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

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, 1998

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. 33-98136

CHELSEA GCA REALTY PARTNERSHIP, L.P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 22-3258100
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

103 EISENHOWER PARKWAY, ROSELAND, NEW JERSEY
07068 (ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES - ZIP CODE)

(973) 228-6111
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE

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]

There are no outstanding shares of Common Stock or voting securities.

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the definitive Proxy Statement of Chelsea GCA Realty, Inc. relating
to its 1999 Annual Meeting of Shareholders are incorporated by reference into
Part III as set forth herein.

PART I

ITEM 1. BUSINESS

THE OPERATING PARTNERSHIP

Chelsea GCA Realty Partnership, L.P., a Delaware limited partnership (the
"Operating Partnership"or "OP"), is 82.0% owned and managed by its sole general
partner, Chelsea GCA Realty, Inc. ("Chelsea GCA" or the "Company"), a
self-administered and self-managed real estate investment trust ("REIT"). The
Operating Partnership owns, develops, redevelops, leases, markets and manages
upscale and fashion-oriented manufacturers' outlet centers. At the end of 1998,
the Operating Partnership owned and operated 19 centers (the "Properties") with
approximately 4.9 million square feet of gross leasable area ("GLA") in 11
states. At December 31, 1998, the Operating Partnership had approximately
220,000 square feet of new GLA under construction, comprising the 120,000 square
foot third phase of Wrentham Village Premium Outlets and the 100,000 square foot
fourth phase of North Georgia Premium Outlets; these expansions are part of a
total of approximately 400,000 square feet of new space scheduled for completion
in 1999. Additionally, construction has commenced on Orlando Premium Outlets, a
430,000 square foot upscale outlet center located on Interstate 4, midway
between Walt Disney World/Epcot and Sea World in Orlando Florida. Orlando
Premium Outlets is a joint venture project between Chelsea and Simon Property
Group. The Operating Partnership's existing portfolio includes properties in or
near New York City, Los Angeles, San Francisco, Sacramento, Boston, Portland
(Oregon), Atlanta, Washington DC, Cleveland, Honolulu, Napa Valley, Palm Springs
and the Monterey Peninsula.

The Operating Partnership's executive offices are located at 103 Eisenhower
Parkway, Roseland, New Jersey 07068 (telephone 973-228-6111).

RECENT DEVELOPMENTS

Between January 1, 1998 and December 31, 1998, the Operating Partnership added
766,000 square feet of GLA to its portfolio as a result of a 270,000 square foot
new center opening and seven expansions totaling 496,000 square feet, and
reduced by 198,000 square feet of GLA related to two centers held for sale.

A summary of development, acquisition and expansion activity from January 1,
1998 through December 31, 1998 is contained below:

Opening GLA Number
PROPERTY Date(s) (Sq. Ft.) of Stores Certain Tenants
----------------- -------------- ------------ ------------------------------

As of January 1, 1998 4,308,000 1,162
New center:
Leesburg Corner................. 10/98 270,000 58 Banana Republic, Brooks Brothers,
Donna Karan. Gap, Off 5th-Saks
Fifth Avenue

Expansions:
Woodbury Common................. 2-11/98 268,000 69 Giorgio Armani, Hugo Boss, Last
Call Neiman, Marcus, Off 5th-Saks
Fifth Avenue, Prada
Wrentham Village................ 5/98 126,000 33 Liz Claiborne, Nautica, Sony,
Timberline
Camarillo Premium Outlets....... 9/98 45,000 11 Black & Decker, Nike, Rockport
North Georgia................... 10/98 31,000 7 Nautica, Polo/Ralph Lauren, Tommy
Hilfiger
Folsom Premium Outlets.......... 4/98 19,000 2 Gap, Liz Claiborne
Other (net)..................... 7,000 (8)
-------------- ------------
Total expansions 496,000 114
-------------- ------------

Held for Sale:
Lawrence Riverfront............. (146,000) (39)
Solvang Designer Outlets........ (52,000) (15)
-------------- ------------
Total held for sale........ (198,000) (54)
-------------- ------------

As of December 31, 1998 4,876,000 1,280
============== ============

The most recent newly developed or expanded centers are discussed below:

LEESBURG CORNER, LEESBURG, VIRGINIA. Leesburg Corner Premium Outlets, a 270,000
square foot center containing 58 stores, opened in October 1998 and is located
outside Washington, DC. The populations within a 30-mile, 60-mile and 100-mile
radius are approximately 2.4 million, 7.1 million and 9.8 million, respectively.
Average household income within a 30-mile radius is approximately $78,000.

WOODBURY COMMON, CENTRAL VALLEY, NEW YORK. Woodbury Common Premium Outlets, an
841,000 square foot center containing 216 stores opened in November 1985.
Expansions of 268,000, 19,000 and 85,000 square feet opened in 1998, 1995 and
1993, respectively. 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 2.4
million, 17.1 million and 25.0 million, respectively. Average household income
within a 30-mile radius is approximately $70,000.

WRENTHAM VILLAGE, WRENTHAM, MASSACHUSETTS. Wrentham Village Premium Outlets, a
353,000 square foot center containing 90 stores, opened in two phases in October
1997 and May 1998. The center is located near the junction of interstates 95 and
495 between Boston and Providence. The populations within a 30-mile, 60-mile and
100-mile radius are approximately 3.9 million, 6.9 million and 10.3 million,
respectively. Average household income within a 30-mile radius is approximately
$52,000.

CAMARILLO, CAMARILLO, CALIFORNIA. Camarillo Premium Outlets, a 410,000 square
foot center containing 114 stores, opened in six phases, from March 1995 through
September 1998. The center is located 48 miles north of Los Angeles, about 55
miles south of Santa Barbara on Highway 101. The populations within a 30-mile,
60-mile and 100-mile radius are approximately 1.1 million, 8.3 million and 14.6
million, respectively. Average household income within a 30-mile radius is
approximately $66,000.

NORTH GEORGIA, DAWSONVILLE, GEORGIA. North Georgia Premium Outlets, a 434,000
square foot center containing 110 stores, opened in three phases, in May 1996,
May 1997 and October 1998. The center is located 40 miles north of Atlanta on
Georgia State Highway 400 bordering Lake Lanier, at the gateway to the North
Georgia mountains. The populations within a 30-mile, 60-mile and 100-mile radius
are approximately 700,000, 3.6 million and 5.8 million, respectively. Average
household income within a 30-mile radius is approximately $55,000.

FOLSOM, FOLSOM, CALIFORNIA. Folsom Premium Outlets, a 246,000 square foot center
containing 68 stores opened in March 1990 and had expansions totaling 22,000 and
19,000 square feet in December 1996 and April 1998, respectively. The center is
located approximately 20 miles east of Sacramento. The populations within a
30-mile, 60-mile and 100-mile radius are approximately 1.5 million, 2.8 million
and 9.0 million, respectively. Average household income within a 30-mile radius
is approximately $54,000.

The Operating Partnership has started construction of approximately 220,000
square feet of new GLA scheduled for completion in 1999, including the 120,000
square foot third phase of Wrentham Village and the 100,000 square foot fourth
phase of North Georgia Premium Outlets. These projects, and others, are in
various stages of development and there can be no assurance they will be
completed or opened, or that there will not be delays in opening or completion.

STRATEGIC ALLIANCE

In May 1997, the Operating Partnership announced the formation of a strategic
alliance with Simon Property Group, Inc. ("Simon") to develop and acquire
high-end outlet centers with GLA of 500,000 square feet or more in the United
States. The Operating Partnership and Simon will be co-managing general
partners, each with 50% ownership of the joint venture and any entities formed
with respect to specific projects; the Operating Partnership will have primary
responsibility for the day-to-day activities of each project. In conjunction
with the alliance, on June 16, 1997, the Operating Partnership completed the
sale of 1.4 million shares of the Company's common stock to Simon for an
aggregate price of $50 million. Proceeds from the sale were used to repay
borrowings under the Credit Facilities. Simon is one of the largest publicly
traded real estate companies in North America as measured by market
capitalization, and at March 1999 owns, has an interest in and or manages
approximately 166 million square feet of retail and mixed-use properties in 35
states.

The Operating Partnership announced in October 1998 that it 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 Operating Partnership
will receive non-compete payments totaling $21.4 million from The Mills
Corporation; $3.0 million was received at closing, and four annual installments
of $4.6 million are to be received on each January 2, through 2002. The
Operating Partnership has also been reimbursed for its share of land costs,
development costs and fees related to the project.

Construction has commenced on Orlando Premium Outlets ("OPO"), a 430,000 square
foot 50/50 joint venture project between the Operating Partnership and Simon.
OPO is located on Interstate 4, midway between Walt Disney World/Epcot and Sea
World in Orlando, Florida and is scheduled to open in the first half of 2000.
The joint venture has entered into a $82.5 million construction loan agreement
that is expected to fund approximately 75% of the cost of the project. The
balance of costs will be funded equally by the Operating Partnership and Simon.

ORGANIZATION OF THE OPERATING PARTNERSHIP

The Operating Partnership was formed through the merger in 1993 of The Chelsea
Group ("Chelsea") and Ginsburg Craig Associates ("GCA"), two leading outlet
center development companies, providing for greater access to the public and
private capital markets. All of the Properties are held by and all of its
business activities conducted through the Operating Partnership. The Company
(which owned 82.0% in the Operating Partnership as of December 31, 1998) is the
sole general partner of the Operating Partnership and has full and complete
control over the management of the Operating Partnership and each of the
Properties.

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 hampering 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 OF THE OPERATING PARTNERSHIP

The Operating Partnership 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 Operating Partnership maintains strong tenant
relationships with high-fashion, upscale manufacturers that have a selective
presence in the outlet industry, such as Ann Taylor, Brooks Brothers, Cole Haan,
Donna Karan, Gap, Gucci, Joan & David, Jones New York, Nautica, Polo Ralph
Lauren, Tommy Hilfiger and Versace, as well as with national brand-name
manufacturers such as Phillips-Van Heusen (Bass, Izod, Gant, Van Heusen) and
Sara Lee (Champion, Hanes, Coach Leather). The Operating Partnership 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 Properties generated weighted average
reported tenant sales during 1998 of $360 per square foot, the highest in the
industry by a wide margin. As a result, the Operating Partnership 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 Operating Partnership believes that the
quality of its centers gives it significant advantages in attracting customers
and negotiating multi-lease transactions with tenants.

MANAGEMENT EXPERTISE. The Operating Partnership 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. The Operating
Partnership's senior management has been recognized as leaders in the outlet
industry over the last two decades. Management developed a number of the
earliest and most successful outlet centers in the industry, including Liberty
Village (one of the first manufacturers' outlet centers in the U.S.) in 1981,
Woodbury Common in 1985, and Desert Hills and Aurora Farms in 1990. Since the
IPO, the Operating Partnership 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 Operating Partnership intends to continue to invest in systems
and controls to support the planning, coordination and monitoring of its
activities.

