 137), an amendment to
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," (Statement 133), issued in June 1998.
Statement 137 defers the adoption date of Statement 133 for the Company to no
later than January 1, 2001. In June 2000, the FASB issued Statement of Financial
Accounting Standards No. 138, which provides additional guidance with respect to
and amends Statement 133. The Company's use of derivative instruments has
consisted primarily of interest rate swap and cap agreements related to specific
debt financings. The Company will adopt Statement 133, as amended, effective
January 1, 2001. Derivative instruments held by the Company at December 31, 2000
consisted of interest rate cap agreements used to hedge interest rate risk
associated with specific variable rate loans and an interest rate swap
agreement. The cap agreements have been designated as hedges of specific loans,
and the fair values of derivative instruments were not significant at December
31, 2000. Adoption of Statement 133, as amended, will result in a cumulative
effect at January 1, 2001 of a change in accounting for derivative instruments
and hedging activities of approximately $.6 million ($.01 per share basic and
diluted).

Impact of inflation

The major portion of the Company's operating properties, its retail centers, is
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 to the Company. A substantial portion of
the tenant leases (retail and office) also provide for other rents which
reimburse the Company for certain of its operating expenses; consequently,
increases in these costs do not have a significant impact on the Company's
operating results. The Company has 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 of the Company includes forward-looking
statements which reflect the Company's current views with respect to future
events and financial performance. These 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 "believe", "expect", "anticipate" 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. The Company undertakes 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)
real estate investment trust risks; (2) real estate development and investment
risks; (3) liquidity of real estate investments; (4) dependence on rental income
from real property; (5) effect of uninsured loss; (6) lack of geographical
diversification; (7) possible environmental liabilities; (8) difficulties of
compliance with Americans with Disabilities Act; (9) competition; (10) changes
in the economic climate; and (11) changes in tax laws or regulations. For a more
detailed discussion of these and other factors, see Exhibit 99.2 of the
Company's Form 10-K for the fiscal year ended December 31, 2000.

                                                                              39
<PAGE>

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

<TABLE>
<CAPTION>
                                                              2000          1999           1998         1997           1996
                                                           ----------    ----------     ----------   ----------     ----------
<S>                                                       <C>            <C>            <C>          <C>            <C>
Revenues:
Retail centers:
   Minimum and percentage rents.....................      $   368,810    $   362,747    $  336,158   $  294,629     $  277,007
   Other rents and other revenues...................          262,204        263,849       250,252      232,118        255,556
                                                           ----------    -----------    ----------   ----------     ----------
                                                              631,014        626,596       586,410      526,747        532,563
                                                           ----------    -----------    ----------   ----------     ----------
Office and other:
   Minimum and percentage rents.....................          167,476        159,644       116,209      110,329         87,027
   Other rents and other revenues...................           49,280         46,252        46,729       57,957         59,168
                                                           ----------    -----------    ----------   ----------     ----------
                                                              216,756        205,896       162,938      168,286        146,195
                                                           ----------    -----------    ----------   ----------     ----------

Land sales operations...............................          215,459        197,159       198,786      204,394        139,498
Corporate interest income...........................              948          1,676         2,789        4,485          3,495
                                                           ----------    -----------    ----------   ----------     ----------
                                                            1,064,177      1,031,327       950,923      903,912        821,751
                                                           ----------    -----------    ----------   ----------     ----------

Operating expenses, exclusive of depreciation and
 amortization:
Retail centers......................................          283,858        286,852       277,903      265,281        267,835
Office and other....................................           81,076         77,936        67,367       76,370         70,956
Land sales operations...............................          148,679        146,097       150,749      155,199        108,523
Development.........................................            7,701          3,707         7,383        4,747          4,964
Corporate...........................................           17,130         28,234        22,841       14,442           (283)
                                                           ----------    -----------    ----------   ----------     ----------
                                                              538,444        542,826       526,243      516,039        451,995
                                                           ----------    -----------    ----------   ----------     ----------

