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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 1934For the quarterly period ended June 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. 1-12328CHELSEA 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 16,736,003 at August 6, 2001.

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Chelsea Property Group, Inc.
Index

Part I.  Financial Information

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

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

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

| | Condensed Consolidated Statements of Cash Flows
     for the six months ended June 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 | 14
|------- | ------------------------------------------------------------------------------------------ | --

|Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 21
|------- | ---------------------------------------------------------- | --

Part II.  Other Information

|Item 4. | Submission of Matters to a Vote of Security Holders | 22
|------- | --------------------------------------------------- | --

|Item 6. | Exhibits and Reports on Form 8-K | 22
|------- | -------------------------------- | --

|Signatures | 23
|---------- | --

Item 1.  Financial Statements

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

`June 30,     December 31,
                                                                            2001                2000
                                                                     -----------------  -----------------
Assets                                                                 (Unaudited)
Rental properties:
     Land............................................................     $ 118,613          $ 118,238
     Depreciable property............................................       801,007            790,106
                                                                     -----------------  -----------------
Total rental property................................................       919,620            908,344
Accumulated depreciation.............................................      (196,253)          (175,692)
                                                                     -----------------  -----------------
Rental properties, net...............................................       723,367            732,652
Cash and cash equivalents............................................        42,349             18,036
Investments in affiliates............................................        94,692             89,062
Notes receivable-related parties.....................................           490              2,216
Deferred costs, net..................................................        17,038             14,886
Other assets.........................................................        37,090             44,462
                                                                     -----------------  -----------------
Total assets.........................................................     $ 915,026          $ 901,314
                                                                     =================  =================

Liabilities and stockholders' equity
Liabilities:
     Unsecured bank debt.............................................     $  5,035           $ 35,035
     Unsecured Notes due 2001 - 2011.................................      373,221            324,542
     Mortgage debt...................................................       95,407             90,776
     Construction payables...........................................        7,783             10,001
     Accounts payable and accrued expenses...........................       37,834             43,507
     Obligation under capital lease..................................        2,428              2,714
     Accrued dividend and distribution payable.......................       16,484              3,910
     Other liabilities...............................................       12,606             18,267
                                                                     ----------------  -----------------
Total liabilities....................................................      550,798            528,752

Commitments and contingencies

Minority interest....................................................       97,435            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 16,190 in 2001 and 15,957 in 2000......          162                160
     Paid-in-capital.................................................      351,591            348,141
     Distributions in excess of net income...........................      (84,095)           (76,829)
     Accumulated other comprehensive loss............................         (875)              (123)
                                                                     -----------------  -----------------
Total stockholders' equity...........................................      266,793            271,359
                                                                     -----------------  -----------------
Total liabilities and stockholders' equity...........................    $ 915,026          $ 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 Six Months Ended June 30, 2001 and 2000
(Unaudited)(In thousands, except per share data)

`Three Months               Six Months
                                                               Ended June 30,            Ended June 30,
                                                             2001        2000          2001          2000
                                                             ----        ----          ----          ----
Revenues:
   Base rent........................................       $28,651      $26,607        $57,402     $52,858
   Percentage rent..................................         3,029        3,183          5,800       5,749
   Expense reimbursements...........................        11,797       10,231         22,421      19,005
   Other income.....................................         2,820        2,085          5,498       4,033
                                                          ---------     -------       --------     -------
Total revenues......................................        46,297       42,106         91,121      81,645
                                                          ---------     -------       --------     -------

Expenses:
   Operating and maintenance........................        12,608       11,485         24,726      21,340
   Depreciation and amortization....................        11,746       10,329         23,305      21,207
   General and administrative.......................         1,125          982          2,208       1,740
   Other............................................           681          626          1,463       1,164
                                                          ---------     -------       --------     -------
Total expenses......................................        26,160       23,422         51,702      45,451
                                                          ---------     -------       --------     -------

Income before unconsolidated investments,
interest expense and minority interest..............        20,137       18,684         39,419      36,194