GROWTH STRATEGY

The Operating Partnership 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 Operating Partnership'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
underperforming tenants; and continuing to sign leases that provide for
percentage rents.

DEVELOPING NEW CENTERS AND EXPANDING EXISTING CENTERS. The Operating Partnership
believes that there continue to be significant opportunities to develop
manufacturers' outlet centers across the United States. The Operating
Partnership 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 Operating Partnership
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
Operating Partnership 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.

ACQUIRING AND REDEVELOPING CENTERS. The Operating Partnership intends to
selectively acquire individual properties and portfolios of properties that meet
its strategic investment criteria as suitable opportunities arise. The Operating
Partnership 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 acquisitions
competitively. Furthermore, management believes that the Operating Partnership
will be able to enhance the operation of acquired properties as a result of its
(i) strong tenant relationships with both national and upscale fashion
retailers; and (ii) development, marketing and management expertise as a
full-service real estate organization. Additionally, the Operating Partnership
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 Operating Partnership.

INTERNATIONAL DEVELOPMENT. The Operating Partnership has minority interests
ranging from 5 to 15% in several outlet centers and outlet development projects
in Europe. Two outlet centers, Bicester Village outside of London, England and
La Roca Company Stores outside of Barcelona, Spain, are currently open and
operated by Value Retail PLC and its affiliates. Three new projects and
expansions of the two existing centers are in various stages of development and
are expected to open within the next two years. The Operating Partnership's
total investment in Europe as of March 1999 is approximately $3.5 million. The
Operating Partnership 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 guarantees shall not be outstanding for longer than
five years after project completion. As of March 1999, the Operating Partnership
has provided limited debt service guaranties of approximately $14 million for
two projects.

During 1998, the Operating Partnership entered into a memorandum of
understanding (expiring in June 1999) with two partners to study the feasibility
of developing new outlet centers in Japan. The partners are currently
researching potential development sites and intend to organize a formal joint
venture when viable projects are located and approved. The Operating
Partnership's current financial commitment is not material.

OPERATING STRATEGY

The Operating Partnership's primary business objectives are to enhance the value
of its properties and operations by increasing cash flow. The Operating
Partnership 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 Operating Partnership 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 Operating Partnership
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
Operating Partnership 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
Operating Partnership believes that these areas provide the most attractive
long-term demographic characteristics.

The Operating Partnership 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 Operating Partnership 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 Operating Partnership are reimbursable by tenants.

PROPERTY DESIGN AND MANAGEMENT. The Operating Partnership 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. Of the Operating
Partnership's 359 full-time and 94 part-time employees, 259 full-time and 92
part-time employees 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 manager.

FINANCING

The Operating Partnership'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 floating interest
rate exposure and (iv) maintaining liquidity. Management believes these
strategies will enable the Operating Partnership to access a broad array of
capital sources, including bank or institutional borrowings, secured and
unsecured debt and equity offerings.

On March 30, 1998, the OP replaced its two unsecured bank revolving lines of
credit, totaling $150 million (the "Credit Facilities"), with a new $160 million
senior unsecured bank line of credit (the "Senior Credit Facility"). The Senior
Credit Facility expires on March 30, 2001 and bears interest on the outstanding
balance, payable monthly, at a rate equal to the London Interbank Offered Rate
("LIBOR") plus 1.05% (6.36% at December 31, 1998) or the prime rate, at the OP's
option. The LIBOR rate spread ranges from 0.85% to 1.25% depending on the
Operating Partnership'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. The lenders have an option to extend the
facility annually for an additional year. At December 31, 1998, $74 million was
available under the Senior Credit Facility.

Also on March 30, 1998, the OP entered into a $5 million term loan (the "Term
Loan") which carries the same interest rate and maturity as the Senior Credit
Facility.

In October 1998, due to adverse conditions in the debt markets, the Operating
Partnership elected to redeem the remaining $60 million of Remarketed Floating
Rate Reset Notes (the "Reset Notes"), using borrowings under the Senior Credit
Facility. In November 1998, the Operating Partnership obtained a $60 million 18
month bank term loan bearing interest at LIBOR plus 1.40%. Loan proceeds were
used to repay borrowings under the Senior Credit Facility. The bank term loan
will provide the Operating Partnership additional flexibility to access capital
sources at appropriate times over the next 12 months.

The Operating Partnership completed the sale of 1.4 million shares of the
Company's common stock to Simon, for an aggregate price of $50 million, on June
16, 1997, in conjunction with a strategic alliance. Proceeds from the sale were
used to repay borrowings under the Credit Facilities.

In October 1997, the Company issued 1.0 million shares of 8.375% Series A
Cumulative Redeemable Preferred Stock (the "Preferred Stock"), par value $0.01
per share, having a liquidation preference of $50.00 per share. The Preferred
Stock has no stated maturity and is not convertible into any other securities of
the Operating Partnership. The Preferred Stock is redeemable on or after October
15, 2027 at the Operating Partnership's option. Net proceeds from the offering
were used to repay borrowings under the Operating Partnership's Credit
Facilities.

Also in October 1997, the Operating Partnership completed a $125 million public
debt offering of 7.25% unsecured term notes due October 2007 (the "7.25%
Notes"). The 7.25% Notes were priced to yield 7.29% to investors, 120 basis
points over the then 10-year U.S. Treasury rate. Net proceeds from the offering
were used to repay substantially all borrowings under the Operating
Partnership's Credit Facilities, redeem $40 million of Remarketed Floating Rate
Reset Notes and for general corporate purposes.

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 consumer demand for
value-priced goods. The Properties compete for customer spending with other
outlet locations, traditional shopping malls, off-price retailers, and other
sales channels in the retail industry. The Operating Partnership believes that
the Properties are generally the leading manufacturers' outlet centers in each
market. The Operating Partnership carefully considers the degree of existing and
planned competition in each proposed area before deciding to build a new center.

ENVIRONMENTAL MATTERS

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

PERSONNEL

As of December 31, 1998, the Operating Partnership had 359 full-time and 94
part-time employees. None of the employees are subject to any collective
bargaining agreements, and the Operating Partnership believes it has good
relations with its employees.

ITEM 2. PROPERTIES

The Properties are upscale, fashion-oriented manufacturers' outlet centers
located near large metropolitan areas, including New York, Los Angeles, San
Francisco, Boston, Washington DC, Atlanta, Sacramento, Portland (Oregon), and
Cleveland, or at or near tourists destinations, including Honolulu, Napa Valley,
Palm Springs and the Monterey Peninsula. The Properties were 99% leased as of
December 31, 1998 and contained approximately 1,300 stores with approximately
360 different tenants. During 1998 and 1997, the Properties generated weighted
average tenant sales of $360 per square foot. As of December 31, 1998, the
Operating Partnership had 19 operating outlet centers, excluding the two centers
held for sale. Of the 19 operating centers, 18 are owned 100% in fee; and one,
American Tin Cannery Premium Outlets, is held under a long-term lease. The
Operating Partnership manages all of its Properties.

Approximately 35% and 34% of the Operating Partnership's revenues for the years
ended December 31, 1998 and 1997, respectively, were derived from the Operating
Partnership's two centers with the highest revenues, Woodbury Common Premium
Outlets and Desert Hills Premium Outlets. The loss of either center or a
material decrease in revenues from either center for any reason may have a
material adverse effect on the Operating Partnership. In addition, approximately
34% and 38% of the Operating Partnership's revenues for the years ended December
31, 1998 and 1997, respectively, were derived from the Operating Partnership's
centers in California.

Set forth in the table below is certain property information as of December
31,1998:

YEAR GLA NO. OF
NAME/LOCATION OPENED (SQ. FT.) STORES CERTAIN TENANTS
----------- ------------ ----------- ----------------------------------------------

Woodbury Common......................... 1985 841,000 216 Brooks Brothers, Calvin Klein, Coach Leather,
Central Valley, NY (New York City Gap, Gucci, Last Call Neiman Marcus, Polo
Metro area) Ralph Lauren

Desert Hills............................ 1990 474,000 118 Burberry, Coach Leather, Giorgio Armani, Gucci
Cabazon, CA (Palm Springs-Los Nautica, Polo Ralph Lauren, Tommy Hilfiger
Angeles area)

North Georgia........................... 1996 434,000 110 Brooks Brothers, Donna Karan, Gap, Nautica,
Dawsonville, GA (Atlanta metro area) Off 5th-Saks Fifth Avenue, Williams-Sonoma

Camarillo Premium Outlets............... 1995 410,000 114 Ann Taylor, Barneys New York, Bose, Cole-Haan,
Camarillo, CA (Los Angeles metro area) Donna Karan, Jones NY, Off 5th-Saks Fifth
Avenue

Wrentham Village........................ 1997 353,000 90 Brooks Brothers, Calvin Klein, Donna Karan,
Wrentham, MA (Boston/Providence metro Gap, Polo Jeans Co., Sony, Versace
area)

Aurora Premium Outlets.................. 1987 280,000 66 Ann Taylor, Bose, Brooks Brothers, Carters,
Aurora, OH (Cleveland metro area) Liz Claiborne, Off 5th-Saks Fifth Avenue,
Reebok

Clinton Crossing........................ 1996 272,000 67 Coach Leather, Crate & Barrel, Donna Karan,
Clinton, CT (I-95/NY-New England Gap, Off 5th-Saks Fifth Avenue, Polo Ralph
corridor) Lauren

Leesburg Corner......................... 1998 270,000 58 Banana Republic, Brooks Brothers, Gap, Donna
Leesburg, VA (Washington DC area) Karan, Off 5th-Saks Fifth Avenue

Folsom Premium Outlets.................. 1990 246,000 68 Bass, Donna Karan, Gap, Liz Claiborne, Nike,
Folsom, CA (Sacramento metro area) Off 5th-Saks Fifth Avenue

Waikele Premium Outlets................. 1997 (1) 214,000 52 Barneys New York, Bose, Donna Karan, Guess,
Waipahu, HI (Honolulu area) Polo Jeans Co., Off 5th-Saks Fifth Avenue

Petaluma Village........................ 1994 196,000 51 Ann Taylor, Brooks Brothers, Donna Karan,
Petaluma, CA (San Francisco metro area) Off 5th-Saks Fifth Avenue, Reebok

Napa Premium Outlets.................... 1994 171,000 49 Cole-Haan, Dansk, Ellen Tracy, Esprit, J.
Napa, CA (Napa Valley) Crew, Nautica, Timberland, TSE Cashmere

Liberty Village......................... 1981 157,000 58 Calvin Klein, Donna Karan, Ellen Tracy,
Flemington, NJ (New York-Phila. metro Polo Ralph Lauren, Tommy Hilfiger
area)

Columbia Gorge.......................... 1991 164,000 44 Adidas, Carter's, Gap, Harry & David,
Troutdale, OR (Portland metro area) Mikasa

American Tin Cannery.................... 1987 135,000 48 Anne Klein, Carole Little, Joan & David,
Pacific Grove, CA (Monterey Peninsula) London Fog, Reebok, Rockport

Santa Fe Premium Outlets................ 1993 125,000 40 Brooks Brothers, Coach Leather, Dansk, Donna
Santa Fe, NM Karan, Joan & David, London Fog

Patriot Plaza........................... 1986 76,000 11 Lenox, Polo Ralph Lauren, WestPoint Stevens
Williamsburg, VA (Norfolk-Richmond area)

Mammoth Premium Outlets................. 1990 35,000 11 Bass, Polo Ralph Lauren
Mammoth Lakes, CA (Yosemite National Park)

St. Helena Premium Outlets.............. 1992 23,000 9 Brooks Brothers, Coach Leather, Donna Karan,
St. Helena, CA (Napa Valley) Joan & David
------------ -----------

Total................................ 4,876,000 1,280
============ ===========
(1) Acquired in March 1997

The Operating Partnership rents approximately 27,000 square feet of office space
in its headquarters facility in Roseland, New Jersey and approximately 4,000
square feet of office space for its west coast regional office in Newport Beach,
California.

