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 March 31, 2002

                                       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 May 14,  2002,  the issuer  had  outstanding  43,577,916  shares of Common
Stock, $.01 par value per share.
<PAGE>
                               Prime Retail, Inc.
                                    Form 10-Q


                                      INDEX





PART I:  FINANCIAL INFORMATION                                             PAGE
                                                                           ----


Item 1.  Financial Statements (Unaudited)

     Consolidated Balance Sheets as of March 31, 2002 and
       December 31, 2001................................................       1

     Consolidated Statements of Operations for the three
       months ended March 31, 2002 and 2001.............................       2

     Consolidated Statements of Cash Flows for the three
       months ended March 31, 2002 and 2001.............................       3

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

Item 2.  Management's Discussion and Analysis of Financial
           Condition and Results of Operations..........................      16

Item 3.  Quantitative and Qualitative Disclosures of Market Risk........      31

PART II:  OTHER INFORMATION

Item 1.  Legal Proceedings..............................................      32

Item 2.  Changes in Securities..........................................      34

Item 3.  Defaults Upon Senior Securities................................      34

Item 4.  Submission of Matters to a Vote of Security Holders............      34

Item 5.  Other Information..............................................      34

Item 6.  Exhibits or Reports on Form 8-K................................      35

Signatures..............................................................      36
<PAGE>
                               PRIME RETAIL, INC.

                      Unaudited Consolidated Balance Sheets

                (Amounts in thousands, except share information)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                  March 31,           December 31,
                                                                                                    2002                  2001
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                            <C>                   <C>
Assets
Investment in rental property:
     Land                                                                                      $   145,378           $   148,463
     Buildings and improvements                                                                  1,151,666             1,208,568
     Property under development                                                                      3,332                 3,352
     Furniture and equipment                                                                        15,043                15,225
                                                                                               -----------           -----------
                                                                                                 1,315,419             1,375,608
     Accumulated depreciation                                                                     (261,438)             (258,124)
                                                                                               -----------           -----------
                                                                                                 1,053,981             1,117,484
Cash and cash equivalents                                                                            6,090                 7,537
Restricted cash                                                                                     33,936                37,885
Accounts receivable, net                                                                             2,492                 5,017
Deferred charges, net                                                                                9,350                11,789
Assets held for sale                                                                                26,709                54,628
Investment in partnerships                                                                          27,667                24,539
Other assets                                                                                         3,263                 3,629
                                                                                               -----------           -----------
          Total assets                                                                         $ 1,163,488           $ 1,262,508
                                                                                               ===========           ===========

Liabilities and Shareholders' Equity
Bonds payable                                                                                  $    31,975           $    31,975
Notes payable                                                                                      834,356               925,492
Accrued interest                                                                                     8,118                 7,643
Real estate taxes payable                                                                            5,770                 8,091
Accounts payable and other liabilities                                                              23,661                31,380
                                                                                               -----------           -----------
     Total liabilities                                                                             903,880             1,004,581

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 $71,839),
          2,300,000 shares issued and outstanding                                                       23                    23
     8.5% Series B Cumulative Participating Convertible Preferred
          Preferred Stock, $0.01 par value (liquidation preference
          of $235,211), 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                                                             (451,789)             (453,470)
                                                                                               -----------           -----------
      Total shareholders' equity                                                                   258,121               256,440
                                                                                               -----------           -----------
          Total liabilities and shareholders' equity                                           $ 1,163,488           $ 1,262,508
                                                                                               ===========           ===========
====================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
                               PRIME RETAIL, INC.

                 Unaudited Consolidated Statements of Operations

              (Amounts in thousands, except per share information)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Three Months Ended March 31,                                                                   2002                  2001
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                          <C>                  <C>
Revenues
Base rents                                                                                   $ 31,198             $  36,932
Percentage rents                                                                                1,660                   717
Tenant reimbursements                                                                          14,734                17,724
Interest and other                                                                              3,058                 2,744
                                                                                             --------             --------
  Total revenues                                                                               50,650                58,117

Expenses
Property operating                                                                             12,405                14,133
Real estate taxes                                                                               4,639                 5,226
Depreciation and amortization                                                                  12,223                13,675
Corporate general and administrative                                                            3,419                 3,301
Interest                                                                                       20,661                24,443
Other charges                                                                                   2,792                 3,702
                                                                                             --------             ---------
  Total expenses                                                                               56,139                64,480
                                                                                             --------             ---------

Loss before gain on sale of real estate
  and minority interests                                                                       (5,489)               (6,363)
Gain on sale of real estate, net                                                                7,170                   732
                                                                                             --------             ---------
Income (Loss) before minority interests                                                         1,681                (5,630)
Loss allocated to minority interests                                                                -                     1
                                                                                             --------             ---------
Net income (loss)                                                                               1,681                (5,630)
Income allocated to preferred shareholders                                                     (5,668)               (5,668)
                                                                                             --------             ---------
Net loss applicable to common shares                                                         $ (3,987)            $ (11,298)
                                                                                             ========             =========

Basic and diluted loss per common share                                                      $  (0.09)            $   (0.26)
                                                                                             ========             =========

Weighted-average common shares
  outstanding - basic and diluted                                                              43,578                43,578
                                                                                             ========             =========
====================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
                               PRIME RETAIL, INC.

                 Unaudited Consolidated Statements of Cash Flows
                             (Amounts in thousands)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Three Months Ended March 31,                                                                2002                2001
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                        <C>                 <C>
Operating Activities
Net income (loss)                                                                          $  1,681            $ (5,630)
Adjustments to reconcile net income (loss) to net cash
  provided by operating activities:
     Income allocated to minority interests                                                       -                  (1)
     Gain on sale of real estate, net                                                        (7,170)               (732)
     Depreciation and amortization                                                           12,223              13,675
     Amortization of deferred financing costs                                                 1,959               2,014
     Amortization of debt premiums                                                             (645)               (812)
     Provision for uncollectible accounts receivable                                          2,514               3,071
Changes in operating assets and liabilities:
     (Increase) Decrease in accounts receivable                                                 526              (1,582)
     Decrease in restricted cash                                                              3,275              13,478
     Increase in other assets                                                                  (181)               (551)
     Decrease in accounts payable and other liabilities                                      (8,155)            (18,395)
     Decrease in real estate taxes payable                                                   (2,277)               (236)
     Increase in accrued interest                                                               556               2,286
                                                                                           --------            --------
       Net cash provided by operating activities                                              4,668               6,585
                                                                                           --------            --------

Investing Activities
Additions to investment in rental property                                                     (983)             (5,626)
Proceeds from sales of operating properties and land                                         11,559               9,503
                                                                                           --------            --------
       Net cash provided by investing activities                                             10,576               3,877
                                                                                           --------            --------

Financing Activities
Proceeds from notes payable                                                                       -                 199
Principal repayments on notes payable                                                       (16,691)            (13,805)
Deferred costs                                                                                    -                 (73)
                                                                                           --------            --------
       Net cash used in financing activities                                                (16,691)            (13,679)
                                                                                           --------            --------

Decrease in cash and cash equivalents                                                        (1,447)             (3,217)
Cash and cash equivalents at beginning of period                                              7,537               8,906
                                                                                           --------            --------
Cash and cash equivalents at end of period                                                 $  6,090            $  5,689
                                                                                           ========            ========
====================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
                               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 sale of properties during the periods indicated:

--------------------------------------------------------------------------------
Three Months Ended March 31,                        2002                 2001
--------------------------------------------------------------------------------
  Book value of net assets disposed               $ 77,770             $ 32,815
  Notes payable paid                               (11,052)             (24,044)
  Notes payable assumed by joint venture           (46,862)                   -
  Notes payable transferred to lender              (15,467)                   -
  Gain on sale of real estate                        7,170                  732
                                                  --------             --------
      Cash received, net                          $ 11,559             $  9,503
                                                  ========             ========
================================================================================

See accompanying notes to financial statements.
<PAGE>
                               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  footnotes  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
footnotes included in Prime Retail, Inc.'s (the "Company") Annual Report on Form
10-K for the year ended December 31, 2001.

     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 we have  operational
control.  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 reported  amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements and
the  reported  amounts of revenues  and expenses  during the  reporting  period.
Actual results could differ from those estimates.

     Investments in partnerships in which we do not have operational control 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.

Note 2 - New Accounting Pronouncements

     In October, 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard ("SFAS") No. 144, "Accounting for Impairment of
Disposal of Long-lived Assets." SFAS No. 144 supercedes SFAS No. 121, however it
retains the fundamental  provisions of that statement related to the recognition
and measurement of the impairment of long-lived assets to be "held and used." In
addition,  SFAS No. 144 provides  more  guidance on  estimating  cash flows when
performing  a  recoverability  test,  requires  that a  long-lived  asset  to be
disposed  of other than by sale (e.g.,  abandoned)  be  classified  as "held and
used" until it is disposed  of, and  established  more  restrictive  criteria to
classify an asset as "held for sale." SFAS No. 144 is effective for fiscal years
beginning after December 15, 2001. We adopted SFAS No. 144 effective  January 1,
2002  and such  adoption  did not  have a  material  impact  on our  results  of
operations or financial position.
<PAGE>
Note 3 - Property Dispositions

2002 Sales Transactions

     On January 11, 2002,  we completed  the sale of Prime Outlets at Hagerstown
(the  "Hagerstown  Center"),  an outlet center located in  Hagerstown,  Maryland
consisting of approximately  487,000 square feet of gross leasable area ("GLA"),
for  $80,500  to  an  existing  joint  venture  partnership  (the  "Prime/Estein
Venture")  between one of our affiliates and an affiliate of Estein & Associates
USA, Ltd. ("Estein"),  a real estate investment company.  Estein and we have 70%
and 30% ownership  interests,  respectively,  in the  Prime/Estein  Venture.  In
connection with the sale  transaction,  the  Prime/Estein  Venture assumed first
mortgage indebtedness of $46,862 on the Hagerstown Center (the "Assumed Mortgage
Indebtedness");  however,  our  guarantee of the Assumed  Mortgage  Indebtedness
remains in place.

     The net cash proceeds from the sale, including the release of certain funds
held in  escrow,  were  $12,113  after (i) a pay-down  of  $11,052  of  mortgage
indebtedness on the Hagerstown  Center and (ii) closing costs.  The net proceeds
from this sale were used to prepay  $11,647 of principal  outstanding  under the
Mezzanine  Loan.  In  connection  with the  sale of the  Hagerstown  Center,  we
recorded a gain on the sale of real estate of $16,795  during the first  quarter
of 2002. At December 31, 2001, the carrying  value of the  Hagerstown  Center of
$54,628  was  classified  as assets  held for sale in the  Consolidated  Balance
Sheet.  Effective  on the date of  disposition,  we have  accounted  for our 30%
ownership interest in the Hagerstown Center in accordance with the equity method
of accounting.

