Notes to Selected Financial Data:

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, 2000 the Company operated 27 manufacturers’ outlet centers, compared to 19 at the end of 1999 and 1998. Between January 1, 2000 and December 31, 2000, the Company added approximately 2.9 million square feet of GLA to its portfolio as a result of acquiring a 49% interest in four properties comprising 1.6 million square feet of GLA; expanding three existing wholly-owned centers by a total of 300,000 square feet of GLA; and opening four newly developed centers comprising 1.0 million square feet of GLA. The first phases of two of the new properties, Gotemba Premium Outlets and Rinku Premium Outlets, located outside of Tokyo and Osaka, Japan, respectively, comprising 400,000 square feet of GLA, were developed by the Company’s 40%-owned joint venture, Chelsea Japan Co., Ltd. The third new property, Orlando Premium Outlets, a 428,000 square foot single-phase center, located in Orlando, Florida, is 50%-owned through a joint venture partnership with Simon Property Group, Inc. The first phase of the fourth new property, Allen Premium Outlets, located north of Dallas, Texas contains 206,000 square feet of GLA and is wholly-owned by the Company.

From January 1, 1998 to December 31, 2000, the Company grew by increasing rents at its operating centers, opening five new centers, expanding eight centers and acquiring four centers. Increasing rents at operating centers resulted in base and percentage rent revenue growth of $17.9 million. The opening of two wholly-owned new centers and expansion of eight wholly-owned centers increased base and percentage rent revenues by $6.0 million and $20.4 million, respectively during the three year period ended December 31, 2000. Income from unconsolidated investments increased by $7.1 million during the three year period ended December 31, 2000 primarily as a result of opening three new centers developed by joint ventures during 2000 and to a lesser extent by acquiring 49% of four centers through a joint venture in December 2000. The Company operated gross leasable area (“GLA”) at December 31, 2000 of 8.2 million square feet including wholly and partially-owned GLA compared to 5.2 million square feet and 4.9 million square feet of wholly-owned GLA at December 31, 1999 and 1998, respectively. The 3.9 million square feet (“sf”) of net GLA added during the three year period is detailed as follows:

                                                 Since
                                                January 1,
                                                  1998           2000              1999             1998
                                                -----------  --------------    --------------   --------------
Changes in GLA (sf in 000's):

   New centers developed:
         Allen Premium Outlets                      206            206                 -                -
         Orlando Premium Outlets (50%-owned)        428            428                 -                -
         Gotemba Premium Outlets (40%-owned)        220            220                 -                -
         Rinku Premium Outlets (40%-owned)          180            180                 -                -
         Leesburg Corner                            270              -                 -              270
                                                -----------  --------------    --------------   --------------

   Total new centers                              1,304          1,034                 -              270

   Centers expanded:
         Wrentham Village                           373            127               120              126
         Leesburg Corner                            193            138                55                -
         Folsom Premium Outlets                      73             54                 -               19
         North Georgia                              134              -               103               31
         Camarillo Premium Outlets                   90              -                45               45
         Woodbury Common                            268              -                 -              268
         Columbia Gorge                              16              -                 -               16
         Desert Hills                                 6              -                 -                6
         Other                                        1             (1)               17              (15)
                                                --------------  ------------   --------------   --------------

   Total centers expanded                         1,154            318               340              496

   Centers held for sale:
         Solvang Designer Outlets                   (52)             -                 -              (52)
         Lawrence Riverfront                       (146)             -                 -             (146)
                                                -----------  --------------    --------------   --------------

   Total centers held for sale                     (198)             -                 -             (198)

   Centers acquired (49%-owned):
         Gilroy Premium Outlets                     577            577                 -                -
         Kittery Premium Outlets                    131            131                 -                -
         Lighthouse Place Premium Outlets           491            491                 -                -
         Waterloo Premium Outlets                   392            392                 -                -
                                                -----------  --------------    --------------   --------------

   Total centers acquired                         1,591          1,591                 -                -

Net GLA added during the period                   3,851          2,943               340              568