ITEM 3. LEGAL PROCEEDINGS

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

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY MATTERS

None.

ITEM 6: SELECTED FINANCIAL DATA

CHELSEA GCA REALTY PARTNERSHIP, L.P.
(IN THOUSANDS EXCEPT PER UNIT, AND NUMBER OF CENTERS)

Year Ended
December 31,
------------------------------------------------------------------
Operating Data: 1998 1997 1996 1995 1994
--------- --------- --------- --------- -------

Rental revenue.......................................... $ 99,976 $ 81,531 $ 63,792 $ 51,361 $ 38,010
Total revenues.......................................... 139,315 113,417 91,356 72,515 53,145
Loss on writedown of assets............................. 15,713 - - - -
Total expenses.......................................... 113,879 78,262 59,996 41,814 28,179
Income before minority interest
and extraordinary item.............................. 25,436 35,155 31,360 29,650 24,966
Minority interest....................................... - (127) (257) (285) (49)
Income before extraordinary item........................ 25,436 35,028 31,103 29,365 24,917
Extraordinary item - loss on retirement of debt (345) (252) (902) - -
Net income.............................................. 25,091 34,776 30,201 29,365 24,917
Preferred distribution.................................. (4,188) (907) - - -
Net income to common unitholders........................ 20,903 33,869 30,201 29,365 24,917
Net income per common unit:

General partner (including $0.02, $0.01, and $0.05
net loss per unit from extraordinary item
in 1998, 1997 and 1996, respectively) $1.11 $1.88 $1.77 $1.75 $1.50
Limited partner (including $0.02, $0.01, and $0.05
net loss per unit from extraordinary item
in 1998, 1997 and 1996, respectively) $1.09 $1.87 $1.76 $1.75 $1.50

OWNERSHIP INTEREST:
General partner......................................... 15,440 14,605 11,802 11,188 10,956
Limited partners........................................ 3,431 3,435 5,316 5,601 5,690
--------- -------- --------- ---------- ---------
Weighted average units outstanding 18,871 18,040 17,118 16,789 16,646

BALANCE SHEET DATA:
Rental properties before accumulated
depreciation........................................ $792,726 $708,933 $512,354 $415,983 $332,834
Total assets............................................ 773,352 688,029 502,212 408,053 330,775
Total liabilities ..................................... 450,410 342,106 240,878 141,577 68,084
Minority interest....................................... - - 5,698 5,441 5,156
Partners' capital....................................... $322,942 $345,923 $255,636 $261,035 $257,535
Distributions declared per common unit $2.76 $2.58 $2.355 $2.135 $1.90

OTHER DATA:
Funds from operations to common unitholders (1) $67,994 $57,417 $48,616 $41,870 $33,631
Cash flows from:
Operating activities................................. $78,731 $56,594 $53,510 $36,797 $32,522
Investing activities................................. (119,807) (199,250) (99,568) (82,393) (79,595)
Financing activities................................. 36,169 143,308 $55,957 $40,474 $ (1,707)

GLA at end of period.................................... 4,876 4,308 3,610 2,934 2,342
Weighted average GLA (2)................................ 4,614 3,935 3,255 2,680 2,001
Centers at end of the period............................ 19 20 18 16 16
New centers opened...................................... 1 1 2 1 3
Centers expanded........................................ 7 5 5 7 4
Center sold............................................. - - - 1 -
Centers held for sale................................... 2 - - - -
Center acquired......................................... - 1 - - -

NOTES TO SELECTED FINANCIAL DATA:

(1) Management considers funds from operations ("FFO") an appropriate measure
of performance for an equity real estate investment trust. FFO does not
represent net income or cash flow from operations as defined by generally
accepted accounting principles and should not be considered an alternative
to net income as an indicator of operating performance or to cash from
operations, and is not necessarily indicative of cash flow available to
fund cash needs. See Management's Discussion and Analysis for definition of
FFO.

(2) 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, 1998, the Operating Partnership operated 19 manufacturers'
outlet centers, compared to 20 at the end of 1997 and 18 at the end of 1996. The
Operating Partnership's operating gross leasable area ("GLA") at December 31,
1998 was 4.9 million square feet compared to 4.3 million square feet and 3.6
million square feet at December 31, 1997 and 1996, respectively.

From January 1, 1996 to December 31, 1998, the Operating Partnership grew by
increasing rents at its operating centers, opening four new centers, acquiring
one center and expanding nine centers. The 1.9 million square feet ("sf") of net
GLA added is detailed as follows:

SINCE
JANUARY 1,
1996 1998 1997 1996
---------------- ---------------- ---------------- ----------------
Changes in GLA (sf in 000's):
NEW CENTERS DEVELOPED:

Leesburg Corner........................ 270 270 - -
Wrentham Village....................... 227 - 227 -
North Georgia.......................... 292 - - 292
Clinton Crossing........................ 272 - - 272
---------------- ---------------- ---------------- ----------------
TOTAL NEW CENTERS........................ 1,061 270 227 564

CENTERS EXPANDED:
Woodbury Common......................... 270 268 - 2
Wrentham Village........................ 126 126 - -
Camarill1o Premium Outlets.............. 184 45 85 54
North Georgia........................... 142 31 111 -
Folsom Premium Outlets.................. 56 19 15 22
Columbia Gorge.......................... 16 16 - -
Desert Hills............................ 42 6 36 -
Liberty Village......................... 16 - 12 4
Petaluma Village........................ 30 - - 30
Other................................... (17) (15) (2) -
---------------- ---------------- ---------------- ----------------
TOTAL CENTERS EXPANDED 865 496 257 112

CENTERS HELD FOR SALE:
Solvang Designer Outlets................ (52) (52) - -
Lawrence Riverfront..................... (146) (146) - -
---------------- ---------------- ---------------- ----------------
(198) (198) - -

CENTER ACQUIRED:
Waikele Premium Outlets................. 214 - 214 -
---------------- ---------------- ---------------- ----------------
Net GLA added during the period 1,942 568 698 676

OTHER DATA:
GLA at end of period.................... 4,876 4,308 3,610
Weighted average GLA (1)................ 4,614 3,935 3,255
Centers in operation at end of period... 19 20 18
New centers opened...................... 1 1 2
Centers expanded........................ 7 5 5
Centers held for sale................... 2 - -
Center acquired......................... - 1 -

NOTE: (1) Average GLA weighted by months in operation

The Operating Partnership's centers produced weighted average reported tenant
sales of approximately $360 per square foot in 1998 and 1997 and $345 per square
foot in 1996.

Two of the Operating Partnership's centers, Woodbury Common and Desert Hills,
provided approximately 35%, 34% and 38% of the Operating Partnership's total
revenue for the years 1998, 1997, and 1996, respectively. In addition,
approximately 34%, 38%, and 44% of the Operating Partnership's revenues for the
years ended December 31, 1998, 1997 and 1996, respectively, were derived from
the Operating Partnership's centers in California.

The Operating Partnership does not consider any single store lease to be
material; no individual tenant, combining all of its store concepts, accounts
for more than 6% of the Operating Partnership's gross revenues or total GLA; and
only one tenant occupies more than 5% of the Operating Partnership's total GLA.
In view of these statistics and the Operating Partnership's past success in
re-leasing available space, the Operating Partnership believes 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 the Operating Partnership's 50% investment in
Solvang prior to June 30, 1997.

COMPARISON OF YEAR ENDED DECEMBER 31, 1998 TO YEAR ENDED DECEMBER 31, 1997

Operating income before interest, depreciation and amortization increased $18.2
million, or 24.2%, to $93.6 million in 1998 from $75.4 million in 1997. This
increase was primarily the result of expansions and new center openings during
1997 and 1998.

Base rentals increased $15.9 million, or 22.5%, to $86.6 million in 1998 from
$70.7 million in 1997 due to expansions, new center openings in 1997 and 1998,
one acquired center and higher average rents. Base rental revenue per weighted
average square foot increased to $18.77 in 1998 from $17.97 in 1997 as a result
of higher rental rates on new leases and renewals.

Percentage rents increased $2.6 million, or 23.5%, to $13.4 million in 1998 from
$10.8 million in 1997. The increase was primarily due to a new center opening in
1997, 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 $6.3 million, or 21.9%, to $35.3 million in 1998
from $29.0 million in 1997, due to the recovery of operating and maintenance
costs from increased GLA. On a weighted average square foot basis, expense
reimbursements increased 4.1% to $7.66 in 1998 from $7.36 in 1997. The average
recovery of reimbursable expenses was 91.3% in 1998 compared to 92.2% in 1997.

Other income increased $1.1 million to $4.0 million in 1998 from $2.9 million in
1997. The increase was due to income from the agreement not to compete with the
Mills Corporation in the Houston, Texas area and a $0.3 million increase in
outparcel income during 1998.

Interest, in excess of amounts capitalized, increased $4.6 million to $20.0
million in 1998 from $15.4 million in 1997, due to higher debt balances from
increased GLA in operation.

Operating and maintenance expenses increased $7.3 million, or 23.2%, to $38.7
million in 1998 from $31.4 million in 1997. The increase was primarily due to
costs related to increased GLA. On a weighted average square foot basis,
operating and maintenance expenses increased 5.0% to $8.39 in 1998 from $7.99 in
1997 as a result of increased real estate tax and promotion costs.

Depreciation and amortization expense increased $7.5 million to $32.5 million in
1998 from $25.0 million in 1997. The increase was due to depreciation of
expansions and new centers opened in 1997 and 1998.

General and administrative expenses increased $1.0 million to $4.8 million in
1998 from $3.8 million in 1997. On a weighted average square foot basis, general
and administrative expenses increased 8.2% to $1.05 in 1998 from $0.97 in 1997
primarily due to increased personnel, overhead costs and accrual for deferred
compensation.