Income from unconsolidated investments..............         3,285          389          6,556         444
Loss from Chelsea Interactive.......................          (772)        (275)        (1,970)       (275)
Interest expense....................................        (8,820)      (5,731)       (17,435)    (11,368)
                                                          ---------     --------       -------     -------

Income before minority interest.....................        13,830       13,067         26,570      24,995

Minority interest...................................        (3,309)      (3,300)        (6,496)     (6,401)
                                                          ---------     --------        -------     -------

Net income..........................................        10,521        9,767         20,074      18,594

Preferred dividend..................................        (1,047)      (1,047)        (2,094)     (2,094)
                                                          ---------      -------       --------     -------

Net income to common shareholders...................        $9,474       $8,720        $17,980     $16,500
                                                          =========     ========       ========    =======

Basic:
Net income per common share.........................         $0.59        $0.55          $1.12       $1.04
Weighted average common shares outstanding..........        16,180       15,936         16,119      15,935

Diluted:
Net income per common share.........................         $0.57        $0.54          $1.09       $1.03
Weighted average common shares and equivalents
outstanding.........................................        16,688       16,166         16,571      16,089`

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

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

`2001               2000
                                                                         --------------     -------------
Cash flows from operating activities
Net income.......................................................            $20,074            $18,594
Adjustments to reconcile net income to net cash
   provided by operating activities:
    Depreciation and amortization................................             23,305             21,207
    Equity-in-earnings of unconsolidated investments
      in excess of distributions received........................               (939)              (444)
    Loss from Chelsea Interactive................................              1,970                275
    Minority interest in net income..............................              6,496              6,401
    Proceeds from non-compete receivable.........................              4,600              4,600
    Amortization of non-compete revenue..........................             (2,568)            (2,568)
    Additions to deferred lease costs............................               (417)              (213)
    Other operating activities...................................               (232)                74
    Changes in assets and liabilities:
      Straight-line rent receivable..............................               (647)              (699)
      Other assets...............................................              5,192              8,033
      Accounts payable and accrued expenses......................             (1,585)               830
                                                                          --------------     -------------
Net cash provided by operating activities........................             55,249             56,090
                                                                          --------------     -------------

Cash flows used in investing activities
Additions to rental properties...................................            (13,937)           (30,309)
Additions to investments in affiliates...........................            (15,818)           (13,154)
Additions to other assets........................................             (5,000)              -
Distributions from investments in affiliates in excess
   of earnings...................................................              4,360               -
Additions to deferred development costs..........................             (2,067)               (45)
Proceeds from sale of center.....................................                -                3,372
Payments from related parties....................................              1,726               -
                                                                           --------------     -------------
Net cash used in investing activities............................            (30,736)           (40,136)
                                                                           --------------     -------------

Cash flows used in financing activities
Distributions....................................................            (22,612)           (21,904)
Debt proceeds....................................................            157,664             82,458
Repayments of debt...............................................           (134,500)           (76,250)
Additions to deferred financing costs............................             (1,969)            (2,252)
Net proceeds from sale of common stock...........................              1,217                 92
                                                                           --------------     -------------
Net cash used in financing activities............................               (200)           (17,856)
                                                                           --------------     -------------

Net increase (decrease) in cash and cash equivalents.............             24,313             (1,902)
Cash and cash equivalents, beginning of period...................             18,036              8,862
                                                                           --------------     -------------
Cash and cash equivalents, end of period.........................            $42,349             $6,960
                                                                           ==============     =============`

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. As of June 30, 2001, the Company had interests in
27 properties in fifteen states and Japan (the "Properties") that contained
approximately 8.2 million square feet of gross leasable area ("GLA"). The
Company's existing portfolio includes properties in or 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 also has a number of properties under development and
expansion.

The Company has developed a new 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.

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 June 30, 2001 was approximately
as follows:

`Company                      83.7%             16,190,000  units
            Unitholders                  16.3%              3,155,000  units
                                       -----------     ---------------
                        Total           100.0%             19,345,000`

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 six month
periods ended June 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
generally accepted accounting principles 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.

