Results of Operations

Comparison of the nine months ended September 30, 2003 to the nine months ended September 30, 2002.

Income from continuing operations was $81.0 million, representing an increase of $17.1 million, or 26.7% for the nine months ended September 30, 2003, from $63.9 for the nine months ended September 2002. The increase was the result of the acquisitions of seven centers in 2002 and three centers in 2003, the expansion of two wholly-owned centers in late 2002, the buyout of ownership interests of five centers in 2002, higher rents from releasing and renewals, and reduced loss from Chelsea Interactive, partially offset by the sale of a portion of the OP’s interest in Value Retail, as well as increases in general and administrative, interest and other expenses.

Base rentals increased $55.7 million, or 43.8%, to $183.1 million for the nine months ended September 30, 2003, compared with $127.4 million for the nine months ended September 30, 2002, due to the acquisitions of ten centers, the buyout of partnership interests in five centers, the expansion of two wholly-owned centers and higher average rents from releasing and renewals.

Percentage rents grew $3.0 million, or 23.3 %, to $15.8 million for the nine months ended September 30, 2003, from $12.8 million for the nine months ended September 30, 2002, primarily due to the acquisitions of ten retail centers, the buyout of ownership interests in five centers during 2002 and improved tenant sales.

Expense reimbursements, representing contractual recoveries from tenants of certain common area maintenance, operating, real estate tax and promotional and management expenses, increased $16.4 million, or 38.2%, to $59.4 million for the nine months ended September 30, 2003, from $43.0 million for the nine months ended September 30, 2002, due to the recovery of operating and maintenance costs from increased GLA. The average recovery of reimbursable expenses for the Premium Properties was 87.8% for the nine months ended September 30, 2003 compared with 88.4% for the corresponding period in 2002. The average recovery of reimbursable expenses for the Other Retail centers was 69.8% for the nine months ended September 30, 2003, compared with 55.1% for the nine months ended September 30, 2002. The increase in average recovery from Other Retail centers was a result of better recovery of expense reimbursements at centers acquired in 2002 and 2003.

Other income decreased $3.0 million or 36.4% to $5.2 million for the nine months ended September 30, 2003, from $8.2 million for the nine months ended September 30, 2002. The decrease was mainly due to the expiration of the non-compete agreement which included income recognition of $3.9 million in 2002 and a decrease in interest income from lower interest rates, partially offset by an increase in ancillary operating income and a gain from an outparcel sale in 2003.

Operating and maintenance expenses rose $18.8 million, representing an increase of 35.5%, from $53.0 million for the nine months ended September 30, 2002 compared to $71.8 million for the nine months ended September 30, 2003, primarily due to costs related to increased GLA.

Depreciation and amortization expense was up $10.8 million, or 25.6%, to $52.9 million for the nine months September 30, 2003, from $42.1 million for the nine months September 30, 2002. The additional expense is attributed to increased GLA.

General and administrative expense increased $2.2 million, or 44.7%, from $5.0 million for the nine months ended September 30, 2002 to $7.2 million for the nine months ended September 30, 2003, primarily due to increases in deferred unit incentive program accrual, salaries, corporate governance and professional fees.

Other expenses increased $1.3 million or 40.8% to $4.4 million for the nine months ended September 30, 2003, from $3.1 million for the same nine-month period last year. The increase was due to a non-cash charge of $0.5 million on an interest rate swap resulting from the pay down of a hedged mortgage loan in June 2003 related to the sale of St. Helena Premium Outlets, and increased reserve for bad debt and center rent expense.

Income from unconsolidated investments fell $1.7 million, or 19.5%, to $7.1 million for the nine months ended September 30, 2003, from $8.8 million for the nine months ended September 30, 2002, principally due to the buyouts of partners’ interests in five centers which were previously held as unconsolidated investments, partially offset by the expansion of Gotemba Premium Outlets and the opening of Sano and Las Vegas Premium Outlets, which generated higher earnings and management fees, including one-time fees of $1.1 million from Chelsea Japan.