The loss on writedown of assets of $15.7 million in 1998 is primarily from
valuing two centers held for sale at their estimated fair values and writing off
pre-development costs of an abandoned site.

Other expenses decreased $0.4 million to $2.2 million in 1998 from $2.6 million
in 1997. The decrease was primarily due to recoveries of bad debts previously
written off.

COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO YEAR ENDED DECEMBER 31, 1996

Operating income before interest, depreciation and amortization increased $16.7
million, or 28.4%, to $75.4 million in 1997 from $58.7 million in 1996. This
increase was primarily the result of expansions, new center openings and the
purchase of one center.

Base rentals increased $14.3 million, or 25.4%, to $70.7 million in 1997 from
$56.4 million in 1996 due to expansions, new center openings, the acquired
center and higher average rents. Base rental revenue per weighted average square
foot increased to $17.97 in 1997 from $17.32 in 1996 as a result of higher
rental rates on new leases and renewals.

Percentage rents increased $3.4 million, or 46.4%, to $10.8 million in 1997 from
$7.4 million in 1996. The increase was primarily due to increases in tenant
sales, new center openings, expansions at the Operating Partnership's larger
centers, the acquired center and increases in tenants contributing percentage
rents.

Expense reimbursements, representing contractual recoveries from tenants of
certain common area maintenance, operating, real estate tax, promotional and
management expenses, increased $4.2 million, or 17.1%, to $29.0 million in 1997
from $24.8 million in 1996, due to the recovery of operating and maintenance
costs at new and expanded centers. On a weighted average square foot basis,
expense reimbursements decreased 3.3% to $7.36 in 1997 from $7.61 in 1996. The
average recovery of reimbursable expenses was 92.2% in 1997 compared to 91.8% in
1996.

Other income increased $0.1 million to $2.9 million in 1997 from $2.8 million in
1996.

Interest, in excess of amounts capitalized, increased $6.6 million to $15.4
million in 1997 from $8.8 million in 1996, due to higher debt balances from new
centers, expansion openings and one center acquisition financed with borrowings.

Operating and maintenance expenses increased $4.4 million, or 16.5%, to $31.4
million in 1997 from $27.0 million in 1996. The increase was primarily due to
costs related to increased GLA. On a weighted average square foot basis,
operating and maintenance expenses decreased 3.6% to $7.99 in 1997 from $8.29 in
1996 as a result of decreased maintenance and snow removal costs.

Depreciation and amortization expense increased $6.0 million to $25.0 million in
1997 from $19.0 million in 1996, the increase was due to costs related to
increased GLA.

General and administrative expenses increased $0.5 million to $3.8 million in
1997 from $3.3 million in 1996. On a weighted average square foot basis, general
and administrative expenses decreased 5.8% to $0.97 in 1997 from $1.03 in 1996.
Increased personnel and overhead costs were more than offset by additions to
operating GLA.

Other expenses increased $0.7 million to $2.6 million in 1997 from $1.9 million
in 1996. The increase was primarily from legal expenses and additional reserves
for bad debt due to higher revenue.

LIQUIDITY AND CAPITAL RESOURCES

The Operating Partnership believes it has adequate financial resources to fund
operating expenses, distributions, and planned development and construction
activities. Operating cash flow in 1998 of $78.7 million is expected to increase
with a full year of operations of the 776,000 square feet of GLA added during
1998 and scheduled openings of approximately 390,000 square feet in 1999. In
addition, at December 31, 1998 the Operating Partnership had $74 million
available under its Senior Credit Facility, access to the public markets through
shelf registrations covering $200 million of equity and $175 million of debt,
and cash equivalents of $9.6 million.

Operating cash flow is expected to provide sufficient funds for dividends and
distributions. In addition, the Operating Partnership 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. Common distributions declared and recorded in 1998 were $52.1
million or $2.76 per share or unit. The Operating Partnership's 1998
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 76.6%. The
Senior Credit Facility limits aggregate dividends and distributions to the
lesser of (i) 90% of FFO on an annual basis or (ii) 100% of FFO for any two
consecutive quarters.

During 1998 the Operating Partnership added approximately 776,000 square feet of
new GLA including a 268,000 square foot expansion at Woodbury Common Premium
Outlets (Central Valley, NY), its flagship center; a 126,000 square foot
expansion at Wrentham Village Premium Outlets (Wrentham, MA), and the completion
and opening of the 270,000 square foot first phase of Leesburg Corner Premium
Outlets (Leesburg, VA), and expansions at five other centers totaling 112,000
square feet.

The Operating Partnership is in the process of planning development for 1999 and
beyond. At December 31, 1998, approximately 220,000 square feet of the Operating
Partnership's planned 1999 development was under construction consisting of the
120,000 square foot third phase of Wrentham Village and the 100,000 square foot
fourth phase of North Georgia Premium Outlets (Dawsonville, GA) These projects
are under development and there can be no assurance that they will be completed
or opened, or that there will not be delays in opening or completion. Excluding
joint venture projects with Simon the Operating Partnership anticipates 1999
development and construction costs of $50 million to $60 million. Funding is
currently expected from borrowings under the Senior Credit Facility, additional
debt offerings, and/or equity offerings.

Construction has commenced on Orlando Premium Outlets ("OPO"), a 430,000 square
foot 50/50 joint venture project between the Operating Partnership and Simon.
OPO is located on Interstate 4, midway between Walt Disney World/Epcot and Sea
World in Orlando, Florida and is scheduled to open in the first half of 2000.
The joint venture has entered into a $82.5 million construction loan agreement
that is expected to fund approximately 75% of the costs of the project. The
balance of costs will be funded equally by the Operating Partnership and Simon.

In October 1998, due to adverse conditions in the debt markets, the Operating
Partnership elected to redeem the remaining $60 million of Reset Notes, using
borrowings under the Senior Credit Facility. In November 1998, the Operating
Partnership obtained a $60 million 18 month bank term loan bearing interest at
LIBOR plus 1.40%. Loan proceeds were used to repay borrowings under the Senior
Credit Facility. The bank term loan will provide the Operating Partnership
additional flexibility to access capital sources at appropriate times over the
next 12 months.

The Operating Partnership has minority interests ranging from 5 to 15% in
several outlet centers and outlet development projects in Europe. Two outlet
centers, Bicester Village outside of London, England and La Roca Company Stores
outside of Barcelona, Spain, are currently open and operated by Value Retail PLC
and its affiliates. Three new projects and expansions of the two existing
centers are in various stages of development and are expected to open within the
next two years. The Operating Partnership's total investment in Europe as of
March 1999 is approximately $3.5 million. The Operating Partnership 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
guarantees shall not be outstanding for longer than five years after project
completion. As of March 1999, the Operating Partnership has provided limited
debt service guaranties of approximately $14 million for two projects.

To achieve planned growth and favorable returns in both the short and long-term,
the Operating Partnership'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 Operating Partnership 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 $78.7 million and $56.6 million
for the years ended December 31, 1998 and 1997, respectively. The increase was
primarily due to the growth of the Operating Partnership's GLA to 4.9 million
square feet in 1998 from 4.3 million square feet in 1997. Net cash used in
investing activities decreased $79.4 million for the year ended December 31,
1998 compared to the corresponding 1997 period, primarily as a result of the
Waikele Factory Outlets acquisition in March 1997. For the year ended December
31, 1998, net cash provided by financing activities decreased by $107.1 million
primarily due to borrowings for the Waikele Factory Outlets acquisition and
excess capital raised for development during 1997.

Net cash provided by operating activities was $56.6 million and $53.5 million
for the years ended December 31, 1997 and 1996, respectively. The increase was
primarily due to the growth of the Operating Partnership's GLA to 4.3 million
square feet in 1997 from 3.6 million square feet in 1996 and increases in
accrued interest on the borrowings offset by additions to deferred lease costs.
Net cash used in investing activities decreased $99.7 million for the year ended
December 31, 1997 compared to 1996, primarily as a result of the acquisition of
Waikele Factory Outlets and increased construction activity. Net cash provided
by financing activities increased $87.4 million primarily due to the sale of
common stock to Simon and the sale of Preferred Stock.

YEAR 2000 COMPLIANCE

The year 2000 ("Y2K") issue refers generally to computer applications using only
the last two digits to refer to a year rather than all four digits. As a result,
these applications could fail or create erroneous results if they recognize "00"
as the year 1900 rather than the year 2000. The Operating Partnership has taken
Y2K initiatives in three general areas which represent the areas that could have
an impact on the Operating Partnership: information technology systems,
non-information technology systems and third-party issues. The following is a
summary of these initiatives:

INFORMATION TECHNOLOGY: The Operating Partnership has focused its efforts on the
high-risk areas of the corporate office computer hardware, operating systems and
software applications. The Operating Partnership's assessment and testing of
existing equipment revealed that its hardware, network operating systems and
most of the software applications are Y2K compliant. The exception is the
DOS-based accounting systems which were upgraded and replaced at the beginning
of 1999 to make them compatible with Windows applications primarily used by the
Operating Partnership.

NON-INFORMATION TECHNOLOGY: Non-information technology consists mainly of
facilities management systems such as telephone, utility and security systems
for the corporate office and the outlet centers. The Operating Partnership has
reviewed the corporate facility management systems and made inquiry of the
building owner/manager and concluded that the corporate office building systems
including telephone, utilities, fire and security systems are Y2K compliant. The
Operating Partnership is in the process of identifying date-sensitive systems
and equipment including HVAC units, telephones, security systems and alarms,
fire and flood warning systems and general office systems at its outlet centers.
Assessment and testing of these systems is approximately 75% complete and
expected to be completed by June 30, 1999. Critical non-compliant systems will
be replaced when identified. Based on preliminary assessment, the cost of
replacement is not expected to be significant.

THIRD PARTIES: The Operating Partnership has third-party relationships with
approximately 350 tenants and 4,000 suppliers and contractors. Many of these
third parties are publicly-traded corporations and subject to disclosure
requirements. The Operating Partnership has begun assessment of major third
parties' Y2K readiness including tenants, key suppliers of outsourced services
including stock transfer, debt servicing, banking collection and disbursement,
payroll and benefits, while simultaneously responding to their inquiries
regarding the Operating Partnership's readiness. The majority of the Operating
Partnership's vendors are small suppliers that the Operating Partnership
believes can manually execute their business and are readily replaceable.
Management also believes there is no material risk of being unable to procure
necessary supplies and services. Third-party assessment is approximately 50%
complete and expected to be completed by June 30, 1999. The Operating
Partnership continues to monitor Y2K disclosures in SEC filings of
publicly-owned third parties.

COSTS: The accounting software upgrade and conversion is being executed under
maintenance and support agreements with software vendors. The total cost of the
accounting conversion which the Company had previously commenced during the
third quarter is estimated at approximately $200,000 including the Y2K portion
of the conversion that cannot be readily identified and is not material to the
operating results or financial position of the Operating Partnership.

