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SECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549

FORM 10-K

|ý | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the fiscal year ended December 31, 2001

OR

|o | TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------------

Commission file number: 0-24123

HORIZON GROUP PROPERTIES, INC.(Exact Name of Registrant as Specified in Its Charter)

|Maryland(State or other jurisdiction of
incorporation or organization)                     |  | 38-3407933(IRS employer identification no.)                       
|------------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------
|77 West Wacker Drive, Suite 4200
Chicago, IL 60601(Address of principal executive offices) |  | (312) 917-8870(Registrant's telephone number)
including area code)

Securities registered pursuant to Section 12(b) of the Act:Common Stock, $0.01 par value

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 ý No o

Indicate
by check mark if 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
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. o

The
aggregate market value of the common stock held by non-affiliates of the registrant was $5,740,388 based on the closing sale price of $2.00 per share as reported on the NASDAQ on
February 22, 2002.

The
number of shares of the registrant's common stock, $.01 par value, outstanding as of February 22, 2002 was 2,870,194.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the following documents of the registrant are incorporated herein by reference:

Description of Document

Portion of Form 10-K Where IncorporatedPortions of the Registrant's definitive Proxy Statement, to be filed pursuant to Regulation 14A, issued in connection with the Annual Meeting of Shareholders to be held on May 14, 2002.

Part III, Items 10, 11, 12 and 13


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HORIZON GROUP PROPERTIES, INC.

Form 10-K

December 31, 2001

TABLE OF CONTENTS

|Description |          | Page No.
|----------- | -------- | --------
|
|Part I      |          |         
|            | Item 1.  |         
|            | Item 2.  |         
|            | Item 3.  |         
|            | Item 4.  |         
|Part II     |          |         
|            | Item 5.  |         
|            | Item 6.  |         
|            | Item 7.  |         
|            | Item 7A. |         
|            | Item 8.  |         
|            | Item 9.  |         
|Part III    |          |         
|            | Item 10. |         
|            | Item 11. |         
|            | Item 12. |         
|            | Item 13. |         
|Part IV     |          |         
|            | Item 14. |         
|            |          |         

2

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HORIZON GROUP PROPERTIES, INC.
FORM 10-K, ANNUAL REPORT
FOR THE YEAR ENDED DECEMBER 31, 2001

PART I

ITEM 1BUSINESS

Horizon Group Properties, Inc. ("HGPI" or, together with its subsidiaries "HGP" or the "Company") is a self-administered and
self-managed Maryland corporation that was established in connection with the merger of Horizon Group, Inc., a Michigan corporation ("Horizon") with and into Prime
Retail, Inc., a Maryland corporation ("Prime" or "Prime Retail") which was consummated on June 15, 1998 (the "Merger").

HGP's
initial portfolio consisted of 14 factory outlet centers and one power center located in 12 states. Twelve of the initial factory outlet centers and the power center (the
"Predecessor Properties") were contributed to the Company by Horizon pursuant to a Contribution Agreement entered into in connection with the Merger (the "Contribution Agreement"). Two factory outlet
centers (the "Prime Transferred Properties") were purchased by the Company from Prime immediately subsequent to the consummation of the Merger. As of December 31, 2001, HGP's operating
portfolio consisted of 11 factory outlet centers and one power center located in 9 states.

The
operations of the Company are primarily conducted through a subsidiary limited partnership, Horizon Group Properties, L.P. ("HGP LP"), of which the Company is the sole general
partner. As of December 31, 2001, HGP owned approximately 84.9% of the partnership interests (the "Common
Units") of HGP LP. Common Units are exchangeable for shares of Common Stock of the Company on a one-for-one basis (or for an equivalent cash amount at the Company's election).

Six
of the Company's properties collateralize two mortgage loans, which are currently in default. The Company recorded an impairment charge of $18.0 million during 2001 related to
four of these properties. The Company continues to manage the properties pursuant to management agreements entered into in conjunction with the origination of the loans and has initiated discussions
regarding the restructuring of the loans. The loans are non-recourse to HGPI, subject to certain customary exceptions including fraud, willful misconduct or intentional material misrepresentation; the
filing of bankruptcy by a borrower; violation of the single purpose entity provisions of the loan documents; the misappropriation of rents, insurance proceeds or condemnation awards; any act of actual
waste or arson; or a transfer of any of the properties securing the loans without lender approval.

The
Company sold its vacant center in New Mexico in December, 1999 and its center in Kentucky in January, 2001. Also pursuant to the Contribution Agreement, certain partnership interests
in three joint ventures, which own the Bellport Outlet Center, and related vacant land, were transferred from an affiliate of Horizon to HGP. These partnership interests were subsequently transferred
by the Company back to Prime on September 1, 1999 (see Note 9 to the Consolidated Financial Statements).

Tax Status

The Company has elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code"). A REIT is a legal
entity that holds real estate interests and receives a deduction for dividends paid to its shareholders for federal income tax purposes. HGP intends to distribute its REIT taxable income to its
shareholders and satisfy certain other requirements as defined in the Code so as to reduce or eliminate federal income tax liability. Based on its taxable loss in the current period and past fiscal
years, the Company is not and has not been obligated to make any dividend distributions to qualify as a REIT.

3

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In
2000, the Company amended its Charter to impose a limit on share ownership with respect to any shareholder of no more than 4.9% of the value of all classes of the Company's
outstanding shares. This limitation is intended to prevent the application of the limitations on the utilization of the Company's net operating losses for federal income tax purposes. The revisions to
the Charter allow the Board of Directors to set a higher share ownership limit with respect to specific shareholders, provided such higher limit would not jeopardize the Company's status as a REIT
within the meaning of the Code. Additionally, shareholders which owned more than 4.9% of the Company's outstanding shares as of the effective date of the amendments are not subject to the 4.9%
ownership limit, but are subject to the ownership limit of 9.9% of the value of the Company's outstanding shares as provided in the Charter prior to its amendment.

Environmental Matters

Under various federal, state and local laws and regulations, an owner of real estate is liable for the costs of removal or remediation of certain hazardous
substances on their property. Such laws often impose liability without regard to whether the owner knew of, or was responsible for, the presence of hazardous substances. The costs of remediation or
removal may be substantial, and the presence of the hazardous substances, or the failure to promptly remediate them, may adversely affect the owner's ability to sell the real estate or to borrow using
the real estate as collateral. In connection with its ownership and operation of the properties, the Company may be potentially liable for the costs of removal or remediation of hazardous substances.
No environmental matters are known to affect the properties owned by the Company at December 31, 2001.

Employees

As of December 31, 2001, the Company had 130 employees. The Company believes that its relations with its employees are satisfactory.

4

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ITEM 2PROPERTIES

The following table and accompanying notes set forth information concerning each property in which the Company owns an equity interest as of December 31,
2001. See Schedule III in Item 8 for additional information.

Portfolio of Shopping Center Properties

December 31, 2001

|Name and Location of Center                                     |  | Initial Construction |  | GLA (sq. ft) |  | Percentage Leased (1) |  
|--------------------------------------------------------------- |  | -------------------- |  | ------------ |  | --------------------- | -
|Holland Outlet Center in Holland, Michigan                      |  | September 1988       |  | 193,775      |  | 63.4                  | %
|Horizon Outlet CenterLaughlin in Laughlin, Nevada              |  | July 1996            |  | 256,799      |  | 83.9                  | %
|Horizon Outlet CenterMonroe in Monroe, Michigan                |  | November 1987        |  | 225,121      |  | 75.5                  | %
|Horizon Outlet CenterTravese City in Traverse City, Michigan   |  | October 1990         |  | 153,975      |  | 82.1                  | %
|Horizon Outlet CenterTulare in Tulare, California              |  | November 1995        |  | 138,647      |  | 87.7                  | %
|Indiana Factory Shops in Daleville, Indiana                     |  | November 1994        |  | 233,605      |  | 50.4                  | %
|Lakeshore Marketplace in Norton Shores, Michigan (Power Center) |  | October 1995         |  | 357,128      |  | 94.0                  | %
|Medford Outlet Center in Medford, Minnesota                     |  | June 1991            |  | 223,960      |  | 84.2                  | %
|Nebraska Crossing Factory Stores in Gretna, Nebraska            |  | October 1993         |  | 191,500      |  | 64.4                  | %
|Sealy Outlet Center in Sealy, Texas                             |  | August 1995          |  | 191,587      |  | 70.7                  | %
|The Factory Shops in Georgian Place in Somerset, Pennsylvania   |  | April 1990           |  | 189,532      |  | 58.9                  | %
|Warrenton Outlet Center in Warrenton, Missouri                  |  | September 1993       |  | 199,963      |  | 86.4                  | %
|                                                                |  |                      |  |              |  |                       |  
|Total Centers                                                   |  |                      |  | 2,555,592    |  | 76.0                  | %
|                                                                |  |                      |  |              |  |                       |  

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Notes:

Lease Information

In general, the leases have initial terms of one to five years. Many leases provide for the payment of percentage rent based on annual sales in excess of certain
thresholds. In addition, some leases provide for the payment of a tenant's proportionate share of actual common area maintenance, refuse removal, insurance, and real estate taxes as well as a payment
for advertising and promotion and an

5

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administrative fee. Common area maintenance includes such items as common area utilities, security, parking lot cleaning, maintenance and repair of common areas, capital replacement reserves,
landscaping, seasonal decorations, public restroom maintenance and certain administrative expenses.

Lease ExpirationsProperties

The following table shows leases scheduled to expire each year for the next five years at the Company's properties (as of December 31, 2001 and assuming no
lease renewals or extensions):

Year

Number of Leases Expiring

Approximate GLA (Sq.Ft.)2002

148

619,3852003

74

317,1092004

58

266,4292005

40

174,2552006

41

234,089


Tenant Information

HGP's shopping centers feature a variety of retailers of widely recognized, traditional brand name merchandise. The following table sets forth information as to
HGP's major tenants as of and for the year ended December 31, 2001.

|                                 |  | Number of Stores |  | Occupied (Sq. Ft) |  | Percentage of Total Revenues |   | Percentage of GLA Occupied |  
|-------------------------------- |  | ---------------- |  | ----------------- |  | ---------------------------- | - | -------------------------- | -
|Phillips-Van Heusen Corporation  |  | 27               |  | 137,450           |  | 7.55                         | % | 6.07                       | %
|The Gap,Inc.                     |  | 13               |  | 93,984            |  | 3.49                         | % | 4.15                       | %
|Elder-Beerman Stores Corporation |  | 1                |  | 87,185            |  | 3.18                         | % | 3.85                       | %
|Salisbury Sales Corporation      |  | 8                |  | 85,115            |  | 2.90                         | % | 3.76                       | %
|Dress Barn, Incorporated         |  | 10               |  | 80,110            |  | 4.11                         | % | 3.54                       | %
|Brown Group Retail, Incorporated |  | 14               |  | 73,570            |  | 3.68                         | % | 3.25                       | %

Competition

HGP's shopping centers compete for customers primarily with factory outlet centers built and operated by other developers, traditional shopping malls and
off-price retailers. HGP believes that the majority of its customers visit factory outlet centers because they are intent on buying first-quality and name-brand goods at
discounted prices. Traditional full and off-price retailers are often unable to provide such a variety of products at attractive prices at a single location every day.

Numerous
developers and real estate companies are engaged in the development or ownership of factory outlet centers and other retail complexes that compete with HGP in seeking tenants
for its centers. HGP competes for tenants with many large national and small developers of factory outlet centers. The development of a new, competing factory outlet center with a more convenient
location or more favorable rental terms may attract HGP's tenants or cause them to renegotiate their leases at or prior to renewal.

As
HGP continues to implement its business plan to enhance the value of its real estate assets by exploring alternative retail and non-retail uses, it will compete directly
with a broader array of national and regional real estate management and development companies, many of which are larger and have greater financial resources than HGP.

6

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ITEM 3LEGAL PROCEEDINGS

In the ordinary course of business the Company is subject to certain legal actions. While any litigation contains an element of uncertainty, management believes
the losses, if any, resulting from such matters will not have a material adverse effect on the consolidated financial statements of the Company.

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

No matters were submitted to a vote of security holders during the quarter ended December 31, 2001.

EXECUTIVE OFFICERS OF THE COMPANY

The following table sets forth the names, positions and, as of December 31, 2001, ages of the executive officers of the Company:

|Name               |  | Position                                                  |  | Age
|------------------ |  | --------------------------------------------------------- |  | ---
|Gary J. Skoien     |  | Chairman of the Board, President, Chief Executive Officer |  | 47 
|David R. Tinkham   |  | Senior Vice President, Chief Financial Officer, Secretary |  | 46 
|Andrew F. Pelmoter |  | Senior Vice President of Leasing                          |  | 40 
|Thomas A. Rumptz   |  | Senior Vice President of Asset and Property Management    |  | 41 

GARY J.
SKOIEN. Gary J. Skoien has served as Chairman of the Board, President, Chief Executive Officer and a Director since June 1998. Mr. Skoien also serves,
and has served since 1994, as Executive Vice President and Chief Operating Officer of The Prime Group, Inc. ("PGI") where he is responsible for managing the land development division and
corporate management functions. Prior to this role, Mr. Skoien served as Senior Vice President and Chief Operating Officer of the Retail Division of PGI (currently Prime Retail, Inc.)
from 1992 to 1993. In this role, he oversaw strategic planning, development and management of the rapidly growing division. He oversaw the development of nearly one million square feet of factory
outlet shopping centers. From 1983 to 1991, Mr. Skoien was the Executive Director of The Illinois Capital Development Board and from 1980 to 1983, Mr. Skoien was an Assistant to the
Illinois Governor. Mr. Skoien is Vice Chairman of the Board of Trustees of Northern Illinois University and on the Boards of Directors of the Chicagoland Chamber of Commerce and the Civic
Federation. Mr. Skoien received his A.B. CUM LAUDE from Colgate University and received his Master of Public Policy from the University of Michigan.

DAVID R.
TINKHAM. David R. Tinkham has served as Chief Financial Officer since June 1998. For fifteen years prior to his employment with HGP, Mr. Tinkham was
responsible for capital markets access, treasury, accounting, tax, insurance, investor relations, information technology and SEC
compliance at The Chicago Dock and Canal Trust where he served as Chief Financial Officer. Prior to joining The Chicago Dock and Canal Trust, Mr. Tinkham was a Senior Tax Accountant at Arthur
Andersen & Co. Mr. Tinkham received his Masters of Management degree from Northwestern University and a Bachelors of Business Administration in Accounting from The University of
Michigan. Mr. Tinkham is a member of the American Institute of Certified Public Accountants, Economic Club of Chicago, and the Realty Club of Chicago and an associate member of the Urban Land
Institute.

ANDREW F.
PELMOTER. Andrew F. Pelmoter has served as Senior Vice President of Leasing since February 1999. Prior to his employment with HGP, Mr. Pelmoter was
Director of Leasing for Horizon from 1997 to 1998. Prior to joining Horizon, Mr. Pelmoter was employed for 11 years with Mills Corporation, where he held numerous positions, including
Director of Leasing, Director of Lease Administration, and Senior Leasing Executive. Mr. Pelmoter graduated from the University of Delaware with a Bachelor's Degree in Business Administration.

