United States
                       Securities and Exchange Commission
                             Washington, D.C. 20549


                                    FORM 10-Q

[X]      Quarterly  Report  Pursuant  to  Section 13 or 15(d)  of the Securities
         Exchange Act of 1934 for the Quarterly Period Ended June 30, 2003

                                       Or

  [ ]    Transition  Report  Pursuant  to  Section 13 or 15(d) of the Securities
         Exchange Act of 1934, for the Transition Period From    ----------
         to -----------

              Commission file number                 001-13301
                                               ----------------------

                               PRIME RETAIL, INC.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

        Maryland                                        38-2559212
----------------------------------        --------------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)


100 East Pratt Street
Nineteenth Floor
Baltimore, Maryland                                            21202
------------------------------------------                ------------------
(Address of principal executive offices)                      (Zip Code)


                                 (410) 234-0782
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)

                                 NOT APPLICABLE
--------------------------------------------------------------------------------
(Former name, former address, or former fiscal year, if changed since last
report)

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  periods that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

Yes   X           No
    -----            ------

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practical date.

As of August 12, 2003, the issuer had  outstanding  43,577,916  shares of Common
Stock, $.01 par value per share.

<PAGE>
                                   Page - (2)


                               Prime Retail, Inc.
                                    Form 10-Q


                                      INDEX


PART I:  FINANCIAL INFORMATION                                             PAGE
                                                                           ----


Item 1.  Financial Statements (Unaudited)

     Consolidated Balance Sheets as of June 30, 2003 and
       December 31, 2002................................................      1

     Consolidated Statements of Operations for the three
       and six months ended June 30, 2003 and 2002......................      2

     Consolidated Statements of Cash Flows for the three
       and six months ended June 30, 2003 and 2002......................      3

     Notes to the Consolidated Financial Statements.....................      5

Item 2.  Management's Discussion and Analysis of Financial
           Condition and Results of Operations..........................     22

Item 3.  Quantitative and Qualitative Disclosures of Market Risk........     48

Item 4.  Controls and Procedures........................................     49

PART II:  OTHER INFORMATION

Item 1.  Legal Proceedings..............................................     50

Item 3.  Defaults Upon Senior Securities................................     50

Item 4.  Submission of Matters to a Vote of Security Holders............     51

Item 6.  Exhibits and Reports on Form 8-K...............................     51

Signatures..............................................................     53

<PAGE>
                                   Page - (3)


Introduction

     Unless the context otherwise requires,  all references to "we," "us," "our"
or the  "company"  contained  in this Quarterly  Report on Form 10-Q mean  Prime
Retail,  Inc. and those  entities  owned or controlled  by Prime  Retail,  Inc.,
including Prime Retail, L.P. (the "Operating Partnership").

     Historical results and percentage relationships set forth in this Quarterly
Report on Form 10-Q are not necessarily indicative of future operations.

Forward-Looking Statements

     Statements  contained in this Quarterly Report on Form 10-Q,  including the
section entitled  "Management's  Discussion and Analysis of Financial  Condition
and Results of Operations" contain 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.  In  addition,  we may make  forward-looking  statements  in future
filings with the  Securities and Exchange  Commission  and in written  material,
press   releases   and  oral   statements   issued  by  us  or  on  our  behalf.
Forward-looking  statements include statements regarding the intent,  belief, or
current  expectations of us or our officers,  including  statements preceded by,
followed by, or including  forward-looking  terminology  such as "may,"  "will,"
"should," believe," "expect,"  "anticipate,"  "estimate," "continue," "predict,"
or similar expressions with respect to various matters.

     These  statements  are subject to potential  risks and  uncertainties  and,
therefore, actual results may differ materially. Such forward-looking statements
are subject to certain risks and uncertainties,  including,  but not limited to,
the risk associated with our high level of leverage and our ability to refinance
such  indebtedness  as it  becomes  due;  the risk that we or one or more of our
subsidiaries are not able to satisfy scheduled debt service  obligations or will
not remain in  compliance  with existing  loan  covenants;  the risk of material
adverse affects of future events,  including tenant  bankruptcies,  abandonments
and the non-payment by tenants of contractual rents and additional rents, on our
financial  performance;  the risk  related to the retail  industry  in which our
outlet  centers  compete,  including  the potential  adverse  impact of external
factors, such as inflation, consumer confidence, unemployment rates and consumer
tastes and preferences;  the risk associated with our potential asset sales; the
risk of potential  increases in market interest rates from current  levels;  the
risk associated with real estate ownership, such as the potential adverse impact
of  changes  in local  economic  climate  on the  revenues  and the value of our
properties;  the risk associated with  litigation;  and the risk associated with
competition from web-based and catalogue retailers.

     All  forward-looking  statements  in this  report are based on  information
available  to us on the date of this report.  We do not  undertake to update any
forward-looking  statements  that  may be  made by us or on our  behalf  in this
report or otherwise.

<PAGE>
                                   Page - (4)


                               PRIME RETAIL, INC.

                      Unaudited Consolidated Balance Sheets

                (Amounts in thousands, except share information)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                  June 30,           December 31,
                                                                                                      2003                   2002
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                              <C>                    <C>
Assets
Investment in rental property:
     Land                                                                                        $ 100,246              $ 101,546
     Buildings and improvements                                                                    735,505                740,024
     Furniture and equipment                                                                        13,592                 13,292
                                                                                                 ---------              ---------
                                                                                                   849,343                854,862
     Accumulated depreciation                                                                     (227,456)              (213,604)
                                                                                                 ---------              ---------
                                                                                                   621,887                641,258
Cash and cash equivalents                                                                            6,008                  6,908
Restricted cash                                                                                    108,102                107,037
Accounts receivable, net                                                                               878                  3,049
Deferred charges, net                                                                                2,857                  3,766
Investment in unconsolidated joint ventures                                                         50,947                 49,889
Other assets                                                                                         8,263                  6,181
                                                                                                 ---------              ---------
          Total assets                                                                           $ 798,942              $ 818,088
                                                                                                 =========              =========

Liabilities and Shareholders' Equity
Bonds payable                                                                                    $  22,406              $  22,495
Notes payable, including $41,570 in default in 2003                                                507,263                511,443
Defeased notes payable                                                                              74,280                 74,764
Accrued interest                                                                                     4,816                  3,984
Real estate taxes payable                                                                            5,158                  3,484
Accounts payable and other liabilities                                                              36,953                 43,059
                                                                                                 ---------              ---------
     Total liabilities                                                                             650,876                659,229

Minority interests                                                                                   1,487                  1,487

Shareholders' equity:
  Shares of preferred stock, 24,315,000 shares authorized:
     10.5% Series A Senior Cumulative Preferred Stock,
          $0.01 par value (liquidation preference of $79,386),
          2,300,000 shares issued and outstanding                                                       23                     23
     8.5% Series B Cumulative Participating Convertible
          Preferred Stock, $0.01 par value (liquidation preference
          of $256,004), 7,828,125 shares issued and outstanding                                         78                     78
  Shares of common stock, 150,000,000 shares authorized:
     Common stock, $0.01 par value, 43,577,916 shares
          issued and outstanding                                                                       436                    436
  Additional paid-in capital                                                                       709,373                709,373
  Distributions in excess of earnings                                                             (563,331)              (552,538)
                                                                                                 ---------              ---------
      Total shareholders' equity                                                                   146,579                157,372
                                                                                                 ---------              ---------
          Total liabilities and shareholders' equity                                             $ 798,942              $ 818,088
                                                                                                 =========              =========
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.

<PAGE>
                                   Page - (5)


                               PRIME RETAIL, INC.

                 Unaudited Consolidated Statements of Operations

              (Amounts in thousands, except per share information)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
                                                                 Three Months Ended                           Six Months Ended
                                                                       June 30,                                   June 30,
                                                               --------------------------------        -----------------------------
                                                                     2003                2002               2003               2002
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                              <C>                 <C>                <C>                <C>
Revenues
Base rents                                                       $ 18,535            $ 22,867           $ 37,528           $ 47,176
Percentage rents                                                      473                 436              1,450              1,756
Tenant reimbursements                                              11,816              12,723             22,774             25,557
Interest and other                                                  3,705               2,273              7,717              5,133
                                                                 --------            --------           --------           --------
  Total revenues                                                   34,529              38,299             69,469             79,622

Expenses
Property operating                                                  9,751              10,957             19,706             21,168
Real estate taxes                                                   3,086               3,627              6,070              7,293
Depreciation and amortization                                       7,281               9,214             14,561             19,422
Corporate general and administrative                                3,528               2,877              7,994              6,296
Interest                                                           11,944              16,996             23,800             34,725
Other charges                                                         853               4,266              1,541              6,738
Provision for asset impairment                                      6,590                   -              6,590                  -
                                                                 --------            --------           --------           --------
  Total expenses                                                   43,033              47,937             80,262             95,642
                                                                 --------            --------           --------           --------
Loss before gain (loss) on sale of real estate                     (8,504)             (9,638)           (10,793)           (16,020)
Gain (loss) on sale of real estate                                      -             (10,991)                 -              5,802
                                                                 --------            --------           --------           --------
Loss from continuing operations                                    (8,504)            (20,629)           (10,793)           (10,218)
Discontinued operations, including gain (loss) of
  $2,121 and $(7,502) on dispositions in 2002
  periods, respectively                                                 -              (9,557)                 -            (18,287)
                                                                 --------            --------           --------           --------
Net loss                                                           (8,504)            (30,186)           (10,793)           (28,505)
Allocations to preferred shareholders                              (5,668)             (5,668)           (11,336)           (11,336)
                                                                 --------            --------           --------           --------
Net loss applicable to common shares                             $(14,172)           $(35,854)          $(22,129)          $(39,841)
                                                                 ========            ========           ========           ========
Basic and diluted earnings per common share:
Loss from continuing operations                                  $  (0.33)           $  (0.60)          $  (0.51)          $  (0.49)
Discontinued operations                                                 -               (0.22)                 -              (0.42)
                                                                 --------            --------           --------           --------
  Net loss                                                       $  (0.33)           $  (0.82)          $  (0.51)          $  (0.91)
                                                                 ========            ========           ========           ========
Weighted-average common shares
  outstanding - basic and diluted                                  43,578              43,578             43,578             43,578
                                                                 ========            ========           ========           ========
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.

<PAGE>
                                   Page - (6)


                               PRIME RETAIL, INC.
                 Unaudited Consolidated Statements of Cash Flows
                             (Amounts in thousands)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Six Months Ended June 30,                                                                          2003                    2002
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                           <C>                     <C>
Operating Activities
Loss from continuing operations                                                               $ (10,793)              $ (10,218)
Adjustments to reconcile loss from continuing
  operations to net cash provided by operating activities:
     Gain on sale of real estate                                                                      -                  (5,802)
     Provision for asset impairment                                                               6,590                       -
     Equity in earnings of unconsolidated joint ventures                                         (1,752)                    114
     Depreciation and amortization                                                               14,561                  19,422
     Amortization of deferred financing costs                                                       847                   2,983
     Amortization of debt premiums                                                               (1,045)                   (998)
     Bad debt expense                                                                               997                   3,013
     Discontinued operations                                                                          -                   5,608
Changes in operating assets and liabilities:
     Decrease in accounts receivable                                                              1,174                     957
     Decrease (increase) in restricted cash                                                      (1,065)                     57
     Increase in other assets                                                                    (1,916)                   (541)
     Decrease in accounts payable and other liabilities                                          (6,106)                 (5,316)
     Increase in real estate taxes payable                                                        1,674                   1,101
     Increase (decrease) in accrued interest                                                        832                    (444)
                                                                                              ---------               ---------
       Net cash provided by operating activities                                                  3,998                   9,936
                                                                                              ---------               ---------

Investing Activities
Additions to investment in rental property                                                       (2,969)                 (2,649)
Distributions from unconsolidated joint ventures                                                    694                       -
Proceeds from sales of operating properties and land                                              1,085                  22,320
                                                                                              ---------               ---------
       Net cash provided by (used in) investing activities                                       (1,190)                 19,671
                                                                                              ---------               ---------

Financing Activities
Principal repayments on notes payable                                                            (3,708)                (31,943)
                                                                                              ---------               ---------
       Cash used in financing activities                                                         (3,708)                (31,943)
                                                                                              ---------               ---------

Decrease in cash and cash equivalents                                                              (900)                 (2,336)
Cash and cash equivalents at beginning of period                                                  6,908                   7,537
                                                                                              ---------               ---------
Cash and cash equivalents at end of period                                                    $   6,008               $   5,201
                                                                                              =========               =========
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.

<PAGE>
                                   Page - (7)


                               PRIME RETAIL, INC.
           Unaudited Consolidated Statements of Cash Flows (continued)
                             (Amounts in thousands)


Supplemental Disclosure of Non-cash Investing and Financing Activities

The  following  assets and  liabilities  were  disposed in  connection  with the
disposition of properties during the period indicated:

--------------------------------------------------------------------------------
Six Months Ended June 30,                                      2002
--------------------------------------------------------------------------------
Book value of net assets disposed                                $ 116,026
Notes payable paid                                                 (36,836)
Notes payable assumed by buyer                                     (46,862)
Notes payable transferred to lender                                (15,621)
Investment in unconsolidated joint ventures                         (2,975)
Gain on sale of real estate, net                                     8,588
                                                                 ---------
  Cash received, net                                             $  22,320
                                                                 =========
================================================================================
See accompanying notes to consolidated financial statements.

<PAGE>
                                   Page - (8)


                               Prime Retail, Inc.
              Notes to Unaudited Consolidated Financial Statements
            (Amounts in thousands, except share and unit information)


Note 1 - Interim Financial Presentation

     The  accompanying  unaudited  consolidated  financial  statements have been
prepared in accordance  with  accounting  principles  generally  accepted in the
United States ("GAAP") for interim financial information and the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and notes required by GAAP for complete financial statements.
In the opinion of  management,  all  adjustments,  consisting  only of recurring
accruals,  considered  necessary  for a fair  presentation  have been  included.
Operating results for such interim periods are not necessarily indicative of the
results that may be expected for a full fiscal  year.  For further  information,
refer to the  consolidated  financial  statements and notes thereto  included in
Prime  Retail,  Inc.'s (the  "Company")  Annual Report on Form 10-K for the year
ended December 31, 2002.

     Unless the context otherwise requires,  all references to "we," "us," "our"
or the Company  herein  mean Prime  Retail,  Inc.  and those  entities  owned or
controlled by Prime Retail,  Inc.,  including Prime Retail, L.P. (the "Operating
Partnership").

     The consolidated  financial statements include the accounts of the Company,
the Operating  Partnership  and the  partnerships  in which it has a controlling
financial  interest.  Profits and losses are  allocated in  accordance  with the
terms of the agreement of limited partnership of the Operating Partnership.  The
preparation of financial  statements in conformity with GAAP requires us to make
estimates  and  assumptions  that affect the (i) reported  amounts of assets and
liabilities,  (ii)  disclosure  of  contingent  liabilities  at the  date of the
financial  statements and (iii) reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.

     Investments  in  unconsolidated  joint ventures are accounted for under the
equity method of accounting.  Income (loss) applicable to minority interests and
common  shares as presented in the  consolidated  statements  of  operations  is
allocated  based  on  income  (loss)  before  minority  interests  after  income
allocated to preferred shareholders.

     Significant inter-company accounts and transactions have been eliminated in
consolidation.  Certain prior period financial information has been reclassified
to conform to the current period  presentation,  which did not have an impact on
our results of operations or financial position.

Note 2 - Recent Accounting Pronouncements

     In  December  2002,  the  FASB  issued   Interpretation   ("FIN")  No.  45,
"Guarantor's  Accounting and Disclosure  Requirements for Guarantees,  Including
Indirect  Guarantees  of  Indebtedness  of Others." FIN No. 45 elaborates on the
disclosures to be made by a guarantor in interim and annual financial statements
about the obligations under certain guarantees. FIN No. 45 also clarifies that a
guarantor  is required to  recognize,  at the  inception  of the  guarantee,  an
initial liability for the fair value of the obligation undertaken in issuing the
guarantee. The disclosure requirements of FIN No. 45 are effective for financial
statements  of interim or annual  periods  ending after  December  15, 2002.  We
adopted the disclosure provisions of FIN No. 45 effective December 31, 2002. The
initial  recognition  and  initial  measurement  provisions  of FIN  No.  45 are
applicable  on a  prospective  basis to  guarantees  issued  or  modified  after
December  31,  2002.  We did not issue or modify any  guarantees  during the six
months ended June 30, 2003. See  "Guarantees  and Guarantees of  Indebtedness of
Others" contained in Note 4 - "Debt" for additional information.

<PAGE>
                                   Page - (9)


     In January  2003,  the FASB issued FIN No. 46,  "Consolidation  of Variable
Interest  Entities." FIN No. 46 clarifies the application of existing accounting
pronouncements  to certain  entities in which  equity  investors do not have the
characteristics  of a controlling  financial  interest or do not have sufficient
equity at risk for the  entity to  finance  its  activities  without  additional
subordinated  financial support from other parties. The provisions of FIN No. 46
were  immediately  effective  for all variable  interests  in variable  interest
entities  created  after  January  31,  2003,  and we  will  need to  apply  the
provisions of FIN No. 46 to any existing variable interests in variable interest
entities by no later than July 1, 2003. We did not create any variable  interest
entities  during the six months  ended June 30, 2003 and we do not believe  that
FIN No. 46 will have a significant  impact on our financial  statements  for our
existing investments in unconsolidated joint ventures.

     In May 2003, the FASB issued FAS No 150,  "Accounting for Certain Financial
Instruments  with  Characteristics  of both Liabilities and Equity." FAS No. 150
establishes  standards  for  how  an  issuer  classifies  and  measures  certain
financial  instruments with  characteristics  of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some  circumstances).  Many of these  instruments
were  previously  classified as equity.  FAS No. 150 is generally  applicable to
financial instruments entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period  beginning  after June
15, 2003. It is to be implemented by reporting the cumulative effect of a change
in accounting principle for financial instruments created before the issuance of
FAS No.  150 and  still  existing  at the  beginning  of the  interim  period of
adoption.  We will  adopt FAS No.  150 in the third  quarter  of 2003 and do not
believe the  implementation of FAS No. 150 will have a significant impact on our
financial statements.

Note 3 - Property Dispositions

     We disposed of 17 properties through various transactions  (including sale,
joint  venture  arrangements,  foreclosure  and  transfer  of  ownership  to the
respective  lender)  during 2002. In accordance  with FAS No. 144, the operating
results of these  properties are reflected in either our results from continuing
operations  or  discontinued   operations   through  the  respective   dates  of
disposition as discussed below.

2002 Dispositions - Continuing Operations

     The operating  results for seven properties that were sold to joint venture
partnerships  during  2002  and in which  still  have a  significant  continuing
involvement  are not classified as discontinued  operations in the  Consolidated
Statements of Operations. Such properties and/or their operating results through
the dates of their respective  disposition are  collectively  referred to as the
"2002 Joint Venture  Properties".  The 2002 Joint Venture  Properties consist of
our sales of (i) Prime Outlets at Hagerstown (the  "Hagerstown  Center") and six
outlet  centers  (collectively,  the  "Bridge  Properties").  Additionally,  the
operating  results  of  Phases II and III of the  Bellport  Outlet  Center  (the
"Bellport  Outlet  Center"),  which was previously owned through a joint venture
partnership  and was  sold  during  2002,  are not  classified  as  discontinued
operations.  We accounted  for our  ownership  interest in the  Bellport  Outlet
Center through the date of  disposition in accordance  with the equity method of
accounting.

<PAGE>
                                  Page - (10)


          The following table summarizes these dispositions.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                          Gain/(Loss)    Provision
                              Date of                                    Sales    Reduction       Net       on Sale/     for Asset
Continuing Operations:     Disposition   Property Type        GLA        Price      of Debt     Proceeds  Disposition   Impairment
------------------------------------------------------------------------------------------------------------------------------------
<S>                       <C>           <C>               <C>         <C>         <C>           <C>        <C>               <C>
Hagerstown Center         January 2002  1 Outlet Center     487,000   $  80,500   $  (57,914)   $ 12,113   $ 16,793          $   -
Bellport Outlet Center -
 Phases II/III              April 2002  1 Outlet Center     197,000       6,500            -         522       (703)             -
Bridge Properties            July 2002  6 Outlet Centers  1,304,000     118,650     (111,009)          -    (10,288)             -
                                                          ---------   ---------   ----------    --------   --------          -----
  Total                                                   1,988,000   $ 205,650   $ (168,923)   $ 12,635   $  5,802          $   -
                                                          =========   =========   ==========    ========   ========          =====
====================================================================================================================================

</TABLE>
2002 Dispositions - Discontinued Operations

     We have  classified  the  operating  results,  including  gains and  losses
related to disposition,  for certain properties either disposed of or classified
as  assets  held  for  sale  during  2002  as  discontinued  operations  in  the
Consolidated Statements of Operations for the 2002 period.

