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


                             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, 1996

                                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 GCA REALTY, INC.
      (Exact name of registrant as specified in its charter)

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

        103 EISENHOWER PARKWAY, ROSELAND, NEW JERSEY 07068
        (Address of principal executive offices - zip code)

                          (201) 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 12,229,546 at November 7, 1996.



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


<PAGE>

                     CHELSEA GCA REALTY, INC.

                               INDEX


PART I.  FINANCIAL INFORMATION


Item 1.    Financial Statements (Unaudited)                           Page

          Condensed Consolidated Balance Sheets as of 
          September 30, 1996 and December 31, 1995 .........................2

          Condensed Consolidated Statements of Income
          for the three and nine months ended September 30, 1996 and 1995 ..3

          Condensed Consolidated Statements of Cash Flows for the nine 
          months ended September 30, 1996 and 1995 .........................4

          Notes to Condensed Consolidated Financial Statements .............5

Item 2.   Management's Discussion and Analysis of Financial Condition 
          and Results of Operations........................................ 8

          Signatures.....................................................  14

<PAGE>


ITEM 1.  FINANCIAL STATEMENTS
                     CHELSEA GCA REALTY, INC.
               CONDENSED CONSOLIDATED BALANCE SHEETS
               (In thousands, except per share data)



                                          SEPTEMBER  DECEMBER 31,

                                             30,
                                             1996       1995
                                            --------   --------
                                           (UNAUDITED)
ASSETS
Rental properties:
   Land...............................      $80,289   $75,224
   Depreciable property...............      417,271   340,759
                                            -------   --------
Total rental property.................      497,560   415,983
Accumulated depreciation..............      (51,536)  (41,373)
                                            -------   --------
Rental properties, net................      446,024   374,610
Cash and equivalents..................       7,656      3,987
Notes receivable-related parties......       8,023      8,129
Deferred costs, net...................      11,036      7,255
Other assets..........................      14,867     14,072
                                            =======   ========
Total assets..........................      $487,606  $408,053
                                            =======   ========


LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
   Unsecured bank line of credit......      $78,000        -
   Secured bank line of credit........           -    $96,000
   Notes payable......................      99,648         -
   Construction payables..............      17,123     18,617
   Accounts payable and accrued expenses     9,223      5,730
   Obligation under capital lease.....       9,815      9,845
   Dividend payable...................       6,935      6,604
   Distribution payable to unitholders       2,919      3,186
   Rent payable.......................       1,626      1,595
                                           --------   -------
Total liabilities.....................      225,289   141,577

Commitments and contingencies

Minority interest.....................      81,534     89,718

Stockholders' equity:
   Preferred stock, $0.01 par value,
     authorized 5,000 shares, none issued
   Common stock, $0.01 par value,
     authorized 50,000 shares,          
     issued and outstanding 12,061 in
     1996 and 11,485 in 1995...............     121       115
   Paid-in-capital....................      201,209   192,069
   Distributions in excess of net income    (20,547)  (15,426)
                                            -------   --------
Total stockholders' equity............      180,783   176,758
                                            =======   ========
Total liabilities and stockholders' equity  $487,606  $408,053
                                            =======   ========

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL
STATEMENTS.


<PAGE>


                     CHELSEA GCA REALTY, INC.
            CONDENSED CONSOLIDATED STATEMENTS OF INCOME
  FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
                            (UNAUDITED)
               (In thousands, except per share data)


                                     THREE MONTHS      NINE MONTHS
                                   ENDED SEPTEMBER 30   ENDED SEPTEMBER 30
                                   ----------------- ------------------
                                      1996     1995    1996      1995
                                   -------- -------- --------- --------

REVENUES:
   Base rent...................      $14,737  $11,902  $41,160   $33,665
   Percentage rent............         2,028    1,359    3,707     2,456
   Expense reimbursements.....         5,958    5,223   16,812    14,443
   Other income...............           600      302    1,628       972
                                   
Total revenues................        23,323   18,786   63,307    51,536
                                   

EXPENSES:
   Interest...................         2,484    1,182    5,910     1,985
   Operating and maintenance..         6,718    5,622   18,314    15,321
   Depreciation and                    4,597    3,480   11,765     9,030
amortization..................
   General and administrative.           829      714    2,270     2,074
   Other......................           554      477    1,657     1,327
                                   
                                   
Total expenses................        15,182   11,475   39,916    29,737
                                   

Income before minority
  interest and extraordinary           8,141    7,311   23,391    21,799
  item..........................