     We are obligated to refinance the Assumed  Mortgage  Indebtedness 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
Assumed  Mortgage  Indebtedness 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 ten-year period, we will be obligated
to pay the difference to the Prime/Estein  Venture.  However, if the actual cost
of such  indebtedness is less than 7.75% at any time during the ten-year period,
the  Prime/Estein  Venture will be obligated  to pay the  difference  to us. The
actual cost of the Assumed Mortgage  Indebtedness is currently 30-day LIBOR plus
1.50%, or 3.37% as of March 31, 2002.

     On April 1, 2002, we completed the sale of Prime Outlets at Edinburgh  (the
"Edinburgh Center"),  an outlet center located in Edinburgh,  Indiana consisting
of  approximately  305,000 square feet of GLA. The Edinburgh  Center was sold to
CPG Partners, L.P. for cash consideration of $27,000.

     The net cash  proceeds  from the sale were $9,551,  after (i)  repayment in
full of $16,317 of existing first mortgage  indebtedness on the Edinburgh Center
and (ii) closing  costs and fees. We used these net proceeds to make a mandatory
principal  payment of $9,178 on a mezzanine loan (the "Mezzanine Loan") obtained
in December 2000 from FRIT PRT Lending LLC (the "Lender") in the original amount
of $90,000. See Note 4 - Bonds and Notes Payable" for additional information.

     During the first  quarter of 2002,  we  recorded a loss on the sale of real
estate  of  $9,625  related  to the  write-down  of the  carrying  value  of the
Edinburgh  Center  to its net  realizable  value  based on the terms of the sale
agreement.  Effective  March  31,  2002,  the  aggregate  carrying  value of the
Edinburgh  Center of  $26,709  was  classified  as  assets  held for sale in the
Consolidated Balance Sheet.
<PAGE>
     On April 19, 2002,  we completed  the sale of Phases II and III of Bellport
Outlet  Center (the  "Bellport  Outlet  Center"),  an outlet  center  located in
Bellport,  New York consisting of  approximately  197,000 square feet of GLA. We
had a 51%  ownership  interest in the joint venture  partnership  that owned the
Bellport Outlet Center.  The Bellport Outlet Center was sold to Sunrise Station,
L.L.C.,  an  affiliate  of  one  of  our  joint  venture   partners,   for  cash
consideration  of $6,500.  At closing,  recourse first mortgage  indebtedness of
$5,500,  which was  scheduled to mature on May 1, 2002,  was repaid in full.  To
date we have  received  $522 of cash  proceeds  from the sale which were used to
make a mandatory principal payment of $502 on the Mezzanine Loan.

2001 Sales Transactions

     On February 2, 2001, we sold Northgate Plaza, a community center located in
Lombard,  Illinois to Arbor  Northgate,  Inc.  for  aggregate  consideration  of
$7,050.  After the  repayment  of  mortgage  indebtedness  of $5,966 and closing
costs,  the net cash proceeds from the Northgate  Plaza sale were $510. On March
16, 2001, we sold Prime  Outlets at  Silverthorne,  an outlet center  located in
Silverthorne,  Colorado consisting of approximately  257,000 square feet of GLA,
to Silverthorne Factory Stores, LLC for aggregate  consideration of $29,000. The
net cash proceeds from the sale of Prime  Outlets at  Silverthorne  were $8,993,
after the repayment of certain mortgage indebtedness of $18,078 on Prime Outlets
at Lebanon (see below) and closing  costs and fees.  The net proceeds from these
sales were used to prepay an aggregate $9,137 of principal outstanding under our
Mezzanine  Loan in  accordance  with  the  terms  of  such  loan  agreement.  In
connection  with these sales,  we recorded an aggregate gain on the sale of real
estate of $732 during the first quarter of 2001. The operating  results of these
properties  are  included in our results of  operations  through the  respective
dates of disposition.

     On November 27, 2001, we sold certain land located in Camarillo, California
for  aggregate  consideration  of $7,150.  The net cash  proceeds from the sale,
including  the release of certain funds held in escrow,  were $1,859,  after the
repayment of certain mortgage indebtedness of $6,227 and closing costs and fees.
The net  proceeds  from  this sale  were  used to  prepay  $1,787  of  principal
outstanding  under our Mezzanine Loan. In connection with this sale, we recorded
a loss on the sale of real estate of $1,615 during the fourth quarter of 2001.

     Prior to its  sale,  Prime  Outlets  at  Silverthorne,  was one of  fifteen
properties securing a first mortgage and expansion loan (the "First Mortgage and
Expansion Loan"). In conjunction with the sale of Prime Outlets at Silverthorne,
we substituted Prime Outlets at Lebanon for Prime Outlets at Silverthorne in the
cross-collateralized  asset pool securing the First  Mortgage and Expansion Loan
pursuant  to the  collateral  substitution  provisions  contained  in  the  loan
agreement.  In conjunction  with adding Prime Outlets at Lebanon as security for
the First Mortgage and Expansion Loan, we repaid,  as discussed  above,  certain
mortgage indebtedness on Prime Outlets at Lebanon of $18,078.

Foreclosure Sales

     During 2001,  certain of our  subsidiaries  suspended  regularly  scheduled
monthly debt service  payments on two  non-recourse  mortgage  loans held by New
York Life Insurance Company ("New York Life") which were cross-collateralized by
Prime Outlets at Jeffersonville II (the "Jeffersonville II Center"),  located in
Jeffersonville,  Ohio and Prime Outlets at Conroe (the "Conroe Center"), located
in Conroe,  Texas.  Effective  January 1, 2002, New York Life  foreclosed on the
Conroe  Center and we remain in  discussions  with New York Life  regarding  the
transfer of our ownership interest in the Jeffersonville II Center. See Note 4 -
"Bonds and Notes Payable" for additional information.
<PAGE>
     On May 8, 2001, Prime Outlets at New River, an outlet center located in New
River,  Arizona,  was sold through  foreclosure.  Affiliates  of the Company and
Fru-Con Development Corporation each own 50% of the partnership, which owned the
project.  We accounted for our ownership  interest in the partnership that owned
the project in accordance with the equity method of accounting  through the date
of foreclosure sale. In connection with the foreclosure sale, we recorded a loss
on the sale of real estate of $180 during the second quarter of 2001.

Note 4 - Bonds and Notes Payable

Going Concern

     During  2002,  we are required to make,  in addition to  scheduled  monthly
amortization,  certain  mandatory  principal  payments  on  our  Mezzanine  Loan
aggregating  $25,367 with net proceeds  from asset sales,  excluding our January
11, 2002 sale of a 70% joint  venture  partnership  interest  in the  Hagerstown
Center, or other capital  transactions  within specified periods (see "Mezzanine
Loan Modification" for additional information).  Although we continue to seek to
generate  additional  liquidity  through new  financings and the sale of assets,
there can be no assurance  that we will be able to complete asset sales or other
capital  transactions  within the specified  periods or that such asset sales or
other  capital  transactions,  if they should occur,  will  generate  sufficient
proceeds to make the mandatory  payments of the Mezzanine  Loan.  Any failure to
satisfy these  mandatory  principal  payments  within the specified time periods
will constitute a default under the Mezzanine Loan.

     As of  March  31,  2002,  we were in  compliance  with all  financial  debt
covenants under our recourse loan agreements. However, there can be no assurance
that we will be in  compliance  with our  financial  debt  covenants  in  future
periods since our future  financial  performance is subject to various risks and
uncertainties, including, but not limited to, the effects of increases in market
interest rates from current levels,  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.  See  "Defaults  on Certain  Non-recourse  Mortgage  Indebtedness"  and
"Defaults  on  Certain  Non-recourse  Mortgage  Indebtedness  of  Unconsolidated
Partnerships" for additional information.

     Based on our current  financial  projections,  we believe we will not be in
compliance  with respect to debt  service  coverage  ratios  under  certain debt
facilities as early as the second quarter of 2002. The debt  facilities at issue
are fixed rate tax-exempt revenue bonds (the "Affected Fixed Rate Bonds") in the
amount of $18,390 and a recourse  bridge loan (the "Bridge  Loan") in the amount
of $111,225.  In the event of non-compliance,  the holders of the Affected Fixed
Rate Bonds may elect to put such  obligations to us at a price equal to par plus
accrued  interest,  and the  Bridge  Loan  lender  may elect to  accelerate  the
maturity of the Bridge Loan debt.  Additionally,  noncompliance or defaults with
respect to debt service  coverage ratios under these debt facilities may trigger
certain  cross-default   provisions  with  respect  to  other  debt  facilities,
including our Mezzanine Loan.

     We are working with the affected lenders to discuss  potential  resolutions
including waiver or amendment with respect to the applicable  provisions.  If we
are unable to reach satisfactory  resolution with the affected lenders,  we will
look to (i) obtain alternative financing from other financial institutions, (ii)
sell the projects  subject to the affected debt or (iii) explore other  possible
capital  transactions  to generate cash to repay the amounts  outstanding  under
such  debt.  There  can  be  no  assurance  that  we  will  obtain  satisfactory
resolutions  with our affected lenders or that we will be able to complete asset
sales or other  capital  raising  activities  sufficient  to  repay  the  amount
outstanding under the affected Fixed Rate Bonds or Bridge Loan.
<PAGE>
     These above listed  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.

Mezzanine Loan Modification

     Effective  January 31, 2002, we entered into a modification to the original
terms of our  Mezzanine  Loan  obtained in December  2000.  The  Mezzanine  Loan
amendment (the  "Amendment"),  among other things,  (i) reduces required monthly
principal  amortization  for the period February 1, 2002 through January 1, 2003
("Year 2") from  $1,667 to $800,  which may be  further  reduced to a minimum of
$500 per month under certain limited  circumstances,  provided no defaults exist
under the Mezzanine Loan and certain other conditions have been satisfied at the
Lender's sole discretion,  (ii) requires certain  mandatory  principal  payments
from net proceeds from asset sales or other capital transactions pursuant to the
schedule set forth below and (iii) reduces the  threshold  level at which excess
cash flow from  operations  must be applied to  principal  pay-downs,  primarily
resulting  from  a  reduction  in  the  available   working  capital   reserves.
Additionally,  the  Amendment  (i)  increases  the interest rate from LIBOR plus
9.50% to LIBOR plus 9.75%  (rounded up to nearest  0.125% with a minimum rate of
14.75%), (ii) changes the Mezzanine Loan maturity date from December 31, 2003 to
September 30, 2003 and (iii) required a 0.25% fee, which was paid at the time of
the modification, on the outstanding principal balance.

     The Amendment also requires additional Year 2 monthly payments of $250 (the
"Escrowed  Funds") into an escrow  account  controlled  by the Lender.  Provided
certain  conditions are satisfied in the Lender's sole discretion,  the Escrowed
Funds may be released to us for limited purposes. The Escrowed Funds not used at
the end of each quarter,  subject to certain exceptions,  will be applied by the
Lender  to  amortize  the  Mezzanine  Loan.  The  required   monthly   principal
amortization of $2,333 commencing on February 1, 2003,  through the new maturity
date of September 30, 2003, remains unchanged.