Other Data:
         GLA at end of period                                    8,159             5,216            4,876
         Weighted average GLA                                    5,703             4,995            4,614
         Centers in operation at end of period                      27                19               19
         New centers opened                                          4                 -                1
         Centers expanded                                            3                 4                7
         Centers sold                                                1                 1                -
         Centers held for sale                                       -                 1                2
         Centers acquired                                            4                 -                -

The Company’s domestic centers (excluding the four 49%-owned centers acquired on December 22, 2000) produced weighted average reported tenant sales of approximately $400 per square foot in 2000, $377 per square foot in 1999 and $360 per square foot in 1998. 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 23%, 24% and 23% of the Company’s total revenue for the years 2000, 1999 and 1998, respectively. In addition, approximately 28%, 30%, and 34% of the Company’s revenues for the years ended December 31, 2000, 1999 and 1998, 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 or total GLA; and only one tenant occupies more than 4% of the Company’s total GLA. 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 and extraordinary item. 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, 2000 to year ended December 31, 1999

Income before interest, depreciation and amortization increased $19.8 million, or 17.7%, to $132.0 million in 2000 from $112.2 million in 1999. This increase was primarily the result of expansions and new center openings, higher rents on releasing and renewals during 2000 and 1999 and income from unconsolidated investments that commenced operations in the latter part of 2000. These increases were partially offset by the loss from Chelsea Interactive and increases in operating and maintenance expenses. Income from operations increased $8.8 million, or 18.5%, to $56.0 million in 2000 from $47.2 million in 1999. Increased revenues from wholly-owned expansions and new center openings in 2000 and 1999 were offset by increases in operating and maintenance expenses and depreciation expense due to the expansions and new center openings.

Base rentals increased $9.3 million, or 9.3%, to $108.1 million in 2000 from $98.8 million in 1999 due to wholly-owned expansions, a new center opening in 2000 and higher average rents. Base rental revenue per weighted average square foot increased to $20.23 in 2000 from $19.79 in 1999 as a result of higher rental rates on new leases and renewals.

Percentage rents increased $2.0 million, or 13.1%, to $17.7 million in 2000 from $15.7 million in 1999. The increase was primarily due to increased tenant sales and a higher number of tenants contributing percentage rents.

Expense reimbursements, representing contractual recoveries from tenants of certain common area maintenance, operating, real estate tax, promotional and management expenses, increased $4.4 million, or 11.0%, to $44.1 million in 2000 from $39.7 million in 1999, due to the recovery of operating and maintenance costs from increased GLA. On a weighted average square foot basis, expense reimbursements increased 3.8% to $8.26 in 2000 from $7.96 in 1999. The average recovery of reimbursable expenses was 90.0% in 2000 compared to 90.8% in 1999.

Other income increased $1.6 million to $10.0 million in 2000 from $8.4 million in 1999. The increase was due to pad sale gains in 2000 and increased interest and ancillary income.

Interest, in excess of amounts capitalized, increased $0.3 million to $24.5 million in 2000 from $24.2 million in 1999, due to higher interest rates in 2000 which were offset by higher average debt balances in 1999.

Operating and maintenance expenses increased $5.2 million, or 11.9%, to $49.0 million in 2000 from $43.8 million in 1999. The increase was primarily due to costs related to increased GLA. On a weighted average square foot basis, operating and maintenance expenses increased 4.7% to $9.17 in 2000 from $8.76 in 1999 as a result of increased maintenance costs and real estate taxes.

Depreciation and amortization expense increased $3.3 million to $43.0 million in 2000 from $39.7 million in 1999. The increase was due to depreciation of wholly-owned expansions and new centers opened in 2000 and 1999.

General and administrative expenses were $4.8 million in 2000 and 1999 due to stabilized overhead costs.

Other expenses increased $0.5 million to $2.6 million in 2000 from $2.1 million in 1999. The increase was primarily due to the write-off of development costs related to inactive projects in 2000.

The loss on writedown of assets of $0.7 million in 1999 was attributable to the re-valuation of a center held for sale at its estimated fair value.