The loss from Chelsea Interactive declined $7.9 million, or 76.4%, to $2.4 million for the nine months ended September 30, 2003, from a loss of $10.3 million for the nine months ended September 30, 2002, due to the write-off of the OP’s investment at December 31, 2002. The loss for the nine months ended September 30, 2003 represents funding to Chelsea Interactive.

Gain on sale of unconsolidated investment of $10.9 million for the nine months ended September 30, 2002 reflects the sale of a portion of the OP’s interests in Value Retail.

Interest expense grew $17.2 million, or 51.2%, to $50.9 million for the nine months ended September 30, 2003, from $33.7 million for the nine months ended September 30, 2002, due to higher debt that financed acquisitions and buyouts of partners’ interests.

Income from discontinued operations of $0.4 million for the nine months ended September 30, 2003 and gain on sale of discontinued operations of $5.6 million for the nine months ended September 30, 2003, relates to the sale of St. Helena Premium Outlets located in Napa Valley, California and Factory Stores of America located in Mesa, Arizona, sold in June and September 2003, respectively.

Liquidity and Capital Resources

The OP 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 the opening of approximately 800,000 square feet of new joint venture GLA in 2003 and recent acquisition activity. The OP has adequate funding sources to complete and open all current development projects from available cash, credit facilities and secured construction financing. The OP also has access to the public markets through its $800 million debt and the Company's $750 million equity shelf registration for funding or refinancing requirements.

Operating cash flow is expected to provide sufficient funds for distributions in accordance with REIT federal income tax requirements. In addition, the OP 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 2003 were $80.6 million, or $1.605 per unit. The OP’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 distributions (“FFO”)) was 64.7%. The OP’s senior unsecured bank line of credit (“Senior Credit Facility”) limits aggregate distributions to the lesser of (i) 90% of FFO on an annual basis or (ii) 100% of FFO for any two consecutive quarters.

The OP’s $200.0 million 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 0.95% (2.05% at September 30, 2003) or the prime rate, at the OP’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 OP’s Senior Debt rating. The OP received a debt rating upgrade in July 2003, resulting in a reduction of the LIBOR rate spread to 0.95% from 1.05%. At September 30, 2003, $78.0 million was outstanding under the Senior Credit Facility.

During 2003, the OP completed two acquisition transactions valued at approximately $219.0 million. On June 12, 2003, the OP purchased The Crossings Factory Stores, a 390,000 square-foot outlet center located in Tannersville, Pennsylvania, for $111.3 million, including closing costs and the assumption of a $60.7 million 5.85% mortgage loan due 2013. In conjunction with The Crossings Factory Stores acquisition, the OP completed an offering of 1.2 million shares of common stock at a price of $42.10 per share on June 18, 2003. Net proceeds after expenses of $49.4 million were used to fund substantially the entire cash portion of the acquisition.

On August 1, 2003, the OP acquired Belz Factory Outlet World – Las Vegas, a 477,000 square-foot outlet center in Las Vegas, Nevada, for $104.0 million including the assumption of a $24.4 million 8.12% mortgage loan due 2012. As part of the transaction, the OP also acquired Belz Factory Outlet World – Lakeland, a 319,000 square-foot outlet center near Memphis, Tennessee for an additional $3.5 million. The Lakeland property is being marketed for sale. The approximately $84.0 million cash portion of the overall transaction was financed with a $100.0 million one-year term loan facility at an annual interest rate of LIBOR plus 0.80% that is due on July 31, 2004 and extendible for six months until January 31, 2005 at the OP’s option. The LIBOR rate spread ranges from 0.70% to 1.35% depending on the OP’s Senior Debt rating. Surplus proceeds from the financing of approximately $16.0 million were used for general corporate purposes.