     The Amendment also requires mandatory  principal payments with net proceeds
from asset  sales,  excluding  our January 11, 2002 sale of a 70% joint  venture
partnership   interest  in  the  Hagerstown  Center  (see  Note  3  -  "Property
Dispositions" for additional information),  or other capital transactions of not
less than (i) $8,906 by May 1, 2002, (ii) $24,406,  inclusive of the $8,906,  by
July 1, 2002  (subject  to  extension  to  October  31,  2002  provided  certain
conditions are met to the Lender's satisfaction) and (iii) $25,367, inclusive of
the  $24,406,  by November 1, 2002.  In  addition  to each  mandatory  principal
payment,  we must also pay any interest,  including deferred  interest,  accrued
thereon and the additional  fees provided for in the Mezzanine Loan. Any failure
to satisfy  these  mandatory  principal  payments or other  payments  within the
specified time periods will constitute a default under the Mezzanine Loan.

     On April 1, 2002, we sold our Edinburgh Center and used the net proceeds to
make a $9,178 mandatory  payment on the Mezzanine Loan.  Additionally,  on April
19, 2002,  we sold Phases II and III of the Bellport  Outlet Center and used the
net  proceeds  to make a $502  mandatory  payment on the  Mezzanine  Loan.  As a
result, we satisfied the May 1, 2002 mandatory principal payment requirement and
are  now  required  to  complete   additional   asset  sales  or  other  capital
transactions  generating  net  proceeds  aggregating  $14,726  by July  1,  2002
(subject to extension as indicated above) and $15,687 (inclusive of the $14,726)
by November 1, 2002.
<PAGE>
     The  Mezzanine  Loan was also  amended on January 11, 2002 to,  among other
things,  (i) release the  partnership  interests in Outlet Village of Hagerstown
Limited  Partnership  ("Hagerstown  LP") as collateral under the Mezzanine Loan,
(ii) release Hagerstown LP of all obligations under the Mezzanine Loan and (iii)
add  Hagerstown  Land,  L.L.C.,  a  Delaware  limited  liability  company,  as a
guarantor  under the Mezzanine  Loan.  Hagerstown  Land,  L.L.C. is the owner of
three parcels of land adjacent to the Hagerstown Center.

Debt Service Obligations

     Our  aggregate  indebtedness  excluding  (i)  unamortized  debt premiums of
$10,253, (ii) mortgage indebtedness of $16,317 on the Edinburgh Center and (iii)
non-recourse mortgage indebtedness of $17,768 on Prime Outlets at Jeffersonville
II was $821,993 (the  "Adjusted  Indebtedness")  at March 31, 2002. See Note 3 -
"Property   Dispositions"  and  "Defaults  on  Certain   Non-recourse   Mortgage
Indebtedness" for additional information.

     At March 31, 2002 the Adjusted Indebtedness had a weighted-average maturity
of 3.1 years and bore contractual  interest at a weighted-average  rate of 8.97%
per annum. At March 31, 2002, $754,474,  or 91.8%, of the Adjusted  Indebtedness
bore interest at fixed rates and $67,519 or 8.2%,  of the Adjusted  Indebtedness
bore  interest  at  variable  rates.  In certain  cases,  we utilize  derivative
financial  instruments to manage our interest rate risk associated with variable
rate debt.

     As of March 31, 2002, our scheduled principal payments for the remainder of
2002 for the Adjusted  Indebtedness  aggregated $43,118. The remaining scheduled
principal  payments  for 2002  include (i)  principal  amortization  aggregating
$14,779,  (ii) a $2,972  recourse  first  mortgage  loan on  Western  Plaza (the
"Western Plaza First Mortgage  Loan"),  a community center located in Knoxville,
Tennessee  and  (iii)  mandatory   principal  payments  on  the  Mezzanine  Loan
aggregating   $25,367  (see   "Mezzanine  Loan   Modification"   for  additional
information).  On April 11,  2002,  we made a  principal  payment of $350 on the
Western Plaza First  Mortgage Loan in connection  with our exercise of an option
to extend the  maturity  date from April 30,  2002 to October  31,  2002 for the
remaining outstanding principal balance of $2,622. Additionally, during April of
2002, we made mandatory  principal  payments on the Mezzanine  Loan  aggregating
$9,680. The outstanding  principal balance of the Mezzanine Loan as of March 31,
2002 was $47,831.  As a result of subsequent  principal payments the outstanding
principal balance as of May 14, 2002 was $36,740.

     Certain  of  our  debt  obligations,   including  the  Mezzanine  Loan  and
fixed-rate  bonds  aggregating  $7,000  secured by a second  mortgage on Western
Plaza, contain cross-default  provisions that would be triggered in the event of
a default under the Western Plaza First  Mortgage  Loan. If these  cross-default
provisions  were  triggered,  the holders of the  Mezzanine  Loan could elect to
accelerate  such  debt and the  holders  of the  bonds  could  elect to put such
obligations  to us at a price  equal to par plus  accrued  interest.  See "Going
Concern" for additional information.

Guarantees of Indebtedness of Others

     We are a guarantor or otherwise  obligated  with respect to an aggregate of
$12,394 of the indebtedness of Horizon Group Properties, Inc. and its affiliates
("HGP"),  including  $10,000 of obligations under a secured credit facility (the
"HGP Secured Credit Facility"). HGP is a publicly traded company that was formed
in connection with our merger with Horizon Group, Inc. in June, 1998.
<PAGE>
     The HGP Secured  Credit  Facility  bore  interest at a rate of 30-day LIBOR
plus 1.90%, was  collateralized by five properties located throughout the United
States and matured on July 11,  2001.  On August 2, 2001,  HGP  announced it had
refinanced one of the properties in the HGP Secured Credit Facility and used the
proceeds from the new first mortgage loan to reduce the principal balance of the
HGP Secured Credit  Facility.  Simultaneously,  HGP obtained an extension to the
remaining principal balance of approximately  $33,500,  including a 2% extension
fee, on the HGP Secured Credit Facility through July 11, 2002. Commencing on the
extension  date,  the HGP Secured  Credit  Facility  bears interest at a rate of
30-day LIBOR (but not less than 4.10%) plus 3.95%,  requires  monthly  principal
amortization  of  $225,  and  is  collateralized  by  four  properties   located
throughout  the United  States.  We confirmed our  obligations as guarantor with
respect to the HGP Secured Credit  Facility in connection with the extension and
partial  pay-down.  No claims  have been made  against  our  guaranty by the HGP
Secured Credit Facility  lender.  On October 11, 2001, HGP announced that it was
in  default  under two loans  with an  aggregate  principal  balance  of $45,500
secured by six of its other  outlet  centers.  Such  defaults do not  constitute
defaults under the HGP Secured Credit Facility or any other facility  guaranteed
by us.

     On January 11,  2002,  we sold the  Hagerstown  Center to the  Prime/Estein
Venture.  In connection with the sale, the Prime/Estein  Venture assumed $46,862
of mortgage indebtedness, however, our guarantee of such indebtedness remains in
place. See Note 3 - "Property Dispositions" for additional information.

Defaults on Certain Non-recourse Mortgage Indebtedness

     During 2001,  certain of our  subsidiaries  suspended  regularly  scheduled
monthly  debt service  payments on two  non-recourse  mortgage  loans which were
cross-collateralized  by the  Jeffersonville  II Center and the  Conroe  Center.
These non-recourse mortgage loans were held by New York Life.

     Effective  January 1, 2002,  New York Life  foreclosed on the Conroe Center
and its related  assets and  liabilities,  including $554 of cash and $15,467 of
principal  outstanding  under the  non-recourse  mortgage loan, were transferred
from our  subsidiary  that owned the Conroe  Center to New York Life. No gain or
loss was recorded in connection with the foreclosure  action. The foreclosure of
the Conroe Center did not have a material impact on our results of operations or
financial condition because during 2001 all excess cash flow from the operations
of the Conroe Center was utilized for debt service on its non-recourse  mortgage
loan.

     We remain in  discussions  with New York Life regarding the transfer of our
ownership  interest in the  Jeffersonville II Center.  During 2001 and the three
months ended March 31,  2002,  all excess cash flow from the  operations  of the
Jeffersonville  II Center was  utilized  for debt  service  on its  non-recourse
mortgage loan. The carrying value of the  Jeffersonville II Center  approximates
$3,931  at  March  31,  2002.  Such  value is  exceeded  by the  balance  of the
non-recourse  mortgage  indebtedness of $17,768 as of March 31, 2002. If we were
to transfer our ownership  interest in the  Jeffersonville II Center to New York
Life,  we would  record a  non-recurring  gain for the  difference  between  the
carrying  value of the  Jeffersonville  II Center and its related net assets and
the outstanding loan balance.
<PAGE>
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.
Through an affiliate we hold a 50% ownership  interest in the  partnership  that
owns Phase I of the Bellport Outlet Center. Fru-Con and we are each 50% partners
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.  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 do not believe  either of these  mortgage loans is recourse to us. It is
possible,  however,  that either or both of the  respective  lenders will file a
lawsuit  seeking to  collect  amounts  due under the loan.  If such an action is
brought, the outcome, and our ultimate liability, if any, cannot be predicted at
this time.

     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  ownership  interests in Phase I of the Bellport  Outlet  Center and the
Oxnard Factory Outlet in accordance with the equity method of accounting.  As of
March 31, 2002, the carrying value of our investment in these properties was $0.

Note 5 - Shareholders' Equity

     To qualify as a 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 necessary  distributions  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 current policy is to pay distributions  only to the extent necessary to
maintain  our status as a REIT for  federal  income tax  purposes.  Based on our
current  federal  income tax  projections  for 2002, we do not expect to pay any
distributions  on our Senior  Preferred  Stock,  Series B Convertible  Preferred
Stock,  common  stock or common  units of limited  partnership  interest  in the
Operating  Partnership  during 2002. We are currently in arrears on ten quarters
of  preferred  stock  distributions  due February 15, 2000 through May 15, 2002,
respectively.

     Under  the terms of our  Mezzanine  Loan,  we are  prohibited  from  paying
dividends or distributions except to the extent necessary to maintain our status
as a REIT. In addition, 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 March 31, 2002, unpaid dividends for the period beginning on
November 16, 1999 through March 31, 2002 on the Series A Senior  Preferred Stock
and  Series B  Convertible  Preferred  Stock  aggregated  $14,339  and  $39,508,
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 March 31, 2002 are $6,037 ($2.625 per share) and $16,635
($2.125 per share), respectively.
<PAGE>
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 a  material  adverse  effect  on our  consolidated  financial
statements.