Income from unconsolidated investments increased $6.4 million to $6.7 million in 2000 from $0.3 million in 1999. This resulted from equity-in-earnings and fees totaling $4.4 million earned from Orlando Premium Outlets, a 50%-joint venture center that opened in May 2000; Gotemba Premium Outlets and Rinku Premium Outlets, two 40%-joint venture centers that opened in July 2000 and November 2000, respectively; and to a lesser extent from four 49%-joint venture centers that were acquired in December 2000. Other items in 2000 include a gain from an Orlando pad sale of $1.1 million and opening consulting fees from the two centers in Japan of $1.3 million.

The loss from Chelsea Interactive in 2000 of $2.4 million was related to depreciation, selling, general, administrative and maintenance expenses, offset by nominal revenue.

Comparison of year ended December 31, 1999 to year ended December 31, 1998

Income before interest, depreciation and amortization increased $18.6 million, or 19.8%, to $112.2 million in 1999 from $93.6 million in 1998. This increase was primarily the result of expansions and a new center opening during 1999 and 1998. Income from operations increased $6.8 million or 16.5% to $47.9 million in 1999 from $41.1 million in 1998. Increased revenues from expansions and a new center opening during 1999 and 1998 were offset by higher interest costs.

Base rentals increased $12.2 million, or 14.1%, to $98.8 million in 1999 from $86.6 million in 1998 due to expansions, a new center opening in 1998 and higher average rents. Base rental revenue per weighted average square foot increased to $19.79 in 1999 from $18.77 in 1998 as a result of higher rental rates on new leases and renewals.

Percentage rents increased $2.3 million, or 16.9%, to $15.7 million in 1999 from $13.4 million in 1998. The increase was primarily due to a new center opening in 1998, expansions of existing centers and increase in tenants contributing percentage rents.

Expense reimbursements, representing contractual recoveries from tenants of certain common area maintenance, operating, real estate tax, promotional and management expenses, increased $4.4 million, or 12.5%, to $39.7 million in 1999 from $35.3 million in 1998, due to the recovery of operating and maintenance costs from increased GLA. On a weighted average square foot basis, expense reimbursements increased 3.9% to $7.96 in 1999 from $7.66 in 1998. The average recovery of reimbursable expenses was 90.8% in 1999 compared to 91.3% in 1998.

Other income increased $4.4 million to $8.4 million in 1999 from $4.0 million in 1998. The increase was primarily due to income from the agreement not to compete with the Mills Corporation in the Houston, Texas area.

Interest, in excess of amounts capitalized, increased $4.2 million to $24.2 million in 1999 from $20.0 million in 1998, due to higher debt balances from increased GLA in operation.

Operating and maintenance expenses increased $5.1 million, or 13.1%, to $43.8 million in 1999 from $38.7 million in 1998. The increase was primarily due to costs related to increased GLA. On a weighted average square foot basis, operating and maintenance expenses increased 4.4% to $8.76 in 1999 from $8.39 in 1998 as a result of increased real estate tax and promotion costs.

General and administrative expenses were $4.8 million during 1999 and 1998 due to stabilized overhead costs during 1999.

Depreciation and amortization expense increased $7.2 million to $39.7 million in 1999 from $32.5 million in 1998. The increase was due to depreciation of expansions and a new center opened in 1998.

The loss on writedown of assets of $0.7 million in 1999 and $15.7 million in 1998 was attributable to the re-valuation of two centers held for sale at their estimated fair values and the write-off of pre-development costs of an abandoned site.

Income from unconsolidated investments of $0.3 million is from the Company's European investment.

Other expenses remained stable at $2.1 million during 1999 and 1998.