The Company is principally engaged in the development,
ownership, acquisition and operation of manufacturers' outlet centers and has
one reportable segment, retail real estate. The Company evaluates real estate
performance and allocates resources based on net operating income and weighted
average sales per square foot. 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 segment meets the
quantitative threshold for determining reportable segments.

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 shareholders' 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. Investments in Affiliates

The Company holds interests in several domestic and
international joint ventures including a 49% interest in F/C Acquisition
Holdings, LLC ("F/C Acquisition"), 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").

Non-controlling investments are accounted for under the equity
method. Equity in earnings or losses of these affiliates and related management
advisory, license and guarantee fees earned are included in income from
unconsolidated investments and loss from Chelsea Interactive in the accompanying
consolidated financial statements.

Following is a summary of investment in affiliates accounted for under
the equity method as of June 30, 2001 (in thousands):

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

Balance 12/31/00          $33,079     $6,245    $13,391     $29,899         $4,742      $1,706     $89,062
Additional investment       1,528        142          -       9,334            318           -      11,322
Income from
  uncons. invest. (1)       1,917        560      1,536      (1,970)           110         (81)      2,072
Distributions              (1,567)         -     (6,197)          -              -           -      (7,764)
                        ----------  ---------- ----------  -----------    ---------    ---------  -----------
Balance 6/30/01           $34,957     $6,947     $8,730     $37,263         $5,170      $1,625     $94,692
                        ==========  ========== ==========  ===========    =========    =========  ===========`

|(1) | Excludes income from fees of $995 from F/C Acquisition, $996 from
Chelsea Japan and $523 from Simon.
|--- | ----------------------------------------------------------------------------------------------------

During the three and six months ended June 30, 2001 and 2000, investments in
affiliates contributed to the Company's income from unconsolidated investments
as follows (in thousands):

`For the Three Months Ended June 30,
                                       2001                                        2000
                     ---------------------------------------   ---------------------------------------------
                       Inc. from                                  Inc. from
                       Unconsol.                Inc. from         Unconsol.                      Inc. from
                     Inv. Before                Unconsol.       Inv. Before                      Unconsol.
                        Depr.           Depr.     Inv.             Depr.           Depr.           Inv.

F/C Acquisition           $2,088         $660      $1,428        $     -          $     -         $  -
Chelsea Japan              1,304          366         938              -                -            -
Simon                      1,512          566         946            334                -          334
Other                        (27)           -         (27)            55                -           55
                     --------------   ---------  -----------    --------------    ---------    --------------
   Total                  $4,877       $1,592      $3,285           $389          $     -         $389
                     ==============   =========  ===========    ==============    =========    ==============

Chelsea Interactive        ($299)        $473       ($772)         ($192)             $83        ($275)
                     ==============   =========  ===========    ==============    =========    ==============


                                                    For the Six Months Ended June 30,
                                          2001                                             2000
                      ---------------------------------------------    ---------------------------------------------
                       Inc. from                               Inc. from
                       Unconsol.               Inc. from         Unconsol.                      Inc. from
                     Inv. Before               Unconsol.       Inv. Before                      Unconsol.
                        Depr.        Depr.       Inv.             Depr.              Depr.        Inv.

F/C Acquisition         $4,229       $1,317      $2,912            $    -            $     -       $   -
Chelsea Japan            2,175          619       1,556                 -                  -           -
Simon                    3,195        1,136       2,059               334                  -          334
Other                       29            -          29               110                  -          110
                   -------------- ---------    --------------    --------------    ---------    --------------
   Total                $9,628       $3,072      $6,556            $  444               $  -       $  444
                   ============== =========    ==============    ==============    =========    ==============

Chelsea Interactive      ($917)      $1,053     ($1,970)          ($  192)             $ 83       ($ 275)
                   ============== =========    ==============    ==============    =========    ==============`

4. Non-Compete Agreement

The Company recognized income from its non-compete agreement with The Mills
Corporation of $2.6 million during the six months ended June 30, 2001 and 2000.
Such amounts are included in other income.

