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

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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
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

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

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

103 Eisenhower Parkway, Roseland, New Jersey 07068(Address of principal executive offices - zip code)(973) 228-6111(Registrant's telephone number, including area code)Securities registered pursuant to Section 12(b) of the Act:

|Title of each class
Common stock, $0.01 par value |  | Name of each exchange onwhich registered
New York Stock Exchange
|------------------------------------------------- |  | ----------------------------------------------------------------

Securities registered pursuant to Section 12 (g) of the Act:  None

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

Indicate by check mark if the disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrants knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [x]

Indicate by check mark whether the registrant is an accelerated filer.
Yes  X   No

Based on the closing sales price on February 14, 2003 of $34.23
per share the aggregate market value of the voting stock held by non-affiliates
of the registrant was $1,403,548,778.

The number of shares outstanding of the registrants common
stock, $0.01 par value was 41,516,896 at February 14, 2003.

Documents incorporated by reference:

Portions of the registrants definitive Proxy Statement
relating to its 2003 Annual Meeting of Shareholders are incorporated by
reference into Part III as set forth herein.

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PART I

Item 1. Business

The Company

Chelsea Property Group, 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 CPG Partners, L.P. (the "Operating Partnership" or
OP), a partnership that specializes in owning, developing,
redeveloping, leasing, marketing and managing upscale and fashion-oriented
manufacturers outlet centers. As of December 31, 2002, the Company wholly
or partially-owned 58 centers in 30 states and Japan containing approximately
14.4 million square feet of gross leasable area (GLA) represented by
more than 750 tenants in approximately 3,400 stores. The Companys
portfolio is comprised of 26 premium outlet centers containing 8.4 million
square feet of GLA (Premium Properties) and 32 other retail centers
containing 6.0 million square feet of GLA (Other Properties)
(collectively the Properties). The Premium Properties generated
approximately 86% of the Companys retail real estate net operating income
for the year ended December 31, 2002. The Premium Properties generally are
located near metropolitan areas including New York City, Los Angeles, Boston,
Washington, D.C., San Francisco, Sacramento, Cleveland, Atlanta, Dallas,
Portland (Oregon), Tokyo and Osaka, Japan, which have a population of at least
one million people within a 30-mile radius, with average annual household income
of greater than $50,000. Some Premium Properties centers are also located within
20 miles of major tourist destinations including Palm Springs, the Napa Valley,
Orlando, and Honolulu. During 2002, the Companys domestic Premium
Properties generated weighted average tenant sales of $383 per square-foot,
defined as total sales reported by tenants divided by their gross leasable area
weighted by months in operation.

The Company's executive offices are located at 103 Eisenhower
Parkway, Roseland, New Jersey 07068 (telephone 973-228-6111). The Companys
website can be accessed at www.CPGI.com. A copy of the Companys
10-Ks, 10-Qs, and 8-Ks can be obtained, free of charge, on the
Companys website. The Company was incorporated in Maryland on August 24,
1993.

The Company is taxed as a REIT under the provisions of the
Internal Revenue Code. The Company generally will not be taxed at the corporate
level on income it currently distributes to its shareholders, provided it
distributes at least 90% of its taxable income (95% prior to 2001).

Recent Developments

In April 2002, the Company became the sole owner of Orlando
Premium Outlets by acquiring Simon Property Group, Inc.s
(Simon) 50% undivided ownership interest for $46.6 million in cash
and the assumption of $29.7 million of existing mortgage debt and a related
guarantee. In June 2002, the Company repaid the outstanding debt of $59.4
million and extinguished the mortgage.

Also in April 2002, the Company acquired a 305,000 square-foot
outlet center, included in Other Properties, located in Edinburgh, Indiana, for
$27.0 million in cash.

In June 2002, the Company and Simon entered into a new 50/50
joint venture to develop and operate Las Vegas Premium Outlets (Simon-Las
Vegas), a 435,000 square-foot single-phase premium outlet center located
in Las Vegas, Nevada. The center is scheduled to open in the summer of 2003. In
June 2002, Simon-Las Vegas purchased a 40-acre site and commenced construction.
The Company is responsible for financing its 50% share of development costs,
which are expected to be approximately $48.0 million. As of December 31, 2002,
the Company had contributed $22.8 million.

In July 2002, the Company sold approximately 40% of its holdings
in Value Retail PLC to a third party for $11.4 million, resulting in a gain of
$10.9 million.

In August 2002, the Company became the sole owner of four
Premium Properties by acquiring the remaining 51% undivided ownership interest
in the joint venture F/C Acquisition Holdings, LLC. The Company paid $58.9
million in cash and assumed $86.5 million, the remaining 51%, of existing
mortgage debt.

In August 2002, the Company and Simon entered into a new 50/50
joint venture to develop and operate Chicago Premium Outlets
(Simon-Chicago), a 438,000 square-foot single-phase premium outlet
center located in Aurora, Illinois, near Chicago. The center is scheduled to
open in mid-2004. In September 2002, Simon-Chicago purchased a 140-acre site,
including 80 acres of conservation area, and commenced construction. The Company
is responsible for financing its 50% share of the development costs, which are
expected to be approximately $46.0 million. As of December 31, 2002, the Company
had contributed $8.4 million.

In November 2002, the Company acquired two outlet centers
included in Other Properties: a 305,000 square-foot outlet center located in
Albertville, Minnesota, and a 278,000 square-foot outlet center located in
Johnson Creek, Wisconsin, for a total price of $89.5 million. The transaction
was financed by issuing limited partnership units in the OP valued at $44.6
million and the balance from the senior credit facility.

In December 2002, the Company purchased four outlet centers
included in Other Properties for an all-cash price of $193.0 million. The four
properties total 1.3 million square feet of gross leaseable area and consist of
a 292,000 square-foot center located in Jackson, New Jersey; a 391,000
square-foot center located in Osage Beach, Missouri; a 329,000 square-foot
center located in St. Augustine, Florida; and a 300,000 square-foot center
located in Branson, Missouri.

During 2002, the Company sold five non-core Other Properties and
recognized a gain of approximately $0.3 million.

The Company has been developing and operates an e-commerce
technology platform through its affiliate, Chelsea Interactive, Inc.
(Chelsea Interactive) with an aggregate funding commitment of up to
$60.0 million; as of December 31, 2002, $52.4 million had been funded. The
Company anticipates that the balance of the funding will be used to further
develop the platform and to finance operating cash shortfalls and potential
costs related to the disposal or discontinuance of the business. The Company
currently believes that it will not be able to recover the net book value of its
investment in Chelsea Interactive through future cash flows unless Chelsea
Interactive is able to achieve positive cash flow before reaching the $60.0
million funding limit. Due to current market conditions and costs related to
securing additional brand users for the platform, the Company has decided to
recognize an impairment loss of $34.4 million, equal to the net book value of
its investment in Chelsea Interactive at December 31, 2002. However, the Company
is in active discussions with potential investors to provide capital to and/or
acquire Chelsea Interactive. There can be no assurance that any of these
discussions will be successful or that Chelsea Interactive will be able to
continue as a going concern. Future funding by the Company will be reported as a
loss in the period funding occurs.

The following table sets forth a summary of the additional GLA from expansions,
acquisitions and dispositions from January 1 through December 31, 2002:

`Number
                                                               GLA            of
Property                              % Owned      Date (1)  (Sq. Ft.)       Stores    Tenants (2)
--------                              ---------  ---------  -------------  ----------  ------------------------------
As of January 1, 2002...............                         12,574,000      2,903

EXPANSIONS:
Rinku Premium Outlets...............     40        03/02         70,000         40     Benetton, Cole Haan, La Perla,
  Izumisano, Japan                                                                     The North Face, Tommy Hilfiger
Desert Hills Premium Outlets........    100        12/02         23,000          8     Hugo Boss
  Cabazon, CA
Liberty Village Premium Outlets.....    100        11/02         23,000          2     LL Bean, Liz Claiborne
  Flemington, NJ
Napa Premium Outlets................    100        04/02          9,000          2     Kenneth Cole
  Napa, CA
Other (net).........................                            (17,000)         1
                                                               ---------    -------
Total expansions ...................                            108,000         53

Acquisitions:
Factory Outlet Village Osage Beach..    100        12/02        391,000        104     Eddie Bauer, Gap, Liz Clairborne,
  Osage Beach, MO                                                                      Polo Ralph Lauren, Tommy Hilfiger

St. Augustine Outlet Center.........    100        12/02        329,000         93     Brooks Brothers, Casual Corner,
  St. Augustine, FL                                                                    Coach, Gap, Reebok, Tommy
                                                                                       Bahama

Outlets at Albertville .............    100        11/02        305,000         67     Banana Republic, Gap, Old Navy, Polo
  Albertville, MN                                                                      Ralph Lauren, Tommy Hilfiger

Edinburgh Outlet Center.............    100        04/02        305,000         72     Factory Brand Shoes, Gap, Nautica,
  Edinburgh, IN                                                                        Nike, OshKosh B'Gosh, Tommy Hilfiger

Factory Merchants Branson...........    100        12/02        300,000         86     Carter's Childrenswear, L'eggs/
  Branson, MO                                                                          Hanes/Bali/ Playtex, Lenox

Jackson Outlet Village..............    100        12/02        292,000         71     Casual Corner, Gap, Nike,
  Jackson, NJ                                                                          Reebok, Tommy Hilfiger,

Johnson Creek Outlet Center.........    100        11/02        278,000         62     Gap, Nike, Old Navy Clothing
  Johnson Creek, WI                                                                    Company, Tommy Hilfiger

                                                              ----------      -----
Total Acquisitions:.................                          2,200,000        555

Dispositions:

Factory Stores of America...........    100        06/02       (176,000)       (43)    Bass, Levi's, Van Heusen,
   LaMarque, TX                                                                        West Point Stevens

Factory Stores of America...........    100        07/02       (128,000)       (20)    Banister Shoe, Book Warehouse,
   Tucson, AZ                                                                          Samsonite, VF Factory
                                                                                       Outlet

Factory Stores of America...........    100        06/02        (64,000)        (4)    VF Factory Outlet
   Corsicana, TX

Factory Stores of America...........    100        07/02        (64,000)        (4)    VF Factory Outlet
  Livingston, TX

Factory Stores of America...........    100        11/02        (64,000)        (4)    VF Factory Outlet
   Mineral Wells, TX
                                                              ----------      -----
Total Dispositions..................                           (496,000)       (75)

Net Additions for 2002..............                          1,812,000        533
                                                              ----------      -----

Totals as of December 31, 2002......                         14,386,000      3,436
                                                              ==========      =====`

|1) | Expansion, acquisition or disposition date.
|-- | -------------------------------------------

|2) | Consists of tenants who lease at least 5,000 square feet of GLA or have
estimated sales of more than $300 per square-foot. Most tenants pay a fixed base
rent based on square feet leased and also pay a percentage rent based on sales.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Some of the most recent newly acquired or expanded centers are discussed below:

Rinku Premium Outlets, Izumisano, Japan. Rinku Premium Outlets, a 250,000
square-foot center containing 120 stores, opened its initial phase in November
2000. The Phase II expansion that opened in March 2002 consisted of 70,000
square feet of GLA and 40 stores. The center is located 45 miles south of Osaka
near Kansai International Airport. The populations within a 35-mile and 65-mile
radius are approximately 12.0 million and 19.1 million, respectively.

Factory Outlet Village Osage Beach, Osage Beach, MO- Factory Outlet
Village Osage Beach, a 391,000 square-foot center containing 104 stores was
acquired in December 2002. The center is located in a tourist destination off
Interstate 70 on Highway 54 at the Lake of Ozarks. The populations within a
15-mile, 30-mile and 45-mile radius are 0.1 million, 0.1 million and 0.3
million, respectively. Average household income within a 30-mile radius is
approximately $44,000.

St. Augustine Outlet Center, St. Augustine, FL - St.
Augustine Outlet Center, a 329,000 square-foot center containing 93 stores was
acquired in December 2002. The center is located in a tourist destination off
Interstate 95 in St. Augustine, Florida. The populations within a 15-mile,
30-mile and 45-mile radius are 0.1 million, 0.7 million and 1.2 million,
respectively. Average household income within a 30-mile radius is approximately
$60,000.

Outlets at Albertville, Albertville, MN Outlets at Albertville, a
305,000 square-foot center containing 67 stores was acquired in November 2002.
The center is located approximately 20 miles northwest of Minneapolis-St. Paul
on Interstate 94. The populations within a 15-mile, 30-mile and 45-mile radius
are 0.3 million, 1.9 million and 3.1 million, respectively. Average household
income within a 30-mile radius is approximately $68,000.

Edinburgh Outlet Center, Edinburgh, IN Edinburgh Outlet Center, a
305,000 square-foot center containing 72 stores was acquired in April 2002. The
center is located 40 miles south of downtown Indianapolis at the junction of
Interstate 65 and U.S. Route 31. The populations within a 15-mile, 30-mile and
45-mile radius are 0.1 million, 0.7 million and 1.8 million, respectively.
Average household income within a 30-mile radius is approximately $53,000.

Factory Merchants Branson, Branson, MO Factory Merchants Branson,
a 300,000 square-foot center containing 86 stores was acquired in December 2002.
The center is located in a tourist destination off Highway 76 west on Pat Nash
Drive, 40 miles south of Springfield, Missouri. The populations within a
15-mile, 30-mile and 45-mile radius are 0.1 million, 0.2 million and 0.5
million, respectively. Average household income within a 30-mile radius is
approximately $47,000.

Jackson Outlet Village, Jackson, NJ- Jackson Outlet Village, a 292,000
square-foot center containing 71 stores was acquired in December 2002. The
center is located 50 miles northeast of Philadelphia and 65 miles southwest of
New York City. The populations within a 15-mile, 30-mile and 45-mile radius are
0.5 million, 3.0 million and 10.2 million, respectively. Average household
income within a 30-mile radius is approximately $70,000.

Johnson Creek Outlet Center, Johnson Creek, WI Johnson Creek
Outlet Center, a 278,000 square-foot center containing 62 stores was acquired in
November 2002. The center is located on Interstate 94 at Highway 26, midway
between Madison and Milwaukee, Wisconsin. The populations within a 15-mile,
30-mile and 45-mile radius are 0.1 million, 0.6 million and 2.4 million,
respectively. Average household income within a 30-mile radius is approximately
$62,000.

The Company had been developing and operates an e-commerce technology platform
through its affiliate, Chelsea Interactive, Inc. with an aggregate funding
commitment of up to $60.0 million; as of December 31, 2002, $52.4 million has
been funded. The Company anticipates that the balance of the funding will be
used to further develop the platform and to finance operating cash shortfalls
and potential costs related to the disposal or discontinuance of the business.
The Company currently believes that it will not be able to recover the net book
value of its investment in Chelsea Interactive through future cash flows unless
Chelsea Interactive is able to achieve positive cash flow before reaching the
$60.0 million funding limit. Due to current market conditions and costs related
to securing additional brand users for the platform, the Company has decided to
recognize an impairment loss of $34.4 million, equal to the net book value of
its investment in Chelsea Interactive as of December 31, 2002. However, the
Company is in active discussions with potential investors to provide capital to
and/or acquire Chelsea Interactive. There can be no assurance that any of these
discussions will be successful or that Chelsea Interactive will be able to
continue as a going concern. Future funding by the Company will be reported as a
loss in the period funding occurs.

Strategic Alliances and Joint Ventures

In June 1999, the Company entered into an agreement with Mitsubishi Estate Co.,
Ltd. and Nissho Iwai Corporation to jointly develop, own and operate premium
outlet centers in Japan. The joint venture, known as Chelsea Japan Co., Ltd.
(Chelsea Japan), developed its two initial projects, Gotemba Premium
Outlets a 220,000 square-foot center, outside of Tokyo and the second, Rinku
Premium Outlets a 180,000 square-foot center outside Osaka. In March 2002, the
70,000 square-foot second phase of Rinku Premium Outlets opened 100% leased. The
joint ventures third project, the 180,000 square-foot first phase of Sano
Premium Outlets located north of Tokyo in Sano, Japan is scheduled to open in
March 2003. A 170,000 square-foot second phase of Gotemba Premium Outlets is
scheduled to open in July 2003.

During 2002, the Company and Simon agreed to develop two premium outlet centers
under separate 50/50 joint ventures, the 435,000 square-foot Las Vegas Premium
Outlets scheduled to open in summer 2003 and the 438,000 square-foot Chicago
Premium Outlets scheduled to open in mid-2004 (Simon-Ventures).
Simon is the largest publicly traded retail real estate company as measured by
market capitalization. At February 2003, Simon was engaged in ownership and
management of income-producing properties primarily regional malls and community
centers and had an interest in and/or managed approximately 183 million square
feet of retail and mixed-use properties in 36 states, Canada and Europe. The
original 5-year strategic alliance with Simon to develop and acquire high-end
outlet centers with 500,000 square feet or more in the United States expired on
December 31, 2002. In April 2002, the Company bought out Simons undivided
50% interest in Orlando Premium Outlets that opened in May 2000.

In October 1998, the Company sold its interest in and terminated the development
of Houston Premium Outlets, a joint venture project with Simon. Under the terms
of the agreement, the Company received non-compete payments totaling $21.4
million from The Mills Corporation; $3.0 million was received at closing and all
four annual installments of $4.6 each million were received, including the final
January 2002 payment, which was reduced by a $0.3 million legal escrow reserve.

In May 2002, the Company entered into a 50/50 strategic alliance with Sordo
Madaleno y Asociados and Mr. Carlos Peralta of Mexico City to jointly develop
premium outlet centers in Mexico. Subject to leasing and entitlements,
construction on a 200,000 square-foot first phase of an outlet project north of
Mexico City is expected to commence later in 2003 and open in late 2004. The
site can support a second phase containing approximately 165,000 square feet of
GLA.

The Company has made several investments through joint ventures with others.
Joint venture investments may involve risks not otherwise present for
investments made solely by the Company, including the possibility its
co-venturers might become bankrupt, its co-venturers might at any time have
different interests or goals than the Company, and that the co-venturers may
take action contrary to the Companys instructions, requests, policies or
objectives, including its policy with respect to maintaining the qualification
of the Company as a REIT. Other risks of joint venture investments include
impasse on decisions, such as a sale, because neither its co-venturer nor the
Company would have full control over the joint venture. There is no limitation
under the Companys organizational documents as to the amount of funds that
may be invested in partnerships or joint ventures.

Organization of the Company

Virtually all of the Companys assets are held by, and all of its business
activities conducted through, the Operating Partnership. The Company is the sole
general partner of the Operating Partnership (which owned 84.6% in the Operating
Partnership as of December 31, 2002) and has full and complete control over the
management of the Operating Partnership and each of the Properties, excluding
joint ventures.

The Manufacturers' Outlet Business

Manufacturers' outlets are manufacturer-operated retail stores that sell
primarily first-quality, branded goods at significant discounts from regular
department and specialty store prices. Manufacturers' outlet centers offer
numerous advantages to both consumer and manufacturer; by eliminating the third
party retailer, manufacturers are often able to charge customers lower prices
for brand name and designer merchandise; manufacturers benefit by being able to
sell first quality in-season, as well as out-of-season, overstocked or
discontinued merchandise without compromising their relationships with
department stores or the manufacturers' brand name. In addition, outlet stores
enable manufacturers to optimize the size of production runs while maintaining
control of their distribution channels.

Business Strategy

The Company believes its strong tenant relationships, high-quality property
portfolio and managerial expertise give it significant advantages in the
manufacturers outlet business.

Strong Tenant Relationships. The Company maintains strong tenant
relationships with high-fashion, upscale manufacturers and retailers that have a
selective presence in the outlet industry, such as Armani, Brooks Brothers,
Chanel, Coach Leather, Cole-Haan, Donna Karan, Gap/Banana Republic, Gucci,
Nautica, Polo Ralph Lauren, Tommy Hilfiger and Versace, as well as with national
brand-name manufacturers such as Adidas, Carters, Nike, Phillips-Van
Heusen (Bass, Izod, Geoffrey Beene, Van Heusen) and Timberland. The Company
believes that its ability to draw from both groups is an important factor in
providing broad customer appeal and higher tenant sales.

High Quality Property Portfolio. The Companys 24 domestic Premium
Properties generated weighted average reported tenant sales during 2002 of $383
per square-foot, the highest among the three publicly traded outlet companies.
As a result, the Company has been successful in attracting some of the
worlds most sought-after brand-name designers, manufacturers and retailers
and each year has added new names to the outlet business and its centers. The
Company believes that the quality of its centers gives it significant advantages
in attracting customers and negotiating multi-lease transactions with tenants.

Management Expertise. The Company believes it has a competitive advantage
in the manufacturers outlet business as a result of its experience in the
business, long-standing relationships with tenants and expertise in the
development and operation of manufacturers outlet centers. Management
developed a number of the earliest and most successful outlet centers in the
industry, including Liberty Village Premium Outlets (one of the first
manufacturers outlet centers in the U.S.) in 1981, Woodbury Common Premium
Outlets in 1985 and Desert Hills Premium Outlets in 1990. Since its IPO, the
Company has added significantly to its senior management in the areas of
development, leasing and property management without increasing general and
administrative expenses as a percentage of total revenues; additionally, the
Company intends to continue to invest in systems and controls to support the
planning, coordination and monitoring of its activities.

Growth Strategy

The Company seeks growth through increasing rents in its existing centers;
developing new centers and expanding existing centers; and acquiring and
re-developing centers.

Increasing Rents at Existing Centers. The Companys leasing strategy
includes aggressively marketing available space and maintaining a high level of
occupancy; providing for inflation-based contractual rent increases or periodic
fixed contractual rent increases in substantially all leases; renewing leases at
higher base rents per square-foot; re-tenanting space occupied by under
performing tenants; and continuing to sign leases that provide for percentage
rents.

Developing New Centers and Expanding Existing Centers. The Company
believes that there continue to be significant opportunities to develop
manufacturers outlet centers across the United States and internationally.
The Company intends to undertake such development selectively, and believes that
it will have a competitive advantage in doing so as a result of its development
expertise, tenant relationships and access to capital. The Company expects that
the development of new centers and the expansion of existing centers will
continue to be a substantial part of its growth strategy. The Company believes
that its development experience and strong tenant relationships enable it to
determine site viability on a timely and cost-effective basis. However, there
can be no assurance that any development or expansion projects will be commenced
or completed as scheduled.

International Development.The Company continues to develop, own and
operate premium outlet centers in Japan through its joint venture company,
Chelsea Japan. In 2000, Chelsea Japan developed its first two outlet centers,
one in Gotemba, located outside Tokyo, and the other in Izumisano, outside
Osaka, Japan. A third outlet center in Sano, Japan is expected to open in March
2003.

The Company believes that there are significant opportunities to develop
additional manufacturers outlet centers in Japan and other countries. The
Company intends to pursue these opportunities as viable sites and local partners
are identified. During 2002, the Company entered into an agreement to jointly
develop premium outlets centers in Mexico.

The Company has minority interests ranging from 3% to 8% in several outlet
centers and outlet development projects in Europe.

Acquiring and Redeveloping Centers. The Company intends to selectively
acquire individual properties and portfolios of properties that meet its
strategic investment criteria as suitable opportunities arise. The Company
believes that its extensive experience in the outlet center business, access to
capital markets, familiarity with real estate markets and advanced management
systems will allow it to evaluate and execute its acquisition strategy
successfully. Furthermore, management believes that the Company will be able to
enhance the operation of acquired properties as a result of its strong tenant
relationships with both national and upscale fashion retailers and development,
marketing and management expertise as a full-service real estate organization.
Additionally, the Company may be able to acquire properties on a tax-advantaged
basis through the issuance of Operating Partnership units. However, there can be
no assurance that any acquisitions will be consummated or, if consummated, will
result in an advantageous return on investment for the Company.

Operating Strategy

The Companys primary business objective is to enhance the value of its
properties and operations by increasing cash flow. The Company plans to achieve
these objectives through continuing efforts to improve tenant sales and
profitability, and to enhance the opportunity for higher base and percentage
rents.

Leasing. The Company pursues an active leasing strategy through long-standing
relationships with a broad range of tenants including manufacturers of men's,
women's and children's ready-to-wear, lifestyle apparel, footwear, accessories,
tableware, housewares, linens and domestic goods. Key tenants are placed in
strategic locations to draw customers into each center and to encourage shopping
at more than one store. The Company continually monitors tenant mix, store size,
store location and sales performance, and works with tenants to improve each
center through re-sizing, re-location and joint promotion.

Market and Site Selection. To ensure a sound long-term customer base, the
Company generally seeks to develop sites near densely-populated, high-income
metropolitan areas, and/or at or near major tourist destinations. While these
areas typically impose numerous restrictions on development and require
compliance with complex entitlement and regulatory processes, the Company
believes that these areas provide the most attractive long-term demographic
characteristics. The Company generally seeks to develop sites that can support
at least 400,000 square feet of GLA and that offer the long-term opportunity to
dominate their respective markets through a critical mass of tenants.

Marketing. The Company pursues an active, property-specific marketing strategy
using a variety of media including newspapers, television, radio, billboards,
regional magazines, guide books and direct mailings. The centers are marketed to
tour groups, conventions and corporations; additionally, each property
participates in joint destination marketing efforts with other area attractions
and accommodations. Virtually all consumer marketing expenses incurred by the
Company are reimbursable by tenants.