7

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THOMAS A.
RUMPTZ. Thomas A. Rumptz has served as Senior Vice President of Asset and Property Management since June 1999 and Senior Vice President of Real Estate
since June 1998. Mr. Rumptz's role with HGP includes responsibility for property operations, development, disposition of residual land, construction and human resources. For eight years
prior to his employment at HGP, Mr. Rumptz worked for the predecessor company, Horizon Group, Inc., where he held many different positions including Controller, Vice President of
Finance, and most recently, Vice President of Real Estate. Prior to working for Horizon Group, Inc., Mr. Rumptz served as Manager of Investment Real Estate for Foremost Insurance.
Mr. Rumptz received his MBA from Grand Valley State University and a Bachelor of Business Administration from the University of Michigan. Mr. Rumptz is a member of the International
Council of Shopping Centers and possesses a State of Michigan real estate license.

8

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PART II

ITEM 5MARKET FOR THE COMPANY'S COMMON SHARES AND  RELATED STOCKHOLDER MATTERS

The Company's common shares trade on the NASDAQ SmallCap Market of The NASDAQ Stock Market, Inc. ("Nasdaq") under the trading symbol "HGPI".

The
following table sets forth the quarterly high and low sales prices per share of the Company's common shares, as reported by Nasdaq.

Market Price Per Common Share
2001Fourth
Quarter

Third
Quarter

First
Quarter

Second
QuarterHigh

$
3.450

$
3.650

$
2.990

$
3.313Low


1.750


2.380


2.210


2.563Dividends declared














Market Price Per Common Share
2000Fourth
Quarter

Third
Quarter

First
Quarter

Second
QuarterHigh

$
4.625

$
4.719

$
5.000

$
4.750Low


2.375


2.938


3.281


2.031Dividends declared














The
approximate number of holders of record of the common shares was 591 as of February 22, 2002.

9

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ITEM 6SELECTED FINANCIAL DATA

The following table presents selected historical financial data of HGP and the Predecessor Properties (as defined herein) and should be read in conjunction with
the consolidated financial statements and notes thereto included in Part II, Item 8. The Predecessor Properties historical information has been derived from the operations and historical basis
of 13 of Horizon's 35 outlet centers (including one power center) that were contributed to HGP by Horizon in connection with the Prime Retail merger. As HGP was not a separate legal entity with its
own capital structure prior to June 15, 1998, per share data for net income and dividends have not been presented for these periods. The historical financial information may not be indicative
of HGP's future performance and does not necessarily reflect what the financial position and results of operations of HGP would have been had HGP operated as a separate, stand-alone entity during the
periods prior to June 15, 1998. The selected financial data set forth does not include the operating results or financial position of the Prime Transferred Properties (as defined herein) for
the periods prior to their acquisition on June 15, 1998.

|                                                                                              |                      |   |         |        |   |         |        | Horizon Group Properties, Inc. as of December 31, 1998 or for the period from June 15, 1998 to December 31, 1998 |         |        |   |         |       
|--------------------------------------------------------------------------------------------- | -------------------- | - | ------- | ------ | - | ------- | ------ | ---------------------------------------------------------------------------------------------------------------- | ------- | ------ | - | ------- | ------
|
|
|
|
|Operating Data                                                                                |                      |   |         |        |   |         |        |                                                                                                                  |         |        |   |         |       
|Revenues                                                                                      |                      | $ | 23,292  |        | $ | 27,754  |        | $                                                                                                                | 30,378  |        | $ | 17,147  |       
|Expenses                                                                                      |                      |   | 29,632  |        |   | 29,852  |        |                                                                                                                  | 30,094  |        |   | 16,701  |       
|Impairment (1)                                                                                |                      |   | 18,000  |        |   | 1,568   |        |                                                                                                                  |        |        |   |        |       
|Income (loss) from joint ventures                                                             |                      |   |        |        |   |        |        |                                                                                                                  | (622    | )      |   | (59     | )     
|                                                                                              |                      |   |         |        |   |         |        |                                                                                                                  |         |        |   |         |       
|Income (loss) before gain on sale of real estate, minority interests and extraordinary charge |                      |   | (24,340 | )      |   | (3,666  | )      |                                                                                                                  | (338    | )      |   | 387     |       
|Gain on sale of real estate                                                                   |                      |   | 1,550   |        |   | 239     |        |                                                                                                                  |        |        |   |        |       
|                                                                                              |                      |   |         |        |   |         |        |                                                                                                                  |         |        |   |         |       
|Income (loss) before minority interests and extraordinary charge                              |                      |   | (22,790 | )      |   | (3,427  | )      |                                                                                                                  | (338    | )      |   | 387     |       
|Minority interests (2)                                                                        |                      |   | 3,392   |        |   | 537     |        |                                                                                                                  | 31      |        |   | (69     | )     
|                                                                                              |                      |   |         |        |   |         |        |                                                                                                                  |         |        |   |         |       
|Income (loss) before extraordinary charge                                                     |                      |   | (19,398 | )      |   | (2,890  | )      |                                                                                                                  | (307    | )      |   | 318     |       
|Extraordinary charge on debt prepayment                                                       |                      |   |        |        |   |        |        |                                                                                                                  | (568    | )      |   |        |       
|                                                                                              |                      |   |         |        |   |         |        |                                                                                                                  |         |        |   |         |       
|Net income (loss)                                                                             |                      | $ | (19,398 | )      | $ | (2,890  | )      | $                                                                                                                | (875    | )      | $ | 318     |       
|                                                                                              |                      |   |         |        |   |         |        |                                                                                                                  |         |        |   |         |       
|Net income (loss) per sharebasic and diluted (3)                                             |                      | $ | (6.76   | )      | $ | (1.01   | )      | $                                                                                                                | (0.31   | )      | $ | 0.11    |       
|                                                                                              |                      |   |         |        |   |         |        |                                                                                                                  |         |        |   |         |       
|Dividends per share (4)                                                                       |                      | $ |        |        | $ |        |        | $                                                                                                                |        |        | $ |        |       
|                                                                                              |                      |   |         |        |   |         |        |                                                                                                                  |         |        |   |         |       
|Balance Sheet Data:                                                                           |                      |   |         |        |   |         |        |                                                                                                                  |         |        |   |         |       
|Real estate, net of accumulated depreciation                                                  |                      | $ | 112,314 |        | $ | 133,803 |        | $                                                                                                                | 141,419 |        | $ | 142,588 |       
|Cash and cash equivalents                                                                     |                      |   | 1,096   |        |   | 2,866   |        |                                                                                                                  | 4,955   |        |   | 2,686   |       
|Total assets                                                                                  |                      |   | 124,383 |        |   | 147,968 |        |                                                                                                                  | 155,000 |        |   | 165,678 |       
|Debt (allocation from Horizon for Predecessor Properties)                                     |                      |   | 103,135 |        |   | 104,401 |        |                                                                                                                  | 107,128 |        |   | 114,752 |       
|Net assets                                                                                    |                      |   |         |        |   |         |        |                                                                                                                  |         |        |   |         |       
|Total shareholders' equity                                                                    |                      |   | 11,634  |        |   | 30,988  |        |                                                                                                                  | 33,528  |        |   | 33,614  |       
|Other Data:                                                                                   |                      |   |         |        |   |         |        |                                                                                                                  |         |        |   |         |       
|Cash flows provided by/(used in):                                                             |                      |   |         |        |   |         |        |                                                                                                                  |         |        |   |         |       
|                                                                                              | Operating activities |   | $       | 202    |   | $       | 2,115  |                                                                                                                  | $       | 6,673  |   | $       | 2,760 
|                                                                                              | Investing activities |   |         | 436    |   |         | (1,450 | )                                                                                                                |         | (832   | ) |         | (2,455
|                                                                                              | Financing activities |   |         | (2,408 | ) |         | (2,754 | )                                                                                                                |         | (3,572 | ) |         | (761  
|Total gross leasable area (square feet)                                                       |                      |   | 2,556   |        |   | 2,673   |        |                                                                                                                  | 2,673   |        |   | 2,795   |       

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Notes:

10

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SELECTED QUARTERLY FINANCIAL DATA

|                                                                      |  | 2001 |       
|--------------------------------------------------------------------- |  | ---- | ------
|
|
|Revenue                                                               |  | $    | 6,111 
|Expenses                                                              |  |      | 7,194 
|Provision for impairment                                              |  |      |      
|                                                                      |  |      |       
|Loss before gain/(loss) on sale of real estate and minority interests |  |      | (1,083
|Gain/(loss) on sale of real estate                                    |  |      | (6    
|                                                                      |  |      |       
|Loss before minority interests                                        |  |      | (1,089
|Minority interests                                                    |  |      | 169   
|                                                                      |  |      |       
|Net loss                                                              |  | $    | (920  
|                                                                      |  |      |       
|Net loss per sharebasic and diluted                                  |  | $    | (0.32 
|                                                                      |  |      |       

|                                                               |  | 2000 |      
|-------------------------------------------------------------- |  | ---- | -----
|
|
|Revenue                                                        |  | $    | 6,775
|Expenses                                                       |  |      | 7,312
|Provision for impairment                                       |  |      |     
|                                                               |  |      |      
|Loss before gain on sale of real estate and minority interests |  |      | (537 
|Gain on sale of real estate                                    |  |      |     
|                                                               |  |      |      
|Loss before minority interests                                 |  |      | (537 
|Minority interests                                             |  |      | 73   
|                                                               |  |      |      
|Net loss                                                       |  | $    | (464 
|                                                               |  |      |      
|Net loss per sharebasic and diluted                           |  | $    | (0.16
|                                                               |  |      |      

11

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ITEM 7MANAGEMENT'S DISCUSSION AND ANALYSIS OF  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction

The following discussion and analysis of the consolidated financial condition and results of operations of Horizon Group Properties, Inc. ("HGPI" or,
together with its subsidiaries "HGP" or the "Company") should be read in conjunction with the Consolidated Financial Statements and Notes thereto. The Company's operations are conducted primarily
through a subsidiary limited partnership, Horizon Group Properties, L.P. ("HGP LP"). The Company is the sole general partner of HGP LP and, as of December 31, 2001, owned approximately 84.9% of
the HGP LP partnership interests ("Common Units"). Common Units of HGP LP are exchangeable for shares of common stock on a one-for-one basis at any time (or for an equivalent
cash amount at the Company's election). The Company controls HGP LP and is dependent on distributions or other payments from HGP LP to meet its financial obligations.

Cautionary Statements

The following discussion in "Management's Discussion and Analysis of Financial Condition and Results of Operations" contains certain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 which reflect management's current views with respect to future events and financial performance. Such forward-looking
statements are subject to certain risks and uncertainties including, but not limited to, the effect of future events on the Company's financial performance; the risk that the Company may be unable to
refinance its current debt as it matures; risks related to the retail industry in which the Company's shopping centers compete, including the potential adverse impact of external factors, such as
competition from existing or newly constructed shopping centers, inflation, consumer confidence, unemployment rates and consumer tastes and preferences; risks associated with the Company's property
acquisitions, such as the lack of predictability with respect to financial returns; risks associated with the Company's property development activities, such as the potential for cost overruns, delays
and the lack of predictability with respect to the financial returns associated with these development activities; the risk of potential increases in market interest rates from current levels; and
risks associated with real estate ownership, such as the potential adverse
impact of changes in local economic climate on the revenues and the value of the Company's properties. For further information on factors which could impact the Company and the statements contained
herein, reference is made to the Company's other filings with the Securities and Exchange Commission, including the Company's Registration Statement on Form 10, as amended, dated as of
June 4, 1998, with respect to the Company's initial registration of its common stock under the Securities Exchange Act of 1934, as amended and the Sky Merger Corp. Registration Statement on
Form S-4, as filed with the Securities and Exchange Commission on May 12, 1998 (Registration No. 333-51285).

The
statements of financial condition and results of operations of the Company reflect the application of the Company's accounting policies, the most significant of which are outlined in
Note 2 to the Consolidated Financial Statements. These policies are applied in accordance with accounting principles generally accepted in the United States and reflect significant assumptions
and estimates of the management of the Company.

General Overview

The Company is a self-administered and self-managed corporation that was established in connection with the merger of Horizon
Group, Inc., a Michigan corporation ("Horizon") with and into Prime Retail, Inc., a Maryland corporation ("Prime" or "Prime Retail") which was consummated on June 15, 1998 ("the
Merger"). As of December 31, 2001, HGP's portfolio consisted of 11 factory outlet

12

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centers and one power center located in nine states comprising an aggregate of approximately 2.6 million square feet of gross leasable area ("GLA"). Nine of the factory outlet centers and the
power center were contributed to the Company by Horizon pursuant to a Contribution Agreement entered into in connection with the Merger (the "Contribution Agreement") and two factory outlet centers
were purchased by the Company from Prime immediately subsequent to the consummation of the Merger.

The
Company currently is in default with respect to the obligations of two loans originated by JP Morgan in July 1999 (the "JP Morgan Loans"). The defaults are the
result of the Company's failure to pay in full the amounts due under the loans commencing with the payment due October 1, 2001. Each loan is secured by a group of three properties. The first
group consists of the Indiana Factory Shops, The Factory Shops in Georgian Place and Horizon Outlet CenterTulare; the second group consists of Nebraska Crossing Factory Stores, Sealy
Outlet Center and Horizon Outlet CenterTraverse City. The loans are non-recourse to HGPI, subject to certain customary exceptions. The Company continues to manage the centers
and remit the net cash flow each month as partial payment on the loans. Interest expense since October 2001 has been accrued at the default rate of interest (an annual rate of 13.46%) together
with a penalty equal to 5% of each monthly amount due under the related notes. The results of operations of the Company reflect the revenues and expenses, including accrued interest, of the properties
subject to the JP Morgan Loans together with the revenues and expenses of the other properties owned by the Company. The defaults under the loan agreements allow the respective lenders to
exercise their various remedies contained in the loan agreements, including termination of the Company as manager of the centers, application of escrow balances to delinquent payments and, ultimately,
foreclosure on the properties which collateralize the loans.

2001 Compared to 2000

Base
rent decreased $2.9 million in the year ended December 31, 2001 compared to the prior year primarily due to a decline in occupancy and reductions in rental rates for
many tenants. Of the total decrease, $1.7 million relates to the six properties which secure the JP Morgan Loans, $574,000 is associated with the center in Dry Ridge, Kentucky ("Dry
Ridge") (which was sold in January 2001) and $809,000 relates to the Company's six other shopping centers. The remaining difference relates to Dry Ridge and other corporate activities. Average
occupancy for the six properties subject to the JP Morgan Loans was 68.9% and 78.9% for the years ended December 31, 2001 and 2000, respectively. Average occupancy for the Company's six
other shopping centers (excluding Dry Ridge) was 83.7% and 87.6% for the years ended December 31, 2001 and 2000, respectively.

Base
rent, both fixed and calculated as a percentage of sales, and expense recovery revenue are recorded based on management's interpretation of the language contained in the leases and
certain related tenant and shopping center performance measures. Base rents related to leases which contain uneven rental obligations are recognized at the average rental rates over the terms of the
related leases based on management's judgement with respect to the collectibility of those rents. If future events differ from management's judgements, a significant change in the amount of reported
revenue could result. This is a significant accounting policy, which is discussed more fully in Note 2 to the Consolidated Financial Statements.

Expense
recovery revenue decreased $1.1 million in the year ended December 31, 2001 compared to the prior year due to a decrease in the operating expenses and real estate
taxes subject to recovery totaling $354,000 and a decrease in the area leased to tenants subject to these charges. Of the total decrease, $468,000 was related to the six properties subject to the
JP Morgan Loans and $537,000 was related to the Company's other six shopping centers (excluding Dry Ridge). The remaining difference relates to Dry Ridge and other corporate activities.

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Some
tenants are obligated to pay a portion of the property operating expenses and real estate taxes, which is recorded as expense recovery revenue. Tenants generally pay an estimate of
these amounts to the Company monthly. The company accrues expense recovery revenue based on an estimate of expenses and each tenant's obligation to reimburse its share of those expenses. The final
amounts due are determined after the end of the year. Any difference between the actual and accrued amounts are recorded in the period in which such determination is made.

