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

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FORM 10-Q

[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2001

or

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to _________.

Commission File No. 1-12328

CHELSEA PROPERTY GROUP, INC.
(Exact name of registrant as specified in its charter)

| | Maryland
   (State or other jurisdiction
 of incorporation or organization) | 22-3251332
(I.R.S. Employer
Identification No.) | 
| | --------------------------------------------------------------------------- | ----------------------------------------------- | 

103 Eisenhower Parkway, Roseland, New Jersey 07068
(Address of principal executive offices - zip code)

(973) 228-6111
(Registrant's telephone number, including area code)

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

The number of shares outstanding of the registrant's common
stock, $0.01 par value was 18,736,842 at November 8, 2001.

Chelsea Property Group, Inc.
Index

Part I. Financial Information

|Item 1.      Financial Statements (Unaudited) |  | Page
|--------------------------------------------- |  | ----

| | Condensed Consolidated Balance Sheets
     as of September 30, 2001 and December 31, 2000 |  | 3
| | ----------------------------------------------------------------------------------------- |  | -

| | Condensed Consolidated Statements of Income
     for the three and nine months ended September 30, 2001 and 2000 |  | 4
| | ---------------------------------------------------------------------------------------------------------------- |  | -

| | Condensed Consolidated Statements of Cash Flows
     for the nine months ended September 30, 2001 and 2000 |  | 5
| | ---------------------------------------------------------------------------------------------------------- |  | -

| | Notes to Condensed Consolidated Financial Statements |  | 6
| | ---------------------------------------------------- |  | -

|Item 2.      Management's Discussion and Analysis of
            
           Financial Condition and Results of
            
          Operations |  | 18
|------------------------------------------------------------------------------------------------------------------------------------------------- |  | --

|Item 3.       Quantitative and Qualitative Disclosures about
            
           Market Risk |  | 25
|------------------------------------------------------------------------------------------------ |  | --

|Part II.  Other Information | 
|--------------------------- | 

|Item 6.       Exhibits and Reports on Form 8-K
Signatures |  | 27
28
|--------------------------------------------------------- |  | -----

Item 1.  Financial Statements

Chelsea Property Group, Inc.
Condensed Consolidated Balance Sheets(In thousands, except per share data)

`September 30,       December 31,
                                                                    2001                 2000
                                                                --------------     -------------
Assets                                                          (Unaudited)
Rental properties:
     Land....................................................     $ 151,029           $ 118,238
     Depreciable property....................................       953,700             790,106
                                                                --------------     --------------
Total rental property........................................     1,104,729             908,344
Accumulated depreciation.....................................      (205,544)           (175,692)
                                                                --------------      -------------
Rental properties, net.......................................       899,185             732,652
Properties held for sale.....................................        14,736                   -
Cash and cash equivalents....................................        16,290              18,036
Restricted cash-escrows......................................        10,185                   -
Investments in affiliates....................................        97,193              91,629
Deferred costs, net..........................................        19,957              14,886
Notes receivable-related parties.............................         3,241               2,216
Other assets.................................................        30,536              41,895
                                                                --------------      -------------
Total assets.................................................   $ 1,091,323           $ 901,314
                                                                ==============      =============

Liabilities and stockholders' equity
Liabilities:
     Unsecured bank debt.....................................      $ 22,035            $ 35,035
     Unsecured Notes due 2001 - 2011.........................       373,239             324,542
     Mortgage debt...........................................       233,499              90,776
     Construction payables...................................         6,063              10,001
     Accounts payable and accrued expenses...................        37,752              43,507
     Obligation under capital lease..........................         2,284               2,714
     Accrued dividend and distribution payable...............        16,909               3,910
     Other liabilities.......................................        15,177              18,267
                                                                 ------------         ------------
Total liabilities............................................       706,958             528,752

Commitments and contingencies

Minority interest............................................        96,695             101,203

Stockholders' equity:
    8.375% series A cumulative redeemable preferred stock,
       $0.01 par value, authorized 1,000 shares, issued and
       outstanding 1,000 shares in 2001 and 2000
       (aggregate liquidation preference $50,000)............            10                  10
    Common stock, $0.01 par value, authorized 50,000 shares,
       issued and outstanding 16,736 in 2001 and 15,957 in 2000.        167                 160
    Paid-in-capital...........................................      376,479             348,141
    Distributions in excess of net income.....................      (85,308)            (76,829)
    Accumulated other comprehensive loss......................       (3,678)               (123)
                                                                ------------        ------------
Total stockholders' equity....................................      287,670             271,359
                                                                ------------        ------------
Total liabilities and stockholders' equity...................   $ 1,091,323           $ 901,314
                                                                =============       ============`

The accompanying notes are an integral part of the financial
statements.

Chelsea Property Group, Inc.
Condensed Consolidated Statements of Income
for the Three and Nine Months Ended September 30, 2001 and 2000
(Unaudited)(In thousands, except per share data)

`Three Months                 Nine Months
                                                        Ended September 30,          Ended September 30,
                                                        2001           2000          2001           2000
                                                     -----------    -----------   -----------     ----------
Revenues:
   Base rent.....................................      $30,528        $26,867       $87,930        $79,726
   Percentage rent...............................        4,051          4,063         9,851          9,812
   Expense reimbursements........................       11,581         10,582        34,002         29,587
   Other income..................................        2,905          3,054         8,403          7,086
                                                     ----------     ----------    ----------      ----------
Total revenues...................................       49,065         44,566       140,186        126,211
                                                     ----------     ----------    -----------     ----------

Expenses:
   Operating and maintenance.....................       12,779         11,793        37,505         33,132
   Depreciation and amortization.................       12,174         10,616        35,479         31,823
   General and administrative....................          634            857         2,842          2,597
   Other.........................................          461          1,159         1,924          2,324
                                                     ----------     ------------   -----------    -----------
Total expenses...................................       26,048         24,425        77,750         69,876
                                                     -----------    ------------   -----------    -----------

Income before unconsolidated investments,
interest expense and minority interest...........       23,017         20,141        62,436          56,335

Income from unconsolidated investments...........        3,953          2,199        10,509           2,644
Loss from Chelsea Interactive....................       (1,477)          (530)       (3,447)           (805)
Interest expense.................................       (8,891)        (6,113)      (26,326)        (17,481)
                                                     -----------    -------------  -----------   -----------

Income before minority interest..................       16,602         15,697        43,172          40,693

Minority interest................................       (3,717)        (3,756)      (10,213)        (10,157)
                                                   -------------  -------------    -----------   -----------

Net income.......................................       12,885         11,941        32,959          30,536

Preferred dividend...............................       (1,047)        (1,047)       (3,141)         (3,141)
                                                   -------------  ------------- -------------  -------------

Net income to common shareholders................     $ 11,838        $10,894       $29,818         $27,395
                                                   =============  ============= =============  =============

Basic:
Net income per common share......................        $0.71          $0.68         $1.83           $1.72
Weighted average common shares outstanding.......       16,568         15,942        16,269          15,937

Diluted:
Net income per common share......................        $0.69          $0.67         $1.78           $1.70
Weighted average common shares and equivalents
outstanding......................................       17,160         16,214        16,767          16,130`

The accompanying notes are an integral part of the financial
statements.