Interest expense:
Retail centers......................................          184,254        184,276       165,786      138,785        145,622
Office and other....................................           83,687         83,164        64,871       67,299         62,181
Land sales operations...............................            2,941          3,151         4,201        4,287          1,658
Development.........................................              ---            ---           ---          ---            361
Corporate...........................................            2,273         (5,522)       (8,405)        (834)        12,800
                                                           ----------    -----------    ----------   ----------     ----------
                                                              273,155        265,069       226,453      209,537        222,622
                                                           ----------    -----------    ----------   ----------     ----------

Funds from Operations (note 2)......................       $  252,578    $   223,432    $  198,227   $  178,336     $  147,134
                                                           ==========    ===========    ==========   ==========     ==========

Funds from Operations by segment:
Retail centers......................................       $  162,902    $   155,468    $  142,721   $  122,681     $  119,106
Office and other....................................           51,993         44,796        30,700       24,617         13,058
Land sales operations...............................           63,839         47,911        43,836       44,908         29,317
Development.........................................           (7,701)        (3,707)       (7,383)      (4,747)        (5,325)
Corporate...........................................          (18,455)       (21,036)      (11,647)      (9,123)        (9,022)
                                                           ----------    -----------    ----------   ----------     ----------

Funds from Operations...............................       $  252,578    $   223,432    $  198,227   $  178,336     $  147,134
                                                           ==========    ===========    ==========   ==========     ==========
</TABLE>

                                      40
<PAGE>

<TABLE>
<CAPTION>
                                                              2000          1999          1998          1997           1996
                                                           ----------    ----------    ----------    ----------     ----------
<S>                                                        <C>           <C>           <C>           <C>            <C>
Reconciliation to net earnings:
Funds from Operations...............................       $  252,578    $  223,432    $  198,227    $  178,336     $  147,134
Depreciation and amortization.......................          (90,307)      (94,532)      (77,660)      (77,685)       (75,041)
Deferred income taxes applicable to operations......              ---           ---           ---       124,203        (25,596)
Certain current income taxes (note 3)...............              ---           ---           ---        (4,929)           ---
Gains (losses) on operating properties, net.........           33,150        41,173        (6,109)      (22,426)       (25,903)
Depreciation and amortization, gains on operating
   properties and deferred income taxes of
   unconsolidated real estate ventures, net.........          (27,136)      (28,897)       (9,282)       (7,607)        (2,708)
Extraordinary gains (losses), net...................            2,200        (5,879)        4,355       (21,342)        (1,453)
Cumulative effect at January 1, 1998 of
   change in accounting for participating
   mortgages .......................................              ---           ---        (4,629)          ---            ---
Cumulative effect at October 1, 1997 of
   change in accounting for business
   process reengineering costs......................              ---           ---           ---        (1,214)           ---
                                                           ----------    ----------    ----------    ----------     ----------
Net earnings........................................       $  170,485    $  135,297    $  104,902    $  167,336     $   16,433
                                                           ==========    ==========    ==========    ==========     ==========

</TABLE>

Notes:

(1)  Operating and Funds from Operations (FFO) data included in this five-year
     summary are presented by segment. Consistent with the requirements of
     Statement of Financial Accounting Standards No. 131, "Disclosures about
     Segments of an Enterprise and Related Information," segment data are
     reported using the accounting policies followed by the Company for internal
     reporting to management. These policies are the same as those used for
     external reporting, except that real estate ventures in which the Company
     holds a majority financial interest but does not own a majority voting
     interest are reported on a consolidated basis rather than using the equity
     method. Additionally, real estate ventures in which the Company has joint
     interest and control and certain other minority interest ventures are
     accounted for using the proportionate share method rather than the equity
     method. The Company's share of FFO of other unconsolidated minority
     interest ventures is included in revenues. These differences affect the
     revenues and expenses reported in the reconciliation of FFO to net
     earnings, however, they have no effect on the Company's net earnings or
     FFO.

(2)  FFO is not a measure of operating results or cash flows from operating
     activities as defined by accounting principles generally accepted in the
     United States of America. Additionally, FFO is not necessarily indicative
     of cash available to fund cash needs, including the payment of dividends
     and should not be considered as an alternative to cash flows as a measure
     of liquidity. See the "Funds from Operations" section of Management's
     Discussion and Analysis of Financial Condition and Results of Operations on
     page 34 for further discussion of FFO.