Property
operating expense decreased $336,000 in the year ended December 31, 2001 compared to the prior year due to overall cost-cutting programs and a significant
decrease in snow removal charges due to mild weather in 2001. Of the total decrease, $86,000 was related to the six properties subject to the
JP Morgan Loans and $155,000 was related to the Company's six other shopping centers (excluding Dry Ridge). The remaining difference relates to Dry Ridge and other corporate activities.

For
some properties, real estate taxes for the current year are not due and payable until the next calendar year. We estimate the amounts due for each period based on historical trends
for a particular property or local area. We also use information from our consultants who review the methodology used by the local taxing authorities to determine the real estate taxes we owe. If the
local taxing authority were to change the methodology it uses to determine real estate taxes or changes the rates they apply, the amounts estimated to be paid in future years could vary from
management's estimates.

Landlease
and other expense increased $353,000 in the year ended December 31, 2001 as compared to the prior year mainly due to an increase in bad debt expense as a result of
several tenant bankruptcies. Of the total increase $80,000 was related to the six properties subject to the JP Morgan Loans and $347,000 was related to the Company's six other shopping centers
(excluding Dry Ridge). Landlease and other expense decreased $82,000 at Dry Ridge. The Company recognized net bad debt expense of $656,000 and $271,000 in 2001 and 2000, respectively, based on its
analysis of collectibility. The determination of this amount involves an estimate by management based on, among other factors, the period of time an amount is past due and the financial condition of
the obligor. Future conditions which differ from management's estimates may result in a significant difference in the amounts actually collected. This is a significant accounting policy, which is
discussed more fully in Note 2 to the Consolidated Financial Statements.

Depreciation
and amortization expense increased $501,000 in the year ended December 31, 2001 as compared to the prior year. Of the total increase, $152,000 was related to the six
properties subject to the JP Morgan Loans and $483,000 was related to the Company's six other shopping centers (excluding Dry Ridge). The remaining difference relates to Dry Ridge and other
corporate activities. The increase in expense resulted from depreciation on Phase III of the Company's center in Medford, Minnesota (which was placed in service in the fourth quarter of 2000) and an
increase in charges to expense for unamortized capitalized costs related to unscheduled tenant move-outs of $389,000 in 2001 compared to 2000.

General
and administrative expense decreased $544,000 in the year ended December 31, 2001 compared to the prior year primarily due to reductions in corporate staffing levels and
reductions in corporate bonuses. The decrease in expense also reflects a portion of the reduction in property taxes on the Company's corporate office building. Legal fees increased in the current year
as a result of costs related to a proxy dispute which were charged to expense in the second quarter. In the prior year, however, legal fees were incurred related to several potential transactions
which were not consummated. No similar charges were incurred in the current year.

Impairment
charges totaling $18.0 million were recorded in the year ended December 31, 2001 to adjust the carrying value of four of the properties subject to the
JP Morgan Loans to their current fair market values (See Note 4 to the Consolidated Financial Statements). Impairment charges of $1.6 million were recorded in the year ended
December 31, 2000 based on a contract for the sale of the outlet center in Dry Ridge, Kentucky which closed in January 2001. The determination of the

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current fair market values involves estimates by management of future cash flows, occupancy levels, comparable sales values and replacement costs, among other things. If future conditions differ from
management's estimates, a significant change in this charge could be warranted. This is a significant accounting policy which is discussed more fully in Note 2 to the Consolidated Financial
Statements.

Interest
expense decreased $176,000 in the year ended December 31, 2001 compared to the prior year. The primary factors causing the decrease were a reduction in LIBOR, which
affected the Company's floating rate debt, a reduction in the Prime guarantee fee effective June 15, 2001, and the sale of Dry Ridge, (see Note 12 to the Consolidated Financial
Statements). These decreases were mostly offset by interest penalties and late fees totaling $291,000 related to the extension of the maturity date of the HGP Credit Facility in July 2001, and
default interest and late fees totaling $575,000 related to the JP Morgan Loan default (see Note 8 to the Consolidated Financial Statements). The JP Morgan Loans are
non-recourse to HGPI, subject to limited customary exceptions. Currently, the net cash flow from the collateral properties is being remitted as a partial payment of the contractual debt
service.

In
the first quarter of 2001, the Company sold Dry Ridge and recognized a loss of $6,000. In the second quarter of 2001, the Company sold 18.8 acres of vacant land in Norton Shores,
Michigan for $1.7 million and recognized a gain of $913,000. In the third quarter of 2001, the Company sold land ancillary to its center in Holland, Michigan and recognized a gain of $42,000.
In the fourth quarter of 2001, the Company had three property transactions. The first was the sale of an outparcel at its center in Sealy, Texas which resulted in a loss of $29,000. The second was the
sale of an outparcel at its center in Monroe, Michigan which resulted in a gain of $236,000. The third transaction was the sale of an outparcel in Norton Shores, Michigan which resulted in a gain of
$394,000. The gains and losses from these transactions are reflected in the Statement of Operations for the year ended December 31, 2001.

Average
occupancy for the Company's total operating portfolio for the year ended December 31, 2001 was 77.4%. As of December 31, 2001 and 2000, occupancy of the Company's
total operating portfolio was 75.8% and 81.6%, respectively.

Net
loss for the years ended December 31, 2001 and 2000 was $6.76 and $1.01 per share, respectively, on a basic and diluted basis.

2000 Compared to 1999

Base
rent decreased $1.6 million in the year ended December 31, 2000 compared to the prior year primarily due to reductions in rental rates for several tenants. The centers
experiencing the largest decreases in base rent were located in Daleville, Indiana, Sealy, Texas, and Somerset, Pennsylvania totaling $1.9 million. This was partially offset by the centers with
the largest increase in base rents located in Medford, Minnesota and Norton Shores, Michigan which totaled $610,000.

Expense
recovery revenue decreased $1.0 million in the year ended December 31, 2000 compared to the prior year due to a decline in the related property expenses and the
percentage of tenants subject to these charges.

The
Company made a $1.5 million loan to Prime Outdoor, LLC, an affiliate of Prime Group, Inc. on April 18, 2000. The Prime Group, Inc. is an affiliate
of Michael W. Reschke, a Director of the Company. The interest rate on the loan was 10% and was secured by a pledge of all of the unencumbered assets of Prime Outdoor, LLC, Prime
Group, Inc.'s ownership interest in Prime Outdoor, LLC and 410,783 units in Horizon Group Properties, LP owned by Prime Group, Inc. and its affiliates. The loan was approved by a
committee of independent directors of the Company. The loan was repaid on June 9, 2000.

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Real
estate tax expense decreased $465,000 in the year ended December 31, 2000, compared to the prior year mainly due to a refund of a portion of the 1997 through 1999 taxes at
the outlet center in Monroe, Michigan and a decrease in the current tax assessments for this and several other properties.

Landlease
and other expense decreased $530,000 in the year ended December 31, 2000, compared to the prior year mainly due to reductions in marketing landlord contributions and a
reduction in bad debt reserves.

General
and administrative expense decreased $906,000 in the year ended December 31, 2000, compared to the prior year mainly as a result of a reduction in corporate staffing. In
addition, the year ended December 31, 1999 included unsuccessful merger costs of $333,000 and indirect debt restructuring fees of $189,000. There were no similar costs recorded in the current
year.

Depreciation
and amortization expense increased $600,000 or 12% compared to the prior year, principally from additions for tenant improvements and the stabilization of Medford Phase III
in 2000.

Interest
expense increased $1.1 million in the year ended December 31, 2000, compared to the prior year. The primary factors causing the increase were higher interest
rates, which affected the Company's floating rate debt and the refinancing of a portion of the Nomura debt with the proceeds from the JP Morgan loans in July 1999. The JP Morgan
loans carry a fixed interest rate, which was greater than the effective rate on the Nomura loan for the prior year. The year ended December 31, 2000, also includes an accrual of $723,000 for
the repayment fees on the remaining Nomura debt. Offsetting the increase in interest rates was a net reduction in debt outstanding of $2.7 million from December 31, 2000 to
December 31, 1999.

The
average effective interest rate on the Nomura facility for the year ended December 31, 2000 was 8.63% compared to 8.36% for the prior year. In September 1999, the
Company assumed loans, in connection with land located in Muskegon, Michigan. The outstanding balance on these loans was $590,000 as of December 31, 2000. The average interest rate on these
loans was approximately 7.4% and 9.6% at December 31, 2000 and 1999, respectively.

The
financial statements for the years ended December 31, 2000 and 1999 include net charges of $377,000 and $697,000, respectively, for marketing landlord contributions. These
contributions were used to supplement funds received from tenants to market key centers.

Average
occupancy for the Company's total operating portfolio for the year ended December 31, 2000 was 83.2%. As of December 31, 2000 and 1999, occupancy of the Company's
total operating portfolio was 81.6% and 84.7%, respectively.

The
Company accounted for its investments in the joint ventures which own the Bellport Outlet Center utilizing the equity method. On September 1, 1999, the Company transferred its
investments in the Bellport joint ventures to an affiliate of Prime. The Company received $7.5 million in cash and approximately 95 acres of undeveloped land in Muskegon, Michigan (see
Note 9 to the Consolidated Financial Statements).

Net
loss for the years ended December 31, 2000 and 1999, was $1.01 and $0.31 per share, respectively, on a basic and diluted basis.

Impairment
charges of $1.6 million were recorded in the year ended December 31, 2000 based on a contract for the sale of the outlet center in Dry Ridge, Kentucky which
closed in January, 2001. No similar charges were recorded in the year ended December 31, 1999.

On
November 9, 2000 the Company sold an outparcel located in front of its power center in Norton Shores, Michigan for $375,000. A gain on sale of $239,000 is reflected on the
statement of operations for the year ended December 31, 2000. There was no similar item recorded in the year ended December 31, 1999.

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An
extraordinary charge on debt prepayment of $568,000, net of minority interests, was incurred in the year ended December 31, 1999. This charge reflected the exit fees paid and
unamortized loan fees
charged to expense in connection with the refinancing of six properties with JP Morgan (see Note 8 to the Consolidated Financial Statements). There was no similar cost recorded in the
year ended December 31, 2000.

Liquidity and Capital Resources

As of December 31, 2001, the aggregate amount of outstanding mortgages and other debt was approximately $103.1 million. Of that amount,
$32.1 million matures in July 2002 and $2.4 million matures in December 2002. The Company currently is in default with respect to the obligations of two loans originated by
JP Morgan in July 1999 with an aggregate principal balance of $45.5 million at December 31, 2001 (excluding accrued interest and penalties). The defaults are the result of
the Company's failure to pay in full the amounts due under the loans commencing with the payment due October 1, 2001. Each loan is secured by a group of three properties. The loans are
non-recourse to HGPI, subject to limited customary exceptions (see Note 8 to the Consolidated Financial Statements).

On
January 26, 2001, the Company sold its outlet center in Dry Ridge, Kentucky for $2.5 million. This center was classified as held for sale on the Company's balance sheet
at December 31, 2000. The net proceeds were used to pay down the outstanding balance on the Company's credit facility (the "HGP Credit Facility") currently owned by CDC Mortgage
Capital, Inc. ("CDC") as discussed further below.

The
mortgage loan secured by the Company's outlet center in Holland, Michigan was made by Republic Bank. The $3.5 million loan matures in July 2006, requires monthly debt
service payments of $30,000 based on a twenty-year amortization schedule, and bears interest at a fixed rate of 8.21%. The net proceeds from the loan were used to reduce the balance of the
HGP Credit Facility. This loan requires the monthly funding of an escrow account for the payment of real estate taxes. This escrow account has a balance of $93,000 at December 31, 2001. The
loan requires that the cash flow from the property be at least 130 percent of the debt service on the loan. In the event that the cash flow is less than that amount, the Company may make
principal payments to reduce the outstanding balance of the loan to an amount which reduces debt service to a level which is in compliance with this requirement.

The
mortgage loan secured by the Company's power center in Norton Shores, Michigan was made by Greenwich Capital Financial Products, Inc. ("Greenwich"). The $16.0 million
loan matures in July 2011, requires monthly payments based on a 30-year amortization schedule and bears interest at a fixed rate of 7.647%. The loan is non-recourse to HGPI (subject
to limited customary exceptions). The net proceeds from the loan were used to reduce the balance of the HGP Credit Facility. In connection with the Greenwich loan, title to Lakeshore Marketplace was
transferred to a new entity, Lakeshore Marketplace, LLC, a wholly owned subsidiary of the Company. Lakeshore Marketplace LLC, and its managing member, Lakeshore Marketplace Finance
Company, Inc., are restricted from owning any assets other than Lakeshore Marketplace and may not incur additional liabilities, other than normal trade payables. All of the assets of Lakeshore
Marketplace, LLC are pledged as security for the Greenwich loan. This loan requires monthly funding of escrow accounts for the payment of future debt service payments, real estate taxes,
insurance, capital improvements, tenant improvements and leasing commissions. These accounts have a total balance of $978,000 at December 31, 2001. Funds in excess of those specified in the
loan agreement are disbursed to Lakeshore Marketplace, LLC monthly.

The
maturity date of the HGP Credit Facility was extended to July 11, 2002. The loan had an original maturity of July 11, 2001. The principal balance as of
December 31, 2001 was $32.1 million, which includes a 2% extension fee. The loan bears interest at 30-day LIBOR (but not less than 4.1%) plus 395 basis points and requires
monthly principal payments of $225,000. The loan is pre-payable at any time without penalty or fee. The HGP Credit Facility requires the monthly funding of escrow

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accounts for future debt service payments, the payment of real estate taxes, insurance, capital improvements and ground lease payments. Such accounts have a total balance of $1.1 million at
December 31, 2001. Funds in excess of those specified in the loan agreement with Nomura are dispersed to the Company monthly. The Company is restricted from paying dividends until the loan is
repaid. This loan is secured by four centers located in Laughlin, Nevada; Medford, Minnesota; Monroe, Michigan and Warrenton, Missouri and a pledge of the partnership interests in the entity owning
those outlet centers.

Prime
has guaranteed $10.0 million of obligations under the HGP Credit Facility, together with other indebtedness (the "Prime Guarantee"). In connection with the Prime Guarantee,
HGP agreed to pay Prime a fee of $400,000 per annum through June 15, 2001. In connection with the extension of the maturity date of the HGP Credit Facility, Prime reaffirmed its obligations
with respect to the Prime Guarantee. Beginning on June 15, 2001, the Company agreed to pay Prime an annual fee of $150,000, payable quarterly, for such guarantees until the HGP Credit Facility
is repaid in full.

The
JP Morgan Loans consist of (i) loans totaling $22.3 million at December 31, 2001 (excluding accrued interest and penalties) secured by three factory
outlet centers located in Daleville, Indiana, Somerset, Pennsylvania and Tulare, California and (ii) loans totaling $23.2 million at December 31, 2001 (excluding accrued interest
and penalties) secured by three factory outlet centers located in Gretna, Nebraska, Sealy, Texas and Traverse City, Michigan. Each loan bears interest at a fixed rate of 8.46%, matures on
August 1, 2009 and requires the monthly payment of interest and principal based on a 25-year amortization schedule. Both loans are non-recourse to HGPI, subject to limited customary
exceptions including fraud, willful misconduct or intentional material misrepresentation; the filing of bankruptcy by a borrower; violation of the single purpose entity provisions of the loan
documents; the misappropriation of rents, insurance proceeds or condemnation awards; any act of actual waste or arson; or a transfer of any of the properties securing the loans without lender
approval. The interest rate applicable during the occurrence and continuance of an Event of Default (as defined in the loan documents) is 13.46%. In addition, a penalty of 5% of each monthly
installment is imposed in the event that such monthly installment is not timely made in full.