Property Design and Management. The Company believes that effective
property design and management are significant factors in the success of its
properties and works continually to maintain or enhance each centers
physical plant, original architectural theme and high level of on-site services.
Each property is designed to be compatible with its environment and is
maintained to high standards of aesthetics, ambiance and cleanliness in order to
promote longer visits and repeat visits by shoppers. The Company has 634
full-time and 180 part-time employees. Of these employees, 491 full-time and 178
part-time are involved in on-site maintenance, security, administration and
marketing. Centers are generally managed by an on-site property manager with
oversight from a regional operations director.

Financing

The Company seeks to maintain a strong, flexible financial position by: (i)
maintaining a moderate level of leverage, (ii) extending and sequencing debt
maturity dates, (iii) managing floating interest rate exposure and (iv)
maintaining liquidity. Management believes these strategies will continue to
enable the Company to access a broad array of capital sources, including bank or
institutional borrowings, secured and unsecured debt and equity financings. See
Management's Discussion and Analysis of Financial Condition and Results of
Operations.

Competition

The Properties compete for retail consumer spending on the basis of the diverse
mix of retail merchandising and value oriented pricing. Manufacturers' outlet
centers have established a niche capitalizing on consumers desire for
value-priced goods. The Properties compete for customer spending with other
outlet locations, traditional shopping malls, off-price retailers, and other
retail distribution channels. The Company believes that the Premium Properties
generally are the leading manufacturers' outlet centers in each market. The
Company carefully considers the degree of existing and planned competition in
each proposed market before deciding to build a new center.

Environmental Matters

The Company is not aware of any environmental liabilities relating to the
Properties that would have a material impact on the Company's financial position
and results of operations.

Personnel

As of December 31, 2002, the Company had 634 full-time and 180 part-time
employees. None of the employees are subject to any collective bargaining
agreements, and the Company believes it has good relations with its employees.

Item 2. Properties

As of December 31, 2002, the Company had 58 centers in 30 states and Japan
containing approximately 14.4 million square feet of gross leasable area. Of the
58 centers, 56 are owned 100% (49 in fee and seven under a long-term lease). The
Company owned and operated all 56 of its domestic centers and Chelsea Japan
manages the two centers in Japan.

The Companys Premium Properties consists of 26 upscale, fashion-oriented
manufacturers outlet centers located 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 within 20 miles
of major tourist destinations including Palm Springs, the Napa Valley, Orlando,
and Honolulu. The domestic Premium Properties were 99% leased as of December 31,
2002, and contained approximately 2,000 stores with more than 535 different
tenants. The Companys Premium Properties in Japan were 100% leased as of
December 31, 2002, and contained approximately 210 stores. The Company's Other
Properties were 95% leased as of December 31, 2002, and contained approximately
1,200 stores with more than 225 different tenants.

The Company believes the Properties are adequately covered by insurance.

The Company does not consider any single store lease to be material; no
individual tenant, combining all of its store concepts, accounts for more than
5% of the Companys gross revenues; and only one tenant occupies more than
5% of the Companys total domestic GLA at 8%. As a result, and considering
the Companys past success in re-leasing available space, the Company
believes the loss of any individual tenant would not have a significant effect
on future operations.

For the years ended December 31, 2002, 2001, and 2000, respectively, 16%, 21%
and 23% of the Companys total revenues were derived from Woodbury Common
Premium Outlets. The loss of this center or a material decrease in revenues from
the center for any reason might have a material adverse effect on the Company.
In addition, for the years ended December 31, 2002, 2001, and 2000,
respectively, 25%, 28% and 28% of the Companys total revenues were derived
from the Companys centers in California.

Woodbury Common Premium Outlets contributed more than 10% of the Companys
aggregate gross revenues during 2002 and had a book value of more than 5% of the
total assets at year-end 2002. No tenant leases more than 10% of the
centers GLA. The following chart shows certain information for Woodbury
Common.

`Avg. Annual
       Fiscal                                      Occupancy             Rent
       YEAR                                           Rate            per sq ft
                                                ---------------    --------------
       1998.................................      100.0%             $33.16
       1999.................................       99.5               35.61
       2000.................................      100.0               38.55
       2001.................................       98.8               38.63
       2002.................................      100.0               41.23`

Woodbury Common Premium Outlets opened in four phases in 1985, 1993, 1995 and
1998 and contains 845,000 square feet of GLA. As of December 31, 2002, the
center was leased to 212 tenants. Woodbury Common is located approximately 50
miles north of New York City at the Harriman exit of the New York State Thruway.
The populations within a 30-mile, 60-mile and 100-mile radius are approximately
2.6 million, 17.4 million and 25.3 million, respectively. Average household
income within the 30-mile radius is approximately $92,000.

The following table shows lease expiration data as of December 31, 2002 for
Woodbury Common Premium Outlets for the next ten years (assuming that none of
the tenants exercise renewal options).

`% of Annual
                                                      Contractual               No. of           "CBR"
                                                   Base Rents ("CBR")           Leases        Represented by
  EXPIRATION YEAR                  GLA           per sq ft         Total        Expiring      Expiring Leases
                               --------------  -------------  ---------------- ----------     ----------------------
  2003......................     126,496         $30.04         $3,785,000        27              12.5%
  2004......................      35,051          32.23          1,128,000        10               3.7
  2005......................     113,629          35.43          4,027,000        28              13.3
  2006......................      33,544          39.38          1,339,000        14               4.4
  2007......................      63,336          36.24          2,283,000        18               7.6
  2008......................     185,379          35.23          6,517,000        43              21.6
  2009......................      44,786          43.16          1,942,000        16               6.4
  2010......................      37,875          35.76          1,359,000        11               4.5
  2011......................      72,881          42.41          3,096,000        15              10.3
  2012......................      77,193          51.75          3,985,000        26              13.2`

Depreciation on Woodbury Common Premium Outlets is calculated using the straight
line method over the estimated useful life of the real property and land
improvements which ranges from 10 to 40 years. At December 31, 2002, the Federal
income tax basis in this center was $120.0 million.

The realty tax rate on Woodbury Common Premium Outlets is approximately $4.68
per $100 of assessed value. Estimated 2003 taxes are $3.9 million.

VF Corporation (Vanity Fair) leases approximately 8% of the Companys total
domestic GLA as of December 31, 2002 and 2001, which constitutes approximately
2% of the Companys total revenues.

Set forth in the table below is certain property information as of December 31,
2002:

`Year
                                               Opened
                                                  or         GLA       No. of
Name/location                                  Acquired    (Sq. Ft.)    Stores       Selected Tenants
--------------------------------------------  -----------  ---------- ---------  -------------------------------------------------------

Premium Properties:
Woodbury Common Premium Outlets........          1985       845,000      212      Banana Republic, Brooks Brothers,
 Central Valley, NY (New York City area)                                          Coach, Giorgio Armani, Gucci,
                                                                                  Neiman Marcus Last Call, Polo Ralph
                                                                                  Lauren, Salvatore Ferragamo

Wrentham Village Premium Outlets.......          1997       601,000      157      Barneys New York, Burberry, Hugo Boss,
 Wrentham, MA (Boston/Providence area)                                            Kenneth Cole, Nike, Polo Ralph Lauren,
                                                                                  Sony, Versace

Gilroy Premium Outlets.................          1990       577,000      141      Brooks Brothers, Coach, J. Crew, Hugo
 Gilroy, CA (San Jose area)                                                       Boss, Nike, Polo Ralph Lauren, Timberland,
                                                                                  Tommy Hilfiger, Versace

North Georgia Premium Outlets..........          1996       537,000      132      Coach, Crate & Barrel,  Escada, Liz
 Dawsonville, GA (Atlanta metro area)                                             Claiborne, Polo Ralph Lauren, Tommy
                                                                                  Hilfiger, Williams-Sonoma

Desert Hills Premium Outlets...........          1990       499,000      133      Burberry, Coach, Giorgio Armani, Gucci,
 Cabazon, CA (Palm Springs-Los Angeles)                                           Max Mara, Polo Ralph Lauren, Salvatore
                                                                                  Ferragano, Versace, Zegna

Lighthouse Place Premium Outlets.......          1987       484,000      121      Burberry, Coach, Crate & Barrel, Gap,
 Michigan City, IN (Chicago area)                                                 Liz Claiborne, Polo Ralph Lauren,
                                                                                  Tommy Hilfiger

Leesburg Corner Premium Outlets........          1998       463,000      103      Barneys New York, Kenneth Cole, Liz
 Leesburg, VA (Washington DC area)                                                Claiborne, Nike, Polo Ralph Lauren,
                                                                                  Williams-Sonoma

Camarillo Premium Outlets..............          1995       454,000      122      Banana Republic, Barneys New York,
 Camarillo, CA (Los Angeles metro area)                                           Coach, Donna Karan, Polo Ralph Lauren,
                                                                                  St. John Knits, Versace

Orlando Premium Outlets................          2000       428,000      114      Barneys New York, Coach, Escada,
 Orlando, FL (between Sea World & Epcot)                                          Giorgio Armani, Hugo Boss, Max Mara,
                                                                                  Nike, Polo Ralph Lauren

Waterloo Premium Outlets...............          1995       392,000       99      Brooks Brothers, Coach, Eddie Bauer,
 Waterloo, NY (Finger Lakes Region)                                               Gap, J. Crew, Jones New York, Liz
                                                                                  Claiborne, Mikasa, Polo Ralph Lauren

Allen Premium Outlets..................          2000       349,000       84      Barneys New York, Brooks Brothers,
  Allen, TX (Dallas metro area)                                                   Cole-Haan, Crate & Barrel, Liz
                                                                                  Claiborne, Polo Ralph Lauren, Tommy
                                                                                  Hilfiger

Folsom Premium Outlets.................          1990       299,000       80      Bass, Eddie Bauer, Gap, Kenneth
 Folsom, CA (Sacramento metro area)                                               Cole, Liz Claiborne, Nike, Off
                                                                                  5th-Saks Fifth Avenue

Aurora Premium Outlets.................          1987       286,000       65      Brooks Brothers, Gap, Liz Claiborne,
 Aurora, OH (Cleveland metro area)                                                Nautica, Off 5th-Saks Fifth Avenue,
                                                                                  Polo Ralph Lauren, Tommy Hilfiger

Clinton Crossing Premium Outlets.......          1996       272,000       66      Barneys New York, Coach, Dooney &
 Clinton CT (I-95/NY-NewEngland                                                   Bourke, Gap, Kenneth Cole, Liz
 corridor)                                                                        Claiborne, Nike, Polo Ralph Lauren

Rinku Premium Outlets..................          2000 (1)   250,000      120      Brooks Brothers, Coach, Dolce &
  Rinku, Japan (Osaka metro area) (2)                                             Gabbana, Eddie Bauer, Gap, Nautica,
                                                                                  Nike, Timberland

Gotemba Premium Outlets................          2000 (1)   220,000       90      Brooks Brothers, Coach, Eddie Bauer,
 Gotemba, Japan (Tokyo metro area) (2)                                            Gap, J. Crew, L.L.Bean, Nautica,
                                                                                  Nike, Timberland

Waikele Premium Outlets................          1997       213,000       51      Banana Republic, Barneys New York,
 Waipahu, HI (Honolulu area)                                                      Brooks Brothers, Guess, Kenneth Cole,
                                                                                  Max Mara

Petaluma Village Premium Outlets.......          1994       196,000       51      Brooks Brothers, Coach, Gap, Jones
 Petaluma, CA (San Francisco metro area)                                          New York, Liz Claiborne, Off 5th-Saks
                                                                                  Fifth Avenue, Puma

Napa Premium Outlets...................          1994       179,000       51      Barneys New York, J. Crew, Jones
  Napa, CA (Napa Valley)                                                          New York, Kenneth Cole, Nautica,
                                                                                  Tommy Hilfiger, TSE

Liberty Village Premium Outlets........          1981       177,000       57      Ellen Tracy, Jones New York, L.L.
 Flemington, NJ (New York-Phila. metro                                            Bean, Polo Ralph Lauren, Tommy
 area)                                                                            Hilfiger, Timberland, Waterford
                                                                                  Wedgwood

Columbia Gorge Premium Outlets.........          1991       164,000       45      Adidas, Bass, Carter's, Gap, Mikasa,
  Troutdale, OR (Portland metro area)                                             Samsonite

Kittery Premium Outlets ...............          1984       150,000       31      Banana Republic, Coach, Crate &
  Kittery, ME (Boston area) (2)                                                   Barrel, J. Crew, Polo Ralph
                                                                                  Lauren, Reebok

American Tin Cannery Premium Outlets...          1987       135,000       45      Bass, Geoffrey Beene, Nine West,
 Pacific Grove, CA (Monterey Peninsula)(2)                                        Reebok, Samsonite, WestPoint
                                                                                  Stevens

Santa Fe Premium Outlets...............          1993       125,000       38      Bose, Brooks Brothers, Coach,
 Santa Fe, NM                                                                     Jones New York, Liz Claiborne,
                                                                                  Nautica,  Van Heusen

Patriot Plaza Premium Outlets..........          1986        77,000       11      Lenox, Polo Ralph Lauren,
 Williamsburg, VA (Norfolk-Richmond                                               WestPoint Stevens
 area)

St. Helena Premium Outlets.............          1992        23,000        9      Brooks Brothers, Coach, Donna
 St. Helena, CA (Napa Valley)                                                     Karan, Escada
                                                           --------    -----
Total Premium Properties...............                   8,395,000    2,228
                                                           --------    -----

Other Properties:
Factory Stores at Vacaville............          2001       447,000      105      Adidas, Carter's Childrenswear,
 Vacaville, CA                                                                    Coach, Eddie Bauer, Gap, Liz
                                                                                  Claiborne, Mikasa, Nike, OshKosh
                                                                                  B'Gosh, Reebok

Carolina Outlet Center (2).............          2001       440,000       82      Brooks Brothers, Gap, Liz Claiborne,
 Smithfield, NC                                                                   Nike, Polo Ralph Lauren, Timberland,
                                                                                  Tommy Hilfiger

Factory Outlet Village Osage Beach.....          2002       391,000      104      Eddie Bauer, Factory Brand Shoes,
 Osage Beach, MO                                                                  Gap, Liz Claiborne, Polo Ralph
                                                                                  Lauren, Tommy Hilfiger

St. Augustine Outlet Center............          2002       329,000       93      Brooks Brothers, Casual Corner,
 St. Augustine, FL                                                                Coach, Gap, Reebok, Tommy Bahama

Outlets at Albertville.................          2002       305,000       67      Banana Republic, Gap, Old Navy,
 Albertville, MN                                                                  Polo Ralph Lauren, Tommy Hilfiger

Edinburgh Outlet Center................          2002       305,000       72      Factory Brand Shoes, Gap, Nautica,
 Edinburgh, IN                                                                    Nike, OshKosh B'Gosh, Tommy Hilfiger

Factory Merchants Branson(2)...........          2002       300,000       86      Carter's Childrenswear, L'eggs/Hanes,
 Branson, MO                                                                      Bali/Playtex, Lenox

Jackson Outlet Village.................          2002       292,000       71      Casual Corner, Gap, Nike, Reebok,
 Jackson, NJ                                                                      Tommy Hilfiger

Factory Shoppes at  Branson Meadows....          2001       287,000       44      Dress  Barn, Easy Spirit, Speigel,
 Branson, MO                                                                      VF Factory Outlet

Johnson Creek Outlet Center............          2002       278,000       62      Gap, Nike, Old Navy, Tommy Hilfiger
 Johnson Creek, WI

Factory Stores at North Bend ..........          2001       223,000       50      Adidas, Bass, Carters Childrenswear,
 North Bend, WA                                                                   Eddie Bauer, Nike, OshKosh B'Gosh,
                                                                                  Samsonite

Factory Stores of America..............          2001       184,000       31      Adidas, Dress Barn, Samsonite, VF
 Draper, UT                                                                       Factory Outlet

Factory Stores of America..............          2001       177,000       27      Bass, Carolina Pottery, Dress Barn,
 Georgetown, KY                                                                   Levi's, Van Heusen

Factory Stores of America .............          2001       167,000       30      Bass, Dress Barn, Fieldcrest Cannon,
 Mesa, AZ                                                                         Samsonite, VF Factory Outlet

North Ridge Shopping Center............          2001       166,000       33      Ace Hardware, Kerr Drugs, Winn Dixie
 Raleigh, NC

Factory Stores of America .............          2001       151,000       30      Bass, Liz Claiborne, OshKosh B'Gosh,
 Crossville, TN                                                                   Van Heusen, VF Factory Outlet,

Mac Gregor Village.....................          2001       144,000       45      Spa Health Club, Tuesday Morning
 Cary, NC

Factory Stores of America -Tri-Cities..          2001       133,000       16      Carolina Pottery, L'eggs/Hanes/ Bali/
 Blountville, TN                                                                  Playtex, Tri-Cities Cinemas

Factory Stores of America (2)..........          2001       131,000       18      Bass, Easy Spirit, VF Factory Outlet,
 Iowa, LA                                                                         Van Heusen

Factory Stores of America..............          2001       129,000       12      Banister Shoes, VF Factory Outlet,
 Tupelo, MS                                                                       Van Heusen

Dare Center (2)........................          2001       115,000       15      Fashion Bug, Food Lion
 Kill Devil Hills, NC

Factory Stores of America..............          2001       112,000       17       Dress Barn, Factory Brand Shoes,
 Story City, IA                                                                    VF Factory Outlet, Van Heusen

Factory Stores of America (2)..........          2001       112,000       18       Banister Shoes, Paper Factory,
 Boaz, AL                                                                          VF Factory Outlet

Factory Stores of America..............          2001        91,000       10       VF Factory Outlet
 West Frankfort, IL

Factory Stores of America..............          2001        90,000       11       Bass, Dress Barn, VF Factory
 Arcadia, LA                                                                       Outlet, Van Heusen

Factory Stores of America..............          2001        90,000       10       Bass, Dress Barn, VF Factory
 Nebraska City, NE                                                                 Outlet

Factory Stores of America..............          2001        86,000       13       Dress Barn, VF Factory Outlet
 Lebanon, MO

Factory Stores of America..............          2001        84,000       13       Factory Brand Shoes, VF Factory
 Graceville, FL                                                                    Outlet, Van Heusen

Factory Stores of America..............          2001        64,000        4       Banister Shoes, VF Factory Outlet
 Hanson, KY

Factory Stores of America..............          2001        64,000        4       VF Factory Outlet
 Hempstead, TX

Factory Stores of America..............          2001        60,000        4       Bass, VF Factory Outlet
 Union City, TN

Factory Stores of America..............          2001        44,000       11       Levi's, L'eggs/ Hanes/ Bali/ Playtex
 Lake George, NY
                                                           --------    -----
Total Other Properties.................                   5,991,000    1,208
                                                           --------    -----
   Grand Total.........................                  14,386,000    3,436
                                                           ========    =====`

Notes to Property Data:

|1) | 40%-owned through a joint venture with Mitsubishi Estate Co., Ltd. (30%
ownership) and Nissho Iwai Corporation (30% ownership).
|-- | -------------------------------------------------------------------------------------------------------------------------------

|2) | Property held under long term land lease expiring as follows: American Tin
Cannery Premium Outlets, December 2004; Factory Stores of America at Boaz,
January 2007; Kittery Premium Outlets (129,000 sq ft), October 2009; Gotemba
Premium Outlets, October 2019; Rinku Premium Outlets, March 2020; Factory
Merchants Branson, November 2021; Factory Stores of America at Smithfield
(87,000 sq ft), January 2029; Dare Center, September 2058; Factory Stores of
America at Iowa, September 2087.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Company rents approximately 36,000 square feet of office space in its
headquarters facility in Roseland, New Jersey; approximately 2,000 square feet
at its office in Mission Viejo, California; 5,600 square feet at Chelsea
Interactives office in Reston, Virginia and 3,500 square feet at its
office in New York.

Item 3. Legal Proceedings

The Company is not presently involved in any material litigation other than
routine litigation arising in the ordinary course of business and that is either
expected to be covered by liability insurance or to have no material impact on
the Company's financial position and results of operations.

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

None

Directors and Executive Officers of the Company

The following table sets forth the directors and executive officers of the
Company:

`Name                        Age    Position
----                        ---    -------------

David C. Bloom              46     Chairman of the Board (term expires in 2005)
                                   and Chief Executive Officer
William D. Bloom            40     Vice Chairman
                                   and Director (term expires in 2003)
Brendan T. Byrne            78     Director (term expires in 2004)
Robert Frommer              67     Director (term expires in 2003)
Barry M. Ginsburg           65     Director (term expires in 2005)
Philip D. Kaltenbacher      65     Director (term expires in 2005)
Reuben S. Leibowitz         55     Director (term expires in 2003)
Leslie T. Chao              46     President
Thomas J. Davis             47     Chief Operating Officer
Michael J. Clarke           49     Senior Vice President and Chief Financial
                                   Officer
Bruce Zalaznick             46     Executive Vice President-International
Anthony J. Galvin           43     Senior Vice President-Leasing
John R. Klein               44     Senior Vice President-Real Estate
Christina M. Casey          47     Vice President-Human Resources
Denise M. Elmer             46     Vice President, General Counsel and Secretary
Philip E. Ende              32     Vice President - Leasing
Eric K. Helstrom            44     Vice President-Architecture and Construction
Daniel L. Kelly             37     Vice President- International Leasing
Gregory C. Link             53     Vice President-Operations
Michele Rothstein           44     Vice President-Marketing
Catherine A. Lassi          43     Treasurer
Sharon M. Vuskalns          39     Controller`

David C. Bloom, Chairman of the Board and Chief Executive Officer since
1993. Mr. Bloom was a founder and principal of Chelsea, and was President of
Chelsea from 1985 to 1993. As Chairman of the Board and Chief Executive Officer
of the Company, he sets policy and coordinates and directs all the
Companys primary functions. Prior to founding Chelsea, he was an equity
analyst with The First Boston Corporation (now Credit Suisse First Boston
Corporation) in New York. Mr. Bloom graduated from Dartmouth College and
received an MBA from Harvard Business School.

William D. Bloom, Vice Chairman since 2000 and Director since 1995. Mr. Bloom
joined The Chelsea Group in 1986 with responsibility for leasing of Company's
projects and was appointed Executive Vice President-Leasing in 1993 and
Executive Vice President-Strategic Relationships in 1996. Mr. Bloom's current
responsibilities include day to day operations of Chelsea Interactive, Inc.
Prior to joining Chelsea, he was an institutional bond broker with Mabon Nugent
in New York. Mr. Bloom graduated from Boston University School of Management.

Brendan T. Byrne, Director since 1993. Since 1982, Mr. Byrne has been a
senior partner in the law firm of Carella, Byrne, Bain, Gilfillan, Cecchi,
Stewart & Olstein. He previously served as Governor of New Jersey from 1974
to 1982, Prosecutor of Essex County (New Jersey), President of the Public
Utility Commission and Assignment Judge of the New Jersey Superior Court. He has
also served as Vice President of the National District Attorneys Association;
Trustee of Princeton University; Chairman of the Princeton University Council on
New Jersey Affairs; Chairman of the United States Marshals Foundation; and
Chairman of the National Commission on Criminal Justice Standards and Goals
(1977). He serves on a Board of the National Judicial College, is a former
Commissioner of the New Jersey Sports and Exposition Authority, and was a member
of the board of directors of New Jersey Bell Telephone Company, Elizabethtown
Water Company, Ingersoll-Rand Company and a former director of The Prudential
Insurance Company of America. He is a member of the Board of Mack-Cali, Inc. Mr.
Byrne graduated from Princeton University and received an LL.B. from Harvard Law
School.

Robert Frommer, Director since 1993. Mr. Frommer is currently a Managing Member
of Chatham Development Partners, LLC in San Francisco. From 1991 to 2000, he was
a principal of Robert Frommer Associates, a real estate consulting firm. He has
been responsible for developing major commercial, residential and mixed-use real
estate projects in New York, Philadelphia, Washington, DC, Chicago and Seattle.
He has served as President of the Pebble Beach Co., the Ritz-Carlton Hotel of
Chicago and PG&E Properties in California. Mr. Frommer is a graduate of the
Wharton School of the University of Pennsylvania, and received an LL.B. Degree
from Yale Law School.

Barry M. Ginsburg, Director since 1993. Mr. Ginsburg was a founder and
principal of Ginsburg Craig Associates and its predecessor companies from 1986
to 1993 and Vice Chairman of the Company from 1993 to 1999 at which time he
retired. From 1966 through 1985, he was employed by Dansk International Designs,
Ltd. and was corporate Chief Operating Officer and Director from 1980 to 1985.
Dansk operated a chain of 31 manufacturers outlet stores. He is currently
a Director of Liz Lange Maternity, New Milford (Connecticut) Hospital and AGS
Realty Advisors. Mr. Ginsburg graduated from Colby College and received an MBA
from Cornell University.

Philip D. Kaltenbacher, Director since 1993. Since 1974, Mr. Kaltenbacher
has been Chairman of the Board of Directors and Chief Executive Officer of Seton
Company, a manufacturer of leather and chemicals. Mr. Kaltenbacher was a
Commissioner of The Port Authority of New York and New Jersey from September
1985 through February 1993, and served as Chairman from September 1985 through
April 1990. Mr. Kaltenbacher graduated from Yale University and received an
LL.B. from Yale Law School.