5. Debt

The Company has a $160 million senior unsecured bank line of
credit (the "Senior Credit Facility") that expires on March 30, 2003. The Company
has an annual right to request a one-year extension of the Senior Credit
Facility which may be granted at the option of the lenders. Lenders representing
$145 million extended 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% (4.92% at June
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 June
30, 2001, the entire $160 million was available under the Senior Credit
Facility.

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 June 30, 2001
and December 31, 2000 is as follows:

`June 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....             124,793               124,776             7.29%
8.625% Unsecured Notes due August 2009....              49,917                49,902             8.66%
8.25% Unsecured Notes due February 2011...             148,623                     -             8.40%
                                               -------------------- ---------------------
   Total                                              $373,221              $324,542
                                               ==================== =====================`

|(1) | Including discount on the notes
|--- | -------------------------------

In April 2000, Chelsea Financing entered into a $70 million mortgage loan
secured by four of its properties that matures April 2010 and bears interest at
a rate equal to LIBOR plus 1.50% (5.56% at June 30, 2001) or prime rate plus
1.00%. The mortgage requires quarterly principal amortization of $0.3 million
through April 2005 and $0.5 million thereafter. At June 30, 2001, $68.7 million
was outstanding. In December 2000, Chelsea Financing entered into an interest
rate swap agreement effective January 2, 2001 with a 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. As of June 30, 2001, the Company
recognized net interest expense of $0.2 million on the hedge which is included
in interest expense.

In February 2000, Chelsea Allen entered into a $40.0 million construction loan
facility used to fund phase one of Allen Premium Outlets. The loan matures
February 2003, bears interest on the outstanding balance at a rate equal to
LIBOR plus 1.375% (5.17% at June 30, 2001) and is secured by the center and
guaranteed by the Company and the OP. At June 30, 2001, $26.7 million was
outstanding.

Interest and loan costs of approximately $0.5 million and $1.1 million were
capitalized as development costs during the three months ended June 30, 2001 and
2000, respectively; and approximately $1.1 million and $2.2 million during the
six months ended June 30, 2001 and 2000, respectively.

6. 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 some or all 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 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 June 30, 2001, there was $0.8 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 June 30, 2001
                                   -------------------------------------------------------------
               Hedge Type            Notional Value       Rate       Maturity      Fair Value

      1) Swap, Cash Flow                $68.7 mil       5.7625%       1/1/06       ($0.8 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 June 30, 2001 but do not represent exposure to credit, interest
rate or market risks.

On June 30, 2001, the derivative instrument was reported at its
fair value as other liabilities of $0.8 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 $0.2 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 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.

7. Stockholders' Equity

Following is a statement of stockholders' equity for the six
months ended June 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.......................        -          -           -     20,074             -        20,074
Other comprehensive loss
  Foreign currency translation...        -          -           -          -           (52)          (52)
  Interest rate swap.............        -          -           -          -          (700)         (700)
                                                                                               ----------
Total comprehensive income.......                                                                 19,322

Preferred dividend...............        -          -           -     (2,094)            -        (2,094)
Cash distributions declared
     ($1 56 per common share)....        -          -           -    (25,246)            -       (25,246)
Exercise of stock options........        -          -       1,181          -             -         1,181
Shares issued in exchange
     for units of the OP.........        -          2       2,233          -             -         2,235
Shares issued through Employee
     Stock
     Purchase Plan
      (net of costs).............        -          -          36          -             -            36

                                 ---------   --------    --------    -------       -------        -------
Balance June 30, 2001...........       $10       $162    $351,591   ($84,095)        ($875)      $266,793
                                 =========   ========    ========    =======       =======        =======`

8. Dividends

On June 7, 2001, the Board of Directors of the Company declared
a $0.78 per share dividend to shareholders of record on June 30, 2001. The
dividend, totaling $12.6 million, was paid on July 16, 2001. The OP
simultaneously paid a $0.78 per unit cash distribution, totaling $2.5 million,
to its minority unitholders.