Chelsea Property Group, Inc.
Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 2001 and 2000
(Unaudited)(In thousands)

`2001               2000
                                                                      -------------     -------------
   Cash flows from operating activities
   Net income......................................................      $32,959            $30,536
   Adjustments to reconcile net income to net cash
      provided by operating activities:
       Depreciation and amortization...............................       35,479             31,823
       Equity-in-earnings of unconsolidated investments
          in excess of distributions received......................       (1,956)            (1,788)
       Loss from Chelsea Interactive...............................        3,447                805
       Minority interest in net income.............................       10,213             10,157
       Proceeds from non-compete receivable........................        4,600              4,600
       Amortization of non-compete revenue.........................       (3,852)            (3,852)
       Additions to deferred lease costs...........................         (391)              (210)
       Other operating activities..................................         (349)               208
       Changes in assets and liabilities:
         Straight-line rent receivable.............................       (1,181)            (1,048)
         Other assets..............................................        4,670              5,355
         Due from affiliates.......................................         (787)            (2,566)
         Accounts payable and accrued expenses.....................       (1,310)             2,166
                                                                      ------------       ------------
   Net cash provided by operating activities.......................       81,542             76,186
                                                                      ------------       ------------

   Cash flows used in investing activities
   Additions to rental properties..................................      (89,572)           (52,699)
   Additions to investments in affiliates..........................      (15,960)           (20,354)
   Distributions from investments in affiliates in
       excess of earnings..........................................        5,090                -
   Additions to deferred development costs.........................       (6,074)               (91)
   Proceeds from sale of center....................................          -                3,372
   Loans to related parties........................................       (2,750)               -
   Payments from related parties...................................        1,725                -
                                                                      ------------       ------------
   Net cash used in investing activities...........................     (107,541)           (69,772)
                                                                      ------------       ------------

   Cash flows used in financing activities
   Distributions...................................................      (40,208)           (39,001)
   Debt proceeds...................................................      175,155            210,008
   Repayments of debt..............................................     (134,750)          (151,250)
   Additions to deferred financing costs...........................       (2,054)            (3,201)
   Net proceeds from sale of common stock..........................       26,110                245
                                                                      ------------       ------------
   Net cash provided by financing activities.......................       24,253             16,801
                                                                      ------------       ------------

   Net (decrease) increase  in cash and cash equivalents...........       (1,746)            23,215
   Cash and cash equivalents, beginning of period..................       18,036              8,862
                                                                      ------------       ------------
   Cash and cash equivalents, end of period........................      $16,290            $32,077
                                                                      ============       ============`

The accompanying notes are an integral part of the financial
statements.

Chelsea Property Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

1.      Organization and
Basis of Presentation

Chelsea Property Group, Inc., formerly Chelsea GCA Realty, Inc.,
(the "Company") is a self-administered and self-managed real estate investment
trust ("REIT"). The Company is the managing general partner of CPG Partners, LP,
formerly Chelsea GCA Realty Partnership, LP, (the "Operating Partnership" or
"OP"), an operating partnership that has interests in and provides development,
leasing, marketing and management services for upscale and fashion-oriented
manufacturers' outlet centers (Premium Portfolio) and other retail centers. As
of September 30, 2001, the Company had interests in 58 properties in 28 states
and Japan (the "Properties") that contained approximately 12.5 million square
feet of gross leasable area ("GLA"). The Company's premium portfolio included
interests in 28 properties containing 8.2 million square feet of GLA near New
York City, Los Angeles, Boston, Washington, D.C., San Francisco, Sacramento,
Cleveland, Atlanta, Dallas, Portland (Oregon), Tokyo and Osaka, Japan, or at or
near tourist destinations including Palm Springs, the Napa Valley, Orlando, and
Honolulu. The Company's other retail portfolio was comprised of 30 centers
acquired from a competitor on September 25, 2001 containing approximately 4.3
million square feet of GLA.

During 2000 the Company developed a technology-based e-commerce
platform through an unconsolidated affiliate, Chelsea Interactive, Inc.
("Chelsea Interactive"). This platform provides fashion and other retail brands
with their own customized direct-to-the-consumer Internet online stores,
incorporating e-commerce design, development, fulfillment and customer services.

On September 25, 2001 the Company acquired 31 shopping centers
(excluding Vegas Pointe Plaza which is to be repurchased in December 2001) from
Konover Property Trust, Inc. and its affiliates ("Konover") pursuant to the
provisions of an Agreement for Sale dated July 12, 2001. The centers contain a
total of approximately 4.3 million square feet of gross leasable area. The total
purchase price for the centers was approximately $182.5 million, including the
assumption of approximately $131 million of non-recourse mortgage debt . The
accompanying financial statements include six days of operations from the
acquired properties.

Virtually all of the Company's assets are held by, and all of
its operations are conducted through, the OP. Due to the Company's ability, as
the sole general partner, to exercise both financial and operational control
over the OP, it is consolidated in the accompanying financial statements. All
significant intercompany transactions and accounts have been eliminated in
consolidation.

Common ownership of the OP as of September 30, 2001 was
approximately as follows:

`Company                84.1%           16,736,000  units
          Unitholders            15.9%            3,155,000  units
                               ---------       -------------
          Total                 100.0%           19,891,000`

The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with accounting principles generally
accepted in the United States for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and notes required by accounting principles
generally accepted in the United States for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for fair presentation have been included.
Operating results for the three and nine month periods ended September 30, 2001
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2001. The balance sheet at December 31, 2000 has been
derived from the audited financial statements at that date but does not include
all of the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. These financial
statements should be read in conjunction with the consolidated financial
statements and accompanying notes included in the Company's Annual Report on
Form 10-K for the year ended December 31, 2000.

In October 2001, the Financial Accounting Standards Board issued
SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets. SFAS No. 144 provides accounting guidance for financial accounting
and reporting for the impairment or disposal of long-lived assets. SFAS No. 144
supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of". It also supersedes the
accounting and reporting of APB Opinion No. 50 "Reporting the Results of
Operations - Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions"
related to the disposal of a segment of a business. SFAS No. 144 is effective
for fiscal years beginning after December 15, 2001. Management does not
anticipate that its adoption will have a material effect on the financial
position or results of operations of the Company.

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

2.      Accounting
Changes: Standards Implemented and Transition Adjustment

On January 1, 2001, the Company adopted SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," as amended by
SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities." SFAS No. 133, as amended, establishes accounting and reporting
standards for derivative instruments. Specifically SFAS No. 133 requires an
entity to recognize all derivatives as either assets or liabilities in the
statement of financial position and to measure those instruments at fair value.
Additionally, the fair value adjustments will affect either stockholders' equity
or net income depending on whether the derivative instrument qualifies as a
hedge for accounting purposes and, if so, the nature of the hedging activity.

The Company uses derivative instruments to protect against the
risk of adverse price or interest rate movements on the value of certain firm
commitments and liabilities or on future cash flows. The FASB continues to issue
interpretive guidance that could require changes in the Company's application of
the standard and adjustments to the transition amounts. SFAS No. 133 may
increase or decrease reported net income and stockholders' equity prospectively,
depending on future levels of interest rates and other variables affecting the
fair values of derivative instruments and hedged items, but will have no effect
on cash flows.

As of January 1, 2001, the adoption of the new standard resulted
in derivative instruments reported on the balance sheet as assets of $33,000 and
an adjustment of $33,000 to accumulated other comprehensive loss and minority
interest.

3.      Acquisitions

On September 25, 2001 the Company acquired 31 shopping centers
(excluding Vegas Pointe Plaza which is to be repurchased in December 2001) from
Konover Property Trust, Inc. and its affiliates ("Konover") pursuant to the
provisions of an Agreement for Sale dated July 12, 2001. The centers contain a
total of approximately 4.3 million square feet of gross leasable area. The total
purchase price for the centers was approximately $182.5 million, including the
assumption of approximately $131 million of non-recourse mortgage debt . The
accompanying financial statements include six days of operations from the
acquired properties.