Reuben S. Leibowitz,Director since 1993. Mr. Leibowitz is a Managing
Director of Warburg Pincus, a private equity investment firm. He has been
associated with Warburg Pincus since 1984. Mr. Leibowitz currently serves as
Director of Grubb & Ellis Company, Price Legacy Corporation and a number of
private companies. Mr. Leibowitz graduated from Brooklyn College, received an
MBA from New York University, a JD from Brooklyn Law School, and an LL.M. from
New York University School of Law.

Leslie T. Chao, President since April 1997. As President of the Company,
Mr. Chao oversees the corporate finance, international development, legal,
administrative, investor relations and human resource functions of the Company.
He is also Chairman of the Board of Chelsea Japan Co., Ltd, the Companys
Japanese joint venture. Mr. Chao joined Chelsea in 1987 as Chief Financial
Officer. Prior to joining Chelsea, he was a Vice President in the corporate
finance/treasury area of Manufacturers Hanover Corporation (now J.P. Morgan
Chase & Co.), a New York bank holding company. He graduated from Dartmouth
College and received an MBA from Columbia Business School.

Thomas J. Davis, Chief Operating Officer since April 1997. As Chief
Operating Officer, Mr. Davis oversees the asset management activities of the
domestic outlet portfolio including leasing, operations and marketing as well as
development and construction. Mr. Davis joined Chelsea in 1996 as Executive Vice
President-Asset Management. From 1988 to 1995, he held various senior positions
at Phillips-Van Heusen Corporation, most recently as Vice President-Real Estate.
Mr. Davis has over twenty years of factory outlet industry experience and has
served the industry in various trade association positions including Chairman of
Manufacturers Idea Exchange as well as a board member of the Steering Committee
for FOMA (Factory Outlet Marketing Association). Mr. Davis received the 1995
Value Retail News Award of Excellence for individual achievement in the
outlet industry.

Michael J. Clarke, Senior Vice President and Chief Financial Officer
since 1999. Since joining the Company in 1994, Mr. Clarke has held various
senior level financial positions. As Chief Financial Officer, he is responsible
for Chelseas financial functions including reporting, treasury,
accounting, budgeting, as well as banking, investor and rating agency
relationships. From 1985 to 1993, he held various senior positions at a
NYSE-listed operator of hotels, most recently as Executive Vice President &
Chief Financial Officer. Mr. Clarke graduated from Seton Hall University and is
a certified public accountant.

Bruce Zalaznick, Executive Vice President-International since 1999. Mr.
Zalaznick is responsible for the Companys development activities outside
the United States as Executive Vice President-International. He joined the
Company in 1994 as Vice President-Acquisitions responsible for the
Companys domestic site acquisition activities. From 1996 to 1999 he served
as Executive Vice President-Real Estate, responsible for the domestic site
selection, development, design and construction activities of the Company. From
1990 to 1994, he was Senior Vice President-Site Acquisition at Prime Retail,
Inc., a publicly traded REIT, and in that capacity was responsible for the
acquisition and entitlement of approximately three million square feet of outlet
space in ten states. Mr. Zalaznick graduated from Cornell University and
received an MBA from the Wharton School at the University of Pennsylvania.

Anthony J. Galvin,Senior Vice President-Leasing since 2001. Mr. Galvin
joined the Company in 1997 as Vice President-Leasing and was named Senior Vice
President-Leasing in January 2001. Mr. Galvin is responsible for the management
of all aspects of the Companys domestic leasing activities which includes
leasing, lease administration, legal leasing support and tenant
improvement/construction. From 1995 to 1997, he was Director of Real Estate for
Coach Leather, a division of Sara Lee Corporation. From 1987 to 1995 he held
positions in both real estate and construction at Phillips-Van Heusen
Corporation. Mr. Galvin has served the industry in various trade association
positions including Chairperson of the Northeast Merchants Association and the
Board of Directors of ORMA (Outlet Retail Merchants Association). Mr. Galvin is
a graduate of Glassboro State College (now Rowan University), where he serves on
the Executive Committee of the Alumni Advisory Council for the School of
Business.

John R. Klein,Senior Vice President-Real Estate, since 2001. Mr. Klein
joined the Company in 1995 as Director-Acquisitions, was named Vice
President-Acquisitions and Development in 1996, and named Senior Vice
President-Real Estate in January 2001. He oversees the Companys domestic
acquisitions, development and construction activities. From 1991 to 1995, he
held various positions at Prime Retail, Inc., most recently as Vice
President-Site Acquisition. At Prime, Mr. Klein was involved in the acquisition
and entitlement of over two million square feet of manufacturers outlet
space in nine states. Mr. Klein graduated from Columbia University and received
an MBA from George Washington University School of Business.

Christina M. Casey,Vice President-Human Resources since 1998. Ms. Casey
joined the Company in 1996 as Director of Human Resources. As Vice
President-Human Resources, she oversees all aspects of the Companys human
resource activities, including recruitment, benefits, compensation, policy
development, training and employee relations. From 1987 to 1996 she held various
positions in Human Resources with Boise Cascade Corporation, Specialty
Paperboard and Rock-Tenn Company. Ms. Casey graduated from Villanova University
and received a Masters in Social Service from Bryn Mawr Graduate School.

Denise M. Elmer, Vice President, General Counsel and Secretary since
1993. Ms. Elmer joined Chelsea as General Counsel in 1993. As Vice President,
General Counsel and Secretary, she oversees the legal activities of the Company,
including those related to property acquisition and development, leasing,
finance and operations. From 1990 to 1993, she was a partner in the New York law
firm of Stadtmauer Bailkin Levine & Masur, where she specialized in
commercial real estate law. Ms. Elmer graduated from St. Lawrence University and
received a JD from Duke University School of Law.

Philip Ende,Vice President-Leasing since 2001. Mr. Ende joined the
Company in 1993 and has held various positions with increasing responsibility in
leasing and construction prior to being named Vice President-Leasing in March
2001. Mr. Ende is responsible for the management of all aspects of the
day-to-day leasing activities of the Companys domestic portfolio. Mr. Ende
graduated from the University of Florida.

Eric K. Helstrom,Vice President-Architecture and Construction, since
1996. Mr. Helstrom joined the Company in 1995 as Director-Development and was
named Vice President-Architecture and Construction in 1996. He oversees the
design, engineering and construction activities of the Company. From 1987 to
1995, he held various positions including Director-Architecture/Construction
with Alexander Haagen Properties, an AMEX-listed REIT. Mr. Helstrom graduated
from California Polytechnic San Luis Obispo and received a Masters in Real
Estate Development from the University of Southern California. Mr. Helstrom is a
licensed architect and general contractor.

Daniel L. Kelly, Vice President - International Leasing since 2001. Since
joining the Company in 1993, Mr. Kelly has held various positions in the leasing
area. From July 1999 to August 2001, Mr. Kelly served as Senior Managing
Director of Chelsea Japan in Tokyo before being named Vice
President-International Leasing. Mr. Kelly received his MBA in International
Business from Rutgers University and a BA in mathematics from Providence
College.

Gregory C. Link, Vice President-Operations since 1996. Mr. Link joined
the Company in 1994 as Vice President-Leasing responsible for the management of
the Companys leasing activities. In January 1996, Mr. Link was appointed
Vice President-Operations and is responsible for supervising property management
activities at the Companys operating properties. From 1987 to 1994, he was
Chairman, President and Chief Executive Officer of The Ribbon Outlet, Inc., an
affiliate of the worlds largest ribbon manufacturer, and in that capacity
opened over 100 factory outlet stores across the United States. From 1971 to
1987 he held various senior merchandising positions with Phillips-Van Heusen
Corporation, Westpoint Pepperell Corporation, May Department Stores and
Associated Dry Goods Corporation. Mr. Link graduated from the College of
Business and Public Administration of the University of Arizona at Tucson.

Michele Rothstein, Vice President-Marketing since 1993. Ms. Rothstein
joined Chelsea in 1989 as Vice President-Marketing. As Vice President-Marketing
of the Company, she oversees all aspects of the Companys marketing and
promotion activities. From 1987 to 1989, she was a product manager at Regina
Company and, prior to 1987, was with Waring & LaRosa Advertising in New
York. Ms. Rothstein graduated from the School of Business at the State
University of New York at Albany.

Catherine A. Lassi, Treasurer since 1997. Ms. Lassi joined Chelsea in
1987, became Controller in 1990 and Treasurer in January 1997. As Treasurer, she
oversees budgeting, forecasting, contract administration, cash management,
banking, information systems and lease accounting activities for the Company.
Ms. Lassi is a certified public accountant and graduated from the University of
South Florida.

Sharon M. Vuskalns, Controller since 1997. Ms. Vuskalns joined the
Company in 1995 as Director of Accounting Services. As Controller, she oversees
the accounting, tax and financial reporting activities for the Company. Prior to
joining Chelsea, she was a Senior Audit Manager with Ernst & Young, LLP. Ms.
Vuskalns graduated from Indiana University and is a certified public accountant.

David C. Bloom and William D. Bloom are brothers.

PART II

Item 5. Market for the Registrant's Common Stock and Related Security Matters

The common stock of the Company is traded on the New York Stock Exchange under
the ticker symbol CPG. As of February 14, 2003, the closing market price of the
Companys stock was $34.23 and there were 493 shareholders of record. The
Company believes it has more than 14,500 beneficial holders of common stock. The
following table sets forth the quarterly high and low closing sales price per
share (as derived from the Wall Street Journal) and the cash
distributions declared in 2002 and 2001. All share and per share data has been
adjusted to reflect a 2-for-1 stock split that was paid as a stock dividend on
May 28, 2002 to shareholders of record on May 14, 2002:

`Sales Price ($)        Distributions
          Quarter Ended                High         Low             ($)
          -------------                ----         ---        -------------

          December 31, 2002          $35.40        $31.13         $ 0.485
          September 30, 2002          34.59         26.40           0.485
          June 30, 2002               35.03         26.80           0.485
          March 31, 2002              27.40         23.93           0.405

          December 31, 2001           25.44         22.13           0.390
          September 30, 2001          26.38         21.50           0.390
          June 30, 2001               23.47         20.78           0.390
          March 31, 2001              21.13         18.47           0.390`

While the Company intends to continue paying regular quarterly dividends, future
dividend declarations will be at the discretion of the Board of Directors and
will depend on the cash flow and financial condition of the Company; capital
requirements; annual distribution requirements under the REIT provisions of the
Internal Revenue Code; covenant limitations under the Senior Credit Facility and
the Term Notes; and such other factors as the Board of Directors deems relevant.

Item 6:  Selected Financial Data

Chelsea Property Group, Inc.
(In thousands except per share, and number of centers)

`Year Ended December 31,
                                                  -------------------------------------------------------------------
Operating Data:                                      2002         2001          2000        1999        1998
--------------                                       ----         ----          ----        ----        ----
Rental revenue..................................    $205,689    $145,278      $125,824    $114,485     $ 99,976
Total revenues..................................     283,214     206,855       179,903     162,618      139,315
Total expenses..................................     198,317     150,640       123,876     114,676       98,449

Income from unconsolidated investments .........       9,802      15,025         6,723         308          -
Loss from and impairment of Chelsea
Interactive ....................................     (47,756)     (5,337)       (2,364)        -            -
Gain (loss) on sale or write-down of assets.....      10,911         617           -          (694)     (15,713)
Income before minority interest.................      57,854      66,520        60,386      47,556       25,436

Minority interest...............................     (12,718)    (14,706)      (14,606)     (9,275)      (3,803)

Net income......................................      45,136      51,814        45,780      38,281       21,350

Preferred dividend..............................      (3,422)     (4,188)       (4,188)     (4,188)      (4,188)

Net income available to common shareholders.....     $41,714     $47,626       $41,592     $34,093      $17,162

Net income per common share (diluted) (1) (2)...       $1.05       $1.37         $1.29       $1.07        $0.55

Ownership Interest: (2)
REIT common shares..............................      39,798      34,710        32,252      31,816       31,344
Operating Partnership units.....................       6,426       6,358         6,712       6,778        6,862
                                                    --------    --------       -------     -------      -------
Weighted average shares/units outstanding.......      46,224      41,068        38,964      38,594       38,206

Balance Sheet Data:
Rental properties before accumulated
  depreciation..................................  $1,837,174  $1,127,906      $908,344    $848,813     $792,726
Total assets....................................   1,703,030   1,099,308       901,314     806,055      773,352
Unsecured and mortgage debt.....................   1,030,820     548,538       450,353     355,684      375,571
Total liabilities  .............................   1,107,756     624,246       528,752     426,198      450,410
Minority interest...............................     139,443     115,639       101,203     102,561       42,551
Redeemable preferred stock......................      38,731      48,385        48,385      48,385       48,385
Stockholders' equity............................     455,831     359,423       271,359     277,296      280,391
Distributions declared per common share (2).....       $1.86       $1.56         $1.50       $1.44        $1.38

Other Data:
Funds from operations available to common
shareholders (1) ...............................    $131,771    $108,862       $93,556     $79,980      $67,994
Cash flows from:
   Operating activities.........................    $128,222    $121,723      $106,658     $87,502      $78,731
   Investing activities.........................    (404,178)   (112,551)     (121,479)    (77,490)    (119,807)
   Financing activities.........................     273,903      (2,604)       23,995     (10,781)      36,169

GLA at end of period (3)........................      14,386      12,574         8,159       5,216        4,876
Weighted average GLA (4)........................      12,758       9,349         5,703       4,995        4,614
Centers in operation at end of the period.......          58          57            27          19           19
New centers opened..............................         -           -               4         -              1
Centers expanded ...............................           4           1             3           4            7
Centers sold ...................................           5           1             1           1          -
Centers held for sale...........................         -           -             -             1            2
Centers acquired ...............................           7          31             4         -            -`

Notes to Selected Financial Data:

|1) | 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. See
Management's Discussion and Analysis for definition of FFO.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2) | Assumes that the 2-for-1 stock split on May 28, 2002 had occurred on January 1, 1998.
|-- | -------------------------------------------------------------------------------------

|3) | At year-end 2002, includes two 40% owned centers containing 470,000 square feet
of GLA; at year-end 2001 and 2000 includes seven centers containing 2.4 million
square feet of GLA in which the Company had joint venture interests ranging
from 40 to 50%.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4) | GLA weighted by months in operation.
|-- | ------------------------------------

Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations

The following discussion should be read in connection with the financial
statements and notes thereto appearing elsewhere in this annual report.

Certain comparisons between periods have been made on a percentage or weighted
average per square-foot basis. The latter technique adjusts for square-footage
changes at different times during the year.

General Overview

At December 31, 2002, the Company wholly or partially-owned 58 Premium Outlet
and other shopping centers, compared to 57 and 27 at the end of 2001 and 2000,
respectively. During 2002, the Company added a net 1.8 million square feet of
GLA to its portfolio by acquiring seven Other Properties comprising 2.2 million
square feet, expanding three existing wholly-owned centers by 55,000 square feet
and one joint venture center by 70,000 square feet and selling five non-core
wholly-owned Other Properties containing 496,000 square feet. Two previously
acquired premium outlet centers in Kittery, Maine were combined and are now
considered a single center.

During the three-year period ending December 31, 2002, the Company has grown
rental revenue by $90.2 million to $205.7 million. This was achieved by
increasing rents, opening four new centers, expanding eight centers and
acquiring 42 centers that was partially offset by rent decreases from selling
six non-core centers. Income from unconsolidated investments aggregated $31.6
million during the same three-year period ended December 31, 2002, increasing
from $0.3 million in 1999 to $9.8 million in 2002, 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. During 2002, the Company became the sole owner of five of these outlet
centers resulting from the buyouts of joint venture partners. The operating
results of these five centers have been fully consolidated since their buyouts.

At December 31, 2002, 2001 and 2000, the Company wholly or partially-owned 14.4
million, 12.6 million and 8.2 million square feet of GLA, respectively. Since
January 1, 2000, the Company has added 9.2 million square feet (sf)
of net GLA and details are as follows:

`Since January 1,
                                                          2000               2002            2001             2000
                                                  -------------------   --------------  -------------    --------------
Changes in GLA (Sf in 000'S):

New Centers Developed:
Orlando Premium Outlets  ......................                428                -              -               428
Gotemba Premium Outlets (40%-owned) ...........                220                -              -               220
Allen Premium Outlets..........................                206                -              -               206
Rinku Premium Outlets (40%-owned) .............                180                -              -               180
                                                  -------------------   --------------  -------------    --------------

Total New Centers..............................              1,034                -              -             1,034

Centers Expanded:
Rinku Premium Outlets (40% owned) .............                 70               70              -                 -
Desert Hills Premium Outlets...................                 23               23              -                 -
Liberty Village Premium Outlets................                 23               23              -                 -
Napa  Premium Outlets..........................                  9                9              -                 -
Allen Premium Outlets..........................                146                -            146                 -
Leesburg Corner Premium Outlets................                138                -              -               138
Wrentham Village Premium Outlets...............                127                -              -               127
Folsom Premium Outlets.........................                 54                -              -                54

Other..........................................               (14)             (17)              4               (1)
                                                  -------------------   --------------  -------------    --------------

Total Centers Expanded.........................                576              108            150               318

Centers Acquired:
Factory Outlet Village Osage Beach.............                391              391              -                 -
St. Augustine Outlet Center....................                329              329              -                 -
Edinburgh Outlet Center........................                305              305              -                 -
Outlets at Albertville.........................                305              305              -                 -
Factory Merchants Branson......................                300              300              -                 -
Jackson Outlet Village.........................                292              292              -                 -
Johnson Creek Outlet Center....................                278              278              -                 -
Kittery Premium Outlets II (1)(3)..............                 21                -             21                 -
30 Other Properties (2)........................              4,279                -          4,279                 -
Gilroy Premium Outlets.........................                577                -              -               577
Lighthouse Place Premium Outlets...............                491                -              -               491
Waterloo Premium Outlets.......................                392                -              -               392
Kittery Premium Outlets (I) (3) ...............                131                -              -               131
                                                  -------------------   --------------  -------------    --------------
Total Centers Acquired.........................              8,091            2,200          4,300             1,591

Centers Sold:
Five Other Properties..........................              (496)             (496)              -                 -
Mammoth Premium Outlets........................               (35)               -               (35)              -
                                                  -------------------   --------------  -------------    --------------
Total Centers Sold.............................              (531)             (496)           (35)                 -

Net GLA Added During the Period................              9,170            1,812          4,415             2,943

Other Data:
GLA at end of period..............................                           14,386         12,574             8,159
Weighted average GLA..............................                           12,758          9,349             5,703
Centers in operation at end of period.............                               58             57                27
New centers opened................................                                -              -                 4
Centers expanded..................................                                4              1                 3
Centers sold......................................                                5              1                 1
Centers acquired..................................                                7             31                 4`

|1) | Acquired in the September 25, 2001 Konover Property Trust acquisition
transaction and formerly Factory Stores of America at Kittery.
|-- | ------------------------------------------------------------------------------------------------------------------------------------

|2) | Acquired in the September 25, 2001 Konover transaction and excludes Vegas Pointe
Plaza which was repurchased by Konover on December 3, 2001.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------

|3) | Kittery Premium Outlets (I) and Kittery Premium Outlets (II) were combined in
2002 and are now considered a single center.
|-- | --------------------------------------------------------------------------------------------------------------------------

The Companys domestic Premium Properties produced weighted
average reported tenant sales of approximately $383 per square-foot in 2002,
$379 per square-foot in 2001 and $400 per square-foot in 2000. Weighted average
sales is a measure of tenant performance that has a direct effect on base and
percentage rents that can be charged to tenants over time.

One of the Companys centers, Woodbury Common Premium
Outlets, generated approximately 16%, 21% and 23% of the Companys total
revenue for the years 2002, 2001 and 2000, respectively. In addition,
approximately 25%, 28% and 28% of the Company's revenues for the years ended
December 31, 2002, 2001 and 2000, respectively, were derived from the
Companys centers in California.

The Company does not consider any single store lease to be
material; no individual tenant, combining all of its store concepts, accounts
for more than 5% of the Companys gross revenues. VF Corporation occupied
8% of the Companys total domestic GLA at December 31, 2002, and was the
only tenant that occupied more than 5% of GLA at year end. In view of these
statistics and the Companys past success in re-leasing available space,
the Company believes that the loss of any individual tenant would not have a
significant effect on future operations.

The discussion below is based upon operating income before
minority interest. The minority interest in net income varies from period to
period as a result of changes in Operating Partnership interests.

Comparison of year ended December 31, 2002 to year ended December 31, 2001.

Income before interest, depreciation and amortization and
minority interest increased $40.3 million, or 24.9%, to $202.3 million in 2002
from $162.0 million in 2001. This increase was primarily the result of the
acquisition of 31 centers in September 2001, the buyout and consolidation of
five centers previously held as unconsolidated investments, the acquisition of
seven centers and higher rents on releasing and renewals partially offset by
higher operating maintenance, general and administrative, interest and other
costs and increased losses from Chelsea Interactive during 2002. Income before
interest expense and minority interest increased $3.1 million to $106.5 million
in 2002 from $103.4 million in 2001 due to the addition of GLA while maintaining
overhead costs, a gain resulting from the partial sale of an unconsolidated
investment, substantially offset by the impairment loss on Chelsea Interactive.

Base rents increased $54.5 million, or 42.8%, to $181.7 million
in 2002 from $127.2 million in 2001 due to the acquisition of 38 centers; the
buyouts of ownership interests in five centers in 2002; and higher average rents
as a result of higher rental rates on new leases and renewals. Base rental
revenue per weighted average square-foot in the Premium Properties increased to
$21.30 in 2002 from $20.39 in 2001.

Percentage rents increased $6.0 million, or 33.1%, to $24.0
million in 2002 from $18.0 million in 2001 primarily due to higher tenant sales,
the acquisition of the 38 centers and the buyouts of ownership interests in five
centers during 2002.

Expense reimbursements, representing contractual recoveries from
tenants of certain common area maintenance, operating, real estate tax,
promotional and management expenses, increased $15.2 million, or 30.1%, to $65.8
million in 2002 from $50.6 million in 2001 due to the recovery of operating and
maintenance costs from increased GLA. The average recovery of reimbursable
expenses for the Premium Properties was 90.6% for 2002 and 2001. The average
recovery of reimbursable expenses for the Other Properties improved to 52.6% in
2002 compared to 51.1% in 2001.

Other income increased $0.7 million, or 6.7%, to $11.7 million
in 2002 from $11.0 million in 2001 primarily due to increased ancillary
operating income from the acquisition of the 38 centers; the buyouts of
ownership interests in five centers in 2002; and the gains from sale of five
Other Properties and an out parcel during 2002, partially offset by decreased
interest income from lower interest rates.

Operating and maintenance expenses increased $22.1 million, or
38.3%, to $79.9 million in 2002 from $57.8 million in 2001 primarily due to
costs related to increased GLA and the buyouts of ownership interests in five
centers during 2002. On a weighted average square-foot basis, Premium Properties
operating and maintenance expenses increased to $9.21 in 2002 from $9.16 in
2001.

Depreciation and amortization expense increased $9.7 million, or
20.0%, to $58.3 million in 2002 from $48.6 million in 2001 due to additional
depreciation from the acquisition of the 38 retail centers, the buyouts of
ownership interests in five centers in 2002 and expansions.

General and administrative expense increased $2.5 million, or
53.2%, to $7.1 million in 2002 from $4.6 million in 2001 primarily due to
increased professional fees, head count and deferred compensation accrual.

Other expenses increased $1.5 million, or 54.1%, to $4.3 million
in 2002 from $2.8 million in 2001 due to ground lease expenses assumed with the
acquisition of new centers, legal expenses and increased bad debts.

Income from unconsolidated investments decreased $5.2 million,
or 34.8%, to $9.8 million in 2002 from $15.0 million in 2001 due to buyouts of
ownership interests in five centers that required that operations of these
centers be fully consolidated from the buyout date, partially offset by
higher earnings from Chelsea Japan.

The loss from Chelsea Interactive operations increased $8.1
million, or 150.8%, to $13.4 million in 2002 from $5.3 million in 2001. The
increase was due to increased operating payroll, general and administrative,
depreciation and amortization expense and lack of third party participation in
the losses. The Company also recorded an impairment loss of $34.4 million as of
December 31, 2002.

Gain on sale of unconsolidated investments of $10.9 million in
2002 resulted from the sale of approximately 40% of the Companys partial
interest in Value Retail. The 2001 gain on sale of $0.6 million was also from
the sale of a partial interest in Value Retail offset by the write-off of the
Companys investment in Guam.

Interest in excess of amounts capitalized increased $11.8
million, or 32.1%, to $48.7 million in 2002 from $36.9 million in 2001,
primarily due to higher debt from acquisitions, and joint venture buyouts,
partially offset by lower interest rates.

Comparison of year ended December 31, 2001 to year ended
December 31, 2000.

Income before interest, depreciation and amortization and
minority interest increased $30.0 million, or 22.7%, to $162.0 million in 2001
from $132.0 million in 2000. This increase was primarily the result of
expansions and new center openings during the latter part of 2000, higher rents
on releasing and renewals during 2001, income from unconsolidated investments
that commenced operations in the latter part of 2000 and the September 25, 2001,
acquisition of 31 centers. These increases were partially offset by the loss
from Chelsea Interactive and increases in interest and operating and maintenance
expenses.

Base rents increased $19.1 million, or 17.7%, to $127.2 million
in 2001 from $108.1 million in 2000 due to expansions of wholly-owned centers
and a new center opening in 2000, higher average rents and the acquisition of
the 31 centers in September 2001. Base rental revenue per weighted average
square-foot in the Premium Properties increased to $20.39 in 2001 from $20.23 in
2000 as a result of higher rental rates on new leases and renewals.