        The following table summarizes these dispositions.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                             Gain/(Loss)  Provision
Discontinued               Date of                                       Sales        Reduction      Net      of Sale/    for Asset
Operations:              Disposition     Property Type          GLA      Price         of Debt     Proceeds  Disposition Impairment
------------------------------------------------------------------------------------------------------------------------------------
<S>                     <C>            <C>                    <C>       <C>          <C>          <C>          <C>        <C>
Conroe Center           January 2002   1 Outlet Center        282,000   $       -    $ (15,621)   $ (554.00)   $      -   $      -
Edinburgh Center          April 2002   1 Outlet Center        305,000      27,000      (16,317)       9,551      (9,623)         -
Western Plaza              June 2002   1 Community Center     205,000       9,500       (9,467)         688       2,121          -
Jeffersonville II        August 2002   1 Outlet Center        314,000           -      (17,938)           -      17,121          -
Vero Beach            September 2002   1 Outlet Center        326,000           -      (25,126)           -           -     12,200
Melrose Place           October 2002   1 Community Center      27,000       2,500       (1,935)         555         990          -
Puerto Rico Center     December 2002   1 Outlet Center        176,000      36,500      (19,202)      13,958           -     15,557
Colorado Properties    December 2002   2 Outlet Centers       808,000      96,000      (74,849)      12,628      15,543          -
                                                            ---------   ---------    ---------    ---------    --------   --------
  Total                                                     2,443,000   $ 171,500    $(180,455)   $  36,826    $ 26,152   $ 27,757
                                                            =========   =========    =========    =========    ========   ========
====================================================================================================================================
</TABLE>

     The following  summary  presents the operating  results of those properties
disposed of during 2002 whose results are classified as discontinued  operations
in the Consolidated Statements of Operations:

--------------------------------------------------------------------------------
                                   Three Months Ended          Six Months Ended
                                             June 30,                  June 30,
                                                 2002                      2002
--------------------------------------------------------------------------------
Revenues
Base rents                                    $  5,070               $  11,167
Percentage rents                                   159                     374
Tenant reimbursements                            2,657                   5,474
Interest and other                                 294                     492
                                              --------               ---------
  Total revenues                                 8,180                  17,507

Expenses
Property operating                               1,903                   4,097
Real estate taxes                                1,001                   1,974
Depreciation and amortization                    1,733                   3,748
Interest                                         2,878                   5,810
Other charges                                      143                     463
Provision for asset impairment                  12,200                  12,200
                                              --------               ---------
  Total expenses                                19,858                  28,292
                                              --------               ---------
Loss before gain (loss) on                     (11,678)                (10,785)
  sale of real estate
Gain (loss) on sale of real estate               2,121                  (7,502)
                                              --------               ---------
Discontinued operations                       $ (9,557)              $ (18,287)
                                              ========               =========
================================================================================

<PAGE>
                                  Page - (11)


2003 Dispositions

Latham Center

     On March 31, 2003,  PFP Venture LLC (the "PFP  Venture"),  a joint  venture
partnership in which we indirectly have an ownership  interest of  approximately
25.2% as of June 30, 2003,  completed  the sale of Prime  Outlets at Latham (the
"Latham  Center"),  an outlet  center  located in Latham,  New York.  The Latham
Center, which was one of the Bridge Properties,  was sold to 400 Old Loudon Road
Realty,  LLC for cash  consideration  of $2,200.  The net cash proceeds from the
sale were $184, after (i) repayment of $1,870 of existing mortgage  indebtedness
on the  Bridge  Properties  and (ii)  prorations,  closing  costs and  fees.  In
connection with the sale of the Latham Center,  the PFP Venture  recorded a gain
on the sale of real estate of $117 during the first  quarter of 2003. We account
for our investment in the Bridge Properties in accordance with the equity method
of accounting.

Woodbury Center

     During  August of 2002,  certain of our  subsidiaries  suspended  regularly
scheduled monthly debt service payments on two non-recourse mortgage loans which
were  cross-collateralized  by Prime  Outlets at Vero  Beach  (the  "Vero  Beach
Center"),  located in Vero Beach,  Florida,  and Prime  Outlets at Woodbury (the
"Woodbury  Center"),  located in Woodbury,  Minnesota  (collectively,  the "John
Hancock  Properties").  These  non-recourse  mortgage  loans  were  held by John
Hancock Life Insurance Company ("John Hancock").

     During  the second  quarter of 2002,  we  incurred  a  provision  for asset
impairment  of $12,200 to adjust our carrying  value of the Vero Beach Center to
its  estimated  fair value in  accordance  with the  provisions  of FAS No. 144.
Effective  September 9, 2002,  John Hancock  foreclosed on the Vero Beach Center
and its related  assets and  liabilities,  including  our carrying  value of the
indebtedness of $25,126  (principal  outstanding of $24,497 and unamortized debt
premium of $629),  were  transferred  to John Hancock.  Foreclosure  on the Vero
Beach  Center did not have a material  impact on our  results of  operations  or
financial condition.

     Effective July 24, 2003, John Hancock foreclosed on the Woodbury Center and
its related assets and liabilities were transferred to John Hancock. Foreclosure
on the Woodbury  Center is not expected to have a material impact on our results
of operations or financial condition.

     The carrying value of the Woodbury  Center was $15,488 as of June 30, 2003.
Such value was exceeded by our carrying value of the associated  indebtedness of
$16,651 (principal  outstanding of $16,331 and unamortized debt premium of $320)
as of June 30, 2003. As a result of the foreclosure of the Woodbury  Center,  we
expect to record a  non-recurring  gain for the difference  between the carrying
value of the Woodbury Center and its related net assets,  including the carrying
value of the indebtedness, during the third quarter of 2003.

<PAGE>
                                  Page - (12)


Note 4 - Debt

     We have fixed rate tax-exempt  revenue bonds  collateralized  by properties
located in Chattanooga,  Tennessee (the  "Chattanooga  Bonds") which contain (i)
certain  covenants,  including a minimum  debt-service  coverage ratio financial
covenant (the  "Financial  Covenant")  and (ii)  cross-default  provisions  with
respect to certain of our other credit  agreements.  Based on the  operations of
the collateral properties, we were not in compliance with the Financial Covenant
for the quarters ended June 30, September 30 and December 31, 2002. In the event
of  non-compliance  with the Financial  Covenant or default,  the holders of the
Chattanooga Bonds (the "Bondholders") had the ability to put such obligations to
us at a price  equal to par plus  accrued  interest.  On January  31,  2003,  we
entered into an agreement (the  "Forbearance  Agreement")  with the Bondholders.
The Forbearance  Agreement provides  amendments to the underlying loan and other
agreements that enable us to be in compliance with various financial  covenants,
including  the  Financial  Covenant.  So long as we  continue to comply with the
provisions of the Forbearance  Agreement and are not otherwise in default of the
underlying  loan and other  documents  through  December 31,  2004,  the revised
financial  covenants  will  govern.   Additionally,   certain  quarterly  tested
financial covenants and other covenants become effective June 30, 2004. Pursuant
to the terms of the Forbearance Agreement,  we were required to fund $1,000 into
an escrow  account to be used for  conversion  of certain of the retail space in
the  collateral  properties  to office space and agreed that an event of default
with respect to the other debt  obligations  related to the property  would also
constitute a default under the Chattanooga Bonds. We funded this required escrow
in February 2003. The outstanding  balance of the Chattanooga  Bonds was $17,920
as of June 30, 2003.

     Notes payable included unamortized debt premiums of $6,910 in the aggregate
at June 30, 2003.  Our debt premiums are being  amortized  over the terms of the
related debt  instruments  in  accordance  with the effective  interest  method.
Amortization of debt premiums  (included in interest expense in the Consolidated
Statements of Operations) was $526 and $1,045 for the three and six months ended
June 30,  2003,  respectively,  and $502 and $998 for the three  and six  months
ended June 30, 2002, respectively.

Defaults on Certain Non-recourse Mortgage Indebtedness

     During  August  2002,  certain  of  our  subsidiaries  suspended  regularly
scheduled  monthly debt service  payments on  non-recourse  mortgage loans which
were  cross-collateralized  by the Vero Beach  Center and the  Woodbury  Center.
These non-recourse mortgage loans were held by John Hancock. Effective September
9,  2002,  John  Hancock  foreclosed  on the Vero  Beach  Center.  Additionally,
effective July 24, 2003,  John Hancock  foreclosed on the Woodbury  Center.  See
Note 3 - "Property Dispositions" for additional information.

<PAGE>
                                  Page - (13)


     In December 2002, we notified the servicer of certain non-recourse mortgage
loans  (cross-collateralized  by Prime  Outlets at Bend,  Prime  Outlets at Post
Falls and Prime Outlets at Sedona) totaling $24,919 as of June 30, 2003 that the
net cash flow from the properties  securing the loans was  insufficient to fully
pay the required monthly debt service. At that time, certain of our subsidiaries
suspended the regularly  scheduled monthly debt service payments.  Subsequent to
our notification to the servicer,  we have been remitting on a monthly basis all
available cash flow from the properties,  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
lender to accelerate the loan and to exercise 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 lender has  notified  us that it has  accelerated  the loans and  intends to
commence  foreclosure  action  on  the  collateral   properties.   However,  any
foreclosure action on these properties is not expected to have a material impact
on our results of  operations  or financial  condition  because we are currently
only remitting  available cash flow. These  non-recourse  mortgage loans require
the monthly  funding of escrow  accounts  for the payment of real estate  taxes,
insurance and capital improvements. Such escrow accounts totaled $105 as of June
30,  2003,  which is included in  restricted  cash in the  Consolidated  Balance
Sheet.  The aggregate  carrying value of these properties was $21,558 as of June
30, 2003.  Such amount is exceeded by the aggregate  outstanding  balance of the
non-recourse  mortgage loans of $24,919 as of June 30, 2003. Upon foreclosure of
the  collateral  properties,  we  will  record  a  non-recurring  gain  for  the
difference  between the carrying  value of the  properties and their related net
asset, including the outstanding loan balances.

Defeased Notes Payable

     On December 6, 2002, we completed the sale of two outlet centers (together,
the "Colorado  Properties"),  which were part of the 15 properties  contained in
the collateral pool securing a first mortgage and expansion loan (the "Mega Deal
Loan"), which had a then outstanding balance of $338,940. In connection with the
release of the Colorado Properties from the collateral pool, we were required to
partially  defease  the  Mega  Deal  Loan.  Therefore,  the Mega  Deal  Loan was
bifurcated  into (i) a defeased  portion in the amount of $74,849 (the "Defeased
Notes Payable") and (ii) an undefeased portion in the amount of $264,091,  which
is still referred to as the Mega Deal Loan.  Both the Defeased Notes Payable and
the Mega Deal Loan (i) bear  interest at a  fixed-rate  of 7.782%,  (ii) require
monthly  payments of principal and interest  pursuant to a 30-year  amortization
schedule and (iii) have an anticipated  maturity through an optional  prepayment
date on November 11, 2003. The Mega Deal Loan is now secured by the remaining 13
properties  contained  in the  collateral  pool.  We used  $79,257  of the gross
proceeds  from the sale of the  Colorado  Properties  to  purchase  US  Treasury
Securities,  which were placed into a trustee escrow (the "Trustee Escrow"). The
Trustee  Escrow is used to make the  scheduled  monthly debt  service  payments,
including the payment of the then outstanding  principal  amount,  together with
all accrued and unpaid  interest on November 11, 2003,  under the Defeased Notes
Payable.  As of June 30, 2003,  the  outstanding  balance of the Defeased  Notes
Payable was $74,280 and the balance of the Trustee Escrow was $76,671  (included
in  restricted  cash  in  the  Consolidated  Balance  Sheet).   Furthermore,  in
connection with the partial defeasance of the Mega Deal Loan we amended the Mega
Deal Loan so that (i) we are required to fund 10 monthly payments of $500 into a
lender escrow to be used as additional  cash  collateral and (ii) release prices
for the remaining 13 properties in the  collateral  pool were amended to provide
for a more orderly refinancing of the Mega Deal Loan.

<PAGE>
                                  Page - (14)


Debt Service Obligations

     The scheduled principal  maturities of our debt,  excluding (i) unamortized
debt  premiums of $6,910 and (ii)  $41,250 of  aggregate  non-recourse  mortgage
indebtedness  in  default  (see  "Defaults  on  Certain  Non-recourse   Mortgage
Indebtedness"  above), and related average contractual interest rates by year of
maturity as of June 30, 2003 are as follows:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                   Bonds Payable
                                (including sinking                                      Defeased
                                   fund payments)            Notes Payable            Notes Payable               Total Debt
                           ---------------------------- -----------------------   -----------------------  -------------------------
                                Average                 Average                    Average                    Average
                                Interest  Principal     Interest  Principal        Interest   Principal       Interest   Principal
Years Ended December 31,         Rates    Maturities    Rates     Maturities       Rates      Maturities      Rates      Maturities
------------------------------------------------------------------------------------------------------------------------------------
<C>                              <C>      <C>             <C>      <C>              <C>        <C>             <C>        <C>
2003                             6.61%    $    591        7.79%    $ 263,524        7.78%      $ 74,280        7.78%      $ 338,395
2004                             6.34%         726        7.97%        4,571                                   7.75%          5,297
2005                             6.34%         773        8.58%       11,574                                   8.44%         12,347
2006                             6.34%         820        8.83%      120,437                                   8.81%        121,257
2007                             6.34%         878        7.60%        1,002                                   7.02%          1,880
Thereafter                       6.52%      18,618        7.59%       57,995                                   7.33%         76,613
                                 ----     --------        ----     ---------        ----       --------        ----       ---------
                                 6.50%    $ 22,406        8.06%    $ 459,103        7.78%      $ 74,280        7.96%      $ 555,789
                                 ====     ========        ====     =========        ====       ========        ====       =========
====================================================================================================================================
</TABLE>

     Such indebtedness in the amount of $481,509 had a weighted-average maturity
of 2.3 years and bore contractual  interest at a weighted-average  rate of 7.98%
per annum.  At June 30, 2003,  all of such  indebtedness  bore interest at fixed
rates.  Our  remaining   scheduled  principal  payments  during  2003  for  such
indebtedness  aggregated $338,395.  In addition to regularly scheduled principal
payments,   the  remaining  2003  scheduled   principal  payments  also  reflect
anticipated  balloon  payments of (i)  $260,681  for the Mega Deal Loan and (ii)
$73,882  due for the  Defeased  Notes  Payable.  Both the Mega Deal Loan and the
Defeased  Notes  Payable  have  an  anticipated  maturity  through  an  optional
prepayment  date on November 11,  2003.  All debt service due under the Defeased
Notes Payable,  including the balloon payment due at anticipated maturity,  will
be made from the Trustee Escrow. See "Going Concern" for additional information.

     Additionally,  we are  obligated  to refinance a first  mortgage  loan (the
"Hagerstown  First Mortgage  Loan") in the amount of $46,862 on Prime Outlets at
Hagerstown (the  "Hagerstown  Center") on or before June 1, 2004. The Hagerstown
First Mortgage Loan was assumed by an unconsolidated  joint venture  partnership
(the  "Prime/Estein  Venture"),  in  which  we have an  indirect  30%  ownership
interest,  in January 2002. See "Prime/Estein  Venture Guarantees"  contained in
"Guarantees and Guarantees of Indebtedness of Others" for additional information

Defaults on Certain Non-recourse Mortgage Indebtedness of Unconsolidated
Partnerships

     Two mortgage loans related to projects in which we,  through  subsidiaries,
indirectly  own joint  venture  interests  have matured and are in default.  The
mortgage loans,  at the time of default,  were (i) a $10,389 first mortgage loan
on Phase I of the Bellport  Outlet  Center,  held by Union Labor Life  Insurance
Company  ("Union  Labor");  and (ii) a  $13,338  first  mortgage  loan on Oxnard
Factory Outlet, an outlet center located in Oxnard, California, held by Fru-Con.
An affiliate of ours has a 50% ownership interest in the partnership, which owns
Phase I of the Bellport Outlet Center.  Fru-Con and us are each a 50% partner in
the partnership that owns the Oxnard Factory Outlet.

     Union Labor filed for  foreclosure on Phase I of the Bellport Outlet Center
and a  receiver  was  appointed  March  27,  2001 by the court  involved  in the
foreclosure action. Effective May 1, 2001, a manager hired by the receiver began
managing  and leasing  Phase I of the  Bellport  Outlet  Center.  A judgment for
foreclosure  was  entered on January  25,  2003 in the  amount of  $12,711.  The
foreclosure  occurred on March 17, 2003 with Union Labor  acquiring the property
for  $5,100.  Approximately  $1,100  of  post-judgment  interest  and  fees  was
subsequently  awarded to Union Labor.  We continue to  negotiate  the terms of a
transfer of our ownership  interest in Oxnard Factory  Outlet to Fru-Con.  We do
not manage or lease Oxnard Factory Outlet.

<PAGE>
                                  Page - (15)


     We  believe  neither  of these  mortgage  loans is  recourse  to us.  It is
possible,  however,  that either or both of the respective  lenders will,  after
completing its foreclosure action, file a lawsuit seeking to collect from us the
difference  between the value of the mortgaged property and the amount due under
the loan. If such an action is brought, the outcome, and our ultimate liability,
if any, cannot be predicted at this time.

     In addition,  we are currently not receiving,  directly or indirectly,  any
cash flow from Oxnard  Factory  Outlet and were not receiving any cash flow from
Phase I of the  Bellport  Outlet  Center  prior to the loss of  control  of such
project.  We account for our  interests in (i) Phases I of the  Bellport  Outlet
Center and (ii) the Oxnard Factory  Outlet in accordance  with the equity method
of accounting.  As of June 30, 2003, we had no carrying value for our investment
in these properties.

Guarantees and Guarantees of Indebtedness of Others

HGP Guarantees

     On July 15, 2002, Horizon Group Properties, Inc. and its affiliates ("HGP")
announced they had refinanced a secured credit facility (the "HGP Secured Credit
Facility")  through  a series  of new loans  aggregating  $32,500.  Prior to the
refinancing,  we were a guarantor  under the HGP Secured Credit  Facility in the
amount of $10,000. In connection with the refinancing, our guarantee was reduced
to a maximum  of  $4,000 as  security  for a $3,000  mortgage  loan and a $4,000
mortgage loan  (collectively,  the "HGP Monroe  Mortgage Loan") secured by HGP's
outlet shopping center located in Monroe, Michigan. The HGP Monroe Mortgage Loan
has a 3-year term,  bears  interest at the prime lending rate plus 2.50% (with a
minimum of 9.90%) and requires monthly  interest-only  payments.  The HGP Monroe
Mortgage Loan may be prepaid without penalty after two years. Our guarantee with
respect to the HGP Monroe  Mortgage Loan will be  extinguished  if the principal
amount of such obligation is reduced to $5,000 or less through repayments.

     Additionally,   we  are  a  guarantor  with  respect  to  certain  mortgage
indebtedness  (the "HGP Office  Building  Mortgage")  in the amount of $2,129 on
HGP's corporate office building and related  equipment located in Norton Shores,
Michigan.  The HGP Office Building  Mortgage  matures in August 31, 2003,  bears
interest at LIBOR plus 5.50%, and requires monthly debt service payments.

     We have not  recorded  any  liability  related to these  guarantees  and no
claims  have been made  under our  guarantees  with  respect  to the HGP  Monroe
Mortgage  Loan or the HGP Office  Building  Mortgage.  HGP is a publicly  traded
company that was formed in connection  with our merger with Horizon Group,  Inc.
("Horizon") in June 1998.

Prime/Estein Venture Guarantees

     We indirectly have a 30% ownership interest in the Prime/Estein Venture, an
unconsolidated  joint  venture  partnership  which  owns  three  outlet  centers
(collectively,  the  "Prime/Estein  Properties").  The  Prime/Estein  Properties
consist of Prime Outlets at Birch Run (the "Birch Run Center"), Prime Outlets at
Hagerstown  (the  "Hagerstown  Center") and Prime Outlets at  Williamsburg  (the
"Williamsburg Center").  Pursuant to Prime/Estein  Venture-related  documents to
which affiliates of ours are parties,  we are obligated to provide to, or obtain
for, the Prime/Estein  Venture  fixed-rate  financing at an annual rate of 7.75%
(the "Interest Rate Subsidy Agreement") for the Prime/Estein Venture Properties.

<PAGE>
                                  Page - (16)


     In August 2001, we, through affiliates,  completed a refinancing of $63,000
of first  mortgage loans secured by the Birch Run Center.  The  refinanced  loan
(the "Birch Run First Mortgage") (i) has a term of 10-years, (ii) bears interest
at an effective rate of 8.12% and (iii) requires  monthly  payments of principal
and  interest  pursuant  to a 25-year  amortization  schedule.  Pursuant  to the
Interest  Rate Subsidy  Agreement,  we are  required to pay to the  Prime/Estein
Venture the  difference  between the cost of the financing at an assumed rate of
7.75% and the actual  cost of such  financing  at the annual  rate of 8.12% (the
"Interest Rate Subsidy Obligation").  The net present value of the Interest Rate
Subsidy  Obligation  (included in accounts payable and other  liabilities in the
Consolidated Balance Sheet) was $1,382 as of June 30, 2003.

     In October 2001, we,  through  affiliates,  completed the  refinancing of a
$32,500 first mortgage loan secured by the  Williamsburg  Center.  The new first
mortgage loan (the  "Williamsburg  First  Mortgage") (i) has a term of 10-years,
(ii) bears interest at a fixed-rate of 7.69% and (iii) requires monthly payments
of principal and interest pursuant to a 25-year amortization schedule.  Pursuant
to the Interest Rate Subsidy Agreement,  the Prime/Estein Venture is required to
pay to us the difference between the cost of the financing at an assumed rate of
7.75% and the actual cost of such financing at the annual rate of 7.69%.

     On January 11,  2002,  we sold the  Hagerstown  Center to the  Prime/Estein
Venture.  In connection  with the sale,  the  Prime/Estein  Venture  assumed the
Hagerstown  First Mortgage in the amount of $46,862;  however,  our guarantee of
such indebtedness remains in place. Additionally,  we are obligated to refinance
the Hagerstown First Mortgage on behalf of the Prime/Estein Venture on or before
June 1, 2004, the date on which such  indebtedness  matures.  Additionally,  the
Prime/Estein Venture's cost of the Hagerstown First Mortgage and any refinancing
of it are  fixed at an annual  rate of 7.75%  for a period  of 10 years.  If the
actual  cost of such  indebtedness  should  exceed  7.75% at any time during the
10-year period,  we will be obligated to pay the difference to the  Prime/Estein
Venture.  If the actual cost of such indebtedness is less than 7.75% at any time
during the 10-year period,  however,  the Prime/Estein Venture will be obligated
to pay the difference to us. The actual cost of the Hagerstown First Mortgage is
30-day LIBOR plus 1.50%,  or 2.62% as of June 30, 2003.  Because the  Hagerstown
First  Mortgage  bears interest at a variable rate, we are exposed to the impact
of interest  rate  changes.  We have not recorded any  liability  related to our
guarantee of the Hagerstown First Mortgage; however, in connection with the sale
of the Hagerstown  Center,  we  established a reserve for estimated  refinancing
costs in the amount of $937,  which is included  in  accounts  payable and other
liabilities in the Consolidated  Balance Sheet as of June 30, 2003. See Note 3 -
"Property Dispositions" for additional information.