Following is a list of the retail centers acquired from Konover:

`Name of Property                                                   GLA
Kittery Premium Outlets, formerly Factory Stores of
America at Kittery, Kittery, ME                           (1)            21,000
Factory Stores of America at:
   Vacaville, CA                                          (1)           447,000
   Smithfield (I), NC                                     (1)           356,000
   Smithfield (II), NC                                  (2), (3)         87,000
   Branson, MO                                            (1)           287,000
   North Bend, WA                                         (1)           223,000
   Draper, UT                                             (1)           184,000
   Georgetown, KY                                         (1)           177,000
   LaMarque, TX                                           (1)           176,000
   Mesa, AZ                                               (1)           167,000
   Crossville, TN                                         (1)           151,000
   Tri-Cities, TN                                         (2)           133,000
   Iowa, LA                                             (1), (3)        131,000
   Tupelo, MS                                             (2)           129,000
   Tucson, AZ                                             (1)           127,000
   Story City, IA                                         (1)           112,000
   Boaz, AL                                             (1), (3)        105,000
   West Frankfort, IL                                     (1)            91,000
   Arcadia, LA                                            (1)            90,000
   Nebraska City, NE                                      (1)            90,000
   Lebanon, MO                                            (1)            86,000
   Graceville, FL                                         (1)            84,000
   Corsicana, TX                                          (1)            64,000
   Hanson, KY                                             (1)            64,000
   Hempstead, TX                                          (2)            64,000
   Livingston, TX                                         (1)            64,000
   Mineral Wells, TX                                      (1)            64,000
   Union City, TN                                         (1)            60,000
   Lake George, NY                                        (1)            44,000


Community Centers:
------------------
MacGregor Village, Cary, NC                               (1)           142,000
Dare Center , Kill Devil, NC                            (1), (3)        115,000
North Ridge, Raleigh, NC                                  (1)           165,000
                                                                     --------------
    Total                                                             4,300,000
                                                                     ==============`

|(1)
(2)
(3) | encumbered
unencumbered
subject to ground leases with termination dates ranging from 2007 to 2058.
Certain ground leases allow for renewal terms from 4 to 30 years.
|----------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

The following condensed pro forma (unaudited) information
assumes the acquisition had occurred on January 1, 2000:

`Nine Months ended
                                                           September 30,
                                                       2001            2000
                                                   -------------    -----------

      Total revenue...............................  $176,057         $162,793

      Net income to common shareholders...........    37,566           35,003

      Earnings per share:
      Basic:
           Net income to common shareholders......     $2.25            $2.12

      Diluted:
           Net income to common shareholders......     $2.19            $2.10`

4.      Investments in Affiliates

The Company holds interests in domestic and international joint
ventures including a 49% interest in F/C Acquisition Holdings, LLC ("F/C"), a
40% interest in Chelsea Japan Co., Ltd. ("Chelsea Japan"), a 50% interest in
Orlando Premium Outlets with Simon Property Group, Inc. ("Simon") and minority
interests in outlet centers and development projects in Europe operated by Value
Retail PLC ("Value Retail"). The Company owns 40% of the common stock and 100%
of the preferred stock of Chelsea Interactive.

Non-controlling investments are accounted for under the equity
method. Income from unconsolidated investments and loss from Chelsea Interactive
includes equity-in-earnings, management advisory, license and guarantee fees
earned from these affiliates.

The following is a summary of investments in and amounts due from affiliates
during the nine months ended September 30, 2001 (in thousands):

`Chelsea                   Chelsea      Value
                          F/C        Japan        Simon       Interact.     Retail    Other       Total
                        --------    ---------   ----------    ----------   --------   ------    -----------

Balance 12/31/00...    $33,114      $ 6,245      $15,922      $ 29,899     $4,742   $ 1,707      $ 91,629
Additional
investment.........      1,528          561           -          9,447        318       (80)       11,774
Income (loss) from
   unconsolidated
    investments ..       4,580        2,388        3,567        (3,447)       165      (191)        7,062
Distributions
     and fees           (3,315)      (1,670)      (9,074)       -              -         -        (14,059)
Other                      325        1,038         (791)          217                   (2)          787
                      ---------     --------     --------     ----------   -------  --------     ---------
Balance 9/30/01       $ 36,232      $ 8,562      $ 9,624      $ 36,116     $5,225   $ 1,434      $ 97,193
                      =========     ========     =========    ==========   =======  ========     ==========`

The Company's share of income before depreciation, depreciation
expense and income from unconsolidated investments for the three months ended
September 30, 2001 and 2000 are as follows (in thousands):

`For the Three Months Ended September 30,
                                           ----------------------------------------
                                 2001                                          2000
                   ------------------------------------     ------------------------------------------
                       Inc.                Inc. (loss)             Inc.                  Inc. (loss)
                      (loss)                 from                (loss)                     from
                      Before               Unconsol.             Before                     Unconsol.
                       Depr.     Depr.       Inv.                  Depr.      Depr.           Inv.
                   -----------  -------    -----------      ------------   ----------    -------------
F/C                 $ 2,345     $ 677       $1,668             $   -         $  -         $    -
Chelsea Japan         1,214       382          832               1,728        280           1,448
Simon                 2,077       569        1,508               1,168        585             583
Other                  (55)       -            (55)                168          -             168
                  ----------   --------    ----------      ---------------   -------     ------------
  Total             $ 5,581    $1,628      $ 3,953             $ 3,064       $865          $2,199
                  ==========   ========    ==========      ===============   =======     ============

Chelsea Interactive  ($ 580)    $ 897     ($ 1,477)              ($450)      $ 80           ($530)
                   ==========  ========   ===========      ===============   =======     ============`

The Company's share of income before depreciation, depreciation
expense and income from unconsolidated investments for the nine months ended
September 30, 2001 and 2000 are as follows (in thousands):

`For the Nine Months Ended September 30,
                                                ---------------------------------------
                                 2001                                         2000
                    -------------------------------------       ---------------------------------------
                       Inc.               Inc. (loss)             Inc.                   Inc. (loss)
                      (loss)                  from               (loss)                      from
                      Before                 Unconsol.           Before                    Unconsol.
                       Depr.     Depr.         Inv.               Depr.       Depr.         Inv.
                    ---------  ---------    --------------     ----------   ----------     ------------

F/C                  $6,574    $1,994       $4,580              $    -      $  -           $    -
Chelsea Japan         3,389     1,001        2,388               1,728        280           1,448
Simon                 5,272     1,705        3,567               1,502        585             917
Other                   (26)      -            (26)                279         -              279
                   ----------  -------     -----------      ------------    ---------    -----------
   Total            $15,209    $4,700      $10,509              $3,509       $865          $2,644
                   =========   ========    ===========      ============    =========    ===========

Chelsea Interactive ($1,497)   $1,950      ($3,447)              ($642)      $163          ($805)
                   ==========  ========    ==========       ============    =========    ===========`

5.      Properties held for sale

As of September 30, 2001 properties held for sale represents the
fair value, less estimated costs to sell of the following properties:

`Carrying Value
                                                        GLA             (in thousands)
                                                        ---            ----------------
      Mammoth Premium Outlets (1)                      35,000              $ 4,852
      Factory Stores of America  at  LaMarque (2)     176,000                5,087
      Vegas Pointe Plaza (2).....                     230,000                2,537
      Factory Stores of America at Tucson (2)         127,000                1,700
      Factory Stores of America at West Frankfort (2)  91,000                 560
                                                     ---------         -------------
                                                      659,000            $  14,736
                                                     =========         =============`

(1)      On October 9, 2001 the Company
sold Mammoth Premium Outlets for a net sales price approximating the carrying
value.

(2)      The Company has executed a
purchase and sale agreement or is actively marketing these properties which were
acquired in the Konover transaction. It is expected that each sale will take
place within one year and that the sales proceeds will approximate carrying
value.

For the three months and nine months ended September 30, 2001 and
2000 the centers held for sale accounted for less than 1% of Company revenues
and net operating income.

6.      Non-Compete Agreement

The Company recognized income from its non-compete agreement
with The Mills Corporation of $3.9 million during the nine months ended
September 30, 2001 and 2000. Such amounts are included in other income.