On
October 10, 2001, the Company notified the servicers of the JP Morgan Loans that the net cash flow from the properties securing the loans was insufficient to fully pay
the required monthly debt service. The Company remits monthly all available cash flow, after a reserve for monthly operating expenses, as partial payment of the debt service. The failure to pay the
full amount due constitutes a default under the loan agreements which allows the respective lenders to exercise their various remedies contained in the loan agreements, including application of escrow
balances to delinquent payments and, ultimately, foreclosure on the properties which collateralize the loans. The Company has initiated discussions with the servicers of the JP Morgan Loans
regarding restructuring of the loans. There can be no assurance
that such discussions will result in any modification of the terms of the loans. Both loans are non-recourse to HGPI, subject to limited customary exceptions.

The
JP Morgan Loans require the monthly funding of escrow accounts for the payment of real estate taxes, insurance and capital improvements. Such escrow accounts totaled
$1.3 million at December 31, 2001, including $550,000 of monthly available cash flow debt service payments which have been placed in special purpose escrow accounts by the loan
servicers, rather than being applied to the balances due on the loan. The Company continues to manage these properties pursuant to a management agreement entered into in conjunction with the
JP Morgan Loans. The Company receives a fee of approximately $25,000 per month for such services.

The
declining results of operations resulting in the inability to service the JP Morgan Loans was judged to represent an indication of possible impairment in the value of the
properties which secure the loans. In the third quarter of 2001, the Company estimated the current value of the six centers which secure the loans and concluded that the carrying value of four of the
centers exceeds the fair

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values of those centers. Accordingly, the results of operations for the year ended December 31, 2001, include a provision for asset impairment of $18.0 million, representing a
write-down of the carrying values of the assets to their estimated fair value in accordance with SFAS No. 121. The aggregate carrying value of the real estate of such properties
collateralizing the JP Morgan Loans approximates $39.0 million at December 31, 2001. Such value is exceeded by the current outstanding loan balances totaling $45.5 million.
If the lender were to foreclose on the collateral properties in full satisfaction of the loans, the Company would record an extraordinary gain for the difference between the carrying value of the
properties and related net assets and the outstanding loan balances plus accrued interest and penalties. The estimation of the fair value of the six centers securing the JP Morgan loans
involved estimates by management with respect to future cash flows, market conditions and valuations applicable to such properties. Future events could occur which would cause the Company to conclude
that adjustments may be needed to these impairment charges or that the carrying values of the Company's remaining properties may need to also be adjusted.

The
Company has a mortgage loan secured by its corporate office building and related equipment in Norton Shores, Michigan which matures in December 2002. The principal balance on
this loan was $2.4 million and $2.5 million on December 31, 2001, and 2000, respectively. This loan bears interest at LIBOR plus 2.50% per annum, and requires monthly debt service
payments of $22,500.

Portions
of approximately 25 acres of undeveloped land which the Company owns in Muskegon, Michigan are subject to a land contract totaling $457,000 as of December 31, 2001. The
interest rate is 8.5%. Monthly debt service payments total $4,200, and it matures in January 2003.

The
Company is required to keep the properties in good general repair and to make capital improvements and repairs to certain of its outlet centers pursuant to the terms of the HGP
Credit Facility, Greenwich loan and the JP Morgan Loans. At December 31, 2001, there was approximately
$1.3 million deposited in escrows with CDC, Greenwich, and JP Morgan, which the Company believes is sufficient to fund its ongoing capital requirements. Any additional capital
improvements are expected to be funded with additional borrowings, existing cash balances or cash flow from operations.

The
Company expects to meet its short-term liquidity requirements generally through additional borrowings or the extension of the maturity dates on its loans maturing in
2002, working capital and cash flows from operations including the sale of land parcels reflected in real estate held for sale on the consolidated balance sheet. The Company expects to meet its
long-term requirements, such as tenant allowances for new leases and capital improvements and expansions currently being considered at its centers in Tulare, California, and Medford,
Minnesota, through the use of working capital and cash flows from operations and, if necessary and available, the additional borrowing of long-term debt and the potential offering of
equity securities in the private or public capital markets.

The
Company sold its center in Dry Ridge, Kentucky, in January 2001 and refinanced its centers in Norton Shores, Michigan, and Holland, Michigan, in July 2001. It extended
the maturity date of the HGP Credit Facility until July 2002. It is currently seeking longer-term replacement financing for the HGP Credit Facility and has also explored offers for
the sale of some or all of its properties. As a result of the current market conditions with respect to the financing of factory outlet centers, the Company's relatively high leverage and its current
default on the JP Morgan Loans, the Company's ability to obtain additional financing is limited. There can be no assurance that the Company will be able to complete such refinancing or on what
terms such refinancing may be accomplished. The financial statements have been prepared based on management's judgement that the Company will meet its maturing loan obligations, either through
refinancing or extending the terms of its maturing loans, from the sale of properties or a combination thereof. If future events differ from this judgement, there would be a significant impact on the
consolidated statements of operations of the Company.

On
July 20, 2001, the Company acquired the ownership of a triple net leased property in Roseville, Michigan, which is leased to Petsmart, Inc., in a Section 1031
exchange related to the disposition of its

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outlet center in Dry Ridge, Kentucky in January 2001. The purchase price of $3.35 million included the assumption of a $3.2 million mortgage. The rent payable under the lease is
equal to the debt service due under the loan secured by the property (the "Petsmart Loan"). The Petsmart Loan matures on January 8, 2008, bears interest at a fixed rate of 8.77% and requires
the monthly payment of principal computed on a 25 year schedule. The loan is non-recourse to HGPI, subject to limited customary exceptions. The balance of the Petsmart Loan was
$3.2 million at December 31, 2001.

In
2002, 148 leases covering an aggregate of 619,385 square feet are scheduled to expire. Historically, 75% of expiring leases have renewed or remained in occupancy past their
expiration, but not necessarily on equivalent economic terms. An additional 4% of leases which have expired are still under negotiation. While the Company does not currently believe that the
proportion of leases scheduled to expire in 2002, which will actually be renewed will differ materially from its historical experience, there can be no assurance that it will renew an equivalent
proportion of such leases, nor that the economics of such renewals will be as favorable as those contained in the current leases.

Real Estate Held for Sale

The Company is actively marketing the land parcels which are listed on the Consolidated Balance Sheet as real estate held for sale. The net proceeds from the sale
of these parcels would be available for general corporate purposes.

ITEM 7AQUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's primary market risk exposure is associated with the HGP Credit Facility. This facility had a balance of $32.1 million at December 31,
2001. The facility matured in July of 2001 and was subsequently extended to July of 2002. The interest rate on the extended facility is equal to the 30 day London Interbank Offered Rate
("LIBOR") (but not less than 4.1%) plus 395 basis points. As of December 31, 2001, the effective rate was 8.05%, due to the LIBOR rate falling below the floor of 4.1%. The Company is working to
mitigate this interest rate risk by seeking longer-term, fixed rate refinancing of the facility. There can be no assurance that the Company will be able to complete such refinancing or on
what terms such refinancing may be accomplished.

The
following table shows sensitivity of annual interest expense and net income per sharediluted based on an increase in the LIBOR rate of 1.0% above the floor of 4.1%.

Principal Amount

Change in LIBOR Rate

Change in Interest Expense

Per ShareDiluted$
32,100,000

1.0
%
$
321,000

$
.10


Inflation

HGP's leases with some of its tenants require the tenants to reimburse HGP for most operating expenses and increases in common area maintenance expense, which
reduces HGP's exposure to increases in costs and operating expenses resulting from inflation.

Legal Proceedings

In the ordinary course of business the Company is subject to certain legal actions. While any litigation contains an element of uncertainty, management believes
the losses, if any, resulting from such matters will not have a material adverse effect on the consolidated financial statements of the Company.

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ITEM 8FINANCIAL STATEMENTS  AND SUPPLEMENTARY DATA

Horizon Group Properties, Inc.
Index to Financial Statements
and Financial Statement Schedules

|                                                                                           |  | Page
|------------------------------------------------------------------------------------------ |  | ----
|Report of Independent Auditors                                                             |  | 22  
|Consolidated Balance Sheets at December 31, 2001 and December 31, 2000                     |  | 23  
|Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999 |  | 24  
|Consolidated Statement of Changes in Shareholders' Equity                                  |  | 25  
|Consolidated Statements of Cash Flows for years ended December 31, 2001, 2000 and 1999     |  | 26  
|Notes to Consolidated Financial Statements                                                 |  | 27  
|Schedule as of December 31, 2001
IIIReal Estate and Accumulated Depreciation             |  | 39  

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 financial statements and notes thereto.

21

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REPORT OF INDEPENDENT AUDITORS

To
the Shareholders and Board of Directors
Horizon Group Properties, Inc.

We
have audited the accompanying consolidated balance sheets of Horizon Group Properties, Inc. (the "Company") as of December 31, 2001 and 2000, and the related
consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2001. Our audits also included the financial statement
schedule listed in the Index. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and
schedule based on our audits.

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

In
our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Horizon Group Properties, Inc. at
December 31, 2001 and 2000, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2001, in conformity with
accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the consolidated financial statements
taken as a whole, presents fairly in all material respects, the information set forth therein.



Chicago,
Illinois
February 22, 2002

22

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HORIZON GROUP PROPERTIES, INC.

Consolidated Balance Sheets  (In thousands, except per share amounts)

|                                                                                                                      |                               | December 31, 2001                          |         | December 31, 2001 |        
|--------------------------------------------------------------------------------------------------------------------- | ----------------------------- | ------------------------------------------ | ------- | ----------------- | -------
|ASSETS                                                                                                                |                               |                                            |         |                   |        
|Real estateat cost:                                                                                                  |                               |                                            |         |                   |        
|                                                                                                                      | Land                          |                                            | $       | 8,376             |        
|                                                                                                                      | Buildings and improvements    |                                            |         | 120,548           |        
|                                                                                                                      | Less accumulated depreciation |                                            |         | (16,610           | )      
|                                                                                                                      |                               |                                            |         |                   |        
|                                                                                                                      | Total net real estate         |                                            |         | 112,314           |        
|Cash and cash equivalents                                                                                             |                               |                                            | 1,096   |                   |        
|Restricted cash                                                                                                       |                               |                                            | 3,506   |                   |        
|Tenant accounts receivable                                                                                            |                               |                                            | 1,661   |                   |        
|Real estate held for sale                                                                                             |                               |                                            | 1,725   |                   |        
|Deferred costs (net of accumulated amortization of $1,341 and $773, at December 31, 2001 and 2000, respectively)      |                               |                                            | 2,535   |                   |        
|Other assets                                                                                                          |                               |                                            | 1,546   |                   |        
|                                                                                                                      |                               |                                            |         |                   |        
|                                                                                                                      | Total assets                  |                                            | $       | 124,383           |        
|                                                                                                                      |                               |                                            |         |                   |        
|LIABILITIES AND SHAREHOLDERS' EQUITY                                                                                  |                               |                                            |         |                   |        
|Liabilities:                                                                                                          |                               |                                            |         |                   |        
|Mortgages and other debt                                                                                              |                               | $                                          | 103,135 |                   | $      
|Accounts payable and accrued expenses                                                                                 |                               |                                            | 5,470   |                   |        
|Prepaid rents and other tenant liabilities                                                                            |                               |                                            | 1,310   |                   |        
|Other liabilities                                                                                                     |                               |                                            | 769     |                   |        
|                                                                                                                      |                               |                                            |         |                   |        
|                                                                                                                      | Total liabilities             |                                            |         | 110,684           |        
|Minority interests                                                                                                    |                               |                                            | 2,067   |                   |        
|Shareholders' equity:                                                                                                 |                               |                                            |         |                   |        
|Common shares, ($.01 par value, 50,000 shares authorized, 2,870 issued and outstanding at December 31, 2001 and 2000) |                               |                                            | 29      |                   |        
|Additional paid-in capital                                                                                            |                               |                                            | 34,448  |                   |        
|Accumulated deficit                                                                                                   |                               |                                            | (22,845 | )                 |        
|                                                                                                                      |                               |                                            |         |                   |        
|                                                                                                                      | Total shareholders' equity    |                                            |         | 11,632            |        
|                                                                                                                      |                               |                                            |         |                   |        
|                                                                                                                      |                               | Total liabilities and shareholders' equity |         | $                 | 124,383
|                                                                                                                      |                               |                                            |         |                   |        

See accompanying notes to consolidated financial statements.

23

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HORIZON GROUP PROPERTIES, INC.

Consolidated Statements of Operations  (In thousands, except per share amounts)

|                                                                                                  |                                             | Year Ended
December 31, 2001 |         | Year Ended
December 31, 2000 |        | Year Ended
December 31, 1999 |       
|------------------------------------------------------------------------------------------------- | ------------------------------------------- | ---------------------------- | ------- | ---------------------------- | ------ | ---------------------------- | ------
|REVENUE                                                                                           |                                             |                              |         |                              |        |                              |       
|                                                                                                  | Base rent                                   |                              | $       | 18,183                       |        | $                            | 21,115
|                                                                                                  | Percentage rent                             |                              |         | 236                          |        |                              | 155   
|                                                                                                  | Expense recoveries                          |                              |         | 3,919                        |        |                              | 4,988 
|                                                                                                  | Other                                       |                              |         | 954                          |        |                              | 1,496 
|                                                                                                  |                                             |                              |         |                              |        |                              |       
|                                                                                                  |                                             | Total revenue                |         |                              | 23,292 |                              |       
|                                                                                                  |                                             |                              |         |                              |        |                              |       
|EXPENSES                                                                                          |                                             |                              |         |                              |        |                              |       
|                                                                                                  | Property operating                          |                              |         | 6,154                        |        |                              | 6,490 
|                                                                                                  | Real estate taxes                           |                              |         | 2,517                        |        |                              | 2,535 
|                                                                                                  | Land leases and other                       |                              |         | 1,752                        |        |                              | 1,399 
|                                                                                                  | Depreciation and amortization               |                              |         | 6,062                        |        |                              | 5,561 
|                                                                                                  | General and administrative                  |                              |         | 3,003                        |        |                              | 3,547 
|                                                                                                  | Provision for impairment                    |                              |         | 18,000                       |        |                              | 1,568 
|                                                                                                  | Interest                                    |                              |         | 10,144                       |        |                              | 10,320
|                                                                                                  |                                             |                              |         |                              |        |                              |       
|                                                                                                  |                                             | Total expenses               |         |                              | 47,632 |                              |       
|Loss from joint ventures                                                                          |                                             |                              |        |                              |        |                             |       
|                                                                                                  |                                             |                              |         |                              |        |                              |       
|Loss before gain on sale of real estate, minority interests and extraordinary charge              |                                             |                              | (24,340 | )                            |        | (3,666                       | )     
|Gain on sale of real estate                                                                       |                                             |                              | 1,550   |                              |        | 239                          |       
|                                                                                                  |                                             |                              |         |                              |        |                              |       
|Loss before minority interests and extraordinary charge                                           |                                             |                              | (22,790 | )                            |        | (3,427                       | )     
|Minority interests                                                                                |                                             |                              | 3,392   |                              |        | 537                          |       
|                                                                                                  |                                             |                              |         |                              |        |                              |       
|Loss before extraordinary charge                                                                  |                                             |                              | (19,398 | )                            |        | (2,890                       | )     
|Extraordinary charge on debt prepayment (net of minority interests of $100 for December 31, 1999) |                                             |                              |        |                              |        |                             |       
|                                                                                                  |                                             |                              |         |                              |        |                              |       
|Net loss                                                                                          |                                             | $                            | (19,398 | )                            | $      | (2,890                       | )     
|                                                                                                  |                                             |                              |         |                              |        |                              |       
|Per Common ShareBasic and Diluted:                                                               |                                             |                              |         |                              |        |                              |       
|                                                                                                  | Loss per sharebefore extraordinary charge  |                              | $       | (6.76                        | )      | $                            | (1.01 
|                                                                                                  | Extraordinary charge                        |                              |         |                             |        |                              |      
|                                                                                                  |                                             |                              |         |                              |        |                              |       
|                                                                                                  | Net loss                                    |                              | $       | (6.76                        | )      | $                            | (1.01 
|                                                                                                  |                                             |                              |         |                              |        |                              |       
|                                                                                                  | Weighted average shares outstandingbasic   |                              |         | 2,870                        |        |                              | 2,862 
|                                                                                                  |                                             |                              |         |                              |        |                              |       
|                                                                                                  | Weighted average shares outstanding-diluted |                              |         | 3,381                        |        |                              | 3,388 
|                                                                                                  |                                             |                              |         |                              |        |                              |       

See accompanying notes to consolidated financial statements.