     Dinnerware Plus Holdings, Inc., which operates under the trade name Mikasa,
and affiliates  (collectively,  the "Mikasa Plaintiffs") filed a lawsuit against
the Company and various  affiliates in Superior Court of New Jersey on March 29,
2001.  The Mikasa  Plaintiffs  assert a number of causes of action in which they
allege that the Company and its affiliates  breached  various  provisions in the
Mikasa  Plaintiffs'  leases and, as a result,  overcharged the Mikasa Plaintiffs
for common area  maintenance  and similar  charges  ("CAM") and  promotion  fund
charges at various centers where the Mikasa Plaintiffs are tenants.  The Company
filed a motion to dismiss the  complaint on behalf of the  Company's  affiliates
who  entered  into  leases  with  the  Mikasa  Plaintiffs,   based  on  lack  of
jurisdiction.  The motion was granted,  but the Mikasa Plaintiffs filed a motion
for  reconsideration,  upon  which  the  court  has  not  ruled.  The  remaining
defendants,  Prime  Retail,  Inc.  and Prime  Retail,  L.P.,  have  answered the
complaint.  The  outcome of this  lawsuit,  and the  ultimate  liability  of the
defendants, if any, cannot be predicted at this time.

     On July 6, 2001, affiliates of the Company brought an action in the Circuit
Court for Washington County, Maryland against Melru Corporation,  which operates
under the trade name Jones New York,  alleging that Melru  Corporation owed past
due rent in connection  with 43 leases.  Melru  Corporation,  in response to the
collection action filed by certain  affiliates of the Company,  filed on October
15, 2001 several  counterclaims  against the Company and its affiliates in which
it alleges that the Company and its affiliates overcharged Melru Corporation for
CAM and promotion fund charges.  In addition,  Melru Corporation alleges that an
affiliate of the Company  fraudulently induced Melru Corporation to enter into a
lease and that another  affiliate  violated its lease with Melru  Corporation by
failing to maintain  required  occupancy  levels at the shopping center it owns.
The  Company  and its  affiliates  have not filed  their  response  to the Melru
Corporation  counterclaims.  The outcome of the Melru Corporation counterclaims,
and the ultimate liability of the Company and its affiliates,  if any, cannot be
predicted at this time.

     In addition to the Mikasa Plaintiffs and Melru Corporation,  other tenants,
including  Design's Inc. and Brown Group Retail,  Inc., in the Company's  outlet
centers have made or may make  allegations  concerning  overcharging for CAM and
promotion fund charges similar to those made by the Mikasa  Plaintiffs and Melru
Corporation. No other such tenant, however, has filed a suit. It is too early to
make any  predictions  as to whether the Company or its  affiliates may be found
liable  with  respect  to such  other  tenants,  or to  predict  damages  should
liability be found.

     The  Company  and its  affiliates  were  defendants  in a lawsuit  filed by
Accrued  Financial  Services ("AFS") on August 10, 1999 in the Circuit Court for
Baltimore  City. The lawsuit was removed to United States District Court for the
District of Maryland (the "U.S. District Court") on August 20, 1999. AFS claimed
that  certain  tenants  had  assigned to AFS their  rights to make claims  under
leases such  tenants  had with  affiliates  of the Company and alleged  that the
Company and its affiliates  overcharged such tenants for common area maintenance
charges and  promotion  fund  charges.  The U.S.  District  Court  dismissed the
lawsuit on June 19, 2000. AFS appealed the U.S. District Court's decision to the
United States Court of Appeals for the Fourth Circuit. Briefs were submitted and
oral argument before a panel of judges of the United States Court of Appeals for
the Fourth  Circuit  was held on October  30,  2001,  during  which the panel of
judges requested further briefing of certain issues. The Fourth Circuit received
the  briefs,  but has not yet  ruled.  The  Company  believes  that it has acted
properly  and will  continue to defend this lawsuit  vigorously.  The outcome of
this lawsuit,  and the ultimate  liability of the defendants,  if any, cannot be
predicted at this time.
<PAGE>
     Affiliates of the Company  routinely file lawsuits to collect past due rent
from, and to evict,  tenants which have defaulted under their leases.  There are
currently dozens of such actions pending.  In addition to defending  against the
Company's   affiliates'   claims  and  eviction   actions,   some  tenants  file
counterclaims  against  the  Company's  affiliates.  A tenant  who files  such a
counterclaim typically claims that the Company's affiliate which owns the outlet
center in question has defaulted under the tenant's  lease,  has overcharged the
tenant for CAM and promotion  fund charges,  or has failed to maintain or market
the  outlet  center in  question  as  required  by the  lease.  In spite of such
counterclaims,  the  Company's  affiliates  usually  elect to continue to pursue
their  collection or eviction  actions.  Although the Company and its affiliates
believe  that such  counterclaims  are  without  merit and defend  against  them
vigorously,  the outcome of all such counterclaims,  and thus the liability,  if
any, of the Company and its affiliates, cannot be predicted at this time.

     Since October 13, 2000 there have been eight complaints filed in the United
States District Court for the District of Maryland  against the Company and five
individual defendants.  The five individual defendants are Glenn D. Reschke, the
President, Chief Executive Officer and Chairman of the Board of Directors of the
Company;  William H.  Carpenter,  Jr., the former  President and Chief Operating
Officer and a former  director of the  Company;  Abraham  Rosenthal,  the former
Chief  Executive  Officer  and a former  director  of the  Company;  Michael  W.
Reschke, the former Chairman of the Board and a current director of the Company;
and Robert P. Mulreaney,  the former  Executive Vice President - Chief Financial
Officer and  Treasurer  of the  Company.  The  complaints  have been  brought by
alleged  stockholders  of the Company,  individually  and  purportedly  as class
actions  on behalf of all other  stockholders  of the  Company.  The  complaints
allege that the individual  defendants  made  statements  about the Company that
were  in  violation  of  the  federal   securities  laws.  The  complaints  seek
unspecified  damages and other  relief.  Lead  plaintiffs  and lead counsel were
subsequently  appointed.  A consolidated  amended complaint  captioned The Marsh
Group,  et al. v. Prime Retail,  Inc., et al. dated May 21, 2001 was filed.  The
Company and the individual  defendants  filed a motion to dismiss the complaint,
which was granted on November 8, 2001. The plaintiffs appealed the matter to the
Fourth Circuit.  The appeal is now pending. The Company believes that the claims
are without merit and will defend vigorously  against the appeal. The outcome of
this lawsuit,  and the ultimate  liability of the defendants,  if any, cannot be
predicted at this time.

     Several  entities  (the  "eOutlets  Plaintiffs")  have  filed or  stated an
intention to file lawsuits  (collectively,  the "eOutlets Lawsuits") against the
Company and its affiliates. The eOutlets Plaintiffs seek to hold the Company and
its affiliates responsible under various legal theories for liabilities incurred
by primeoutlets.com,  inc., also known as eOutlets,  including the theories that
the Company  guaranteed the obligations of eOutlets and that the Company was the
"alter-ego" of eOutlets.  primeoutlets.com inc. is also a defendant in some, but
not all, of the eOutlets Lawsuits. The Company believes that it is not liable to
the eOutlets  Plaintiffs as there was no privity of contract  between it and the
various  eOutlets  Plaintiffs.  The Company will continue to defend all eOutlets
Lawsuits vigorously.  primeoutlets.com inc. filed for protection under Chapter 7
of the  United  States  Bankruptcy  Code  during  November  2000  under the name
E-Outlets  Resolution  Corp.  The trustee for  E-Outlets  Resolution  Corp.  has
notified the Company that he is  contemplating an action against the Company and
the Operating Partnership in which he may assert that E-Outlets Resolution Corp.
was the "alter-ego" of the Company and the Operating  Partnership and that, as a
result,  the Company and the Operating  Partnership  are liable for the debts of
E-Outlets  Resolution  Corp. If the trustee pursues such an action,  the Company
and the Operating  Partnership will defend  themselves  vigorously.  In the case
captioned  Convergys Customer  Management Group, Inc. v. Prime Retail,  Inc. and
primeoutlets.com  inc. in the Court of Common Pleas for Hamilton  County (Ohio),
the  Company  prevailed  in a motion to dismiss the  plaintiff's  claim that the
Company was liable for  primeoutlets.com  inc.'s breach of contract based on the
doctrine of piercing the corporate  veil. The outcome of the eOutlets  Lawsuits,
and the  ultimate  liability  of the  Company in  connection  with the  eOutlets
Lawsuits and related claims, if any, cannot be predicted at this time.
<PAGE>
     In May, 2001, the Company,  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 due to the maturation of
the loan. The Company and its affiliates  allege that they have been damaged due
to FCC's  failure to  dispose of the  collateral  in a  commercially  reasonable
manner. The Company, through affiliates, has also filed suit against The Fru-Con
Projects,  Inc. ("Fru-Con"),  a partner in Arizona Factory Shops Partnership and
an affiliate of FCC. The Company and its  affiliates  allege that Fru-Con failed
to use reasonable efforts to assist in obtaining refinancing. Fru-Con has claims
pending  against  the  Company  and its  affiliates,  as part of the same  suit,
alleging  that the Company  and its  affiliates  breached  their  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 managing and leasing the Sedona Project.  The Company and its affiliates will
vigorously  defend the claims filed  against them and  prosecute the claims they
filed.  However, the ultimate outcome of the suit,  including the liability,  if
any, of the Company and its affiliates, cannot be predicted at this time.

     The New York  Stock  Exchange  ("NYSE")  and the  Securities  and  Exchange
Commission have notified the Company that they are reviewing transactions in the
stock of the Company  prior to the  Company's  January  18,  2000 press  release
concerning  financial matters. The initial notice of such review was received by
the Company on March 13, 2000.
<PAGE>
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

     The  following  discussion  and  analysis  of  the  consolidated  financial
condition and results of operations of the Company should be read in conjunction
with the Consolidated Financial Statements and Notes thereto appearing elsewhere
in this Quarterly  Report on Form 10-Q.  The Company's  operations are conducted
through  the  Operating   Partnership.   The  Company   controls  the  Operating
Partnership as its sole general partner and is dependent upon the  distributions
or  other  payments  from  the  Operating  Partnership  to  meet  its  financial
obligations.  Historical  results and percentage  relationships set forth herein
are not necessarily indicative of future operations.

Cautionary Statements

     The  following  discussion  in  "Management's  Discussion  and  Analysis of
Financial  Condition  and  Results of  Operations"  and other  sections  of this
Quarterly Report on Form 10-Q 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.  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 following:

o        the risk associated  with our high level of leverage and our ability to
         refinance such indebtedness as it becomes due;

o        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;

o        the risk of material adverse effects of future events, including tenant
         bankruptcies or abandonments, on our financial performance;

o        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;

o        the risk associated with  tenant  bankruptcies,  store closings and the
         non-payment by tenants of contractual rents and additional rents;

o        the risk associated with our potential asset sales;

o        the risk of  potential  increases in market interest rates from current
         levels;

o        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;

o        the risk associated with litigation; and

o        the  risk  associated  with  competition  from  web-based and catalogue
         retailers.
<PAGE>
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.

Bad Debt

     We regularly  review our accounts  receivable  to determine an  appropriate
range 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 bad  debt 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 portfolio of properties (the "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.  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 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.
<PAGE>
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 - "Bonds and Notes
Payable" 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 due
to (i) new  developments  or changes to the  approach in which we deal with each
matter or (ii) if unasserted claims arise.