Second Horizon First Mortgage Loan

     In  April  1998,  Horizon  consummated  an  agreement  with  Castle & Cooke
Properties,  Inc. ("CCP") which released Horizon from future obligations under a
long-term  lease of the Dole  Cannery  outlet  center in  Honolulu,  Hawaii.  In
connection  with an amendment of the Second  Horizon Group  Limited  Partnership
("Second  Horizon")  agreement (the "Amended  Partnership  Agreement"),  Horizon
transferred to an affiliate of CCP (the "CCP  Affiliate")  substantially  all of
Horizon's economic interest, but not legal title, in an outlet center (the "Lake
Elsinore Center") in Lake Elsinore,  California. The Lake Elsinore Center is one
of five properties  owned by Second Horizon which jointly and severally secure a
non-recourse,  first mortgage loan (the "Second Horizon  Mortgage  Loan").  As a
result of our merger with Horizon in June 1998, we own the economic interests of
the other four properties (the "Prime  Properties")  and legal title to all five
entities. The outstanding balance of the Second Horizon Mortgage Loan as of June
30, 2003 was $94,586, of which $66,486 was allocated to the Prime Properties and
is included in notes  payable in our  Consolidated  Balance Sheet as of June 30,
2003. The remaining $28,100 outstanding as of June 30, 2003 was allocated to the
Lake Elsinore Center.

<PAGE>
                                  Page - (17)


     We, through our affiliates,  assumed certain  obligations under the Amended
Partnership  Agreement  with  respect to the  Second  Horizon  Mortgage  Loan in
connection  with our merger  with  Horizon in June  1998.  Specifically,  we are
obligated to  contribute  sufficient  capital to Second  Horizon (i) for certain
operating expenses  associated with the Prime Properties and (ii) to satisfy the
outstanding  balances of the  allocated  loan  amounts for the Prime  Properties
under the Second Horizon  Mortgage Loan  (including any associated  expenses) to
enable the Second  Horizon  Mortgage  Loan to be repaid in full at its  optional
prepayment  date of October 11, 2006.  CCP Affiliate and its parent  company are
similarly  obligated  with respect to the Lake Elsinore  Center.  No claims have
been  made  with  respect  to these  obligations  and we have not  recorded  any
liability related to these obligations as of June 30, 2003.

Mandatory Redemption Obligation

     On July 26, 2002,  we sold the Bridge  Properties  to the PFP  Venture.  In
connection  with the  sale,  we  guaranteed  FRIT  PRT  Bridge  Acquisition  LLC
("FRIT"),  a third-party joint venture partner,  (i) a 13% return on its initial
$17,236 of invested  capital and (ii) the full  return of its  invested  capital
(the  "Mandatory  Redemption  Obligation")  by December 31, 2003. As of June 30,
2003,  our Mandatory  Redemption  Obligation  with respect to the full return of
FRIT's  invested  capital was $14,888  (included  in accounts  payable and other
liabilities  in  the  Consolidated  Balance  Sheet).  See  "Going  Concern"  for
additional information.

Going Concern

     Our liquidity  depends on cash provided by operations and potential capital
raising  activities  such as funds  obtained  through  borrowings,  particularly
refinancing of existing debt, and cash generated  through asset sales.  Although
we believe that  estimated  cash flows from  operations  and  potential  capital
raising  activities will be sufficient to satisfy our scheduled debt service and
other  obligations and sustain our operations for the next year, there can be no
assurance  that we will be successful in obtaining the required  amount of funds
for these items or that the terms of the potential  capital raising  activities,
if they should  occur,  will be as  favorable  as we have  experienced  in prior
periods.

     During 2003,  our Mega Deal Loan is  anticipated to mature with an optional
prepayment date on November 11, 2003. The Mega Deal Loan,  which is secured by a
13 property collateral pool, had an outstanding principal balance of $262,083 as
of June 30,  2003  and  will  require  a  balloon  payment  of  $260,681  at the
anticipated  maturity.  If the Mega Deal Loan is not  satisfied  at the optional
prepayment  date,  its  interest  rate will  increase by 5.0% to 12.782% and all
excess  cash flow from the 13 property  collateral  pool will be retained by the
lender and applied to principal after payment of interest.  As discussed  below,
certain  restrictions  have been placed upon us with respect to refinancing  the
Mega Deal Loan in the short term. If the Mega Deal Loan is not  refinanced,  the
loss of cash flow from the 13 property  collateral  pool would  eventually  have
severe consequences on our ability to fund our operations.

     Based on our discussions  with various  prospective  lenders,  we believe a
potential  shortfall will likely occur with respect to refinancing the Mega Deal
Loan  as we do  not  currently  intend  to  refinance  all  of  the  13  assets.
Nevertheless,  we believe this  shortfall  can be alleviated  through  potential
asset sales and/or other capital raising activities,  including the placement of
mezzanine  level debt and mortgage  debt on at least one of the assets we do not
currently  plan on  refinancing.  We caution that our  assumptions  are based on
current  market  conditions  and,  therefore,  are subject to various  risks and
uncertainties,  including  changes in economic  conditions  which may  adversely
impact our ability to refinance  the Mega Deal Loan at  favorable  rates or in a
timely  and  orderly  fashion  and which may  adversely  impact  our  ability to
consummate various asset sales or other capital raising activities.

<PAGE>
                                  Page - (18)


     On July 8, 2003 an affiliate of The Lightstone  Group,  LLC  ("Lightstone")
and us entered into a merger agreement (the "Merger Agreement").  (See Note 10 -
"Merger Agreement" for additional information.) In connection with the execution
of the Merger Agreement,  certain restrictions were placed on us with respect to
the  refinancing of the Mega Deal Loan.  Specifically,  we are  restricted  from
negotiating  or discussing the  refinancing of the properties  securing the Mega
Deal Loan with any lenders  until  September 15, 2003, at which time we are only
able to enter into  refinancing  discussions  with certain  enumerated  lenders.
After  November  11,  2003,  we may seek  refinancing  from  other  lenders.  In
addition, we are precluded from closing any loans relating to the Mega Deal Loan
until  November 11,  2003.  This  November  11, 2003 date may be extended  until
January 11, 2004, at the election of Lightstone,  if Lightstone  elects prior to
September 15, 2003 to (i) pay (A) one-half of the additional  interest  incurred
by us between  November  11,  2003 and  December  31,  2003,  and (B) all of the
additional interest incurred by us between January 1, 2004 and January 11, 2004,
if so extended,  in respect of the Mega Deal Loan and (ii) loan us any shortfall
in cash flow that  results  from the excess cash flow  restrictions  (all excess
cash flow from the 13  property  collateral  pool will be retained by the lender
and applied to principal  after  payment of  interest)  under the Mega Deal Loan
that become  effective on November 11, 2003 and  thereafter  until the Mega Deal
Loan is paid in full.

     In addition to the restrictions with respect to the refinancing of the Mega
Deal Loan discussed  above,  pursuant to the terms of the Merger  Agreement,  we
have also  agreed to certain  conditions  pending  the  closing of the  proposed
transaction.  These conditions provide for certain  restrictions with respect to
our operating and refinancing  activities (see Note 10 - "Merger  Agreement" for
additional information). These restrictions could adversely affect our liquidity
in  addition  to our  ability  to  refinance  the Mega Deal Loan in a timely and
orderly fashion.

     If the Merger Agreement is terminated under certain circumstances, we would
be required to make payments to  Lightstone  ranging from $3,500 to $6,000 which
could  adversely  affect our  liquidity.  See Note 10 - "Merger  Agreement"  for
additional information.

     In connection  with the completion of the sale of the Bridge  Properties in
July 2002,  we  guaranteed  to FRIT (i) a 13% return on its  $17,236 of invested
capital,  and (ii) the full return of the  Mandatory  Redemption  Obligation  by
December 31, 2003.  As of June 30, 2003,  the  Mandatory  Redemption  Obligation
(included in accounts payable and other liabilities in the Consolidated  Balance
Sheet) was $14,888.

     We continue to seek to generate additional liquidity to repay the Mandatory
Redemption  Obligation  through (i) the sale of FRIT's ownership interest in the
Bridge  Properties  and/or (ii) the placement of additional  indebtedness on the
Bridge  Properties.  There can be no assurance  that we will be able to complete
such  capital  raising  activities  by December  31,  2003 or that such  capital
raising  activities,  if they should occur, will generate sufficient proceeds to
repay  the  Mandatory  Redemption  Obligation  in full.  Failure  to  repay  the
Mandatory Redemption Obligation by December 31, 2003 would constitute a default,
which would enable FRIT to exercise  its rights with  respect to the  collateral
pledged  as  security  to the  guarantee,  including  some  of  our  partnership
interests in the 13 property  collateral pool under the aforementioned Mega Deal
Loan.  Because the  Mandatory  Redemption  Obligation  is secured by some of our
partnership  interests  in the 13 property  collateral  pool under the Mega Deal
Loan, we may be required to repay the Mandatory Redemption Obligation before, or
in connection  with, the  refinancing of the Mega Deal Loan.  Additionally,  any
change in  control  with  respect to us  accelerates  the  Mandatory  Redemption
Obligation.

<PAGE>
                                  Page - (19)


     In connection  with the execution of the Merger  Agreement,  Lightstone has
agreed to provide  sufficient  financing,  if necessary,  to repay the Mandatory
Redemption  Obligation  in full at its maturity.  The new financing  would be at
substantially  similar economic terms and conditions as those currently in place
for the Mandatory Redemption Obligation and would have a one-year term. See Note
10 - "Merger Agreement" for additional information.

     As previously discussed, we currently have a Forbearance Agreement in place
with respect to our Chattanooga Bonds in the amount of $17,920.  However,  based
on our current  projections,  we believe we will not be compliance  with certain
quarterly tested financial covenants when they become effective on June 30, 2004
which would enable the Bondholders to elect to put the  Chattanooga  Bonds to us
at their par amount plus accrued interest.  We continue to explore opportunities
to (i) obtain alternative financing from other financial institutions, (ii) sell
the properties  securing the Chattanooga  Bonds and (iii) explore other possible
capital  transactions in order to generate cash to repay the Chattanooga  Bonds.
There can be no  assurance  that we will be able to complete  any such  activity
sufficient to repay the amount  outstanding  under the Chattanooga  Bonds in the
event the Bondholders are able and elect to exercise their put rights.

     These conditions raise substantial doubt about our ability to continue as a
going  concern.  The financial  statements  contained  herein do not include any
adjustment  to reflect the possible  future  effects on the  recoverability  and
classification  of assets or the amounts and  classification of liabilities that
may result from the outcome of these uncertainties.

Note 5 - Shareholders' Equity

     To qualify as a real estate  investment  trust  ("REIT") for federal income
tax purposes,  we are required to pay  distributions to our common and preferred
shareholders  of at  least  90%  of our  REIT  taxable  income  in  addition  to
satisfying  other  requirements.  Although we intend to make  distributions,  if
necessary,  to remain  qualified  as a REIT  under the Code,  we also  intend to
retain such amounts as we consider  necessary  from time to time for our capital
and liquidity needs.

     Our policy  remains to pay  distributions  only to the extent  necessary to
maintain our status as a REIT for federal  income tax purposes.  During 2002, we
were not required to pay any  distributions in order to maintain our status as a
REIT and based on our current federal income tax  projections,  we do not expect
to pay any  distributions  during 2003. On August 15, 2003 we will be in arrears
on 15 quarters of preferred  stock  distributions  due February 15, 2000 through
August 15, 2003, respectively.

     We may not make distributions to our common  shareholders or our holders of
common  units of limited  partnership  interests  in the  Operating  Partnership
unless  we  are  current  with  respect  to   distributions   to  our  preferred
shareholders.  As of June 30, 2003, unpaid dividends for the period beginning on
November  16,  1999  through  June 30,  2003 on our  Series A Senior  Cumulative
Preferred  Stock  ("Series A Senior  Preferred  Stock") and Series B  Cumulative
Convertible  Participating  Preferred  Stock  ("Series B  Convertible  Preferred
Stock") aggregated $21,886 and $60,301,  respectively.  The annualized dividends
on our 2,300,000  shares of Series A Senior Preferred Stock and 7,828,125 shares
of Series B  Convertible  Preferred  Stock  outstanding  as of June 30, 2003 are
$6,037 ($2.625 per share) and $16,635 ($2.125 per share), respectively.

Note 6 - Legal Proceedings

     Except  as  described  below,  neither  we nor  any of our  properties  are
currently  subject to any  material  litigation,  nor to our  knowledge,  is any
material  or  other  litigation   threatened  against  us,  other  than  routine
litigation arising in the ordinary course of business, some of which is expected
to be  covered  by  liability  insurance  and all of which  collectively  is not
expected to have an adverse effect on our consolidated financial statements.

<PAGE>
                                  Page - (20)


     Certain tenants in our and our affiliates'  outlet centers have made or may
make allegations concerning overcharging for common area maintenance ("CAM") and
promotion fund charges  because of varying  clauses in their leases  pursuant to
which they claim under various  circumstances that they were not required to pay
some or all of the  pass-through  charges.  Such  claims if  asserted  and found
meritorious,   could  have  a  material  affect  on  our  financial   condition.
Determination   of  whether   liability  would  exist  to  us  would  depend  on
interpretation  of various lease clauses  within a tenant's lease and all of the
other leases at each center  collectively.  To date such issues have been raised
and resolved with Dinnerware Plus Holdings, Inc. ("Mikasa"),  Melru Corporation,
Designs,  Inc. and Brown Group Retail, Inc., all of which at one time or another
were in litigation, or threatened litigation with us. Additionally,  on April 9,
2003,  Gap Inc.  notified  us that it  believes  it is  entitled  to a refund of
certain pass-through charges as a result of certain clauses in its leases.

     In the  second  quarter of 2002,  we  recorded  a  non-recurring  charge to
establish a reserve in the amount of $3,000 for resolution of these matters,  in
addition to the Mikasa matter  referred to above.  This reserve was estimated in
accordance  with  our  established  policies  and  procedures   concerning  loss
contingencies  for  additional  information).  The balance of the unused reserve
(which  is  included  in the  accounts  payable  and  other  liabilities  in the
Consolidated  Balance  Sheet) is $2,240 as of June 30, 2003.  Based on presently
available  information,  we believe it is probable the remaining reserve will be
utilized  over the  next  several  years in  resolving  claims  relating  to the
pass-through and promotional fund provisions contained in our leases,  inclusive
of amounts that may be owed, if any, to the Gap Inc. We caution,  however,  that
given the inherent  uncertainties of litigation and the complexities  associated
with a large number of leases and other factual questions at issue, actual costs
may vary from this estimate. No other such tenant,  however, has filed a suit or
indicated to us that it intends to file a suit. Nevertheless, it is too early to
make any predictions as to whether we or our affiliates may be found liable with
respect to other tenants, or to predict damages should liability be found.

     Our  affiliates  routinely file lawsuits to collect past rent due from, and
to evict,  tenants which have defaulted under their leases.  There are currently
dozens of such actions pending. In addition to defending against our affiliates'
claims and  eviction  actions,  some  tenants  file  counterclaims  against  our
affiliates.  A tenant who files such a  counterclaim  typically  claims that our
affiliate which owns the outlet center in question  defaulted under the tenant's
lease,  overcharged  the  tenant  for  CAM  and  promotion  fund  charges,  made
misrepresentations  during the leasing process,  or failed to maintain or market
the outlet center in question as required by the lease. One such case involves a
collections  and  eviction  action in Puerto Rico  captioned  Outlet  Village of
Puerto Rico Limited Partnership,  S.E. v. WEPA, Inc., and another, for instance,
involves a collection case in San Marcos, Texas,  captioned,  San Marcos Factory
Stores,  Ltd. v. SM  Collectibles,  Inc.  d/b/a  Country  Clutter.  Usually such
counterclaims  are  without  merit.  In  response  to  such   counterclaims  our
affiliates  usually  continue to pursue their collection or eviction actions and
defend  against the  counterclaims.  Despite the fact that we and our affiliates
believe such counterclaims are without merit and defend against them vigorously,
the outcome of all such counterclaims,  and, thus, the liability,  if any, of us
and our affiliates, cannot be predicted at this time.

<PAGE>
                                  Page - (21)


     Several entities (the "eOutlets  Plaintiffs")  filed or stated an intention
to file  lawsuits  (collectively,  the "eOutlets  Lawsuits")  against us and our
affiliates  arising out of our on-line  venture,  primeoutlets.com.  inc.,  also
known as  eOutlets,  an  affiliate  of ours.  primeoutelts.com,  inc.  filed for
protection  under Chapter 7 of the United States  Bankruptcy Code in November of
2000 under the name E-Outlets  Resolution  Corp.  (the  "Debtor").  The eOutlets
Plaintiffs sought to hold us and our affiliates  responsible under various legal
theories for  liabilities  incurred by  primeoutlets.com,  inc.,  including  the
theories that we  guaranteed  the  obligations  of eOutlets and that we were the
"alter-ego"  of  eOutlets.  Other  than the suit filed on  November  5, 2002 and
discussed  below,  these eOutlets  Lawsuits against us have been resolved or are
now barred by the applicable statute of limitations or otherwise. On November 5,
2002, the  bankruptcy  trustee for the Debtor brought suit against Prime Retail,
L.P.,  Prime  Retail,  Inc.,  and Prime  Retail  E-Commerce,  Inc.  (the "Entity
Defendants")  and  certain  former  directors  of the  Debtor  (the  "Individual
Defendants"). The Trustee has asserted claims of alter ego, promissory estoppel,
breach of  contract,  breach  of  fiduciary  duty,  tortious  interference  with
prospective business advantage, unjust enrichment and quantum meruit against the
Entity Defendants and breach of fiduciary duty and gross negligence  against the
individual  defendants.  We  have  tendered  the  suit,  both  as to the  Entity
Defendants and Individual Defendants,  to the Directors' and Officers' insurance
carrier.  Motions to dismiss  the suit have been  filed by all  Defendants.  All
Defendants  believe  the  suit  is  without  merit  and  plan  on  defending  it
vigorously.  Nevertheless,  the  outcome  of  this  lawsuit,  and  the  ultimate
liability of us, if any, cannot be predicted at this time.

     In  May  2001,  we,  through   affiliates,   filed  suit  against   Fru-Con
Construction,  Inc.  ("FCC"),  the lender on Prime  Outlets  at New River  ("New
River") as a result of FCC's foreclosure of New River upon the maturation of the
loan. We and our affiliates  allege that they have been damaged because of FCC's
failure to dispose of the collateral in a commercially  reasonable manner and as
a result of a violation of federal trademark laws. We, through affiliates,  have
also filed suit against The Fru-Con  Projects,  Inc.  ("Fru-Con"),  a partner in
Arizona Factory Shops Partnership and an affiliate of FCC. We and our affiliates
allege that  Fru-Con  failed to use  reasonable  efforts to assist in  obtaining
refinancing.  Fru-Con has claims pending against us and our affiliates,  as part
of the same suit, alleging that we and our affiliates breached our contract with
Fru-Con by not allowing  Fru-Con to  participate in an outlet project in Sedona,
Arizona (the "Sedona  Project") and breached a management and leasing  agreement
by  simultaneously  managing  and  leasing  the Sedona  Project.  We believe our
affiliates  and us  acted  property  and FCC did  not act  properly.  We and our
affiliates  will  vigorously  defend the claims filed against them and prosecute
the claims they filed. Nevertheless, the ultimate outcome of the suit, including
the  liability,  if any, of us and our  affiliates,  cannot be predicted at this
time.

Note 7 - Investment in Unconsolidated Partnerships

     We  account  for  our  investment  in  unconsolidated   joint  ventures  in
accordance  with the equity  method of  accounting  as we  exercise  significant
influence,  but do not  control  these  entities.  In all of our  joint  venture
arrangements,  the  rights  of the  investors  are  both  protective  as well as
participating.   Therefore,   these   participating   rights  preclude  us  from
consolidating  our  investments.  Our investments are recorded  initially at our
cost  and  subsequently  adjusted  for  equity  in  earnings  (losses)  and cash
contributions and distributions.

     As of June 30, 2003 our  interests in joint venture  partnerships  included
(i)  three  outlet  centers  owned by the  Prime/Estein  Venture  and (ii)  five
properties owned by the PFP Venture. The Prime/Estein Venture owns the Birch Run
Center,  the  Williamsburg  Center and the  Hagerstown  Center which  contain an
aggregate  1,485,000  square  feet  of GLA.  The PFP  Venture  owns  the  Bridge
Properties (Prime Outlets at Anderson,  Prime Outlets at Calhoun,  Prime Outlets
at Gaffney,  Prime  Outlets at Lee and Prime  Outlets at Lodi) which  contain an
aggregate 1,261,000 square feet of GLA.

<PAGE>
                                  Page - (22)


     Our equity in earnings (loss) of unconsolidated  joint venture partnerships
was $626 and  $1,752  during  the  three and six  months  ended  June 30,  2003,
respectively,  and $(267) and $(114)  during the three and six months ended June
30, 2002,  respectively.  Our equity in earnings (loss) of unconsolidated  joint
venture   partnerships   is  included  in  interest  and  other  income  in  the
Consolidated Statements of Operations.

     The following summarizes unaudited condensed financial  information for our
investment in unconsolidated joint venture partnerships:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                    Three Months Ended                      Six Months Ended
                                                                        June 30,                                June 30,
                                                            -------------------------------       ----------------------------------
                                                                 2003                2002                2003                2002
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>                  <C>                <C>                 <C>
Total revenues                                               $ 13,682             $ 9,059            $ 29,192            $ 17,808
Total expenses                                                 11,693               8,640              25,618              17,404
                                                             --------             -------            --------            --------
  Net income (loss)                                          $  1,989             $   419            $  3,574            $    404
                                                             ========             =======            ========            ========
====================================================================================================================================
</TABLE>

Note 8 - Stock-Based Compensation

     In December 2002, the FASB issued FAS No. 148,  "Accounting for Stock-Based
Compensation--Transition  and  Disclosure."  FAS  No.  148  provides  transition
methods for entities that elect to adopt the fair value method of accounting for
stock-based employee compensation. In addition, SFAS No. 148 requires disclosure
of comparable  information  regarding our method of accounting  for  stock-based
employee  compensation for all interim  periods.  We account for our stock-based
employee compensation, which is in the form of common share option grants, under
the intrinsic  method of  Accounting  Principles  Board ("APB")  Opinion No. 25,
"Accounting  for Stock Issued to Employees."  Under APB No. 25, no  compensation
expense is to be recognized for the common share option grants when the exercise
price of the options equals or exceeds the market price of the underlying shares
at the date of grant.  Under our stock incentive  plans,  the exercise price for
all stock  options  granted  have been no less than the fair market value of our
common  stock on the  date of  grant.  Accordingly,  we have  not  recorded  any
compensation expense.