24

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HORIZON GROUP PROPERTIES, INC.

Consolidated Statement of Changes in Shareholders'  Equity  (In thousands)

|                                  |  | Common Shares |  |   |    |  |   |        | 
|--------------------------------- |  | ------------- |  | - | -- |  | - | ------ | 
|
|
|Balance, January 1, 1999          |  | 2,782         |  | $ | 28 |  | $ | 33,268 | 
|Units exchanged for common shares |  | 63            |  |   | 1  |  |   | 788    | 
|Net loss                          |  |              |  |   |   |  |   |       | 
|                                  |  |               |  |   |    |  |   |        | 
|Balance, December 31, 1999        |  | 2,845         |  |   | 29 |  |   | 34,056 | 
|Units exchanged for common shares |  | 25            |  |   |   |  |   | 350    | 
|Net loss                          |  |              |  |   |   |  |   |       | 
|                                  |  |               |  |   |    |  |   |        | 
|Balance, December 31, 2000        |  | 2,870         |  |   | 29 |  |   | 34,406 | 
|Other                             |  |              |  |   |   |  |   | 42     | 
|Net loss                          |  |              |  |   |   |  |   |       | 
|                                  |  |               |  |   |    |  |   |        | 
|Balance, December 31, 2001        |  | 2,870         |  | $ | 29 |  | $ | 34,448 | 
|                                  |  |               |  |   |    |  |   |        | 

See acompanying notes to consolidated financial statements.

25

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HORIZON GROUP PROPERTIES, INC.

Consolidated Statements of Cash Flows  (In thousands)

|                                                                                |                                                                                                      | Year Ended
December 31, 2001 |         | Year Ended
December 31, 2000 |   | Year Ended
December 31, 1999 |       
|------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------- | ---------------------------- | ------- | ---------------------------- | - | ---------------------------- | ------
|Cash flows from operating activities:                                           |                                                                                                      |                              |         |                              |   |                              |       
|Net loss                                                                        |                                                                                                      | $                            | (19,398 | )                            | $ | (2,890                       | )     
|Adjustments to reconcile net loss to net cash provided by operating activities: |                                                                                                      |                              |         |                              |   |                              |       
|                                                                                | Loss from joint ventures                                                                             |                              |         |                             |   |                              |      
|                                                                                | Minority interests in net loss                                                                       |                              |         | (3,392                       | ) |                              | (537  
|                                                                                | Extraordinary charge on prepayment of debt (net of minority interests of $100 for December 31, 1999) |                              |         |                             |   |                              |      
|                                                                                | Depreciation                                                                                         |                              |         | 5,346                        |   |                              | 5,294 
|                                                                                | Amortization                                                                                         |                              |         | 1,172                        |   |                              | 445   
|                                                                                | Provision for impairment                                                                             |                              |         | 18,000                       |   |                              | 1,568 
|                                                                                | Gain on sale of real estate                                                                          |                              |         | (1,550                       | ) |                              | (239  
|Changes in assets and liabilities:                                              |                                                                                                      |                              |         |                              |   |                              |       
|                                                                                | Restricted cash                                                                                      |                              |         | (28                          | ) |                              | 279   
|                                                                                | Tenant accounts receivable                                                                           |                              |         | 142                          |   |                              | (452  
|                                                                                | Deferred costs and other assets                                                                      |                              |         | (565                         | ) |                              | (502  
|                                                                                | Accounts payable and accrued expenses                                                                |                              |         | 554                          |   |                              | (313  
|                                                                                | Other liabilities                                                                                    |                              |         | (76                          | ) |                              | (56   
|                                                                                | Prepaid rents and other tenant liabilities                                                           |                              |         | (3                           | ) |                              | (482  
|                                                                                |                                                                                                      |                              |         |                              |   |                              |       
|Net cash provided by operating activities                                       |                                                                                                      |                              | 202     |                              |   | 2,115                        |       
|                                                                                |                                                                                                      |                              |         |                              |   |                              |       
|Cash flows from investing activities:                                           |                                                                                                      |                              |         |                              |   |                              |       
|                                                                                | Expenditures for building and improvements                                                           |                              |         | (4,635                       | ) |                              | (1,818
|                                                                                | Proceeds from sale of real estate                                                                    |                              |         | 5,071                        |   |                              | 368   
|                                                                                |                                                                                                      |                              |         |                              |   |                              |       
|Net cash provided by/(used in) investing activities                             |                                                                                                      |                              | 436     |                              |   | (1,450                       | )     
|                                                                                |                                                                                                      |                              |         |                              |   |                              |       
|Cash flows from financing activities:                                           |                                                                                                      |                              |         |                              |   |                              |       
|                                                                                | Purchase of HGP partnership units                                                                    |                              |         | (4                           | ) |                              | (27   
|                                                                                | Principal payments on mortgages and other debt                                                       |                              |         | (57,431                      | ) |                              | (2,727
|                                                                                | Proceeds from borrowings                                                                             |                              |         | 56,165                       |   |                              |      
|                                                                                | Debt issue costs                                                                                     |                              |         | (1,138                       | ) |                              |      
|                                                                                | Prepayment penalty                                                                                   |                              |         |                             |   |                              |      
|                                                                                |                                                                                                      |                              |         |                              |   |                              |       
|Net cash used in financing activities                                           |                                                                                                      |                              | (2,408  | )                            |   | (2,754                       | )     
|                                                                                |                                                                                                      |                              |         |                              |   |                              |       
|Net increase/(decrease) in cash and cash equivalents                            |                                                                                                      |                              | (1,770  | )                            |   | (2,089                       | )     
|Cash and cash equivalents:                                                      |                                                                                                      |                              |         |                              |   |                              |       
|                                                                                | Beginning of period                                                                                  |                              |         | 2,866                        |   |                              | 4,955 
|                                                                                |                                                                                                      |                              |         |                              |   |                              |       
|                                                                                | End of period                                                                                        |                              | $       | 1,096                        |   | $                            | 2,866 
|                                                                                |                                                                                                      |                              |         |                              |   |                              |       

See accompanying notes to consolidated financial statements.

26

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HORIZON GROUP PROPERTIES, INC.  Notes to Consolidated Financial Statements

Note 1Formation of the Company

Horizon Group Properties, Inc. ("HGPI" or, together with its subsidiaries "HGP" or the "Company") is a self-administered and
self-managed Maryland corporation that was established in connection with the merger of Horizon Group, Inc., a Michigan corporation ("Horizon") with and into Prime
Retail, Inc., a Maryland corporation ("Prime" or "Prime Retail") which was consummated on June 15, 1998 (the "Merger").

HGP's
initial portfolio consisted of 14 factory outlet centers and one power center located in 12 states. Twelve of the initial factory outlet centers and the power center (the
"Predecessor Properties") were contributed to the Company by Horizon pursuant to a Contribution Agreement entered into in connection with the Merger (the "Contribution Agreement"). Two factory outlet
centers (the "Prime Transferred Properties") were purchased by the Company from Prime immediately subsequent to the consummation of the Merger. As of December 31, 2001, HGP's operating
portfolio consisted of 11 factory outlet centers and one power center located in 9 states.

The
operations of the Company are primarily conducted through a subsidiary limited partnership, Horizon Group Properties, L.P. ("HGP LP"), of which the Company is the sole general
partner. As of December 31, 2001, HGP owned approximately 84.9% of the partnership interests (the "Common Units") of HGP LP. Common Units are exchangeable for shares of Common Stock of the
Company on a one-for-one basis (or for an equivalent cash amount at the Company's election).

Note 2Summary of Significant Accounting Policies

Use of Estimates

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

Real Estate and Depreciation

Costs incurred for the acquisition, development, construction and improvement of properties, as well as significant renovations and betterments to the properties,
are capitalized. Maintenance and repairs are charged to expense as incurred. Interest costs incurred with respect to qualified expenditures relating to the construction of assets are capitalized
during the construction period.

At
December 31, 2001 and 2000, the Company had an aggregate cost basis of $227.5 million and $233.5 million, respectively, in its real estate assets for federal
income tax purposes. Amounts included under buildings and improvements on the consolidated balance sheets include the following types of assets and are depreciated on the straight-line
method over estimated useful lives which are:

Buildings and improvements

31.5 yearsTenant improvements

10 years or lease term, if lessFurniture, fixtures or equipment

3-7 years


In
accordance with Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-lived Assets and for Long-lived
Assets to be Disposed Of", the Company records impairment losses on long-lived assets used in operations when events and circumstances indicated that the assets might be impaired and the
undiscounted cash flows estimated to be generated over their expected holding periods are less than the carrying amounts of those assets. Impairment

27

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losses are measured as the difference between carrying value and fair value for assets to be held in the portfolio. For assets to be sold, impairment is measured as the difference between carrying
value and fair value, less costs to dispose. Fair value may be based upon estimated cash flows discounted at a risk-adjusted rate of interest, comparable sales in the marketplace, or
estimated replacement cost, as adjusted to consider the costs of retenanting and repositioning those properties which have significant vacancy issues, depending on the facts and circumstances of each
property.

Cash Equivalents

The Company considers all liquid investments with a maturity of three months or less when purchased to be cash equivalents.

Restricted Cash

Restricted cash consists of amounts deposited in accounts with the Company's primary lenders (see Note 8) and includes $1.3 million in capital
improvement and tenant allowance reserves, $1.4 million in real estate tax, insurance, and ground lease and other escrows, and $809,000 for debt service and operating expenses at
December 31, 2001.

Tenant Accounts Receivable

Management regularly reviews accounts receivable and estimates the necessary amounts to be recorded as an allowance for uncollectibility. These reserves are
established on a tenant-specific basis and are based upon, among other factors, the period of time an amount is past due and the financial condition of the obligor.

Total
tenant accounts receivable are reflected net of reserves of $565,000 and $446,000 as of December 31, 2001 and 2000, respectively. The provision for doubtful accounts was
$656,000, $271,000 and $448,000 for the years ended December 31, 2001, 2000 and 1999, respectively.

Real Estate Held for Sale

Periodically, in the course of reviewing the performance of its portfolio, management may determine that certain properties no longer meet the parameters set
forth for its properties, or are ancillary to the Company's focus, and accordingly, such properties will be classified as held for sale. In accordance with SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of," assets held for sale are valued at the lower of carrying value or fair market value less costs to dispose. Accordingly, the Company transferred $2.8 million of land to real estate
held for sale on the balance sheet for parcels which were either sold during the year ended December 31, 2001 or which are actively being marketed as of December 31, 2001.

Deferred Costs

Leasing and deferred financing costs are capitalized at cost. Amortization of deferred leasing costs is recorded on the straight-line method over the
life of the lease. Amortization of deferred financing costs is recorded using a method that approximates the effective interest method over the life of the related debt and is included as a component
of interest expense and amounted to $456,000 and $178,000 in 2001 and 2000, respectively.

Fair Value of Financial Instruments

The carrying amounts of the Company's debt approximate their fair values. The fair value of the Company's long-term debt is estimated using a
discounted cash flow analysis, based on the incremental

28

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borrowing rates for similar types of borrowing arrangements. The carrying value of cash and cash equivalents, receivables and payables approximate their fair values due to their
short-term nature.

Income Taxes

The Company has elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code"). A REIT is a legal
entity that holds real estate interests and receives a deduction for dividends paid to its shareholders for federal income tax purposes. HGP intends to distribute its REIT taxable income to its
shareholders and satisfy certain other requirements as defined in the Code so as to reduce or eliminate federal income tax liability. Based on its taxable loss in the current period and past fiscal
years, the Company is not and has not been obligated to make any dividend distributions to qualify as a REIT. Accordingly, the consolidated financial statements do not include any federal income tax
expense.

Minority Interests

Minority interests represent the interests of unitholders of HGP LP, other than the Company, in the net earnings and net equity of HGP LP. The unitholder minority
interest is adjusted at the end of each
period to reflect the ownership at that time. The unitholder minority interest in HGP was approximately 15.1% at December 31, 2001. During the years ended December 31, 2001 and 2000,
1,471 and 8,296 units, respectively, were purchased by the Company for cash at an amount equal to the value of an equivalent number of common shares. During the year ended December 31, 2000,
25,098 units were converted into shares of common stock.

Joint Ventures

Prior to September 1, 1999, the Company owned a 50% partnership interest in MG Patchogue Limited Partnership and a 45% partnership interest in and interest
bearing construction advances to MG Patchogue II Limited Partnership, which partnerships own the Bellport Outlet Center. The Company also owned a 95% interest in MG Long Island Limited Partnership
which owns 14 acres of raw land. The Company accounted for such investments (in consideration of its priority return position) under the equity method of accounting reflecting the Company's
attributable share of income and loss in the statements of operations. On September 1, 1999, the Company transferred its interests in these partnerships to Prime. No gain or loss was recognized
on this transfer.

Revenue Recognition

Leases with tenants are accounted for as operating leases. Minimum annual rentals are recognized on a straight-line basis over the terms of the
respective leases. As a result of recording rental revenue on a straight-line basis, tenant accounts receivable include $830,000 and $821,000, as of December 31, 2001 and 2000,
respectively, which is expected to be collected over the remaining lives of the leases. Rents which represent basic occupancy costs, including fixed amounts and amounts computed as a function of
sales, are classified as base rent. Amounts which may become payable in addition to base rent and which are computed as a function of sales in excess of certain thresholds are classified as percentage
rents. Percentage rents are accrued on the basis of reported tenant sales only after the sales exceed the thresholds above which such rent is due. Expense recoveries based on common area maintenance
expenses and certain other expenses are accrued in the period in which the related expense is incurred.

29

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Other Revenue

Other revenue consists primarily of interest income and income related to marketing services that is recovered from tenants pursuant to lease agreements and
income from tenants with lease terms of less than one year.

Share Options

The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), in accounting for its
options on common shares. Under APB 25, no compensation expense is recognized because the exercise price of the Company's employee share options equals or exceeds the market price of the underlying
shares at the date of grant.

Note 3Leases

Space in the Company's centers is leased to various tenants under operating leases which are generally for one to five year periods. Many leases contain renewal
options and may also provide for the payment of a tenant's share of certain operating expenses. Leases may also obligate a tenant to pay rent based on a percentage of tenant sales in excess of certain
thresholds. Minimum future rentals to be received under non-cancelable leases are summarized as follows:

(In thousands)2002

$
13,3152003


10,2782004


7,9812005


6,2742006


3,913Thereafter


28,786


The
above scheduled rentals are subject to the usual business risks associated with collection.