Minority interest.............        (2,548)  (2,518)  (7,581)   (7,477)
                                   

Net income before                      5,593    4,793   15,810    14,322
extraordinary item............

Extraordinary item-loss on
  early extinguishment of
  debt,net of minority                 
interest in the amount of $295           -        -     (607)        -
                                   

Net income.....................       $5,593   $4,793  $15,203   $14,322
                                   

PER SHARE DATA:
Income per share before             
extraordinary item............         $0.47     $0.42   $1.35     $1.28  

Extraordinary loss per share..                          ($0.05)
                                   

Net income per share..........         $0.47    $0.42    $1.30     $1.28
                                   

Weighted average common shares
  outstanding.................        12,007   11,356   11,717    11,207
                                   

Dividends declared per common         $0.575    $0.52   $1.725     $1.56
share.........................
                                   ======== ======== ========= ========


THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL
STATEMENTS.


<PAGE>


                     CHELSEA GCA REALTY, INC.
          CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
       FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
                            (UNAUDITED)
                          (In thousands)

                                                 1996       1995
                                               --------   --------

  CASH FLOWS FROM OPERATING ACTIVITIES
  Net income.............................     $15,203    $14,322
  Adjustments to reconcile net income to
    net cash provided by operating 
    activities:
  Depreciation and amortization..........      11,765      9,030
  Minority interest in net income........       7,286      7,477
  Loss on early extinguishment of debt          902          -
  Amortization of debt discount..........          56          -
  Other operating  activities............        (164)       146
  Additions to deferred lease costs          (1,274)    (1,167)
  Changes in assets and liabilities:
    Straight line rent receivable.           (1,184)      (999)
    Other assets........................         389     (1,652)
    Accounts payable and accrued expenses     3,494       (909)
                                               --------   --------
  Net cash provided by operating activities    36,473     26,248
                                               --------   --------

  CASH FLOWS FROM INVESTING ACTIVITIES
  Additions to rental properties....           (81,052)   (61,192)
  Additions to development costs....           (1,894)         -
  Advances to related parties.......              (67)         -
  Payments from related parties.....              173        105
                                               --------   --------
  Net cash used in investing activities        (82,840)   (61,087)
                                               --------   --------

  CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from bank line of credit.           89,000     53,000
  Proceeds from issuance of notes payable      99,592          -
  Repayments of debt................           (107,000)       -
  Additions to deferred financing costs          (3,349)     (258)
  Dividends and distributions.......           (29,472)   (25,976)
  Net proceeds from sale of common stock        1,290      3,826
  Other financing activities........              (25)       170
                                               --------   --------
  Net cash provided by financing activities    50,036     30,762
                                               --------   -------- 

  Net increase (decrease) in cash and          
    equivalents........................         3,669     (4,077)
  Cash and equivalents, beginning of period     3,987      9,109
                                               ========   ========
  Cash and equivalents, end of period          $7,656     $5,032
                                               ========   ========

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: During
1996, the Company acquired property valued at $1.6 million through the issuance
of units in the Operating Partnership. Additionally, approximately 520,000
Operating Partnership units with a book value of approximately $7.9 million were
converted to common shares.


THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL
STATEMENTS.