The identification and remediation of systems at the outlet centers is being
accomplished by in-house business systems personnel and outlet center general
managers whose costs are recorded as normal operating expense. The assessment of
third-party readiness is also being conducted by in-house personnel whose costs
are recorded as normal operating expenses. The Operating Partnership is not yet
in a position to estimate the cost of third-party compliance issues, but has no
reason to believe, based upon its evaluations to date, that such costs will
exceed $100,000.

RISKS: The principal risks to the Operating Partnership relating to the
completion of its accounting software conversion is failure to correctly bill
tenants by December 31, 1999 and to pay invoices when due. Management believes
it has adequate resources, or could obtain the needed resources, to manually
bill tenants and pay bills until the systems became operational.

The principal risks to the Operating Partnership relating to non-information
systems at the outlet centers are failure to identify time-sensitive systems and
inability to find a suitable replacement system. The Operating Partnership
believes that adequate replacement components or new systems are available at
reasonable prices and are in good supply. The Operating Partnership also
believes that adequate time and resources are available to remediate these areas
as needed.

The principal risks to the Operating Partnership in its relationships with third
parties are the failure of third-party systems used to conduct business such as
tenants being unable to stock stores with merchandise, use cash registers and
pay invoices; banks being unable to process receipts and disbursements; vendors
being unable to supply needed materials and services to the centers; and
processing of outsourced employee payroll. Based on Y2K compliance work done to
date, the Operating Partnership has no reason to believe that key tenants, banks
and suppliers will not be Y2K compliant in all material respects or can not be
replaced within an acceptable timeframe. The Operating Partnership will attempt
to obtain compliance certification from suppliers of key services as soon as
such certifications are available.

CONTINGENCY PLANS: The Operating Partnership intends to deal with contingency
planning during 1999 as results of the above assessments are known.

The Operating Partnership's description of its Y2K compliance issue is based
upon information obtained by management through evaluations of internal business
systems and from tenant and vendor compliance efforts. No assurance can be given
that the Operating Partnership will be able to address the Y2K issues for all
its systems in a timely manner or that it will not encounter unexpected
difficulties or significant expenses relating to adequately addressing the Y2K
issue. If the Operating Partnership or the major tenants or vendors with whom
the Operating Partnership does business fail to address their major Y2K issues,
the Operating Partnership's operating results or financial position could be
materially adversely affected.

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 Company. Management considers FFO an appropriate measure of performance
for an equity real estate investment trust. FFO, as defined by the National
Association of Real Estate Investment Trusts ("NAREIT"), is net income
applicable to common shareholders (computed in accordance with generally
accepted accounting principles), excluding gains (or losses) from debt
restructuring and sales or writedowns of property, exclusive of outparcel sales,
plus real estate related depreciation and amortization, and after adjustments
for unconsolidated partnerships and joint ventures. Adjustments for
unconsolidated partnerships and joint ventures are calculated to reflect FFO on
the same basis. FFO does not represent net income or cash flow from operations
as defined by generally accepted accounting principles and should not be
considered an alternative to net income as an indicator of operating performance
or to cash from operations, and is not necessarily indicative of cash flow
available to fund cash needs.

Year Ended December 31,

1998 1997
--------- -----------

Income to common unitholders before extraordinary item......... $21,248 $34,121
Add:
Depreciation and amortization (1).............................. 32,486 24,883
Loss on writedown of assets.................................... 15,713

(1,453) (1,587)
Amortization of deferred financing costs and depreciation
of non-rental real estate assets
-------------- ------------
FFO............................................................ $67,994 $57,417
============== ===============

Average units outstanding...................................... 18,871 18,040
Distributions declared per unit................................ $2.76 $2.58

NOTE: (1) Excludes depreciation and minority interest attributed to a
third-party limited partner's interest in a partnership for the year
ended December 31, 1997.

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 Operating
Partnership continues to attract and retain quality tenants. The Operating
Partnership 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 Operating Partnership is exposed to changes in interest rates primarily from
its floating rate debt arrangements. Under its current policies, the Operating
Partnership does not use interest rate derivative instruments to manage exposure
to interest rate changes. A hypothetical 100 basis point adverse move (increase)
in interest rates along the entire rate curve would adversely affect the
Operating Partnership's annual interest cost by approximately $1.2 million
annually.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and financial information of the Operating Partnership
for the years ended December 31, 1998, 1997 and 1996 and the Reports 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 Operating Partnership does not have any directors, executive officers or
stock authorized, issued or outstanding. If the information was required it
would be identical to the information contained in Items 10, 11, 12 and 13 of
the Company's Form 10-K, that will appear in the Company's Proxy Statement
furnished to shareholders in connection with the Company's 1999 Annual Meeting.
Such information is incorporated by reference in this Form 10-K.

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. Incorporated by reference to Exhibit 3.1
to Form 10K for the year ended December 31, 1997.

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 10K for the year ended December 31, 1997.

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 Term Loan Agreement dated November 3, 1998 among Chelsea GCA Realty
Partnership, L.P., BankBoston, N.A., individually and as an agent,
and other Lending Institutions listed therein.

10.3 Credit Agreement dated March 30, 1998 among Chelsea GCA Realty
Partnership, L.P., BankBoston, N.A, individually and as an agent,
and other Lending Institutions listed therein.

10.4 Agreement dated October 23, 1998, among Chelsea GCA Realty
Partnership, L.P., Chelsea GCA Realty, Inc., Simon Property Group,
L.P., the Mills Corporation and related parties.

10.5 Consulting Agreement effective August 1, 1997, between the Company
and Robert Frommer. Incorporated by reference to Exhibit 10.2 to
Form 10K for the year ended December 31, 1997.

10.6 Limited Liability Company Agreement of Simon/Chelsea Development
Co., L.L.C. dated May 16, 1997 between Simon DeBartolo Group, L.P.
and Chelsea GCA Realty Partnership, L.P. Incorporated by reference
to Exhibit 10.3 to Form 10K for the year ended December 31, 1997.

10.7 Subscription Agreement dated as of March 31, 1997 by and among
Chelsea GCA Realty Partnership, L.P., WCC Associates and KM Halawa
Partners. Incorporated by reference to Exhibit 1 to current report
on Form 8-K reporting on an event which occurred March 31, 1997.

10.8 Stock Subscription Agreement dated May 16, 1997 between Chelsea GCA
Realty, Inc. and Simon DeBartolo Group, L.P. Incorporated by
reference to Exhibit 10.5 to Form 10K for the year ended December
31, 1997.

10.9 Limited Liability Company Agreement of S/C Orlando Development,
L.L.C. dated December 23, 1998.

10.10 Limited Partnership Agreement of Simon/Chelsea Orlando Development,
L.P. dated January 22, 1999.

23.1 Consent of Ernst & Young LLP.

(b) Reports on Form 8-K.
None

(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 GCA REALTY
PARTNERSHIP, L.P.

Report of Independent Auditors..................................... F-1
Consolidated Balance Sheets as of December 31, 1998 and 1997....... F-2
Consolidated Statements of Income for the years ended
December 31, 1998, 1997 and 1996................................. F-3
Consolidated Statements of Partners' Capital for the
years ended December 31, 1998, 1997 and 1996..................... F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996................................. 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-16
and F-17

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

TO THE OWNERS
CHELSEA GCA REALTY PARTNERSHIP, L.P.

We have audited the accompanying consolidated balance sheets of Chelsea GCA
Realty Partnership, L.P. as of December 31, 1998 and 1997, and the related
consolidated statements of income, partners' capital and cash flows for each of
the three years in the period ended December 31, 1998. Our audits also included
the financial statement schedule listed in the Index as Item 14(a). These
financial statements and schedule are the responsibility of the management of
Chelsea GCA Realty Partnership, L.P. Our responsibility is to express an opinion
on the financial statements and schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. 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 GCA Realty
Partnership, L.P. as of December 31, 1998 and 1997, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1998 in conformity with generally accepted accounting
principles. 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 10, 1999

CHELSEA GCA REALTY PARTNERSHIP, L.P.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

DECEMBER 31,
1998 1997
----------- -----------
Assets
Rental properties:

Land.................................................................. $109,318 $112,470
Depreciable property.................................................. 683,408 596,463
----------- -----------
Total rental property...................................................... 792,726 708,933
Accumulated depreciation................................................... (102,851) (80,244)
----------- -----------
Rental properties, net..................................................... 689,875 628,689
Cash and equivalents....................................................... 9,631 14,538
Notes receivable-related parties........................................... 4,500 4,781
Deferred costs, net........................................................ 17,766 17,276
Properties held for sale................................................... 8,733 -
Other assets............................................................... 42,847 22,745
----------- -----------
TOTAL ASSETS............................................................... $773,352 $ 688,029
=========== ===========

LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Unsecured bank debt................................................... $151,035 $ 5,035
7.75% Unsecured Notes due 2001........................................ 99,824 99,743
7.25% Unsecured Notes due 2007........................................ 124,712 124,681
Remarketed Floating Rate Reset Notes.................................. - 60,000
Construction payables................................................. 12,927 17,810
Accounts payable and accrued expenses................................. 19,769 14,442
Obligation under capital lease........................................ 9,612 9,729
Accrued distribution payable.......................................... 3,274 3,276
Other liabilities..................................................... 29,257 7,390
----------- -----------
TOTAL LIABILITIES.......................................................... 450,410 342,106

Commitments and contingencies

Partners' capital:
General partner units outstanding, 15,608 in 1998 and 15,353 in 1997....... 280,391 297,670
Limited partners units outstanding, 3,429 in 1998 and 3,432 in 1997........ 42,551 48,253
----------- -----------
Total partners' capital.................................................... 322,942 345,923
----------- -----------
TOTAL LIABILITIES AND PARTNERS' CAPITAL.................................... $773,352 $ 688,029
=========== ===========

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

CHELSEA GCA REALTY PARTNERSHIP, L.P.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER UNIT DATA)

YEAR ENDED DECEMBER 31,
1998 1997 1996
----------------- ---------------- -----------------

Revenues:

Base rental................................... $86,592 $70,693 $56,390
Percentage rentals............................ 13,384 10,838 7,402
Expense reimbursements........................ 35,342 28,981 24,758
Other income.................................. 3,997 2,905 2,806
----------------- ---------------- -----------------
TOTAL REVENUES..................................... 139,315 113,417 91,356

EXPENSES:
Interest....................................... 19,978 15,447 8,818
Operating and maintenance...................... 38,704 31,423 26,979
Depreciation and amortization.................. 32,486 24,995 18,965
General and administrative..................... 4,849 3,815 3,342
Loss on writedown of assets.................... 15,713 - -
Other.......................................... 2,149 2,582 1,892
----------------- ---------------- -----------------
TOTAL EXPENSES...................................... 113,879 78,262 59,996