7.      Debt

The Company has a $160 million senior unsecured bank line of
credit (the "Senior Credit Facility") and has an annual right to request a
one-year extension which may be granted at the option of the lenders. The
Company's lenders have agreed to extend the Facility until March 30, 2004. The
Senior Credit Facility bears interest on the outstanding balance, payable
monthly, at a rate equal to the London Interbank Offered Rate ("LIBOR") plus
1.05% (3.72% at September 30, 2001) or the prime rate, at the Company's option.
The LIBOR rate spread ranges from 0.85% to 1.25% depending on the Company's
Senior Debt rating. A fee on the unused portion of the Senior Credit Facility is
payable quarterly at rates ranging from 0.15% to 0.25% depending on the balance
outstanding. At September 30, 2001, $17.0 million was outstanding.

The Company also has a $5 million term loan (the "Term Loan")
which carries the same interest rate and maturity as the Senior Credit Facility.

A summary of the terms of the Unsecured Notes outstanding as of
September 30, 2001 and December 31, 2000 is as follows:

`September 30,       December 31,       Effective
                                                   2001                 2000         Yield (1)
                                            --------------      --------------    -------------

7.75% Unsecured Notes due January 2001...... $     -               $99,987             7.85%
8.375% Unsecured Notes due August 2005......   49,888               49,877             8.44%
7.25% Unsecured Notes due October 2007......  124,801              124,776             7.29%
8.625% Unsecured Notes due August 2009......   49,917               49,902             8.66%
8.25% Unsecured Notes due February 2011.....  148,633                  -               8.40%
                                            ------------       -------------     ------------
   Total                                     $373,239             $324,542
                                            ============       =============`

(1)      Including discount on the
notes

A summary of the terms of the mortgage debt outstanding as of
September 30, 2001 and December 31, 2000 and the related Net Book Value of the
associated collateral ("NBV") and interest rate as of September 30, 2001 are as
follows:

`September 30,      December 31,               Interest
                               2001             2000          Due Date      Rate       NBV
                          ----------------   ------------- ------------  ---------  ---------
REMIC Loan (1)               $65,229            $-           Dec. 2001      3.71%    $105,045
Construction Loan (2)         27,148            21,526      Feb. 2003       4.36%      39,733
Bank Mortgage Loan (3)        68,500            69,250     April 2010       7.26%      74,591
Mortgage Loan (4)             72,622            -          March 2013       7.67%      75,049
                          -----------        ---------                              -----------
                            $233,499           $90,776                              $ 294,418
                          ===========        ==========                             ===========`

|(1) | REMIC loans were assumed as part of the September
25, 2001 Konover acquisition and include Class A, B and C Loans that have a
blended stated fixed interest rate of 7.85%. The Company received a $0.5 million
interest rate spread credit at closing reducing the effective annual interest
rate to 3.71% until the loans are prepaid on December 3, 2001.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Construction Loan bears interest equal to LIBOR plus
1.375% or 4.36% at September 30,2001.
|--- | ------------------------------------------------------------------------------------------

|(3) | Bank Mortgage Loan bears interest equal to LIBOR plus 1.50% (5.08% at September
30, 2001) or prime rate plus 1.0%. In December 2000, the Company entered into an
interest swap agreement to hedge against unfavorable fluctuation in the LIBOR
rates by fixing the interest rate at 7.26% until January 2006. As of September
30, 2001, the Company recognized net interest expense of $0.6 million on the
hedge which is included in interest expense. The loan terms call for quarterly
principal amortization of $0.3 million through April 2005 and $0.5 million per
quarter until maturity.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Mortgage Loan was assumed as part of the September 25, 2001 Konover acquisition.
The stated interest rate of 9.1% was greater than that available to the Company
in the public debt markets. Accordingly the Company recorded a $6.9 million debt
premium that will be amortized over the period of the loan and which reduces the
effective interest rate to 7.67%. The loan calls for fixed monthly debt service
payments of $0.5 million for interest plus principal based on a 26-year
amortization schedule. The Mortgage loan matures in March 2028 but can be
prepaid in March 2013.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Interest and loan costs of approximately $0.4 million and $1.4
million were capitalized as development costs during the three months ended
September 30, 2001 and 2000, respectively; and approximately $1.5 million and
$3.6 million during the nine months ended September 30, 2001 and 2000,
respectively.

8.      Financial
Instruments: Derivatives and Hedging

In the normal course of business, the Company is exposed to the
effect of interest rate and foreign currency changes. The Company limits these
risks by following established risk management policies and procedures including
the use of derivatives. For interest rate exposures, derivatives are used
primarily to align rate movements between interest rates associated with the
Company's leasing income and other financial assets with interest rates on
related debt, and manage the cost of borrowing obligations. For foreign currency
exposures, derivatives are used primarily to align movements between currency
rates to protect forecasted returns of fees to the U.S.

The Company has a policy of only entering into contracts with
major financial institutions based upon their credit ratings and other factors.
When viewed in conjunction with the underlying and offsetting exposure that the
derivatives are designed to hedge, the Company has not sustained a material loss
from those instruments nor does it anticipate any material adverse effect on its
net income or financial position in the future from the use of derivatives.

To manage interest rate and foreign currency risk, the Company
may employ options, forwards, interest rate swaps, caps and floors or a
combination thereof depending on the underlying exposure. The Company undertakes
a variety of borrowings including lines of credit, medium- and long-term
financings. To reduce overall interest cost, the Company may use interest rate
instruments, typically interest rate swaps, to convert some or all of its
variable rate debt to fixed rate debt, or even a portion of its fixed-rate debt
to variable rate. Interest rate differentials that arise under these swap
contracts are recognized in interest expense over the life of the contracts. The
resulting cost of funds is usually lower than that which would have been
available if debt with matching characteristics was issued directly.

The Company employs interest rate and foreign currency forwards
or purchased options to hedge qualifying anticipated transactions. Gains and
losses are deferred and recognized in net income in the same period that the
underlying hedged transaction affects net income, expires or is otherwise
terminated or assigned. As of September 30, 2001, there was $4.3 million in
deferred losses included in other comprehensive loss and minority interest.

The following table summarizes the notional values and fair
values of the Company's derivative financial instruments.

`At September 30, 2001
                          ---------------------------------------------------------
       Hedge Type         Notional Value       Rate       Maturity      Fair Value
       ----------         --------------       ----       --------      ----------

      1) Swap, Cash Flow   $68.5 mil          5.7625%      1/1/06       ($4.3 mil)`

The notional value and fair value of the swap provide an
indication of the extent of the Company's involvement in financial derivative
instruments at September 30, 2001 but do not represent exposure to credit,
interest rate or market risks.

On September 30, 2001, the derivative instrument was reported at
its fair value as other liabilities of $4.3 million.

At March 31, 2001, the Company had a yen forward contract with a
notional value of $1.4 million and a fair value of $0.04 million as a hedge
against its yen denominated receivable. On June 21, 2001 the receivable and yen
forward contract were settled and the Company received $1.4 million.

Interest rate swaps that are designated as cash flow hedges
hedge the future cash outflows on debt. Interest rate swaps that convert
variable payments to fixed payments, interest rate caps, floors, collars, and
forwards are cash flow hedges. The unrealized gains/losses in the fair value of
cash flow hedges are reported on the balance sheet with a corresponding
adjustment to accumulated other comprehensive loss to the extent they are
offsetting and otherwise qualify in the period for cash flow hedge accounting.
Over time, the unrealized gains and losses held in accumulated other
comprehensive loss will be reclassified to earnings. This reclassification
occurs over the same time period in which the hedge items affect earnings.
Within the next twelve months, the Company expects to reclassify to earnings
approximately $1.0 million of the current balance held in accumulated other
comprehensive loss and minority interest.

The Company hedges its exposure to the variability in future
cash flows for forecasted transactions other than those associated with existing
floating rate debt over a maximum period of 12 months. During the forecast
period, unrealized gains and losses in the hedging instrument will be reported
in accumulated other comprehensive loss and minority interest. Once the hedged
transaction takes place, the hedge gains and losses will be reported in earnings
during the same period in which the hedged item is recognized in earnings.