9. Income Taxes

At June 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.

10. 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 0.5 million shares and 0.2 million shares for the three and six months
ended June 30, 2001 and June 30, 2000, respectively.

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

`Three Months Ended       Six Months Ended
                                                                   June 30,               June 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......................   $9,474     $8,720      $17,980       $16,500

Denominator
Denominator for basic earnings per share - weighted
   average shares.........................................   16,180     15,936       16,119        15,935
Effect of dilutive securities:
   Stock options..........................................      508        230          452           154
Denominator for diluted earnings per share - adjusted
   weighted-average shares and assumed conversions........   16,688     16,166       16,571        16,089

Per share amounts:
   Net income - basic.....................................    $0.59      $0.55        $1.12         $1.04
   Net income - diluted...................................    $0.57      $0.54        $1.09         $1.03`

11. Commitments and Contingencies

The 50/50 Orlando Premium Outlets ("OPO") joint venture with
Simon has a $66 million construction loan that matures March 2002 and bears
interest at LIBOR plus 1.30% (5.59% at June 30, 2001). The loan is 10%
guaranteed by each of the Company and Simon and as of June 30, 2001, $58.2
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 $32.1 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% (1.475% at June 30, 2001)
and matures April 2002. At June 30, 2001, 1.32 billion yen (approximately US
$10.6 million) was outstanding under the loan. In March 2000, Chelsea Japan
entered into a 3.8 billion yen (approximately US $30.5 million) loan with a bank
to fund construction costs. As of June 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 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 June 30, 2001, the
Company had provided limited debt service guarantees of approximately $14.3
million to Value Retail PLC.

Other assets includes $4.5 million at June 30, 2000, and accrued
expenses and other liabilities include $14.4 million and $14.6 million in 2001
and 2000, respectively, related to a deferred unit incentive program with
certain key officers to be paid in 2002. Also included is $2.8 million in 2001
and $7.4 million in 2000 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.

12. Related Party Information

In 2001 the Company received a $1.2 million payoff for one of
the loans outstanding to unitholders and a $0.5 million pay down on the other
unitholder loan. At June 30, 2001 and 2000, $0.5 million and $2.2 million was
due from the unitholders, respectively.

13. Subsequent Events

On July 16, 2001, the Company announced that it had entered into
a definitive agreement to purchase a portfolio of retail centers from Konover
Property Trust, Inc. ("Konover"), for a purchase price of approximately $180
million and posted a $5.0 million escrow deposit. Closing is expected to take
place in the third quarter of 2001.

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 $46.00 per
share, yielding proceeds of $25 million that may be used to partially fund the
acquisition of the Konover assets and for general corporate purposes.

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 July 1, 2000 to June 30, 2001, the Company grew by
increasing rents at its operating centers, opening four new centers, expanding
three centers and acquiring four centers. Increasing rents at comparable centers
resulted in base rent growth of $0.8 million. The opening of one wholly-owned
new center and expansion of three wholly-owned centers increased base rent by
$1.6 million and $2.1 million, respectively. Income from unconsolidated
investments increased by $6.1 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 June 30,
2001 of 8.2 million square feet including wholly and partially-owned GLA
compared to 5.6 million square feet at June 30, 2000 and had an interest in 27
manufacturers' outlet centers at June 30, 2001 compared to 20 at the end of the
same quarter in the prior year.