<PAGE>


                     CHELSEA GCA REALTY, INC.
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                            (UNAUDITED)

1.    ORGANIZATION AND BASIS OF PRESENTATION

      Chelsea GCA Realty, Inc. (the "Company") is a self-administered and
      self-managed real estate investment trust ("REIT"). The Company made its
      initial public offering of common stock on November 2, 1993 (the "IPO")
      and simultaneously became the managing general partner of Chelsea GCA
      Realty Partnership, L.P. (the "Operating Partnership"), an operating
      partnership which at September 30, 1996 owned and provided development,
      leasing, marketing and management services for 18 upscale and
      fashion-oriented manufacturers' outlet centers (the "Properties")
      containing approximately 3.5 million square feet of gross leasable area
      ("GLA"). The Properties are located near large metropolitan areas
      including New York, Los Angeles, San Francisco, Sacramento, Atlanta,
      Portland (Oregon), Kansas City, and Cleveland, or at or near tourist
      destinations including the Napa Valley, Palm Springs and the Monterey
      Peninsula. The Company also has a number of properties under development.

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

      Ownership of the Operating Partnership as of September 30, 1996 was as
      follows:

              Company            70.4%    12,060,800 units
              Unitholders        29.6%     5,076,900 units
                                 ------   ---------
                    TOTAL        100.0%   17,137,700

      The condensed consolidated financial statements of the Company include the
      accounts of Solvang Designer Outlets ("Solvang"), a limited partnership in
      which the Company has a 50% interest and is the sole general partner. As
      the sole general partner, the Company has the ability to exercise both
      financial and operational control over the partnership. Solvang is not
      material to the operations or financial position of the Company.

      The accompanying unaudited condensed consolidated financial statements
      have been prepared in accordance with generally accepted accounting
      principles 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 generally accepted
      accounting principles 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, 1996 are
      not necessarily indicative of the results that may be expected for the
      year ended December 31, 1996. 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, 1995.

      Certain prior period balances have been reclassified to conform with
      current period presentation.


<PAGE>


2.    BANK LINE OF CREDIT

      On March 29, 1996, the Company replaced its secured revolving credit
      facility (the "Secured Facility") with a new, unsecured $100 million line
      of credit (the "Unsecured Facility"). The Unsecured Facility expires March
      29, 1998. Interest on the outstanding balance is payable monthly at the
      London Interbank Offered Rate ("LIBOR") plus 1.75%, or the prime rate, at
      the Company's option. A fee on the unused portion of the Unsecured
      Facility is payable quarterly at a rate of 0.25% per annum. The
      outstanding balance at September 30, 1996 was $78.0 million, which
      approximates fair value. An additional $1.0 million of the Unsecured
      Facility was reserved for letters of credit issued to secure commitments
      to fund a traffic mitigation plan at a new center.

      The Unsecured Facility requires compliance with certain loan covenants
      relating to debt service coverage, tangible net worth, cash flow,
      earnings, occupancy rate, new development and dividends. The Company has
      remained in compliance with these covenants since inception of the
      facility.

      Interest and loan costs of approximately $1.1 million and $3.6 million
      were capitalized as development costs during the three and nine months
      ended September 30, 1996, respectively.

3.    NOTES PAYABLE

      In January 1996, the Company's Operating Partnership completed a $100
      million public debt offering of 7.75% unsecured notes due January 2001
      (the "Notes"), which are guaranteed by the Company. The five-year
      non-callable Notes were priced at a discount of 99.952 to yield 7.85% to
      investors. Net proceeds from the offering were used to repay substantially
      all of the borrowings under the Secured Facility.

4.    DIVIDENDS

      On September 19, 1996, the Board of Directors of the Company declared a
      $0.575 per share dividend to shareholders of record on September 30, 1996.
      The dividend, totaling $6.9 million, was paid on October 21, 1996. The
      Operating Partnership simultaneously paid a $0.575 per unit cash
      distribution, totaling $2.9 million, to its unitholders.

5.    INCOME TAXES

      The Company is taxed as a REIT under Section 856(c) of the Internal
      Revenue Code of 1986, as amended, and generally will not be subject to
      federal income tax to the extent it distributes at least 95% of its REIT
      taxable income to its stockholders and meets certain other requirements.
      If the Company fails to qualify as a REIT in any taxable year, the Company
      will be subject to federal income tax on its taxable income at regular
      corporate rates. The Company may also be subject to certain state and
      local taxes on its income and property and federal income and excise taxes
      on its undistributed taxable income. At September 30, 1996 and 1995, the
      Company was in compliance with all REIT requirements and was not subject
      to federal income taxes.