Percentage rents increased $0.3 million, or 2.0%, to $18.0
million in 2001 from $17.7 million in 2000 primarily due to the acquisition of
the 31 centers in 2001. Percentage rents per weighted average square-foot on the
Companys wholly-owned centers decreased to $2.60 in 2001 from $3.31 in
2000. The decrease is due to much lower sales per square-foot from the Other
Properties acquired in September 2001. The Companys wholly-owned Premium
Properties percentage rents per weighted average square-foot decreased to $3.08
in 2001 from $3.31 in 2000 due to changes of some tenants from overage to base
rents and lower sales.

Expense reimbursements, representing contractual recoveries from
tenants of certain common area maintenance, operating, real estate tax,
promotional and management expenses, increased $6.5 million, or 14.6%, to $50.6
million in 2001 from $44.1 million in 2000, due to the recovery of operating and
maintenance costs from increased GLA. Excluding the 31 retail centers acquired
in 2001, on a weighted average square-foot basis, expense reimbursements
increased 0.7% to $8.32 in 2001 from $8.26 in 2000. The average recovery of
reimbursable expenses for the wholly-owned Premium Properties was 90.8% in 2001
compared to 90.0% in 2000. The average recovery of reimbursable expense for the
Other Properties was 51.1% in 2001.

Other income increased $1.0 million, or 10.6%, to $11.0 million
in 2001 from $10.0 million in 2000. The increase was due to increased interest
and ancillary income, partially offset by lower pad sale gains in 2001 versus
2000.

Operating and maintenance expenses increased $8.8 million, or
18.0%, to $57.8 million in 2001 from $49.0 million in 2000. The increase was
primarily due to costs related to increased GLA and the acquisition of the 31
centers. Excluding the 31 centers acquired in 2001, on a weighted average
square-foot basis, operating and maintenance expenses decreased to $9.16 in 2001
from $9.17 in 2000.

Depreciation and amortization expense increased $5.6 million, or
12.9%, to $48.6 million in 2001 from $43.0 million in 2000 due to depreciation
of expansions of wholly-owned and new centers opened in 2000 and the acquisition
of the 31 centers in September 2001.

General and administrative expenses were $4.6 and $4.8 million
in 2001 and 2000, respectively.

Other expenses increased $0.1 million, or 5.8%, to $2.8 million
in 2001 from $2.7 million in 2000. Increased 2001 bad debt and legal expenses
were greater than the non-recurring write-off of development costs related to
inactive projects in 2000.

Income from unconsolidated investments increased $8.3 million,
or 123.5%, to $15.0 million in 2001 from $6.7 million in 2000 as a result of a
full years results of equity-in-earnings and fees earned from joint
venture investments that were opened or acquired in the latter part of 2000.

The loss from Chelsea Interactive increased $2.9 million, or
125.8%, to $5.3 million in 2001 from $2.4 million in 2000. The increase was due
to a full year of operations in 2001 versus a partial year in 2000.

Gain on sale of unconsolidated investments (net of write-downs)
of $0.6 million in 2001 resulted from the gain generated from a partial sale of
the Companys interest in Value Retail offset by the write-off of the
Companys investment in Guam.

Interest, in excess of amounts capitalized, increased $12.4
million, or 50.7%, to $36.9 million in 2001 from $24.5 million in 2000, due to
higher debt balances from acquisitions and lower construction activity in 2001.

Liquidity and Capital Resources

The Company believes it has adequate financial resources to fund
operating expenses, distributions, and planned development, construction and
acquisition activities over the short term, which is less than 12 months and the
long term, which is 12 months or more. Operating cash flow for the year ended
December 31, 2002 of $128.2 million is expected to increase with a full year of
operations from the five joint venture buyout centers and the 1.8 million square
feet of GLA added during 2002 as well as scheduled openings of approximately
800,000 square feet of new joint venture GLA in 2003. The Company has adequate
funding sources to complete and open all current development projects from
available cash, credit facilities and secured construction financing. The
Company also has access to the public markets through its $1.6 billion debt and
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, meet
funding requirements of Chelsea Interactive and partially fund development
projects.

Common distributions declared and recorded in 2002 were $84.5
million, or $1.86 per share or unit. The Companys dividend payout ratio as
a percentage of net income before minority interest, gain or loss on sale or
writedown of assets and depreciation and amortization (reduced by amortization
of deferred financing costs, depreciation of non-real estate assets and
preferred dividends (FFO)) was 64.1%. The Companys senior
unsecured bank line of credit (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.

The Companys ratio of earnings-to-fixed charges for each
of the three years ended December 31, 2002, 2001 and 2000 was 2.4, 2.6 and 2.6,
respectively. For purposes of computing the ratio, earnings consist of income
from continuing operations after depreciation and before minority interest and
fixed charges, exclusive of interest capitalized and amortization of loan costs
capitalized and impairment losses. Fixed charges consist of interest expense,
including interest costs capitalized, the portion of rent expense representative
of interest and total amortization of debt issuance costs expensed and
capitalized.

In July 2002, the Company increased its Senior Credit Facility
to $200 million from $160 million to support its growth. The Senior Credit
Facility expires in March 2005 (unless extended until March 2006), bears
interest on the outstanding balance at an annual rate equal to the London
Interbank Offered Rate (LIBOR) plus 1.05% (2.46% at December 31,
2002) or the prime rate, at the Companys option and has an annual facility
fee of 0.125%. The LIBOR rate spread ranges from 0.85% to 1.50% depending on the
Companys Senior Debt rating. At December 31, 2002, $98.0 million was
outstanding under the Senior Credit Facility.

During 2002, the Company completed five acquisitions valued at
$531.2 million, including: (i) $76.3 million buyout of Simon Property
Groups 50% undivided ownership interest of Orlando Premium Outlets on
April 1, 2002; (ii) $27.0 million acquisition of a 305,000 square-foot center in
Edinburgh, Indiana completed on April 1, 2002; (iii) $145.4 million buyout of
Fortress Registered Investment Trusts 51% ownership interest in four
premium outlet centers on August 20, 2002; (iv) $89.5 million acquisition of two
outlet centers located in Albertville, Minnesota and Johnson Creek, Wisconsin,
completed on November 22, 2002; and (v) $193.0 million acquisition of four
outlet centers located in Jackson, New Jersey, Osage Beach, Missouri, St.
Augustine, Florida and Branson, Missouri, completed on December 19, 2002.

Also during 2002, the Company completed several long-term
capital transactions to fund acquisition and development activity and to support
future growth. These transactions included: (i) the issuance of $100 million of
6.875% ten-year senior unsecured notes due June 15, 2012; (ii) the assumption of
$86.5 million of mortgage debt due 2008, bearing interest at 6.99% that was part
of the consideration for the 51% ownership interest buyout of four premium
outlet centers; (iii) the issuance of 3.5 million common shares in a public
offering that yielded net proceeds before expenses of $119.3 million; (iv) the
issuance of 1.3 million limited partnership units (convertible on a one-for-one
basis to common shares of the Company) valued at $44.6 million as partial
consideration in the acquisition of the Albertville, Minnesota and Johnson
Creek, Wisconsin outlet centers; (v) the issuance of $150 million of 6.0%
ten-year senior unsecured notes due January 15, 2013; and (vi) the repayment of
two secured construction loans aggregating $88.9 million, and the extinguishment
of mortgages on Orlando Premium Outlets and Allen Premium Outlets.

A summary of the maturity of the Companys contractual debt
obligations (at par) as of December 31, 2002 is as follows (in thousands):

`Less than           1 to 3         4 to 5         After 5
                                 Total           One Year             Years          Years          Years
                              -------------    --------------    --------------   -----------    ------------
Unsecured bank debt               $103,035              $  -         $103, 035          $  -             $ -
Unsecured notes                    625,000                 -            50,000       125,000         450,000
Mortgage debt                      301,025             4,686            10,934       166,068         119,337
                              -------------    --------------    --------------   -----------    ------------
   Total                        $1,029,060            $4,686          $163,969      $291,068        $569,337
                              =============    ==============    ==============   ===========    ============`

Construction projects underway and expected to open during 2003
include a 180,000 square-foot first phase of Sano Premium Outlets, located
north of Tokyo, Japan, scheduled to open in March 2003; a 170,000
square-foot second phase at Gotemba Premium Outlets, scheduled to open in July
2003; and the 435,000 square-foot Las Vegas Premium Outlets, scheduled to open
mid-2003. The Company is also under construction on the single phase 438,000
square-foot Chicago Premium Outlets located in Aurora, Illinois that is
scheduled to open in mid-2004. The Gotemba and Sano projects are developments of
Chelsea Japan Co., Ltd., the Companys 40% owned Japanese joint venture.
The Las Vegas and Chicago projects are 50/50 joint ventures with Simon. Other
projects in various stages of development are expected to open in 2004 and
beyond. There can be no assurance that these projects will be completed or
opened, or that there will not be delays in opening or completion. All current
development activity is fully financed either through project specific secured
construction financing, the yen denominated line of credit, available cash or
through the Senior Credit Facility. The Company will seek to obtain permanent
financing once the projects are completed and income has been stabilized.

In connection with the Simon joint ventures, the Company has
committed to provide 50% of the development costs, which are expected to be
approximately $48.0 million for Las Vegas Premium Outlets and $46.0 million for
Chicago Premium Outlets. As of December 31, 2002, the Company had contributed
$22.8 million and $8.4 million to the Las Vegas and Chicago projects,
respectively.

In June 1999, the Company entered into an agreement with
Mitsubishi Estate Co., Ltd. and Nissho Iwai Corporation to jointly develop, own
and operate premium outlet centers in Japan under the joint venture Chelsea
Japan. Borrowings related to Chelsea Japan for which the Company and the OP have
provided guarantees as of December 31, 2002, are as follows (in thousands):

`Total Facility            |                                  Outstanding
         --------------            |                                  -----------
                         US $      |                         US $              US $         Due       Interest
    Yen               Equivalent   |       Yen            Equivalent        Guarantee      Date        Rate
    ---               ----------   |       ---            ----------        ---------      ----      --------
4.0 billion (1)     $33.7 million  |    1.0 billion       $8.3 million      $8.3 million    2003        1.45%
0.6 billion (2)       5.0 million  |    0.6 billion        4.8 million       1.9 million    2012        1.50%
3.8 billion (2)      32.0 million  |    3.5 billion       29.5 million      11.8 million    2015        2.20%`

|1) | Facility entered into by an equity investee of the Company has a one-year
extension option; amended in November 2002 to allow for one additional year
extension.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

|2) | Facilities entered into by Chelsea Japan, secured by Gotemba and Rinku and 40%
severally guaranteed by the Company.
|-- | -------------------------------------------------------------------------------------------------------------------

In May 2002, the Company, through an affiliated entity, entered
into a 50/50 strategic alliance with Sordo Madaleno y Asociados and Mr. Carlos
Peralta of Mexico City to jointly develop premium outlet centers in Mexico.
Subject to leasing and entitlement, construction on a 200,000 square-foot first
phase of an outlet project north of Mexico City is expected to commence later in
2003 and to open in 2004. The site can support a second phase containing
approximately 165,000 square feet of GLA. Once phase one of the project has been
approved, the Company will be committed to fund approximately $12 million which
is 50% of the development costs.

The Company has minority interests ranging from 3% to 8% in
several outlet centers and outlet development projects in Europe operated by
Value Retail. The Companys total investment in Europe as of December 31,
2002, was $3.6 million. The Company has also agreed to provide up to $22.0
million in limited debt service guarantees under a standby facility for loans
arranged by Value Retail to construct outlet centers in Europe. The term of the
standby facility for new guarantees expired in November 2001 and these
guarantees shall not be outstanding for longer than five years after project
completion. In July 2002, the Company sold approximately 40% of its holdings in
Value Retail to a third party for $11.4 million, resulting in a gain of
approximately $10.9 million.

The Company has been developing and operates an e-commerce
technology platform through its affiliate, Chelsea Interactive, Inc. with an
aggregate funding commitment of up to $60.0 million; as of December 31, 2002,
$52.4 million had been funded. The Company anticipates that the balance of the
funding will be used to further develop the platform and to finance operating
cash shortfalls and potential costs related to the disposal or discontinuance of
the business. The Company currently believes that it will not be able to recover
the net book value of its investment in Chelsea Interactive through future cash
flows unless Chelsea Interactive is able to achieve positive cash flow before
reaching the $60.0 million funding limit. Due to current market conditions and
costs related to securing additional brand users for the platform, the Company
has decided to recognize an impairment loss of $34.4 million, equal to the net
book value of its investment in Chelsea Interactive as of December 31, 2002.
However, the Company is in active discussions with potential investors to
provide capital to and/or acquire Chelsea Interactive. There can be no assurance
that any of these discussions will be successful or that Chelsea Interactive
will be able to continue as a going concern. Future funding by the Company will
be reported as a loss in the period funding occurs.

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 continue to 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 was $128.2 million and
$121.7 million for the years ended December 31, 2002, and 2001, respectively.
The increase was primarily due to the growth of the Companys GLA to 14.4
million square feet in 2002 from 12.6 million square feet in 2001 offset by the
payout of the deferred incentive compensation in March 2002. Net cash used in
investing activities increased $291.6 million for the year ended December 31,
2002, compared to the corresponding 2001 period, as a result of increased joint
venture and wholly owned property investing activity, offset by proceeds from
the partial sale of a joint venture investment. For the year ended December 31,
2002, net cash provided by financing activities increased by $276.5 million
compared to the corresponding period in 2001 as a result of increased borrowing
and increased issuance of common stock as a result of acquisition and
development activities of the Company.

Net cash provided by operating activities was $121.7 million and
$106.7 million for the years ended December 31, 2001, and 2000, respectively.
The increase was primarily due to the growth of the Companys GLA to 12.6
million square feet in 2001 from 8.2 million square feet in 2000. Net cash used
in investing activities decreased $8.9 million for the year ended December 31,
2001, compared to the corresponding 2000 period, as a result of decreased
joint venture investing activity, proceeds from sale of a center and partial
sale of a joint venture investment offset by the acquisition of the 31 centers.
For the year ended December 31, 2001, net cash provided by financing activities
decreased by $26.6 million compared to the corresponding period in 2000 as a
result of reduced borrowing and increased debt repayments offset by issuance of
common stock.

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. FFO for the year ended December 31, 2002, excludes the Chelsea
Interactive impairment loss of $34.4 million. Since all companies do not
calculate FFO in a similar fashion, the Companys calculation of FFO
presented herein may not be comparable to similarly titled measure as reported
by other companies. 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.

`Year Ended December 31,
                                                                     2002          2001          2000
                                                                   ------------  ------------  -------------

  Income available to common shareholders ................           $41,714       $47,626       $41,592
    Depreciation and amortization-wholly-owned............            58,275        48,554        42,978
    Depreciation and amortization-joint ventures..........             4,166         5,964         2,024
    Amortization of deferred financing costs and  depreciation
     of non-rental real estate assets.....................            (2,401)       (1,807)       (1,796)

  Net gain on sale or write-down of assets................           (11,223)         (333)          -
  Chelsea Interactive impairment loss.....................            34,370           -             -
  Minority interest.......................................            12,718        14,706         14,606

  Preferred unit distribution.............................            (5,848)       (5,848)        (5,848)
                                                                   ------------  ------------  -------------
  FFO.....................................................          $131,771      $108,862        $93,556
                                                                   ============  ============  =============
  Average diluted shares/units outstanding (1)............            46,224        41,068         38,964
  Dividends declared per share............................             $1.86         $1.56          $1.50`

|1) | Assumes 2-for-1 stock split in May 2002 had occurred on January 1, 2000.
|-- | ------------------------------------------------------------------------

Recent Accounting Pronouncements

In June 2001, the FASB issued Statements of Financial Accounting Standards No.
141 Business Combinations (SFAS 141), which was
effective for all business combinations initiated after June 30, 2001, and No.
142 Goodwill and Other Intangible Assets (SFAS 142)
which was effective January 1, 2002. SFAS 141 requires that the purchase method
of accounting be used for all business combinations initiated after June 30,
2001. Under SFAS 142, amortization of goodwill, including goodwill recorded in
past business combinations, will discontinue upon adoption of this standard. All
goodwill and intangible assets will be tested for impairment in accordance with
the provisions of the Statement. The Company adopted SFAS 141 and 142 on July 1,
2001 and January 1, 2002, respectively. The adoption of these statements did not
have an impact on the Companys results of operations or its financial
position.

In August 2001, FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations (SFAS 143) which is effective January 1, 2003.
SFAS 143 requires the recording of the fair value of a liability for an asset
retirement obligation in the period in which it is incurred. See note 6 to
financial statements for discussion related to the estimated future costs to be
incurred in connection with the future operations of Chelsea Interactive.

In October 2001, the FASB issued Statement of Financial Accounting Standard No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets
(SFAS 144), which was effective and adopted by the Company on January
1, 2002. SFAS 144 provides accounting guidance for financial accounting and
reporting for impairment or disposal of long-lived assets. SFAS 144 supersedes
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of. SFAS 144 retains fundamental
provisions of SFAS 121 related to the recognition and measurement of the
impairment of long-lived assets to be held and used. In addition, SFAS 144
superseded APB Opinion 30, Reporting the Results of Operations-Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions. SFAS 144 extended the
reporting of a discontinued operation to a component of an entity.
Thus, the operations of assets held for sale or assets sold are required to be
presented as discontinued operations in the Companys statement of income.
The initial adoption of FAS 144 did not have a material effect on the financial
position or results of operations of the Company.

In May 2002, the FASB issued SFAS No. 145, Reporting Gains and Losses from
Extinguishment of Debt, which rescinded SFAS No. 4, No. 44 and No. 64 and
amended SFAS No. 13. The new standard addresses the income statement
classification of gains or losses from the extinguishment of debt and criteria
for classification as extraordinary items. The new standard became effective for
fiscal years beginning after May 15, 2002. The Company adopted this
pronouncement on April 1, 2002. The adoption of this pronouncement did not have
a material impact on the Companys results of operations or financial
position.

In November 2002, the FASB issued Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others (FIN 45). FIN 45 requires
certain guarantees to be recorded at fair value, instead of recording a
liability only when a loss is probable and reasonably estimable, as those terms
are defined in FASB Statement No. 5, Accounting for Contingencies. FIN 45 also
requires a guarantor to make significant new disclosures, even when the
likelihood of making any payments under the guarantee is remote. The disclosure
requirements of FIN 45 are effective for financial statements of interim or
annual periods ending after December 15, 2002. The Company adopted the
disclosure provisions of FIN 45 effective December 31, 2002. FIN 45s
initial recognition and initial measurement provisions are applicable on a
prospective basis to guarantees issued or modified after December 31, 2002. The
Company is in the process of determining the impact, if any, on its results of
operations or financial position from the adoption of FIN 45.

In January of 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities (FIN 46). FIN 46 clarifies the
application of existing accounting pronouncements to certain entities in which
equity investors do not have the characteristics of a controlling financial
interest or do not have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support from other parties.
The provisions of FIN 46 will be immediately effective for all variable
interests in variable interest entities created after January 31, 2003, and the
Company will need to apply its provisions to any existing variable interests in
variable interest entities by no later than December 31, 2004. The Company does
not believe that FIN 46 will have a significant impact on the Companys
financial statements.

Critical Accounting Policies and Estimates

The Companys discussion and analysis of its financial condition and
results of operations are based upon the Companys consolidated financial
statements which have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these financial
statements requires the Company to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses. The Company
bases its estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions.

The Company believes the following critical accounting policies affect its more
significant judgments and estimates used in the preparation of its consolidated
financial statements.

Bad Debt

The Company maintains an allowance for doubtful accounts for estimated losses
resulting from the inability of its tenants to make required rent payments. If
the financial condition of the Companys tenants were to deteriorate,
resulting in an impairment of their ability to make payments, additional
allowances may be required. The Companys allowance for doubtful accounts
included in tenant accounts receivable totaled $2.6 million and $1.7 million at
December 31, 2002 and 2001, respectively.

Valuation of Investments

On a periodic basis, the Companys management team assesses whether there
are any indicators that the value of real estate properties, including joint
venture properties may be impaired. If the carrying amount of the property is
greater than the estimated expected future cash flow (undiscounted and without
interest charges) of the asset, impairment has occurred. The Company will then
record an impairment loss equal to the difference between the carrying amount
and the fair value of the asset. The Company does not believe that the value of
any of its rental properties were impaired at December 31, 2002 and 2001. The
Company recorded a $34.4 million impairment loss in 2002 on its investment in
Chelsea Interactive and a $1.2 million loss in 2001 for an impairment write-down
of its investment in an outlet center in Guam.

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 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 7-A. 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 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 rate of 7.2625% on the notional
amount until January 1, 2006.

At December 31, 2002 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 $1.0
million annually.

Following is a summary of the Companys debt obligations at
December 31, 2002 (in thousands):

`Expected Maturity Date
                          ------------------------------------------------------------------
                            2003     2004    2005         2006    2007          Thereafter     Total        Fair
                            ----     ----    ----         ----    ----          ----------     -----        ----
                                                                                                            Value
                                                                                                            -----
Fixed Rate Debt:            -        -       $49,922      -       $124,841      $685,772       $860,535     $966,224
Average Interest Rate:      -        -        8.38%       -         7.25%         7.22%         7.29%
Variable Rate Debt:         -        -      $103,035      -          -           $67,250       $170,285     $170,285
Average Interest Rate:      -        -        2.46%       -          -            2.88%         2.63%`

Item 8. Financial Statements and Supplementary Data

The financial statements and financial information of the Company for the years
ended December 31, 2002, 2001 and 2000 and the Report of the Independent
Auditors thereon are included elsewhere herein. Reference is made to the
financial statements and schedules in Item 14.

Item 9. Changes in and Disagreements With Accountants On Accounting and
Financial Disclosure

None.

PART III

Items 10, 11, 12 and 13.

The required information in the items will appear in the Companys Proxy
Statement furnished to shareholders in connection with the 2003 Annual Meeting,
and is incorporated by reference in this Form 10-K Annual Report.

Item 10. Directors and Executive Officers of the
Registrant*

Item 11. Executive Compensation

Item 12. Security Ownership of Certain Beneficial Owners and Management

The information called for by Item 12 is incorporated herein by reference to our
definitive proxy statement to be filed pursuant to Regulation 14A, in connection
with our annual meeting of shareholders to be held on June 5, 2003, which will
involve the election of directors.

The following table provides information as of December 31, 2002 with respect to
compensation plans (including individual compensation arrangements) under which
the Companys equity securities are authorized for issuance:

`Number of
                              securities to be                                    Number of securities remaining
                                issued upon            Weighted average                    available for
                                exercise of          exercise price of                 future issuance under
                                outstanding               outstanding                    equity compensation
                              options, warrants         options, warrants      plans (excluding securities reflected
Plan Category                    and rights              and rights                         in column (a))
                            ----------------------    ---------------------   ----------------------------------------
                                     (a)                      (b)                               (c)
Equity compensation plans
approved by security
holders...............              3,968,000                $19.12                             215,000

Equity compensation plans
not approved by security
holders................               -                        -                                 -

                            ----------------------    ---------------------   ----------------------------------------
Total                               3,968,000                $19.12                             215,000
                            ======================    =====================   ========================================`

* Certain information regarding Directors and Officers is included at the end of
Part I.

Item 13. Certain Relationships and Related Transactions

Item 14. Controls and Procedure

Our chief executive officer and chief financial officer evaluated the
effectiveness of our disclosure controls and procedures (as defined in rule
13a-14 c under the Securities Exchange Act of 1934, as amended) within 90 days
of the filing date of this report (the Evaluation Date) and, based
on that evaluation, concluded that, as of the Evaluation Date, we had sufficient
controls and procedures for recording, processing, summarizing and reporting
information that is required to be disclosed in our reports under the Securities
Exchange Act of 1934, as amended, within the time periods specified in the
SECs rules and forms.

Since the Evaluation Date, there have not been any significant changes to our
internal controls including any corrective actions with regard to significant
deficiencies and material weaknesses or other factors that could significantly
affect these controls.

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a) 1 and 2. The response to this portion of Item 14 is submitted as a separate
section of this report.