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

`12 mos ended     6 mos ended      6 mos ended
                                                        June 30,        June 30,       December 31,
                                                         2001             2001             2000
                                                     -------------    -------------    -------------
Changes in GLA (sf in 000's):

New centers developed:
    Gotemba Premium Outlets (40% owned)..............       220                -              220
    Allen Premium Outlets............................       206                -              206
    Rinku Premium Outlets (40% owned)................       180                -              180
    Orlando Premium Outlets (50% owned)..............        88                -               88
                                                     -------------    -------------    -------------
Total new centers....................................       694                -              694

Centers expanded:
    Wrentham Premium Outlets.........................       127                -              127
    Leesburg Premium Outlets.........................       104                -              104
    Allen Premium Outlets............................        34               34                -
                                                     -------------    -------------    -------------
Total centers expanded...............................       265               34              231

Centers acquired (49% owned):
    Gilroy Premium Outlets...........................       577                -              577
    Lighthouse Place.................................       491                -              491
    Waterloo Premium Outlets.........................       392                -              392
    Kittery Premium Outlets..........................       131                -              131
                                                     -------------    -------------    -------------
Total centers acquired...............................     1,591                -            1,591

Net GLA added during the period......................     2,550               34            2,516

GLA at end of period.................................     8,193            8,193            5,643`

Results of Operations

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

Income before minority interest increased $0.7 million to $13.8
million for the three months ended June 30, 2001 from $13.1 million for the
three months ended June 30, 2000. Increases in revenues, primarily the result of
new center development, expansions, and higher rents on releasing and renewals,
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 $2.1 million, or 7.7%, to $28.7 million
for the three months ended June 30, 2001 from $26.6 million for the three months
ended June 30, 2000 due to the fourth quarter 2000 opening of Allen Premium
Outlets, expansions and higher average rents on new leases and renewals.

Percentage rents decreased $0.2 million or 4.8% to $3.0 million
for the three months ended June 30, 2001, from $3.1 million for the three months
ended June 30, 2000. The decrease was primarily due to changes of some tenants
from overage to base rent.

Expense reimbursements, representing contractual recoveries from
tenants of certain common area maintenance, operating, real estate tax,
promotional and management expenses, increased $1.6 million, or 15.3%, to $11.8
million for the three months ended June 30, 2001 from $10.2 million for the
three months ended June 30, 2000, due to the recovery of operating and
maintenance costs from increased GLA. The average recovery of reimbursable
expenses was 93.6% in the second quarter of 2001, compared to 89.1% in the
second quarter of 2000, due to the recovery of operating expenses in the second
quarter of 2001 reserved against in 2000.

Other income increased $ 0.7 million to $2.8 million for the
three months ended June 30, 2001, from $2.1 million for the three months ended
June 30, 2000. The increase is primarily the result of increased interest and
ancillary income.

Operating and maintenance expenses increased $1.1 million, or
9.8%, to $12.6 million for the three months ended June 30, 2001 from $11.5
million for the three months ended June 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 $1.4 million, or
13.7%, to $11.7 million for the three months ended June 30, 2001 from $10.3
million for the three months ended June 30, 2000. The increase was due to
depreciation of expansions and the new center opening.

General and administrative expense increased $0.1 million to
$1.1 million for the three months ended June 30, 2001 from $1.0 million for the
three months ended June 30, 2000 primarily due to increased salaries.

Other expenses increased $0.1 million to $0.7 million for the
three months ended June 30, 2001 from $0.6 million for the three months ended
June 30, 2000 primarily due to increased bad debt expense.

Income from unconsolidated investments increased $2.9 million to
$3.3 million for the three months ended June 30, 2001 from $0.4 million for the
three months ended June 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 $0.5 million to $0.8
million for the three months ended June 30, 2001 from $0.3 million for the three
months ended June 30, 2000 due to increased depreciation, selling, general,
administrative and maintenance expenses.

Interest in excess of amounts capitalized increased $3.1 million
to $8.8 million for the three months ended June 30, 2001 from $5.7 million for
the three months ended June 30, 2000 primarily due to higher debt balances and
lower construction balances.

Comparison of the six months ended June 30, 2001 to the six
months ended June 30, 2000.