     Pro-forma  information  regarding  net  income  and  earnings  per share is
required by FAS No. 123, "Accounting for Stock-Based Compensation," and has been
determined  as if we had  accounted  for our stock  compensation  under the fair
value method of that  statement.  Under the fair value method of FAS No. 123, we
would have recognized additional compensation expense of $2 and $4 for the three
and six months ended June 30, 2003, respectively,  and $13 and $26 for the three
and six months  ended  June 30,  2002,  respectively.  However,  the  additional
compensation  that would have been  recognized  under FAS No. 123 would not have
had an impact on our reported  earnings per share  amounts for the three and six
months ended June 30, 2003 and 2002.


Note 9 - Special Charges

Provision for Asset Impairment

     During the second quarter of 2003, certain events and circumstances related
to two of our  properties  occurred,  including  further  reduced  occupancy and
limited leasing  success,  that indicated  these  properties were impaired on an
other than  temporary  basis.  As a result,  we recorded a  provision  for asset
impairment aggregating $6,590 representing the write-down of these properties to
their estimated fair values in accordance with the  requirements of FAS No. 144,
"Accounting for Impairment of Disposal of Long-lived Assets."

<PAGE>
                                  Page - (23)


Non-recurring Other Charges

     During the second  quarter of 2002, we recorded a  non-recurring  charge in
the amount of $3,000 to  establish a reserve for  pending and  potential  tenant
claims with respect to lease provisions  related to their  pass-through  charges
and promotional fund charges. We had previously recorded a non-recurring  charge
in the amount of $2,000 to  establish a reserve for similar  matters  during the
fourth  quarter of 2001.  To date,  we have entered into  settlement  agreements
which provided for payments aggregating $2,760, of which $2,607 was paid in 2002
and $153 was paid in January 2003.  The remaining  reserve of $2,240 is included
in accounts payable and other  liabilities in the Consolidated  Balance Sheet as
of June 30, 2003. See Note 6 - "Legal Proceedings" for additional information.

     These reserves were estimated in accordance with our  established  policies
and procedures with respect to loss  contingencies  and are based on our current
assessment  of the  likelihood  of any  adverse  judgments  or outcomes to these
matters. Based on presently available information, we believe it is probable the
remaining  reserve will be utilized  over the next several  years in  connection
with  the  resolution  of  further  claims  relating  to  the  pass-through  and
promotional fund provisions contained in our leases. We caution,  however,  that
given the inherent  uncertainties of litigation and the complexities  associated
with a large number of leases and other factual questions at issue, actual costs
may vary from our estimate.

Note 10 - Merger Agreement

     In June 2002, we selected  Houlihan  Lokey Howard & Zukin Capital to assist
us in exploring recapitalization,  restructuring,  financing and other strategic
alternatives  designed to  strengthen  our  financial  position  and address our
long-term  capital  requirements.  Costs incurred related to such activities are
reflected in corporate  general and  administrative  expense in the accompanying
Consolidated Statements of Operations.

     On July 8, 2003,  Lightstone and us jointly  announced that an affiliate of
Lightstone  had  agreed  to  acquire  the  Company  (the   "Transaction").   The
Transaction  will be  effected  in  accordance  with  the  terms  of the  Merger
Agreement  between Prime  Outlets  Acquisition  Company,  LLC (the  "Buyer"),  a
Delaware limited liability company which is an affiliate of Lightstone,  and us,
which provides for us to be merged with and into the Buyer.  Consummation of the
Transaction  is subject to a number of conditions  including the approval of the
Transaction and the Merger  Agreement by the holders of at least 66 2/3% of both
our Series A Senior  Preferred Stock and Series B Convertible  Preferred  Stock,
each voting  separately as a class, and the approval of a majority of our common
shareholders  voting to both amend our charter and approve the  Transaction  and
the Merger Agreement, as well as other customary approvals.

     The Transaction,  which will result in aggregate  consideration of $115,000
payable  to the  our  shareholders  and  unit  holders,  has a  total  value  of
approximately $638,000,  including approximately $523,000 of debt expected to be
assumed by the Buyer.  Under the terms of the Merger  Agreement,  each holder of
our Series A Senior  Preferred  Stock will  receive cash in the amount of $16.25
per share, each holder of our Series B Convertible  Preferred Stock will receive
cash in the amount of $8.66 per share,  and each holder of our common stock will
receive cash in the amount of $0.18 per share.

     Pursuant to the terms of the Merger Agreement, the Buyer and us have agreed
to certain conditions  pending the closing of the Transaction.  These conditions
provide for certain  restrictions  with respect to our operating and refinancing
activities, including our refinancing of the Mega Deal Loan (see Note 4 - "Debt"
for additional information).

<PAGE>
                                  Page - (24)


     Our  board  of  directors,  as well as a  special  committee  comprised  of
disinterested members of the board of directors (the "Special Committee"),  have
approved the  Transaction  and the Merger  Agreement  and  recommended  that the
shareholders  vote in favor  of the  resolutions  to be  proposed  at a  special
meeting of our shareholders. Because our charter does not address the allocation
of consideration  among our various classes of capital stock in the Transaction,
such  allocation  was  determined  by the Special  Committee and approved by the
board of  directors.  Houlihan  Lokey Howard & Zukin  Capital acted as financial
advisor to the special  committee  and Houlihan  Lokey Howard & Zukin  Financial
Advisors,  Inc.,  an affiliate of Houlihan  Lokey  Howard & Zukin  Capital,  has
provided an opinion to the Special Committee and our board of directors that the
consideration  to be received  by each of the  classes of our stock,  considered
independently,  is fair to such  respective  classes,  from a financial point of
view.

     The  Transaction  is expected to be completed  during the fourth quarter of
2003. Formal documentation  relating to the Transaction and the Merger Agreement
will be sent to our shareholders and limited partners.  This  documentation will
include  notices of the special  meeting and details of the  Transaction and the
Merger Agreement and related matters.

     Concurrent  with the  consummation  of the  Transaction,  the  agreement of
limited  partnership of the Operating  Partnership  will be amended and restated
(the "Amended Partnership  Agreement") pursuant to which holders of common units
in the Operating  Partnership (other than common units held by us) will have the
opportunity  to exchange  all,  but not less than all, of their units for a like
number of preferred units in the Operating Partnership  ("Preferred Unit"). Each
holder of Preferred Units will be entitled to require the Operating  Partnership
to redeem all of such holder's  Preferred  Units for an amount per unit equal to
$0.18 (the  consideration paid for a share of common stock of the Company in the
Transaction) plus accrued and unpaid  distributions at the rate of 6% per annum.
In addition,  the Amended  Partnership  Agreement  contains  certain tax related
provisions  that,  subject  to  certain  exceptions,  will  benefit  holders  of
Preferred Units for a period of seven years  including  restrictions on the sale
of properties and requirements to allocate debt in a certain manner.

     We have agreed to pay the Buyer a termination fee of $4,500,  plus expenses
of  up  to  $1,500,   if  the   Transaction  is  not  completed   under  certain
circumstances,  including our election to pursue an alternative transaction.  In
certain other  circumstances  in which the  Transaction  has not been completed,
including the failure to obtain the shareholder  approval of the Transaction,  a
termination  fee will not be payable but we have agreed to  reimburse  the Buyer
for its expenses up to $3,500.  As  collateral  for these  obligations,  we also
entered into an agreement  with  Lightstone  providing for the assignment of our
rights  to,  and  interest  in, an escrow of  $2,800  which was  established  in
connection  with our sale of Prime Outlets of Puerto Rico in December 2002 to an
affiliate of Lightstone.

     On July 16,  2003,  we  announced  that two  shareholders  (the  "Series  A
Parties") that collectively own  approximately 32% of the outstanding  shares of
Series  A  Senior  Preferred  Stock  have  objected  to  the  allocation  of the
consideration under the Merger Agreement in separate communications to us.

     In connection with the Transaction and the events  described above, we have
proposed  to  facilitate  limited  discussions  among  certain of our  preferred
shareholders  to obtain  their  views with  respect to the  Transaction  and the
proposed  allocation of the merger  consideration.  In order to facilitate  such
discussions,  we are providing certain of our preferred shareholders  (including
the Series A Parties) with certain  information  regarding the Transaction.  (We
filed a Current Report on Form 8-K containing this information  under Regulation
FD Disclosure  with the Securities  and Exchange  Commission on August 5, 2003.)
There  can be no  assurances  as to the  timing,  nature  or  outcome  of  these
discussions,  which may include other  shareholders of ours.  Although under the
terms of the Merger  Agreement,  we have the right to modify, at our discretion,
the  allocation of  consideration  among the various  classes of stock until the
mailing of definitive proxy materials, any such modification would be subject to
approval of the Special Committee established in connection with the Transaction
and our board of directors.

<PAGE>
                                  Page - (25)


Item 2.   Management's Discussion and Analysis of
          Financial Condition and Results of Operations

          (Amounts in thousands, except share, unit and square foot information)


Introduction

     Unless the context otherwise requires,  all references to "we," "us," "our"
or the "company"  herein mean Prime  Retail,  Inc. and those  entities  owned or
controlled by Prime Retail,  Inc.,  including Prime Retail, L.P. (the "Operating
Partnership").

     The  following  discussion  and  analysis  of  our  consolidated  financial
condition  and  results of  operations  should be read in  conjunction  with the
Consolidated  Financial Statements and Notes thereto appearing elsewhere in this
Quarterly  Report on Form  10-Q.  Our  operations  are  substantially  conducted
through the  Operating  Partnership.  As of June 30, 2003, we had an 80% general
partnership interest in the Operating Partnership with full and complete control
over its  management,  not  subject to removal by the limited  partners.  We are
dependent  upon  the   distributions   or  other  payments  from  the  Operating
Partnership to meet our financial obligations. Historical results and percentage
relationships  set  forth  herein  are  not  necessarily  indicative  of  future
operations.

Critical Accounting Policies and Estimates

     Our  discussion  and  analysis of our  financial  condition  and results of
operations  are  based  upon our  Consolidated  Financial  Statements  and Notes
thereto  appearing  elsewhere  in this  Quarterly  Report  on Form  10-Q.  These
Consolidated  Financial  Statements  and Notes  thereto  have been  prepared  in
accordance with accounting  principles  generally accepted in the United States.
The  preparation of such  statements  requires us to make certain  estimates and
judgments that affect the reported amounts of assets, liabilities,  revenues and
expenses, and the related disclosure of contingent liabilities.  We evaluate our
estimates  on  an  on-going  basis;  including  those  related  to  (i)  revenue
recognition,  (ii)  provisions  for  bad  debt  on  accounts  receivable,  (iii)
potential  impairment of the carrying value of rental  properties  held for use,
(iv) capitalization and depreciation of significant renovations and improvements
and (v) contingencies for debt guarantees and litigation.  We base our estimates
on  historical  trends  and  certain  other  assumptions  that  we  believe  are
reasonable under the particular  circumstances.  These estimates ultimately form
the basis for  making  judgments  about the  carrying  values of our  assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions.

     To assist you in  understanding  our  financial  condition and results from
operations,  we have identified our critical  accounting  policies and discussed
them below. These accounting policies are most important to the portrayal of our
financial  condition  and  results  from  operations,   either  because  of  the
significance  of the financial  statement  items to which they relate or because
they require our management's most difficult, subjective or complex judgments.

Revenue Recognition

     Leases with tenants are accounted for as operating  leases.  Minimum rental
income is  recognized  on a  straight-line  basis over the term of the lease and
unpaid  rents are  included  in  accounts  receivable,  net in the  accompanying
Consolidated Balance Sheets. Certain lease agreements contain provisions,  which
provide for rents based on a  percentage  of sales or based on a  percentage  of
sales  volume  above a  specified  threshold.  These  contingent  rents  are not
recognized until the required  thresholds are exceeded.  In addition,  the lease
agreements  generally  provide  for  the  reimbursement  of real  estate  taxes,
insurance,   advertising  and  certain  common  area  maintenance  costs.  These
additional  rents and tenant  reimbursements  are  accounted  for on the accrual
basis.

<PAGE>
                                  Page - (26)


Bad Debt Expense

     We regularly  review our accounts  receivable  to determine an  appropriate
amount for the allowance for doubtful accounts based upon the impact of economic
conditions on ours tenants' ability to pay, past collection  experience and such
other factors which, in our judgment,  deserve current  recognition.  In turn, a
provision for uncollectible  accounts receivable ("bad debt expense") is charged
against the allowance to maintain the allowance  level within this range. If the
financial condition of our tenants were to deteriorate,  resulting in impairment
in their ability to make payments due under their leases,  additional allowances
may be required.

Impairment of Rental Property

     We monitor our  Properties  for  indicators  of  impairment  on an on-going
basis.  We record a provision for impairment  when we believe certain events and
circumstances  have  occurred  which  indicate  that the  carrying  value of our
Properties  might  have  experienced  a  decline  in value  that is  other  than
temporary  and the  undiscounted  cash flows  estimated to be generated by those
assets are less than the carrying amounts of those assets. Impairment losses are
measured as the  difference  between the carrying  value and the estimated  fair
value for assets held in the portfolio.  For assets held for sale, impairment is
measured as the  difference  between  the  carrying  value and fair value,  less
estimated  costs  to  dispose.  Fair  value is based  on  estimated  cash  flows
discounted  at a  risk-adjusted  rate  of  return.  Adverse  changes  in  market
conditions or deterioration  in the operating  results of our outlet centers and
other  rental  properties  could result in losses or an inability to recover the
current carrying value of such assets. Such potential losses or the inability to
recover the  current  carrying  value may not be  reflected  in our  Properties'
current carrying value,  thereby possibly  requiring an impairment charge in the
future.

Capitalization and Depreciation of Significant Renovations and Improvements

     Depreciation  is calculated on the  straight-line  basis over the estimated
useful  lives of the  assets,  based upon  management's  estimates.  Significant
renovations  and  improvements,  which improve  and/or extend the useful life of
assets are capitalized and depreciated over their estimated useful lives,  based
upon management's estimates.

Contingencies

     We are  subject  to  proceedings,  lawsuits,  and other  claims  related to
various  matters  (see  Note  6 -  "Legal  Proceedings"  of  the  Notes  to  the
Consolidated Financial Statements for additional information).  Additionally, we
have guaranteed certain indebtedness of others (see Note 4 - "Debt" of the Notes
to Consolidated Financial Statements for additional  information).  With respect
to these  contingencies,  we assess the  likelihood of any adverse  judgments or
outcomes to these  matters  and,  if  appropriate  potential  ranges of probable
losses.  A determination of the amount of reserves  required,  if any, for these
contingencies are made after careful analysis of each individual  issue.  Future
reserves  may be  required  because  of (i) new  developments  or changes to the
approach in which we deal with each matter or (ii) if unasserted claims arise.

<PAGE>
                                  Page - (27)


Outlet Center Portfolio

Portfolio GLA and Occupancy

     Our outlet center  portfolio size reflects (i) our past  development  (both
new outlet centers and expansions to outlet centers) and acquisition  activities
and (ii) our more recent disposition activities. Our outlet portfolio (including
properties owned through joint venture partnerships)  consisted of 36 properties
totaling  10,226,000 square feet of gross leasable area ("GLA") at June 30, 2003
compared to 42  properties  totaling  11,893,000  square feet of GLA at June 30,
2002.  The  change in our outlet  center  GLA is  because  of  certain  property
dispositions,  which are discussed  below. Our outlet center portfolio was 84.8%
and  86.8%   occupied  as  of  June  30,  2003  and  2002,   respectively.   The
weighted-average  occupancy  of our outlet  center  portfolio  (excluding  those
properties  disposed of whose results are included in  discontinued  operations)
during  the three  months  ended  June 30,  2003 and 2002 was  83.6% and  86.4%,
respectively.  The  weighted-average  occupancy of our outlet  center  portfolio
(excluding  those   properties   disposed  of  whose  results  are  included  in
discontinued  operations) during the six months ended June 30, 2003 and 2002 was
84.7% and 86.7%, respectively.

     We disposed of certain properties through various  transactions  (including
sale, joint venture  arrangements,  foreclosure and transfer of ownership to the
applicable lender). These transactions have had a significant impact on the size
of our portfolio for the periods presented and are summarized below.

     During 2002, we completed  transactions involving 17 properties aggregating
4,431,000 square feet of GLA. These transactions  included (i) the sale of seven
outlet  centers  aggregating  1,791,000  square  feet of GLA into joint  venture
arrangements,  (ii) the sale of five (including one consisting of 197,000 square
feet of GLA that we owned 51% through an  unconsolidated  joint venture)  outlet
centers  aggregating  1,486,000  square feet of GLA to unrelated  third parties,
(iii) the foreclosure  sale and/or transfer of three outlet centers  aggregating
922,000  square  feet of GLA to the  applicable  lender and (iv) the sale of two
community  centers  aggregating  232,000  square feet of GLA to unrelated  third
parties.

     The seven  centers sold into joint  venture  arrangements  consisted of two
separate transactions involving (i) Prime Outlets at Hagerstown (the "Hagerstown
Center"),  which  was  sold  to  an  existing  joint  venture  partnership  (the
"Prime/Estein Venture"),  and (ii) six outlet centers (collectively,  the Bridge
Properties"),  which were sold to PFP Venture LLC (the "PFP  Venture"),  a joint
venture  partnership in which we indirectly had a initial ownership  interest of
18.2%.  Such properties are collectively  referred to as the "2002 Joint Venture
Properties". Commencing on the date of disposition, we account for our ownership
interest in the 2002 Joint  Venture  Properties  in  accordance  with the equity
method of accounting. The operating results of the 2002 Joint Venture Properties
are  reflected  in our  results  from  continuing  operations  for  all  periods
presented through their respective dates of disposition. Their operating results
have  not  been  classified  to  discontinued   operations  because  we  have  a
significant  continuing involvement in these properties.  Additionally,  we sold
Phases II and III of the Bellport Outlet Center (the "Bellport  Outlet Center").
We  accounted  for our  ownership  interest  in the  Bellport  Outlet  Center in
accordance with the equity method of accounting through its date of disposition.

     The operating results of the remaining  disposed  properties  through their
respective dates of disposition have been classified as discontinued  operations
in the accompanying Consolidated Statements of Operations.

     On March 31, 2003,  the PFP Venture  completed the sale of Prime Outlets at
Latham (the "Latham Center") consisting of 43,000 square feet of GLA. The Latham
Center was one of the Bridge Properties. See Note 3 - "Property Dispositions" of
the Notes to Consolidated Financial Statements.

<PAGE>
                                  Page - (28)


     Effective  January 1, 2002,  we adopted  Statement of Financial  Accounting
Standards  ("FAS")  No.  144,  "Accounting  for the  Impairment  or  Disposal of
Long-Lived  Assets." In accordance with the requirements of FAS No. 144, we have
classified  the  operating  results,  including  gains  and  losses  related  to
disposition,  for certain  properties either disposed of or classified as assets
held  for  sale  during  2002 as  discontinued  operations  in the  accompanying
Consolidated  Statements of Operations for all periods presented.  The operating
results for  properties  that were sold into joint venture  partnerships  during
2002 have not been  classified to  discontinued  operations in the  accompanying
Consolidated  Statements  of  Operations  because we still retain a  significant
continuing  involvement  in  their  operations.  Such  properties  and/or  their
operating  results  through  the  dates  of  their  respective  disposition  are
collectively  referred to as the "2002 Joint Venture Properties".  The following
discussion and tables regarding operating results for the comparable periods are
reflective of the  classification  requirements  under FAS No. 144 and relate to
operating results from continuing operations unless otherwise indicated.