Liquidity and Capital Resources

The Company believes it has adequate financial resources to fund operating expenses, distributions, and planned development and construction activities over the short-term, which is less than 12 months and the long-term, which is 12 months or more. Operating cash flow in 2000 of $103.1 million is expected to increase with a full year of operations of the 2.9 million square feet of GLA added during 2000 and scheduled openings of approximately 209,000 square feet in 2001, representing additional phases of Allen Premium Outlets. As of December 31, 2000, the Company has adequate funding sources to complete and open all of its current development projects, including those of its e-commerce affiliate, Chelsea Interactive, Inc., through the use of available cash of $18.0 million; a construction loan for the Allen project up to a maximum borrowing of $40.0 million, a yen-denominated line of credit totaling 4 billion yen (US $35.0 million) for the Company’s share of projects in Japan; and approximately $130 million available under its Senior Credit Facility. The Company also has the ability to access the public markets through its $600 million debt shelf registration and its $300 million equity shelf registration.

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

Common distributions declared and recorded in 2000 were $57.9 million or $3.00 per share or unit. The Company’s 2000 common distribution payout ratio as a percentage of net income before minority interest, loss on writedown of assets and depreciation and amortization, exclusive of amortization of deferred financing costs, (“FFO”) was 63%. The Senior Credit Facility limits aggregate dividends and distributions to the lesser of (i) 90% of FFO on an annual basis or (ii) 100% of FFO for any two consecutive quarters.

The Company’s ratio of earnings-to-fixed charges for each of the three years ended December 31, 2000, 1999 and 1998 was 2.6, 2.5 and 2.3, 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. 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.

The OP has a $160 million senior unsecured bank line of credit (the “Senior Credit Facility”) and has an annual right to request a one-year extension which may be granted at the option of the lenders. The Company has requested and the lenders are expected to extend the Senior Credit Facility until March 30, 2004. The Senior Credit Facility bears interest on the outstanding balance, payable monthly, at a rate equal to the London Interbank Offered Rate (“LIBOR”) plus 1.05% (7.65% at December 31, 2000) or the prime rate, at the OP’s option. The LIBOR rate spread ranges from 0.85% to 1.25% depending on the Company’s Senior Debt rating. A fee on the unused portion of the Senior Credit Facility is payable quarterly at rates ranging from 0.15% to 0.25% depending on the balance outstanding. At December 31, 2000, $130 million of the Senior Credit Facility was available.

During the twelve month period ended January 2001, the Company completed four new debt financing transactions totaling $360 million both secured and unsecured. These transactions strengthened the Company’s financial flexibility and liquidity by extending and sequencing debt maturities and significantly reducing floating interest rate exposure at favorable rates.

In January 2001, the OP completed a $150 million offering of 8.25% Senior unsecured term notes due February 2011 (the “8.25% Notes”). The 8.25% Notes were priced to yield 8.396% to investors. Net proceeds from the offering were used to repay $100 million of 7.75% unsecured notes due January 26, 2001, to repay all borrowings outstanding under the Company’s Senior Credit Facility and for general corporate purposes. The Company utilized $150 million of its $600 million debt shelf registration for this offering.

In December 2000, the Company and Fortress Registered Investment Trust (“Fortress”) acquired four outlet centers from a competitor through a joint venture known as F/C Acquisition Holdings, LLC (“F/C Acquisition”) in which the Company has a 49% interest. The total purchase price was $240 million, including the assumption of approximately $174 million of 6.99% fixed-rate non-recourse mortgage debt maturing in 2008. The Company borrowed $30 million from its Senior Credit Facility to fund its share of the net purchase price. These borrowings were repaid in January 2001 from proceeds of the 8.25% Notes.

In August 2000, the OP completed a $100 million private placement debt offering to institutional investors consisting of $50 million of 8.375% unsecured term notes due August 2005 (the “8.375% Notes”) and $50 million of 8.625% unsecured term notes due August 2009 (the “8.625% Notes”). The 8.375% Notes were priced to yield 8.44% and the 8.625% Notes were priced to yield 8.66%. Proceeds were used to repay borrowings under the Senior Credit Facility and for general corporate purposes.