The
Company is the lessee under a land lease for one of the outlet centers under an operating lease agreement expiring in the year 2056. At December 31, 2001, minimum cash rental
commitments to the expiration date were $31.7 million, of which $.6 million is due in each of the next five years, adjusted
biannually for changes in the Consumer Price Index. Land lease expense for the years ended December 31, 2001 and 2000 was $580,000 and $557,000, respectively.

Note 4Impairment

In 2000, HGP entered into an agreement to sell its outlet center in Dry Ridge, Kentucky. Results of operations in 2000 includes a charge for asset impairment of
$1.6 million to reduce the carrying value of this outlet center to its estimated sales value, less costs to dispose. The net carrying cost of $2.5 million for this outlet center was
transferred from real estate to assets held for sale as of December 31, 2000. In January 2001, this center was sold.

On
October 10, 2001, the Company notified the servicers of the JP Morgan Loans that the net cash flow from the properties collateralizing the loans was insufficient to
fully pay the required monthly debt service. Since that date, the Company has remitted monthly all available cash flow from the collateral properties, after a reserve for operating expenses, as
partial payment of the debt service. The failure to pay the full the amount due constitutes a default under the loan agreements which allows the respective lenders to exercise their various remedies
contained in the loan agreements, including application of escrow balances to delinquent payments and, ultimately, foreclosure on the properties which collateralize the loans. The Company has
initiated discussions with the servicers of the JP Morgan Loans regarding restructuring of the loans. There can be no assurance that such discussions

30

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will result in any modification of the terms of the loans. Both loans are non-recourse to HGPI, subject to limited customary exceptions.

The
declining results of operations, which resulted in the inability to fully service the JP Morgan Loans was judged to be an indicator of possible impairment in the value of the
collateral properties. The Company has estimated the current value of each of the six centers that collateralize the loans and concluded that the carrying values of four of the centers exceed the fair
values of those centers. Accordingly, the results of operations for the year ended December 31, 2001, include a provision for asset impairment of $18.0 million, representing a
write-down of the carrying values of the assets to their estimated fair value in accordance with SFAS No. 121. The aggregate carrying value of the real estate of such properties
collateralizing the JP Morgan Loans approximates $39.0 million at December 31, 2001. Such value is exceeded by the current outstanding loan balances totaling $45.5 million.
If the lender were to foreclose on the collateral properties, the Company would record an extraordinary gain for the difference between the carrying value of the properties and related net assets and
the outstanding loan balances plus accrued interest and penalties.

Note 5Earnings Per Share

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

|                                                 |  | For the Years Ended |        
|------------------------------------------------ |  | ------------------- | -------
|
|
|Numerator:                                       |  |                     |        
|Net lossbasic                                   |  | $                   | (19,398
|Minority interests of unitholders                |  |                     | (3,392 
|                                                 |  |                     |        
|Net lossdiluted                                 |  | $                   | (22,790
|                                                 |  |                     |        
|Denominator:                                     |  |                     |        
|Weighted average common shares outstandingbasic |  |                     | 2,870  
|Effect of dilutive securities:                   |  |                     |        
|Converting units to shares                       |  |                     | 511    
|Employee stock options                           |  |                     |       
|                                                 |  |                     |        
|Weighted average shares outstandingdiluted      |  |                     | 3,381  
|                                                 |  |                     |        
|Net loss per sharebefore extraordinary charge   |  | $                   | (6.76  
|Extraordinary charge                             |  |                     |       
|                                                 |  |                     |        
|Net loss per sharebasic and diluted             |  | $                   | (6.76  
|                                                 |  |                     |        

Outstanding
stock options and the potential conversion of units to shares were excluded in 1999 and 2001 in computing diluted earnings per share because the effects of such items were
anti-dilutive.

Note 6Long Term Stock Incentive Plan

The Company has adopted the HGP 1998 Long Term Stock Incentive Plan (the "HGP Stock Plan") to advance the interests of the Company by encouraging and enabling the
acquisition of a financial interest in the Company by key employees and directors of the Company and its subsidiaries through equity awards. The Company reserved 338,900 common shares for issuance
pursuant to the HGP Stock Plan.

31

---

The
fair value of options granted for the purpose of presenting pro forma information, in accordance with Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), has been estimated using a Black-Scholes option pricing model with the following weighted-average assumptions:

For the Year Ended
December 31, 2001

For the Year Ended
December 31, 2000

For the Year Ended
December 31, 1999Expected dividend yield

0.00%

0.00%

0.00%Expected stock price volatility

.675

1.053

1.086Risk free interest rate

5.03%

5.11%

6.44%Expected life of options

10 years

10 years

10 years


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

Net
income (loss) and net income (loss) per share (basic and diluted) for the years ended December 31, 2001, 2000 and 1999, computed on a pro forma basis under requirements of
SFAS 123 equals $(19,514,000) and $(6.80), $(2,980,000) and $(1.04), and $(989,000) and $(.35), respectively.

Options
granted, exercised and canceled under the Long-term Stock Incentive Plan are summarized below:

|                                   |  | For the Year Ended
December 31, 2001 |  | For the Year Ended
December 31, 2000 |            | For the Year Ended
December 31, 1999
|---------------------------------- |  | ------------------------------------ |  | ------------------------------------ | ---------- | ------------------------------------
|
|Outstanding, beginning of the year |  | 326,000                              |  | $                                    | 340-$6.49  |                                     
|Granted                            |  |                                     |  |                                      |           |                                     
|Exercised                          |  |                                     |  |                                      |           |                                     
|Canceled                           |  |                                     |  |                                      |           |                                     
|                                   |  |                                      |  |                                      |            |                                     
|Outstanding, end of the year       |  | 326,000                              |  | $                                    | 3.40-$6.49 |                                     
|                                   |  |                                      |  |                                      |            |                                     

The
following table represents the weighted average per share price option information:

|                                                |  | For the Year Ended
December 31, 2001 |  | For the Year Ended
December 31, 2000 |      | For the Year Ended
December 31, 1999
|----------------------------------------------- |  | ------------------------------------ |  | ------------------------------------ | ---- | ------------------------------------
|Weighted average fair value of options granted  |  | n/a                                  |  | $                                    | 3.39 |                                     
|Weighted average fair value of options canceled |  | n/a                                  |  |                                      | 4.33 |                                     
|Weighted average exercise price on grant date   |  | n/a                                  |  |                                      | 3.48 |                                     

The
weighted average exercise price for options outstanding at December 31, 2001, 2000 and 1999 was $5.12, $5.12 and $6.22, respectively. The weighted average contractual life of
options outstanding at December 31, 2001, 2000 and 1999 was 6.02 years, 6.77 years and 8.6 years, respectively.

32

---

Note 7Commitments

The Company has outstanding commitments for capital expenditures on leases signed at December 31, 2001 in the amount of $143,000 for tenant allowances,
$50,000 for construction costs and $25,000 for brokerage commissions. These costs are expected to be paid during 2002 and a portion will be reimbursed from the capital improvement escrow (see
Note 2).

Note 8Mortgage Debt and Other Liabilities

HGP Credit Facility

On June 15, 1998, certain wholly owned affiliates of the Company entered into a credit facility (the "HGP Credit Facility") with Nomura Asset Capital
Corporation ("Nomura"), which initially matured on July 11, 2001 (the "Initial Maturity Date"). The HGP Credit Facility was acquired from Nomura by CDC Mortgage Capital, Inc. ("CDC"). On
July 30, 2001, certain of the terms of the HGP Credit Facility were modified, including the maturity date, which was extended to July 11, 2002 (the "Extended Maturity Date"). The HGP
Credit Facility is guaranteed by HGP and HGP LP. As of December 31, 2001, the HGP Credit Facility is secured by cross-collateralized mortgages on four of the Company's operating outlet centers
(located in Laughlin, Nevada; Medford, Minnesota; Monroe, Michigan and Warrenton, Missouri) together with a pledge of the Company's ownership interests in Third Horizon Group Limited Partnership, the
entity which holds title to those properties.

The
HGP Credit Facility contains restrictions on the ability of HGP and HGP LP to incur additional indebtedness. The Company is also restricted from paying dividends while the loan is
outstanding. In connection with the HGP Credit Facility, the Company established certain escrow accounts and cash collection accounts, which are classified on the balance sheet of the Company as
restricted cash (see Note 2).

Prior
to the Initial Maturity Date, the interest rate on the HGP Credit Facility was the 30-day LIBOR rate plus 1.90% per annum and was payable monthly. Annual principal
payments of $1.5 million, $1.5 million and $2.0 million during the first, second and third years, respectively were also payable on a monthly basis. From July 1999 to the
Initial Maturity Date, exit fees which totaled $1.2 million were recognized as a component of interest expense.

Subsequent
to the Initial Maturity Date, the interest rate on the HGP Credit Facility is the 30-day LIBOR rate (but not less than 4.1%) plus 3.95% per annum, payable monthly.
Monthly principal payments of $225,000 are also required. An extension fee of 2% of the loan amount was incurred in conjunction with the extension of the loan and is being amortized over the one year
period as a component of interest expense. The loan is pre-payable at any time without penalty or fee. The HGP Credit Facility requires the monthly funding of escrow accounts for the
payment of future debt service payments, real estate taxes, insurance, capital improvements and ground lease payments. Such accounts had a total balance of $1.1 million at December 31,
2001. Funds in excess of those specified in the loan agreement are disbursed to the Company monthly. The balance of the HGP Credit Facility was $32.1 million and $55.3 million at
December 31, 2001 and December 31, 2000, respectively.

The
Company is currently pursuing refinancing of the HGP Credit Facility in anticipation of the July 2002 maturity date. There can be no assurances that management will be
successful. The consolidated financial statements do not contain any adjustments that may ultimately arise from the outcome of this uncertainty.

Prime
is the guarantor of $10.0 million of the HGP Credit Facility, and the indebtedness related to the Company's corporate office building (the "Prime Guarantee"). In connection
with the Prime Guarantee, HGP agreed to pay Prime a fee of $400,000 per annum through June 15, 2001. In connection with the extension of the maturity date of the HGP Credit Facility, Prime
reaffirmed its obligations with respect to the Prime Guarantee. Beginning on June 15, 2001, the Company agreed to

33

---

pay Prime an annual fee of $150,000, payable quarterly, for such guarantee until the HGP Credit Facility is repaid in full.

On
January 26, 2001, the Company sold its outlet center in Dry Ridge, Kentucky for $2.5 million. This center was classified as held for sale on the Company's balance sheet
at December 31, 2000. The net proceeds were used to pay down the outstanding balance on the HGP Credit Facility.

On
June 29, 2001, the Company completed a $3.5 million refinancing of its outlet center in Holland, Michigan, with Republic Bank. The outstanding balance of this loan was
$3.5 million at December 31, 2001. The loan is for a term of five years, requires monthly debt service payments of $30,000 based on a twenty-year amortization schedule, and
bears interest at a fixed rate of 8.21%. The net proceeds from the loan were used to reduce the balance of the HGP Credit Facility. This loan requires the monthly funding of an escrow account for the
payment of real estate taxes. This escrow account has a balance of $93,000 at December 31, 2001.

On
July 31, 2001 the Company completed a $16.0 million refinancing of its power center in Norton Shores, Michigan, with Greenwich Capital Financial Products, Inc.
("Greenwich"). The outstanding balance of this loan was $16.0 million at December 31, 2001. The loan is for a term of ten years, requires monthly payments based on a 30-year
amortization schedule and bears interest at a fixed rate of 7.647%. It is non-recourse to HGPI, subject to certain customary exceptions. The net proceeds from the loan were used to reduce the balance
of the HGP Credit Facility. In connection with the Greenwich loan, title to Lakeshore Marketplace was transferred to a new entity, Lakeshore Marketplace, LLC, a wholly owned subsidiary of the
Company. Lakeshore Marketplace LLC, and its managing member, Lakeshore Marketplace Finance Company, Inc., are restricted from owning any assets other than Lakeshore Marketplace and may
not incur additional liabilities, other than normal trade payables. All of the assets of Lakeshore Marketplace, LLC are pledged as security for the Greenwich loan. This loan requires monthly
funding of escrow accounts for the payment of future debt service payments, real estate taxes, insurance, capital and tenant improvements and leasing commissions. These accounts have a total balance
of $978,000 at December 31, 2001. Funds in excess of those specified in the loan agreement are disbursed to Lakeshore Marketplace, LLC monthly.

JP Morgan Loans

On July 9, 1999 the Company completed a debt financing totaling $46.7 million with Morgan Guaranty Trust Company of New York ("the JP Morgan
Loans"). The JP Morgan Loans consist of (i) loans totaling $22.9 million secured by three factory outlet centers located in Daleville, Indiana, Somerset, Pennsylvania and Tulare,
California and (ii) loans totaling $23.8 million secured by three factory outlet centers located in Gretna, Nebraska, Sealy, Texas and Traverse City, Michigan. The total outstanding
principal balance of these loans was $45.5 million at December 31, 2001 and $45.9 million at December 31, 2000. Each loan bears interest at a fixed rate of 8.46%, matures
on August 1, 2009 and requires the monthly payment of interest and principal based on a 25-year amortization schedule. Both loans are non-recourse to HGPI, subject to certain
customary exceptions. The proceeds from the loans, together with Company funds, were used to repay $46.8 million of indebtedness under the HGP Credit Facility.

On
October 10, 2001, the Company notified the servicers of the JP Morgan Loans that the net cash flow from the properties securing the loans was insufficient to fully pay
the required monthly debt service. The Company remits monthly all available cash flow, after a reserve for monthly operating expenses, as partial payment of the debt service. The failure to pay the
full amount due constitutes a default under the loan agreements which would allow the respective lenders to exercise their various remedies contained in the loan agreements, including application of
escrow balances to delinquent payments and, ultimately, foreclosure on the properties which collateralize the loans. The interest rate applicable during the occurrence and continuance of an Event of
Default (as defined in the loan

34

---

documents) is 13.46%. In addition, a penalty of 5.0% of each monthly installment is imposed in the event that such monthly installment is not timely made in full. The Company has initiated
discussions with the servicers of the JP Morgan Loans regarding restructuring of the loans. There can be no assurance that such discussions will result in any modification of the terms of the
loans.

The
JP Morgan Loans require the monthly funding of escrow accounts for the payment of real estate taxes, insurance and capital improvements. Such escrow accounts totaled
$1.3 million at December 31, 2001, including $550,000 of cash flow remitted as debt service after October 12, 2001. This amount has been placed in special purpose escrow accounts
by the loan servicers, rather than being applied to the balance due and is classified on the balance sheet as restricted cash (see Note 2).

The
declining results of operations resulting in the inability to service the JP Morgan Loans was judged to represent an indicator of possible impairment in the value of the
collateral properties. The Company has estimated the current value of the six centers that collateralize the loans and concluded that the carrying value of four of the centers exceed the fair values
of those centers. Accordingly, the results of operations for the year ended December 31, 2001 include a provision for asset impairment of $18.0 million, representing a
write-down of the carrying values of the assets to their estimated fair value in accordance with SFAS No. 121. The aggregate carrying value of the real estate of such properties
collateralizing the JP Morgan Loans approximates $39.0 million at December 31, 2001. Such value is exceeded by the current outstanding loan balances totaling $45.5 million
plus accrued interest and penalties. If the lender were to foreclose on the collateral properties, the Company would record an extraordinary gain for the difference between the carrying value of the
properties and related net assets and the outstanding loan balances and related liabilities.