Income before minority interest increased $1.6 million to $26.6
million for the six months ended June 30, 2001 from $25.0 million for the six
months ended June 30, 2000. Increases in revenues, primarily the result of new
center development, expansions, and higher rents on releasing and renewals, 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 $4.5 million, or 8.6%, to $57.4 million
for the six months ended June 30, 2001 from $52.9 million for the six months
ended June 30, 2000 due to the fourth quarter 2000 opening of Allen Premium
Outlets, expansions and higher average rents on new leases and renewals.

Percentage rents increased $0.1 million or 1.0% to $5.8 million
for the six months ended June 30, 2001 from $5.7 million for the six months
ended June 30, 2000 primarily due to sales of new tenants at the Company's
centers during the first quarter of 2001.

Expense reimbursements, representing contractual recoveries from
tenants of certain common area maintenance, operating, real estate tax,
promotional and management expenses, increased $3.4 million, or 18.0%, to $22.4
million for the six months ended June 30, 2001 from $19.0 million for the six
months ended June 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 six months ended June 30, 2001, compared to 89.1% for the six
months ended June 30, 2000.

Other income increased $1.5 million to $5.5 million for the six
months ended June 30, 2001, from $4.0 million for the six months ended June 30,
2000. The increase is primarily the result of increased interest and ancillary
income.

Operating and maintenance expenses increased $3.4 million, or
15.9%, to $24.7 million for the six months ended June 30, 2001 from $21.3
million for the six months ended June 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 $2.1 million, or
9.9%, to $23.3 million for the six months ended June 30, 2001 from $21.2 million
for the six months ended June 30, 2000. The increase was due to depreciation of
expansions and the new center opening.

General and administrative expense increased $0.5 million to
$2.2 million for the six months ended June 30, 2001 from $1.7 million for the
six months ended June 30, 2000 primarily due to increased salaries.

Other expenses increased $0.3 million to $1.5 million for the
six months ended June 30, 2001 from $1.2 million for the six months ended June
30, 2000. The increase was primarily due to increases in bad debt, offset by a
2000 write-off of deferred site expense.

Income from unconsolidated investments increased $6.1 million to
$6.5 million for the six months ended June 30, 2001 from $0.4 million for the
six months ended June 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 $1.7 million to $2.0
million for the six months ended June 30, 2001 from $0.3 million for the six
months ended June 30, 2000 due to increased depreciation, administrative and
maintenance expenses.

Interest in excess of amounts capitalized increased $6.0 million
to $17.4 million for the six months ended June 30, 2001 from $11.4 million for
the six months ended June 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 in 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 a planned acquisition. As of June 30, 2001, the
Company has adequate funding sources to complete and open all of its current
development projects, including those of its e-commerce affiliate, Chelsea
Interactive, Inc., through the use of available cash of $42.3 million; a
yen-denominated line of credit totaling 4 billion yen (US $32.1 million) for the
Company's share of projects in Japan; and approximately $160 million available
under its Senior Credit Facility. The Company also completed a $25 million
equity offering in July 2001 and has the ability to access the public markets
through its $450 million debt shelf registration and its $275 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 six months
ended June 30, 2001 were $30.2 million, or $1.56 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 64.1% for the six months ended June 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.

During the fifteen month period ended July 2001, the Company
completed four new debt financing transactions totaling $360 million, both
secured and unsecured, and the sale of common stock totaling $25 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.

On July 16, 2001, the Company announced that it had entered into
a definitive agreement to purchase a portfolio of retail centers from Konover
for a purchase price of approximately $180 million including the assumption of
debt of approximately $135 million. Proceeds from the equity offering and cash
on hand are available to fund the balance of the purchase price. Closing is
expected to take place in the third quarter of 2001. On July 16, 2001 the Company
posted a $5.0 million escrow deposit.

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 $46.00 per
share, yielding proceeds of $25 million that may be used to partially fund the
acquisition of the Konover assets and for general corporate purposes.