(3)  FFO for 1997 excludes current income taxes arising from transactions
     completed by the Company in connection with its determination to elect to
     be taxed as a REIT.

                                                                              41
<PAGE>

                                PROJECTS OF THE ROUSE COMPANY

<TABLE>
<CAPTION>

Retail Centers in Operation
                                         Date of Opening                                                   Retail Square Footage
Consolidated Centers (note 1)             or Acquisition   Department Stores/Anchor Tenants             Total Center     Mall Only
----------------------------------------------------------------------------------------------------------------------------------
<S>                                      <C>               <C>                                          <C>              <C>
Augusta Mall, Augusta, GA                           8/78   Rich's; Macy's; JCPenney; Sears; Dillard's     1,066,000       317,000
----------------------------------------------------------------------------------------------------------------------------------
The Shops at Arizona Center, Phoenix, AZ           11/90   ---                                              230,000       230,000
----------------------------------------------------------------------------------------------------------------------------------
Bayside Marketplace, Miami, FL                      4/87   ---                                              227,000       227,000
----------------------------------------------------------------------------------------------------------------------------------
Beachwood Place, Cleveland, OH                      8/78   Saks Fifth Avenue; Dillard's; Nordstrom          914,000       350,000
----------------------------------------------------------------------------------------------------------------------------------
Cherry Hill Mall, Cherry Hill, NJ                  10/61   Strawbridge's, Macy's; JCPenney                1,283,000       534,000
----------------------------------------------------------------------------------------------------------------------------------
The Mall in Columbia, Columbia, MD                  8/71   Nordstrom; Hecht's; JCPenney; Sears; Lord      1,262,000       450,000
                                                           & Taylor
----------------------------------------------------------------------------------------------------------------------------------
Echelon Mall, Voorhees, NJ                          9/70   Strawbridge's; JCPenney; Boscov's; Sears (a)   1,140,000       429,000
----------------------------------------------------------------------------------------------------------------------------------
Exton Square, Exton, PA                             3/73   Strawbridge's; Boscov's; Sears; JCPenney         974,000       361,000
----------------------------------------------------------------------------------------------------------------------------------
Faneuil Hall Marketplace, Boston, MA                8/76   ---                                              198,000       198,000
----------------------------------------------------------------------------------------------------------------------------------
Fashion Place, Salt Lake City, UT                  10/98   Dillard's; Nordstrom; Sears                      886,000       320,000
----------------------------------------------------------------------------------------------------------------------------------
Fashion Show, Las Vegas, NV                         6/96   Neiman Marcus; Saks Fifth Avenue; Macy's;        773,000       213,000
                                                           Dillard's; Robinsons-May
----------------------------------------------------------------------------------------------------------------------------------
The Gallery at Harborplace, Baltimore, MD           9/87   ---                                              139,000       139,000
----------------------------------------------------------------------------------------------------------------------------------
The Gallery at Market East, Philadelphia, PA        8/77   Strawbridge's; JCPenney; KMart                 1,009,000       193,000
----------------------------------------------------------------------------------------------------------------------------------
Governor's Square, Tallahassee, FL                  8/79   Burdines; Dillard's; Sears; JCPenney           1,043,000       339,000
----------------------------------------------------------------------------------------------------------------------------------
Harborplace, Baltimore, MD                          7/80   ---                                              143,000       143,000
----------------------------------------------------------------------------------------------------------------------------------
Hulen Mall, Ft. Worth, TX                           8/77   Foley's; Montgomery Ward (b); Dillard's          938,000       327,000
----------------------------------------------------------------------------------------------------------------------------------
The Jacksonville Landing, Jacksonville, FL          6/87   ---                                              125,000       125,000
----------------------------------------------------------------------------------------------------------------------------------
Mall St. Matthews, Louisville, KY                   3/62   Dillard's (two stores); JCPenney; Lord         1,110,000       361,000
                                                           & Taylor
----------------------------------------------------------------------------------------------------------------------------------
Mondawmin Mall/Metro Plaza,                  1/78; 12/82   ---                                              442,000       442,000
Baltimore, MD
----------------------------------------------------------------------------------------------------------------------------------
Moorestown Mall, Moorestown, NJ                    12/97   Strawbridge's; Boscov's; Sears; Lord & Taylor  1,033,000       339,000
----------------------------------------------------------------------------------------------------------------------------------
Oakwood Center, Gretna, LA                         10/82   Sears; Dillard's; JCPenney; Mervyn's             947,000       349,000
                                                           California
----------------------------------------------------------------------------------------------------------------------------------
Oviedo Marketplace, Orlando, FL                     3/98   Dillard's; Regal Cinema; Burdines; Sears         955,000       335,000
----------------------------------------------------------------------------------------------------------------------------------
Owings Mills, Baltimore, MD                         7/86   Macy's; Hecht's; JCPenney; Lord & Taylor;      1,223,000       410,000
                                                           Sears (a); General Cinema 17
----------------------------------------------------------------------------------------------------------------------------------
Paramus Park, Paramus, NJ                           3/74   Macy's; Sears                                    779,000       312,000
----------------------------------------------------------------------------------------------------------------------------------
Pioneer Place, Portland, OR                         3/90   Saks Fifth Avenue                                374,000       314,000
----------------------------------------------------------------------------------------------------------------------------------
Plymouth Meeting, Plymouth Meeting, PA              2/66   Strawbridge's; Boscov's; General Cinema 12       822,000       365,000
----------------------------------------------------------------------------------------------------------------------------------
Riverwalk, New Orleans, LA                          8/86   ---                                              197,000       197,000
----------------------------------------------------------------------------------------------------------------------------------
South Street Seaport, New York, NY                  7/83   ---                                              261,000       261,000
----------------------------------------------------------------------------------------------------------------------------------
Tampa Bay Center, Tampa, FL                         8/76   Sears                                            569,000       325,000
----------------------------------------------------------------------------------------------------------------------------------
Village of Cross Keys, Baltimore, MD                9/65   ---                                               81,000        81,000
----------------------------------------------------------------------------------------------------------------------------------
Westdale Mall, Cedar Rapids, IA                    10/98   JCPenney; Von Maur; Younkers; Montgomery
                                                           Ward (a)                                         912,000       383,000
----------------------------------------------------------------------------------------------------------------------------------
Westlake Center, Seattle, WA                       10/88   ---                                              111,000       111,000
----------------------------------------------------------------------------------------------------------------------------------
White Marsh, Baltimore, MD                          8/81   Macy's; JCPenney; Hecht's; Sears; Lord &
                                                           Taylor                                         1,156,000       367,000
----------------------------------------------------------------------------------------------------------------------------------
Woodbridge Center, Woodbridge, NJ                   3/71   Lord & Taylor; Sears; Stern's (d);             1,546,000       560,000
                                                           Fortunoff; JCPenney
----------------------------------------------------------------------------------------------------------------------------------
Village Centers in Columbia, MD (12)               ---    ---                                            1,223,000      1,223,000
----------------------------------------------------------------------------------------------------------------------------------
                                                          Total Consolidated Centers in Operation       26,091,000     11,630,000
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                                                              42
<PAGE>