3. Exhibits

|3.1 | Articles of Incorporation of the Company, as amended, including Articles
Supplementary relating to 8 3/8% Series A Cumulative Redeemable Preferred Stock
and Articles Supplementary relating to 9% Series B Cumulative Redeemable
Preferred Stock.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.2 | By-laws of the Company. Incorporated by reference to Exhibit 3.2 to Registration
Statement filed by the Company on Form S-11 under the Securities Act of 1933
(file No. 33-67870) (S-11).
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.3 | Agreement of Limited Partnership for the Operating Partnership.
Incorporated by reference to Exhibit 3.3 to S-11.
|--- | -----------------------------------------------------------------------------------------------------------------

|3.4 | Amendments No. 1 and No. 2 to Partnership Agreement dated March 31, 1997 and
October 7, 1997. Incorporated by reference to Exhibit 3.4 to Form 10-K for the
year ended December 31, 1997. ("1997 10-K")
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.5 | Amendment No. 3 to Partnership Agreement dated September 3, 1999. Incorporated
by reference to Exhibit 3.5 to 1999 10-K.
|--- | ------------------------------------------------------------------------------------------------------------------------

|4.1 | Form of Indenture among the Company, Chelsea GCA Realty Partnership, L.P., and
State Street Bank and Trust Company, as Trustee. Incorporated by reference to
Exhibit 4.4 to Registration Statement filed by the Company on Form S-3 under the
Securities Act of 1933 (File No. 33-98136).
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.1 | Registration Rights Agreement among the Company and recipients of Units.
Incorporated by reference to Exhibit 4.1 to S-11.
|---- | --------------------------------------------------------------------------------------------------------------------------

|10.2 | Amended and Restated Credit Agreement dated July 31, 2002 among CPG Partners,
L.P. and Fleet National Bank, individually and as an agent, and other Lending
Institutions listed therein. Incorporated by reference to Exhibit 10.1 to Form
10-Q for the period ending September 30, 2002.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.3 | Joint Venture Agreement among Chelsea GCA Realty Partnership, L.P., Mitsubishi
Estate Co., Ltd. and Nissho Iwai Corporation dated June 16, 1999. Incorporated
by reference to Exhibit 10.9 to 1999 10-K.
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.4 | Agreement for Purchase and Sale of Assets dated December 22, 2000. Incorporated
by reference to Exhibit 2.1 to current report on Form 8-K reporting on an event
which occurred December 22, 2000.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.5 | Limited Liability Company Agreement of F/C Acquisition Holdings LLC.
Incorporated by reference to Exhibit 2.2 to current report on Form 8-K reporting
on an event which occurred December 22, 2000.
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.6 | Agreement for Purchase and Sale of Assets dated July 12, 2001. Incorporated by
reference to Exhibit 2 to current report on Form 8-K reporting on an event which
occurred on September 25, 2001.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.7 | Purchase Agreement dated November 11, 2002. Incorporated by reference to Exhibit
2 to current report on Form 8-K reporting on an event which occurred December
19, 2002.
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.8 | 2002-2006 Long-Term Executive Incentive Plan.
|---- | ---------------------------------------------

|21 | List of Subsidiaries
|-- | --------------------

|23.1 | Consent of Ernst & Young LLP.
|---- | -----------------------------

|(b) | Reports on Form 8-K.
None
|--- | -------------------------

|(c) | Exhibits
See (a) 3
|--- | ------------------

|(d) | Financial Statement Schedules - The response to this portion of Item 14 is
submitted as a separate schedule of this report.
|--- | ---------------------------------------------------------------------------------------------------------------------------

Item 8, Item 14(a)(1) and (2) and Item 14(d)

(a)1. Financial Statements

Form 10-K
Report Page

Consolidated Financial StatementsChelsea Property Group, Inc.

|Report of Independent Auditors | F-1
|------------------------------ | ---

|Consolidated Balance Sheets as of December 31, 2002 and 2001 | F-2
|------------------------------------------------------------ | ---

|Consolidated Statements of Income for the years ended December 31, 2002,
     2001 and 2000 | F-3
|------------------------------------------------------------------------------------------- | ---

|Consolidated Statements of Stockholders' Equity for the years ended
     December 31, 2002, 2001 and 2000 | F-4
|--------------------------------------------------------------------------------------------------------- | ---

|Consolidated Statements of Cash Flows for the years ended December 31, 2002,
     2001 and 2000 | F-5
|----------------------------------------------------------------------------------------------- | ---

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

(a)2 and (d) Financial Statement Schedule

|Schedule III-Consolidated Real Estate and Accumulated Depreciation | F-34
|------------------------------------------------------------------ | ----

All other schedules are omitted since the required information
is not present or is not present in amounts sufficient to require submission of
the schedule, or because the information required is included in the
consolidated financial statements and notes thereto.

Report of Independent Auditors

Board of Directors
Chelsea Property Group, Inc.

We have audited the accompanying consolidated balance sheets of
Chelsea Property Group, Inc. as of December 31, 2002 and 2001, and the related
consolidated statements of income, stockholders equity and cash flows for
each of the three years in the period ended December 31, 2002. Our audits also
included the financial statement schedule listed in the Index as Item 14(a)(2).
These financial statements and schedule are the responsibility of Chelsea
Property Group, Inc.s management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Chelsea Property Group, Inc. as of December 31, 2002 and 2001, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.

Ernst & Young LLP
New York, New York
February 21, 2003

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

`December 31,
                                                                                     2002                   2001
                                                                                ---------------       --------------
Assets:
Rental properties:
     Land..................................................................     $    266,461           $  160,458
     Depreciable property..................................................        1,570,713              967,448
                                                                                ---------------       --------------
Total rental property......................................................        1,837,174            1,127,906
Accumulated depreciation...................................................         (284,239)            (217,462)
                                                                                ---------------       --------------
Rental properties, net.....................................................        1,552,935              910,444
Cash and cash equivalents..................................................           22,551               24,604
Restricted cash-escrows....................................................            3,455                3,347
Tenant accounts receivable (net of allowance for doubtful accounts of $2,593 in
    2002 and $1,708 in 2001)...............................................            7,762                7,863
Deferred rent receivable...................................................           18,778               13,038
Investments in unconsolidated affiliates...................................           47,997               93,689
Notes receivable-related parties...........................................            2,746                3,281
Deferred costs, net........................................................           16,706               22,534
Other assets...............................................................           30,100               20,508
                                                                                --------------        ---------------
Total Assets...............................................................      $ 1,703,030            $1,099,308
                                                                                ===============       ==============

Liabilities and Stockholders' Equity:
Liabilities:
     Unsecured bank debt...................................................        $ 103,035            $   5,035
     Unsecured notes.......................................................          621,330              373,294
     Mortgage debt.........................................................          306,455              170,209
     Construction payables.................................................            8,046                8,001
     Accounts payable and accrued expenses.................................           43,570               47,039
     Obligation under capital lease........................................            1,507                2,141
     Accrued dividend and distribution payable.............................            4,927                3,851
     Other liabilities.....................................................           18,886               14,676
                                                                                ---------------       --------------
Total Liabilities..........................................................        1,107,756              624,246

Commitments and Contingencies

Minority Interest..........................................................          139,443              115,639

Stockholders' Equity:
     8.375% series A cumulative redeemable preferred stock, $0.01 par value,
        authorized 5,000 shares, issued and outstanding 797 in 2002 and 1,000
        in 2001 (aggregate liquidation preference of
             $39,847 in 2002 and $50,000 in 2001)..........................                8                   10
     Common stock, $0.01 par value, authorized 50,000 shares,
           41,485 in 2002 and 37,540 in 2001...............................              415                  380
     Paid-in-capital.......................................................          574,352              444,154
     Officer loan..........................................................             (488)                   -
     Distributions in excess of net income ................................         (112,648)             (82,142)
     Accumulated other comprehensive loss..................................           (5,808)              (2,979)
                                                                                ---------------       --------------
Total Stockholders' Equity.................................................          455,831              359,423
                                                                                ---------------       --------------
Total Liabilities and Stockholders' Equity.................................       $1,703,030           $1,099,308
                                                                                ===============       ==============`

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

Chelsea Property Group, Inc.
Consolidated Statements of Income
(In thousands, except per share data)

`Year Ended December 31,
                                                                2002               2001               2000
                                                         ---------------    ---------------    ----------------
 Revenues:
      Base rent......................................       $181,672           $127,229           $108,123
      Percentage rent................................         24,017             18,049             17,701
      Expense reimbursements.........................         65,773             50,559             44,116
      Other income...................................         11,752             11,018              9,963
                                                         ---------------    ---------------    ---------------
 Total Revenues......................................        283,214            206,855            179,903

 Expenses:
      Operating and maintenance......................         79,942             57,791             48,992
      Depreciation and amortization..................         58,275             48,554             42,978
      General and administrative.....................          7,075              4,618              4,784
      Other..........................................          4,332              2,812              2,663
                                                         ---------------    ---------------    ---------------
 Total Expenses......................................        149,624            113,775             99,417

 Income before unconsolidated investments, interest
 expense and minority interest.......................        133,590             93,080             80,486

 Income from unconsolidated investments..............          9,802             15,025              6,723
 Loss from  and impairment of
    Chelsea Interactive..............................        (47,756)            (5,337)            (2,364)
 Gain on sale of unconsolidated investments,
     net of write-down in 2001.......................         10,911                617                  -
 Interest expense....................................        (48,693)           (36,865)           (24,459)
                                                         ---------------    ---------------    ----------------

 Income before minority interest.....................         57,854             66,520             60,386

 Less minority interest..............................        (12,718)           (14,706)           (14,606)
                                                         ---------------    ---------------    ----------------

 Net income..........................................         45,136             51,814             45,780

 Preferred dividend requirement......................         (3,422)            (4,188)            (4,188)
                                                         ---------------    ---------------    ----------------

 Net Income available to common shareholders.......          $41,714            $47,626            $41,592
                                                         ===============    ===============    ================

 Earnings per share
 Basic:
 Net income per common share.........................          $1.09              $1.41              $1.30
                                                         ===============    ===============    ================

 Weighted average common shares outstanding..........         38,245             33,678             31,880
                                                         ===============    ===============    ================

 Diluted:
 Net income per common share.........................          $1.05              $1.37              $1.29
                                                         ===============    ===============    ================

 Weighted average common shares outstanding                   39,798             34,710             32,252
                                                         ===============    ===============    ================`

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

Chelsea Property Group, Inc.
Consolidated Statements of Stockholders' Equity
(In thousands, except per share data)

`Preferred    Common                            Distrib. in    Accum.         Total
                                    Stock At    Stock At    Paid-in-    Officer    Excess of     Other Comp.  Stockholders'
                                    Par Value   Par Value    Capital     Loan      Net Income      Loss          Equity
                                    ---------   ---------    -------    -------    ----------    -----------  -------------
Balance December 31, 1999........     $10         $159      $347,725    $-         $(70,598)       $-           $277,296

Net income.......................       -            -             -     -           45,780         -             45,780
Other comprehensive income
  Foreign currency translation ..       -            -             -     -                -           (123)         (123)
                                                                                                                ---------
Total comprehensive income.......       -            -             -     -                -          -            45,657
                                                                                                                ---------
Preferred dividend requirement...       -            -             -     -           (4,188)         -            (4,188)
Cash distributions declared
  ($1.50 per common share).......       -            -             -     -          (47,823)         -           (47,823)
Exercise of stock options........       -            1           310     -                -          -               311
Shares issued in exchange for
  units of the Operating
  Partnership....................       -            -            48     -                -          -                48
Shares issued through Employee
  Stock Purchase Plan (net of
  costs).........................       -            -            58     -                -          -                58
                                   --------     ------      --------   --------     -------      ----------     ---------
Balance December 31, 2000........      10          160       348,141     -          (76,829)           (123)     271,359

Net income.......................       -            -             -     -           51,814          -            51,814
Other comprehensive income
  Foreign currency translation...       -            -             -     -                -            (198)        (198)
  Interest rate swap.............                                        -                           (2,658)      (2,658)
                                                                                                                 ---------
Total comprehensive income.......       -            -             -     -                -                       48,958
                                                                                                                 ---------
Preferred dividend requirement...       -            -             -     -           (4,188)         -            (4,188)
Cash distributions declared
  ($1.56 per common share).......       -            -             -     -          (52,939)         -           (52,939)
Exercise of stock options........       -            2         2,020     -                -          -             2,022
Shares issued through offerings
  by the Company.................       -           26       109,975     -                -          -           110,001
Shares issued in exchange for
  units of  the Operating
  Partnership....................       -            2         2,289     -                -          -             2,291
Shares issued through Employee
  Stock Purchase Plan (net of
  costs).........................       -            -           128     -                -          -               128
Revaluation of minority interest.                            (18,209)    -                                       (18,209)
                                   --------     ------      --------   --------     -------      ----------     ---------
Balance December 31, 2001........      10          190       444,344     -          (82,142)         (2,979)     359,423

Net income.......................       -            -             -     -           45,136          -            45,136
Other comprehensive income
  Foreign currency translation...       -            -             -     -                -             274          274
  Interest rate swap.............                                                                    (3,103)      (3,103)
                                                                                                                 ---------
Total comprehensive income.......       -            -             -     -                -           -           42,307
                                                                                                                 ---------
Preferred dividend requirement...       -            -             -     -           (3,422)          -           (3,422)
Cash distributions declared
 ($1.86 per common share)........       -            -             -     -          (72,220)          -          (72,220)
Two-for-one stock split..........                  189          (189)    -                -           -                -
Redemption of Preferred stock
  (net of costs).................      (2)           -        (9,652)    -                                        (9,654)
Exercise of stock options........       -            1         6,011     -                            -            6,012
Officer loan.....................       -            -             -     (488)                        -             (488)
Shares issued through offerings
  by the Company.................       -           35       118,732     -                -           -          118,767
Shares issued in exchange for
  units of the Operating
  Partnership....................       -            -           239     -                -           -              239
Shares issued through Employee
  Stock Purchase Plan (net of
  costs).........................       -            -           216     -                -           -              216
Revaluation of minority
  interest.......................       -            -        14,651     -                -           -           14,651
                                   --------     ------      --------   --------     -------      ----------     ---------
Balance December 31, 2002........      $8         $415      $574,352    ($488)    ($112,648)        ($5,808)    $455,831
                                   ========     ======      ========   ========     =======      ==========     =========`

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

Chelsea Property Group, Inc.
Consolidated Statements of Cash Flows
(In thousands)

`Year ended December 31,
                                                                              2002            2001            2000
                                                                         -------------   -------------    -------------
Cash flows from operating activities
Net income...........................................................       $45,136         $51,814          $45,780
Adjustments to reconcile net income to
  net cash provided by operating activities:
     Depreciation and amortization...................................        58,275          48,554           42,978
       Gain on sale of assets........................................       (11,514)           (333)               -
     Equity in earnings of unconsolidated investments
             in excess of distributions received.....................        (2,407)         (2,215)          (1,375)
     Loss from and impairment of Chelsea Interactive.................        47,756           5,337            2,364
     Minority interest in net income.................................        12,718          14,706           14,606
     Write-off of development costs..................................             -               -              869
     Proceeds from non-compete receivable............................         4,300           4,600            4,600
     Amortization of non-compete revenue.............................        (5,136)         (5,136)          (5,136)
     Additions to deferred lease costs...............................        (1,153)         (1,869)          (2,708)
     Other operating activities......................................          (845)           (570)            (531)
     Changes in assets and liabilities:
      Straight-line rent receivable..................................        (3,872)         (1,761)          (1,536)
      Other assets...................................................        (3,211)            965           (5,995)
          Deferred compensation pay out..............................       (14,401)              -                -
      Due from affiliates............................................          (284)         (1,924)          (2,878)
      Accounts payable and accrued expenses..........................         2,860           9,555           15,620
                                                                         -------------   -------------    -------------
Net cash provided by operating activities............................       128,222         121,723          106,658

Cash flows from investing activities
Additions to rental properties.......................................      (385,519)       (103,521)         (59,980)
Proceeds from sale of centers........................................         7,929           7,100            3,372
Additions to investments in unconsolidated affiliates................       (37,855)        (14,763)         (64,837)
Distributions from investments in unconsolidated
   affiliates in excess of earnings..................................           337           5,079                -
Proceeds from sale of investment in unconsolidated
   affiliate.........................................................        11,293           2,839                -
Loans to related parties.............................................          (550)         (2,750)              (3)
Payments from related parties........................................         1,085           1,685                -
Additions to deferred development costs..............................          (898)         (8,220)             (31)
                                                                         -------------   -------------    -------------
Net cash used in investing activities................................      (404,178)       (112,551)        (121,479)

Cash flows from financing activities
Debt proceeds........................................................       503,958         177,538          246,526
Repayments of debt...................................................      (249,540)       (217,318)        (151,750)
Net proceeds from sale of common stock...............................       124,990         112,151              369
Distributions........................................................       (92,717)        (72,873)         (67,830)
Redemption of preferred stock........................................        (9,654)              -                -
Additions to deferred financing costs................................        (3,134)         (2,102)          (3,320)
                                                                         -------------   -------------    -------------
Net cash provided by (used in) financing activities..................       273,903          (2,604)          23,995

Net (decrease) increase in cash and cash equivalents.................        (2,053)          6,568            9,174
Cash and cash equivalents, beginning of period.......................        24,604          18,036            8,862
                                                                         -------------   -------------    -------------
Cash and cash equivalents, end of period.............................       $22,551         $24,604          $18,036
                                                                         =============   =============    =============`

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

Notes to Financial Statements

1.  Organization and Basis of Presentation

Organization

Chelsea Property Group, 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,
L.P., (the Operating Partnership or OP), an operating
partnership that specializes in owning, developing, leasing, marketing and
managing upscale and fashion-oriented manufacturers outlet centers. As of
December 31, 2002, the Company wholly or partially owned 58 centers in 30 states
and Japan containing approximately 14.4 million square feet of gross leasable
area (GLA). The Companys portfolio is comprised of 26 premium
outlet centers containing 8.4 million square feet of GLA (the Premium
Properties) and 32 other retail centers containing approximately 6.0
million square feet of GLA (Other Properties) (collectively the
Properties). The Companys Premium Properties generated
approximately 86% and 97% of the Companys retail real estate net operating
income for the years ended December 31, 2002, and 2001, respectively. The
Premium Properties generally are located near metropolitan areas including New
York City, Los Angeles, Boston, Washington, D.C., San Francisco, Sacramento,
Cleveland, Atlanta, Dallas, Portland (Oregon), Tokyo and Osaka, Japan. Some
Premium Properties are also located within 20 miles of major tourist
destinations including Palm Springs, the Napa Valley, Orlando, and
Honolulu.

The Company developed a technology-based e-commerce platform
through an unconsolidated affiliate, Chelsea Interactive, Inc. (Chelsea
Interactive). This platform provides fashion and other retail brands with
their own customized direct-to-the-consumer Internet online stores,
incorporating e-commerce design, development, and fulfillment and customer
services. The Company reported an impairment loss of $34.4 million, equal to the
net book value of its investment in Chelsea Interactive at December 31, 2002.

Basis of Presentation

Virtually, 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 financial and
operational control over the Operating Partnership, the Operating Partnership is
consolidated in the accompanying financial statements. All significant
intercompany transactions and accounts have been eliminated in consolidation.

On May 1, 2002, the Company declared a 2-for-1 stock split of
the Companys common shares. The stock dividend was paid May 28, 2002, to
shareholders of record on May 14, 2002. The Operating Partnership simultaneously
declared a 2-for-1- split of its limited units.All applicable share and per
share information in the accompanying financial statements have been adjusted to
reflect the stock split.

Disclosure about fair value of financial instruments is based on
pertinent information available to management as of December 31, 2002, and 2001,
using available market information and appropriate valuation methodologies.
Although management is not aware of any factors that would significantly affect
the reasonable fair value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since such date and current
estimates of fair value may differ significantly from the amounts presented
herein.

Notes to Financial Statements

2.  Summary of Significant Accounting Principles

Rental Properties

Rental properties are presented at cost net of accumulated
depreciation. Depreciation is computed on the straight-line basis over the
estimated useful lives of the assets. The Company uses 25-40 year estimated
lives for buildings, and 15 and 5-7 year estimated lives for improvements and
equipment, respectively. Expenditures for ordinary maintenance and repairs are
charged to operations as incurred, while significant renovations and
enhancements that improve and or extend the useful life of an asset are
capitalized and depreciated over the estimated useful life. The Company reviews
real estate assets for impairment wherever events or changes in circumstances
indicate that the carrying value of assets to be held and used may not be
recoverable. Impaired assets are reported at the lower of cost or fair value.
Assets to be disposed of are reported at the lower of cost or fair value less
cost to sell. No impairment write downs of rental properties were required in
2002 or 2001 and no assets were held for sale at December 31, 2002 and 2001.

Gains and losses from sales of real estate are recorded when
title is conveyed to the buyer, subject to the buyers financial commitment
being sufficient to provide economic substance to the sale.

Cash and Equivalents

All demand and money market accounts and certificates of deposit
with original terms of three months or less from the date of purchase are
considered cash equivalents. The Company places its cash investments in excess
of insured amounts with high quality financial institutions. At December 31,
2002, and 2001, cash equivalents consisted of repurchase agreements, commercial
paper, U.S. Government agency securities, bank liabilities and other corporate
and municipal obligations that mature between January and March of the following
year. The carrying amount of such investments approximated fair value.

Investment in Unconsolidated Joint Ventures

The Company accounts for its investments in unconsolidated joint
ventures under the equity method of accounting as the Company exercises
significant influence, but does not control these entities. In all the joint
ventures, the rights of the minority investor are both protective as well as
participating. These rights preclude the Company from consolidating these
investments. These investments are recorded initially at cost, as investments in
unconsolidated joint ventures, and subsequently adjusted for equity in earnings
(loss) and cash contributions and distributions. Any difference between the
carrying amount of these investments on the balance sheet of the Company and the
underlying equity in net assets is amortized as an adjustment to equity in
earnings (loss) of unconsolidated joint ventures over the associated rental
propertys useful life.

Development Costs

Development costs, including interest, taxes, insurance and
other costs incurred in developing new properties, are capitalized. Upon
completion of construction, development costs are amortized on a straight-line
basis over the useful lives of the respective assets. Development costs related
to inactive projects are expensed at such time as the project is deemed
abandoned.

Capitalized Interest

Interest, including the amortization
of deferred financing costs for borrowings used to fund development and
construction, is capitalized as construction in progress and allocated to
individual property costs.

Notes to Financial Statements

2.  Summary of Significant Accounting Principles

Foreign Currency Translation

The Company conforms to the requirements of the Statement of
Financial Accounting Standards No. 52 entitled Foreign Currency
Translation. Accordingly, assets and liabilities of foreign equity
investees are translated at prevailing year-end rates of exchange.

Rental Expense

Rental expense is recognized on a straight-line basis over the
initial term of the lease.

Deferred Lease Costs

Deferred lease costs consist of fees and direct internal costs
incurred to initiate and renew operating leases, and are amortized on a
straight-line basis over the initial lease term or renewal period as
appropriate.

Deferred Financing Costs

Deferred financing costs are amortized as interest costs over
the terms of the respective agreements. Unamortized deferred financing costs are
expensed when the associated debt is retired before maturity.

Revenue Recognition

Leases with tenants are accounted for as operating leases. Base
rent revenue is recognized on a straight-line basis over the lease term
according to the provisions of the lease. The excess of rents recognized over
amounts contractually due and unpaid rents are included in deferred rent
receivable in the accompanying financial statements. Certain lease agreements
contain provisions for rents that are calculated on a percentage of sales and
recorded on the accrual basis. These rents are accrued monthly once the required
thresholds per the lease agreement are exceeded. Virtually all lease agreements
contain provisions for additional rents representing reimbursement of real
estate taxes, insurance, advertising and common area maintenance costs.

Bad Debt Expense

Bad debt expense included in other expense totaled $2.0 million,
$1.2 million and $0.9 million for the years ended December 31, 2002, 2001 and
2000, respectively.

Notes to Financial Statements (continued)

2.  Summary of Significant Accounting Principles (continued)

Income Taxes

The Company is taxed as a REIT under Section 856(c) of the
Internal Revenue Code of 1986, as amended, commencing with the tax year ended
December 31, 1993. As a REIT, the Company generally is not subject to federal
income tax. To maintain qualification as a REIT, the Company must distribute at
least 90% of its REIT taxable income to its stockholders (95% prior to January
1, 2001) and meet 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. Under certain
circumstances, federal income and excise taxes may be due on its undistributed
taxable income. At December 31, 2002, and 2001, the Company was in compliance
with all REIT requirements.

The following summarizes the tax components of the
Companys common and preferred dividends declared for the years ended
December 31, 2002, 2001 and 2000.

`2002           2001         2000
                                           ----------     --------     ---------
   Dividends per share.................      $1.86          $1.56        $1.50
   Return of capital...................        -              -          (0.17)
   20% capital gain....................      (0.21)           -            -
   Unrecaptured Section 1250 gain .....      (0.01)           -            -
                                           ----------     --------     ---------
   Ordinary income.....................      $1.64          $1.56        $1.33
                                           ==========     ========     =========`

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 1.5 million in 2002, 1.0 million in 2001 and 0.4 million in 2000.

Notes to Financial Statements (continued)

Net Income Per Common Share (continued)

The following table sets forth the computation of basic and
diluted earnings per share for the periods indicated and assumes that the
Companys 2-for-1 stock split in May 2002 had occurred on January 1, 2000
(in thousands, except per share amounts):

`2002           2001            2000
                                                                          ----------    ------------     ----------
Numerator
Numerator for basic and diluted earnings per share -
   Net income available to common shareholders................             $41,714        $47,626        $41,592

Denominator
Denominator for basic earnings per share-
   Weighted average shares....................................              38,245         16,839         15,940
   Increase in shares due to effect of 2-for-1 stock split....                   -         16,839         15,940
                                                                          ----------    ------------     ----------
   Denominator for basic earnings per share...................              38,245         33,678         31,880

Effect of dilutive securities-
  Stock options...............................................               1,553            516            186
  Increase in shares due to effect of 2-for-1 stock split.....                   -            516            186
                                                                          ----------    ------------     ----------
  Effect of dilutive securities...............................               1,553          1,032            372

Denominator for diluted earnings per share-
  Adjusted weighted average shares assumed conversions...                   39,798         17,355         16,126
  Increase in shares due to effect of 2-for-1 stock
    split................................................                        -         17,355         16,126
                                                                          ----------    ------------     ----------
  Denominator for diluted earnings per share.............                   39,798         34,710         32,252

Per share amounts:
  Net income - basic.....................................                    $1.09          $1.41          $1.30
  Net income - diluted...................................                    $1.05          $1.37          $1.29`

Stock Option Plan

The Company follows Accounting Principles Board Opinion No. 25
(Accounting for Stock Issued to Employees) and the related interpretations in
accounting for its employee stock options. In accordance with SFAS No. 123
(Accounting for Stock-Based Compensation), the Company has provided the required
footnote disclosure for the compensation expense related to the fair value of
the outstanding stock options.