Outlet Center Portfolio

Portfolio GLA and Occupancy

     As a  fully-integrated  real estate company,  we provide finance,  leasing,
accounting,  marketing  and  management  services  for  all of  our  Properties,
including  those  which we have an  ownership  interest  through  joint  venture
partnerships. At March 31, 2002, our portfolio of properties consisted of (i) 44
outlet centers aggregating 12,388,000 square feet of gross leasable area ("GLA")
(including  1,682,000  square feet of GLA at outlet  centers owned through joint
venture  partnerships),  (ii) two community shopping centers aggregating 219,000
square feet of GLA and (iii) 154,000  square feet of GLA of office  space.  This
compares to 45 properties totaling 12,670,000 square feet of GLA at December 31,
2001 and 47 properties totaling 13,239,000 square feet of GLA at March 31, 2001.
The  changes  in the  Company's  outlet  center  GLA  are due to  certain  sales
transactions  during  2002 and 2001,  including  the loss of two outlet  centers
through  foreclosure sale. Such changes are discussed below and are collectively
referred to as the "Portfolio GLA Activity".

     The Company's outlet center portfolio was 87.2% and 89.9% occupied on March
31, 2002 and 2001,  respectively.  For the three  months  ended March 31,  2002,
weighted average  occupancy in the outlet center portfolio was 87.4% compared to
90.2% for the same period in 2001. The decline in the 2002 weighted  average and
period-end   occupancies   was   primarily   attributable   to  certain   tenant
bankruptcies, abandonments and store closings.
<PAGE>
        The table set forth below summarizes certain information with respect to
our outlet centers as of March 31, 2002:
<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                  86%

Prime Outlets at Birch Run (2)--  Birch Run, Michigan                    September 1986            724,000                  92

Prime Outlets at Latham--  Latham, New York                                 August 1987             43,000                  83

Prime Outlets at Williamsburg (2)--  Williamsburg, Virginia                  April 1988            274,000                  99

Prime Outlets at Pleasant Prairie--  Kenosha, Wisconsin                  September 1988            269,000                  91

Prime Outlets at Edinburgh (3)--  Edinburgh, Indiana                     September 1989            298,000                  98

Prime Outlets at Burlington--  Burlington, Washington                          May 1989            174,000                  90

Prime Outlets at Queenstown--  Queenstown, Maryland                           June 1989            221,000                  94

Prime Outlets at Hillsboro--  Hillsboro, Texas                             October 1989            359,000                  84

Prime Outlets at Oshkosh--  Oshkosh, Wisconsin                            November 1989            260,000                  91

Prime Outlets at Warehouse Row (4)--  Chattanooga, Tennessee              November 1989             95,000                  83

Prime Outlets at Perryville--  Perryville, Maryland                           June 1990            148,000                  97

Prime Outlets at Sedona--  Sedona, Arizona                                  August 1990             82,000                  91

Prime Outlets at San Marcos--  San Marcos, Texas                            August 1990            549,000                  94

Prime Outlets at Anderson--  Anderson, California                           August 1990            165,000                  84

Prime Outlets at Post Falls--  Post Falls, Idaho                              July 1991            179,000                  67

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                  90

Prime Outlets at Woodbury--  Woodbury, Minnesota                              July 1992            250,000                  67

Prime Outlets at Calhoun--  Calhoun, Georgia                               October 1992            254,000                  85

Prime Outlets at Castle Rock--  Castle Rock, Colorado                     November 1992            480,000                  97

Prime Outlets at Bend--  Bend, Oregon                                     December 1992            132,000                  94

Prime Outlets at Jeffersonville II (5)--  Jeffersonville, Ohio               March 1993            314,000                  42

Prime Outlets at Jeffersonville I--  Jeffersonville, Ohio                     July 1993            407,000                  92

Prime Outlets at Gainesville--  Gainesville, Texas                          August 1993            316,000                  73

Prime Outlets at Loveland--  Loveland, Colorado                                May 1994            328,000                  94

Prime Outlets at Grove City--  Grove City, Pennsylvania                     August 1994            533,000                  97
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                  Grand              GLA               Occupancy
Outlet Centers                                                             Opening Date           (Sq. Ft.)          Percentage (1)
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>                    <C>                         <C>
Prime Outlets at Huntley--  Huntley, Illinois                               August 1994            282,000                  67%

Prime Outlets at Florida City--  Florida City, Florida                   September 1994            208,000                  75

Prime Outlets at Pismo Beach--  Pismo Beach, California                   November 1994            148,000                  93

Prime Outlets at Tracy--  Tracy, California                               November 1994            153,000                  91

Prime Outlets at Vero Beach--  Vero Beach, Florida                        November 1994            326,000                  87

Prime Outlets at Odessa--  Odessa, Missouri                                   July 1995            296,000                  78

Prime Outlets at Darien (6)--  Darien, Georgia                                 July 1995           307,000                  66

Prime Outlets at Gulfport (7)--  Gulfport, Mississippi                    November 1995            306,000                  84

Bellport Outlet Center (8)--  Bellport, New York--  Phases II/III         November 1996            197,000                  62

Prime Outlets at Lodi--  Burbank, Ohio                                    November 1996            313,000                  89

Prime Outlets at Gaffney (6)--  Gaffney, South Carolina                   November 1996            305,000                  94

Prime Outlets at Lee--  Lee, Massachusetts                                    June 1997            224,000                  98

Prime Outlets at Lebanon--  Lebanon, Tennessee                               April 1998            229,000                  97

Prime Outlets at Hagerstown (9)--  Hagerstown, Maryland                     August 1998            487,000                  96

Prime Outlets of Puerto Rico--  Barceloneta, Puerto Rico                      July 2000            176,000                  96
                                                                                                ----------                  --

Total Outlet Centers (10)                                                                       12,388,000                  87%
                                                                                                ==========                  ==
=================================================================================================================================
</TABLE>
Notes:
(1)    Percentage  reflects  occupied space as of March 31, 2002 as a percent of
       available square feet of GLA.
(2)    We, through  affiliates, have  a  30%  ownership  interest  in  the joint
       venture partnership that owns this outlet center.
(3)    On April 1, 2002 we sold this outlet center.
(4)    We own a 2% partnership interest as  the  sole general partner in Phase I
       of 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 includes 154,000 square feet of office space, not included in
       this table, which was 95% occupied as of March 31, 2002.
(5)    Non-recourse mortgage loans on  Prime Outlets at Conroe and Prime Outlets
       at Jeffersonville II are cross-collateralized. Effective January 1, 2002,
       the  lender   foreclosed  on  Prime  Outlets  at  Conroe.  We  remain  in
       discussions  with  the  lender  regarding  the  transfer of our ownership
       interest in Prime Outlets at Jeffersonville II.
(6)    We operate this outlet center pursuant to a long-term ground  lease under
       which we receive the  economic  benefit of a 100% ownership interest.
(7)    The real property on  which this outlet center is located is subject to a
       long-term ground lease.
(8)    On April 18, 2002, the  joint venture partnership that owns Phases II and
       III of the Bellport  Outlet  Center sold the center.  We owned 51% of the
       joint venture partnership.
(9)    On  January 11, 2002,  we  sold  this  outlet  center  to a joint venture
       partnership  in  which  we,  through  affiliates,  have  a  30% ownership
       interest.
(10)   We  own  two  community  centers,  not included in this table, containing
       approximately 219,000 square feet in the aggregate that were 75% occupied
       as of March 31, 2002.
<PAGE>
Results of Operations

Comparison of the three months ended March 31, 2002 to the three months ended
March 31, 2001

Summary

     We reported  net income  (loss) of $1,681 and $(5,630) for the three months
ended March 31, 2002 and 2001,  respectively.  For the three  months ended March
31, 2002,  the net loss  applicable to our common  shareholders  was $3,791,  or
$0.09 per common share on a basic and diluted basis.  For the three months ended
March 31, 2001, the net loss applicable to our common  shareholders was $11,298,
or $0.26 per common share on a basic and diluted basis.

     The 2002 results  include a gain on the sale of real estate of $7,170.  The
2001 results include a gain on the sale of real estate of $732.

Revenues

     Total  revenues  were  $50,650 for the three  months  ended March 31, 2002,
compared to $58,117 for the same period in 2001, a decrease of $7,467, or 12.8%.
Base rents decreased  $5,734, or 15.5%, to $31,198 during the three months ended
March 31, 2002 compared to $36,932 for the same period in 2001.  These decreases
are  primarily  due to the  Portfolio  GLA Activity and the  reduction in outlet
center occupancy during the 2002 period. Straight-line rent expense, included in
base rent was $42 and $200 for the three  months  ended March 31, 2002 and 2001,
respectively.

     Tenant  reimbursements,  which  represent  the  contractual  recovery  from
tenants of certain operating expenses, decreased by $2,990, or 16.9%, to $14,734
during the three  months  ended March 31,  2002  compared to $17,724 in the same
period in 2001.  This decline is primarily due to the Portfolio GLA Activity and
the  reduction  in  outlet  center  occupancy  during  the 2002  period.  Tenant
reimbursements as a percentage of recoverable  property  operating  expenses and
real estate taxes was 86.4% in 2002 compared to 91.6% in 2001.

     Interest and other income increased by $314, or 11.4%, to $3,058 during the
three  months  ended March 31, 2002  compared to $2,744 for same period in 2001.
The increase was primarily  attributable  to an increase in equity earnings from
investment in partnerships  of $818 partially  offset by reductions in (i) lease
termination income of $322 and (ii) all other income of $182.

Expenses

     Property  operating  expenses  decreased  by $1,728,  or 12.2%,  to $12,405
during the three  months  ended March 31, 2002  compared to $14,133 for the same
period in 2001. Real estate taxes expense decreased by $587, or 11.2%, to $4,639
during the three  months  ended March 31,  2002  compared to $5,226 for the same
period in 2001. These decreases are primarily due to the Portfolio GLA Activity.

     As shown in TABLE 1,  depreciation  and amortization  expense  decreased by
$1,452,  or 10.6%,  to $12,223  during the three  months  ended March 31,  2002,
compared to $13,675 for the same period in 2001.  This  decrease  was  primarily
attributable to the depreciation and amortization of assets  associated with the
Portfolio GLA Activity.
<PAGE>
Table 1--Components of Depreciation and Amortization Expense

--------------------------------------------------------------------------------
Three Months ended March 31,                         2002                 2001
--------------------------------------------------------------------------------
Building and improvements                         $  6,648             $  6,889
Land improvements                                    1,389                1,536
Tenant improvements                                  3,426                4,374
Furniture and fixtures                                 668                  760
Leasing commissions                                     98                  116
                                                  --------             --------
  Total                                           $ 12,223             $ 13,675
                                                  ========             ========
--------------------------------------------------------------------------------

     As shown in TABLE 2, interest  expense  decreased by $3,782,  or 15.5%,  to
$20,661 during the three months ended March 31, 2002 compared to $24,443 for the
same period in 2001.  This  decrease  reflects  (i) lower  interest  incurred of
$3,893 and (ii) a decrease in  amortization  of deferred  financing costs of $55
partially offset by a reduction in amortization of debt premiums of $166.