Income before minority interest and
extraordinary item............................. 25,436 35,155 31,360
Minority interest................................... - (127) (257)
----------------- ---------------- -----------------
Income before extraordinary item.................... 25,436 35,028 31,103
Extraordinary item-loss on early
extinguishment of debt......................... (345) (252) (902)

----------------- ----------------- -----------------
Net income.......................................... 25,091 34,776 30,201

Preferred unit requirement.......................... (4,188) (907) -
----------------- ---------------- -----------------
NET INCOME TO COMMON UNITHOLDERS $20,903 $33,869 $30,201
================= ================ =================

NET INCOME TO COMMON UNITHOLDERS:
General partner................................ $17,162 $27,449 $20,854
Limited partners............................... 3,741 6,420 9,347
----------------- ---------------- -----------------
TOTAL............................................... $20,903 $33,869 $30,201
================= ================ =================

NET INCOME PER COMMON UNIT:
General partner (including $0.02, $0.01 and $0.05
net loss per unit from extraordinary item in
1998, 1997 and 1996, respectively)................ $1.11 $1.88 $1.77
Limited partners (including $0.02, $0.01 and $0.05
net loss per unit from extraordinary item in
1998, 1997 and 1996, respectively)................ $1.09 $1.87 $1.76

WEIGHTED AVERAGE UNITS OUTSTANDING:
General partner................................... 15,440 14,605 11,802
Limited partners.................................. 3,431 3,435 5,316
----------------- ---------------- -----------------
TOTAL............................................... 18,871 18,040 17,118

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

CHELSEA GCA REALTY PARTNERSHIP, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(IN THOUSANDS)

General Partner'sLimited Partners' Total Partners'
Capital Capital Capital
--------------- --------------- ---------------

Balance December 31, 1995................................... $176,758 $84,277 $261,035
Contributions............................................... 3,216 1,556 4,772
Net income.................................................. 20,854 9,347 30,201
Distributions............................................... (28,122) (12,250) (40,372)
Transfer of a limited partners' interest.................... 12,634 (12,634) -
--------------- --------------- ---------------

Balance December 31, 1996................................... 185,340 70,296 255,636
Contributions............................................... 103,357 389 103,746
Net income.................................................. 28,356 6,420 34,776
Common distributions........................................ (38,475) (8,853) (47,328)
Preferred distribution...................................... (907) - (907)
Transfer of a limited partners' interest.................... 19,999 (19,999) -
--------------- --------------- ---------------

Balance December 31, 1997................................... 297,670 48,253 345,923
Contributions............................................... 8,266 - 8,266
Net income.................................................. 21,350 3,741 25,091
Common distributions........................................ (42,707) (9,407) (52,114)
Preferred distribution...................................... (4,188) - (4,188)
Transfer of a limited partners' interest.................... - (36) (36)
--------------- --------------- ---------------
Balance December 31, 1998................................... $280,391 $ 42,551 $322,942
=============== =============== ===============

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

CHELSEA GCA REALTY PARTNERSHIP, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

Year ended December 31,
1998 1997 1996
----------------- ----------------- -----------------

Cash flows from operating activities

Net income........................................ $25,091 $34,776 $30,201
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization................ 32,486 24,995 18,965
Minority interest in net income.............. - 127 257
Loss on writedown of assets.................. 15,713 - -
Loss on early extinguishment of debt......... 345 252 902
Additions to deferred lease costs............ (3,178) (6,629) (2,537)
Other operating activities................... 522 319 191
Changes in assets and liabilities:
Straight-line rent receivable............... (1,900) (1,523) (1,595)
Other assets................................ 1,094 287 597
Accounts payable and accrued expenses....... 8,558 3,990 6,529
----------------- ----------------- -----------------
Net cash provided by operating activities......... 78,731 56,594 53,510

CASH FLOWS FROM INVESTING ACTIVITIES
Additions to rental properties.................... (116,339) (195,058) (97,585)
Additions to deferred development costs........... (3,468) (2,237) (1,477)
Advances to related parties....................... - - (67)
Payments from related parties..................... - - 173
Other investing activities........................ - (1,955) (612)
----------------- ----------------- -----------------
Net cash used in investing activities............. (119,807) (199,250) (99,568)

CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from sale of preferred units......... - 48,406 -
Net proceeds from sale of common units............ 8,287 54,951 2,583
Distributions..................................... (56,366) (48,791) (47,124)
Debt proceeds .................................... 154,000 261,710 292,592
Repayments of debt................................ (68,000) (172,000) (189,000)
Additions to deferred financing costs............. (1,695) (855) (3,660)
Other financing activities........................ (57) (113) 566
----------------- ----------------- -----------------
Net cash provided by financing activities......... 36,169 143,308 55,957

Net (decrease) increase in cash and equivalents.. (4,907) 652 9,899
Cash and equivalents, beginning of period......... 14,538 13,886 3,987
----------------- ----------------- -----------------
Cash and equivalents, end of period............... $9,631 $14,538 $13,886
================= ================= =================

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

NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION AND BASIS OF PRESENTATION

ORGANIZATION

Chelsea GCA Realty Partnership, L.P. (the "Operating Partnership"or "OP"), which
commenced operations on November 2, 1993, is engaged in the development,
ownership, acquisition and operation of manufacturers' outlet centers. As of
December 31, 1998, the Operating Partnership operated 19 manufacturers' outlet
centers in 11 states. The sole general partner in the Operating Partnership,
Chelsea GCA Realty, Inc. (the "Company") is a self-administered and self-managed
Real Estate Investment Trust.

BASIS OF PRESENTATION

The financial statements contain the accounts of the Operating Partnership and
its majority owned subsidiaries. All significant intercompany transactions and
accounts have been eliminated in consolidation.

Through June 30, 1997, the Operating Partnership was the sole general partner
and had a 50% interest in Solvang Designer Outlets ("Solvang"), a limited
partnership. Accordingly, the accounts of Solvang were included in the
consolidated financial statements of the Operating Partnership. On June 30,
1997, the Operating Partnership acquired the remaining 50% interest in Solvang.
Solvang is not material to the Operating Partnership's operations or financial
position.

Disclosure about fair value of financial instruments is based on pertinent
information available to management as of December 31, 1998 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 that date and current estimates of fair
value may differ significantly from the amounts presented herein.

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 Operating Partnership 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. During 1996, the
Operating Partnership adopted Statement of Financial Accounting Standards No.
121 ("SFAS No. 121"), Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of. SFAS No. 121 requires that the Operating
Partnership review 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.

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. At December 31, 1998 and 1997 cash equivalents consisted of
repurchase agreements which were held by one financial institution, commercial
paper and US Government agency securities which matured in January of the
following year. The carrying amount of such investments approximated fair value.

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.

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.

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 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 on a straight-line
basis 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. Minimum rental income
is recognized on a straight-line basis over the lease term. Due and unpaid rents
are included in other assets in the accompanying balance sheet. Certain lease
agreements contain provisions for rents which are calculated on a percentage of
sales and recorded on the accrual basis. Contingent rents are not recognized
until the required thresholds are exceeded. Virtually all lease agreements
contain provisions for reimbursement of real estate taxes, insurance,
advertising and common area maintenance costs.

BAD DEBT EXPENSE

Bad debt expense included in other expense totaled $0.6 million, $0.8 million
and $0.3 million for the years ended December 31, 1998, 1997 and 1996,
respectively. The allowance for doubtful accounts included in other assets
totaled $1.1 million and $0.8 million at December 31, 1998 and 1997,
respectively.

INCOME TAXES

No provision has been made for income taxes in the accompanying consolidated
financial statements since such taxes, if any, are the responsibility of the
individual partners.

NET INCOME PER PARTNERSHIP UNIT

Net income per partnership unit is determined by allocating net income to the
general partner (including the general partner's preferred unit allocation) and
the limited partners based on their weighted average partnership units
outstanding during the respective periods presented.

CONCENTRATION OF OPERATING PARTNERSHIP'S REVENUE AND CREDIT RISK

Approximately 35%, 34% and 38% of the Operating Partnership's revenues for the
years ended December 31, 1998, 1997 and 1996, respectively, were derived from
the Operating Partnership's two centers with the highest revenues, Woodbury
Common and Desert Hills. The loss of either center or a material decrease in
revenues from either center for any reason may have a material adverse effect on
the Operating Partnership. In addition, approximately 34%, 38% and 44% of the
Operating Partnership's revenues for the years ended December 31, 1998, 1997 and
1996, respectively, were derived from the Operating Partnership's centers in
California.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)

Management of the Operating Partnership performs ongoing credit evaluations of
its tenants and requires certain tenants to provide security deposits. Although
the Operating Partnership'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 generally accepted
accounting principles 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.

MINORITY INTEREST

SEGMENT INFORMATION

Effective January 1, 1998, the Operating Partnership adopted the Financial
Accounting Standards Board's Statement of Financial Accounting Standards No.
131, Disclosures about Segments of an Enterprise and Related Information
("Statement 131"). Statement 131 superseded FASB Statement No. 14, Financial
Reporting for Segments of a Business Enterprise. Statement 131 establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports. Statement 131 also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
The adoption of Statement 131 did not affect results of operations, financial
position or disclosure of segment information as the Operating Partnership is
engaged in the development, ownership, acquisition and operation of
manufacturers' outlet centers and has one reportable segment, retail real
estate. The Operating Partnership evaluates real estate performance and
allocates resources based on net operating income and weighted average sales per
square foot. The primary sources of revenue are generated from tenant base
rents, percentage rents and reimbursement revenue. Operating expenses primarily
consist of common area maintenance, real estate taxes and promotional expenses.
The retail real estate business segment meets the quantitative threshold for
determining reportable segments. The Operating Partnership's investment in
foreign operations is not material to the consolidated financial statements.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities, which is required
to be adopted in years beginning after June 15, 1999. Statement 133 permits
early adoption as of the beginning of any fiscal quarter after its issuance. The
Operating Partnership expects to adopt the new Statement effective January 1,
2000. The Statement will require the Operating Partnership to recognize all
derivatives on the balance sheet at fair value. Derivatives that are not hedges
must be adjusted to fair value through income. If a derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of the
derivative will either be offset against the change in fair value of the hedged
asset, liability, or firm commitment through earnings, or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings. The Operating Partnership does not anticipate that the
adoption of the Statement will have a significant effect on its results of
operations or financial position.

3. RENTAL PROPERTIES

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

1998 1997
-------------- -------------
Land and improvements........................... $245,814 $207,186
Buildings and improvements...................... 512,080 434,565
Construction-in-process......................... 25,534 60,615
Equipment and furniture......................... 9,298 6,567
-------------- -------------
Total rental property........................... 792,726 708,933
Accumulated depreciation and amortization (102,851) (80,244)
-------------- -------------
Total rental property, net...................... $689,875 $628,689
============== =============

Interest costs capitalized as part of buildings and improvements were $5.2
million, $4.8 million and $3.9 million for the years ended December 31, 1998,
1997 and 1996, respectively.