A summary of the maturity of the OP’s contractual debt obligations (at par) as of September 30, 2003, is as follows (in thousands):

                                           Less than           1 to 3           4 to 5        After 5
                           Total           One Year            Years             Years         Years
                        -------------    --------------    ---------------    -----------   -------------
Unsecured bank debt        $ 183,035          $100,000            $83,035          $   -          $    -
Unsecured notes              625,000                 -             50,000        125,000         450,000
Mortgage debt                377,356             2,170             17,086        171,154         186,946
                        -------------    --------------    ---------------    -----------   -------------
   Total                 $ 1,185,391          $102,170           $150,121       $296,154        $636,946
                        =============    ==============    ===============    ===========   =============

Development activity as of September 30, 2003 includes domestic and international projects totaling 1.0 million square-feet. Domestically, projects include the single-phase 438,000 square-foot Chicago Premium Outlets scheduled to open in mid 2004; the 124,000 square-foot expansion of Albertville scheduled to be fully open by spring 2004. Internationally, projects underway include the 185,000 square-foot first phase of Tosu Premium Outlets near Fukuoka, Japan, scheduled to open in March 2004; and the 230,000 square-foot first phase of Punta Norte Premium Outlets in Mexico City scheduled to open in late 2004. The Chicago project is a 50/50 joint venture with Simon. The Tosu project is a development of Chelsea Japan Co., Ltd., the OP’s 40%-owned Japanese joint venture. The Punta Norte project is a development of the OP’s 50% owned Mexican joint venture. 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 OP will seek to obtain permanent financing once the projects are completed and income has been stabilized.

In connection with the Simon joint ventures, the OP 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 September 30, 2003, the OP had contributed $40.5 million and $19.4 million to the Las Vegas and Chicago projects, respectively.

The OP has 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 September 30, 2003, are as follows:

            Total Facility          |                        Outstanding
            --------------          |                        ------------
                                    |                                    US $             Due    Interest
      Yen         US $ Equivalent   |     Yen        US $ Equivalent    Guarantee         Date    Rate
      ---         ---------------   |     ---        ---------------    ---------         ----    -----
 4.0 billion (1)    $35.9 million   |   0.9 billion   $ 8.5 million     $ 8.5 million      2004     1.33%
 3.8 billion (2)     34.1 million   |   3.4 billion    30.2 million      12.1 million      2015     2.20%
 0.6 billion (2)      5.4 million   |   0.5 billion     4.8 million       1.9 million      2012     1.50%

In May 2002, the OP entered into a 50/50 joint venture agreement with Sordo Madaleno y Asociados and affiliates to jointly develop Premium Outlet centers in Mexico. Construction on the 230,000 square-foot first phase of Punta Norte Premium Outlets has commenced and the center is scheduled to open in late 2004. The OP is currently advancing its share of project costs up to $14 million to its joint venture partners on a recourse basis until certain title and other issues are resolved. As of September 30, 2003, the OP contributed $2.0 million for the project.

At December 31, 2002, the OP recognized an impairment loss equal to the net book value of its investment in Chelsea Interactive. The OP believes that it will not be able to recover the net book value of its investment in Chelsea Interactive through future cash flows before reaching the OP’s $60.0 million funding limit. Through September 30, 2003, the OP had funded $54.8 million and anticipates that the $5.2 million funding balance may 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. A $0.7 million and $2.4 million funding loss was reported for the three and nine months ended September 30, 2003, respectively. Future funding by the OP will be reported as a loss in the period funding is required. The OP has signed an agreement with a third party to restructure Chelsea Interactive, subject to the satisfaction of certain conditions. There can be no assurance that this joint venture will be successful or that Chelsea Interactive will be able to continue as a going concern.

The OP has minority interests ranging from 3% to 8% in several outlet centers and outlet development projects in Europe operated by Value Retail. The OP’s total investment in Europe as of September 30, 2003, was $3.6 million. The OP has also provided $17.4 million in limited debt service guarantees under a standby facility for loans arranged by Value Retail to construct outlet centers in Europe. The standby facility for new guarantees, which has a maximum of $22.0 million, expired in November 2001 and outstanding guarantees shall not survive more than five years after project completion.