     The table set forth below  summarizes  certain  information with respect to
our  outlet  centers  as of June 30,  2003  (see Note 4 - "Debt" of the Notes to
Consolidated  Financial Statements  contained herein for additional  information
with respect to indebtedness on our Properties):

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                     Grand             GLA            Occupancy
Outlet Centers                                                                Opening Date         (Sq. Ft.)         Percentage (1)
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>                      <C>                    <C>
Prime Outlets at Fremont-- Fremont, Indiana                                   October 1985           229,000                88%

Prime Outlets at Birch Run (2)-- Birch Run, Michigan                        September 1986           724,000                91

Prime Outlets at Williamsburg (2)-- Williamsburg, Virginia                      April 1988           274,000                96

Prime Outlets at Pleasant Prairie-- Kenosha, Wisconsin                      September 1988           269,000                96

Prime Outlets at Burlington-- Burlington, Washington                              May 1989           174,000                87

Prime Outlets at Queenstown-- Queenstown, Maryland                               June 1989           221,000               100

Prime Outlets at Hillsboro-- Hillsboro, Texas                                 October 1989           359,000                87

Prime Outlets at Oshkosh-- Oshkosh, Wisconsin                                November 1989           260,000                90

Prime Outlets at Warehouse Row (4)-- Chattanooga, Tennessee                  November 1989            95,000                76

Prime Outlets at Perryville-- Perryville, Maryland                               June 1990           148,000                95

Prime Outlets at Sedona-- (5) Sedona, Arizona                                  August 1990            82,000                89

Prime Outlets at San Marcos-- San Marcos, Texas                                August 1990           549,000                58

Prime Outlets at Anderson-- (3) Anderson, California                           August 1990           165,000                91

Prime Outlets at Post Falls-- (5) Post Falls, Idaho                              July 1991           179,000                64

Prime Outlets at Ellenton-- Ellenton, Florida                                 October 1991           481,000                97

Prime Outlets at Morrisville-- Raleigh - Durham, North Carolina               October 1991           187,000                78

Prime Outlets at Naples-- Naples/Marco Island, Florida                       December 1991           146,000                86

Prime Outlets at Niagara Falls USA-- Niagara Falls, New York                     July 1992           534,000                86

Prime Outlets at Woodbury-- (6) Woodbury, Minnesota                              July 1992           250,000                50

Prime Outlets at Calhoun-- (3) Calhoun, Georgia                               October 1992           254,000                82

Prime Outlets at Bend-- (5) Bend, Oregon                                     December 1992           132,000                95

</TABLE>

<PAGE>
                                  Page - (29)


<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                     Grand             GLA            Occupancy
Outlet Centers                                                                Opening Date         (Sq. Ft.)         Percentage (1)
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>                   <C>                      <C>
Prime Outlets at Jeffersonville I-- Jeffersonville, Ohio                         July 1993           407,000                92%

Prime Outlets at Gainesville-- Gainesville, Texas                              August 1993           316,000                67

Prime Outlets at Grove City-- Grove City, Pennsylvania                         August 1994           533,000                99

Prime Outlets at Huntley-- Huntley, Illinois                                   August 1994           282,000                68

Prime Outlets at Florida City-- Florida City, Florida                       September 1994           208,000                68

Prime Outlets at Pismo Beach-- Pismo Beach, California                       November 1994           148,000                98

Prime Outlets at Tracy-- Tracy, California                                   November 1994           153,000                87

Prime Outlets at Odessa-- Odessa, Missouri                                       July 1995           296,000                69

Prime Outlets at Darien (7)-- Darien, Georgia                                    July 1995           307,000                58

Prime Outlets at Gulfport (8)-- Gulfport, Mississippi                        November 1995           306,000                89

Prime Outlets at Lodi--  (3)Burbank, Ohio                                    November 1996           313,000                87

Prime Outlets at Gaffney (3) (7)--  Gaffney, South Carolina                  November 1996           305,000                91

Prime Outlets at Lee-- (3) Lee, Massachusetts                                    June 1997           224,000                94

Prime Outlets at Lebanon--  Lebanon, Tennessee                                  April 1998           229,000                89

Prime Outlets at Hagerstown (2)--  Hagerstown, Maryland                        August 1998           487,000                81
                                                                                                  ----------               ---
Total Outlet Centers (9)                                                                          10,226,000                85%
                                                                                                  ==========               ===
====================================================================================================================================
</TABLE>

Notes:
(1)  Percentage  reflects  occupied  space as of June 30,  2003 as a percent  of
     available square feet of GLA.
(2)  Through  affiliates,  we have a 30% ownership interest in the joint venture
     partnership that owns this outlet center.
(3)  Through affiliates, we have an ownership interest of approximately 25.2% in
     the joint venture  partnership  that owns this outlet center as of June 30,
     2003.
(4)  We own a 2%  partnership  interest  as the  sole  general  partner  in this
     property, but are entitled to 99% of the property's operating cash flow and
     net proceeds from a sale or refinancing.  This mixed-use  development  also
     includes approximately 154,000 square feet of office space, not included in
     this table, which was 95% occupied as of June 30, 2003.
(5)  Non-recourse mortgage loans  cross-collateralized by Prime Outlets at Bend,
     Prime  Outlets at Post Falls and Prime  Outlets at Sedona are  currently in
     default  and we are  in  the  process  of  negotiating  a  transfer  of our
     ownership  interests  in these outlet  centers to the lender.  See Note 4 -
     "Debt" of the Notes to  Consolidated  Financial  Statements  for additional
     information.
(6)  Non-recourse  mortgage  loans on Prime  Outlets  at Vero  Beach  and  Prime
     Outlets at Woodbury  were  cross-collateralized.  The lender  foreclosed on
     Prime  Outlets  at Vero  Beach on  September  9, 2002 and Prime  Outlets at
     Woodbury on July 24, 2003. See Note 4 - "Debt" of the Notes to Consolidated
     Financial Statements for additional information.
(7)  We operate this outlet  center  pursuant to a long-term  ground lease under
     which we receive the economic benefit of a 100% ownership interest.
(8)  The real  property on which this  outlet  center is located is subject to a
     long-term ground lease.
(9)  Excludes Oxnard Factory Outlet.  Through an affiliate,  we have a 50% legal
     ownership  interest in the joint venture  partnership that owns this outlet
     center.  However,  we are currently  receiving no economic benefit from the
     Oxnard Factory Outlet.

<PAGE>
                                  Page - (30)


Results of Operations

Table 1 - Consolidated Statements of Operations

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                              Three Months Ended        2003 vs. 2002       Six Months Ended       2003 vs. 2002
                                                     June 30,        --------------------        June 30,         ----------------
                                           ------------------------      %          %      ---------------------     %          %
                                               2003         2002      Change     Change     2003        2002      Change     Change
------------------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>         <C>         <C>         <C>      <C>         <C>         <C>         <C>
Revenues
Base rents                                   $ 18,535    $ 22,867    $(4,332)   -18.9%    $ 37,528    $ 47,176    $(9,648)   -20.5%
Percentage rents                                  473         436         37      8.5%       1,450       1,756       (306)   -17.4%
Tenant reimbursements                          11,816      12,723       (907)    -7.1%      22,774      25,557     (2,783)   -10.9%
Interest and other                              3,705       2,273      1,432     63.0%       7,717       5,133      2,584     50.3%
                                             --------    --------    -------    ------    --------    --------    -------    ------
  Total revenues                               34,529      38,299     (3,770)    -9.8%      69,469      79,622    (10,153)   -12.8%

Expenses
Property operating                              9,751      10,957     (1,206)   -11.0%      19,706      21,168     (1,462)    -6.9%
Real estate taxes                               3,086       3,627       (541)   -14.9%       6,070       7,293     (1,223)   -16.8%
Depreciation and amortization                   7,281       9,214     (1,933)   -21.0%      14,561      19,422     (4,861)   -25.0%
Corporate general and administrative            3,528       2,877        651     22.6%       7,994       6,296      1,698     27.0%
Interest                                       11,944      16,996     (5,052)   -29.7%      23,800      34,725    (10,925)   -31.5%
Other charges                                     853       4,266     (3,413)   -80.0%       1,541       6,738     (5,197)   -77.1%
Provision for asset impairment                  6,590           -      6,590       n/m       6,590           -      6,590       n/m
                                             --------    --------    -------    ------    --------    --------    -------    ------
  Total expenses                               43,033      47,937     (4,904)   -10.2%      80,262      95,642    (15,380)   -16.1%
                                             --------    --------    -------    ------    --------    --------    -------    ------
Loss before gain (loss) on
  sale of real estate                          (8,504)     (9,638)     1,134    -11.8%     (10,793)    (16,020)     5,227    -32.6%
Gain (loss) on sale of real estate, net             -     (10,991)    10,991       n/m           -       5,802     (5,802)      n/m
                                             --------    --------    -------    ------    --------    --------    -------    ------
Loss from continuing operations                (8,504)    (20,629)    12,125    -58.8%     (10,793)    (10,218)      (575)     5.6%
Discontinued operations,
  including gain (loss) of
  $2,121 and $(7,502) on
  dispositions in 2002,
  periods, respectively                             -      (9,557)     9,557       n/m           -     (18,287)    18,287       n/m
                                             --------    --------    -------    ------    --------    --------    -------    ------
Net loss                                       (8,504)    (30,186)    21,682    -71.8%     (10,793)    (28,505)    17,712    -62.1%
Allocations to preferred shareholders          (5,668)     (5,668)         -      0.0%     (11,336)    (11,336)         -      0.0%
                                             --------    --------    -------    ------    --------    --------    -------    ------
Net loss applicable to common shares         $(14,172)   $(35,854)   $21,682    -60.5%    $(22,129)   $(39,841)   $17,712    -44.5%
                                             ========    ========    =======    ======    ========    ========    =======    ======

Basic and diluted earnings per
  common share:
Loss from continuing operations              $  (0.33)   $  (0.60)                        $  (0.51)   $  (0.49)
Discontinued operations                             -       (0.22)                               -       (0.42)
                                             --------    --------                         --------    --------
  Net loss                                   $  (0.33)   $  (0.82)                        $  (0.51)   $  (0.91)
                                             ========    ========                         ========    ========

Weighted-average common shares
  outstanding - basic and diluted              43,578      43,578                           43,578      43,578
                                             ========    ========                         ========    ========
====================================================================================================================================

</TABLE>
<PAGE>
                                  Page - (31)


Comparison of the three months ended June 30, 2003 to the three months ended
June 30, 2002

Summary

     We reported losses from continuing operations of $8,504 and $20,629 for the
three  months ended June 30, 2003 and 2002,  respectively.  For the three months
ended June 30, 2003,  the net loss  applicable  to our common  shareholders  was
$14,172,  or $0.33 per common  share.  For the three months ended June 30, 2002,
the net loss  applicable to our common  shareholders  was $35,854,  or $0.82 per
common share.

     During  the three  months  ended  June 30,  2002,  we  reported a loss from
discontinued  operations of $9,557,  or $0.22 per common  share.  This loss from
discontinued  operations  included a (i) gain related to  dispositions of $2,221
and (ii) a provision for asset impairment of $12,200.

     The 2003  results  from  continuing  operations  include  a second  quarter
provision for asset  impairment of $6,590,  or $0.15 per common share.  The 2002
results from  continuing  operations  include (i) a net loss on the sale of real
estate  of  $10,991,  or $0.25  per  common  share  and  (ii) a  second  quarter
non-recurring  charge (included in other charges) of $3,000, or $0.07 per common
share,  related to pending and  potential  tenant claims with respect to certain
lease provisions.

Revenues

     Total  revenues  were  $34,529  for the three  months  ended June 30,  2003
compared to $38,299 for the same period in 2002, a decrease of $3,770,  or 9.8%.
Base rents decreased $4,332, or 18.9%, to $18,535 in 2003 compared to $22,867 in
2002. These decreases are primarily due to (i)  transactions  involving the 2002
Joint Venture  Properties,  (ii) changes in economic rental rates and (iiii) the
reduction in outlet center occupancy during the 2003 period.  Straight-line rent
expense,  included in base rent was $230 and $20 for the three months ended June
30, 2003 and 2002, respectively.

     Percentage  rents,  which  represent  rents based on a percentage  of sales
volume above a specified  threshold,  increased  $37 or 8.5%, to $473 during the
three months  ended June 30, 2003  compared to $436 for the same period in 2002.
This  increase  was  primarily  due to (i)  changes  in  economic  rental  rates
partially  offset  by  (ii)  transactions   involving  the  2002  Joint  Venture
Properties.

     Tenant  reimbursements,  which  represent  the  contractual  recovery  from
tenants of certain  operating  expenses,  decreased by $907, or 7.1%, to $11,816
during the three  months  ended June 30,  2003  compared to $12,723 for the same
period in 2002. This decline is primarily due to (i) transactions  involving the
2002 Joint Venture  Properties,  (ii) changes in economic rental rates and (iii)
the reduced aggregate outlet center  weighted-average  occupancy during the 2003
period.

     As shown in TABLE 2, tenant  reimbursements  as a percentage of recoverable
property  operating  expenses  and real estate  taxes was 92.0% during the three
months  ended June 30, 2003  compared to 87.2% for the same period in 2002.  The
increase  in tenant  reimbursements  as a  percentage  of  recoverable  property
operating expenses and real estate taxes reflects the aforementioned  changes in
economic rental rates and weighted-average occupancy.

<PAGE>
                                  Page - (32)


Table 2 - Tenant Recoveries as a Percentage of Total Recoverable Expenses

--------------------------------------------------------------------------------
Three Months Ended June 30,                         2003                 2002
--------------------------------------------------------------------------------
Tenant reimbursements                           $ 11,816               $ 12,723
                                                ========               =========

Recoverable Expenses:
Property operating                              $  9,751               $ 10,957
Real estate taxes                                  3,086                  3,627
                                                --------               --------
  Total recoverable expenses                    $ 12,837               $ 14,584
                                                ========               ========

Tenant reimbursements as a percentage
  of total recoverable expenses                    92.0%                  87.2%
                                                ========               ========
================================================================================

     Interest and other income  increased by $1,432,  or 63.0%, to $3,705 during
the three months  ended June 30, 2003  compared to $2,273 for the same period in
2002. The increase was primarily  attributable  to (i) higher equity in earnings
of  unconsolidated  joint ventures of $893, (ii) increased  leasing  commissions
income of $384 and (iii) an increase in all other  income of $155.  The increase
in equity in earnings of unconsolidated  joint ventures is primarily  associated
with the transactions involving the 2002 Joint Venture Properties.

Expenses

     Property operating expenses decreased by $1,206, or 11.0%, to $9,751 during
the three months ended June 30, 2003  compared to $10,957 for the same period in
2002.  Real estate taxes expense  decreased by $541, or 14.9%,  to $3,086 during
the three months  ended June 30, 2003  compared to $3,627 for the same period in
2002. The decrease in property  operating  expenses is primarily  because of the
transactions  involving the 2002 Joint Venture  Properties  partially  offset by
higher  insurance  and marketing  costs during the 2003 period.  The decrease in
real estate taxes expense is primarily because of the transactions involving the
2002 Joint Venture Properties.

     As shown in TABLE 3,  depreciation  and amortization  expense  decreased by
$1,933 or 21.0%,  to $7,281 during the three months ended June 30, 2003 compared
to $9,214 for the same period in 2002. This decrease was primarily  attributable
to the depreciation and amortization of assets  associated with the transactions
involving the 2002 Joint Venture Properties.

Table 3  - Components of Depreciation and Amortization Expense

        The components of depreciation and amortization expense for the three
months ended June 30, 2003 and 2002 are summarized as follows:

--------------------------------------------------------------------------------
Three Months Ended June 30,                      2003                    2002
--------------------------------------------------------------------------------
Building and improvements                     $ 3,423                 $ 4,106
Land improvements                                 938                   1,094
Tenant improvements                             2,057                   3,359
Furniture and fixtures                            807                     619
Leasing commissions                                56                      36
                                              -------                 -------
  Total                                       $ 7,281                 $ 9,214
                                              =======                 =======
================================================================================

<PAGE>
                                  Page - (33)


     As shown in TABLE 4, interest  expense  decreased by $5,052,  or 29.7%,  to
$11,944  during the three months ended June 30, 2003 compared to $16,996 for the
same period in 2002.  This  decrease  reflects  (i) lower  interest  incurred of
$5,652,  (ii) a decrease in amortization of deferred financing costs of $882 and
(iii) higher  amortization of debt premiums of $24.  Partially  offsetting these
items was interest expense of $1,506  associated with certain mortgage debt that
was defeased in December 2002. See Note 4 - "Debt" of the Notes to  Consolidated
Financial Statements for additional information.

     The  decrease  in  interest  incurred is  primarily  attributable  to (i) a
reduction of approximately  $171,826 in our  weighted-average  debt outstanding,
excluding debt premiums, during the three months ended June 30, 2003 compared to
the same period in 2002 and (ii) a decrease in the weighted-average  contractual
interest  rate on our debt for the three months ended June 30, 2003  compared to
the same period in 2002. The decrease in  weighted-average  debt outstanding was
primarily attributable to asset dispositions.  The weighted-average  contractual
interest rates for the 2003 and 2002 periods were approximately 8.11% and 9.34%,
respectively.

Table 4 - Components of Interest Expense

     The components of interest expense for the three months ended June 30, 2003
and 2002 are summarized as follows:

--------------------------------------------------------------------------------
Three Months Ended June 30,                       2003                   2002
--------------------------------------------------------------------------------
Interest incurred                               $ 10,546              $ 16,198
Amortization of deferred financing costs             418                 1,300
Amortization of debt premiums                       (526)                 (502)
Interest expense - defeased debt                   1,506                     -
                                                --------              --------
  Total                                         $ 11,944              $ 16,996
                                                ========              ========
================================================================================

     Other charges were $853 and $4,266 for the three months ended June 30, 2003
and 2002,  respectively,  which includes a non-recurring charge of $3,000 in the
2002  period.  Excluding  the  effect  of this  non-recurring  charge,  which is
discussed  below,  other charges  decreased by $413,  or 32.6%,  to $853 for the
three months ended June 30, 2003 compared to $1,266 for the same period in 2002.
This decrease was  attributable to (i) lower bad debt expense of $209 and (ii) a
decrease in all other expenses of $204.

     During  the second  quarter of 2002,  we  recorded a  non-recurring  charge
(included  in other  charges)  of $3,000 to  establish  a reserve for pending an
potential  tenant  claims  with  respect  to lease  provisions  related to their
pass-through  charges and promotional  fund charges.  See "Liquidity and Capital
Resources" for additional information.

     During the second quarter of 2003, certain events and circumstances related
to two of our  properties  occurred,  including  (i) changes to the  anticipated
holding periods and (ii) further reduced  occupancy and limited leasing success,
that indicated these  properties were impaired on an other than temporary basis.
As a result,  we recorded a provision for asset  impairment  aggregating  $6,590
representing  the write-down of these  properties to their estimated fair values
in  accordance  with the  requirements  of  Statement  of  Financial  Accounting
Standards  ("FAS")  No.  144,  "Accounting  for the  Impairment  or  Disposal of
Long-Lived Assets."

<PAGE>
                                  Page - (34)


Comparison of the six months ended June 30, 2003 to the six months ended
June 30, 2002

Summary

     We reported  losses from  continuing  operations of $10,793 and $10,218 for
the six months  ended June 30, 2003 and 2002,  respectively.  For the six months
ended June 30, 2003,  the net loss  applicable  to our common  shareholders  was
$22,129,  or $0.51 per common share. For the six months ended June 30, 2002, the
net loss applicable to our common  shareholders was $39,841, or $0.91 per common
share.

     During  the six  months  ended  June 30,  2002,  we  reported  a loss  from
discontinued  operations of $18,287,  or $0.42 per common share.  This loss from
discontinued  operations  included a (i) a net loss related to  dispositions  of
$7,502 and (ii) a provision for asset impairment of $12,200.

     The 2003  results  from  continuing  operations  include  a second  quarter
provision for asset  impairment of $6,590,  or $0.15 per common share.  The 2002
results from  continuing  operations  include (i) a net gain on the sale of real
estate  of  $5,802,  or  $0.13  per  common  share  and  (ii) a  second  quarter
non-recurring  charge (included in other charges) of $3,000, or $0.07 per common
share,  related to pending and  potential  tenant claims with respect to certain
lease provisions.

Revenues

     Total revenues were $69,469 for the six months ended June 30, 2003 compared
to $79,622 for the same period in 2002,  a decrease  of 10,153,  or 12.8%.  Base
rents  decreased  $9,648,  or 20.5%,  to $37,528 in 2003  compared to $47,176 in
2002. These decreases are primarily due to (i)  transactions  involving the 2002
Joint Venture  Properties,  (ii) changes in economic rental rates and (iiii) the
reduction in outlet center occupancy during the 2003 period.  Straight-line rent
expense,  included  in base rent was $369 and $59 for the six months  ended June
30, 2003 and 2002, respectively.

     Percentage  rents,  which  represent  rents based on a percentage  of sales
volume above a specified  threshold,  decreased $306, or 17.4%, to $1,450 during
the six months  ended June 30,  2003  compared  to $1,756 for the same period in
2002.  This decrease was primarily  due to (i)  transactions  involving the 2002
Joint Venture Properties and (ii) changes in economic rental rates.

     Tenant  reimbursements,  which  represent  the  contractual  recovery  from
tenants of certain operating expenses, decreased by $2,783, or 10.9%, to $22,774
during  the six months  ended June 30,  2003  compared  to $25,557  for the same
period in 2002. This decline is primarily due to (i) transactions  involving the
2002 Joint Venture  Properties,  (ii) changes in economic rental rates and (iii)
the reduced aggregate outlet center  weighted-average  occupancy during the 2003
period.

     As shown in TABLE 5, tenant  reimbursements  as a percentage of recoverable
property  operating  expenses  and real  estate  taxes was 88.4%  during the six
months  ended June 30, 2003  compared to 89.8% for the same period in 2002.  The
decline  in  tenant  reimbursements  as a  percentage  of  recoverable  property
operating expenses and real estate taxes reflects to the aforementioned  changes
in economic rental rates and weighted-average occupancy.

<PAGE>
                                  Page - (35)


Table 5 - Tenant Recoveries as a Percentage of Total Recoverable Expenses

--------------------------------------------------------------------------------
Six Months Ended June 30,                          2003                  2002
--------------------------------------------------------------------------------

Tenant reimbursements                            $ 22,774             $ 25,557
                                                 ========             ========

Recoverable Expenses:
Property operating                                 19,706             $ 21,168
Real estate taxes                                   6,070                7,293
                                                 --------             --------
  Total recoverable expenses                     $ 25,776             $ 28,461
                                                 ========             ========

Tenant reimbursements as a percentage
  of total recoverable expenses                     88.4%                89.8%
                                                 ========             ========
================================================================================

     Interest and other income  increased by $2,584,  or 50.3%, to $7,717 during
the six months  ended June 30,  2003  compared  to $5,133 for the same period in
2002. The increase was primarily  attributable  to (i) higher equity in earnings
of unconsolidated  joint ventures of $1,866,  (ii) increased leasing commissions
income of $576 and (iii) an increase in all other  income of $142.  The increase
in equity in earnings of unconsolidated  joint ventures is primarily  associated
with the transactions involving the 2002 Joint Venture Properties.

Expenses

     Property operating expenses decreased by $1,462, or 6.9%, to $19,706 during
the six months  ended June 30,  2003  compared to $21,168 for the same period in
2002. Real estate taxes expense  decreased by $1,223, or 16.8%, to $6,070 during
the six months  ended June 30,  2003  compared  to $7,293 for the same period in
2002. The decrease in property  operating  expenses is primarily  because of the
transactions  involving the 2002 Joint Venture  Properties  partially  offset by
higher  insurance  and marketing  costs during the 2003 period.  The decrease in
real estate taxes expense is primarily because of the transactions involving the
2002 Joint Venture Properties.

     As shown in TABLE 6,  depreciation  and amortization  expense  decreased by
$4,861,  or 25.0%, to $14,561 during the six months ended June 30, 2003 compared
to $19,422 for the same period in 2002. This decrease was primarily attributable
to the depreciation and amortization of assets  associated with the transactions
involving the 2002 Joint Venture Properties.

Table 6  - Components of Depreciation and Amortization Expense

     The components of depreciation and amortization  expense for the six months
ended June 30, 2003 and 2002 are summarized as follows:

--------------------------------------------------------------------------------
Six Months Ended June 30,                        2003                    2002
--------------------------------------------------------------------------------
Building and improvements                    $  6,870                $  9,469
Land improvements                               1,876                   2,196
Tenant improvements                             4,299                   6,387
Furniture and fixtures                          1,405                   1,261
Leasing commissions                               111                     109
                                             --------                --------
  Total                                      $ 14,561                $ 19,422
                                             ========                ========
================================================================================

<PAGE>
                                  Page - (36)


     As shown in TABLE 7, interest  expense  decreased by $10,925,  or 31.5%, to
$23,800  during the six months  ended June 30, 2003  compared to $34,725 for the
same period in 2002.  This  decrease  reflects  (i) lower  interest  incurred of
$11,737,  (ii) a decrease in amortization of deferred  financing costs of $2,136
and (iii) higher  amortization  of debt  premiums of $47.  Partially  offsetting
these items was interest expense of $2,995 associated with certain mortgage debt
that  was  defeased  in  December  2002.  See Note 4 -  "Debt"  of the  Notes to
Consolidated Financial Statements for additional information.