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
Retail Centers in Operation
----------------------------------------------------------------------------------------------------------------------------------
                                       Date of Opening                                                   Retail Square Footage
Proportionate Share Centers (Note 2)    or Acquisition    Department Stores/Anchor Tenants             Total Center    Mall Only
----------------------------------------------------------------------------------------------------------------------------------
<S>                                    <C>                <C>                                          <C>             <C>
Bridgewater Commons, Bridgewater, NJ             12/98    Lord & Taylor; Macy's; Stern's (c)               888,000        385,000
----------------------------------------------------------------------------------------------------------------------------------
Collin Creek, Plano, TX                           9/95    Dillard's; Foley's; JCPenney; Sears;           1,121,000        331,000
                                                          Mervyn's California
----------------------------------------------------------------------------------------------------------------------------------
Franklin Park, Toledo, OH                         7/71    Marshall Field's; JCPenney; Jacobson's;        1,109,000        323,000
                                                          Dillard's; JCPenney Home Store
----------------------------------------------------------------------------------------------------------------------------------
Highland Mall, Austin, TX                         8/71    Dillard's (two stores); Foley's;               1,086,000        368,000
                                                          JCPenney
----------------------------------------------------------------------------------------------------------------------------------
Park Meadows, Littleton, CO                       7/98    Dillard's; Foley's; Lord & Taylor;             1,557,000        606,000
                                                          Nordstrom; JCPenney
----------------------------------------------------------------------------------------------------------------------------------
Perimeter Mall, Atlanta, GA                       8/71    Rich's; JCPenney; Macy's; Nordstrom            1,482,000        502,000
----------------------------------------------------------------------------------------------------------------------------------
Towson Town Center, Baltimore, MD                10/98    Hecht's; Nordstrom                               968,000        538,000
----------------------------------------------------------------------------------------------------------------------------------
Willowbrook, Wayne, NJ                            9/69    Lord & Taylor; Macy's; Stern's (c); Sears      1,528,000        500,000
----------------------------------------------------------------------------------------------------------------------------------
Village Centers in Summerlin, NV (2)               ---    ---                                              238,000        238,000
----------------------------------------------------------------------------------------------------------------------------------
                                                          Total Proportionate Share Centers in           9,977,000      3,791,000
                                                          Operation
----------------------------------------------------------------------------------------------------------------------------------
Other/Managed Centers
----------------------------------------------------------------------------------------------------------------------------------
Randhurst, Mt. Prospect, IL                       7/81    Carson, Pirie, Scott; JCPenney (a);
                                                          Montgomery Ward (a); Kohl's                    1,404,000        681,000
----------------------------------------------------------------------------------------------------------------------------------
Ridgedale Center, Minneapolis, MN                 1/89    Dayton's Women's; JCPenney; Sears;             1,036,000        343,000
                                                          Dayton's Men & Home
----------------------------------------------------------------------------------------------------------------------------------
Southland Center, Taylor, MI                      1/89    Hudson's; Mervyn's California; JCPenney          905,000        322,000
----------------------------------------------------------------------------------------------------------------------------------
Staten Island Mall, Staten Island, NY            11/80    Sears; Macy's; JCPenney                        1,229,000        622,000
----------------------------------------------------------------------------------------------------------------------------------
Town & Country Center, Miami, FL                  2/88    Sears; Marshalls                                 597,000        344,000
----------------------------------------------------------------------------------------------------------------------------------
                                                          Total Other/Managed Centers in                 5,171,000      2,312,000
                                                          Operation
----------------------------------------------------------------------------------------------------------------------------------
                                                          Total Retail Centers in Operation             41,239,000     17,733,000
----------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>