Other Borrowings

On July 20, 2001, the Company acquired the ownership of a triple net leased property in Roseville, Michigan, which is leased to Petsmart, Inc., as a
replacement property in a Section 1031 exchange related to the disposition of its outlet center in Dry Ridge, Kentucky in January 2001. The purchase price of $3.35 million
included the assumption of a $3.2 million mortgage. The rent payable under the lease is equal to the debt service due under the loan secured by the property (the "Petsmart Loan"). The Petsmart
Loan matures on January 8, 2008, bears interest at a fixed rate of 8.77% and requires the monthly payment of principal computed on a 25 year schedule. The loan is
non-recourse to HGPI. The balance of the Petsmart Loan was $3.2 million at December 31, 2001.

The
Company has a mortgage loan collateralized by its corporate office building and related equipment in Norton Shores, Michigan. The principal balance on this loan was
$2.4 million and $2.5 million at December 31, 2001 and December 31, 2000, respectively. The loan matures in December 2002, bears interest at a rate equal to LIBOR
plus 2.50% per annum, and requires monthly debt service payments of $22,500. The effective rate was 6.9% and 9.2% at December 31, 2001 and 2000, respectively.

Portions
of approximately 25 acres of undeveloped land owned by the Company in Muskegon, Michigan are subject to a land contract with a balance of $457,000 and $464,000 as of
December 31, 2001 and 2000, respectively. The interest rate is 8.5%. Monthly debt service payments total $4,200 and matures in January 2003.

Cash
paid for interest for the years ended December 31, 2001, 2000 and 1999 was $9.2 million $9.5 million and $9.3 million, respectively. The weighted average
rate of interest was 9.0%, 8.4% and 7.5% for the years ended December 31, 2001, 2000 and 1999, respectively.

35

---

Mortgages
and other debt, as of December 31, 2001 and 2000, consists of the following (in thousands):

2001

2000Mortgage notes payable

$
102,678

$
103,763Land contracts and other


457


638$
103,135

$
104,401


Debt
maturities and principal payments due subsequent to 2001 are as follows (in thousands):

2002

$
35,5952003


1,3882004


1,0082005


1,1122006


4,240Thereafter


59,792$
103,135


Note 9Related Party Transactions

The Company utilizes Thilman & Filippini as its agent for insurance and risk management programs. E. Thomas Thilman is a Director of the Company and
a partner in Thilman & Filippini. During the years ended December 31, 2001 and 2000, the Company paid premiums totaling approximately $663,000 and $739,000, respectively, on insurance
policies placed by Thilman & Filippini.

The
Company sub-leases office space on a month to month basis for its senior executives at 77 W. Wacker, Chicago, Illinois from an affiliate of Michael W. Reschke, a
Director of the Company. During the years ended December 31, 2001 and 2000 the Company incurred rent expense of $53,000 and $95,000, respectively.

Prior
to the Merger, Horizon entered into an agreement (the "PVH Agreement") with Phillips Van Heusen, Inc. ("PVH") which modified certain provisions of PVH leases for the benefit
of Horizon in exchange for certain payments. Prime was liable for payments related to the PVH Agreement, but the Company was obligated to pay $2,334,000 to Prime in 1999 for payments related to the
PVH Agreement. This amount was paid in connection with the transfer of the Company's interests in the Bellport Outlet Center and the settlement of the Working Capital Agreement discussed below.

In
connection with the Merger, the Company entered into a Working Capital Agreement with Prime (the "Working Capital Agreement"). The Working Capital Agreement provides that Prime will
transfer to the Company sufficient cash to result in net working capital of $545,000, after consideration of the current assets and current liabilities of the Predecessor Properties and the two
centers which the Company purchased from Prime as of the date of the Merger. At the date of the merger, Prime transferred $3.0 million to the Company as a partial payment of amounts due under
the Working
Capital Agreement. On September 1, 1999, the Company reached an agreement with Prime to settle amounts due under the Working Capital Agreement in connection with the transfer of its interests
in the joint ventures related to the outlet center in Bellport, New York. The consideration for the transfer of the Bellport interests was $7.5 million and approximately 95 acres of land in
Muskegon, Michigan subject to $800,000 of land contract payments. No gain or loss was recognized in conjunction with the settlement of the Working Capital Agreement.

The
proceeds from the settlement of the Working Capital Agreement and the transfer of the Bellport interests were used to repay $9.3 million of current and future obligations owed
by the

36

---

Company to Prime. These obligations included (i) $2.2 million which the Company had borrowed from Prime to make principal repayments on the HGP Credit Facility,
(ii) $4.0 million which the Company had borrowed from Prime to repay a credit facility assumed in the Merger, (iii) $2.3 million related to the PVH Agreement, and
(iv) $800,000 related to the guarantee fee associated with Prime's guarantee of certain of the Company's debt obligations (see Note 9). The Company also received $230,000 in cash.

On
April 18, 2000, the Company made a $1.5 million loan to Prime Outdoor, LLC, an affiliate of Prime Group, Inc. The Prime Group, Inc. is an affiliate of
Michael W. Reschke, a Director of the Company. The interest rate on the loan was at 10% and was secured by a pledge of all of the unencumbered assets of Prime Outdoor, LLC, Prime
Group, Inc.'s ownership interest in Prime Outdoor, LLC, and 410,783 units in Horizon Group Properties, LP owned by Prime Group, Inc. and its affiliates. The loan was approved by a
committee of independent directors of the Company. The loan was repaid on June 9, 2000.

Note 10Shareholders' Equity

The authorized capital stock of the Company consists of 50,000,000 shares of common stock, 50,000,000 shares of preferred stock, and 50,000,000 shares of excess
stock which consists of 25,000,000 shares of excess common stock and 25,000,000 shares of excess preferred stock, each $.01 par value per share. Each share of common stock entitles the holder to one
vote on all matters submitted to a vote of stockholders, including the election of directors, and, except as provided with respect to any other class or series of stock, the holders of HGP common
stock will possess exclusive voting power. There is no cumulative voting in the election of directors, which means that the holders of a majority of the outstanding HGP common stock can elect all of
the directors then standing for election. Holders of HGP common stock have no preference, conversion, exchange, sinking fund, redemption or appraisal rights and have no preemptive rights to subscribe
for any securities of HGP. There are no shares of preferred stock or excess stock currently issued and outstanding.

Note 11Segment Information

During the years ended December 31, 2001, 2000 and 1999, the Company operated twelve shopping centers located in nine states and thirteen shopping centers
located in ten states and fourteen shopping centers located in eleven states, respectively. The Company separately evaluates the performance of each of its centers. However, because each of the
centers has similar economic characteristics, facilities and/or tenants, the shopping centers have been aggregated into a single dominant shopping center segment. The Company evaluates performance and
allocates resources primarily based on the Funds From Operations ("FFO") expected to be generated by an investment in each individual shopping center. FFO is a widely used measure of the operating
performance of REITs, which provides a relevant basis for comparison to other REITs. FFO, as defined by the National Association of Real Estate Investment Trusts ("NAREIT"), means net income excluding
extraordinary items (as defined by accounting principles generally accepted in the United States ("GAAP")) and gains and losses from sales of depreciable operating property, plus depreciation and
amortization, and after adjustments for unconsolidated partnerships and joint ventures. Gains and losses on non-depreciable real estate assets, including land parcels, are included in FFO.
FFO should not be considered as an alternative to net income computed under accounting principles generally accepted in

37

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the United States. A reconciliation of the loss before minority interests and extraordinary charge to FFO is as follows:

|                                                        |                                                   | For the Year Ended |        
|------------------------------------------------------- | ------------------------------------------------- | ------------------ | -------
|
|Loss before minority interests and extraordinary charge |                                                   | $                  | (22,791
|                                                        | Adjustments for depreciation and amortization (1) |                    |        
|                                                        | Provision for impairment                          |                    |        
|                                                        | Extraordinary charge, net of minority interests   |                    |        
|                                                        |                                                   |                    |        
|FFO                                                     |                                                   | $                  | 1,167  
|                                                        |                                                   |                    |        

---

Notes:

The
line item entitled general and administrative expenses on the Company's statements of operations represents corporate level general and administrative expenses.

Note 12Land Sale Transactions

On October 6, 1999, the Company sold six acres of land in Muskegon, Michigan to CBL & Associates Properties, Inc. ("CBL") and
was reimbursed for prior development efforts. The Company received $600,000 in cash and a $520,000 note which was paid in September 2001. No gain or loss was recognized on this sale.

On
November 9, 2000, the Company sold an outparcel at its power center in Norton Shores, Michigan to Delta Investments Associates, LLC for $375,000. A gain on sale of
$239,000 is reflected on the statement of operations for the year ended December 31, 2000.

On
January 26, 2001, the Company sold its outlet center in Dry Ridge, Kentucky for $2.5 million. This center was classified as held for sale on the Company's balance sheet
at December 31, 2000. The net proceeds were used to pay down the outstanding balance on the HGP Credit Facility (See Note 8). In conjunction with the disposition, the Company acquired
replacement property in Roseville, Michigan in a transaction structured as a tax deferred exchange under the provisions of Sections 1031 of the Code.

In
May 2001, the Company sold 18.8 acres of vacant land in Norton Shores, Michigan. The proceeds of this transaction were approximately $1.7 million, with a gain recognized
on the transaction of $913,000. A portion of the Norton Shores land was subject to a land contract totaling $125,000, which was paid off at the time of the sale.

In
July 2001, one acre of ancillary land was sold at the Holland, Michigan center for $50,000. A gain of $42,000 was recognized on the sale.

In
October 2001, the Company sold an outparcel adjacent to its center in Sealy, Texas. The proceeds were $72,000 and a net loss of $29,000 was recognized on the transaction.

On
November 7, 2001, the Company sold a one acre outparcel adjacent it its center in Monroe, Michigan. A gain was recognized on the transaction of $236,000 and net proceeds of
approximately $250,000 were applied to the outstanding principal balance of the HGP Credit Facility.

On
November 8, 2001, the Company sold a 1.3 acre outparcel at its power center in Norton Shores, Michigan for approximately $627,000. A gain of $394,000 was recognized on the
transaction. The purchaser assumed a portion of special road assessments on the land which totaled approximately $40,000

38

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HORIZON GROUP PROPERTIES  SCHEDULE IIIREAL ESTATE AND ACCUMULATED DEPRECIATION  DECEMBER 31, 2001

|                              |  |   |             | Initial Cost to Company (3) |   | Costs Capitalized Subsequent
to Initial Development
or Acquisition |  | Gross Amount at Which Carried at Close of Period |             |  |   |        
|----------------------------- |  | - | ----------- | --------------------------- | - | ------------------------------------------------------------------ |  | ------------------------------------------------ | ----------- |  | - | -------
|
|Holland                       |  | $ | 3,468,800   |                             | $ | 623,000                                                            |  | $                                                | 4,467,800   |  |   |       
|Laughlin                      |  |   | 12,176,500  |                             |   | 8,100                                                              |  |                                                  | 20,366,800  |  |   |       
|Medford                       |  |   | 8,697,500   |                             |   | 241,600                                                            |  |                                                  | 11,045,900  |  |   |       
|Monroe                        |  |   | 3,484,700   |                             |   | 427,400                                                            |  |                                                  | 8,610,100   |  |   |       
|Lakeshore                     |  |   | 15,953,300  |                             |   | 653,500                                                            |  |                                                  | 9,783,600   |  |   |       
|Sealy                         |  |   | 10,843,700  |                             |   | 449,400                                                            |  |                                                  | 6,378,300   |  |   |       
|Somerset                      |  |   | 2,587,700   |                             |   | 622,600                                                            |  |                                                  | 3,315,000   |  |   |       
|Traverse City                 |  |   | 5,078,000   |                             |   | 898,600                                                            |  |                                                  | 4,606,700   |  |   |       
|Tulare                        |  |   | 9,105,700   |                             |   | 1,282,200                                                          |  |                                                  | 7,916,700   |  |   |       
|Warrenton                     |  |   | 7,731,000   |                             |   | 1,264,100                                                          |  |                                                  | 13,265,100  |  |   |       
|Daleville                     |  |   | 10,619,200  |                             |   | 147,200                                                            |  |                                                  | 8,171,700   |  |   |        
|Gretna                        |  |   | 7,302,400   |                             |   | 148,700                                                            |  |                                                  | 8,349,700   |  |   |        
|Miscellaneous / Corporate (2) |  |   | 5,628,900   |                             |   | 1,483,100                                                          |  |                                                  | 6,195,900   |  |   | 126,600
|                              |  |   |             |                             |   |                                                                    |  |                                                  |             |  |   |        
|Total                         |  | $ | 102,677,400 |                             | $ | 8,249,500                                                          |  | $                                                | 112,473,300 |  | $ | 126,600
|                              |  |   |             |                             |   |                                                                    |  |                                                  |             |  |   |        

Depreciation of the Company's investment in buildings and improvements reflected in the Statements of Operations is calculated over the estimated
useful lives of the assets as follows:

Buildings        31.5
years                        Improvements        Shorter of 10 years or lease term

The
aggregate cost of property included above for federal income tax purposes approximated $227.5 million as of December 31, 2001

39

---



HORIZON GROUP PROPERTIES, INC.  SCHEDULE IIINOTES  DECEMBER 31, 2001

1. Reconciliation of Real Estate Properties:

The following table reconciles the Real Estate Properties from January 1, 1999 to December 31, 2001:

|                             |                                  | Years Ended                             |            
|---------------------------- | -------------------------------- | --------------------------------------- | -----------
|
|Balance, beginning of period |                                  | $                                       | 145,719,200
|                             | Additions during period:         |                                         |            
|                             |                                  | Improvements of existing properties (a) |            
|                             |                                  | Acquisitions                            |            
|                             | Final purchase allocations, net  |                                         |            
|                             | Retirements                      |                                         |            
|                             | Write down to net book value (b) |                                         |            
|                             | Transfer of assets held for sale |                                         |            
|                             | Write down for impaired property |                                         |            
|                             |                                  |                                         |            
|Balance, end of period       |                                  | $                                       | 128,924,100
|                             |                                  |                                         |            

The
following table reconciles the accumulated depreciation from January 1, 1999 to December 31, 2001:

|                             |                                     | Years Ended |           
|---------------------------- | ----------------------------------- | ----------- | ----------
|
|Balance, beginning of period |                                     | $           | 11,916,300
|                             | Addition during periodDepreciation |             |           
|                             | Write down to net book value (b)    |             |           
|                             | Retirements during period           |             |           
|                             |                                     |             |           
|Balance, end of period       |                                     | $           | 16,609,700
|                             |                                     |             |           

Note:

40

---



ITEM 9CHANGES IN AND DISAGREEMENTS  WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

None

PART III

ITEM 10DIRECTORS AND EXECUTIVE  OFFICERS OF THE COMPANY

Incorporated herein by reference from the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held on May 14, 2002.
Information concerning the Executive Officers is included in Part I on page 8.

ITEM 11EXECUTIVE COMPENSATION

Incorporated herein by reference from the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held on May 14, 2002.

ITEM 12SECURITY OWNERSHIP OF CERTAIN  OWNERS AND MANAGEMENT

Incorporated herein by reference from the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held on May 14, 2002.

ITEM 13CERTAIN RELATIONSHIPS AND  RELATED TRANSACTIONS

Incorporated herein by reference from the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held on May 14, 2002.