     The  decrease  in  interest  incurred is  primarily  attributable  to (i) a
reduction of approximately  $184,847 in our  weighted-average  debt outstanding,
excluding debt  premiums,  during the six months ended June 30, 2003 compared to
the same period in 2002 and (ii) a decrease in the weighted-average  contractual
interest rate on our debt for the six months ended June 30, 2003 compared to the
same period in 2002.  The  decrease in  weighted-average  debt  outstanding  was
primarily attributable to asset dispositions.  The weighted-average  contractual
interest rates for the 2003 and 2002 periods were approximately 8.10% and 9.33%,
respectively.

Table 7 - Components of Interest Expense

     The  components of interest  expense for the six months ended June 30, 2003
and 2002 are summarized as follows:

--------------------------------------------------------------------------------
Six Months Ended June 30,                         2003                  2002
--------------------------------------------------------------------------------
Interest incurred                               $ 21,003              $ 32,740
Amortization of deferred financing costs             847                 2,983
Amortization of debt premiums                     (1,045)                 (998)
Interest expense - defeased debt                   2,995                     -
                                                --------              --------
  Total                                         $ 23,800              $ 34,725
                                                ========              ========
================================================================================

     Other charges were $1,541 and $6,738 for the six months ended June 30, 2003
and 2002,  respectively,  which includes the previously discussed  non-recurring
charge of $3,000 in the 2002 period.  Excluding the effect of this non-recurring
charge,  other  charges  decreased  by $2,197,  or 58.8%,  to $1,541 for the six
months ended June 30, 2003 compared to $3,738 for the same period in 2002.  This
decrease  was  attributable  to (i) lower bad debt  expense of $2,016 and (ii) a
decrease  in all  other  expenses  of $181.  The  decrease  in bad debt  expense
resulted from (i)  resolution of certain  disputes with tenants and (ii) reduced
tenant bankruptcies, abandonments and store closings during the 2003 period.

     During the second quarter of 2003, certain events and circumstances related
to two of our  properties  occurred,  including  further  reduced  occupancy and
limited leasing  success,  that indicated  these  properties were impaired on an
other than  temporary  basis.  As a result,  we recorded a  provision  for asset
impairment aggregating $6,590 representing the write-down of these properties to
their estimated fair values in accordance with the requirements of FAS No. 144.

Merchant Sales

     For the three and six months ended June 30, 2003,  same-store  sales in our
outlet center portfolio  increased by 1.2% and decreased by 2.8%,  respectively,
compared  to the same  periods  in 2002.  "Same-store  sales" is  defined as the
weighted-average  sales per square foot  reported by  merchants  for stores open
since January 1, 2002.  The  weighted-average  sales per square foot reported as
reported by our merchants were $245 for the year ended December 31, 2002.

<PAGE>
                                  Page - (37)


Liquidity and Capital Resources

Sources and Uses of Cash

     For the six months  ended June 30,  2003,  net cash  provided by  operating
activities was $3,998, net cash used in investing activities was $1,190 and cash
used in financing activities was $3,708.

     The net cash used in investing  activities during the six months ended June
30, 2003 consisted of $2,969 of additions to rental property partially offset by
$1,085  of net  proceeds  from  the  disposition  of  excess  land  and  $694 of
distributions from unconsolidated joint venture  partnerships.  The additions to
rental property  included costs incurred in connection with re-leasing  space to
new merchants and costs associated with renovations. During the six months ended
June 30,  2003,  we did not engage in any  significant  development  activities,
however, we continue to engage in certain consulting  activities in Europe. Such
activities  do not have a  significant  impact  on our  liquidity  or  financial
condition.

     The gross uses of cash for financing activities of $3,708 during six months
ended June 30, 2003 consisted of scheduled principal amortization on debt.

Defaults on Certain Non-recourse Mortgage Indebtedness

     During  August  2002,  certain  of  our  subsidiaries  suspended  regularly
scheduled  monthly debt service  payments on  non-recourse  mortgage loans which
were  cross-collateralized  by the Vero Beach  Center and the  Woodbury  Center.
These non-recourse mortgage loans were held by John Hancock. Effective September
9,  2002,  John  Hancock  foreclosed  on the Vero  Beach  Center.  Additionally,
effective July 24, 2003,  John Hancock  foreclosed on the Woodbury  Center.  See
Note  3 -  "Property  Dispositions"  of  the  Notes  to  Consolidated  Financial
Statements for additional information.

     In December 2002, we notified the servicer of certain non-recourse mortgage
loans  (cross-collateralized  by Prime  Outlets at Bend,  Prime  Outlets at Post
Falls and Prime Outlets at Sedona) totaling $24,919 as of June 30, 2003 that the
net cash flow from the properties  securing the loans was  insufficient to fully
pay the required monthly debt service. At that time, certain of our subsidiaries
suspended the regularly  scheduled monthly debt service payments.  Subsequent to
our notification to the servicer,  we have been remitting on a monthly basis all
available cash flow from the properties,  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
lender to accelerate the loan and to exercise 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 lender has  notified  us that it has  accelerated  the loans and  intends to
commence  foreclosure  action  on  the  collateral   properties.   However,  any
foreclosure action on these properties is not expected to have a material impact
on our results of  operations  or financial  condition  because we are currently
only remitting  available cash flow. These  non-recourse  mortgage loans require
the monthly  funding of escrow  accounts  for the payment of real estate  taxes,
insurance and capital improvements. Such escrow accounts totaled $105 as of June
30,  2003,  which is included in  restricted  cash in the  Consolidated  Balance
Sheet.  The aggregate  carrying value of these properties was $21,558 as of June
30, 2003.  Such amount is exceeded by the aggregate  outstanding  balance of the
non-recourse  mortgage loans of $24,919 as of June 30, 2003. Upon foreclosure of
the  collateral  properties,  we  will  record  a  non-recurring  gain  for  the
difference  between the carrying  value of the  properties and their related net
asset, including the outstanding loan balances.

<PAGE>
                                  Page - (38)


Defeasance of Mega Deal Loan

     On December 6, 2002, we completed the sale of two outlet centers (together,
the "Colorado  Properties"),  which were part of the 15 properties  contained in
the collateral pool securing a first mortgage and expansion loan (the "Mega Deal
Loan"), which had a then outstanding balance of $338,940. In connection with the
release of the Colorado Properties from the collateral pool, we were required to
partially  defease  the  Mega  Deal  Loan.  Therefore,  the Mega  Deal  Loan was
bifurcated  into (i) a defeased  portion in the amount of $74,849 (the "Defeased
Notes Payable") and (ii) an undefeased portion in the amount of $264,091,  which
is still referred to as the Mega Deal Loan.  Both the Defeased Notes Payable and
the Mega Deal Loan (i) bear  interest at a  fixed-rate  of 7.782%,  (ii) require
monthly  payments of principal and interest  pursuant to a 30-year  amortization
schedule and (iii) have an anticipated  maturity through an optional  prepayment
date on November 11, 2003. The Mega Deal Loan is now secured by the remaining 13
properties  contained  in the  collateral  pool.  We used  $79,257  of the gross
proceeds  from the sale of the  Colorado  Properties  to  purchase  US  Treasury
Securities,  which were placed into a trustee escrow (the "Trustee Escrow"). The
Trustee  Escrow is used to make the  scheduled  monthly debt  service  payments,
including the payment of the then outstanding  principal  amount,  together with
all accrued and unpaid  interest on November 11, 2003,  under the Defeased Notes
Payable.  As of June 30, 2003,  the  outstanding  balance of the Defeased  Notes
Payable was $74,280 and the balance of the Trustee Escrow was $76,671  (included
in restricted cash in the accompanying Consolidated Balance Sheet). Furthermore,
in connection  with the  partial defeasance of the Mega Deal Loan we amended the
Mega Deal Loan so that (i) we are  required to fund 10 monthly payments of  $500
into a lender escrow to be used as additional cash collateral and  (ii)  release
prices for the remaining 13 properties  in the collateral  pool were  amended to
provide for a more orderly refinancing of the Mega Deal Loan.

Debt Service Obligations

     The scheduled principal  maturities of our debt,  excluding (i) unamortized
debt  premiums of $6,910 and (ii)  $41,250 of  aggregate  non-recourse  mortgage
indebtedness  in  default  (see  "Defaults  on  Certain  Non-recourse   Mortgage
Indebtedness"  above), and related average contractual interest rates by year of
maturity as of June 30, 2003 are as follows:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                   Bonds Payable
                                (including sinking                                      Defeased
                                   fund payments)            Notes Payable            Notes Payable               Total Debt
                           ---------------------------- -----------------------   -----------------------  -------------------------
                                Average                 Average                    Average                    Average
                                Interest  Principal     Interest  Principal        Interest   Principal       Interest   Principal
Years Ended December 31,         Rates    Maturities    Rates     Maturities       Rates      Maturities      Rates      Maturities
------------------------------------------------------------------------------------------------------------------------------------
<C>                              <C>      <C>              <C>      <C>              <C>        <C>             <C>        <C>
2003                             6.61%    $    591         7.79%    $ 263,524        7.78%      $ 74,280        7.78%      $ 338,395
2004                             6.34%         726         7.97%        4,571                                   7.75%          5,297
2005                             6.34%         773         8.58%       11,574                                   8.44%         12,347
2006                             6.34%         820         8.83%      120,437                                   8.81%        121,257
2007                             6.34%         878         7.60%        1,002                                   7.02%          1,880
Thereafter                       6.52%      18,618         7.59%       57,995                                   7.33%         76,613
                                 ----     --------         ----     ---------        ----       --------        ----       ---------
                                 6.50%    $ 22,406         8.06%    $ 459,103        7.78%      $ 74,280        7.96%      $ 555,789
                                 ====     ========         ====     =========        ====       ========        ====       =========
====================================================================================================================================

</TABLE>
<PAGE>
                                  Page - (39)


     Such indebtedness in the amount of $481,509 had a weighted-average maturity
of 2.3 years and bore contractual  interest at a weighted-average  rate of 7.98%
per annum.  At June 30, 2003,  all of such  indebtedness  bore interest at fixed
rates.  Our  remaining   scheduled  principal  payments  during  2003  for  such
indebtedness  aggregated $338,395.  In addition to regularly scheduled principal
payments,  the remaining 2003 scheduled  principal payments also reflect balloon
payments  of (i)  $260,681  for the Mega Deal Loan and (ii)  $73,882 due for the
Defeased Notes  Payable.  Both the Mega Deal Loan and the Defeased Notes Payable
have an anticipated maturity through an optional prepayment date on November 11,
2003.  All debt  service due under the Defeased  Notes  Payable,  including  the
balloon  payment  due at  anticipated  maturity,  will be made from the  Trustee
Escrow. See "Going Concern" for additional information.

     Additionally,  we are  obligated  to refinance a first  mortgage  loan (the
"Hagerstown  First Mortgage  Loan") in the amount of $46,862 on Prime Outlets at
Hagerstown (the  "Hagerstown  Center") on or before June 1, 2004. The Hagerstown
First Mortgage Loan was assumed by an unconsolidated  joint venture  partnership
(the  "Prime/Estein  Venture"),  in  which  we have an  indirect  30%  ownership
interest,  in January 2002. See "Prime/Estein  Venture Guarantees"  contained in
"Guarantees   and   Guarantees  of   Indebtedness   of  Others"  for  additional
information.

Defaults on Certain Non-recourse Mortgage Indebtedness of Unconsolidated
Partnerships

     Two mortgage loans related to projects in which we,  through  subsidiaries,
indirectly  own joint  venture  interests  have matured and are in default.  The
mortgage loans,  at the time of default,  were (i) a $10,389 first mortgage loan
on Phase I of the Bellport  Outlet  Center,  held by Union Labor Life  Insurance
Company  ("Union  Labor");  and (ii) a  $13,338  first  mortgage  loan on Oxnard
Factory Outlet, an outlet center located in Oxnard, California, held by Fru-Con.
An affiliate of ours has a 50% ownership interest in the partnership, which owns
Phase I of the Bellport Outlet Center.  Fru-Con and us are each a 50% partner in
the partnership that owns the Oxnard Factory Outlet.

     Union Labor filed for  foreclosure on Phase I of the Bellport Outlet Center
and a  receiver  was  appointed  March  27,  2001 by the court  involved  in the
foreclosure action. Effective May 1, 2001, a manager hired by the receiver began
managing  and leasing  Phase I of the  Bellport  Outlet  Center.  A judgment for
foreclosure  was  entered on January  25,  2003 in the  amount of  $12,711.  The
foreclosure  occurred on March 17, 2003 with Union Labor  acquiring the property
for  $5,100.  Approximately  $1,100  of  post-judgment  interest  and  fees  was
subsequently  awarded to Union Labor.  We continue to  negotiate  the terms of a
transfer of our ownership  interest in Oxnard Factory  Outlet to Fru-Con.  We do
not manage or lease Oxnard Factory Outlet.

     We  believe  neither  of these  mortgage  loans is  recourse  to us.  It is
possible,  however,  that either or both of the respective  lenders will,  after
completing its foreclosure action, file a lawsuit seeking to collect from us the
difference  between the value of the mortgaged property and the amount due under
the loan. If such an action is brought, the outcome, and our ultimate liability,
if any, cannot be predicted at this time.

     In addition,  we are currently not receiving,  directly or indirectly,  any
cash flow from Oxnard  Factory  Outlet and were not receiving any cash flow from
Phase I of the  Bellport  Outlet  Center  prior to the loss of  control  of such
project.  We account for our  interests in (i) Phases I of the  Bellport  Outlet
Center and (ii) the Oxnard Factory  Outlet in accordance  with the equity method
of accounting.  As of June 30, 2003, we had no carrying value for our investment
in these properties.

<PAGE>
                                  Page - (40)


Guarantees and Guarantees of Indebtedness of Others

HGP Guarantees

     On July 15, 2002, Horizon Group Properties, Inc. and its affiliates ("HGP")
announced they had refinanced a secured credit facility (the "HGP Secured Credit
Facility")  through  a series  of new loans  aggregating  $32,500.  Prior to the
refinancing,  we were a guarantor  under the HGP Secured Credit  Facility in the
amount of $10,000. In connection with the refinancing, our guarantee was reduced
to a maximum  of  $4,000 as  security  for a $3,000  mortgage  loan and a $4,000
mortgage loan  (collectively,  the "HGP Monroe  Mortgage Loan") secured by HGP's
outlet shopping center located in Monroe, Michigan. The HGP Monroe Mortgage Loan
has a 3-year term,  bears  interest at the prime lending rate plus 2.50% (with a
minimum of 9.90%) and requires monthly  interest-only  payments.  The HGP Monroe
Mortgage Loan may be prepaid without penalty after two years. Our guarantee with
respect to the HGP Monroe  Mortgage Loan will be  extinguished  if the principal
amount of such obligation is reduced to $5,000 or less through repayments.

     Additionally,   we  are  a  guarantor  with  respect  to  certain  mortgage
indebtedness  (the "HGP Office  Building  Mortgage")  in the amount of $2,129 on
HGP's corporate office building and related  equipment located in Norton Shores,
Michigan. The HGP Office Building Mortgage matures in August 31, 2003, bears
interest at LIBOR plus 5.50%, and requires monthly debt service payments.

     We have not  recorded  any  liability  related to these  guarantees  and no
claims  have been made  under our  guarantees  with  respect  to the HGP  Monroe
Mortgage  Loan or the HGP Office  Building  Mortgage.  HGP is a publicly  traded
company that was formed in connection  with our merger with Horizon Group,  Inc.
("Horizon") in June 1998.

Prime/Estein Venture Guarantees

     We indirectly  have a 30% ownership  interest in the  Prime/Estein  Venture
which owns three outlet centers (collectively,  the "Prime/Estein  Properties").
The  Prime/Estein  Properties  consist of Prime Outlets at Birch Run (the "Birch
Run Center"),  Prime Outlets at Hagerstown (the  "Hagerstown  Center") and Prime
Outlets at Williamsburg (the  "Williamsburg  Center").  Pursuant to Prime/Estein
Venture-related  documents  to  which  affiliates  of ours are  parties,  we are
obligated  to provide to, or obtain for,  the  Prime/Estein  Venture  fixed-rate
financing at an annual rate of 7.75% (the "Interest Rate Subsidy Agreement") for
the Prime/Estein Venture Properties.

     In August 2001, we, through affiliates,  completed a refinancing of $63,000
of first  mortgage loans secured by the Birch Run Center.  The  refinanced  loan
(the "Birch Run First Mortgage") (i) has a term of 10-years, (ii) bears interest
at an effective rate of 8.12% and (iii) requires  monthly  payments of principal
and  interest  pursuant  to a 25-year  amortization  schedule.  Pursuant  to the
Interest  Rate Subsidy  Agreement,  we are  required to pay to the  Prime/Estein
Venture the  difference  between the cost of the financing at an assumed rate of
7.75% and the actual  cost of such  financing  at the annual  rate of 8.12% (the
"Interest Rate Subsidy Obligation").  The net present value of the Interest Rate
Subsidy  Obligation  (included in accounts payable and other  liabilities in the
Consolidated Balance Sheet) was $1,382 as of June 30, 2003.

     In October 2001, we,  through  affiliates,  completed the  refinancing of a
$32,500 first mortgage loan secured by the  Williamsburg  Center.  The new first
mortgage loan (the  "Williamsburg  First  Mortgage") (i) has a term of 10-years,
(ii) bears interest at a fixed-rate of 7.69% and (iii) requires monthly payments
of principal and interest pursuant to a 25-year amortization schedule.  Pursuant
to the Interest Rate Subsidy Agreement,  the Prime/Estein Venture is required to
pay to us the difference between the cost of the financing at an assumed rate of
7.75% and the actual cost of such financing at the annual rate of 7.69%.

<PAGE>
                                  Page - (41)


     On January 11,  2002,  we sold the  Hagerstown  Center to the  Prime/Estein
Venture.  In connection  with the sale,  the  Prime/Estein  Venture  assumed the
Hagerstown  First Mortgage in the amount of $46,862;  however,  our guarantee of
such indebtedness remains in place. Additionally,  we are obligated to refinance
the Hagerstown First Mortgage on behalf of the Prime/Estein Venture on or before
June 1, 2004, the date on which such  indebtedness  matures.  Additionally,  the
Prime/Estein Venture's cost of the Hagerstown First Mortgage and any refinancing
of it are  fixed at an annual  rate of 7.75%  for a period  of 10 years.  If the
actual  cost of such  indebtedness  should  exceed  7.75% at any time during the
10-year period,  we will be obligated to pay the difference to the  Prime/Estein
Venture.  If the actual cost of such indebtedness is less than 7.75% at any time
during the 10-year period,  however,  the Prime/Estein Venture will be obligated
to pay the difference to us. The actual cost of the Hagerstown First Mortgage is
30-day LIBOR plus 1.50%,  or 2.62% as of June 30, 2003.  Because the  Hagerstown
First  Mortgage  bears interest at a variable rate, we are exposed to the impact
of interest  rate  changes.  We have not recorded any  liability  related to our
guarantee of the Hagerstown First Mortgage; however, in connection with the sale
of the Hagerstown  Center,  we  established a reserve for estimated  refinancing
costs in the amount of $937,  which is included  in  accounts  payable and other
liabilities in the Consolidated  Balance Sheet as of June 30, 2003. See Note 3 -
"Property  Dispositions" of the Notes to Consolidated  Financial  Statements for
additional information.

Second Horizon First Mortgage Loan

     In  April  1998,  Horizon  consummated  an  agreement  with  Castle & Cooke
Properties,  Inc. ("CCP") which released Horizon from future obligations under a
long-term  lease of the Dole  Cannery  outlet  center in  Honolulu,  Hawaii.  In
connection  with an amendment of the Second  Horizon Group  Limited  Partnership
("Second  Horizon")  agreement (the "Amended  Partnership  Agreement"),  Horizon
transferred to an affiliate of CCP (the "CCP  Affiliate")  substantially  all of
Horizon's economic interest, but not legal title, in an outlet center (the "Lake
Elsinore Center") in Lake Elsinore,  California. The Lake Elsinore Center is one
of five properties  owned by Second Horizon which jointly and severally secure a
non-recourse,  first mortgage loan (the "Second Horizon  Mortgage  Loan").  As a
result of our merger with Horizon in June 1998, we own the economic interests of
the other four properties (the "Prime  Properties")  and legal title to all five
entities. The outstanding balance of the Second Horizon Mortgage Loan as of June
30, 2003 was $94,586, of which $66,486 was allocated to the Prime Properties and
is included in notes  payable in our  Consolidated  Balance Sheet as of June 30,
2003. The remaining $28,100 outstanding as of June 30, 2003 was allocated to the
Lake Elsinore Center.

     We, through our affiliates,  assumed certain  obligations under the Amended
Partnership  Agreement  with  respect to the  Second  Horizon  Mortgage  Loan in
connection  with our merger  with  Horizon in June  1998.  Specifically,  we are
obligated  to  contribute  sufficient  capital to Second Horizon (i) for certain
operating  expenses associated  with the Prime  Properties  and  (ii) to satisfy
the  outstanding balances of the allocated loan amounts for the Prime Properties
under the Second  Horizon  Mortgage Loan (including any associated  expenses) to
enable the  Second  Horizon  Mortgage  Loan to be repaid in full at its optional
prepayment  date of October 11, 2006.  CCP Affiliate and its parent  company are
similarly  obligated with  respect to  the Lake Elsinore Center.  No claims have
been  made  with  respect  to  these  obligations  and  we have not recorded any
liability  related to these obligations as of June 30, 2003.