9.     Stockholders' Equity

Following is a statement of stockholders' equity for the nine
months ended September 30, 2001 (in thousands):

`Preferred      Common                  Distrib. in     Accum.         Total
                                   Stock At     Stock At     Paid-in-     Excess of    Other Comp.    Stockholders'
                                  Par Value    Par Value     Capital     Net Income       Loss          Equity
                                 -----------  -----------   ----------- -------------- ------------   -------------

Balance December 31, 2000.......    $10         $160       $348,141     ($76,829)         ($123)        $271,359

Net income......................      -           -             -         32,959                          32,959
Other comprehensive loss
  Foreign currency translation..      -           -             -                           37                37
  Interest rate swap.............     -           -             -                       (3,592)           (3,592)
                                                                                                       ----------
Total comprehensive income.......                                                                        29,404

Preferred dividend...............    -            -             -         (3,141)                        (3,141)
Cash distributions declared
   ($2.34 per common share)......    -            -             -        (38,297)                       (38,297)
Exercise of stock options........    -            -           1,185           -            -              1,185
Shares issued (net of costs)....     -             5         24,836           -            -             24,841
Shares issued in exchange
   for units of the OP..........     -             2          2,233           -            -              2,235
Shares issued through Employee
   Stock
   Purchase Plan
   (net of costs)...............     -            -              84           -            -                 84

                                 ----------   -------     ----------    ---------     -----------    ------------
Balance September 30, 2001......    $10         $167       $376,479     ($85,308)       ($3,678)        $287,670
                                 ==========   =======     ==========    =========     ===========    ============`

On July 30, 2001, the Company completed the sale of 545,000
shares of common stock to an institutional investor at a net price of $46 per
share, yielding net proceeds of $24.8 million that were used to partially fund
the acquisition of the Konover assets and for general corporate purposes.

In October 2001, the Company sold two million shares of common
stock at a price of $45 per share, yielding net proceeds of $85.0 million, which
were used to repay borrowings under the Company's Senior Credit Facility and for
general corporate purposes.

10.      Dividends

On September 17, 2001, the Board of Directors of the Company
declared a $0.78 per share dividend to shareholders of record on September 28,
2001. The dividend, totaling $13.0 million, was paid on October 15, 2001. The OP
simultaneously paid a $0.78 per unit cash distribution, totaling $2.5 million,
to its minority unitholders.

11.      Income Taxes

At September 30, 2001, the Company was in compliance with all
REIT requirements under Section 856(c) of the Internal Revenue code of 1986, as
amended, and as such, was not subject to federal income taxes.

12.      Net Income Per
Common Share

Basic earnings per common share is computed using the weighted
average number of shares outstanding. Diluted earnings per common share is
computed using the weighted average number of shares outstanding adjusted for
the incremental shares attributed to outstanding options to purchase common
stock of 0.6 million shares and 0.3 million shares for the three months ended
September 30, 2001 and September 30, 2000 and 0.5 million and 0.2 million for
the nine months ended September 30, 2001 and September 30, 2000 respectively.

The following table sets forth the computation of basic and
diluted earnings per share for the periods indicated:

`Three Months Ended       Nine Months Ended
                                                                 September 30,            September 30,
(In thousands, except per share amounts)                      2001         2000        2001       2000
                                                            ---------    --------    ---------  ---------
Numerator
Numerator for basic and diluted earnings per share -
   net income to common shareholders...................     $ 11,838      $10,894    $29,818     $27,395
Denominator
Denominator for basic earnings per share - weighted
   average shares......................................       16,568       15,942     16,269      15,937
Effect of dilutive securities:
   Stock options.......................................          592          272        498         193
Denominator for diluted earnings per share - adjusted
   weighted-average shares and assumed conversions.....       17,160       16,214     16,767      16,130

Per share amounts:
   Net income - basic..................................        $0.71        $0.68      $1.83       $1.72
   Net income - diluted................................        $0.69        $0.67      $1.78       $1.70`

13.     Commitments and Contingencies

The 50/50 Orlando Premium Outlets ("OPO") joint venture with
Simon has a $66.0 million construction loan that is due in March 2002 and has
two one year extensions. The loan bears interest at LIBOR plus 1.30% (4.65% at
September 30, 2001) and is 10% guaranteed by each of the Company and Simon and
as of September 30, 2001, $58.4 million was outstanding. Changes in debt service
coverage ratio provide for a guarantee ranging from 10% to 25% per guarantor and
a LIBOR interest rate spread ranging from 130 to 150 basis points.

In October 1999, an equity investee of the Company entered into
a 4 billion yen (approximately US $33.5 million) line of credit guaranteed by
the Company and OP to fund its share of Chelsea Japan's construction costs. The
line of credit bears interest at yen LIBOR plus 1.35% (1.4106% at September 30,
2001) is due April 2002 and has two one year extensions. At September 30, 2001,
1.32 billion yen (approximately US $11.0 million) was outstanding under the
loan. In March 2000, Chelsea Japan entered into a 3.8 billion yen (approximately
US $31.8 million) loan with a bank to fund construction costs. As of September
30, 2001, the entire facility was outstanding and bears interest at 2.20%. The
loan is secured by the two operating properties and is 40% guaranteed by the
Company.

The Company has agreed under a standby facility to provide up to
$22.0 million in limited debt service guarantees for loans provided to Value
Retail PLC and affiliates, to construct outlet centers in Europe. The term of
the standby facility is three years and guarantees shall not be outstanding for
longer than five years after project completion. As of September 30, 2001, the
Company had provided limited debt service guarantees of approximately $17.0
million to Value Retail PLC. In October 2001, the guarantee was increased to
$24.1 million until April 2002 at which time it will revert to $22.0 million.

Accrued expenses and other liabilities include $14.4 million and
$10.5 million at September 30, 2001 and December 31, 2000, respectively, related
to a deferred unit incentive program with certain key officers to be paid in
2002. Included in other assets is $2.8 million and $7.4 million at September 30,
2001 and December 31, 2000, respectively, related to the present value of future
payments to be received from The Mills Corporation under the Houston non-compete
agreement.

The Company is not presently involved in any material litigation
nor, to its knowledge, is any material litigation threatened against the Company
or its properties, other than routine litigation arising in the ordinary course
of business. Management believes the costs, if any, incurred by the Company
related to any of this litigation will not materially affect the financial
position, operating results or liquidity of the Company.

14.      Related Party Information

During the nine months ended September 30, 2001 the Company
received a $1.2 million payoff for one of the loans outstanding to unit holders
and a $0.5 million pay down on the other unit holder loan. On September 28, 2001
the Company advanced $2.7 million to a unit holder to acquire approximately
10% non-voting equity interest in Chelsea Interactive. The unit holder issued a
note that is secured by OP units, bears interest at a rate of LIBOR plus 200
basis points per annum, payable quarterly, and is due June 2004. At September
30, 2001 and 2000, $3.2 million and $2.2 million was due from the unit holders,
respectively.

15.      Reportable
Segments

The Company is principally engaged in the development,
ownership, acquisition and operation of manufacturers' outlet centers and has
determined that under SFAS No.131 "Disclosures About Segments of an Enterprise
and Related Information" it has three reportable retail real estate segments:
domestic premium, domestic other and international. The Company evaluates real
estate performance and allocates resources based on Net Operating Income
("NOI"). The primary sources of revenue are generated from tenant base rents,
percentage rents and reimbursement revenue. Operating expenses primarily consist
of common area maintenance, real estate taxes and promotional expenses. The
retail real estate business segments meet the quantitative threshold for
determining reportable segments.

`Retail         Retail
                                 Domestic       Domestic         Retail
                                 Premium         Other      International       Other(1)    Total
------------------------------- ------------- -------------- ---------------  ----------- ----------
Three months ended  September
30, 2001:
  NOI                               $36,921           $447          $1,657       $1,556      $40,581
------------------------------  ------------ -------------- ---------------   ------------ ------------

Nine months ended  September
30, 2001:
  NOI                              $106,571           $447         $ 4,682       $1,056     $112,756
  Total assets                     $858,646       $198,907         $13,787      $19,983   $1,091,323`

(1)     
Includes results of corporate assets and Chelsea Interactive.