In April 2000, Chelsea Financing Partnership, L.P. (“Chelsea Financing”), a wholly-owned subsidiary of the Company entered into a $70 million mortgage loan secured by four of its properties, that matures April 2010 and bears interest at a rate equal to LIBOR plus 1.50% (8.24% at December 31, 2000) or prime rate plus 1.00%. Net proceeds were used to retire the $60 million term loan due April 30, 2000 and to repay borrowings under the Company’s Senior Credit Facility. At December 31, 2000, $69.3 million was outstanding. In December 2000 Chelsea Financing entered into an interest rate swap agreement effective January 2, 2001 with a financial institution for a notional amount of $69.3 million to hedge against unfavorable fluctuations in the LIBOR rates of its secured mortgage loan facility. The hedge has a 5.7625% fixed rate plus the 1.50% spread results in a fixed interest rate of 7.2625% until January 1, 2006.

In February 2000, Chelsea Allen Development L.P., a wholly-owned subsidiary of the Company, entered into a $40 million construction loan facility that will be used to fund the Allen Premium Outlets project. The loan, which matures February 2003, bears interest on the outstanding balance at a rate equal to LIBOR plus 1.625% (8.23% at December 31, 2000) and is guaranteed by the Company and the OP. At December 31, 2000, $21.5 million was outstanding.

On September 3, 1999, the OP completed a private sale of $65 million of Series B Cumulative Redeemable Preferred Units (“Preferred Units”) to an institutional investor. The private placement took the form of 1.3 million Preferred Units at a stated value of $50 each. The Preferred Units may be called at par on or after September 3, 2004, have no stated maturity or mandatory redemption and pay a cumulative quarterly dividend at an annualized rate of 9.0%. The Preferred Units are not convertible to any other securities of the OP or Company. Proceeds from the sale were used to pay down borrowings under the Senior Credit Facility.

Development activity as of December 31, 2000 includes additional phases of Allen Premium Outlets totaling 209,000 square feet scheduled to open during 2001 and Chelsea Interactive. The Company is also in the pre-development stage of projects outside Chicago, IL, Seattle, WA, and Las Vegas, NV, that are expected to open in late 2002 to early 2003. There can be no assurance that these projects under development 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 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 February 1999, the 50/50 Orlando Premium Outlets joint venture with Simon Property Group, Inc. entered into an $82.5 million construction loan agreement which matures March 2002 and bears interest at LIBOR plus 1.50% (8.07% at December 31, 2000). In October 2000, the loan was amended to reduce the lender’s commitment to $66 million. The loan is 25% guaranteed by each of the Company and Simon and as of December 31, 2000, $56.5 million was outstanding. Increases in debt service coverage ratio provide for a decreased guarantee to 10% and LIBOR interest rate spread ranging from 130 to 150 basis points.

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 is known as Chelsea Japan Co., Ltd. (“Chelsea Japan”). In conjunction with the agreement, the Company contributed $1.7 million in equity. In addition, an equity investee of the Company entered into a 4 billion yen (approximately US $35.0 million) line of credit guaranteed by the Company and OP to fund its share of construction costs. The line of credit bears interest at yen LIBOR plus 1.35% (2.04% at December 31, 2000) and matures April 2002. At December 31, 2000, 1.32 billion yen (approximately US $11.5 million) was outstanding under the loan. In March 2000, Chelsea Japan entered into a 3.8 billion yen (approximately US $33.2 million) loan with a Japanese bank to fund construction costs. As of December 31, 2000, the entire facility was outstanding. The Chelsea Japan loan is secured by Chelsea Japan properties and is 40% guaranteed by the Company and the OP and bears interest at 2.20%. Chelsea Japan opened its initial project, the 220,000 square-foot first phase of Gotemba Premium Outlets, 60 miles west of Tokyo, on July 13, 2000. Chelsea Japan opened its second project, the 180,000 square-foot first phase of Rinku Premium Outlets, located outside Osaka, the second-largest city in Japan, on November 23, 2000.