     The decrease in interest incurred is primarily  attributable to a reduction
of $134,527 in our weighted average debt  outstanding,  excluding debt premiums,
during the three  months  ended  March 31,  2002  compared to the same period in
2001. Also contributing to the decrease in interest incurred were lower weighted
average  interest rates during the three months ended March 31, 2002 compared to
the same period in 2001.  The  significant  reduction  in weighted  average debt
outstanding was primarily  attributable  to debt repayments  associated with the
sales of properties.  The weighted  average  contractual  interest rates for the
three months ended March 31, 2002 and 2001 were 8.99% and 9.36%, respectively.

Table 2--Components of Interest Expense

--------------------------------------------------------------------------------
Three Months ended March 31,                         2002                 2001
--------------------------------------------------------------------------------
Interest incurred                                 $ 19,347             $ 23,240
Amortization of deferred financing costs             1,959                2,014
Amortization of debt premiums                         (645)                (811)
                                                  --------             --------
  Total                                           $ 20,661             $ 24,443
                                                  ========             ========
================================================================================

     Other charges  decreased by $910, or 24.6%,  to $2,792 for the three months
ended March 1, 2002 compared to $3,702 for the same period in 2001. The decrease
was primarily  attributable to (i) a lower provision for uncollectible  accounts
receivable  of $557 and (ii) a decrease  in costs  associated  with  development
activities  of $434.  Partially  offsetting  these items was a reduction  in all
other expenses of $81.

Merchant Sales

     For the  three  months  ended  March  31,  2002,  same-store  sales  in the
Company's outlet center portfolio  decreased 1.3% compared to the same period in
2001.  "Same-store  sales" is defined as the  weighted-average  sales per square
foot  reported  by  merchants  for  stores  open  since  January  1,  2001.  The
weighted-average  sales per square foot reported by all merchants  were $241 for
the year ended December 31, 2001.

Liquidity and Capital Resources

Sources and Uses of Cash

     For the three months ended March 31, 2002,  net cash  provided by operating
activities was $4,668, net cash provided by investing activities was $10,576 and
net cash used in financing activities was $16,691.
<PAGE>
     The net cash provided by investing activities during the three months ended
March 31,  2002  consisted  of  $12,133 of net  proceeds  from the sale of Prime
Outlets at Hagerstown on January 11, 2002  partially  offset by (i) cash of $574
assumed by the lender in connection with the January 1, 2002 foreclosure sale of
Prime  Outlets  at Conroe and (ii) $983 of  additions  to rental  property.  The
additions to rental  property were primarily  attributable  to costs incurred in
connection with re-leasing space to new merchants.

     The gross uses of cash for financing activities of $16,691 during the three
months ended March 31, 2002 consisted of (i) scheduled principal amortization on
notes  payable  of  $5,044  and (ii)  additional  mandatory  principal  payments
totaling $11,647 on our Mezzanine Loan.

2002 Sales Transactions

     On January 11, 2002,  we completed  the sale of Prime Outlets at Hagerstown
(the  "Hagerstown  Center"),  an outlet center located in  Hagerstown,  Maryland
consisting of approximately  487,000 square feet of gross leasable area ("GLA"),
for  $80,500  to  an  existing  joint  venture  partnership  (the  "Prime/Estein
Venture")  between one of our affiliates and an affiliate of Estein & Associates
USA, Ltd. ("Estein"),  a real estate investment company.  Estein and we have 70%
and 30% ownership  interests,  respectively,  in the  Prime/Estein  Venture.  In
connection with the sale  transaction,  the  Prime/Estein  Venture assumed first
mortgage indebtedness of $46,862 on the Hagerstown Center (the "Assumed Mortgage
Indebtedness");  however,  our  guarantee of the Assumed  Mortgage  Indebtedness
remains in place.

     The net cash proceeds from the sale, including the release of certain funds
held in  escrow,  were  $12,113  after (i) a pay-down  of  $11,052  of  existing
mortgage  indebtedness on the Hagerstown  Center and (ii) closing costs. The net
proceeds  from this sale were used to prepay  $11,647 of  principal  outstanding
under the Mezzanine Loan. In connection with the sale of the Hagerstown  Center,
we  recorded  a gain on the sale of real  estate  of  $16,795  during  the first
quarter of 2002.  At December 31, 2001,  the  carrying  value of the  Hagerstown
Center of $54,628 was  classified  as assets  held for sale in the  Consolidated
Balance Sheet.  Effective on the date of disposition,  we have accounted for our
30% ownership  interest in the Hagerstown  Center in accordance  with the equity
method of accounting.

     We are obligated to refinance the Assumed  Mortgage  Indebtedness 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
Assumed  Mortgage  Indebtedness 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 ten-year period, we will be obligated
to pay the difference to the Prime/Estein  Venture.  However, if the actual cost
of such  indebtedness is less than 7.75% at any time during the ten-year period,
the  Prime/Estein  Venture will be obligated  to pay the  difference  to us. The
actual cost of the Assumed Mortgage  Indebtedness is currently 30-day LIBOR plus
1.50%, or 3.3.7% as of March 31, 2002.

     On April 1, 2002, we completed the sale of Prime Outlets at Edinburgh  (the
"Edinburgh Center"),  an outlet center located in Edinburgh,  Indiana consisting
of  approximately  305,000 square feet of GLA. The Edinburgh  Center was sold to
CPG Partners, L.P. for cash consideration of $27,000.
<PAGE>
     The net cash  proceeds  from the sale were $9,551,  after (i)  repayment in
full of $16,317 of existing first mortgage  indebtedness on the Edinburgh Center
and (ii) closing  costs and fees. We used these net proceeds to make a mandatory
principal  payment of $9,178 on a mezzanine loan (the "Mezzanine Loan") obtained
in December 2000 from FRIT PRT Lending LLC (the "Lender") in the original amount
of $90,000.

     During the first  quarter of 2002,  we  recorded a loss on the sale of real
estate  of  $9,625  related  to the  write-down  of the  carrying  value  of the
Edinburgh  Center  to its net  realizable  value  based on the terms of the sale
agreement.  Effective  March  31,  2002,  the  aggregate  carrying  value of the
Edinburgh  Center of  $26,709  was  classified  as  assets  held for sale in the
Consolidated Balance Sheet.

     On April 19, 2002,  we completed  the sale of Phases II and III of Bellport
Outlet  Center (the  "Bellport  Outlet  Center"),  an outlet  center  located in
Bellport,  New York consisting of  approximately  197,000 square feet of GLA. We
had a 51%  ownership  interest in the joint venture  partnership  that owned the
Bellport Outlet Center.  The Bellport Outlet Center was sold to Sunrise Station,
L.L.C.,  an  affiliate  of  one  of  our  joint  venture   partners,   for  cash
consideration  of $6,500.  At closing,  recourse first mortgage  indebtedness of
$5,500 which was scheduled to mature on May 1, 2002, was repaid in full. To date
we have  received  $522 of cash proceeds from the sale which were used to make a
mandatory principal payment of $502 on the Mezzanine Loan.

Foreclosure Sales

     During 2001,  certain of our  subsidiaries  suspended  regularly  scheduled
monthly debt service  payments on two  non-recourse  mortgage  loans held by New
York Life Insurance Company ("New York Life") which were cross-collateralized by
Prime Outlets at Jeffersonville II (the "Jeffersonville II Center"),  located in
Jeffersonville,  Ohio and Prime Outlets at Conroe (the "Conroe Center"), located
in Conroe,  Texas.  Effective  January 1, 2002, New York Life  foreclosed on the
Conroe  Center and we remain in  discussions  with New York Life  regarding  the
transfer  of  our  ownership  interest  in the  Jeffersonville  II  Center.  See
"Defaults  on  Certain  Non-recourse   Mortgage   Indebtedness"  for  additional
information.

Going Concern

     During  2002,   we  are   required,   in  addition  to  scheduled   monthly
amortization, to make certain mandatory principal payments on our Mezzanine Loan
aggregating  $25,367 from with net  proceeds  from asset  sales,  excluding  the
January  11,  2002  sale of a 70%  joint  venture  partnership  interest  in the
Hagerstown Center, or other capital  transactions  within specified periods (see
"Mezzanine Loan Modification" for additional information).  Although we continue
to seek to generate additional  liquidity through new financings and the sale of
assets,  there can be no assurance  that we will be able to complete asset sales
or other capital  transactions  within the specified  periods or that such asset
sales or  other  capital  transactions,  if they  should  occur,  will  generate
sufficient  proceeds  to  make  the  additional  mandatory  prepayments  of  the
Mezzanine  Loan. Any failure to satisfy these  mandatory  principal  prepayments
within the specified time periods will  constitute a default under the Mezzanine
Loan.
<PAGE>
     As of  March  31,  2002,  we were in  compliance  with all  financial  debt
covenants under our recourse loan agreements. However, there can be no assurance
that we will be in  compliance  with our  financial  debt  covenants  in  future
periods since our future  financial  performance is subject to various risks and
uncertainties, including, but not limited to, the effects of increases in market
interest rates from current levels,  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.  See  "Defaults  on Certain  Non-recourse  Mortgage  Indebtedness"  and
"Defaults  on  Certain  Non-recourse  Mortgage  Indebtedness  of  Unconsolidated
Partnerships" for additional information.

     Based on our current  financial  projections,  we believe we will not be in
compliance  with respect to debt  service  coverage  ratios  under  certain debt
facilities as early as the second quarter of 2002. The debt  facilities at issue
are fixed rate tax-exempt revenue bonds (the "Affected Fixed Rate Bonds") in the
amount of $18,390 and a recourse  bridge loan (the "Bridge  Loan") in the amount
of $111,225.  In the event of non-compliance,  the holders of the Affected Fixed
Rate Bonds may elect to put such  obligations to us at a price equal to par plus
accrued  interest,  and the  Bridge  Loan  lender  may elect to  accelerate  the
maturity of the Bridge Loan debt.  Additionally,  noncompliance or defaults with
respect to debt service  coverage ratios under these debt facilities may trigger
certain  cross-default   provisions  with  respect  to  other  debt  facilities,
including our Mezzanine Loan.

     We are working with the affected lenders to discuss  potential  resolutions
including waiver or amendment with respect to the applicable  provisions.  If we
are unable to reach satisfactory  resolution with the affected lenders,  we will
look to (i) obtain alternative financing from other financial institutions, (ii)
sell the projects  subject to the affected debt or (iii) explore other  possible
capital  transactions  to generate cash to repay the amounts  outstanding  under
such debt facility.  There can be no assurance that we will obtain  satisfactory
resolutions  with our affected lenders or that we will be able to complete asset
sales or other  capital  raising  activities  sufficient  to  repay  the  amount
outstanding under the affected Fixed Rate Bonds or Bridge Loan.