Concentration of Companys Revenue and Credit Risk

For the years ended December 31, 2002, 2001 and 2000,
respectively, 16%, 21% and 23% of the Companys revenues were derived from
Woodbury Common Premium Outlets. The loss of this center or a material decrease
in revenues from the center for any reason may have a material adverse effect on
the Company. In addition, for the years ended December 31, 2002, 2001 and 2000,
respectively, 25%, 28% and 28% of the Companys revenues were derived from
the Companys centers in California.

Management of the Company performs ongoing credit evaluations of
its tenants and requires certain tenants to provide security deposits. Although
the Companys tenants operate principally in the retail industry, there is
no dependence upon any single tenant.

Use of Estimates

The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those estimates.

Notes to Financial Statements (continued)

2.  Summary of Significant Accounting Principles (continued)

Minority Interest

Minority interest is comprised of the following:

| | The common unitholders interest in the OP which was issued in exchange for
the assets contributed to the OP on November 2, 1993, and additional units
exchanged for property acquisitions during 1997 and 2002. The unitholders
interest at December 31, 2002, and 2001 was 15.4% and 14.4% respectively
(7,563,000 units and 6,300,000 units, assuming the 2-for-1 stock/unit split in
May 2002 had occurred on January 1, 2001). Common shares are reserved for the
potential conversion of the units. Units may be exchanged for shares of the
Companys common stock on a one for one basis. Upon exchange, shares are
valued at the book value of the units on the date of the exchange. During the
years ended December 31, 2002, 2001 and 2000, the Company made the following
distributions per unit (assumes that the 2-for-1 stock/unit split in May 2002
had occurred on January 1, 2000):
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`2002           2001         2000
                                                    ----------     --------     ---------
    Distributions per unit.................           $1.86          $1.56        $1.50
    Return of capital......................             -             -           (0.17)
    20% Capital gain.......................          ( 0.21)          -            -
    Unrecaptured Section 1250 gain.........          ( 0.01)          -            -
                                                    ----------     --------     ---------
    Ordinary income........................           $1.64          $1.56       $ 1.33
                                                    ==========     ========     =========`

| | The preferred unitholders interest in the OP which was issued in a private
sale of $65.0 million of Series B Cumulative Redeemable Preferred Units to an
institutional investor in September 1999.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Other Comprehensive Loss

At December 31, 2002, and 2001, other comprehensive loss
included a reduction to stockholders equity and minority interest related
to an interest rate swap of $6.7 million and $3.1 million, respectively, and
losses of $0.1 million and $0.4 million, respectively, related to a foreign
currency exchange rate on receivables.

Derivative and Financial Instruments

In the normal course of business, the Company uses a variety of
derivative financial instruments to manage, or hedge, interest rate and foreign
currency risk. The Company requires that hedging derivative instruments are
effective in reducing the interest rate or foreign currency risk exposure as
they are designated. This effectiveness is an essential for hedge accounting
under accounting principles generally accepted in the United States. Derivative
instruments may be associated with the hedge of an anticipated transaction. In
those cases, hedge effectiveness criteria also require that it be probable that
the underlying transaction occurs. Instruments that meet these hedging criteria
are formally designated as hedges at the inception of the derivative contract
and recorded on the balance sheet at their fair values with the changes in fair
value reflected in the accumulated other comprehensive income (loss). When the
terms of an underlying transaction are modified, or when the underlying hedged
item ceases to exist, all changes in the fair value of the instrument are
marked-to-market with changes in value included in net income each period until
the instrument matures or is terminated or assigned. Any derivative instrument
used for risk management that does not meet the hedging criteria is
marked-to-market each period in net income.

Notes to Financial Statements (continued)

2. Summary of Significant Accounting Principles (continued)

Derivative and Financial Instruments (continued)

To determine the fair values of derivative instruments, the Company uses a
variety of methods and assumptions that are based on market conditions and risks
existing at each balance sheet date. For the majority of financial instruments
including most derivatives, long-term investments and long-term debt, standard
market conventions and techniques such as discounted cash flow analysis, option
pricing models, replacement cost, and termination cost are used to determine
fair value. All methods of assessing fair value result in a general
approximation of value, and such value may never actually be realized.

Recently Issued Accounting Pronouncements

In June 2001, the FASB issued Statements of Financial Accounting Standards No.
141 Business Combinations (SFAS 141), which was
effective for all business combinations initiated after June 30, 2001, and No.
142 Goodwill and Other Intangible Assets (SFAS 142)
which was effective January 1, 2002. SFAS 141 requires that the purchase method
of accounting be used for all business combinations initiated after June 30,
2001. Under SFAS 142, amortization of goodwill, including goodwill recorded in
past business combinations, will discontinue upon adoption of this standard. All
goodwill and intangible assets will be tested for impairment in accordance with
the provisions of the Statement. The Company adopted SFAS 141 and 142 on July 1,
2001 and January 1, 2002, respectively. The adoption of these statements did not
have an impact on the Companys results of operations or its financial
position.

In August 2001, FASB issued Statement of Financial Accounting Standards No. 143,
Accounting for Asset Retirement Obligations (SFAS 143)
which is effective January 1, 2003. SFAS 143 requires the recording of the fair
value of a liability for an asset retirement obligation in the period in which
it is incurred. See note 6 to financial statements for discussion related to the
estimated future costs to be incurred in connection with the future operations
of Chelsea Interactive.

In October 2001, the FASB issued Statement of Financial Accounting Standard No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets
(SFAS 144) which was effective and adopted by the Company on January
1, 2002. SFAS 144 provides accounting guidance for financial accounting and
reporting for impairment or disposal of long-lived assets. SFAS 144 supersedes
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of. SFAS 144 retains fundamental
provisions of SFAS 121 related to the recognition and measurement of the
impairment of long-lived assets to be held and used. In addition, SFAS 144
superseded APB Opinion 30, Reporting the Results of Operations-Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions. SFAS 144 extended the
reporting of a discontinued operation to a component of an entity.
Thus, the operations of assets held for sale or assets sold are required to be
presented as discontinued operations in the Companys statement of income.
The initial adoption of FAS 144 did not have a material effect on the financial
position or results of operations of the Company.

In May 2002, the FASB issued Statement of Financial Accounting Standards No.
145, Reporting Gains and Losses from Extinguishment of Debt,
(SFAS 145) which rescinded SFAS No. 4, No. 44 and No. 64 and amended
SFAS No. 13. The new standard addresses the income statement classification of
gains or losses from the extinguishment of debt and criteria for classification
as extraordinary items. The new standard became effective for fiscal years
beginning after May 15, 2002. The Company adopted this pronouncement on April 1,
2002. The adoption of this pronouncement did not have a material impact on the
Companys results of operations or financial position.

Notes to Financial Statements (continued)

2.  Summary of Significant Accounting Principles (continued)

In November 2002, the FASB issued No. 45, Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others (FIN 45). FIN 45 requires certain guarantees
to be recorded at fair value, instead of recording a liability only when a loss
is probable and reasonably estimable, as those terms are defined in FASB
Statement No. 5, Accounting for Contingencies. FIN 45 also requires a guarantor
to make significant new disclosures, even when the likelihood of making any
payments under the guarantee is remote. The disclosure requirements of FIN 45
are effective for financial statements of interim or annual periods ending after
December 15, 2002. The Company adopted the disclosure provisions of FIN 45
effective December 31, 2002. FIN 45s initial recognition and initial
measurement provisions are applicable on a prospective basis to guarantees
issued or modified after December 31, 2002. The Company is in the process of
determining the impact, if any, on its results of operations or financial
position from the adoption of FIN 45.

In January of 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities (FIN 46). FIN 46 clarifies the
application of existing accounting pronouncements to certain entities in which
equity investors do not have the characteristics of a controlling financial
interest or do not have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support from other parties.
The provisions of FIN 46 will be immediately effective for all variable
interests in variable interest entities created after January 31, 2003, and the
Company will need to apply its provisions to any existing variable interests in
variable interest entities by no later than December 31, 2004. The Company does
not believe that FIN 46 will have a significant impact on the Companys
financial statements.

Reclassifications

Certain amounts in the 2001 and 2000 financial statements have been reclassified
to conform to the 2002 presentation.

3.  Acquisitions and Dispositions

Acquisitions

On April 1, 2002, the Company became the sole owner of the Orlando Premium
Outlets (Simon-Orlando) by acquiring Simon Property Group,
Inc.s (Simon) 50% undivided ownership interest for $46.6
million in cash and the assumption of $29.7 million of existing mortgage debt
and the guarantee related thereto. On June 16, 2002, the Company repaid the
outstanding balance of $59.4 million and extinguished the mortgage. After
closing the transaction the operating results and balance sheet of Simon-Orlando
were consolidated in the accompanying financial statements.

On April 1, 2002, the Company purchased a 305,000 square foot
outlet center located in Edinburgh, Indiana for $27.0 million in cash. The
center is classified as Other Properties. After closing the transaction the
operating results and balance sheet of Edinburgh Outlet Center were consolidated
in the accompanying financial statements.

On August 20, 2002, the Company became the sole owner of four premium outlet
centers by acquiring Fortress Registered Investment Trusts
(Fortress) 51% undivided ownership interest in the F/C Acquisition
Holdings, LLC joint venture (F/C Acquisition). The Company paid
$58.9 million in cash and assumed $86.5 million of existing mortgage debt on the
properties. After closing the transaction the operating results and balance
sheet of the four premium outlet centers including $169.6 million of existing
nonrecourse mortgage debt, were consolidated in the accompanying financial
statements.

On November 22, 2002, the Company purchased two outlet centers from JMJ
Properties, Inc. (JMJ); a 305,000 square-foot center located in
Albertville, Minnesota and a 278,000 square foot center located in Johnson
Creek, Wisconsin for a total purchase price of $89.5 million. The Company paid
$44.9 million in cash and the OP issued 1.3 million limited partnership units in
the OP with an assigned value of $44.6 million. The two outlet centers are classified
as Other Properties. After closing the transaction the operating results and
balance sheets of these properties were consolidated in the accompanying
financial statements.

On December 19, 2002 the Company acquired four outlet centers
for an all cash price of $193.0 million from New Plan Excel Realty Trust, Inc.
(NPXL). The four properties consist of a 292,000 square foot outlet
center located in Jackson, New Jersey; a 391,000 square foot outlet center
located in Osage Beach, Missouri; a 329,000 square foot outlet center located in
St. Augustine, Florida; and a 300,000 square foot outlet center located in Branson,
Missouri. The four outlet centers are classified as Other Properties. After closing the
transaction the operating results and balance sheets of these properties were
consolidated in the accompanying financial statements.

On September 25, 2001, the Company acquired 32 shopping centers from Konover
Property Trust, Inc. and its affiliates (Konover). The purchase
price was $182.5 million, including the assumption of $131.0 million of
non-recourse debt. This purchase price was preliminarily allocated to each of
the centers. One of these centers was acquired subject to a repurchase agreement
and was sold back to Konover on December 3, 2001, at the established cost basis
of $2.5 million. One of the centers acquired meets the Companys criteria
for classification as a Premium Properties center. The other 30 centers contain
4.3 million square feet and are classified as Other Properties. After closing
the transaction the operating results and balance sheets of these properties
were consolidated in the accompanying financial statements.

The Company intends to account for the 2002 acquisitions listed above in
accordance with SFAS 141 and 142. Management is currently in the process of
analyzing the fair value of the leases of the acquired properties and
consequently, no value has yet been assigned to them. Therefore, the purchase
price allocations are preliminary and subject to change.

The aggregate condensed balance sheet (unaudited) on the date of acquisition of
the acquired properties is as follows (in thousands):

`December 31,
                                                2002               2001
                                              ---------------    --------------

  Land                                          $100,540           $36,589
  Depreciable property                           591,018           157,345
  Accumulated depreciation                       (15,977)              -
  Other assets                                    19,487            10,186
                                              ---------------    --------------
    Total assets                                $695,068          $204,120
                                              ===============    ==============

  Mortgage debt                                 $228,025          $137,885
  Other liabilities                                9,884             4,045
                                              ---------------    --------------
    Total liabilities                           $237,909          $141,930
                                              ===============    ==============

  Net equity                                    $457,159          $ 62,190
                                              ===============    ==============`

The following condensed pro forma (unaudited) information assumes that the JMJ
and NPXL acquisitions, the buyouts of the remaining 51% interest in F/C
Acquisition and 50% interest in Simon-Orlando and the Konover acquisition had
all occurred on January 1, 2001. Additionally, it assumes that the effect of the
sale of 3.5 million shares of the Companys common stock and issuance of
the 6.0% unsecured notes in conjunction with the NPXL acquisition, the issuance
of 1.3 million OP limited partnership units and borrowings on the Senior Credit
Facility in conjunction with the JMJ acquisition, the sale of 1.1 million shares
of the Companys common stock in conjunction with the Konover acquisition
and the Companys 2-for-1 stock split in May 2002 have occurred on January
1, 2001:

Notes to Financial Statements (continued)

3.  Acquisitions and Dispositions (continued)

`Year Ended December 31,
                                                      2002              2001
                                                    --------------    --------------

 Total Revenue                                        $346,423          $344,931

 Net income to common shareholders                      53,407            69,010

 Earnings per share:
 Basic:
 Net income to common shareholders                       $1.28             $1.86
 Weighted average common shares outstanding
                                                        41,745            37,178

 Diluted:
 Net income to common shareholders                       $1.23             $1.81
 Weighted average common shares outstanding
                                                        43,298            38,210`

Dispositions

During June and July 2002, the Company sold four Other Properties centers and
two outparcels generating net proceeds of approximately $6.8 million, which
approximated the net book value of these properties. Accordingly, no gain or
loss on the sales was recognized. The aggregate revenues and net income of the
sold properties were $1.2 million and $0.3 million for the year ended December
31, 2002, respectively, and $0.6 million and $0.2 million for the year ended
December 31, 2001, respectively.

In November 2002, the Company sold an additional Other Properties center and an
outparcel that generated net proceeds of approximately $1.1 million, which
resulted in a gain of approximately $0.6 million which is included in other
income in the accompanying financial statements. The aggregate revenues and net
income of the sold property were $0.6 million and $0.4 million for the year
ended December 31, 2002, respectively and $0.1 million and $40,000 for the year
ended December 31, 2001, respectively.

In October 2001 the OP sold a Premium Properties center and recognized a loss of
approximately $0.3 million which is included in other income in the accompanying
financial statements. The aggregate revenues and net income of the sold property
were immaterial to the operations of the Company for the years ended December
31, 2001 and 2000.

4. Rental Properties

The following summarizes the carrying values of rental properties as of December
31 (in thousands):

`2002             2001
                                                   ---------------  ------------
  Land and improvements........................       $460,227        $328,324
  Buildings and improvements...................      1,351,183         775,309
  Construction-in-progress.....................          6,708           9,356
  Equipment and furniture......................         19,056          14,917
                                                   ---------------  ------------
  Total rental property........................      1,837,174        1,127,906
  Accumulated depreciation and amortization....       (284,239)        (217,462)
                                                   ---------------  ------------
  Total rental property, net...................     $1,552,935         $910,444
                                                   ===============  ============`

Notes to Financial Statements (continued)

4.  Rental Properties (continued)

Interest costs capitalized as part of buildings and improvements were $2.9
million, $2.0 million and $5.4 million for the years ended December 31, 2002,
2001 and 2000, respectively.

Commitments for land, new construction, development, and acquisitions including
the Companys 50% share of joint venture activity, totaled approximately
$19.1 million and $6.3 million at December 31, 2002 and 2001, respectively.

Depreciation expense (including amortization of the capital lease) amounted to
$53.1 million, $42.9 million and $38.5 million for the years ended December 31,
2002, 2001 and 2000, respectively.

5.  Restricted Cash-Escrows

Restricted cash escrows includes $3.5 million and $1.2 million at December 31,
2002 and 2001, respectively, of escrows and reserve funds for real estate taxes,
property insurance, capital and tenant improvements and leasing costs
established pursuant to certain mortgage financing agreements and $2.1 million
at December 31, 2001 of funds held in escrow pursuant to certain loan guarantee
arrangements with an unconsolidated investee of the Company which was returned
in 2002.

6.  Investments in Affiliates

The Company holds interests in several domestic and international joint
ventures. Non-controlling investments are accounted for under the equity method.
Equity in earnings or losses of these affiliates and related management
advisory, license, leasing and guarantee fees earned are included in income from
unconsolidated investments and loss from and impairment of Chelsea Interactive in the accompanying
financial statements.

As of December 31, 2002, the Companys interests in joint ventures included
a 50% interest in Las Vegas Premium Outlets (Simon-Las Vegas) and a
50% interest in Chicago Premium Outlets (Simon-Chicago) with Simon
(collectively Simon-Ventures), a 40% interest in Chelsea Japan Co.,
Ltd. (Chelsea Japan), a 50% interest in a strategic alliance with
Sordo Madaleno y Asociados and Mr. Carlos Peralta of Mexico City, minority
interests in various outlet centers and development projects in Europe operated
by Value Retail PLC (Value Retail) and 100% of the non-voting
preferred stock of Chelsea Interactive and 50% of the non-voting common stock
representing 40% of the total common stock. As of December 31, 2001, the
Companys investment in joint ventures also included a 50% interest in
Simon-Orlando and a 49% interest in F/C Acquisition.

Notes to Financial Statements (continued)

6. Investments in Affiliates

In June 2002, the Company and Simon entered into a new 50/50 joint venture to
develop and operate SimonLas Vegas, a 435,000 square-foot single-phase
premium outlet center located in Las Vegas, Nevada, scheduled to open in
mid-2003. On June 20, 2002, Simon-Las Vegas purchased a 40-acre site and
commenced construction. The Company is responsible for financing its 50% share
of development costs that are expected to be approximately $48.0 million. As of
December 31, 2002, the Company had contributed $22.8 million.

In August 2002, the Company and Simon entered into a new 50/50 joint venture to
develop and operate Simon-Chicago, a 438,000 square-foot single-phase premium
outlet center located in Aurora, Illinois, near Chicago. The center is scheduled
to open in mid-2004. On September 23, 2002, Simon-Chicago purchased a 140-acre
site, including 80 acres of conservation area, and commenced construction. The
Company is responsible for financing its 50% share of the development costs
which are expected to be approximately $46.0 million. As of December 31, 2002,
the Company had contributed $8.4 million.

In June 1999, the Company entered into an agreement with Mitsubishi Estate Co.,
Ltd. and Nissho Iwai Corporation to jointly develop, own and operate premium
outlet centers in Japan. The Company has a 40% interest in Chelsea Japan. In
conjunction with the agreement, the Company contributed $1.7 million in equity
and will provide its share of construction financing and/or loan guarantees.
Chelsea Japan opened its initial project, the 220,000 square-foot first phase of
Gotemba Premium Outlets, on July 13, 2000 with its 170,000 square-foot second
phase scheduled to open in 2003. Gotemba is located on the Tomei Expressway,
approximately 60 miles west of Tokyo and midway between Mt. Fuji and the Hakone
resort area. Chelsea Japan opened its second project, the 180,000 square-foot
first phase of Rinku Premium Outlets on November 23, 2000, and in March 2002,
Rinku opened its 70,000 square foot second phase. The center is located outside
Osaka, the second-largest city in Japan. Chelsea Japans third project, the
180,000 square-foot first phase of Sano Premium Outlets, is scheduled to open in
March 2003. Sano is located 40 miles north of Tokyo.

The Company had minority interests ranging from 3% to 8% at December 31, 2002
and 5% to 15% at December 31, 2001, in several outlet centers and outlet
development projects in Europe. Five outlet centers, containing approximately
900,000 square feet of GLA, including Bicester Village, outside London, England,
La Roca Company Stores outside of Barcelona, Spain, Las Rozas Village outside
Madrid, Spain, La Vallee near Disneyland Paris and Maasmechelen Village in
Belgium are currently open and operated by Value Retail PLC and its affiliates.
In July 2002, the Company sold approximately 40% of its holdings in Value Retail
to a third party for $11.4 million, resulting in a gain of approximately $10.9
million which was recorded as a gain on sale of unconsolidated investments in
the accompanying financial statements. In 2001, the Company sold a portion of
its Bicester Village holding resulting in a gain of $1.8 million which was
included in gain on sale of unconsolidated investments, net of write-down in
the accompanying financial statements.

The Company and Simon entered into a 50/50 joint venture agreement to develop
and operate Simon-Orlando a 428,000 square foot center that was completed in May
2000 and is located on Interstate 4, midway between Walt Disney World/EPCOT and
Sea World in Orlando. In April 2002, the Company purchased Simons 50%
undivided ownership interest in the center for $46.6 million in cash and assumed
Simons $29.7 million pro-rata share of existing mortgage debt. The
operations and balance sheet of the center are consolidated in the accompanying
financial statements from the buyout date.

Notes to Financial Statements (continued)

6.  Investments in Affiliates (continued)

In December 2000, the Company and Fortress acquired four outlet centers from a
competitor, through F/C Acquisition in which the Company had a 49% interest. The
total purchase price was $240.0 million, including the assumption of
approximately $174.0 million of 6.99% fixed-rate non-recourse mortgage debt due
in 2008. In July 2002, Fortress exercised its option under the F/C Limited
Liability Company Agreement to invoke the Buy/Sell Right which gave
the Company the option to sell its 49% ownership interest in F/C Acquisition or
buy the partners 51% ownership interest. On August 20, 2002, the Company
exercised its right to buy the 51% interest for cash of $58.9 million and
assumed $86.5 million of existing mortgage debt on the properties. The
operations and balance sheet of the four F/C Acquisition premium outlet centers
have been consolidated in the accompanying financial statements from the buyout
date.

In December 2001, the Company had a 15% minority interest in a partnership that
owns an outlet center located in Guam. The center had been generating operating
losses and the Company did not anticipate recovering its investment therefore,
in December 2001, the Company wrote off its investment in Guam and recognized a
loss of $1.2 million which is included in gain on sale of unconsolidated
investments net of write-down in 2001, in the accompanying financial statements.
During the year ended December 31, 2002, the Company withdrew as a partner in
the Guam outlet center.

Chelsea Interactive

The Company has been developing and operates an e-commerce technology platform
through its affiliate, Chelsea Interactive with an aggregate funding
commitment of up to $60.0 million; as of December 31, 2002, $52.4 million had
been funded. The Company anticipates that the balance of the funding will be
used to further develop the platform and to finance operating cash shortfalls
and potential costs related to the disposal or discontinuance of the business.
The Company currently believes that it will not be able to recover the net book
value of its investment in Chelsea Interactive through future cash flows unless
Chelsea Interactive is able to achieve positive cash flow before reaching the
$60.0 million funding limit. Due to current market conditions and costs related
to securing additional brand users for the platform, the Company has decided to
recognize an impairment loss of $34.4 million, equal to the net book value of
its investment in Chelsea Interactive as of December 31, 2002. However, the
Company is in active discussions with potential investors to provide capital to
and/or acquire Chelsea Interactive. There can be no assurance that any of these
discussions will be successful or that Chelsea Interactive will be able to
continue as a going concern. Future funding by the Company will be reported as a
loss in the period funding occurs. The Company owns 100% of the non-voting
preferred stock of Chelsea Interactive and 50% of the non-voting common stock
representing 40% of the total common stock.