<PAGE>


6.    NET INCOME PER COMMON SHARE

      Net income per common share is computed in accordance with the treasury
      stock method and is based on net income and the weighted average number of
      common shares and common stock equivalent shares outstanding during the
      periods. The common stock equivalent shares represent options issued.

7.    COMMITMENTS AND CONTINGENCIES

      Management has determined that the foundation slab at one of its outlet
      centers was installed improperly and will require corrective action, the
      cost of which management estimates will be in excess of $1 million.
      Management believes such costs may be recoverable from the original
      contractor and/or engineers, and that any costs incurred by the Company
      will not materially affect the financial position, operating results or
      liquidity of the Company.

      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 this litigation will not materially affect the
      financial position, operating results or liquidity of the Company.

8.    RELATED PARTY INFORMATION

      The Company recognized lease settlement income of approximately $99,000
      from a related party during the nine months ended September 30, 1996. This
      amount is included in other income in the accompanying condensed
      consolidated financial statements.

9.    EXTRAORDINARY  ITEM

      Deferred financing costs of $0.6 million (net of minority interest of $0.3
      million) related to the Secured Facility replaced in March 1996 have been
      written off and reflected in the accompanying financial statements as an
      extraordinary item.

10.   SUBSEQUENT EVENT

      In October 1996, the Company's Operating Partnership completed a $100
      million offering of Remarketed Floating Rate Reset Notes due October 2001
      (the "Reset Notes"), which are guaranteed by the Company. The interest
      rate will reset quarterly and will equal LIBOR plus 75 basis points during
      the first year. Net proceeds from the offering were used to repay all of
      the borrowings under the Unsecured Facility and for working capital.


<PAGE>


                     CHELSEA GCA REALTY, 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

The Company has grown by increasing rent at its existing centers, expanding its
existing centers, developing new centers and acquiring and redeveloping centers.
The Company operated 18 manufacturers' outlet centers at September 30, 1996
compared to 17 at the end of the same quarter in the prior year; the Company
sold its smallest center, Page Factory Stores, in December 1995 and opened North
Georgia Premium Outlets in May 1996 and Clinton Crossing Premium Outlets in
September 1996. The Company's operating gross leasable area (GLA) at September
30, 1996, increased 25.0% to 3.5 million square feet from 2.8 million square
feet at September 30, 1995. GLA added since October 1, 1995 is detailed as
follows:

                                12 MOS       9 MOS        3 MOS
                                  ENDED        ENDED        ENDED
                                SEPTEMBER    SEPTEMBER    DECEMBER
                                30, 1996     30, 1996        31,
                                                             1995
                                ----------   ----------   ----------
GLA ADDED (IN 000'S):
NEW  CENTERS OPENED:
  North Georgia..............      292           292            -
  Clinton Crossing...........      272           272            -
                                ---------     --------     --------
TOTAL NEW  CENTERS...........      564           564            -

CENTERS EXPANDED:
  Aurora Farms...............       27             -           27
  Woodbury Common............       14             1           13
  Camarillo Factory Stores...       77             -           77
  Petaluma...................       45            30           15
  Other......................       (6)            1           (7)
                                ---------     --------     --------
TOTAL CENTERS EXPANDED.......      157            32          125

CENTER SOLD:
  Page Factory Stores........      (14)            -          (14)
                                ---------     --------     --------

Net GLA added during the period    707           596          111

GLA at end of period.........    3,530         3,530        2,934



<PAGE>


RESULTS OF OPERATIONS

Comparison of the three months ended September 30, 1996 to the three months
ended September 30, 1995.

Net income before minority interest and extraordinary item increased $0.8
million to $8.1 million for the three months ended September 30, 1996 from $7.3
million for the three months ended September 30, 1995. The increase was
primarily due to increases in revenues offset by interest on borrowings and
increases in depreciation and amortization.