Department Store Notes:
(a)  Department store closing announced subsequent to December 31, 2000.
(b)  This store will be converted to Sears.
(c)  These stores will be converted to Bloomingdale's.
(d)  This store will be converted to Macy's.

                                                                              43
<PAGE>

<TABLE>
<CAPTION>
Office and Other Properties in Operation
--------------------------------------------------------------------------------------------------------------------------
Consolidated Office and Other Properties (note 1)      Location                                                Square Feet
--------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>                                                     <C>
Arizona Center                                         Phoenix, AZ
    Garden Office Pavilion                                                                                         33,000
    One Arizona Center Office Tower                                                                               330,000
    Two Arizona Center Office Tower                                                                               449,000
--------------------------------------------------------------------------------------------------------------------------
The Gallery at Harborplace                             Baltimore, MD
    Office Tower                                                                                                  265,000
    Renaissance Hotel                                                                                           622 rooms
--------------------------------------------------------------------------------------------------------------------------
Pioneer Place                                          Portland, OR
    Office Tower                                                                                                  283,000
--------------------------------------------------------------------------------------------------------------------------
Village of Cross Keys                                  Baltimore, MD
    Village Square Offices                                                                                         69,000
    Quadrangle Offices                                                                                            109,000
--------------------------------------------------------------------------------------------------------------------------
Westlake Center                                        Seattle, WA
    Office Tower                                                                                                  342,000
--------------------------------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------------------------------
Columbia Office (12 buildings)                         Columbia, MD                                             1,135,000
--------------------------------------------------------------------------------------------------------------------------
Columbia Industrial (6 buildings)                      Columbia, MD                                               306,000
--------------------------------------------------------------------------------------------------------------------------
Hughes Center (15 buildings)                           Las Vegas, NV                                            1,180,000
--------------------------------------------------------------------------------------------------------------------------
Summerlin Commercial (25 buildings)                    Summerlin, NV                                              927,000
--------------------------------------------------------------------------------------------------------------------------
Owings Mills Town Center (4 buildings)                 Baltimore, MD                                              732,000
--------------------------------------------------------------------------------------------------------------------------
Inglewood Business Center (7 buildings)                Prince Georges County, MD                                  538,000
--------------------------------------------------------------------------------------------------------------------------
Hunt Valley Business Center (21 buildings)             Baltimore, MD                                            1,556,000
--------------------------------------------------------------------------------------------------------------------------
Rutherford Business Center (20 buildings)              Baltimore, MD                                              783,000
--------------------------------------------------------------------------------------------------------------------------
Other Office Projects (7 buildings)                    Various                                                    523,000
--------------------------------------------------------------------------------------------------------------------------
                                                       Total Consolidated Office and Other Properties           9,560,000