     These above listed  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.

Mezzanine Loan Modification

     Effective  January 31, 2002, we entered into a modification to the original
terms of our  Mezzanine  Loan  obtained in December  2000.  The  Mezzanine  Loan
amendment (the  "Amendment"),  among other things,  (i) reduces required monthly
principal  amortization  for the period February 1, 2002 through January 1, 2003
("Year 2") from  $1,667 to $800,  which may be  further  reduced to a minimum of
$500 per month under certain limited  circumstances,  provided no defaults exist
under the Mezzanine Loan and certain other conditions have been satisfied at the
Lender's sole discretion,  (ii) requires certain  mandatory  principal  payments
from net proceeds from asset sales,  or other capital  transactions  pursuant to
the  schedule  set forth below and (iii)  reduces the  threshold  level at which
excess  cash  flow from  operations  must be  applied  to  principal  pay-downs,
primarily  resulting from a reduction in the available working capital reserves.
Additionally,  the  Amendment  (i)  increases  the interest rate from LIBOR plus
9.50% to LIBOR plus 9.75%  (rounded up to nearest  0.125% with a minimum rate of
14.75%), (ii) changes the Mezzanine Loan maturity date from December 31, 2003 to
September 30, 2003 and (iii) required a 0.25% fee, which was paid at the time of
the modification, on the outstanding principal balance.
<PAGE>
     The Amendment also requires additional Year 2 monthly payments of $250 (the
"Escrowed  Funds") into an escrow  account  controlled  by the Lender.  Provided
certain  conditions are satisfied in the Lender's sole discretion,  the Escrowed
Funds may be released to us for limited purposes. The Escrowed Funds not used at
the end of each quarter,  subject to certain exceptions,  will be applied by the
Lender  to  amortize  the  Mezzanine  Loan.  The  required   monthly   principal
amortization of $2,333 commencing on February 1, 2003,  through the new maturity
date of September 30, 2003, remains unchanged.

     The Amendment also requires mandatory  principal payments with net proceeds
from asset sales,  excluding  our January 11, 2002 sale of a 70% interest in the
Hagerstown  Center  (see  Note  3  -  "Property   Dispositions"  for  additional
information),  or other capital  transactions of not less than (i) $8,906 by May
1, 2002,  (ii)  $24,406,  inclusive of the $8,906,  by July 1, 2002  (subject to
extension  to  October  31,  2002  provided  certain  conditions  are met to the
Lender's satisfaction) and (iii) $25,367,  inclusive of the $24,406, by November
1, 2002. In addition to each mandatory  principal payment,  we must also pay any
interest,  including deferred interest,  accrued thereon and the additional fees
provided  for in the  Mezzanine  Loan.  Any failure to satisfy  these  mandatory
principal  payments or other  payments  within the  specified  time periods will
constitute a default under the Mezzanine Loan.

     On April 1, 2002, we sold our Edinburgh Center and used the net proceeds to
make a $9,178 mandatory  payment on the Mezzanine Loan.  Additionally,  on April
19, 2002,  we sold Phases II and III of the Bellport  Outlet Center and used the
net  proceeds  to make a $502  mandatory  payment on the  Mezzanine  Loan.  As a
result, we satisfied the May 1, 2002 mandatory principal  repayment  requirement
and are now  required  to  complete  additional  asset  sales or  other  capital
transactions  generating  net  proceeds  aggregating  $14,726  by July  1,  2002
(subject to extension as indicated above) and $15,687 (inclusive of the $14,726)
by November 1, 2002.

     The  Mezzanine  Loan was also  amended on January 11, 2002 to,  among other
things,  (i) release the  partnership  interests in Outlet Village of Hagerstown
Limited  Partnership  ("Hagerstown  LP") as collateral under the Mezzanine Loan,
(ii) release Hagerstown LP of all obligations under the Mezzanine Loan and (iii)
add  Hagerstown  Land,  L.L.C.,  a  Delaware  limited  liability  company,  as a
guarantor  under the Mezzanine  Loan.  Hagerstown  Land,  L.L.C. is the owner of
three parcels of land adjacent to the Hagerstown Center.

Debt Service Obligations

     Our  aggregate  indebtedness  excluding  (i)  unamortized  debt premiums of
$10,253, (ii) mortgage indebtedness of $16,317 on the Edinburgh Center and (iii)
non-recourse mortgage indebtedness of $17,768 on Prime Outlets at Jeffersonville
II was $821,993 (the  "Adjusted  Indebtedness")  at March 31, 2002. See Note 3 -
"Property   Dispositions"  and  "Defaults  on  Certain   Non-recourse   Mortgage
Indebtedness" for additional information.

     At March 31, 2002 the Adjusted Indebtedness had a weighted-average maturity
of 3.1 years and bore contractual  interest at a weighted-average  rate of 8.97%
per annum. At March 31, 2002, $754,474,  or 91.8%, of the Adjusted  Indebtedness
bore interest at fixed rates and $67,519 or 8.2%,  of the Adjusted  Indebtedness
bore  interest  at  variable  rates.  In certain  cases,  we utilize  derivative
financial  instruments to manage our interest rate risk associated with variable
rate debt.
<PAGE>
     As of March 31, 2002, our scheduled principal payments for the remainder of
2002 for the Adjusted  Indebtedness  aggregated $43,118. The remaining scheduled
principal  payments  for 2002  include (i)  principal  amortization  aggregating
$14,779,  (ii) a $2,972  recourse  first  mortgage  loan on  Western  Plaza (the
"Western Plaza First Mortgage  Loan"),  a community center located in Knoxville,
Tennessee  and  (iii)  mandatory   principal  payments  on  the  Mezzanine  Loan
aggregating   $25,367  (see   "Mezzanine  Loan   Modification"   for  additional
information).  On April 11,  2002,  we made a  principal  payment of $350 on the
Western Plaza First  Mortgage Loan in connection  with our exercise of an option
to extend the  maturity  date from April 30,  2002 to October  31,  2002 for the
remaining outstanding principal balance of $2,622. Additionally, during April of
2002, we made mandatory  principal  payments on the Mezzanine  Loan  aggregating
$9,680. The outstanding  principal balance of the Mezzanine Loan as of March 31,
2002 was $47,831.  As a result of subsequent  principal payments the outstanding
principal balance as of May 14, 2002 was $36,740.

     Certain  of  our  debt  obligations,   including  the  Mezzanine  Loan  and
fixed-rate  bonds  aggregating  $7,000  secured by a second  mortgage on Western
Plaza, contain cross-default  provisions that would be triggered in the event of
a default under the Western Plaza First  Mortgage  Loan. If these  cross-default
provisions  were  triggered,  the holders of the  Mezzanine  Loan could elect to
accelerate  such  debt and the  holders  of the  bonds  could  elect to put such
obligations  to us at a price  equal to par plus  accrued  interest.  See "Going
Concern" for additional information.

Guarantees of Indebtedness of Others

     We are a guarantor or otherwise  obligated  with respect to an aggregate of
$12,394 of the indebtedness of Horizon Group Properties, Inc. and its affiliates
("HGP"),  including  $10,000 of obligations under a secured credit facility (the
"HGP Secured Credit Facility"). HGP is a publicly traded company that was formed
in connection with our merger with Horizon Group, Inc. in June, 1998.

     The HGP Secured  Credit  Facility  bore  interest at a rate of 30-day LIBOR
plus 1.90%, was  collateralized by five properties located throughout the United
States and matured on July 11,  2001.  On August 2, 2001,  HGP  announced it had
refinanced one of the properties in the HGP Secured Credit Facility and used the
proceeds from the new first mortgage loan to reduce the principal balance of the
HGP Secured Credit  Facility.  Simultaneously,  HGP obtained an extension to the
remaining principal balance of approximately  $33,500,  including a 2% extension
fee, on the HGP Secured Credit Facility through July 11, 2002. Commencing on the
extension  date,  the HGP Secured  Credit  Facility  bears interest at a rate of
30-day LIBOR (but not less than 4.10%) plus 3.95%,  requires  monthly  principal
amortization  of  $225,  and  is  collateralized  by  four  properties   located
throughout  the United  States.  We confirmed our  obligations as guarantor with
respect to the HGP Secured Credit  Facility in connection with the extension and
partial  pay-down.  No claims  have been made  against  our  guaranty by the HGP
Secured Credit Facility  lender.  On October 11, 2001, HGP announced that it was
in  default  under two loans  with an  aggregate  principal  balance  of $45,500
secured by six of its other  outlet  centers.  Such  defaults do not  constitute
defaults under the HGP Secured Credit Facility or any other facility  guaranteed
by us.

     On January 11,  2002,  we sold the  Hagerstown  Center to the  Prime/Estein
Venture.  In connection with the sale, the Prime/Estein  Venture assumed $46,862
of mortgage indebtedness, however, our guarantee of such indebtedness remains in
place. See "2002 Sales Transactions" for additional information.
<PAGE>
Defaults on Certain Non-recourse Mortgage Indebtedness

     During 2001,  certain of our  subsidiaries  suspended  regularly  scheduled
monthly  debt service  payments on two  non-recourse  mortgage  loans which were
cross-collateralized  by the  Jeffersonville  II Center and the  Conroe  Center.
These non-recourse mortgage loans were held by New York Life.

     Effective  January 1, 2002,  New York Life  foreclosed on the Conroe Center
and its related  assets and  liabilities,  including $554 of cash and $15,467 of
principal  outstanding  under the  non-recourse  mortgage loan, were transferred
from our  subsidiary  that owned the Conroe  Center to New York Life. No gain or
loss was recorded in connection with the foreclosure  action. The foreclosure of
the Conroe Center did not have a material impact on our results of operations or
financial condition because during 2001 all excess cash flow from the operations
of the Conroe Center was utilized for debt service on its non-recourse  mortgage
loan.

     We remain in  discussions  with New York Life regarding the transfer of our
ownership  interest in the  Jeffersonville II Center.  During 2001 and the three
months ended March 31,  2002,  all excess cash flow from the  operations  of the
Jeffersonville  II Center was  utilized  for debt  service  on its  non-recourse
mortgage loan. The carrying value of the  Jeffersonville II Center  approximates
$3,931  at  March  31,  2002.  Such  value is  exceeded  by the  balance  of the
non-recourse  mortgage  indebtedness of $17,768 as of March 31, 2002. If we were
to transfer our ownership  interest in the  Jeffersonville II Center to New York
Life,  we would  record a  non-recurring  gain for the  difference  between  the
carrying  value of the  Jeffersonville  II Center and its related net assets and
the outstanding loan balance.

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.  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 do not believe  either of these  mortgage loans is recourse to us. It is
possible,  however,  that either or both of the  respective  lenders will file a
lawsuit seeking to collect from us amounts due under the loan. If such an action
is brought, the outcome, and our ultimate liability, if any, cannot be predicted
at this time.