PART IV

ITEM 14EXHIBITS, FINANCIAL STATEMENT  SCHEDULES, AND REPORTS ON FORM 8-K





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Horizon Group Properties, Inc.  Index to Exhibits  (Item 14(a))

|Description    |  |                                                                                                                                                                                                                                                                                                                                                                                                                             
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) Exhibits   |  |                                                                                                                                                                                                                                                                                                                                                                                                                             
|Exhibit 3(i)   |  | Articles of Amendment and Restatement of Horizon Group Properties, Inc. (the "Company") (8)                                                                                                                                                                                                                                                                                                                                 
|Exhibit 3(ii)  |  | Bylaws of the Company (1)                                                                                                                                                                                                                                                                                                                                                                                                  
|Exhibit 3(iii) |  | Amendment to By-laws of the Company dated March 17, 1999 (4)                                                                                                                                                                                                                                                                                                                                                                
|Exhibit 3(iv)  |  | Amendment to By-laws of the Company dated June 8, 2000 (12)                                                                                                                                                                                                                                                                                                                                                                 
|Exhi bit 3(v)  |  | Amendment to By-laws of the Company dated May 4, 2001 (12)                                                                                                                                                                                                                                                                                                                                                                  
|Exhibit 3(vi)  |  | Amendment to By-laws of the Company dated May 29, 2001 (13)                                                                                                                                                                                                                                                                                                                                                                 
|Exhibit 4.1    |  | Specimen certificate for common stock, $.01 par value per share, of the Company (1)                                                                                                                                                                                                                                                                                                                                         
|Exhibit 10.1   |  | Sky Merger Corp. Registration Statement on Form S-4 (excluding exhibits thereto), as filed with the Securities and Exchange Commission on May 12, 1998 (Registration No. 333-51285) (1)                                                                                                                                                                                                                                     
|Exhibit 10.2   |  | Amended and Restated Agreement and Plan of Merger by and among Prime Retail, Inc., Prime Retail, L.P., Horizon Group, Inc., Sky Merger Corp., the Company, Horizon Group Properties, L.P. and
Horizon/Glen Outlet Centers Limited Partnership dated as of February 1, 1998 (Incorporated by reference to Exhibit 10(a) to Horizon Group, Inc.'s current report on Form 8-K dated February 1, 1998 (SEC File No. 1-12424)
(1)
|Exhibit 10.3   |  | Form of 1998 Stock Option Plan of the Company (1)                                                                                                                                                                                                                                                                                                                                                                           
|Exhibit 10.4   |  | Employment Agreement between Gary J. Skoien and the Company (1)                                                                                                                                                                                                                                                                                                                                                             
|Exhibit 10.5   |  | Employment Agreement between David R. Tinkham and the Company (1)                                                                                                                                                                                                                                                                                                                                                           
|Exhibit 10.6   |  | Form of Indemnification Agreement for the Board of Directors of the Company (1)                                                                                                                                                                                                                                                                                                                                             
|Exhibit 10.7   |  | Form of Registration Rights Agreement (1)                                                                                                                                                                                                                                                                                                                                                                                   
|Exhibit 10.8   |  | Form of Contribution Agreement (incorporated by reference to Appendix E to Exhibit 10.1) (1)                                                                                                                                                                                                                                                                                                                                
|Exhibit 10.9   |  | Employment Agreement between Richard Berman and the Company (3)                                                                                                                                                                                                                                                                                                                                                             
|Exhibit 10.10  |  | Working Capital Agreement with Prime Retail, Inc. (3)                                                                                                                                                                                                                                                                                                                                                                       
|Exhibit 10.11  |  | Loan Agreement dated as of June 15, 1998 by and among Third Horizon Group Limited Partnership, Nebraska Crossing Factory Shops, L.L.C., and Indiana Factory Shops, L.L.C. and Nomura Asset Capital Corporation
(2)                                                                                                                                                                                                          
|Exhibit 10.12  |  | Form of Deed of Trust, Assignment of Leases and Rents and Security Agreement with Nomura Asset Capital Corporation (2)                                                                                                                                                                                                                                                                                                      
|Exhibit 10.13  |  | Form of Mortgage, Assignment of Leases and Rents and Security Agreement by and between Horizon Group Properties, Inc. and Nomura Asset Capital Corporation (2)                                                                                                                                                                                                                                                              
|Exhibit 10.14  |  | Form of Assignment of Leases and Rents by and between Horizon Group Properties, Inc. and Nomura Asset Capital Corporation (2)                                                                                                                                                                                                                                                                                               
|Exhibit 10.15  |  | Guaranty dated as of June 15, 1998 by the Company and Horizon Group Properties, L.P. to and for the benefit of Nomura Asset Capital Corporation (2)                                                                                                                                                                                                                                                                         

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|Exhibit 10.16 |  | Guaranty and Indemnity Agreement dated as of June 15, 1998 by and among the Company, Horizon Group Properties, L.P., Prime Retail, Inc., and Prime Retail, L.P. (2)                                                                                               
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit 10.17 |  | Assignment and Assumption Agreement, dated as of June 15, 1998 by and among Prime Retail, Inc., Prime Retail, L.P., Indianapolis Factory Shops Limited Partnership, and Indiana Factory Shops, L.L.C.
(3)                                                         
|Exhibit 10.18 |  | Assignment and Assumption Agreement, dated as of June 15, 1998 by and among Prime Retail, Inc., Prime Retail, L.P., Nebraska Factory Shops Limited Partnership, and Nebraska Factory Shops L.L.C.
(3)                                                             
|Exhibit 10.19 |  | Form of Option Agreement (3)                                                                                                                                                                                                                                      
|Exhibit 10.20 |  | Fixed Rate Note dated as of July 9, 1999 between Gretna, Sealy, Traverse City Outlet Centers, L.L.C. and Morgan Guaranty Trust Company of New York related to the financing of the factory outlet center in Gretna,
Nebraska (5)                                  
|Exhibit 10.21 |  | Deed of Trust and Security Agreement for the benefit of Morgan Guaranty Trust Company of New York, as lender, from Gretna, Sealy, Traverse City Outlet Centers, L.L.C., as borrower, related to the financing of the
factory outlet center in Gretna, Nebraska (5)
|Exhibit 10.22 |  | Guaranty for the benefit of Morgan Guaranty Trust Company of New York by Horizon Group Properties, Inc. related to the Gretna, Sealy and Traverse City loans (5)                                                                                                  
|Exhibit 10.23 |  | Agreement between Andrew F. Pelmoter and the Company (6)                                                                                                                                                                                                          
|Exhibit 10.24 |  | Agreement of Purchase and Sale and Escrow Instructions dated March 24, 2000 between Third Horizon Group Limited Partnership and Triple Net Properties, LLC. (7)                                                                                                   
|Exhibit 10.25 |  | First Amendment to Agreement of Purchase and Sale and Escrow Instruction between Third Horizon Group Limited Partnership and Triple Net Properties, LLC, dated as of April 21, 2000 (7)                                                                           
|Exhibit 10.26 |  | Second Amendment to Agreement of Purchase and Sale and Escrow Instructions between Third Horizon Group Limited Partnership and Triple Net Properties, LLC, dated as of April 25, 2000 (7)                                                                         
|Exhibit 10.27 |  | Promissory Note dated April 18, 2000, between Horizon Group Properties, LP as Lender and Prime Outdoor Group, LLC as Borrower (7)                                                                                                                                 
|Exhibit 10.28 |  | Security Agreement dated April 18, 2000, between Horizon Group Properties, LP and Prime Outdoor Group, LLC (7)                                                                                                                                                    
|Exhibit 10.29 |  | Pledge Agreement by and among Horizon Group Properties, LP; Prime Group Limited Partnership; Prime Group II, LP; Prime Group III, LP; Prime Group IV, LP; Prime Group V, LP and Prime Financing Limited Partnership
(7)                                           
|Exhibit 10.30 |  | Collateral Assignment of Membership Interests dated April 18, 2000, between Horizon Group Properties, LP and The Prime Group, Inc. (7)                                                                                                                            
|Exhibit 10.31 |  | Guarantee dated April 18, 2000, between Horizon Group Properties, LP; Prime Group Limited Partnership; Prime Group II, LP; Prime Group III, LP; Prime Group IV, LP; Prime Group V, LP and Prime Financing Limited
Partnership (7)                                 
|Exhibit 10.32 |  | Letter Agreement dated April 18, 2000, between Horizon Group Properties, Inc., Prime Group, Inc. and Prime Outdoor Group, LLC (7)                                                                                                                                 
|Exhibit 10.33 |  | Agreement between Andrew F. Pelmoter and the Company (7)                                                                                                                                                                                                          
|Exhibit 10.34 |  | Amendment to Employment Agreement between Gary J. Skoien and the Company dated as of August 29, 2000 (9)                                                                                                                                                          
|Exhibit 10.35 |  | Amendment to Employment Agreement between David R. Tinkham and the Company dated as of August 29, 2000 (9)                                                                                                                                                        
|Exhibit 10.36 |  | Amendment to Employment Agreement between Andrew F. Pelmoter and the Company dated October 9, 2000 (10)                                                                                                                                                           

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|Exhibit 10.37 |  | Amendment to Employment Agreement between Thomas R. Rumptz and the Company dated November 11, 2000 (10)                                                                                                                                  
|------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit 10.38 |  | Additional Amendment to Employment Agreement between Andrew F. Pelmoter and the Company dated April 26, 2001 (12)                                                                                                                        
|Exhibit 10.39 |  | Additional Amendment to Employment Agreement between Thomas R. Rumptz and the Company dated April 3, 2001 (12)                                                                                                                           
|Exhibit 10.40 |  | Settlement Agreement, dated as of May 4, 2001, by and among the Company, Howard M. Amster, John C. Loring and Robert M. Schwartzberg (11)                                                                                                
|Exhibit 10.41 |  | Promissory Note, dated as of July 30, 2001, between Lakeshore Marketplace, LLC and Greenwich Capital Financial Products, Inc. (14)                                                                                                       
|Exhibit 10.42 |  | Mortgage, dated as of July 30, 2001, between Lakeshore Marketplace, LLC and Greenwich Capital Financial Products, Inc. (14)                                                                                                              
|Exhibit 10.43 |  | Collection and Deposit Account Agreement, dated as of July 30, 2001, by and among LaSalle Bank National Association, Lakeshore Marketplace, LLC and Greenwich Capital Financial Products, Inc. (14)                                      
|Exhibit 10.44 |  | Second Amended and Restated Note dated as of July 31, 2001 between Third Horizon Group Limited Partnership and CDC Mortgage Capital, Inc. (14)                                                                                           
|Exhibit 10.45 |  | Second Amendment to Loan Agreement and Settlement Agreement dated of July 31, 2001 by and among Third Horizon Group Limited Partnership, Horizon Group Properties, Inc., Horizon Group Properties, LP and CDC Mortgage
Capital, Inc. (14)
|Exhibit 10.46 |  | Reaffirmation of Guaranty dated as of July 31, 2001 by Horizon Group Properties, Inc. and Horizon Group Properties, LP (14)                                                                                                              
|Exhibit 10.47 |  | Reaffirmation of Guaranty dated as of July 31, 2001 by Prime Retail, LP (14)                                                                                                                                                             
|Exhibit 10.48 |  | Pledge and Security Agreement dated as of July 31, 2001 by and among Horizon Group Properties, LP, Third HGI, LLC and CDC Mortgage Capital, Inc. (14)                                                                                    
|Exhibit 10.49 |  | Amended and Restated Guaranty and Indemnity Agreement dated as of July 31, 2001 by and among Horizon Group Properties, Inc., Horizon Group Properties, LP, Prime Retail, Inc., and Prime Retail, LP
(14)                                 
|Exhibit 99.1  |  | Press release issued by the Company on May 4, 2001, regarding the settlement of a lawsuit filed against Robert Schwartzberg, John Loring and Howard Amster and an election contest for seats on the Board of Directors
(11)              
|Exhibit 99.2  |  | Press release issued by the Company on August 2, 2001, announcing the refinancing of Lakeshore Marketplace and the extension of the CDC loan (14)                                                                                        
|Exhibit 99.3  |  | Amendment to Retention Letter between Thomas R. Rumptz and the Company dated August 29, 2001                                                                                                                                             
|Exhibit 99.4  |  | Amendment to Retention Letter between Thomas R. Rumptz and the Company dated November 28, 2001                                                                                                                                           
|Exhibit 99.5  |  | Amendment to Retention Letter between Thomas R. Rumptz and the Company dated February 25, 2002                                                                                                                                           
|Exhibit 99.6  |  | Amendment to Retention Letter between Andrew Pelmoter and the Company dated May 30, 2001                                                                                                                                                 

|1 |  | Incorporated by reference to the Company's Registration Statement on Form 10, as amended, dated as of
June 4, 1998 (Commission file no. 0-24123).
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------
|2 |  | Incorporated by reference to the Company's Current Report on Form 8-K dated as of June 30, 1998
(Commission file no. 0-24123).                   
|3 |  | Incorporated by reference to the Company's Form 10-Q dated as of August 14, 1998
(Commission file no. 0-24123).                                  

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|4  |  | Incorporated by reference to the Company's Form 10-Q dated as of May 17, 1998
(Commission file no. 0-24123).                   
|-- |  | -------------------------------------------------------------------------------------------------------------------------------
|5  |  | Incorporated by reference to the Company's Current Report on Form 8-K dated as of August 3, 1999
(Commission file no. 0-24123).
|6  |  | Incorporated by reference to the Company's Form 10-K dated as of March 6, 2000
(Commission file no. 0-24123).                  
|7  |  | Incorporated by reference to the Company's Form 10-Q dated as of May 15, 2000
(Commission file no. 0-24123).                   
|8  |  | Incorporated by reference to the Company's Definitive Proxy Statement dated as of July 12, 2000
(Commission file no. 0-24123). 
|9  |  | Incorporated by reference to the Company's Form 10-Q dated as of November 14, 2000
(Commission file no. 0-24123).              
|10 |  | Incorporated by reference to the Company's Form 10-K dated as of March 23, 2001
(Commission file no. 0-24123)                  
|11 |  | Incorporated by reference to the Company's Current Report on Form 8-K dated as of May 4, 2001
(Commission file no. 0-24123)    
|12 |  | Incorporated by reference to the Company's Form 10-Q dated as of May 15, 2001
(Commission file no. 0-24123)                    
|13 |  | Incorporated by reference to the Company's Current Report on Form 8-K dated as of May 29, 2001
(Commission file no. 0-24123)   
|14 |  | Incorporated by reference to the Company's Current Report on Form 8-K dated as of August 13, 2001
(Commission file no. 0-24123)



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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
in its behalf by the undersigned, thereunto duly authorized.

HORIZON
GROUP PROPERTIES, INC.

|                                          |  |                                                                                                         |  |               
|----------------------------------------- |  | ------------------------------------------------------------------------------------------------------- |  | --------------
|                                          |  |                                                                                                         |  |               
|/s/GARY J. SKOIENGary J. Skoien           |  | Director and Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer) |  | March 26, 2002
|/s/DAVID R. TINKHAMDavid R. Tinkham       |  | Chief Accounting and Financial Officer
(Principal Financial Officer)                                    |  | March 26, 2002
|/s/MICHAEL W. RESCHKEMichael W. Reschke   |  | Director                                                                                                |  | March 26, 2002
|/s/MARGARET A. GILLIAMMargaret A. Gilliam |  | Director                                                                                                |  | March 26, 2002
|/s/JIM EDGARGovernor Jim Edgar            |  | Director                                                                                                |  | March 26, 2002
|/s/E. THOMAS THILMANE. Thomas Thilman     |  | Director                                                                                                |  | March 26, 2002
|/s/HOWARD M. AMSTERHoward M. Amster       |  | Director                                                                                                |  | March 26, 2002

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