Notes to Financial Statements (continued)

The following is a summary of investments in and amounts due from affiliates at
December 31, 2002, and 2001 (in thousands):

`Chelsea       Simon-      Simon-        Chelsea
                               F/C         Japan       Orlando     Ventures      Interactive     Other       Total
                            ----------   ---------    ----------  ------------  -----------    ----------  -----------
Balance 12/31/00........     $33,114      $6,245       $15,922     $ -            $29,899        $6,449     $91,629

Additional
   investment...........       1,528         674            -        -              9,934           -        12,136
Income (loss) from
   unconsolidated
  investments...........       6,522       3,286         5,492       -             (5,337)         (275)      9,688
Distributions and fees..      (6,088)     (2,222)      (10,745)      -                -             -       (19,055)
Dispositions............         -           -             -         -                -          (2,839)     (2,839)
Gain on sale net of
   impairment loss......         -           -             -         -                -             617         617
Advances (net)..........       1,042       1,313          (946)      -                360          (256)      1,513
                            ----------   ---------    ----------    ------------  -----------  ----------  -----------
Balance 12/31/01........      36,118       9,296         9,723       -             34,856         3,696      93,689

Additional
 investment.............         -           655            -         31,281       13,508           303      45,747
Income (loss) from
unconsolidated
   investments..........       4,331       4,136        1,310        -            (13,386)           25      (3,584)
Distributions
   and fees.............      (2,841)     (2,528)        (250)       -                -             -        (5,619)
Buyout reclassifications.    (36,531)        -         (9,199)       -                -          -          (45,730)
Impairment loss.........         -           -            -          -            (34,370)       -          (34,370)
Disposition.............         -           -            -          -                -            (382)       (382)
Advances (net)..........      (1,077)        912       (1,584)           638         (608)          (35)     (1,754)
                            ----------   ---------    ----------    ------------  -----------  ----------  -----------
Balance 12/31/02.......     $  -         $12,471      $  -           $31,919      $ -            $3,607     $47,997
                            ==========   =========    ==========    ============  ===========  ==========  ===========`

The Companys share of income before depreciation,
depreciation expense and income from unconsolidated investments for the years
ended December 31, 2002, 2001 and 2000 are as follows (in thousands):

`Chelsea       Simon-                             Chelsea
For the Year Ended:                               F/C        Japan        Orlando     Other      Total     Interactive
                                               ----------   ---------    ---------   --------  ---------  ---------------
December 31, 2002
Income (loss) before depreciation..........      $6,178     $5,932       $1,833        $25       $13,968     ($5,115)
Depreciation...............................       1,847      1,796          523         -          4,166       8,271
Impairment loss............................           -          -            -         -              -     (34,370)
                                               ----------   ---------    ---------   --------  ---------  ---------------
Income (loss) from unconsol. investment....      $4,331     $4,136       $1,310        $25       $9,802     ($47,756)
                                               ==========   =========    =========   ========  =========  ===============

December 31, 2001
Income (loss) before depreciation..........      $9,214     $4,676       $7,374      ($275)     $20,989       ($2,449)
Depreciation...............................       2,692      1,390        1,882         -         5,964         2,888
                                               ----------   ---------    ---------   --------  ---------  ---------------
Income (loss) from unconsol. investment....      $6,522     $3,286       $5,492      ($275)     $15,025       ($5,337)
                                               ==========   =========    =========   ========  =========  ===============

December 31, 2000
Income (loss) before depreciation..........        $259     $3,905       $4,250       $333       $8,747       ($1,719)
Depreciation...............................          71        694        1,259         -         2,024           645
                                               ----------   ---------    ---------   --------  ---------  ---------------
Income (loss) from unconsol. investment....        $188     $3,211       $2,991       $333       $6,723       ($2,364)
                                               ==========   =========    =========   ========  =========  ===============`

Notes to Financial Statements (continued)

Condensed financial information as of December 31, 2002, 2001,
and for the years then ended for F/C Acquisition, Chelsea Japan and
Simon-Ventures (which are included in Retail Real Estate) and
Chelsea Interactive is as follows:

`Retail          Chelsea
                                                   Real Estate     Interactive
                                                   --------------  -------------

Property, plant and equipment (net)
     December 31, 2002............................    $140,057        $31,409
     December 31, 2001............................     355,427         29,923

Total assets
     December 31, 2002............................     190,157         33,295
     December 31, 2001............................     409,944         34,963

Long term debt (1)
     December 31, 2002............................      75,139              -
     December 31, 2001............................     282,057              -

Total liabilities
     December 31, 2002............................     119,886          1,548
     December 31, 2001............................     321,854          2,665

Net income (loss)
     December 31, 2002............................      12,594        (14,247)
     December 31, 2001............................      20,812        (11,976)

Company's share of net income (loss)
     December 31, 2002............................       5,795        (13,386)
     December 31, 2001............................      10,013         (5,337)

Fee income
     December 31, 2002............................       3,982              -
     December 31, 2001............................       5,281              -`

|(1) | In 2002, includes long-term debt of $75.1 in Chelsea Japan and in 2001 includes
long term debt of $170.5 million in F/C, $58.5 million in Simon and $53.1
million in Chelsea Japan.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

7.  Deferred Costs

The following summarizes the carrying amounts for deferred costs at December 31,
2002 and 2001, (in thousands):

`2002         2001
                                                   ------------  ------------

Lease costs.......................................    $28,074       $24,152
Financing costs...................................      9,200        16,977
Development costs.................................      1,572         8,349
Other.............................................        871           871
                                                   ------------  ------------
Total deferred costs..............................     39,717        50,349
Accumulated amortization..........................    (23,011)      (27,815)
                                                   ------------  ------------
Total deferred costs, net.........................    $16,706       $22,534
                                                   ------------  ------------`

Notes to Financial Statements (continued)

8.  Non-Compete Agreement

In October 1998 the Company sold its interest in and terminated the development
of Houston Premium Outlets, a joint venture project with Simon. Under the terms
of the agreement, the Company received non-compete payments totaling $21.4
million from The Mills Corporation; $3.0 million at closing and four annual
installments of $4.6 million, terminating in January 2002. The January 2002
payment had a $0.3 million legal escrow reserve withheld. The revenue is being
recognized on a straight-line basis over the term of the non-compete agreement
and the Company recognized income of $5.1 million during the years ended
December 31, 2002, 2001 and 2000. Such amounts are included in other income in
the accompanying financial statements.

9.  Other Assets

The following summarizes the components of other assets at
December 31 (in thousands):

`2002             2001
                                                  ---------------   --------------
    Sales tax receivable........................      $11,708          $12,585
    Prepaid expenses............................        9,902            3,181
    Deferred compensation.......................        6,400              -
    Non-compete receivable......................          300            2,769
    Due from equity investees...................          136              764
    Other.......................................        1,654            1,209
                                                  ---------------   --------------
    Total other assets..........................      $30,100          $20,508
                                                  ---------------   --------------`

10. Debt

Unsecured Bank Debt

The Company has a $200.0 million senior unsecured bank line of credit (the
Senior Credit Facility) that has an expiration date of March 2005
(unless extended until March 2006). The Senior Credit Facility bears interest on
the outstanding balance, at a rate equal to the London Interbank Offered Rate
(LIBOR) plus 1.05% (2.46% at December 31, 2002) or the prime rate,
at the Companys option and has an annual facility fee of 0.125%. The LIBOR
rate spread ranges from 0.85% to 1.50% depending on the Companys Senior
Debt rating. At December 31, 2002, $98.0 million was outstanding under the
Senior Credit Facility.

The Company also has a $5.0 million term loan that carries the same interest
rate and maturity as the Senior Credit Facility.

Unsecured Notes

A summary of the terms of the unsecured notes outstanding at December 31, 2002
and 2001, is as follows (in thousands):

`December 31,                     Effective
                                                            2002                2001               Yield (1)
                                                     -------------------  -----------------   -------------------

8.375% Unsecured Notes due August 2005.............       $49,922             $49,892               8.44%
7.25% Unsecured Notes due October 2007.............       124,841             124,809               7.39
8.625% Unsecured Notes due August 2009.............        49,933              49,923               8.76
8.25% Unsecured Notes due February 2011............       148,817             148,670               8.40
6.875% Unsecured Notes due June 2012...............        99,825                   -               6.90
6.00% Unsecured Notes due January 2013.............       147,992                   -               6.28
                                                     -------------------  -----------------
 Total unsecured notes                                   $621,330            $373,294
                                                     -------------------  -----------------`

(1)     Including discount on the notes

Notes to Financial Statements (continued)

Unsecured Notes

On June 18, 2002, the Company completed a debt offering consisting of $100.0
million of 6.875% unsecured term notes due June 2012 that were priced to yield
6.90% to investors. Proceeds were used to repay borrowings under the Allen
Premium Outlets and Orlando Premium Outlets construction loans that were to
mature in February 2003 and August 2002, respectively, and for general corporate
purposes.

On December 11, 2002, the Company completed a debt offering consisting of $150.0
million of 6.00% unsecured term notes due January 2013 that were priced to yield
6.18% to investors. Proceeds were used to repay borrowings under the Senior
Credit Facility, fund the NPXL acquisition assets and for general corporate
purposes.

Mortgage Debt

A summary of the terms of the mortgage debt outstanding at December 31, 2002,
and 2001, and the related Net Book Value of the associated collateral
(NBV) (in thousands) and interest rate at December 31, 2002, are as
follows:

`December 31,                          Interest       NBV
                                   ------------------------------               ----------
                                       2002           2001

 Construction Loan (1) .......          -            $29,531           -               -          -
 F/C Mortgage Loan(2) ........      $167,723              -       July 2008         6.99%      $258,168
 Bank Mortgage Loan (3) ......        67,250          68,250      April 2010        7.26%        72,207
 Mortgage Loan (4) ...........        71,482          72,428     December 2012      7.67%        75,376
                                   -------------    -------------                             -------------
Total mortgage debt                 $306,455        $170,209                                   $405,751
                                   -------------    -------------                             -------------`

|(1) | On June 18, 2002, the Company repaid and extinguished the loan.
|--- | ---------------------------------------------------------------

|(2) | The F/C Mortgage Loan was consolidated as part of the August 20, 2002 buyout of
Fortress' 51% interest in the F/C Acquisition joint venture. The mortgage bears
interest at 6.99% per annum through July 11, 2008, (the "Optional Prepayment
Date") and thereafter at a rate equal to the greater of 8.4% plus 5% or the
Treasury Rate, as defined, plus 6.5% until the earlier of the date the mortgage
is paid in full or its maturity date of July 11, 2028. The mortgage may be
prepaid in whole or in part at any time after the Optional Prepayment Date
without a prepayment penalty. The mortgage calls for a $1.2 million fixed
monthly interest plus principal payment based on a 26-year amortization
schedule. The F/C Mortgage Loan had a face value of $169.6 million and a
carrying amount fair value of $168.7 million on the buyout date. From August 20,
2002, to December 31, 2002, the Company recognized $40,000 in debt discount
amortization that is included in interest expense in the accompanying financial
statements.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | In April 2000, Chelsea Financing entered into a $70.0 million Bank Mortgage Loan
secured by its four properties. The Bank Mortgage Loan bears interest equal to
LIBOR plus 1.50% (2.88% at December 31, 2002) or prime rate plus 1.0% and calls
for quarterly principal amortization of $0.3 million through April 2005 and
thereafter $0.5 million per quarter until maturity. In December 2000, the
Company entered into an interest rate swap agreement effective January 2, 2001,
to hedge against unfavorable fluctuations in LIBOR rates by fixing the interest
rate at 7.26% until January 2006. During the years ended December 31, 2002, and
2001, the Company recognized interest expense of $2.7 million and $1.2 million,
respectively on the hedge that is included in interest expense in the
accompanying financial statements.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | The Mortgage Loan was assumed as part of a September 2001 acquisition. The
stated interest rate of 9.1% was greater than that available to the Company in
the public debt markets. Accordingly, the Company recorded a $6.9 million debt
premium that will be amortized over the period of the loan and which reduces the
effective interest rate to 7.67%. The loan calls for fixed monthly debt service
payments of $0.5 million for interest plus principal based on a 26-year
amortization schedule. The Mortgage Loan matures in March 2028 but can be
prepaid beginning December 2012. During the years ended December 31, 2002, and
2001, the Company recognized $0. 4 million and $0.1 million, respectively, in
debt premium amortization that is included in interest expense in the
accompanying financial statements.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Notes to Financial Statements (continued)

10.  Debt (continued)

Following is a schedule of the estimated fair value of the Companys debt
using current broker quotations at December 31, 2002, (in thousands):

`Carrying         Principal         Estimated
             Description                           Value           Balance         Fair Value
             --------------------------------  --------------   ---------------   --------------

             Fixed Rate Debt...............       $860,535         $858,772          $966,224

             Variable Rate Debt............       $170,285         $170,285          $170,285`

Interest paid, excluding amounts capitalized, was $47.5 million, $34.5 million
and $21.7 million for the years ended December 31, 2002, 2001 and 2000,
respectively.

Following is a schedule of the Companys debt maturities, including debt
premium amortization, at December 31, 2002, (in thousands):

`2003............       $5,153
          2004............        5,414
          2005............      159,502
          2006............        7,155
          2007............      132,382
          Thereafter......      721,214
                            --------------
                             $1,030,820
                            --------------`

11.  Financial Instruments: Derivatives and Hedging

In the normal course of business, the Company is exposed to the effect of
interest rate 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 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: from lines of credit, to medium- and long-term financings. To reduce
overall interest cost, the Company uses interest rate instruments, typically
interest rate swaps, to convert a portion of variable rate debt to fixed rate
debt, or a portion of its fixed-rate debt to variable rate. Interest rate
differentials that arise under these swap contracts are recognized in interest
expense over the life of the contracts. The resulting cost of funds is usually
lower than that which would have been available if debt with matching
characteristics was issued directly.

Notes to Financial Statements (continued)

11.  Financial Instruments: Derivatives and Hedging (continued)

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. Unrealized gains and losses in the fair value of cash flow hedges are
reported on the balance sheet with a corresponding adjustment to Accumulated
Other Comprehensive Income 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 Income will be
reclassified to earnings. This reclassification occurs over the same time period
in which the hedged items affect earnings. The Company hedges its exposure to
variability in future cash flows for forecasted transactions other than those
associated with existing floating-rate debt over a maximum period of 12 months.
During the forecast period, unrealized gains and losses in the hedging
instrument will be reported in Accumulated Other Comprehensive Income. 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.

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
December 31, 2002. It does not represent exposure to credit, interest rate or
market risks. At December 31, 2002, and 2001, the swap was reported at its fair
value and classified as other liabilities in the accompanying financial
statements of $6.7 million and $3.1 million, respectively. As of December 31
,2002, and 2001, there were $6.7 million and $3.1 million in deferred losses,
respectively, and recorded in other comprehensive loss, a shareholders
equity account and minority interest. Within the next twelve months, the Company
expects to reclassify to earnings approximately $2.9 million of the current
balance held in accumulated other comprehensive loss and minority interest
related to the interest rate swap.

`As of December 31, 2002
                                       ----------------------------
                     Hedge Type             Notional Value     Rate        Maturity      Fair Value
                     ----------             --------------     ----        --------      ----------
                  Swap, Cash Flow             $67.3 mil       5.7625%       1/1/06       ($6.7 mil)`

During 2002, the Company had Japanese yen forward contracts with a notional
value of 255 million yen and a fair value of $10,000 as a hedge against its
yen-denominated receivable due from Chelsea Japan. During the year ended
December 31, 2002, the receivable and yen forward contracts were settled and the
Company received $1.9 million and recognized a $0.1 million foreign exchange
loss, which is included in income from unconsolidated investments in the
accompanying financial statements.

During 2001, the Company entered into 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. During the year ended December 31, 2001 the
receivable and yen forward contract were settled and the Company received $1.4
million.

12.  Preferred Stock

In October 1997, the Company issued 1.0 million shares of non-voting 8.375%
Series A Cumulative Redeemable Preferred Stock (the Preferred
Stock), par value $0.01 per share, having a liquidation preference of $50
per share. The Preferred Stock has no stated maturity and is not convertible
into any other securities of the Company. The Preferred Stock is redeemable on
or after October 15, 2027, at the Companys option.

During the year ended December 31, 2002, the Company redeemed and retired
136,500 shares of Preferred Stock at a net price of $47 per share and 66,552
shares at a net share of $47.25 per share.

Notes to Financial Statements (continued)

13.  Common Stock

At a special meeting of shareholders held on January 16, 2003, the Company
obtained shareholder approval to amend its articles of incorporation to increase
the authorized shares of the Companys common stock to 100 million shares.

In November 2002, the Company sold 3.5 million shares of common stock at a price
of $34.65 per share, yielding net proceeds after expenses of $118.8 million,
which were used to fund the NPXL acquisition.

On May 1, 2002, the Company declared a 2-for-1 stock split on the Companys
common shares. The stock dividend was paid May 28, 2002, to shareholders of
record on May 14, 2002.

In October 2001, the Company sold 4.0 million shares of common stock at a price
of $22.50 per share, yielding net proceeds of $85.2 million, which were used to
repay borrowings under the Companys Senior Credit Facility and for general
corporate purposes.

In July 2001, the Company completed the sale of 1.1 million shares of common
stock to an institutional investor at a net price of $23 per share, yielding net
proceeds of $24.8 million that were used to partially fund the acquisition of
the Konover assets and for general corporate purposes.

14.  Lease Agreements

The Company is the lessor and sub-lessor of retail stores under operating leases
with term expiration dates ranging from 2002 to 2020. Most leases are renewable
for five years after expiration of the initial term at the lessees option.
Future minimum lease receipts under non-cancelable operating leases at December
31, 2002, exclusive of renewal option periods, were as follows (in thousands):

`2003...........      $212,146
          2004...........       202,089
          2005...........       168,837
          2006...........       134,775
          2007...........       103,513
          Thereafter.....       271,409
                            --------------
                             $1,092,769
                            ==============`

In 1987, a predecessor partnership entered into a lease
agreement for property in California. Land was estimated to be approximately 37%
of the fair market value of the property, and accordingly the portion of the
lease attributed to land is classified as an operating lease. The portion
attributed to building is classified as a capital lease as the present value of
payments related to the building exceeded 90% of its fair value at inception of
the lease. The initial lease term was 25 years with two options of 5 and 4.5
years, respectively. The lease provides for additional rent based on specific
levels of income generated by the property. No additional rental payments were
incurred during 2002, 2001 or 2000. The Company has the option to cancel the
lease upon six months written notice and six months advance payment of the then
fixed monthly rent. If the lease is canceled, the building and leasehold
improvements revert to the lessor. In August 1999, the Company amended its
capital lease to reduce rent payments through December 2004 resulting in a
writedown of the asset and obligation of $2.7 million and $6.0 million,
respectively. The difference of $3.3 million is being recognized on a
straight-line basis over the remaining term of the amended lease that ends
December 2004.

Notes to Financial Statements (continued)

14.  Lease Agreements (continued)

Operating Leases

Future minimum rental payments under operating leases for land and
administrative offices at December 31, 2002, are as follows (in thousands):

`2003...........        $1,473
          2004...........         1,480
          2005...........           916
          2006...........            52
                              -----------
                                 $3,921
                              -----------`

Rental expense amounted to $1.4 million, $0.8 million and $0.6 million for the
years ended December 31, 2002, 2001 and 2000, respectively.

Capital Lease

A leased property included in rental properties at December 31 consists of the
following (in thousands):

`2002              2001
                                            ---------------   ---------------

Building................................         $6,796            $6,796
Less accumulated amortization...........         (5,865)           (5,520)
                                            ---------------   ---------------
Leased property, net....................           $931            $1,276
                                            ---------------   ---------------`

Amortization expense on capital lease of $0.3 million for the years ended
December 31, 2002, 2001 and 2000, is included in depreciation and amortization
expense in the financial statements.

Future minimum payments under the capitalized building lease, including the
present value of net minimum lease payments at December 31, 2002, are as follows
(in thousands):

`2003...................................................           $   819
2004...................................................               819
                                                             --------------
Total minimum lease payments...........................             1,638
Amount representing interest...........................              (131)
                                                             --------------
Present value of net minimum capital lease payments....            $1,507
                                                             --------------`

Ground Lease

In connection with the 2002 and 2001 property acquisitions, the Company acquired
six properties subject to ground leases that were assumed by the Company. These
ground leases have termination dates ranging from 2007 to 2087 and allow for
renewal terms of 4 to 30 years.

Future minimum lease payments under ground leases at December 31, 2002,
exclusive of renewal option periods were as follows (in thousands):

`2003............              $812
                                   2004............               819
                                   2005............               819
                                   2006............               822
                                   2007............               811
                                   Thereafter......            18,915
                                                         --------------
                                                              $22,998
                                                         ==============`

Notes to Financial Statements (continued)

15.  Commitments and Contingencies

In May 2002, the Company entered into a 50/50 strategic alliance with Sordo
Madaleno y Asociados and Mr. Carlos Peralta of Mexico City to jointly develop
premium outlet centers in Mexico. Subject to leasing and entitlements,
construction on the 200,000 square-foot first phase of the outlet project is
expected to commence later in 2003 and open in late 2004. The site can support a
second phase containing approximately 165,000 square feet of GLA. Once phase one
of the project has been approved, the Company will be committed to fund
approximately $12 million which is 50% of the development costs.

In connection with the Simon-Ventures, the Company has committed to provide 50%
of the development costs of two centers, which are expected to be approximately
$48.0 million to Simon-Las Vegas and $46.0 million to Simon-Chicago. As of
December 31, 2002, the Company had contributed $22.8 million to Simon-Las Vegas
and $8.4 million to Simon-Chicago.

Borrowings related to Chelsea Japan for which the Company and the OP have
provided guarantees for repayment of debt as of December 31, 2002, are as
follows (in thousands):

`Total Facility          |                                       Outstanding
          --------------             |                                    -----------
     Yen            US $ Equivalent  |    Yen         US $ Equivalent    US $ Guarantee   Due Date  Interest Rate
     ---            ---------------  |    ---         ---------------    --------------   --------  -------------
4.0 billion (1)   $33.7 million      | 1.0 billion    $8.3 million       $8.3 million       2003      1.45%
0.6 billion (2)     5.0 million      | 0.6 billion     4.8 million        1.9 million       2012      1.50%
3.8 billion (2)    32.0 million      | 3.5 billion    29.5 million       11.8 million       2015      2.20%`

|(1) | Facility entered into by an equity investee of the Company and has a one-year
extension option; amended in November 2002 to allow for one additional year
extension.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Facilities entered into by Chelsea Japan, secured by Gotemba and Rinku and 40%
severally guaranteed by the Company.
|--- | -------------------------------------------------------------------------------------------------------------------

The Company agreed under a standby facility to provide up to $22.0 million in
limited debt service guarantees for loans provided to Value Retail and
affiliates to construct outlet centers in Europe. The term of the standby
facility expired in November 2001 and guarantees shall not be outstanding for
longer than five years after project completion. As of December 31 2002, the
Company had provided limited debt service guarantees of approximately $22.0
million to Value Retail.

At December 31, 2002, other assets includes $6.4 million and accrued expenses
and other liabilities include $8.0 million related to the 2002 deferred unit
incentive program with certain key officers which may be paid in 2007.

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 incurred by the Company related to any
of its litigation will not be material and have been adequately provided for in
the consolidated financial statements.

Notes to Financial Statements (continued)

16. Related Party Information

In 1999, the Company established a $6.0 million secured loan facility that will
expire in June 2004 for the benefit of certain unitholders. Each unit holder
borrower issues a note that is secured by OP units, bears interest at a rate of
LIBOR plus 200 basis points per annum, payable quarterly and is due by the
facility expiration date. At December 31, 2001, loans made to unitholders or
affiliates of management of the Company, totaled $3.2 million. During 2001, the
Company received a $1.2 million repayment of one loan and $0.5 million pay down
on the other loan outstanding at December 31, 2000. In September 2001, the
Company advanced $2.7 million to another unitholder to acquire approximately a
10% non-voting equity interest in Chelsea Interactive from a non-affiliated
joint venture partner. During the year ended December 31, 2002, the Company
received a $0.5 million payoff of one loan and a $0.6 million pay down on the
other loan outstanding. During March and May of 2002, the Company advanced a
total of $1.0 million to another unitholder, $0.5 million of which was used to
exercise Company stock options and is reflected as a reduction to
stockholders equity in the accompanying financial statements. The carrying
value of such loans approximated fair value at December 31, 2002. Effective June
1, 2002, the Company changed its policy to eliminate new loans to directors and
officers.

The Company leased space to related parties of approximately 56,000 square feet
during the years ended December 31, 2001, and 2000. Rental income from those
tenants, including reimbursement for taxes, common area maintenance and
advertising, totaled $2.1 million and $ 1.9 million during the years ended
December 31, 2001, and 2000, respectively.

In August 1997, the Company and one of its directors entered into a Consulting
Agreement pursuant to which the director agreed to perform services for the
Company in connection with the development and operation of manufacturers
outlet centers in Japan and Hawaii. The agreement provided for payments to the
director of $10,000 per month and was terminated by the Company in December
1999. During the term of the agreement and for four years after the termination
of the agreement, the director will be entitled to a fee of 1% of the
development costs, up to a maximum amount of $0.5 million per project, on all
projects in which he was involved in Japan or Hawaii. Fees paid under this
agreement totaled $0.5 million for the year ended December 31, 2001. These fees
are included in the investment in affiliates in the accompanying financial
statements.

Certain Directors and unitholders guarantee Company obligations, which existed
prior to the formation of the Company, under leases for one of the properties.
The Company has indemnified these parties from and against any liability that
they may incur pursuant to these guarantees.

17.  Dividend Reinvestment Plan

Shareholders who own at least 100 shares of the Companys common stock are
eligible to reinvest dividends quarterly. Administration costs associated with
the plan are paid by the Company.

Notes to Financial Statements (continued)

18.  Stock Option Plans

The Company elected Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees ("APB No. 25") and related Interpretations in
accounting for its employee stock options. Under APB No. 25, no compensation
expense is recognized because the exercise price of the Company's employee stock
options equals the market price of the underlying stock on the date of grant.

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including expected stock price volatility. Because the
Companys employee stock options have characteristics significantly
different from those of traded options, and changes in the subjective input
assumptions can materially affect the fair value estimate, management believes
the existing models do not necessarily provide a reliable single measure of the
fair value of its employee stock options.

The Companys 1993 Stock Option Plan (the 1993 Plan), approved
by the Companys shareholders in June 1993, provides for an aggregate of
2.8 million authorized shares reserved for issuance. The Companys 2000
Stock Option Plan (the 2000 Plan) was adopted by the Board of
Directors in March 2000 and approved by the Companys shareholders in June
2000 and also provides for an aggregate of 2.8 million authorized shares
reserved for issuance. Under both Plans, the exercise price per share of initial
grants of non-qualified options will be fixed by the Compensation Committee on
the date of grant. The exercise price per share of incentive stock options will
not be less than the fair market value of the common stock on the date of grant,
except in the case of incentive stock options granted to individuals owning more
than 10% of the total voting shares of the Company. Their exercise price will be
at least 110% of the fair market value at the date of grant. Non-qualified and
incentive stock options are exercisable for a period of ten years from the date
of grant. Under the 1993 Plan, 20% of the options may be exercised on the first
anniversary of the grant date and an additional 20% may be exercised on or after
each of the second through fifth anniversaries. Under the 2000 Plan, options
shall be exercisable by the holder at such times as may be fixed by the
Compensation Committee.