Base rentals increased $2.8 million, or 23.8%, to $14.7 million for the three
months ended September 30, 1996 from $11.9 million for the three months ended
September 30, 1995 due to expansions, new center openings and higher average
rents.

Percentage rents increased $0.6 million to $2.0 million for the three months
ended September 30, 1996, from $1.4 million for the three months ended September
30, 1995. The increase was primarily due to increases in tenant sales at the
Company's larger centers and an increase in tenants contributing percentage
rents.

Expense reimbursements, representing contractual recoveries from tenants of
certain common area maintenance, operating, real estate tax, promotional and
management expenses, increased $0.8 million, or 14.1%, to $6.0 million for the
three months ended September 30, 1996 from $5.2 million for the three months
ended September 30, 1995, due to the recovery of operating and maintenance costs
at new and expanded centers. The average recovery of reimbursable expenses was
92.2% in the third quarter of 1996, without adjustments of $0.2 million as a
result of the final computation of expense reimbursement billings in the third
quarter 1996, compared to 92.9% in the third quarter of 1995.

Other income increased $0.3 million to $0.6 million for the three months ended
September 30, 1996, from $0.3 million for the three months ended September 30,
1995, primarily as a result of increased interest and lease termination
settlements in the 1996 period.

Interest in excess of amounts capitalized increased $1.3 million to $2.5 million
for the three months ended September 30, 1996 from $1.2 million for the three
months ended September 30, 1995 due to higher debt balances and the opening of
centers and expansions financed during 1995 and 1996.

Operating and maintenance expenses increased $1.1 million, or 19.5%, to $6.7
million for the three months ended September 30, 1996 from $5.6 million for the
three months ended September 30, 1995. The increase was primarily due to costs
related to expansions and new centers.

Depreciation and amortization expense increased $1.1 million, or 32.1%, to $4.6
million for the three months ended September 30, 1996 from $3.5 million for the
three months ended September 30, 1995. The increase was primarily related to
expansions and new centers.

General and administrative expenses increased $0.1 million to $0.8 million for
the three months ended September 30, 1996 from $0.7 million for the three months
ended September 30, 1995. The increase was primarily due to increased personnel
and overhead costs.


<PAGE>


Other expenses increased $0.1 million to $0.6 million for the three months ended
September 30, 1996 from $0.5 million for the three months ended September 30,
1995. The increase included additional reserves for bad debts and legal fees.

Comparison of the nine months ended September 30, 1996 to the nine months ended
September 30, 1995.

Net income before minority interest and extraordinary item increased $1.6
million to $23.4 million for the nine months ended September 30, 1996, from
$21.8 million for the nine months ended September 30, 1995. The increase was
primarily due to increases in revenues offset by interest on borrowings and
increases in depreciation and amortization.

Base rentals increased $7.5 million, or 22.3%, to $41.2 million for the nine
months ended September 30, 1996, from $33.7 million for the nine months ended
September 30, 1995, due to expansions, new center openings and higher average
rents.

Percentage rents increased $1.2 million to $3.7 million for the nine months
ended September 30, 1996 from $2.5 million for the nine months ended September
30, 1995. The increase was primarily due to increases in tenant sales,
expansions at the Company's larger centers and increases in tenants contributing
percentage rents.

Expense reimbursements, representing contractual recoveries from tenants of
certain common area maintenance, operating, real estate tax, promotional and
management expenses, increased $2.4 million, or 16.4%, to $16.8 million for the
nine months ended September 30, 1996 from $14.4 million for the nine months
ended September 30, 1995, due to the recovery of operating and maintenance costs
at new and expanded centers. The average recovery of reimbursable expenses was
93.1% in 1996, without adjustments of $0.2 million as a result of the final
computation of expense reimbursement billings in the third quarter of 1996,
compared to 94.3% in 1995.

Other income increased $0.6 million to $1.6 million for the nine months ended
September 30, 1996 from $1.0 million for the nine months ended September 30,
1995. The increase was primarily a result of increased interest and lease
termination settlements in the 1996 period.