The Company operated in one segment in 2000.

Following is a reconciliation of net operating income to net
income for the three and nine months ended September 30, 2001 (in
thousands):

`Three months       Nine months
                                              Ended Sept. 30     Ended Sept. 30
                                                 2001                2001
                                              ----------------------------------

Segment NOI                                   $40,581            $112,756
Interest expense - consolidated               (8,891)            (26,326)
Interest expense - unconsol. inv.             (145)              (445)
Depreciation expense - consolidated           (12,174)           (35,479)
Depreciation expense - unconsol. Inv.         (2,525)            (6,650)
Income tax - unconsol. Inv.                   (244)              (684)
Minority interest                             (3,717)            (10,213)
                                              ----------------------------------
Net income                                    $12,885            $32,959
                                              ==================================`

16.      Non-Cash
Investing and Financing Activities

In connection with the acquisition of the 31 retail centers from
Konover on September 25, 2001, the Company assumed $131.0 million of nonrecourse
first mortgage loans.

Chelsea Property Group, Inc.

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations

The following discussion should be read in conjunction with the
accompanying unaudited condensed consolidated financial statements and notes
thereto. These financial statements include all adjustments which, in the
opinion of management, are necessary to reflect a fair statement of results for
the interim periods presented, and all such adjustments are of a normal
recurring nature.

General Overview

From October 1, 2000 to September 30, 2001, the Company grew by
increasing rents at its operating centers, opening three new centers, expanding
three centers and acquiring 35 centers. Increasing rents at comparable centers
resulted in base rent growth of $1.5 million. The opening of one wholly-owned
newcenter and expansion of three wholly-owned centers increased
base rent by $2.5 million and $3.5 million, respectively. The acquisition of 31
wholly-owned centers increased base rent by $0.6 million. Income from
unconsolidated investments increased by $7.9 million primarily as a result of
opening three new centers developed by joint ventures during 2000 and by
acquiring a 49% interest in four centers through a joint venture in December
2000.

The Company operated gross leasable area ("GLA") at September
30, 2001 of 12.5 million square feet including wholly and partially-owned GLA
compared to 6.0 million square feet at September 30, 2000 and had an interest in
58 manufacturers' outlet centers at September 30, 2001 compared to 21 at the end
of the same quarter in the prior year. The Company's premium portfolio included
interests in 28 properties containing 8.2 million square feet of GLA. The
Company's other retail portfolio was comprised of 30 centers acquired from a
competitor on September 25, 2001 containing approximately 4.3 million square
feet of GLA. The accompanying financial statements include six days of
operations from the acquired properties.

Net GLA added since October 1, 2000 is detailed as follows:

`12 mos       9 mos         3 mos
                                                                   ended       ended         ended
                                                                September     September     December
                                                                30, 2001       30, 2001     31, 2000
                                                              -----------------------------------------------
       Changes in GLA (sf in 000's):

       New centers developed:
           Allen Premium Outlets.............................      206             -              206
           Rinku Premium Outlets (40% owned).................      180             -              180
                                                               -----------  --------------     -----------
       Total new centers.....................................      386             -              386

       Centers expanded:
           Wrentham Premium Outlets..........................      127             -              127
           Leesburg Premium Outlets..........................      104             -              104
          Allen Premium Outlets..............................       34            34                -
          Other (net)........................................        1             -                1
                                                               ----------- ---------------    ------------
       Total centers expanded                                      266            34              232

       Centers acquired:
          Gilroy Premium Outlets(49% owned)...................     577             -              577
          Lighthouse Place(49% owned).........................     491             -              491
          Waterloo Premium Outlets (49% owned)................     392             -              392
          Kittery Premium Outlets I (49% owned)...............     131             -              131
          Kittery Premium Outlets, II (1).....................      21            21                -
          Other Retail Centers  acquired from Konover (2).....   4,279         4,279                -
                                                               -----------  --------------    ------------
        Total centers acquired                                   5,891         4,300            1,591

       Net GLA added during the period........................   6,543         4,334            2,209

       GLA at end of period...................................  12,493        12,493            8,159`

---

(1) Acquired in the September 25, 2001, Konover transaction and
formerly known as Factory Stores of America at Kittery

(2) Excludes Vegas Pointe Plaza acquired as part of the
September 25, 2001 acquisition, which is under option and management contracts
and is to be repurchased on December 3, 2001.

Results of Operations

Comparison of the three months ended September 30, 2001 to
the three months ended September 30, 2000.

Income before minority interest increased $0.9 million to $16.6
million for the three months ended September 30, 2001 from $15.7 million for the
three months ended September 30, 2000. Increases in revenues, primarily the
result of new center development, expansions, higher rents on releasing and
renewals, the third quarter 2001 acquisition of the Konover properties and net
earnings from unconsolidated investments that commenced operations in the
second, third and fourth quarters of 2000 were partially offset by the loss from
Chelsea Interactive and increases in operating, maintenance, depreciation and
amortization and interest expenses.

Base rentals increased $3.6 million, or 13.6%, to $ 30.5 million for the three
months ended September 30, 2001 from $26.9 million for the three months ended
September 30, 2000 due to the fourth quarter 2000 opening of Allen Premium
Outlets, expansions and higher average rents on new leases and renewals and the
third quarter 2001 acquisition of the Konover properties.

Percentage rents remained flat at $4.1 million in 2001 and 2000.

Expense reimbursements, representing contractual recoveries from tenants of
certain common area maintenance, operating, real estate tax, promotional and
management expenses, increased $ 1.0 million, or 9.4%, to $11.6 million for the
three months ended September 30, 2001 from $10.6 million for the three months
ended September 30, 2000, due to the recovery of operating and maintenance costs
from increased GLA. The average recovery of reimbursable expenses was 90.6% in
the third quarter of 2001, compared to 89.7% in the third quarter of 2000.

Other income decreased $0.2 million to $2.9 million for the three months ended
September 30, 2001, from $3.1 million for the three months ended September 30,
2000. The decrease is primarily due to the pad sale gains in the third quarter
of 2000.

Operating and maintenance expenses increased $1.0 million, or 8.4%, to $12.8
million for the three months ended September 30, 2001 from $11.8 million for the
three months ended September 30, 2000. The increase was primarily due to costs
related to expansions, the new center opening and higher insurance costs on the
existing centers.

Depreciation and amortization expense increased $1.6 million, or 14.7%, to $12.2
million for the three months ended September 30, 2001 from $10.6 million for the
three months ended September 30, 2000. The increase was due to depreciation of
expansions and the new center opening.

General and administrative expense decreased $0.3 million to $0.6 million for
the three months ended September 30, 2001 from $0.9 million for the three months
ended September 30, 2000 primarily due to a lower accrual for deferred incentive
compensation.

Other expenses decreased $0.7 million to $0.5 million for the three months ended
September 30, 2001 from $1.2 million for the three months ended September 30,
2000 primarily due to write-off of development costs related to inactive
projects in the third quarter of 2000.

Income from unconsolidated investments increased $1.8 million to $4.0 million
for the three months ended September 30, 2001 from $2.2 million for the three
months ended September 30, 2000. This resulted from equity-in-earnings and fees
earned from the Company's unconsolidated investments that commenced operations
during the fourth quarter of 2000 offset by one time consulting fees earned in
the third quarter of 2000.

The loss from Chelsea Interactive increased $1.0 million to $1.5 million for the
three months ended September 30, 2001 from $0.5 million for the three months
ended September 30, 2000 due to increased depreciation, selling, general,
administrative and maintenance expenses.

Interest in excess of amounts capitalized increased $2.8 million to $8.9 million
for the three months ended September 30, 2001 from $6.1 million for the three
months ended September 30, 2000 primarily due to higher debt balances and less
construction activity.