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                                  Page - (42)


Mandatory Redemption Obligation

     On July 26, 2002,  we sold the Bridge  Properties  to the PFP  Venture.  In
connection  with the  sale,  we  guaranteed  FRIT  PRT  Bridge  Acquisition  LLC
("FRIT"),  a third-party joint venture partner,  (i) a 13% return on its initial
$17,236 of invested  capital and (ii) the full  return of its  invested  capital
(the  "Mandatory  Redemption  Obligation")  by December 31, 2003. As of June 30,
2003,  our Mandatory  Redemption  Obligation  with respect to the full return of
FRIT's  invested  capital was $14,888  (included  in accounts  payable and other
liabilities  in  the  Consolidated  Balance  Sheet).  See  "Going  Concern"  for
additional information.

Going Concern

     Our liquidity  depends on cash provided by operations and potential capital
raising  activities  such as funds  obtained  through  borrowings,  particularly
refinancing of existing debt, and cash generated  through asset sales.  Although
we believe that  estimated  cash flows from  operations  and  potential  capital
raising  activities will be sufficient to satisfy our scheduled debt service and
other  obligations and sustain our operations for the next year, there can be no
assurance  that we will be successful in obtaining the required  amount of funds
for these items or that the terms of the potential  capital raising  activities,
if they should  occur,  will be as  favorable  as we have  experienced  in prior
periods.

     During 2003,  our Mega Deal Loan is  anticipated to mature with an optional
prepayment date on November 11, 2003. The Mega Deal Loan,  which is secured by a
13 property collateral pool, had an outstanding principal balance of $262,083 as
of June 30,  2003  and  will  require  a  balloon  payment  of  $260,681  at the
anticipated  maturity  date.  If the  Mega  Deal  Loan is not  satisfied  at the
optional prepayment date, its interest rate will increase by 5.0% to 12.782% and
all excess  cash flow from the 13 property  collateral  pool will be retained by
the lender and applied to  principal  after  payment of  interest.  As discussed
below, certain restrictions have been placed upon us with respect to refinancing
the Mega Deal Loan in the short term.  If the Mega Deal Loan is not  refinanced,
the loss of cash flow from the 13 property collateral pool would eventually have
severe consequences on our ability to fund our operations.

     Based on our discussions  with various  prospective  lenders,  we believe a
potential  shortfall will likely occur with respect to refinancing the Mega Deal
Loan  as we do  not  currently  intend  to  refinance  all  of  the  13  assets.
Nevertheless,  we believe this  shortfall  can be alleviated  through  potential
asset sales and/or other capital raising activities,  including the placement of
mezzanine  level debt and mortgage debt on at least one of the asssets we do not
currently  plan on  refinancing.  We caution that our  assumptions  are based on
current  market  conditions  and,  therefore,  are subject to various  risks and
uncertainties,  including  changes in economic  conditions  which may  adversely
impact our ability to refinance  the Mega Deal Loan at  favorable  rates or in a
timely  and  orderly  fashion  and which may  adversely  impact  our  ability to
consummate various asset sales or other capital raising activities.

<PAGE>
                                  Page - (43)


     On July 8, 2003 an affiliate of The Lightstone  Group,  LLC  ("Lightstone")
and us entered into a merger agreement (the "Merger Agreement").  (See Note 10 -
"Merger Agreement" for additional information.) In connection with the execution
of the Merger Agreement,  certain restrictions were placed on us with respect to
the  refinancing of the Mega Deal Loan.  Specifically,  we are  restricted  from
negotiating  or discussing the  refinancing of the properties  securing the Mega
Deal Loan with any lenders  until  September 15, 2003, at which time we are only
able to enter into  refinancing  discussions  with certain  enumerated  lenders.
After  November  11,  2003,  we may seek  refinancing  from  other  lenders.  In
addition, we are precluded from closing any loans relating to the Mega Deal Loan
until  November 11,  2003.  This  November  11, 2003 date may be extended  until
January 11, 2004, at the election of Lightstone,  if Lightstone  elects prior to
September 15, 2003 to (i) pay (A) one-half of the additional  interest  incurred
by us between  November  11,  2003 and  December  31,  2003,  and (B) all of the
additional interest incurred by us between January 1, 2004 and January 11, 2004,
if so extended,  in respect of the Mega Deal Loan and (ii) loan us any shortfall
in cash flow that  results  from the excess cash flow  restrictions  (all excess
cash flow from the 13  property  collateral  pool will be retained by the lender
and applied to principal  after  payment of  interest)  under the Mega Deal Loan
that become  effective on November 11, 2003 and  thereafter  until the Mega Deal
Loan is paid in full.

     In addition to the restrictions with respect to the refinancing of the Mega
Deal Loan discussed  above,  pursuant to the terms of the Merger  Agreement,  we
have also  agreed to certain  conditions  pending  the  closing of the  proposed
transaction.  These conditions provide for certain  restrictions with respect to
our operating and refinancing  activities (see Note 10 - "Merger  Agreement" for
additional information). These restrictions could adversely affect our liquidity
in  addition  to our  ability  to  refinance  the Mega Deal Loan in a timely and
orderly fashion.

     If the Merger Agreement is terminated under certain circumstances, we would
be required to make payments to  Lightstone  ranging from $3,500 to $6,000 which
could adversely  affect our liquidity.  See Note 10 - "Merger  Agreement" of the
Notes to Consolidated Financial Statements for additional information.

     In connection  with the completion of the sale of the Bridge  Properties in
July 2002,  we  guaranteed  to FRIT (i) a 13% return on its  $17,236 of invested
capital,  and (ii) the full return of the  Mandatory  Redemption  Obligation  by
December 31, 2003.  As of June 30, 2003,  the  Mandatory  Redemption  Obligation
(included in accounts payable and other liabilities in the Consolidated  Balance
Sheet) was $14,888.

     We continue to seek to generate additional liquidity to repay the Mandatory
Redemption  Obligation  through (i) the sale of FRIT's ownership interest in the
Bridge  Properties  and/or (ii) the placement of additional  indebtedness on the
Bridge  Properties.  There can be no assurance  that we will be able to complete
such  capital  raising  activities  by December  31,  2003 or that such  capital
raising  activities,  if they should occur, will generate sufficient proceeds to
repay  the  Mandatory  Redemption  Obligation  in full.  Failure  to  repay  the
Mandatory Redemption Obligation by December 31, 2003 would constitute a default,
which would enable FRIT to exercise  its rights with  respect to the  collateral
pledged  as  security  to the  guarantee,  including  some  of  our  partnership
interests in the 13 property  collateral pool under the aforementioned Mega Deal
Loan.  Because the  Mandatory  Redemption  Obligation  is secured by some of our
partnership  interests  in the 13 property  collateral  pool under the Mega Deal
Loan, we may be required to repay the Mandatory Redemption Obligation before, or
in connection  with, the  refinancing of the Mega Deal Loan.  Additionally,  any
change in  control  with  respect to us  accelerates  the  Mandatory  Redemption
Obligation.

<PAGE>
                                  Page - (44)


     In connection  with the execution of the Merger  Agreement,  Lightstone has
agreed to provide  sufficient  financing,  if necessary,  to repay the Mandatory
Redemption  Obligation  in full at its maturity.  The new financing  would be at
substantially  similar economic terms and conditions as those currently in place
for the Mandatory Redemption Obligation and would have a one-year term. See Note
10 - "Merger Agreement" for additional information.

     We have fixed rate tax-exempt  revenue bonds  collateralized  by properties
located in Chattanooga,  Tennessee (the  "Chattanooga  Bonds") which contain (i)
certain  covenants,  including a minimum  debt-service  coverage ratio financial
covenant (the  "Financial  Covenant")  and (ii)  cross-default  provisions  with
respect to certain of our other credit  agreements.  Based on the  operations of
the collateral properties, we were not in compliance with the Financial Covenant
for the quarters ended June 30, September 30 and December 31, 2002. In the event
of  non-compliance  with the Financial  Covenant or default,  the holders of the
Chattanooga Bonds (the "Bondholders") had the ability to put such obligations to
us at a price  equal to par plus  accrued  interest.  On January  31,  2003,  we
entered into an agreement (the  "Forbearance  Agreement")  with the Bondholders.
The Forbearance  Agreement provides  amendments to the underlying loan and other
agreements that enable us to be in compliance with various financial  covenants,
including  the  Financial  Covenant.  So long as we  continue to comply with the
provisions of the Forbearance  Agreement and are not otherwise in default of the
underlying  loan and other  documents  through  December 31,  2004,  the revised
financial  covenants  will  govern.   Additionally,   certain  quarterly  tested
financial covenants and other covenants become effective June 30, 2004. Pursuant
to the terms of the Forbearance Agreement,  we were required to fund $1,000 into
an escrow  account to be used for  conversion  of certain of the retail space in
the  collateral  properties  to office space and agreed that an event of default
with respect to the other debt  obligations  related to the property  would also
constitute a default under the Chattanooga Bonds. We funded this required escrow
in February 2003. The outstanding  balance of the Chattanooga  Bonds was $17,920
as of June 30, 2003.

     With respect to the Chattanooga Bonds, based on our current projections, we
believe  we will not be  compliance  with  certain  quarterly  tested  financial
covenants  when they become  effective  on June 30, 2004 which would  enable the
Bondholders to elect to put the Chattanooga Bonds to us at their par amount plus
accrued interest. We continue to explore opportunities to (i) obtain alternative
financing from other financial  institutions,  (ii) sell the properties securing
the Chattanooga  Bonds and (iii) explore other possible capital  transactions in
order to generate cash to repay the Chattanooga Bonds. There can be no assurance
that we will be able to  complete  any such  activity  sufficient  to repay  the
amount  outstanding under the Chattanooga Bonds in the event the Bondholders are
able and elect to exercise their put rights.

     These conditions raise substantial doubt about our ability to continue as a
going  concern.  The financial  statements  contained  herein do not include any
adjustment  to reflect the possible  future  effects on the  recoverability  and
classification  of assets or the amounts and  classification of liabilities that
may result from the outcome of these uncertainties.

Dividends and Distributions

     To qualify as a real estate  investment  trust  ("REIT") for federal income
tax purposes,  we are required to pay  distributions to our common and preferred
shareholders  of at  least  90%  of our  REIT  taxable  income  in  addition  to
satisfying  other  requirements.  Although we intend to make  distributions,  if
necessary,  to remain  qualified  as a REIT  under the Code,  we also  intend to
retain such amounts as we consider  necessary  from time to time for our capital
and liquidity needs.

<PAGE>
                                  Page - (45)


     Our policy  remains to pay  distributions  only to the extent  necessary to
maintain our status as a REIT for federal  income tax purposes.  During 2002, we
were not required to pay any  distributions in order to maintain our status as a
REIT and based on our current federal income tax  projections,  we do not expect
to pay any  distributions  during 2003. On August 15, 2003 we will be in arrears
on 15 quarters of preferred  stock  distributions  due February 15, 2000 through
August 15, 2003, respectively.

     We may not make distributions to our common  shareholders or our holders of
common  units of limited  partnership  interests  in the  Operating  Partnership
unless  we  are  current  with  respect  to   distributions   to  our  preferred
shareholders.  As of June 30, 2003, unpaid dividends for the period beginning on
November  16,  1999  through  June 30,  2003 on our  Series A Senior  Cumulative
Preferred  Stock  ("Series A Senior  Preferred  Stock") and Series B  Cumulative
Convertible  Participating  Preferred  Stock  ("Series B  Convertible  Preferred
Stock") aggregated $21,886 and $60,301,  respectively.  The annualized dividends
on our 2,300,000  shares of Series A Senior Preferred Stock and 7,828,125 shares
of Series B  Convertible  Preferred  Stock  outstanding  as of June 30, 2003 are
$6,037 ($2.625 per share) and $16,635 ($2.125 per share), respectively.

Merger Agreement

     In June 2002, we selected  Houlihan  Lokey Howard & Zukin Capital to assist
us in exploring recapitalization,  restructuring,  financing and other strategic
alternatives  designed to  strengthen  our  financial  position  and address our
long-term  capital  requirements.  Costs incurred related to such activities are
reflected in corporate  general and  administrative  expense in the accompanying
Consolidated Statements of Operations.

     On  July  8,  2003,  The  Lightstone  Group,  LLC  ("Lightstone"),   a  New
Jersey-based real estate company,  and us jointly announced that an affiliate of
Lightstone  had  agreed  to  acquire  the  Company  (the   "Transaction").   The
Transaction  will be effected in accordance with the terms of a merger agreement
(the "Merger  Agreement") between Prime Outlets  Acquisition  Company,  LLC (the
"Buyer"),  a  Delaware  limited  liability  company  which  is an  affiliate  of
Lightstone,  and us, which provides for us to be merged with and into the Buyer.
Consummation of the  Transaction is subject to a number of conditions  including
the approval of the  Transaction  and the Merger  Agreement by the holders of at
least  66 2/3% of both  our  Series  A  Senior  Preferred  Stock  and  Series  B
Convertible Preferred Stock, each voting separately as a class, and the approval
of a majority  of our common  shareholders  voting to both amend our charter and
approve the  Transaction  and the Merger  Agreement,  as well as other customary
approvals.

     The Transaction,  which will result in aggregate  consideration of $115,000
payable  to the  our  shareholders  and  unit  holders,  has a  total  value  of
approximately $638,000,  including approximately $523,000 of debt expected to be
assumed by the Buyer.  Under the terms of the Merger  Agreement,  each holder of
our Series A Senior  Preferred  Stock will  receive cash in the amount of $16.25
per share, each holder of our Series B Convertible  Preferred Stock will receive
cash in the amount of $8.66 per share,  and each holder of our common stock will
receive cash in the amount of $0.18 per share.

     Pursuant to the terms of the Merger Agreement, the Buyer and us have agreed
to certain conditions  pending the closing of the Transaction.  These conditions
provide for certain  restrictions  with respect to our operating and refinancing
activities, including our refinancing of the Mega Deal Loan (see Note 4 - "Debt"
of the Notes to Consolidated Financial Statements for additional information).

<PAGE>
                                  Page - (46)


     Our  board  of  directors,  as well as a  special  committee  comprised  of
disinterested members of the board of directors (the "Special Committee"),  have
approved the  Transaction  and the Merger  Agreement  and  recommended  that the
shareholders  vote in favor  of the  resolutions  to be  proposed  at a  special
meeting of our shareholders. Because our charter does not address the allocation
of consideration  among our various classes of capital stock in the Transaction,
such  allocation  was  determined  by the Special  Committee and approved by the
board of  directors.  Houlihan  Lokey Howard & Zukin  Capital acted as financial
advisor to the Special  Committee  and Houlihan  Lokey Howard & Zukin  Financial
Advisors,  Inc.,  an affiliate of Houlihan  Lokey  Howard & Zukin  Capital,  has
provided an opinion to the Special Committee and our board of directors that the
consideration  to be received  by each of the  classes of our stock,  considered
independently,  is fair to such  respective  classes,  from a financial point of
view.

     The  Transaction  is expected to be completed  during the fourth quarter of
2003. Formal documentation  relating to the Transaction and the Merger Agreement
will be sent to our shareholders and limited partners.  This  documentation will
include  notices of the special  meeting and details of the  Transaction and the
Merger Agreement and related matters.

     Concurrent  with the  consummation  of the  Transaction,  the  agreement of
limited  partnership of the Operating  Partnership  will be amended and restated
(the "Amended Partnership  Agreement") pursuant to which holders of common units
in the Operating  Partnership (other than common units held by us) will have the
opportunity  to exchange  all,  but not less than all, of their units for a like
number of preferred units in the Operating Partnership  ("Preferred Unit"). Each
holder of Preferred Units will be entitled to require the Operating  Partnership
to redeem all of such holder's  Preferred  Units for an amount per unit equal to
$0.18 (the  consideration paid for a share of common stock of the Company in the
Transaction) plus accrued and unpaid  distributions at the rate of 6% per annum.
In addition,  the Amended  Partnership  Agreement  contains  certain tax related
provisions  that,  subject  to  certain  exceptions,  will  benefit  holders  of
Preferred Units for a period of seven years  including  restrictions on the sale
of properties and requirements to allocate debt in a certain manner.

     We have agreed to pay the Buyer a termination fee of $4,500,  plus expenses
of  up  to  $1,500,   if  the   Transaction  is  not  completed   under  certain
circumstances,  including our election to pursue an alternative transaction.  In
certain other  circumstances  in which the  Transaction  has not been completed,
including the failure to obtain the shareholder  approval of the Transaction,  a
termination  fee will not be payable but we have agreed to  reimburse  the Buyer
for its expenses up to $3,500.  As  collateral  for these  obligations,  we also
entered into an agreement  with  Lightstone  providing for the assignment of our
rights  to,  and  interest  in, an escrow of  $2,800  which was  established  in
connection  with our sale of Prime Outlets of Puerto Rico in December 2002 to an
affiliate of Lightstone.

     On July 16,  2003,  we  announced  that two  shareholders  (the  "Series  A
Parties") that collectively own  approximately 32% of the outstanding  shares of
Series  A  Senior  Preferred  Stock  have  objected  to  the  allocation  of the
consideration under the Merger Agreement in separate communications to us.

<PAGE>
                                  Page - (47)


     In connection with the Transaction and the events  described above, we have
proposed  to  facilitate  limited  discussions  among  certain of our  preferred
shareholders  to obtain  their  views with  respect to the  Transaction  and the
proposed  allocation of the merger  consideration.  In order to facilitate  such
discussions,  we are providing certain of our preferred shareholders  (including
the Series A Parties) with certain  information  regarding the Transaction.  (We
filed a Current Report on Form 8-K containing this information  under Regulation
FD Disclosure  with the Securities  and Exchange  Commission on August 5, 2003.)
There  can be no  assurances  as to the  timing,  nature  or  outcome  of  these
discussions,  which may include other  shareholders of ours.  Although under the
terms of the Merger  Agreement,  we have the right to modify, at our discretion,
the  allocation of  consideration  among the various  classes of stock until the
mailing of definitive proxy materials, any such modification would be subject to
approval of the Special Committee established in connection with the Transaction
and our board of directors.

Settlement of Tenant Matters

     During 2002, we entered into settlement  agreements with respect to certain
tenant matters providing for aggregate payments of $2,760.  Through December 31,
2002, we made approximately $2,607 of such required payments.  The 2002 payments
were  principally made from certain funds escrowed under a mezzanine loan, which
was repaid in full in December 2002.  The remaining  payment of $153 was made in
January 2003 with cash from operations. These settlement agreements did not have
a material impact on our financial condition or our results from operations.  We
had previously  established  reserves  aggregating  $5,000 for the settlement of
such matters.

Development Activities and Capital Expenditures

     During  2003,   we  will  continue  to  explore   potential   international
opportunities and will selectively  consider  expansion and/or  redevelopment of
certain  of our  existing  outlet  centers.  We do  not  currently  expect  such
activities to have a significant impact on our liquidity or financial condition.

     Additionally,  we expect to incur costs during the remainder of 2003 (i) in
connection  with  releasing  space  to new  tenants  and (ii)  for  repairs  and
maintenance of our properties.  However,  we do not expect such  expenditures to
have a  significant  impact on our  liquidity  or  financial  condition  because
reserves for such costs are paid monthly into escrow  accounts under many of our
loans.

Recent Accounting Pronouncements

     In  December  2002,  the  FASB  issued   Interpretation   ("FIN")  No.  45,
"Guarantor's  Accounting and Disclosure  Requirements for Guarantees,  Including
Indirect  Guarantees  of  Indebtedness  of Others." FIN No. 45 elaborates on the
disclosures to be made by a guarantor in interim and annual financial statements
about the obligations under certain guarantees. FIN No. 45 also clarifies that a
guarantor  is required to  recognize,  at the  inception  of the  guarantee,  an
initial liability for the fair value of the obligation undertaken in issuing the
guarantee. The disclosure requirements of FIN No. 45 are effective for financial
statements  of interim or annual  periods  ending after  December  15, 2002.  We
adopted the disclosure provisions of FIN No. 45 effective December 31, 2002. The
initial  recognition  and  initial  measurement  provisions  of FIN  No.  45 are
applicable  on a  prospective  basis to  guarantees  issued  or  modified  after
December  31,  2002.  We did not issue or modify any  guarantees  during the six
months ended June 30, 2003. See  "Guarantees  and Guarantees of  Indebtedness of
Others"  contained  in Note 4 - "Debt"  of the Notes to  Consolidated  Financial
Statements for additional information.

<PAGE>
                                  Page - (48)


     In January  2003,  the FASB issued FIN No. 46,  "Consolidation  of Variable
Interest  Entities." FIN No. 46 clarifies the application of existing accounting
pronouncements  to certain  entities in which  equity  investors do not have the
characteristics  of a controlling  financial  interest or do not have sufficient
equity at risk for the  entity to  finance  its  activities  without  additional
subordinated  financial support from other parties. The provisions of FIN No. 46
were  immediately  effective  for all variable  interests  in variable  interest
entities  created  after  January  31,  2003,  and we  will  need to  apply  the
provisions of FIN No. 46 to any existing variable interests in variable interest
entities by no later than July 1, 2003. We did not create any variable  interest
entities  during the six months  ended June 30, 2003 and we do not believe  that
FIN No. 46 will have a significant impact on our financial statements.

     In May 2003, the FASB issued FAS No 150,  "Accounting for Certain Financial
Instruments  with  Characteristics  of both Liabilities and Equity." FAS No. 150
establishes  standards  for  how  an  issuer  classifies  and  measures  certain
financial  instruments with  characteristics  of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some  circumstances).  Many of these  instruments
were  previously  classified as equity.  FAS No. 150 is generally  applicable to
financial instruments entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period  beginning  after June
15, 2003. It is to be implemented by reporting the cumulative effect of a change
in accounting principle for financial instruments created before the issuance of
FAS No.  150 and  still  existing  at the  beginning  of the  interim  period of
adoption.  We will  adopt FAS No.  150 in the third  quarter  of 2003 and do not
believe the  implementation of FAS No. 150 will have a significant impact on our
financial statements.

Risk Management Activities

     We are subject to various market risks and  uncertainties,  including,  but
not limited to, the effects of current and future economic  conditions,  and the
resulting impact on our tenants' sales and our revenue; the effects of increases
in market interest rates from current levels (see below);  the risks  associated
with existing vacancy rates or potential  increases in vacancy rates because of,
among other factors,  tenant bankruptcies and store closures,  and the resulting
impact on our revenue;  and risks  associated with  refinancing our current debt
obligations  or obtaining new financing  under terms less favorable than we have
experienced in prior periods.