Interest in excess of amounts capitalized increased $3.9 million to $5.9 million
for the nine months ended September 30, 1996 from $2.0 million for the nine
months ended September 30, 1995 due to higher debt balances and the opening of
centers and expansions financed during 1995 and 1996.

Operating and maintenance expenses increased $3.0 million, or 19.5%, to $18.3
million for the nine months ended September 30, 1996 from $15.3 million for the
nine months ended September 30, 1995. The increase was primarily due to costs
related to expansions and new centers.

Depreciation and amortization expense increased $2.8 million, or 30.3%, to $11.8
million for the nine months ended September 30, 1996 from $9.0 million for the
nine months ended September 30, 1995. The increase was primarily related to
expansions and new centers.

General and administrative expenses increased $0.2 million to $2.3 million for
the nine months ended September 30, 1996 from $2.1 million for the nine months
ended September 30, 1995. The increase was primarily due to increased personnel
and overhead costs in connection with increased GLA.

Other expenses increased $0.3 million to $1.6 million for the nine months ended
September 30, 1996 from $1.3 million for the nine months ended September 30,
1995. The increase included additional reserves for bad debts, legal fees and
tenant improvement write-offs.

In March 1996, the Company replaced its Secured Facility. Deferred financing
costs of $0.6 million, net of minority interest of $0.3 million, were expensed
in connection with the early retirement of the Secured Facility.

LIQUIDITY AND CAPITAL RESOURCES

The Company believes it has adequate financial resources to fund operating
expenses, dividends and distributions, and planned development and construction
activities. Operating cash flow during 1996 is expected to increase with a full
year of operations of the 606,000 square feet of GLA added during 1995 and
scheduled openings of approximately 671,000 square feet (including two new
centers and expansions) in 1996. In addition, at September 30, 1996 the Company
had $21.0 million available under its Unsecured Facility, access to the public
markets through its debt ($100 million) and equity ($200 million) shelf
registrations, and cash equivalents of $7.7 million.

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.

Dividends and distributions declared and recorded during the nine months ended
September 30, 1996 were $29.5 million, or $1.725 per share or unit. The
Company's dividend payout ratio as a percentage of net income before
depreciation and amortization, exclusive of amortization of deferred financing
costs, minority interest and extraordinary item ("FFO") was 87.2% during the
nine months ended September 30, 1996. The Unsecured 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 January 1996, the Company's Operating Partnership completed a $100 million
public offering of 7.75% unsecured notes due January 2001 (the "Notes"), which
are guaranteed by the Company. The five-year non-callable Notes were priced at a
discount of 99.592 to yield 7.85% to investors. Net proceeds from the offering
were used to repay substantially all borrowings under the Secured Facility.

In March 1996, the Company replaced its Secured Facility with the $100 million
Unsecured Facility. The Company had $21.0 million available for growth and
liquidity at September 30, 1996. Interest on the outstanding balance is payable
monthly at a rate equal to LIBOR plus 1.75%, or the prime rate, at the Company's
option. A fee on the unused portion of the Unsecured Facility is payable
quarterly at a rate of 0.25% per annum. The Unsecured Facility can be increased
at any time up to $200 million with the approval of the bank group.

In October 1996, the Company's Operating Partnership completed a $100 million
offering of Reset Notes, which are guaranteed by the Company. The interest rate
will reset quarterly and will equal LIBOR plus 75 basis points during the first
year. Net proceeds from the offering were used to repay all of the borrowings
under the Unsecured Facility.

<PAGE>
The Company is in the process of developing other expansions and new centers for
completion in 1997 and beyond. The projects include a 300,000 square foot
expansion at Woodbury Common, and a new project in Wrentham, Massachusetts
(located near the junction of Interstates 95 and 495 between Boston, MA and
Providence, RI) with an expected initial phase of 200,000 square feet of GLA.
These projects are in various stages of development and there can be no
assurance that any of these projects will be completed or opened, or that there
will not be delays in the opening or completion of any of them. The Company
anticipates development and construction costs of $80 million to $100 million
annually.