Comparison of the nine months ended September 30, 2001 to the nine months ended
September 30, 2000.

Income before minority interest increased $2.5 million to $43.2 million for the
nine months ended September 30, 2001 from $40.7 million for the nine months
ended September 30, 2000. Increases in revenues, primarily the result of new
center development, expansions, higher rents on releasing and renewals, the
third quarter 2001 acquisition of the Konover properties, and net earnings from
unconsolidated investments that commenced operations in the second, third and
fourth quarters of 2000 were partially offset by the loss from Chelsea
Interactive and increases in operating, maintenance, depreciation and
amortization and interest expenses.

Base rentals increased $8.2 million, or 10.3%, to $87.9 million for the nine
months ended September 30, 2001 from $79.7 million for the nine months ended
September 30, 2000 due to the fourth quarter 2000 opening of Allen Premium
Outlets, expansions and higher average rents on new leases and renewals and the
third quarter 2001 acquisition of the Konover properties.

Percentage rents increased $0.1 million or 1.0% to $9.9 million for the nine
months ended September 30, 2001 from $9.8 million for the nine months ended
September 30, 2000.

Expense reimbursements, representing contractual recoveries from tenants of
certain common area maintenance, operating, real estate tax, promotional and
management expenses, increased $4.4 million, or 14.9%, to $34.0 million for the
nine months ended September 30, 2001 from $29.6 million for the nine months
ended September 30, 2000, due to the recovery of operating and maintenance costs
from increased GLA. The average recovery of reimbursable expenses was 90.7% for
the nine months ended September 30, 2001, compared to 89.3% for the nine months
ended September 30, 2000.

Other income increased $1.3 million to $8.4 million for the nine months ended
September 30, 2001, from $7.1 million for the nine months ended September 30,
2000. The increase is primarily the result of increased interest income offset
by higher pad sale gains for the nine months ended September 30, 2000.

Operating and maintenance expenses increased $4.4 million, or 13.2%, to $37.5
million for the nine months ended September 30, 2001 from $33.1 million for the
nine months ended September 30, 2000. The increase was primarily due to costs
related to expansions, the new center opening and higher insurance costs on the
existing centers.

Depreciation and amortization expense increased $3.7 million, or 11.5%, to $35.5
million for the nine months ended September 30, 2001 from $31.8 million for the
nine months ended September 30, 2000. The increase was due to depreciation of
expansions and the new center opening.

General and administrative expense increased $0.2 million to $2.8 million for
the nine months ended September 30, 2001 from $2.6 million for the nine months
ended September 30, 2000 primarily due to increased salaries.

Other expenses decreased $0.4 million to $1.9 million for the nine months ended
September 30, 2001 from $2.3 million for the nine months ended September 30,
2000. The decrease was primarily due to a 2000 write-off of deferred site
expense offset by increases in bad debt in 2001.

Income from unconsolidated investments increased $7.9 million to $10.5 million
for the nine months ended September 30, 2001 from $2.6 million for the nine
months ended September 30, 2000. This resulted from equity-in-earnings and fees
earned from the Company's unconsolidated investments that commenced operations
during the second half of 2000.

The loss from Chelsea Interactive increased $2.6 million to $3.4 million for the
nine months ended September 30, 2001 from $0.8 million for the nine months ended
September 30, 2000 due to increased depreciation, administrative and maintenance
expenses.

Interest in excess of amounts capitalized increased $8.8 million to $26.3
million for the nine months ended September 30, 2001 from $17.5 million for the
nine months ended September 30, 2000 primarily due to higher debt balances and
lower construction balances.

Liquidity and Capital Resources

The Company believes it has adequate financial resources to fund operating
expenses, distributions, and planned development, construction and acquisition
activities over the short-term, which is less than 12 months and the long-term,
which is 12 months or more. Operating cash flow for the year ended December 31,
2000 of $104.5 million is expected to increase with a full year of operations of
the 2.9 million square feet of GLA added during 2000, scheduled openings of
approximately 145,000 square feet in 2001, representing additional phases of
Allen Premium Outlets and the third quarter 2001 acquisition of the 31 Konover
properties. As of September 30, 2001, the Company has adequate funding sources
to complete and open all current development projects, including those of its
e-commerce affiliate, Chelsea Interactive, Inc. and pay off the assumed REMIC
loan due in December 2001. This will be accomplished with available cash of
$16.3 million, net proceeds of $85.0 million from the two million common shares
issued in October 2001 and approximately $143 million available under the Senior
Credit Facility. The Company also has the ability to access the public markets
through its $450 million debt shelf registration and its $185 million equity
shelf registration.

Operating cash flow is expected to provide sufficient funds for dividends and
distributions in accordance with REIT federal income tax requirements. In
addition, the Company anticipates retaining sufficient operating cash to fund
re-tenanting and lease renewal tenant improvement costs, as well as capital
expenditures to maintain the quality of its centers, and meet funding
requirements for Chelsea Interactive.

Common distributions declared and recorded during the nine months ended
September 30, 2001 were $45.7 million, or $2.34 per share or unit. The Company's
dividend payout ratio as a percentage of net income before minority interest,
depreciation and amortization (exclusive of amortization of deferred financing
costs ("FFO")) was 61.3% for the nine months ended September 30, 2001. The
Senior Credit Facility limits aggregate dividends and distributions to the
lesser of (i) 90% of FFO on an annual basis or (ii) 100% of FFO for any two
consecutive quarters.

In October 2001, the Company sold Mammoth Premium Outlets for a net sales price
approximating the carrying value.

During the eighteen month period ended October 2001, the Company completed four
new debt financing transactions totaling $360 million, both secured and
unsecured, and the sale of common stock totaling $115 million. These transactions
strengthened the Company's financial flexibility and liquidity by extending and
sequencing debt maturities and significantly reducing floating interest rate
exposure at favorable rates.

In October 2001, the Company sold two million shares of common
stock at a price of $45 per share, yielding net proceeds of $85.0 million, which
were used to repay borrowings under the Company's Senior Credit Facility and for
general corporate purposes.

In July 2001, the Company completed the sale of 545,000 shares of common stock
to an institutional investor at a net price of $46 per share, yielding proceeds
of $24.8 million that were used to partially fund the acquisition of the Konover
properties and for general corporate purposes.

On September 25, 2001, the Company acquired a portfolio of 31 retail centers
from Konover for a purchase price of approximately $182.5 million including the
assumption of debt of approximately $131.0 million. Proceeds from the 545,000
share common stock equity offering, cash on hand and $17 million from the
Senior Credit Facility were used to fund the balance of the purchase price.

In January 2001, the OP completed a $150 million offering of 8.25%
unsecured term notes due February 2011 (the "8.25% Notes"). The 8.25% Notes were
priced to yield 8.396% to investors. Net proceeds from the offering were used to
repay $100 million of 7.75% unsecured notes due January 26, 2001, to repay all
borrowings outstanding under the Company's Senior Credit Facility and for
general corporate purposes.

Development activity as of September 30, 2001 includes an additional phase of
Allen Premium Outlets, totaling 120,000 square feet scheduled to open during the
fourth quarter 2001, the 71,000 square foot second phase of Rinku Premium
Outlets, located outside Osaka, Japan, scheduled to open during the first
quarter of 2002 and Chelsea Interactive. The Company is also in the
predevelopment stage of projects outside Chicago, IL; Las Vegas, NV; and
Seattle, WA that are expected to open in 2003 and beyond. These projects are
under development and there can be no assurance that they will be completed or
opened, or that there will not be delays in opening or completion. All current
development activity is fully financed either through project specific secured
construction financing, the yen denominated line of credit, available cash or
through the Senior Credit Facility. The Company will seek to obtain permanent
financing once the projects are completed and income has been
stabilized.