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

--------------------------------------------------------------------------------------------------------------------------
</TABLE>


Note 1 - Includes projects wholly owned by subsidiaries of the Company, projects
in which the Company has a majority interest and control and projects owned by
affiliates in which the Company holds substantially all (at least 98%) of the
financial interest, but does not own a majority voting interest.
Note 2 - Includes projects owned by joint ventures or partnerships in which the
Company's interest is at least 30%.

                                                                              44
<PAGE>

<TABLE>
<CAPTION>
Projects Under Construction                                                                            Retail Square Footage
or in Development                                       Department Stores/Anchor Tenants             Total Center    Mall Only
---------------------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>                                          <C>             <C>
The Mall in Columbia Expansion, Columbia, MD            L.L. Bean and restaurants                          52,000      52,000
---------------------------------------------------------------------------------------------------------------------------------
Fashion Show Expansion, Las Vegas, NV                   Neiman Marcus; Nordstrom; Saks Fifth Avenue;    1,000,000     290,000
                                                        Macy's; Robinsons-May; Lord & Taylor;
                                                        Dillard's; Bloomingdales
---------------------------------------------------------------------------------------------------------------------------------
Bridgewater Commons Expansion, Bridgewater, NJ          Bloomingdale's; Bloomingdale's Home               300,000     150,000
---------------------------------------------------------------------------------------------------------------------------------
Fashion Place Expansion, Salt Lake City, UT             Nordstrom; Dillard's; Meier & Frank               525,000     130,000
---------------------------------------------------------------------------------------------------------------------------------
Summerlin Center, Summerlin, NV                         Robinsons-May; Lord & Taylor; Dillard's;        1,050,000     350,000
                                                        Macy's
---------------------------------------------------------------------------------------------------------------------------------
La Cantera, San Antonio, TX                             Neiman Marcus; Nordstrom; Dillard's;            1,300,000     400,000
                                                        Foley's
---------------------------------------------------------------------------------------------------------------------------------
Maple Grove, Minneapolis, MN                            Dayton's; Nordstrom                             1,000,000     350,000
---------------------------------------------------------------------------------------------------------------------------------
Kendall Town Center, Dade County, FL                    Dillard's; Sears; Burdines                      1,200,000     350,000
                                                        Office                                            100,000     100,000
---------------------------------------------------------------------------------------------------------------------------------
Center Point Plaza                                      Community Center                                  143,000     143,000
---------------------------------------------------------------------------------------------------------------------------------
The Village of Merrick Park, Coral Gables, FL           Neiman Marcus, Nordstrom                          795,000     435,000
                                                        Office                                            110,000     110,000
---------------------------------------------------------------------------------------------------------------------------------
Corporate Pointe, Summerlin, NV                         Office/ Industrial                                110,000     110,000
---------------------------------------------------------------------------------------------------------------------------------
80 Columbia Corporate Center, Columbia, MD              Office                                            150,000     150,000
---------------------------------------------------------------------------------------------------------------------------------
                                                        Total Projects Under Construction or in
                                                            Development                                 7,835,000   3,120,000

---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                                                              45