Pro forma information regarding net income and earnings per share is required by
SFAS No. 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method. The fair value for these
options was estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted average assumptions for 2002, 2001 and 2000,
respectively: risk-free interest rate of 5% for 2002 and 2001 and 6% for 2000;
volatility factor of the expected market price of the Companys common
stock based on historical results of 0.236 for 2002 and 2001 and 0.397 for 2000,
and dividend yield of 6% in 2002 and 7% in 2001, and 8% for 2000, respectively,
and an expected option life of four years. The Company granted the following
options for the years ended December 31, adjusted for the 2-for-1 stock split in
May 2002 as follows:

`2002             2001               2000
                                                     -------          ------             ------

             Plan year.......................          2000            2000          1993         2000
             Options granted.................     1,510,000         140,000        30,000      960,000
             Expiration date.................          2012            2011          2010         2010
             Exercise price per share........        $26.30          $20.62        $15.12       $13.90`

Notes to Financial Statements (continued)

18.  Stock Option Plans (continued)

For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options vesting period. The
Companys pro forma information follows, assuming that the 2-for-1 stock
split in May 2002 had occurred on January 1, 2000, (in thousands except for
earnings per share information):

`2002          2001         2000

 Pro forma net income available to common shareholders...  $39,634       $46,657     $40,467
 Pro forma earnings per share:
     Basic...............................................    $1.04         $1.39       $1.27
     Diluted.............................................    $1.00         $1.34       $1.26`

A summary of the Companys stock option activity, and related information
for the years ended December 31 follows:

`2002                    2001                     2000
                                             Options     Wtd-avg      Options     Wtd-avg     Options     Wtd-avg
                                             (000'S)    EX. PRICE     (000'S)    EX. PRICE    (000'S)    EX. PRICE

Outstanding beginning of year..........        2,988.0      $14.68    2,972.2        $14.44    2,018.4       $14.63
Granted................................        1,510.0      $26.30      140.0        $20.63      990.0       $13.94
Exercised..............................         (410.1)     $14.65     (124.2)       $15.76      (36.2)      $11.69
Forfeited..............................         (120.0)     $13.91        -                        -
                                           --------------------------------------------------------------------------
Outstanding end of year................        3,967.9      $19.12    2,988.0        $14.68    2,972.2       $14.44

Exercisable at end of year.............        1,895.8      $14.68    1,910.0        $14.02    1,572.2       $13.70

Weighted average fair value of each
option granted during the year.........          $3.44                  $2.54                    $2.63`

Exercise prices for options outstanding as of December 31, 2002 ranged from
$11.69 to $26.30 per share. The weighted average remaining contractual life of
the options was 6.5 years.

19.  Employee Stock Purchase Plan

The Companys Board of Directors and shareholders approved an Employee
Stock Purchase Plan (the Purchase Plan), effective July 1, 1998. The
Purchase Plan covers an aggregate of 1.0 million shares of common stock. Eligible
employees have been in the employ of the Company or a participating subsidiary
for five months or more and customarily work more than 20 hours per week. The
Purchase Plan excludes employees who are highly compensated
employees, as defined, or own 5% or more of the voting interest of the
Companys stock. Eligible employees will purchase shares through automatic
payroll deductions up to a maximum of 10% of weekly base pay. The Purchase Plan
will be implemented by consecutive three-month offerings (each an Option
Period). The price at which shares may be purchased shall be the lower of
(a) 85% of the fair market value of the stock on the first day of the Option
Period or (b) 85% of the fair market value of the stock on the last day of the
Option Period. As of December 31, 2002, 86 employees were enrolled in the
Purchase Plan and $5,000 in expenses has been incurred and is included in the
Companys general and administrative expense. The Purchase Plan will
terminate after five years unless terminated earlier by the Board of Directors.

Notes to Financial Statements (continued)

20.  401(k) Plan

The Company maintains a defined contribution 401(k) savings plan (the
Plan), which was established to allow eligible employees to make
tax-deferred contributions through voluntary payroll withholdings. All employees
of the Company are eligible to participate in the Plan after completing six
months of service and attaining age 21. Employees who elect to enroll in the
Plan may elect to have from 1% to 15% of their pre-tax gross pay contributed to
their account each pay period. As of January 1, 1998 the Plan was amended to
include an employer discretionary matching contribution which currently excludes
certain officers, in an amount not to exceed 100% of each participants
first 6% of yearly compensation to the Plan. Matching contributions of
approximately $96,000 in 2002, $128,000 in 2001 and $141,000 in 2000 are
included in the Companys general and administrative expense in the
accompanying financial statements.

21.  Quarterly Financial Information (Unaudited)

The following summary represents the results of operations, expressed in
thousands except per share amounts, for each quarter during 2002 and 2001:

`March 31         June 30        September 30      December 31
                                                  -------------------------------- ----------------- -----------------
2002
----
Base rental revenue............................       $38,509         $43,299          $46,968           $52,896
Total revenues.................................        56,681          65,030           71,489            90,014
Net income (loss) available to common
   shareholders................................        11,887          13,408           24,223            (7,804)
Net income(loss) per weighted average
     common share (diluted, except for the
  quarter ended December 31)...................         $0.31           $0.34            $0.61            ($0.20)

2001
----
Base rental revenue............................       $28,751         $28,651          $30,528           $39,299
Total revenues.................................        44,824          46,297           49,065            66,669
Net income available to common shareholders....         8,506           9,474           11,838            17,808
Net income per weighted average
     common share (diluted)....................         $0.27           $0.29            $0.34             $0.47`

22.  Segment Information

The Company is principally engaged in the development, ownership, acquisition
and operation of manufacturers outlet centers and has determined that
under SFAS No.131 Disclosures About Segments of an Enterprise and Related
Information it has three reportable retail real estate segments: premium
domestic, other domestic and international in 2002 and 2001. The Company
evaluates real estate performance and allocates resources based on Net Operating
Income (NOI) defined as total revenue less operating and maintenance
expense. The primary sources of revenue are generated from tenant base rents,
percentage rents and reimbursement revenue. Operating expenses primarily consist
of common area maintenance, real estate taxes and promotional expenses. The
retail real estate business segments meet the quantitative threshold for
determining reportable segments:

Notes to Financial Statements (continued)

22.  Segment Information (continued)

`For the Years Ended:                        Premium       Other
(In Thousands)                              Domestic       Domestic       International        Other          Total
----------------------------------------- -------------- ---------------- ----------------- -------------- ---------------
                                                               (1)            (2)             (3)
Total revenues
     December 31, 2002.................      $227,876       $49,856                -          $5,482       $283,214
     December 31, 2001.................       187,588        12,196                -           7,071        206,855

Interest income
     December 31, 2002.................         1,169           124                -             358          1,651
     December 31, 2001.................           848            45                -           1,913          2,806

Income (loss) from unconsolidated
investments
     December 31, 2002.................         5,641             -           15,072         (47,756)       (27,043)
     December 31, 2001.................        12,014             -            3,628          (5,337)         10,305

NOI
     December 31, 2002.................       176,001        30,664            7,891         (12,216)        202,340
     December 31, 2001.................       148,570         5,021            6,562           1,849         162,002

Fixed asset additions
     December 31, 2002.................       398,933       309,540                -             795         709,268
     December 31, 2001.................        36,674       181,729                -           1,159         219,562

Total assets
     December 31, 2002................      1,262,190       394,984           16,077          29,779       1,703,030
     December 31, 2001................        831,882       194,406           15,092          57,928       1,099,308`

|(1) | Approximately 23% of the GLA is occupied by and approximately 12% of annual
revenue is derived from one tenant.
|--- | ---------------------------------------------------------------------------------------------------------------

|(2) | Principally comprised of the Company's interest in Chelsea Japan.
|--- | -----------------------------------------------------------------

|(3) | Includes corporate overhead assets and results from Chelsea Interactive.
|--- | ------------------------------------------------------------------------

Following is a reconciliation of net operating income to net
income for the years ended December 31, 2002, and 2001, (in thousands):

`2002              2001
                                                              ----------------   --------------
Segment NOI..................................................      $202,340         $162,002
Interest expense - consolidated..............................       (48,693)         (36,865)
Interest expense - unconsolidated investments................          (556)            (597)
Depreciation expense - consolidated..........................       (58,275)         (48,554)
Depreciation expense - unconsolidated investments                    (4,166)          (5,964)
Depreciation expense - Chelsea Interactive...................        (8,271)          (2,888)
Impairment loss- Chelsea Interactive.........................       (34,370)               -
Income tax - unconsolidated investments......................        (1,378)            (947)
Gain/(loss) on sale of centers -.............................           312             (284)
Gain on sale, net of writedown - International...............        10,911              617
Minority interest............................................       (12,718)          (14,706)
                                                              ----------------   --------------
Net income...................................................       $45,136           $51,814
                                                              ----------------   --------------`

Notes to Financial Statements (continued)

23.  Non-cash Investing and Financing Activities

In December 2002, 2001 and 2000, the Company declared quarterly distributions
per share of $0.485, $0.39 and $0.375, respectively (assumes May 2002 2-for-1
stock split occurred on January 1, 2000). The limited partners
distributions were paid in January of each subsequent year.

In connection with the buyout of Simons 50% interest in Simon-Orlando in
April 2002, the Company assumed additions of approximately $68.9 million in
rental properties, $6.5 million in accumulated depreciation, $8.8 million in
other assets, $3.2 million in other liabilities and $59.4 million in mortgage
debt.

In connection with the buyout of Fortress 51% interest in F/C Acquisition
in August 2002, the Company assumed additions of approximately $207.0 million in
rental properties, $9.4 million in accumulated depreciation, $11.7 million in
other assets, $5.3 million in other liabilities and $168.7 million in mortgage
debt.

In connection with the purchase of the JMJ properties in November 2002, the OP
issued 1.3 million units with an assigned value of $44.6 million.

In connection with the Konover acquisition in 2001, the Company assumed
approximately $131.0 million in REMIC and mortgage loans payable.

Chelsea Property Group, Inc.
Schedule III-Consolidated Real Estate and Accumulated Depreciation
for the year ended December 31, 2002 (in thousands)

`Cost
                                             Capitalized
                                             (Disposed of)
                                Initial       Subsequent     Step-Up Related                                             Life
                                Cost          to              to Acquisition Gross Amount Carried                        Used
                                to            Acquisition     of Partnership at Close of Period                          to
                              Company        (Improvements)   Interest (1)    December 31, 2001                         Compute
                           ----------------- -------------- --------------   --------------------                       Deprecia-
                                  Buildings,     Buildings,      Buildings,     Buildings,                     Date     tion in
                                  Fixtures       Fixtures        Fixtures       Fixtures                        of      Latest
Description        Encum-          and             and           and Equip-       and               Accumulated Construc- Income
Outlet Center Name brances  Land  Equipment  Land Equipment  Land    ment   Land Equipment  Total  Depreciation tion    Statement
------------------ -------  ----- ---------  ----- --------- ---- --------- ---- --------- -----  ------------ -------  ---------

Woodbury Common, NY   -    $4,448  $16,073  $4,967  $127,653 $ -    $ -     $9,415 $143,726  $153,141  $51,691    '85,'93,     40
                                                                                                                  '95,'98
Orlando, FL (6)       -     9,946   65,711     300     1,249   7,957 31,829 18,203   98,789   116,992    9,845    '00          40
Gilroy, CA (6)       (4)   17,053   84,641       2       231   1,812  8,840 18,867   93,712   112,579    4,632    '90,'91,     40
                                                                                                                  '92,'94,'95
Wrentham, MA          -       157    2,817   3,974    80,118       -      -  4,131   82,935    87,066   20,087    '95,'00      40
Waikele, HI           -    22,800   54,357       -     2,084       -      - 22,800   56,441    79,241   11,049    '98          40
Leesburg, VA          -     6,296        -    (811)   71,486       -      -  5,485   71,486    76,971   15,159    '96-'00      40
Desert Hills, CA      -       975        -   2,376    65,901     830  4,936  4,181   70,837    75,018   27,908    '90,'94-     40
                                                                                                                  '95,'97,-'98
Michigan City, IN(6) (4)    7,264   60,107       -       578     772  6,243  8,036   66,928    74,964    3,293    '87,'88,     40
                                                                                                                  '89,'91,
                                                                                                                  '94,'95,'97
Camarillo, CA         -     4,000        -  12,431    55,250       -      - 16,431   55,250    71,681   16,178    '94-'99      40
Osage Beach, MO(6)    -    10,395   58,701       -         -       -      - 10,395   58,701    69,096        -    '87-90       40
Jackson, NJ (6)       -    10,302   58,178       -         -       -      - 10,302   58,178    68,480        -    '97,'98      40
Albertville, MN(6)    -    15,794   45,977       -        77       -      - 15,794   46,054    61,848      116    '00,'01      40
North Georgia, GA     -     2,960   34,726    (223)   21,518       -      -  2,737   56,244    58,981   17,376    '95-'99      40
Waterloo, NY(6)      (4)    5,258   42,942       -       172     559  4,519  5,817   47,633    53,450    2,365    '95,'96,'97  40
Clinton, CT           -     4,124   43,656       -     1,748       -      -  4,124   45,404    49,528   16,496    '95-'96      40
Allen, TX             -     8,938    2,068    (836)   38,883       -      -  8,102   40,951    49,053    4,252     99-'01      40
Vacaville, CA         -     9,683   38,850      18       249       -      -  9,701   39,099    48,800    1,226    '88,'91,'92  40
Folsom, CA           (2)    4,169   10,465   2,692    26,410       -      -  6,861   36,875    43,736   11,968    '90,'92,     40
                                                                                                                  '93,'96-'97,
                                                                                                                  '00
Carolina Outlet
  (I), NC             -     6,220   24,860       -       347       -      -  6,220   25,207    31,427      813    '87,'95,     40
                                                                                                                  '96,'99
Carolina Outlet
  (II), NC           (5)        -    7,862       -       105       -      -      -    7,967     7,967      257    '87,'95,     40
                                                                                                                  '96,'99
Petaluma Village, CA  -     3,735        -   2,959    31,929       -      -  6,694   31,929    38,623   10,678    '93, '95-'96 40
St. Augustine, FL(6)  -     5,783   32,658       -         -       -      -  5,783   32,658    38,441        -    '90-'92      40
Liberty Village, NJ   -       345      405   1,499    22,629  11,015  2,195 12,859   25,229    38,088    8,466    '81,'97-'98  30
Napa, CA             (2)    3,456    2,113   7,908    19,744       -      - 11,364   21,857    33,221    7,502    '62,'93,'95  40
Kittery (I), ME(6)   (4)(5) 2,143   23,985       6       143     228  2,354  2,377   26,482    28,859    1,394    '86          40
Kittery (II), ME      -       567    2,265       -        81       -      -    567    2,346     2,913       74    '10,'84,     40
                                                                                                                  '89,'95
Johnson Creek, WI(6)  -     4,648   26,341       -         -       -      -  4,648   26,341    30,989       67    '98,'99,'01  40
Aurora, OH            -       637    6,884   1,055    20,661       -      -  1,692   27,545    29,237    9,419    '90,'93,     40
                                                                                                                  '94,'95
Edinburgh, IN(6)      -     5,415   21,659       -       333       -      -  5,415   21,992    27,407      416    '89,'95      40
North Bend, WA        -     4,735   18,925     (83)     (383)      -      -  4,652   18,542    23,194      603    '90,'95      40
Branson, MO (6)       -     2,892   16,332       -         -       -      -  2,892   16,332    19,224        -    '88,'94      40
Columbia Gorge, OR   (2)      934        -     428    13,622     497  2,647  1,859   16,269    18,128    5,848    '91,'94      40
Santa Fe, NM          -        74        -   1,300    12,176     491  1,772  1,865   13,948    15,813    4,351    '93,'98      40
American Tin
  Cannery, CA    $1,507         -    8,621       -     5,458       -      -      -   14,079    14,079   11,461    '87,'98      5
Patriot Plaza, VA     -       789    1,854     976     4,081       -      -  1,765    5,935     7,700    2,499    '86,'93','95 40
Corporate Offices,
  NJ, CA              -         -       60       -     6,478       -      -      -    6,538     6,538    4,141       -         5
St. Helena, CA       (2)    1,029    1,522     (25)      588      38     78  1,042    2,188     3,230      790     '83         40
Chicago, IL           -       465        -    (465)        -       -      -      -        -         -        -       -         40
Las Vegas, NV         -       405        -    (405)        -       -      -      -        -         -        -       -         40
Other retail        (3)(5) 14,994   62,512  (1,609)   (4,426)      -      - 13,385   58,086    71,471    1,819     various     40
               -----------------------------------------------------------------------------------------------
       (2)(3)(4)$307,962 $203,828 $878,127 $38,434  $627,173 $24,199$65,413$266,461$1,570,713$1,837,174 $284,239
               ==================================================================================================`

The aggregate cost of the land, buildings, fixtures and equipment for federal
tax purposes was approximately $1,596.8 million at December 31, 2002.

|(1) | As part of the formation transaction assets acquired for cash have been
accounted for as a purchase. The step-up represents the amount of the purchase
price that exceeds the net book value of the assets acquired.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Projects encumbered by mortgage totaling $67.3 million at December 31, 2002.
|--- | ----------------------------------------------------------------------------

|(3) | Projects encumbered by mortgage totaling $71.5 million at December 31, 2002.
|--- | ----------------------------------------------------------------------------

|(4) | Projects encumbered by mortgage totaling $167.7 million at
December 31, 2002.
|--- | -----------------------------------------------------------------------------

|(5) | Project held under long term land lease.
|--- | ----------------------------------------

|(6) | Purchase price has been tentatively allocated.
|--- | ----------------------------------------------

Chelsea Property Group, Inc.
Schedule IIIConsolidated Real Estate
and Accumulated Depreciation (continued)
(in thousands)

The changes in total real estate:

`Year Ended December 31,
                                                   2002                 2001
                                         ------------------   -----------------

Balance, beginning of period...........      $1,127,906             $908,344
Additions..............................         719,857              229,339
Dispositions and other.................         (10,589)              (9,777)
                                         ------------------   -----------------
Balance, end of period.................      $1,837,174           $1,127,906
                                         ==================   =================`

The changes in accumulated depreciation:

`Year Ended December 31,
                                                              2002                 2001
                                                    ------------------   ----------------

Balance, beginning of period......................        $217,462             $175,692
Additions.........................................          53,065               44,071
Consolidation of properties previously held as
investments in unconsolidated affiliates..........          15,977                    -
Dispositions and other............................          (2,265)              (2,301)
                                                    ------------------   ----------------
Balance, end of period............................        $284,239             $217,462
                                                    ==================   ================`

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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 on the
5th of March 2003.

| | CHELSEA PROPERTY GROUP, INC.
By:/s/ David C. Bloom
      David C. Bloom, Chief Executive Officer
| | ------------------------------------------------------------------------------------------------

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:

|Signature | Title | Date
|--------- | ----- | ----

|/s/ DAVID C. BLOOM
       David C. Bloom | Chairman of the Board
and Chief Executive Officer | March 5, 2003
|---------------------------------------- | ------------------------------------------------- | -------------

|/s/ WILLIAM D. BLOOM
      William D. Bloom | Vice Chairman | March 5, 2003
|------------------------------------------- | ------------- | -------------

|/s/ Leslie T. Chao
      LESLIE T. CHAO | President | March 5, 2003
|--------------------------------------- | --------- | -------------

|/s/ MICHAEL J. CLARKE
      Michael J. Clarke | Chief Financial Officer | March 5, 2003
|--------------------------------------------- | ----------------------- | -------------

|/s/ BRENDAN T. BYRNE
      Brendan T. Byrne | Director | March 5, 2003
|------------------------------------------- | -------- | -------------

|/s/ ROBERT FROMMER
     Robert Frommer | Director | March 5, 2003
|-------------------------------------- | -------- | -------------

|/s/ BARRY M. GINSBURG
      Barry M. Ginsburg | Director | March 5, 2003
|--------------------------------------------- | -------- | -------------

|/s/ PHILIP D. KALTENBACHER
      Philip D. Kaltenbacher | Director | March 5, 2003
|------------------------------------------------------- | -------- | -------------

|/s/ REUBEN S. LEIBOWITZ
      Reuben S. Leibowitz | Director | March 5, 2003
|------------------------------------------------- | -------- | -------------

CERTIFICATION

I, David C. Bloom, Chief Executive Officer of Chelsea Property Group, Inc. (the
"Company"), certify that:

| | 1. | I have reviewed this annual report on Form 10-K of the Company;
| | -- | ---------------------------------------------------------------

| | 2 | Based on my knowledge, this annual report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this annual report;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | Based on my knowledge, the financial statements, and other financial information
included in this annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of the Company as of,
and for, the periods presented in this annual report;
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4. | The Company's other certifying officers and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the Company and we have:
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | (a) | designed such disclosure controls and procedures to ensure that material
information relating to the Company, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period
in which this annual report is being prepared;
| |  | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | (b) | evaluated the effectiveness of the Company's disclosure controls and procedures
as of a date within 90 days prior to the filing date of this annual report (the
"Evaluation Date"); and
| |  | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | (c) | presented in this annual report our conclusions about the effectiveness of the
disclosure controls and procedures based on our evaluation as of the Evaluation
Date;
| |  | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 5. | The Company's other certifying officers and I have disclosed, based on our most
recent evaluation, to the Company's auditors and the audit committee of the
Company's board of directors (or persons performing the equivalent function):
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (a) | all significant deficiencies in the design or operation of internal controls
which could adversely affect the Company's ability to record, process, summarize
and report financial data and have identified for the Company's auditors any
material weaknesses in internal controls; and
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | any fraud, whether or not material, that involves management or other employees
who have a significant role in the Company's internal controls; and
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------

| | 6. | The Company's other certifying officers and I have indicated in this annual
report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date:  March 5, 2003

| | /s/ David C. Bloom
          David C. Bloom
          Chief Executive Officer
| | -----------------------------------------------------------------------------

CERTIFICATION

I, Michael J. Clarke, Chief Financial Officer of Chelsea Property Group, Inc.
(the "Company"), certify that:

| | 1. | I have reviewed this annual report on Form 10-K of the Company;
| | -- | ---------------------------------------------------------------

| | 2. | Based on my knowledge, this annual report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this annual report;
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | Based on my knowledge, the financial statements, and other financial information
included in this annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of the Company as of,
and for, the periods presented in this annual report;
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4. | The Company's other certifying officers and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the Company and we have:
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | (a) | designed such disclosure controls and procedures to ensure that material
information relating to the Company, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period
in which this annual report is being prepared;
| |  | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | (b) | evaluated the effectiveness of the Company's disclosure controls and procedures
as of a date within 90 days prior to the filing date of this annual report (the
"Evaluation Date"); and
| |  | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | (c) | presented in this annual report our conclusions about the effectiveness of the
disclosure controls and procedures based on our evaluation as of the Evaluation
Date;
| |  | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 5. | The Company's other certifying officers and I have disclosed, based on our most
recent evaluation, to the Company's auditors and the audit committee of the
Company's board of directors (or persons performing the equivalent function):
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (a) | all significant deficiencies in the design or operation of internal controls
which could adversely affect the Company's ability to record, process, summarize
and report financial data and have identified for the Company's auditors any
material weaknesses in internal controls; and
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | any fraud, whether or not material, that involves management or other employees
who have a significant role in the Company's internal controls; and
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------

| | 6. | The Company's other certifying officers and I have indicated in this annual
report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date:  March 5, 2003

| | /s/ Michael J. Clarke
          Michael J. Clarke
          Chief Financial Officer
| | -----------------------------------------------------------------------------------

CERTIFICATION

I, David C. Bloom, Chief Executive Officer of Chelsea Property Group, Inc.
(the "Company"), purusant to Section 906 of the Sarbanes-Oxley Act of 2002, do
hereby certify as follows:

|1. | The annual report on Form 10-K of the Company for the
period ended December 31, 2002 fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2. | The information contained in such Form 10-K fairly
presents, in all material respects, the financial condition and results of
operations of the Company.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------

IN WITNESS WHEREOF, I have executed this Certification this 5th
day of March, 2003.

| | /s/ David C. Bloom
          David C. Bloom
          Chief Executive Officer
| | -----------------------------------------------------------------------------

CERTIFICATION

I, Michael J. Clarke, Chief Financial Officer of Chelsea Property Group, Inc.
(the "Company"), purusant to Section 906 of the Sarbanes-Oxley Act of 2002, do
hereby certify as follows:

|1. | The annual report on Form 10-K of the Company for the
period ended December 31, 2002 fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2. | The information contained in such Form 10-K fairly
presents, in all material respects, the financial condition and results of
operations of the Company.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------

IN WITNESS WHEREOF, I have executed this Certification this 5th
day of March, 2003.

| | /s/ Michael J. Clarke
          Michael J. Clarke
          Chief Financial Officer
| | -----------------------------------------------------------------------------------