Interest Rate Risk

     In the  ordinary  course  of  business,  we are  exposed  to the  impact of
interest rate changes.  We employ established  policies and procedures to manage
our exposure to interest rate changes. Historically, we have used a mix of fixed
and  variable-rate  debt to (i) limit the impact of interest rate changes on our
results  from  operations  and cash flows and (ii) lower our  overall  borrowing
costs. In certain cases, we have used derivative  financial  instruments such as
interest rate protection agreements to manage interest rate risk associated with
variable-rate  indebtedness.  Nevertheless,  as of  June  30,  2003,  all of our
outstanding   indebtedness   bore  interest  at  fixed  rates.   See  Item  3  -
"Quantitative  and Qualitative  Disclosures  About Material Risk" for additional
information.  Also see  "Guarantees  of Debt and  Indebtedness  of  Others"  for
additional information.

<PAGE>
                                  Page - (49)


Economic Conditions

     In general,  the leases  relating to our outlet centers have terms of three
to five years and most contain  provisions that somewhat  mitigate the impact of
inflation.  Such provisions include clauses providing for increases in base rent
and clauses  enabling us to receive  percentage rents for annual sales in excess
of certain  thresholds  based on  merchants'  gross sales.  In  addition,  lease
agreements generally provide for (i) the recovery of a merchant's  proportionate
share of actual  costs of  common  area  maintenance  ("CAM"),  refuse  removal,
insurance,  and real estate  taxes,  (ii) a  contribution  for  advertising  and
promotion and (iii) an administrative fee. CAM includes items such as utilities,
security, parking lot cleaning,  maintenance and repair of common areas, capital
replacement  reserves,   landscaping,   seasonal  decorations,  public  restroom
maintenance  and certain  administrative  expenses.  We continually  monitor our
lease provisions in light of current and expected economic  conditions and other
factors.  In this regard,  we may consider  alternative  lease provisions (e.g.,
fixed CAM) where appropriate.

Funds from Operations

     Industry  analysts  generally  consider funds from operations  ("FFO"),  as
defined by the National Association of Real Estate Investment Trusts ("NAREIT"),
an  alternative  non-GAAP  measure of  performance  of an equity REIT.  In 1991,
NAREIT  adopted its  definition of FFO. This  definition  was clarified in 1995,
1999 and  2002.  FFO is  currently  defined  by  NAREIT  as net  income  or loss
(computed in accordance  with GAAP),  excluding  gains or losses from provisions
for  asset  impairment  and  sales  of  depreciable  operating  property,   plus
depreciation and  amortization  (other than  amortization of deferred  financing
costs and  depreciation  of non-real  estate  assets) and after  adjustment  for
unconsolidated  partnerships and joint ventures and discontinued operations. FFO
includes   non-recurring   events,   except  for  those  that  are   defined  as
"extraordinary  items" in accordance with GAAP. FFO excludes the earnings impact
of  "cumulative  effects of  accounting  changes" as defined by GAAP.  Effective
January  1,  2002,  FFO  related  to  assets  held for sale,  sold or  otherwise
transferred  and included in results of  discontinued  operations (in accordance
with the requirements of FAS No. 144) should continue to be included in FFO.

     We believe that FFO is an important and widely used non-GAAP measure of the
operating  performance of REITs,  which provides a relevant basis for comparison
to other REITs. Therefore, FFO is presented to assist investors in analyzing our
performance.  Our FFO is not  comparable  to FFO reported by other REITs that do
not define the term using the current  NAREIT  definition or that  interpret the
current NAREIT definition differently than we do. Therefore, we caution that the
calculation of FFO may vary from entity to entity and, as such the  presentation
of FFO by us may not be comparable to other  similarly  titled measures of other
reporting companies.  We believe that to facilitate a clear understanding of our
operating  results,  FFO  should be  examined  in  conjunction  with net  income
determined in accordance  with GAAP.  FFO does not represent cash generated from
operating  activities in accordance with GAAP and should not be considered as an
alternative  to net income as an indication of our  performance or to cash flows
as a measure of liquidity or ability to make distributions.

     FFO was $5,988 for the three months ended June 30, 2003  compared to $2,256
for the same period in 2002. The second quarter of 2003 FFO results include $989
of net interest expense attributable to mortgage  indebtedness that was defeased
in December 2002. This net interest  expense had no impact on our operating cash
flow during 2003 because such  payments  were made from  previously  established
escrows. FFO adjusted ("Adjusted FFO") to exclude the impact of the net interest
expense attributable to the defeased indebtedness was $6,977.

<PAGE>
                                  Page - (50)


     FFO was $11,142 for the six months  ended June 30, 2003  compared to $9,219
for the same period in 2002. The 2003 FFO results include $1,953 of net interest
expense  attributable  to mortgage  indebtedness  that was  defeased in December
2002. This net interest  expense had no impact on our operating cash flow during
2003  because  such  payments  were made from  previously  established  escrows.
Adjusted FFO, which excludes the impact of the net interest expense attributable
to the defeased indebtedness, was $13,095.

     The increases in our Adjusted FFO results during the 2003 periods  compared
to our FFO  results  for the same  periods in 2002 also  reflects  (i)  interest
savings  attributable  to the  repayment of  indebtedness,  (ii) the  previously
discussed non-recurring charge of $3,000 in the second quarter of 2002 and (iii)
reduced bad debt expense. These items were partially offset by (i) the impact of
reduced  weighted-average  portfolio occupancy during the 2003 periods, (ii) the
impact of changes in economic  rental rates and (iii) the loss of net  operating
income  resulting from the  dispositions  of properties  during 2002,  partially
offset by interest savings attributable to the repayment of indebtedness.

     TABLE 5 provides a reconciliation of loss from continuing operations to FFO
and Adjusted FFO for the three and six months ended June 30, 2003 and 2002.

Table 5 - Funds from Operations

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                     Three Months Ended                    Six Months Ended
                                                                         June 30,                              June 30,
                                                              -----------------------------------   --------------------------------
                                                                      2003              2002              2003               2002
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                               <C>               <C>                <C>               <C>
Loss from continuing operations                                   $ (8,504)         $ (20,629)         $ (10,793)        $ (10,218)
Adjustments:
  Loss (gain) on sale of real estate                                     -             10,991                  -            (5,802)
  Provision for asset impairment                                     6,590                  -              6,590                 -
  Depreciation and amortization                                      7,281              9,214             14,561            19,422
  Non-real estate depreciation and amortization                       (745)              (538)            (1,277)           (1,092)
  Unconsolidated joint ventures' adjustments                         1,366                963              2,061             1,746
  Discontinued operations                                                -              2,255                  -             5,163
                                                                  --------          ---------          ---------         ---------
FFO per NAREIT Definition                                            5,988              2,256             11,142             9,219
  Defeased debt adjustment(1)                                          989                  -              1,953                 -
                                                                  --------          ---------          ---------         ---------
Adjusted FFO                                                      $  6,977          $   2,256          $  13,095         $   9,219
                                                                  ========          =========          =========         =========

Other Data:
Net cash provided by operating activities                         $  1,347          $   5,268          $   3,998         $   9,936
Net cash provided by (used in) investing activities                 (1,817)             9,095             (1,190)           19,671
Cash used in financing activities                                   (1,758)           (15,252)            (3,708)          (31,943)
====================================================================================================================================

</TABLE>
Note:
(1)  In December  2002,  we partially  defeased our Mega Deal Loan in connection
     with  the  sale  of  the  Colorado  Properties.   In  connection  with  the
     defeasance, we purchased US Treasury Securities,  which are maintained in a
     Trustee  Escrow.  All debt  service due under the  Defeased  Notes  Payable
     during the 2003 periods was made from the Trustee Escrow.  During the three
     and six months  ended June 30,  2003,  the  interest  income  earned on the
     Trustee Escrow was $517 and $1,042, respectively,  and the interest expense
     on the Defeased  Notes Payable was $1,506 and $2,995,  respectively,  which
     are  included  in  our  results  from   operations   in  the   accompanying
     Consolidated  Statements  of  Operations.  These items had no impact on our
     operating cash flow during 2003 because the cash settlement with respect to
     the Defeased  Notes Payable  occurred  during 2002 and all payments made in
     2003 were from restricted cash.  Accordingly,  we believe it is appropriate
     to adjust for them in our Adjusted FFO calculation.

<PAGE>
                                  Page - (51)


Item 3.  Quantitative and Qualitative Disclosures of Market Risk


Market Risk Sensitivity

     We are subject to various market risks and  uncertainties,  including,  but
not limited to, the effects of current and future economic  conditions,  and the
resulting  impact on our revenue;  the effects of  increases in market  interest
rates from  current  levels (see  below);  the risks  associated  with  existing
vacancy  rates or potential  increases in vacancy  rates because of, among other
factors, tenant bankruptcies and store closures, and the resulting impact on our
revenue;  and risks  associated with refinancing our current debt obligations or
obtaining new financing  under terms less favorable than we have  experienced in
prior periods.

Interest Rate Risk

     In the  ordinary  course  of  business,  we are  exposed  to the  impact of
interest rate changes.  We employ established  policies and procedures to manage
our exposure to interest rate changes. Historically, we have used a mix of fixed
and  variable-rate  debt to (i) limit the impact of interest rate changes on our
results  from  operations  and cash flows and (ii) lower our  overall  borrowing
costs.  Nevertheless,  as of June 30, 2003, all of our outstanding  indebtedness
bore  interest  at fixed  rates.  The  following  table  provides  a summary  of
principal cash flows, excluding (i) unamortized debt premiums of $6,910 and (ii)
non-recourse  mortgage  indebtedness  aggregating  $41,250 on certain properties
which  is  in  default   (see   "Defaults  on  Certain   Non-recourse   Mortgage
Indebtedness" within "Liquidity and Capital Resources" of Item 2 - "Management's
Discussion and Analysis of Financial  Condition and Results of  Operations"  for
additional  information),  and related contractual interest rates by fiscal year
of  maturity.  See  Note 4 -  "Debt"  of the  Notes  to  Consolidated  Financial
Statements contained herein for additional information with respect to the terms
of our debt instruments.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                     Year of Maturity
------------------------------------------------------------------------------------------------------------------------------------
                                        2003           2004          2005          2006           2007     Thereafter         Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                                <C>              <C>          <C>          <C>              <C>           <C>          <C>
Bonds Payable
Principal                          $     591        $   726      $    773     $     820        $   878       $ 18,618     $  22,406
Average interest rate                  6.61%          6.34%         6.34%         6.34%          6.34%          6.52%         6.50%

Notes Payable
Principal                          $ 263,524        $ 4,571      $ 11,574     $ 120,437        $ 1,002       $ 57,995     $ 459,103
Average interest rate                  7.79%          7.97%         8.58%         8.83%          7.60%          7.59%         8.06%

Defeased Notes Payable
Principal                          $  74,280                                                                              $  74,280
Average interest rate                  7.78%                                                                                  7.78%

====================================================================================================================================
</TABLE>
<PAGE>
                                  Page - (52)


     We sold Prime Outlets at Hagerstown  (the  "Hagerstown  Center") on January
11, 2002 to an existing joint venture partnership (the "Prime/Estein  Venture").
In connection with the sale, the Prime/Estein Venture assumed the first mortgage
loan on the Hagerstown Center (the "Hagerstown First Mortgage") in the amount of
$46,862;   however,  our  guarantee  of  such  indebtedness  remains  in  place.
Additionally,  we are obligated to refinance the  Hagerstown  First  Mortgage on
behalf of the Prime/Estein  Venture on or before June 1, 2004, the date on which
such  indebtedness  matures.  The Prime/Estein  Venture's cost of the Hagerstown
First  Mortgage and any  refinancing  of it are fixed at an annual rate of 7.75%
for a period of 10 years. If the actual cost of such indebtedness  should exceed
7.75% at any time during the 10-year  period,  we will be  obligated  to pay the
difference to the Prime/Estein  Venture. If the actual cost of such indebtedness
is less  than  7.75%  at any  time  during  the  10-year  period,  however,  the
Prime/Estein  Venture will be obligated to pay the  difference to us. The actual
cost of the Hagerstown First Mortgage is 30-day LIBOR plus 1.50%, or 2.62% as of
June 30,  2003.  Because  the  Hagerstown  First  Mortgage  bears  interest at a
variable  rate, we are exposed to the impact of interest  rate changes.  At June
30, 2003, a hypothetical 100 basis point move in the LIBOR rate would impact our
guarantee by $469.  See Note 4 - "Debt" of the Notes to  Consolidated  Financial
Statements for additional information.

Item 4.  Controls and Procedures

(a)  Evaluation of Disclosure Controls and Procedures

     We have conducted an evaluation  of the  effectiveness  of  our  disclosure
     controls  and  procedures  (as  defined in Rules  13a-15(e)  and  15d-15(e)
     promulgated  under the  Securities and Exchange Act of 1934, as amended) as
     of the end of the  period  covered by this  quarterly  report on Form 10-Q,
     which  was  conducted  with the  participation  of our  Chairman  and Chief
     Executive  Officer along with our President,  Chief  Financial  Officer and
     Treasurer,  Because of the inherent  limitations in all control systems, no
     evaluation  of controls  can provide  absolute  assurance  that all control
     issues  and  instances  of fraud,  if any,  within  the  Company  have been
     detected.  However,  based upon the evaluation,  the Company's Chairman and
     Chief Executive Officer along with the Company's President, Chief Financial
     Officer and Treasurer concluded that, subject to the limitations  described
     above, the Company's  disclosure controls and procedures are effective.  In
     addition, they concluded that there were no significant deficiencies in the
     design or operations of internal controls, which could significantly affect
     our ability to record, process, summarize and report financial data.

(b)  Changes in Internal Controls

     There was no significant  change in our internal  controls  over  financial
     reporting that occurred  during the fiscal  quarter  covered by this report
     that has materially affected, or is reasonably likely to materially affect,
     our internal controls over financial reporting.

<PAGE>
                                  Page - (53)


                           PART II: OTHER INFORMATION

Item 1. Legal Proceedings

For a description of legal proceedings  involving us and our properties,  please
see Part I, Item 3 - "Legal  Proceedings"  of our Annual Report on Form 10-K for
the year ended December 31, 2002 and Note 6 - "Legal  Proceedings"  of the Notes
to Consolidated Financial Statements contained herein. The following information
updates such disclosure.

Several  entities (the  "eOutlets  Plaintiffs")  filed or stated an intention to
file  lawsuits  (collectively,  the  "eOutlets  Lawsuits")  against  us and  our
affiliates  arising out of our on-line  venture,  primeoutlets.com.  inc.,  also
known as  eOutlets,  an  affiliate  of ours.  primeoutelts.com,  inc.  filed for
protection  under Chapter 7 of the United States  Bankruptcy Code in November of
2000 under the name E-Outlets  Resolution  Corp.  (the  "Debtor").  The eOutlets
Plaintiffs sought to hold us and our affiliates  responsible under various legal
theories for  liabilities  incurred by  primeoutlets.com,  inc.,  including  the
theories that we  guaranteed  the  obligations  of eOutlets and that we were the
"alter-ego"  of  eOutlets.  Other  than the suit filed on  November  5, 2002 and
discussed  below,  these eOutlets  Lawsuits against us have been resolved or are
now barred by the applicable statute of limitations or otherwise. On November 5,
2002, the  bankruptcy  trustee for the Debtor brought suit against Prime Retail,
L.P.,  Prime  Retail,  Inc.,  and Prime  Retail  E-Commerce,  Inc.  (the "Entity
Defendants")  and  certain  former  directors  of the  Debtor  (the  "Individual
Defendants"). The Trustee has asserted claims of alter ego, promissory estoppel,
breach of  contract,  breach  of  fiduciary  duty,  tortious  interference  with
prospective business advantage, unjust enrichment and quantum meruit against the
Entity Defendants and breach of fiduciary duty and gross negligence  against the
individual  defendants.  We  have  tendered  the  suit,  both  as to the  Entity
Defendants and Individual Defendants,  to the Directors' and Officers' insurance
carrier.  Motions to dismiss  the suit have been  filed by all  Defendants.  All
Defendants  believe  the  suit  is  without  merit  and  plan  on  defending  it
vigorously.  Nevertheless,  the  outcome  of  this  lawsuit,  and  the  ultimate
liability of us, if any, cannot be predicted at this time.

Item 3. Defaults Upon Senior Securities

We are currently in arrears in the payment of  distributions on our 10.5% Series
A Senior Cumulative Preferred Stock ("Series A Senior Preferred Stock") and 8.5%
Series  B  Cumulative  Participating  Convertible  Preferred  Stock  ("Series  B
Convertible  Preferred Stock").  As of June 30, 2003, the aggregate arrearage on
the Series A Senior Preferred Stock and the Series B Convertible Preferred Stock
was approximately $21.9 million and approximately $60.3 million, respectively.

<PAGE>
                                  Page - (54)


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

(a)  The Annual Meeting of Stockholders of Prime Retail,  Inc. were held on June
     10, 2003. At the meeting, the following matters were submitted to a vote:

        (1)  The  common  stockholders of Prime Retail, Inc. were asked to elect
             two  directors  to  hold  office  until  the 2006 Annual Meeting of
             Stockholders. The vote with respect to each nominee was as follows:

                  Nominee                      For                  Withheld

                  Glenn D. Reschke          40,671,184              1,530,361
                  Michael W. Reschke        40,648,180              1,553,167

        (2)  The  holders  of  Series A  Senior  Preferred  Stock  and  Series B
             Convertible Preferred Stock, voting together as a class, were asked
             to elect two directors to hold office until the 2006 Annual Meeting
             of  Stockholders  or,  if  earlier,  the  date  on  which  the full
             dividends accumulated  on all outstanding shares of preferred stock
             have  been  paid in full  or declared and a sum of money sufficient
             the  payment  thereof  set  aside  for  payment.  A  quorum was not
             present, in person or by proxy,  at the meeting with respect to the
             holders of Series A Senior Preferred Stock and Series B Convertible
             Preferred Stock. The meeting was initially adjourned until June 24,
             2003  and then again until June 30, 2003 for the limited purpose of
             enabling   the   Company's  preferred  stockholders  to  elect  two
             directors.  On June 27, 2003, the Company postponed the meeting for
             a lack of a quorum.



Item 6. Exhibits and Reports on Form 8-K

(a) The following exhibits are included in this Quarterly Report on Form 10-Q:


         Exhibit 31.1      Certification of Glenn D. Reschke pursuant to Section
                           302  of  the Sarbanes-Oxley Act of 2002, dated August
                           14, 2003.

         Exhibit 31.2      Certification    of   Robert A. Brvenik  pursuant  to
                           Section 302 of  the Sarbanes-Oxley Act of 2002, dated
                           August 14, 2003.

         Exhibit 32.1      Certification of Glenn D. Reschke pursuant to Section
                           1350, Chapter 63  of Title 18, United States Code, as
                           adopted pursuant to Section 906 of the Sarbanes-Oxley
                           Act of 2003, dated as of August 14, 2003.

         Exhibit 32.2      Certification   of   Robert A. Brvenik   pursuant  to
                           Section 1350, Chapter 63  of  Title 18, United States
                           Code,  as  adopted  pursuant  to  Section 906  of the
                           Sarbanes-Oxley  Act  of  2003, dated as of August 14,
                           2003.

         Reports on Form 8-K:

         On June 30, 2003,  we filed a Current Report on Form 8-K dated June 29,
         2003, under Item 9, Regulation FD Disclosure. The filing included as an
         exhibit, a  press  release  we  issued  on  June 29, 2003 regarding our
         disclosure of  limited  discussions  among  certain  of  our restricted
         preferred shareholders.*

<PAGE>
                                  Page - (55)


         On  July 9, 2003,  we  filed a Current Report on Form 8-K dated July 8,
         2003, under Item 5,  Other  Events,  relating to the joint announcement
         between   us  and  The  Lightstone  Group, LLC  ("Lightstone"),  a  New
         Jersey-based  real  estate  company,  providing  for  an  affiliate  of
         Lightstone to acquire us  (the "Transaction").  The Transaction will be
         effected in  accordance  with  the  terms  of  an agreement and plan of
         merger (the "Merger Agreement") dated as of  July 8, 2003 between Prime
         Outlets  Acquisition  Company,  LLC  (the "Buyer),  a  Delaware limited
         liability  company which is an affiliate of Lightstone,  and us,  which
         provides  for  us  to  be  merged  with  and into the Buyer. The filing
         included as  exhibits:  (i) a copy of  the  Merger Agreement and (ii) a
         copy of the joint press release  issued  by us and Lightstone regarding
         the execution of the Merger Agreement.*

         On July 17, 2003,  we filed a Current Report on Form 8-K dated July 16,
         2003, under Item 9, Regulation FD Disclosure. The filing included as an
         exhibit, a press release  we  issued  on July 16, 2003, announcing that
         two  shareholders  that  collectively  own  approximately  32%  of  the
         outstanding shares of our Series A Senior Preferred Stock have objected
         to the  allocation  of  the consideration under the Merger Agreement in
         separate communications to us.*

          On August 5, 2003,  we filed a Current Report on Form 8-K dated August
         5, 2003, under Item 5,  Other Events.  The filing included as exhibits:
         (i) certain background information  regarding  the proposed transaction
         between us and Lightstone and (ii) a summary of the fairness opinion of
         Houlihan  Lokey Howard Zukin Financial Advisors,  Inc. dated as of July
         8, 2003  and  a  copy  of  such  opinion.  In addition,  under  Item 9,
         Regulation  FD  Disclosure,  the  Company  announced that it expects to
         provide  certain  of  its  preferred  stockholders with the information
         contained in the filing.*



         * Pursuant  to General  Instruction B of Form 8-K, the report submitted
         to the Securities and  Exchange  Commission under Item 9, Regulation FD
         Disclosure, is not  deemed  to be  "filed" for purpose of Section 18 of
         the Securities Exchange  Act of  1934 (the "Exchange Act"),  and we are
         not subject to the liabilities  of that  section  with respect  to such
         reports.  We  are  not  incorporating,  and  will  not  incorporate  by
         reference, such report into filings under the Securities Act of 1933 or
         the Exchange Act.

<PAGE>
                                  Page - (56)


                                   SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



                                        PRIME RETAIL, INC.
                                        Registrant



Date: August 14, 2003                   /s/ Robert A. Brvenik
                                        ----------------------------------------
                                        Robert A. Brvenik
                                        President, Chief Financial Officer and
                                        Treasurer