The Company has minority interests ranging from 5 to 15% in several outlet centers and outlet development projects in Europe. Four outlet centers, containing approximately 500,000 square feet of GLA, including Bicester Village outside of London, England, La Roca Company Stores outside of Barcelona, Spain, Las Rozas Village outside Madrid, Spain and La Vallee near Disneyland Paris are currently open and operated by Value Retail PLC and its affiliates. There is more new center development planned and one new European project is under construction and expected to open by the end of 2001. The Company’s total investment in Europe as of February 2001 is approximately $4.7 million. The Company has also agreed to provide up to $22 million in limited debt service guarantees under a standby facility for loans arranged by Value Retail PLC to construct outlet centers in Europe. The term of the standby facility is three years and expires in October 2001. Guarantees shall not be outstanding for longer than five years after project completion. As of February 2001, the Company has provided limited debt service guarantees of approximately $13.1 million for three projects.

In July 2000, the Company announced an e-commerce venture through its affiliate, Chelsea Interactive. The Company’s investment in this venture was approximately $30 million at December 31, 2000. The Board of Directors has approved funding up to $60.0 million that is expected to be provided from operating cash flow over the next several years.

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

Net cash provided by operating activities was $104.5 million and $87.5 million for the years ended December 31, 2000 and 1999, respectively. The increase was primarily due to the growth of the Company’s GLA to 8.2 million square feet in 2000 from 5.2 million square feet in 1999. Net cash used in investing activities increased $41.9 million for the year ended December 31, 2000 compared to the corresponding 1999 period, as a result of $40.0 million investments in various joint ventures and Chelsea Interactive. For the year ended December 31, 2000, net cash provided by financing activities increased by $34.8 million primarily due to higher net borrowings during 2000 offset in part by an increase in distributions of $7.1 million in 2000 and the sale of preferred units and common stock in 1999. Borrowings were used to invest in joint ventures and fund center expansions and developments.

Net cash provided by operating activities was $87.6 million and $78.7 million for the years ended December 31, 1999 and 1998, respectively. The increase was primarily due to the growth of the Company’s GLA to 5.2 million square feet in 1999 from 4.9 million square feet in 1998 and receipt of payment on a non-compete receivable. Net cash used in investing activities decreased $42.2 million for the year ended December 31, 1999 compared to the corresponding 1998 period, as a result of decreased construction activity, proceeds from sale of a center and receipt of payment on a note receivable. For the year ended December 31, 1999, net cash provided by financing activities decreased by $47.0 million primarily due to higher borrowings during 1998 offset in part by the sale of preferred units in September 1999. Proceeds from the sale were used to repay borrowings under the Company’s Senior Credit Facility.

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

                                                                           Year Ended December 31,
                                                                        2000          1999          1998
                                                                   ------------  ------------  -------------

Income to common shareholders before extraordinary item........      $41,592       $34,093       $17,445
Add:
  Depreciation and amortization (1)............................       45,002        39,716        32,486
  Amortization of deferred financing costs and depreciation
    of non-rental real estate assets...........................       (1,796)       (1,849)       (1,453)
  Loss on writedown of assets..................................            -           694        15,713
  Minority interest............................................       14,606         9,275         3,803
  Preferred unit distribution..................................       (5,848)       (1,949)            -
                                                                   ------------  ------------  -------------
FFO............................................................      $93,556       $79,980       $67,994
                                                                   ============  ============  =============
Average shares/units outstanding...............................       19,482        19,297        19,103
Dividends declared per share...................................        $3.00         $2.88         $2.76


(1) Includes depreciation and amortization from unconsolidated investments of
    $2,024 for the year ended December 31, 2000.

Economic Conditions

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

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

                                                 Expected Maturity Date
                             ----------------------------------------------------------
                                2001   2002       2003   2004       2005    Thereafter    Total    Fair Value
                                ----   ----       ----   ----       ----    ----------    -----     ----------
Fixed Rate Debt:             $99,987      -          -      -    $49,877    $174,678    $324,542    $323,140
Average Interest Rate:         7.75%      -          -      -      8.38%       7.64%       7.79%
Variable Rate Debt:                -      -    $56,561      -          -    $69,250     $125,811    $125,811
Average Interest Rate:             -      -      7.87%      -          -      8.24%        8.07%