To achieve planned growth and favorable returns in both the short and long-term, the OP’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 OP 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 $129.9 million and $84.1 million for the nine months ended September 30, 2003, and 2002, respectively. The increase was primarily due to increased operating cash flow generated on the growth of the OP’s GLA and decreased losses from Chelsea Interactive and the payout of the deferred incentive compensation in March 2002 and the receipt in January 2002 of the final non-compete installment. Net cash used in investing activities increased to $186.9 million from $141.3 for the nine months ended September 30, 2003, and 2002, respectively, primarily as a result of an increase in joint venture and wholly- owned property acquisition activity. Net cash provided by financing activities increased to $63.8 million from $46.3 million for the nine months ended September 30, 2003, and 2002, respectively. The increase was primarily a result of common stock issuance in 2003 and preferred stock redemptions in 2002 offset by increased distributions in 2003 and lower debt activity.

Funds from Operations

Management believes that funds from operations (“FFO”) should be considered in conjunction with net income, as presented in the statements of income included elsewhere herein, to facilitate a clearer understanding of the operating results of the OP. 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 OP 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 OP to incur and service debt, to make capital expenditures and to fund other cash needs. The OP computes FFO in accordance with the current standards established by NAREIT, which may not be comparable with 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 from the OP. 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 OP’s financial performance or to cash flow from operating activities (determined in accordance with GAAP) as a measure of the OP’s liquidity, nor is it indicative of funds available to fund the OP’s cash needs, including its ability to make cash distributions.

                                                                  Three Months Ended              Nine Months Ended
                                                                     September 30,                   September 30,
 (In thousands, except per unit data):                              2003         2002           2003             2002
                                                           -----------------   -----------  ---------------  ---------------

Net income to common unitholders.......................          $29,272       $28,228       $ 80,113           $57,739
Add (deduct):
Depreciation and amortization - wholly owned...........           18,080        15,045         52,981            42,229
Depreciation and amortization - joint ventures.........            1,177           871          2,470             3,673
Amortization of deferred financing costs and
    depreciation of non-rental real estate assets......             (600)         (573)        (1,783)           (1,741)
Gain on sale of discontinued operations................             (908)            -         (5,625)                -
Gain on sale of unconsolidated investment..............                -       (10,911)             -           (10,911)
                                                           -----------------   -----------  ------------     ---------------
FFO.................................................             $47,021       $32,660      $ 128,156           $90,989
                                                           =================   ===========  ============     ===============
Average units outstanding .............................           50,693        44,224         49,766            44,084
Distributions declared per unit........................           $0.535        $0.485         $1.605            $1.375

Recent Accounting Pronouncements

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 estimatable, 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 OP 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.

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. The OP has not created any variable interest entities subsequent to January 31, 2003. The provisions of FIN 46 are effective beginning in the fourth quarter for variable interest entities created before January 31, 2003. The OP is currently evaluating whether it has any variable interest entities.

Critical Accounting Policies and Estimates

The OP’s discussion and analysis of its financial condition and results of operations are based upon the OP’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 OP to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. The OP 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 OP 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 OP 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 OP’s tenants were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. The OP’s allowance for doubtful accounts included in tenant accounts receivable totaled $2.2 million and $2.6 million at September 30, 2003, and December 31, 2002, respectively.

Valuation of Investments

On a periodic basis, management 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 OP will then record an impairment loss equal to the difference between the carrying amount and the fair value of the asset. The OP does not believe that the value of any of its rental properties was impaired at September 30, 2003. The OP 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 the costs of operating the platform, future funding by the OP will be reported as a loss in the period funding occurs. As of September 30, 2003, $54.8 million had been funded and $0.7 million and $2.4 million has been reported as a loss for the three and nine month periods then ended.

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 OP continues to attract and retain quality tenants. The OP 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
- -------------------------------- -------------------------------------------------------------- -------------------------------------

                               2004       2005    2006      2007        2008       Thereafter     Total      Fair Value
                               ----       ----    ----      ----        ----       ----------     -----      ----------
Fixed Rate Debt:             $    -     $49,945   -        $124,866    $165,505    $607,439     $947,755     $1,061,755

Average Interest Rate:            -       8.38%   -            7.25%       6.99%       7.18%        7.22%

Variable Rate Debt:         100,000      83,035   -               -           -      61,725      244,760        244,760

Average Interest Rate:        1.91%       2.05%   -               -           -        2.82%        2.19%