Commitments for land, new construction, development, and acquisitions totaled
approximately $35.3 million at December 31, 1998 including the Company's equity
contribution for the Orlando Premium Outlets joint venture with Simon Property
Group.

Depreciation expense (including amortization of the capital lease) amounted to
$29.2 million, $22.3 million and $16.9 million for the years ended December 31,
1998, 1997 and 1996, respectively.

4. WAIKELE ACQUISITION

Pursuant to a Subscription Agreement dated as of March 31, 1997, the Operating
Partnership acquired Waikele Factory Outlets, a manufacturers' outlet shopping
center located in Hawaii. The consideration paid by the Operating Partnership
consisted of the assumption of $70.7 million of indebtedness outstanding with
respect to the property (which indebtedness was repaid in full by the Operating
Partnership immediately after the closing) and the issuance of special
partnership units in the Operating Partnership, having a fair market value of
$0.5 million. Immediately after the closing, the Operating Partnership paid a
special cash distribution of $5.0 million on the special units. The cash used by
the Operating Partnership in the transaction was obtained through borrowings
under the Operating Partnership's Credit Facilities.

The following condensed pro forma (unaudited) information assumes the
acquisition had occurred on January 1, 1996:

1997 1996
-------------- ---------------

Total revenue................................................. $115,802 $99,589

Income to common unitholders before extraordinary items....... 34,718 32,725

Net income to common unitholders:
General partner............................................ 27,933 21,973
Limited partners........................................... 6,533 9,850
-------------- ---------------
Total......................................................... 34,466 31,823

Net income per unit:
General partner (including $0.01 and $0.05 net loss per unit
from extraordinary item in 1997 and 1996, respectively).. $1.91 $1.86
Limited partners (including $0.01 and $0.05 net loss per unit
from extraordinary item in 1997 and 1996, respectively).. $1.89 $1.85

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

5. DEFERRED COSTS

The following summarizes the carrying amounts for deferred costs as of December
31 (in thousands):

1998 1997
----------- -----------

Lease costs.................................................... $17,601 $14,712
Financing costs................................................ 10,879 9,184
Development costs.............................................. 3,675 4,348
Other.......................................................... 1,172 991
----------- -----------
Total deferred costs........................................... 33,327 29,235
Accumulated amortization....................................... (15,561) (11,959)
----------- -----------
Total deferred costs, net...................................... $17,766 $17,276
=========== ===========

PROPERTIES HELD FOR SALE

Properties held for sale represent the fair value, less estimated costs to sell,
of two of the Operating Partnership's outlet centers, Lawrence Riverfront Plaza
("Lawrence") and Solvang.

During the second quarter of 1998, the Operating Partnership decided to sell
Solvang, a 51,000 square foot center in Solvang, California, for net selling
price of $5.6 million. The center had a book value of $10.5 million resulting in
a writedown of $4.9 million in the second quarter of 1998. During the fourth
quarter, the initial purchase offer was withdrawn and the Operating Partnership
received another for a net selling price of $4.0 million requiring a further
writedown of $1.6 million. Closing is scheduled for early 1999. For the year
ended December 31, 1998, Solvang accounted for less than 1% of the Operating
Partnership's revenues and net operating income.

During the fourth quarter of 1998, the Operating Partnership decided to sell
Lawrence, a 146,000 square foot center in Lawrence, Kansas. In December 1998 the
Operating Partnership signed an agreement to sell the property for $4.6 million
net of selling costs of $0.2 million. The sale is scheduled to close in March
1999. Lawrence had a book value of $13.1 million, resulting in an $8.5 million
writedown of the asset in the fourth quarter. For the year ended December 31,
1998, Lawrence accounted for about 1% of the Operating Partnership's revenues
and net operating income.

Management decided to sell these two properties during 1998 as part of the
Operating Partnership's long-term objective of devoting resources and focusing
on productive properties. Management determined that the time and effort
necessary to support these underperforming centers was not worth the economic
benefit to the Operating Partnership. Management also concluded that these
centers would be more useful as office and/or residential space which are
outside the Operating Partnership's area of expertise.

7. NON-COMPETE AGREEMENT

In October 1998, the Operating Partnership signed a definitive agreement to
terminate the development of Houston Premium Outlets, a joint venture project
with Simon Property Group, Inc. Under the terms of the agreement, the Operating
Partnership will receive payments totaling $21.4 million from The Mills
Corporation, to be made over four years, as well as immediate reimbursement for
its share of land costs, development costs and fees related to the project. The
revenue is being recognized on a straight line basis over the term of the
agreement. The Operating Partnership has withdrawn from the Houston development
partnership and agreed to certain restrictions on competing in the Houston
market through the year 2002.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

8. DEBT

Also on March 30, 1998, the OP entered into a $5 million term loan (the "Term
Loan") which carries the same interest rate and maturity as the Senior Credit
Facility.

In November 1998, the OP obtained a $60 million term loan which expires April
2000 and bears interest on the outstanding balance at a rate equal to LIBOR plus
1.40% (6.71% at December 31, 1998). Proceeds from the loan were used to pay down
borrowings under the Senior Credit Facility.

In January 1996, the OP completed a $100 million public debt offering of 7.75%
unsecured term notes due January 2001 (the "7.75% Notes"), which are guaranteed
by the Operating Partnership. The five-year non-callable 7.75% Notes were priced
at a discount of 99.592 to yield 7.85% to investors. Net proceeds from the
offering were used to pay down substantially all of the borrowings under the
Operating Partnership's secured line of credit. The carrying amount of the 7.75%
Notes approximates their fair value.

In October 1996, the OP completed a $100 million offering of Remarketed Floating
Rate Reset Notes (the "Reset Notes"), which were guaranteed by the Company. The
interest rate reset quarterly and was equal to LIBOR plus 75 basis points during
the first year. In October 1997, the interest rate spread was reduced to LIBOR
plus 48 basis points. Net proceeds from the offering were used to repay all of
the then borrowings under the Credit Facilities and for working capital. In
October 1997, the OP redeemed $40 million of Reset Notes. In October 1998, due
to adverse conditions in the debt markets, the OP elected to redeem the
remaining $60 million of Reset Notes, using borrowings under the Senior Credit
Facility.

In October 1997, the Operating Partnership completed a $125 million public debt
offering of 7.25% unsecured term notes due October 2007 (the "7.25% Notes"). The
7.25% Notes were priced to yield 7.29% to investors, 120 basis points over the
10-year U.S. Treasury rate. Net proceeds from the offering were used to repay
substantially all borrowings under the Operating Partnership's Credit
Facilities, redeem $40 million of Reset Notes and for general corporate
purposes. The carrying amount of the 7.25% Notes approximates their fair value.

Interest paid, excluding amounts capitalized, was $19.8 million, $14.1 million
and $4.8 million for the years ended December 31, 1998, 1997 and 1996,
respectively.

9. PREFERRED STOCK

In October 1997, the Company issued 1.0 million shares of 8.375% Series A
Cumulative Redeemable Preferred Stock (the "Preferred Stock"), par value $0.01
per share, having a liquidation preference of $50.00 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. Net proceeds from the offering were used to repay
borrowings under the Operating Partnership's Credit Facilities.

10. LEASE AGREEMENTS

The Operating Partnership is the lessor and sub-lessor of retail stores under
operating leases with term expiration dates ranging from 1999 to 2018. 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 as of December 31, 1998, exclusive of renewal option periods, were as
follows (in thousands):

1999............ $ 90,332
2000............ 88,961
2001............ 80,376
2002............ 68,393
2003............ 50,332
Thereafter 97,873
-------------
$ 476,267
=============

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. The portion of the lease attributed to land is classified
as an operating lease and the remainder as a capital lease. The initial lease
term is 25 years with two options of 5 and 4 1/2 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 1998, 1997 or 1996.
The Operating Partnership 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.

OPERATING LEASES

Future minimum rental payments under operating leases for land and
administrative offices as of December 31, 1998 were as follows (in thousands):

1999........... $ 1,208
2000........... 1,203
2001........... 786
2002........... 755
2003........... 767
Thereafter 8,021
-------------
$ 12,740
=============

Rental expense amounted to $1.0 million for the years ended December 31, 1998
and 1997 and $1.1 million for the year ended December 31, 1996.

CAPITAL LEASE

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

1998 1997
----------------- ----------------

Building.............................................. $8,621 $8,621
Less accumulated amortization......................... (3,937) (3,592)
----------------- ----------------
Leased property, net.................................. $4,684 $5,029
================= ================

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

10. LEASE AGREEMENTS (CONTINUED)

Future minimum payments under the capitalized building lease, including the
present value of net minimum lease payments as of December 31, 1998 are as
follows (in thousands):

1999....................................................... $ 1,117
2000....................................................... 1,151
2001....................................................... 1,185
2002....................................................... 1,221
2003....................................................... 1,258
Thereafter................................................. 12,475
----------------
Total minimum lease payments............................... 18,407
Amount representing interest............................... (8,795)
----------------
Present value of net minimum capital lease payments $ 9,612
================

11. COMMITMENTS AND CONTINGENCIES

In November 1998, the Operating Partnership 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 guarantees shall not be outstanding for
longer than five years after project completion. As of December 31, 1998, the
Operating Partnership had provided a commitment for a limited debt service
guarantee of approximately $9 million for an outlet project at Disneyland-Paris
in France. This guarantee will not be effective until the project opens, which
is scheduled for late 2000. The Operating Partnership had $1.8 million invested
in Value Retail PLC at December 31, 1998 which is included in other assets.

In August 1995, the Operating Partnership's President & Chief Operating Officer
resigned and entered into a separation agreement with the Operating Partnership
that included consulting services to be provided through 1999, certain
non-compete provisions, and the acquisition of certain undeveloped real estate
assets. Upon completion of development, such real estate assets may be
re-acquired by the Operating Partnership, at its option, in accordance with a
pre-determined formula based on cash flow. Transactions related to the
separation agreement are not material to the financial statements of the
Operating Partnership.

The Operating Partnership is not presently involved in any material litigation
nor, to its knowledge, is any material litigation threatened against the
Operating Partnership or its properties, other than routine litigation arising
in the ordinary course of business. Management believes the costs, if any,
incurred by the Operating Partnership related to any of this litigation will not
materially affect the financial position, operating results or liquidity of the
Operating Partnership.

12. RELATED PARTY INFORMATION

In September 1995, the Operating Partnership transferred property with a book
value of $4.8 million to its former President (a current unitholder) in exchange
for a $4.0 million note secured by units in the Operating Partnership (the
"Secured Note") and an $0.8 million unsecured note receivable (the "Unsecured
Note"). The Secured Note bore interest at a rate of LIBOR plus 250 basis points
per annum, payable monthly, and was due upon the earlier of the maker obtaining
permanent financing on the property, the Operating Partnership repurchasing the
property under an option agreement, the maker selling the property to an
unaffiliated third party, or January 1999. The Unsecured Note bore interest at a
rate of 8.0% per annum and was due upon the earlier of the Operating Partnership
repurchasing the property under an option agreement, the maker selling the
property to an unaffiliated third party, or September 2000. In January 1999, the
Operating Partnership received $4.5 million as payment in full for the two notes
and wrote off $0.3 million.