The Company has minority interests ranging from 5% to 15% in several outlet
centers and outlet development projects in Europe. Outlet centers, outside of
London, England, Barcelona and Madrid, Spain and Paris, France are currently
open and operated by Value Retail PLC and its affiliates. Two new European
projects and expansions of the two existing centers are in various stages of
development and are expected to open within the next two years. The Company's
total investment in Europe as of September 30, 2001 was $5.2 million. The
Company has also agreed under a standby facility to provide up to $22.0 million
in limited debt service guarantees for loans provided to Value Retail PLC and
affiliates, to construct outlet centers in Europe. The term of the standby
facility is three years and guarantees shall not be outstanding for longer than
five years after project completion. As of September 30, 2001, the Company had
provided limited debt service guarantees of $17.0 million for three projects. In
October 2001 the guarantee was increased to $24.1 million until April 2002 at
which time it will revert to $22.0 million.

To achieve planned growth and favorable returns in both the short and long term,
the Company's financing strategy is to maintain a strong, flexible financial
position by: (i) maintaining a conservative level of leverage; (ii) extending
and sequencing debt maturity dates; (iii) managing exposure to floating interest
rates; and (iv) maintaining liquidity. Management believes these strategies will
enable the Company to access a broad array of capital sources, including bank or
institutional borrowings and secured and unsecured debt and equity offerings,
subject to market conditions.

Net cash provided by operating activities increased $5.4 million
for the nine months ended September 30, 2001 compared to the corresponding 2000
period, primarily due to increased GLA offset by a reduction of trade accounts
payable. Net cash used in investing activities increased $37.8 million for the
nine months ended September 30, 2001 compared to the corresponding 2000 period,
as a result of the acquisition of the Konover portfolio and increased
development costs offset by decreased construction activity, increased
distributions from joint venture investments, the equity requirements of Chelsea
Interactive and proceeds from sale of a center in 2000. Net cash provided by
financing activities increased by $7.5 million for the nine months ended
September 30, 2001 primarily due to the common stock offering proceeds in July
2001 and reduced debt repayment offset by reduced debt proceeds.

Funds from Operations

Management believes that funds from operations ("FFO") should be considered in
conjunction with net income, as presented in the statements of operations
included elsewhere herein, to facilitate a clearer understanding of the
operating results of the Company. The White Paper on Funds from Operations
approved by the Board of Governors of NAREIT in October 1999 defines FFO as net
income (loss) (computed in accordance with GAAP), excluding gains (or losses)
from debt restructuring and sales of properties, plus real estate related
depreciation and amortization and after adjustments for unconsolidated
partnerships and joint ventures. The Company believes that FFO is helpful to
investors as a measure of the performance of an equity REIT because, along with
cash flow from operating activities, financing activities and investing
activities, it provides investors with an indication of the ability of the
Company to incur and service debt, to make capital expenditures and to fund
other cash needs. The Company computes FFO in accordance with the current
standards established by NAREIT which may not be comparable to FFO reported by
other REITs that do not define the term in accordance with the current NAREIT
definition or that interpret the current NAREIT definition differently than the
Company. FFO does not represent cash generated from operating activities in
accordance with GAAP and should not be considered as an alternative to net
income (determined in accordance with GAAP) as an indication of the Company's
financial performance or to cash flow from operating activities (determined in
accordance with GAAP) as a measure of the Company's liquidity, nor is it
indicative of funds available to fund the Company's cash needs, including its
ability to make cash distributions.

`Three Months Ended        Nine Months Ended
                                                             September 30,             September 30,
                                                            2001         2000        2001          2000
                                                          ---------   ----------   ----------  -------------

Net income to common shareholders                          $11,838      $10,894     $29,818        $27,395
Add (deduct):
  Depreciation and amortization - wholly owned              12,174       10,616      35,479         31,823
  Depreciation and amortization - joint ventures             1,628          865       4,700            865
  Amortization of deferred financing costs and
    depreciation of non-rental real estate assets            (480)        (423)      (1,326)        (1,360)
  Preferred units distribution                             (1,462)      (1,462)      (4,386)        (4,386)
  Minority interest                                          3,717       3,756       10,213         10,157
                                                          ---------   ----------   -----------   -----------
FFO                                                        $27,415     $24,246      $74,498        $64,494
                                                          =========   ==========   ===========   ===========
Average diluted shares/units outstanding                    20,315      19,571       19,956         19,487
Dividends declared per share........                         $0.78       $0.75       $ 2.34          $2.25`

Recent Accounting Pronouncements

In October 2001, the Financial Accounting Standards Board issued
SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets. SFAS No. 144 provides accounting guidance for financial accounting
and reporting for the impairment or disposal of long-lived assets. SFAS No. 144
supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of". It also supersedes the
accounting and reporting of APB Opinion No. 50 "Reporting the Results of
Operations - Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions"
related to the disposal of a segment of a business. SFAS No. 144 is effective
for fiscal years beginning after December 15, 2001. Management does not
anticipate that its adoption will have a material effect on the financial
position or results of operations of the Company.

Economic Conditions

Substantially all leases contain provisions, including
escalations of base rents and percentage rentals calculated on gross sales, to
mitigate the impact of inflation. Inflationary increases in common area
maintenance and real estate tax expenses are substantially all reimbursed by
tenants.

Virtually all tenants have met their lease obligations and the
Company continues to attract and retain quality tenants. The Company intends to
reduce operating and leasing risks by continually improving its tenant mix,
rental rates and lease terms, and by pursuing contracts with creditworthy
upscale and national brand-name tenants.

Item 3.      Quantitative
and Qualitative Disclosures about Market Risk

The Company is exposed to changes in interest rates primarily
from its floating rate debt arrangements. In December 2000, the Company
implemented a policy to protect against interest rate and foreign exchange risk.
The Company's primary strategy is to protect against this risk by using
derivative transactions as appropriate to minimize the variability that floating
rate interest and foreign currency fluctuations could have on cash flow.

In December 2000, a wholly-owned subsidiary of the Company
entered into an interest rate swap agreement effective January 2, 2001 with a
major financial institution for a notional amount of $69.3 million amortizing to
$64.1 million to hedge against unfavorable fluctuations in the LIBOR rates of
its secured mortgage loan facility. The hedge effectively produces a fixed
interest rate of 7.2625% on the notional amount until January 1, 2006.

The derivative risk related to the settlement of this agreement
is deemed to be immaterial as it involves a major financial institution.

At September 30, 2001 a hypothetical 100 basis point adverse
move (increase) in US Treasury and LIBOR rates applied to unhedged debt would
adversely affect the Company's annual interest cost by approximately $0.5
million annually.

Following is a summary of the Company's debt obligations at
September 30, 2001 (in thousands):

`Expected Maturity Date
                         -----------------------------------------------------------------
                                                                                                     Fair
                          2001      2002       2003     2004       2005    Thereafter     Total      Value
                          ----      ----       ----     ----       ----    ----------     -----      -----
Fixed Rate Debt:         $65,229      -          -               $49,888    $395,973     $511,090    $516,796
Average Interest Rate:      3.71%     -          -                  8.38%       7.88%        7.92%      -
Variable Rate Debt:            -      -     $27,148   $22,035        -       $68,500(1)  $117,683    $117,683
                                                       22,035
Average Interest Rate:         -      -        4.36%     3.72%                  5.56%        4.94%      -`

(1) Mortgage hedged to produce a fixed interest rate of 7.26%
until January 2006.

Chelsea Property Group, Inc.

Part II.
          Other
Information

Item 6.
          Exhibits and Reports
on Form 8-K

Current Report on Form 8-K, reporting under Items 2 and 7 on an
event which occurred September 25, 2001.

Chelsea Property Group, Inc.

Signatures

Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this Report to be signed on its behalf by
the undersigned thereunto duly authorized.

| | CHELSEA PROPERTY GROUP, INC.
By: /s/ Michael J. Clarke
      Michael J. Clarke
      Chief Financial Officer
| | ------------------------------------------------------------------------------------------------------------

Date:  November 14, 2001