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; (iv) maintaining a significant level of unencumbered assets; and (v)
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.

It is the Company's policy to limit its borrowings to less than 40% of total
market capitalization (defined as the value of outstanding shares of common
stock on a fully diluted basis including conversion of partnership units to
common stock, plus total debt). Using a September 30, 1996 closing price of
$30.625 per common share, the Company's ratio of debt to total market
capitalization was approximately 25%.

Net cash provided by operating activities was $36.5 million and $26.2 million
for the nine months ended September 30, 1996 and 1995, respectively. The
increase was primarily due to increased operations, decreases in accounts
receivable and increases in accrued interest on the Notes. Net cash used in
investing activities increased $21.8 million for the nine months ended September
30, 1996 compared to the corresponding 1995 period, primarily as a result of
increased development activity. Net cash provided by financing activities
increased $19.3 million primarily due to the issuance of the Notes, offset by
repayment of the Secured Facility.


<PAGE>


FUNDS FROM OPERATIONS

Management believes that, to facilitate a clear understanding of the operating
results of the Company, FFO should be considered in conjunction with net income
as presented in the condensed consolidated financial statements. Analysts
generally consider FFO an appropriate measure of performance for an equity real
estate investment trust. FFO is generally defined by the National Association of
Real Estate Investment Trusts ("NAREIT") as net income or loss plus certain
non-cash items, primarily depreciation and amortization. FFO should not be
considered an alternative to net income as an indicator of operating performance
or to cash from operations under generally accepted accounting principles, and
is not necessarily indicative of cash available to fund cash needs.

In March 1995, NAREIT issued a clarification of its definition of FFO. For
illustrative purposes, the following table presents the Company's FFO under both
methods of calculation for the three and nine months ended September 30, 1996
and 1995:
<TABLE>
<CAPTION>

                                                 CURRENT METHOD                 OLD METHOD
                                              ----------------------------- ----------------------------
                                             THREE         NINE            THREE        NINE
                                            MONTHS         MONTHS         MONTHS         MONTHS

                                          ENDED          ENDED          ENDED         ENDED
                                         SEPTEMBER 30   SEPTEMBER 30   SEPTEMBER 30   SEPTEMBER 30
                                         -------------- -------------- -------------- -------------
                                          1996   1995    1996   1995    1996   1995    1996   1995
                                      ------ ------  ------ ------  ------ ------  ------ ------
<S>                                       <C>    <C>         <C>    <C>      <C>    <C>       <C>    <C>

 Net income before       
extraordinary item.......                 $5,593 $4,793      $15,810 $ 14,322 $5,593  $4,793  $15,810  $14,322 
 Add back:

 Depreciation and         
 amortization(1)                           4,539  3,449        11,604    8,936  4,539   3,449   11,604   8,936

 Amortization of  deferred
 financing costs and  depreciation
 of non-real estate assets.                (264)  (433)        (920)    (708)     -      -       -       -

  Minority interest in the
 Operating Partnership(1)                  2,492  2,421       7,386    7,234    2,492  2,421   7,386    7,234
                                          ------ ------                 ------ ------
                                          ====== ======      ======    ======  ======  ======  ======  ======
 FFO.......                              $12,360 $10,230    $33,880  $29,784  $12,624  $10,663 $34,800 $30,492
                                           ====== ======     ======   ======  ======   ======  ======  ======
 Weighted average shares/units
 outstanding                              17,305 17,007      17,220   16,815   17,305   17,007  17,220 16,815
---------------------------------------
(1) Excludes depreciation and minority interest attributed to a third-party
limited partner's interest in a partnership.
</TABLE>
<PAGE>


                     CHELSEA GCA REALTY, 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 GCA REALTY, INC.



                                      By:   /S/  LESLIE T. CHAO  
                                            Leslie T. Chao
                                            Executive Vice
                                            President and
                       
                     Chief Financial Officer

Date:  November 12, 1996