On June 30, 1997 the Operating Partnership forgave a $3.3 million related party
note and paid $2.4 million in cash to acquire the remaining 50% interest in
Solvang. The Operating Partnership also collected $0.8 million in accrued
interest on the note.

The Operating Partnership had space leased to related parties of approximately
56,000 square feet during the year ended December 31, 1998 and 61,000 square
feet during the years ended December 31, 1997 and 1996, respectively.

Rental income from those tenants, including reimbursement for taxes, common area
maintenance and advertising, totaled $1.8 million, $1.5 million and $1.3 million
during the years ended December 31, 1998, 1997 and 1996, respectively.

The Operating Partnership has a consulting agreement with one of the Company's
directors through December 31, 1999. The agreement calls for monthly payments of
$10,000.

Certain unitholders guarantee Operating Partnership obligations under leases for
one of the properties. The Operating Partnership has indemnified these parties
from and against any liability which they may incur pursuant to these
guarantees.

13. 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 500,000 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" or own 5% or more of
the voting power 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 and (b) 85% of the fair market value of the stock on the last day
of the Option Period. As of December 31, 1998 no employees were enrolled in the
Purchase Plan and no material expense had been incurred. Eligible employee
enrollment is expected to begin during the first quarter of 1999. The Purchase
Plan will terminate after five years unless terminated earlier by the Board of
Directors.

14. 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 one year 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 in an amount not to exceed 100%
of each participant's first 6% of yearly compensation to the Plan. Matching
contributions of approximately $150,000 are included in the Company's general
and administrative expense.

15. EXTRAORDINARY ITEM

Deferred financing costs of $0.3 million (net of minority interest of $62,000),
$0.2 million (net of minority interest of $48,000) and $0.6 million (net of
minority interest of $295,000) for the years ended December 31, 1998, 1997 and
1996, respectively, were expensed as a result of early debt extinguishments, and
are reflected in the accompanying financial statements as an extraordinary item.

16. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

The following summary represents the results of operations, expressed in
thousands except per share amounts, for each quarter during 1998 and 1997

MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- -------- ------------- ------------
1998

Base rental revenue........................... $19,266 $20,815 $22,561 $23,950
Total revenues................................ 28,506 32,068 34,921 43,820

Income before extraordinary item to
common unitholders......................... 6,952 2,582 9,902 1,812
Net income to common unitholders.............. 6,952 2,582 9,902 1,467
Income before extraordinary item per
weighted average partnership unit (diluted). $0.37 $0.14 $0.52 $0.10
Net income per weighted average
partnership unit (diluted).................. $0.37 $0.14 $0.52 $0.08
1997

Base rental revenue............................ $15,563 $17,286 $18,096 $19,748
Total revenues................................. 22,649 26,637 28,822 35,309

Income before extraordinary item to
common unitholders.......................... 6,437 6,985 9,380 11,319
Net income to common unitholders............... 6,437 6,985 9,380 11,067
Income before extraordinary item per
weighted average partnership unit (diluted). $0.37 $0.40 $0.50 $0.60
Net income per weighted average
partnership unit (diluted).................. $0.37 $0.40 $0.50 $0.59

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

17. NON-CASH FINANCING AND INVESTING ACTIVITIES

In December 1998 and 1997, the Operating Partnership declared distributions per
unit of $0.69 for each year. The limited partners' distributions were paid in
January of each subsequent year. In December 1996, the Operating Partnership
declared distributions per unit of $0.63, that were paid in January of the
subsequent year.

In June 1997, the Operating Partnership forgave a $3.3 million related party
note receivable as partial consideration to acquire the remaining 50% interest
in Solvang.

Other assets and other liabilities include $6.6 million and $3.9 million in 1998
and 1997, respectively, related to a deferred unit incentive program with
certain key officers to be paid in 2002. Also included is $16.6 million in 1998
related to the present value of future payments to be received from The Mills
Corporation under the Houston non-compete agreement.

During 1997 and 1996, the Operating Partnership issued units with an aggregate
fair market value of $0.5 million, and $1.6 million, respectively, to acquire
properties.

During 1997 and 1996, respectively, 1.4 million and 0.8 million Operating
Partnership units were converted to common shares.

CHELSEA GCA REALTY PARTNERSHIP, L.P.
SCHEDULE III-CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1998 (IN THOUSANDS)

Cost Step-Up
Capitalized Related
(Disposed to
of) Acquisition
Initial Subsequent of Gross Amount
Cost to Partnership Carried
to Acquisition Interest at Close of Period
Company (Improvements) (1) December 31, 1998
----------------- --------------- --------------- -----------------------
Life
Used to
Compute
Depre-
ciation
Descrip- Buildings, Buildings, Buildings, Buildings, Date in
tion Fixtures Fixtures Fixtures Fixtures Accumu- of Latest
Outlet and and and and lated Const- Income
Center Encum- Equip- Equip- Equip- Equip- Depre- ruction State-
Name brances Land ment Land ment Land ment Land ment Total ciation ment
- -----------------------------------------------------------------------------------------------------------------------------------

Woodbury
Common, NY $ - $4,448 $16,073 $4,970 $119,607 $ - $ - $9,418 $135,680 $145,098 $23,335 '85, '93, 30
'95, '98
Waikele, HI - 22,800 54,357 - 348 - - 22,800 54,705 77,505 3,129 '98 -
Desert
Hills, CA - 975 - 2,376 59,643 830 4,936 4,181 64,579 68,760 15,279 '90, '94,
'95, '97, '98 40
Wrentham, MA - 157 2,817 3,484 59,728 - - 3,641 62,545 66,186 2,823 '95,'96,
'97, '98 40
Camarillo, CA - 4,000 - 5,085 46,637 - - 9,085 46,637 55,722 5,260 '94, '95,
'96, '97, '98 40
North
Georgia, GA - 2,960 34,726 (39) 12,942 - - 2,921 47,668 50,589 5,588 '95,'96,
'97, '98 40
Clinton, CT - 4,124 43,656 - (154) - - 4,124 43,502 47,626 6,025 '95,'96 40
Leesburg, VA - 6,296 - (1,184) 41,186 - - 5,112 41,186 46,298 445 '96, '97, '98 -
Petaluma
Village, CA - 3,735 - 2,934 30,095 - - 6,669 30,095 36,764 5,026 '93, '95, '96 40
Folsom, CA - 4,169 10,465 2,692 18,461 - - 6,861 28,926 35,787 6,028 '90, '92,
'93, '96, '97 40
Liberty
Village, NJ - 345 405 1,111 19,070 11,015 2,195 12,471 21,670 34,141 4,034 '81, '97,'98 30
Napa, CA - 3,456 2,113 7,908 17,649 - - 11,364 19,762 31,126 3,673 '62, '93, '95 40
Aurora, OH - 637 6,884 879 17,112 - - 1,516 23,996 25,512 4,494 '90, '93,
'94, '95 40
Columbia
Gorge, OR - 934 - 428 13,331 497 2,647 1,859 15,978 17,837 3,590 '91, '94 40
Santa Fe, NM - 74 - 1,300 11,942 491 1,772 1,865 13,714 15,579 2,075 '93, '98 40
American
Tin Cannery,
CA 9,612 - 8,621 - 6,613 - - - 15,234 15,234 6,710 '87, '98 25
Patriot
Plaza, VA - 789 1,854 976 4,246 - - 1,765 6,100 7,865 1,748 '86, '93, '95 40
Mammoth
Lakes, CA - 1,180 530 - 2,411 994 1,430 2,174 4,371 6,545 1,369 '78 40
Corporate
Offices,
NJ, CA - - 60 - 4,627 - - - 4,687 4,687 1,751 - 5
St. Helena, CA - 1,029 1,522 (25) 773 38 78 1,042 2,373 3,415 469 '83 40
Orlando, FL - 100 23 200 (23) - - 300 - 300 - - -
Allen, TX - 150 - - - - - 150 - 150 - - -
----------------------------------------------------------------------------------------------------------
$9,612 $62,358 $184,106 $33,095 $486,244 $13,865 $13,058 $109,318 $683,408 $792,726 $102,851
======================================================================================================================

The aggregate cost of the land, building, fixtures and equipment for federal tax
purposes was approximately $793 million at December 31, 1998.

(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 (see Note 1).

CHELSEA GCA REALTY PARTNERSHIP, L.P.
SCHEDULE III-CONSOLIDATED REAL ESTATE
AND ACCUMULATED DEPRECIATION (CONTINUED)
(IN THOUSANDS)

THE CHANGES IN TOTAL REAL ESTATE:

YEAR ENDED DECEMBER 31,
1998 1997 1996
--------------- ---------------- ----------------

Balance, beginning of period $708,933 $512,354 $415,983
Additions............................... 114,342 196,941 96,621
Dispositions and other.................. (30,549) (362) (250)
--------------- ---------------- ----------------
Balance, end of period.................. $792,726 $708,933 $512,354
=============== ================ ================

THE CHANGES IN ACCUMULATED DEPRECIATION:

YEAR ENDED DECEMBER 31,
1998 1997 1996
--------------- ---------------- ----------------

Balance, beginning of period $ 80,244 $ 58,054 $ 41,373
Additions............................... 29,176 22,314 16,931
Dispositions and other.................. (6,569) (124) (250)
--------------- ---------------- ----------------
Balance, end of period.................. $102,851 $80,244 $58,054
=============== ================ ================

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 11th of March 1999.

CHELSEA GCA REALTY PARTNERSHIP, L.P.

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 Chairman of the Board MARCH 11, 1999
and Chief Executive Officer
- -------------------------
David C. Bloom

/s/ BARRY M. GINSBURG Vice Chairman MARCH 11, 1999

- -------------------------
Barry M. Ginsburg

/s/ WILLIAM D. BLOOM Executive Vice President- MARCH 11, 1999

- -------------------------
William D. Bloom Strategic Relationships

/s/ LESLIE T. CHAO President MARCH 11, 1999

- -------------------------
Leslie T. Chao

/s/ MICHAEL J. CLARKE Chief Financial Officer MARCH 11, 1999

- -------------------------
Michael J. Clarke

/s/ BRENDAN T. BYRNE Director MARCH 11, 1999

- -------------------------
Brendan T. Byrne

/s/ ROBERT FROMMER Director MARCH 11, 1999
- -------------------------
Robert Frommer

/s/ PHILIP D. KALTENBACHER Director MARCH 11, 1999

- -------------------------
Philip D. Kaltenbacher

/s/ REUBEN S. LEIBOWITZ Director MARCH 11, 1999

- -------------------------
Reuben S. Leibowitz