In January 2001, the OP completed a $150 million offering of
8.25% Senior 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 June 30, 2001 includes an additional
phase of Allen Premium Outlets, totaling 120,000 square feet scheduled to open
during 2001, the 71,000 square foot second phase of Rinku Premium Outlets,
located outside Osaka, Japan, scheduled to open during the second quarter 2002
and Chelsea Interactive. The Company is also in the predevelopment stage of
projects outside Chicago, IL, Seattle, WA and Las Vegas, NV, that are expected to
open in late 2002 to early 2003. 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 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, are currently
open and operated by Value Retail PLC and its affiliates. Three 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 June 30, 2001 was $5.2 million. The Company has
also agreed under a standby facility to provide up to $22 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 June 30, 2001, the Company had provided limited debt
service guarantees of $14.3 million for three projects.

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 decreased $0.8 million
for the six months ended June 30, 2001 compared to the corresponding 2000
period, primarily due to the reduction of trade accounts payable and increased
accounts receivable. Net cash used in investing activities decreased $9.4
million for the six months ended June 30, 2001 compared to the corresponding
2000 period, as a result of decreased construction activity, increased
distributions from joint venture investments and receipt of payments on the
notes receivable, offset by the equity requirements of Chelsea Interactive and
proceeds from sale of a center in 2000. Net cash used in financing activities
decreased by $17.7 million for the six months ended June 30, 2001 primarily due
to the debt offering proceeds in January 2001, offset by the maturity of the
7.75% unsecured notes due January 2001, and payment of the Senior Credit
Facility balance.

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              Six Months Ended
                                                             June 30,                        June 30,
                                                           2001           2000           2001           2000
                                                    ------------   -------------  -------------  -------------

Net income to common shareholders..................     $9,474         $8,720        $17,980        $16,500
Add (deduct):
  Depreciation and amortization - wholly owned.....     11,746         10,329         23,305         21,207
  Depreciation and amortization - joint ventures         1,592              -          3,072              -
  Amortization of deferred financing costs and
    depreciation of non-rental real estate assets..       (438)          (429)          (846)          (937)
  Preferred units distribution.....................     (1,462)        (1,462)        (2,924)        (2,924)
  Minority interest................................      3,309          3,300          6,496          6,401
                                                    ------------   -------------  -------------  -------------
FFO................................................    $24,221        $20,458        $47,083        $40,247
                                                    ============   =============  =============  =============
Average diluted shares/units outstanding...........     19,843         19,523         19,776         19,446
Dividends declared per share.......................      $0.78          $0.75          $1.56          $1.50`

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 June 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 $0.3
million annually.

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

`Expected Maturity Date
                         ------------------------------------------------------------------------------
                                                                                                  Fair
                           2001   2002     2003    2004       2005    Thereafter     Total       Value
Fixed Rate Debt:              -      -        -       -    $49,888    $323,333     $373,221    $378,945
Average Interest Rate:        -      -        -       -     8.375%        7.92%        7.98%          -
Variable Rate Debt:           -      -  $26,658   5,035          -     $68,750     $100,443    $100,443
Average Interest Rate:        -      -     5.17%   4.92%         -        7.26%        6.34%          -`

Chelsea Property Group, Inc.

Part II. Other Information

Item 4. Submission of Matters to a Vote of Security Holders

The Company held an annual meeting of stockholders on June 7,
2001, at which the following matters were voted upon:

|1.
2. | Election of one director
Approval of appointment of Ernst & Young LLP as independent auditors for the
fiscal year ending December 31, 2001
|----- | ------------------------------------------------------------------------------------------------------------------------------------------

The results of the meeting were as follows:

`Broker
Directors               For             Against             Abstain     Non-Votes

Brendan T. Byrne      14,681,765        264,392                  0          0

Proposal 2            14,571,617         33,261            341,278          0`

Messrs. David C. Bloom, William D. Bloom, Robert Frommer, Barry M. Ginsburg,
Philip D. Kaltenbacher and Reuben Leibowitz continued as directors after the
meeting.

Item 6. Exhibits and Reports on Form 8-K

The Company did not file any reports on Form 8-K during the three months ended
June 30, 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:  August 14, 2001