     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  ownership  interests in Phase I of the Bellport  Outlet  Center and the
Oxnard Factory Outlet in accordance with the equity method of accounting.  As of
March 31, 2002, the carrying value of our investment in these properties was $0.
<PAGE>
Interest Rate Risk

     In the  ordinary  course  of  business,  we are  exposed  to the  impact of
interest rate changes and, therefore, employ established policies and procedures
to manage our  exposure  to  interest  rate  changes.  We use 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 circumstances, we use derivative financial instruments to manage
interest rate risk  associated  with our variable  rate debt. In such cases,  we
purchase interest rate protection agreements, such as caps, which are designated
as  hedges  for  underlying  variable  rate  debt  obligations.  We do not  hold
derivative financial instruments for trading purposes.

     The interest rate caps specifically  limit our interest costs with an upper
limit on the  underlying  interest  rate index.  The cost of such  contracts are
included in deferred  charges and are being amortized as a component of interest
expense  over the life of the  contracts.  Amounts  earned  from  interest  rate
protection  contracts,  if any, are recorded as a reduction of interest expense.
We are exposed to credit losses in the event of counterparty nonperformance, but
do  not  anticipate  any  such  losses  based  on  the  creditworthiness  of the
counterparties.

     Although derivative financial instruments are an important component of our
interest rate management  program,  their incremental effect on interest expense
for the three months ended March 31, 2002 and 2001 was not material.

Dividends and Distributions

     To qualify as a 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 necessary  distributions  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 current policy is to pay distributions  only to the extent necessary to
maintain  our status as a REIT for  federal  income tax  purposes.  Based on our
current  federal  income tax  projections  for 2002, we do not expect to pay any
distributions  on our  Series A Senior  Preferred  Stock,  Series B  Convertible
Preferred Stock, common stock or common units of limited partnership interest in
the  Operating  Partnership  during  2002.  We are  currently  in arrears on ten
quarters of preferred stock  distributions due February 15, 2000 through May 15,
2002, respectively.

     Under  the terms of the  Mezzanine  Loan,  we are  prohibited  from  paying
dividends or distributions except to the extent necessary to maintain our status
as a REIT. In addition, we may not make distributions to our common shareholders
or our holders of common units of limited partnership  interest in the Operating
Partnership unless we are current with respect to distributions to our preferred
shareholders.  As of March 31, 2002,  unpaid dividends for the period commencing
November 16, 1999 through March 31, 2002 on the Series A Senior  Preferred Stock
and  Series B  Convertible  Preferred  Stock  aggregated  $14,339  and  $39,508,
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 March 31, 2002 are $6,037 ($2.625 per share) and $16,635
($2.125 per share), respectively.

Development Activities

     During the three  months  ended  March 31,  2002,  we did not engage in any
development activities other than (i) post-opening work related to Prime Outlets
of  Puerto  Rico,  which  opened  in July,  2000,  and (ii)  certain  consulting
activities in Europe.
<PAGE>
New Accounting Pronouncements

     In October, 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard ("SFAS") No. 144, "Accounting for Impairment of
Disposal of Long-lived Assets." SFAS No. 144 supercedes SFAS No. 121, however it
retains the fundamental  provisions of that statement related to the recognition
and measurement of the impairment of long-lived assets to be "held and used." In
addition,  SFAS No. 144 provides  more  guidance on  estimating  cash flows when
performing  a  recoverability  test,  requires  that a  long-lived  asset  to be
disposed  of other than by sale (e.g.,  abandoned)  be  classified  as "held and
used" until it is disposed  of, and  established  more  restrictive  criteria to
classify an asset as "held for sale." SFAS No. 144 is effective for fiscal years
beginning after December 15, 2001. We adopted SFAS No. 144 effective  January 1,
2002  and such  adoption  did not  have a  material  impact  on our  results  of
operations or financial position.

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 measure of performance of an equity REIT. In October 1999, NAREIT
issued a new white paper  statement and  redefined how funds from  operations is
calculated,  effective  January  1,  2000.  FFO is now  defined by NAREIT as net
income (loss) determined in accordance with GAAP, excluding gains or losses from
provisions  for 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 partnership and joint ventures.

     We  believe  that  FFO is an  important  and  widely  used  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.

     TABLE 3 provides a  reconciliation  of income (loss) before  allocations to
minority interests and preferred  shareholders to FFO for the three months ended
March 31, 2002 and 2001.  FFO  decreased  $336, or 4.6%, to $6,963 for the three
months ended March 31, 2002 from $7,299 for the same period in 2001.

     The decrease in FFO for the three  months ended March 31, 2002  compared to
the same  period in 2001 is  primarily  due to a loss in net  operating  income,
partially offset by interest  expense  savings,  resulting from sales of certain
properties  during the comparable  periods.  We sold two  properties  during the
first  quarter  of 2001 and a 70% joint  venture  interest  in Prime  Outlets at
Hagerstown on January 11, 2002.
<PAGE>
Table 3--Funds from Operations

--------------------------------------------------------------------------------
Three Months Ended March 31,                             2002            2001
--------------------------------------------------------------------------------
Loss before minority interests                         $ 1,681         $ (5,631)
FFO adjustments:
  Gain on sale of real estate                           (7,170)            (732)
  Depreciation and amortization                         12,223           13,675
  Non-real estate depreciation and amortization           (554)            (568)
  Joint venture adjustments                                783              555
                                                       -------         --------
FFO before allocations to minority interests
  and preferred shareholders                           $ 6,963         $  7,299
                                                       =======         ========

Other Data:
Net cash provided by operating activities              $ 4,668         $  6,585
Net cash provided by investing activities               10,576            3,877
Net cash used in financing activities                  (16,691)         (13,679)
================================================================================
<PAGE>
Item 3.  Quantitative and Qualitative Disclosures of Market Risk
Market Risk Sensitivity

Interest Rate Risk

     In the ordinary course of business, the Company is exposed to the impact of
interest rate changes.  The Company employs established  policies and procedures
to manage its exposure to interest  rate changes.  See  "Interest  Rate Risk" of
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations  for additional  information.  The Company uses a mix of fixed and
variable  rate debt to (i) limit the  impact of  interest  rate  changes  on its
results from  operations and cash flows and (ii) to lower its overall  borrowing
costs. The following table provides a summary of principal cash flows, excluding
(i) unamortized debt premiums of $10,253,  (ii) mortgage indebtedness of $16,137
on Prime Outlets at Edinburgh and (iii)  non-recourse  mortgage  indebtedness of
$17,768 on Prime Outlets at Jeffersonville II (see "2002 Sales Transactions" and
"Defaults  on  Certain   Non-recourse   Mortgage   Indebtedness"  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.   Variable  interest  rates  are  based  on  the
weighted-average rates of the portfolio at March 31, 2002.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------

                                                       Year of Maturity
------------------------------------------------------------------------------------------------------------------------------------
                             2002            2003           2004            2005           2006         Thereafter        Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                       <C>            <C>              <C>            <C>           <C>             <C>             <C>
Fixed Rate:
Principal                 $ 10,019       $ 454,478        $ 7,022        $ 51,147      $ 121,931       $ 109,877       $ 754,474
Average interest rate        7.66%           9.05%          7.20%           7.92%          8.76%           7.50%           8.69%

Variable Rate:
Principal                 $ 33,099       $  34,466                                                                     $  67,519
Average interest rate       14.60%           9.53%                                                                        12.01%
====================================================================================================================================
</TABLE>

Economic Conditions

     Most of the merchants' leases contain provisions that somewhat mitigate the
impact of inflation.  Such provisions include clauses providing for increases in
base rent and clauses enabling the Company to receive  percentage  rentals based
on merchants'  gross sales.  Most of the leases  require  merchants to pay their
proportionate   share  of  all  operating   expenses,   including   common  area
maintenance,  real estate taxes and  promotion,  thereby  reducing the Company's
exposure to increased costs and operating expenses resulting from inflation.
<PAGE>
                           PART II: OTHER INFORMATION

Item 1.           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 a  material  adverse  effect  on our  consolidated  financial
statements.

     Dinnerware Plus Holdings, Inc., which operates under the trade name Mikasa,
and affiliates  (collectively,  the "Mikasa Plaintiffs") filed a lawsuit against
the Company and various  affiliates in Superior Court of New Jersey on March 29,
2001.  The Mikasa  Plaintiffs  assert a number of causes of action in which they
allege that the Company and its affiliates  breached  various  provisions in the
Mikasa  Plaintiffs'  leases and, as a result,  overcharged the Mikasa Plaintiffs
for common area  maintenance  and similar  charges  ("CAM") and  promotion  fund
charges at various centers where the Mikasa Plaintiffs are tenants.  The Company
filed a motion to dismiss the  complaint on behalf of the  Company's  affiliates
who  entered  into  leases  with  the  Mikasa  Plaintiffs,   based  on  lack  of
jurisdiction.  The motion was granted,  but the Mikasa Plaintiffs filed a motion
for  reconsideration,  upon  which  the  court  has  not  ruled.  The  remaining
defendants,  Prime  Retail,  Inc.  and Prime  Retail,  L.P.,  have  answered the
complaint.  The  outcome of this  lawsuit,  and the  ultimate  liability  of the
defendants, if any, cannot be predicted at this time.

     On July 6, 2001, affiliates of the Company brought an action in the Circuit
Court for Washington County, Maryland against Melru Corporation,  which operates
under the trade name Jones New York,  alleging that Melru  Corporation owed past
due rent in connection  with 43 leases.  Melru  Corporation,  in response to the
collection action filed by certain  affiliates of the Company,  filed on October
15, 2001 several  counterclaims  against the Company and its affiliates in which
it alleges that the Company and its affiliates overcharged Melru Corporation for
CAM and promotion fund charges.  In addition,  Melru Corporation alleges that an
affiliate of the Company  fraudulently induced Melru Corporation to enter into a
lease and that another  affiliate  violated its lease with Melru  Corporation by
failing to maintain  required  occupancy  levels at the shopping center it owns.
The  Company  and its  affiliates  have not filed  their  response  to the Melru
Corporation  counterclaims.  The outcome of the Melru Corporation counterclaims,
and the ultimate liability of the Company and its affiliates,  if any, cannot be
predicted at this time.

     In addition to the Mikasa Plaintiffs and Melru Corporation,  other tenants,
including  Design's Inc. and Brown Group Retail,  Inc., in the Company's  outlet
centers have made or may make  allegations  concerning  overcharging for CAM and
promotion fund charges similar to those made by the Mikasa  Plaintiffs and Melru
Corporation. No other such tenant, however, has filed a suit. It is too early to
make any  predictions  as to whether the Company or its  affiliates may be found
liable  with  respect  to such  other  tenants,  or to  predict  damages  should
liability be found.

     The  Company  and its  affiliates  were  defendants  in a lawsuit  filed by
Accrued  Financial  Services ("AFS") on August 10, 1999 in the Circuit Court for
Baltimore  City. The lawsuit was removed to United States District Court for the
District of Maryland (the "U.S. District Court") on August 20, 1999. AFS claimed
that  certain  tenants  had  assigned to AFS their  rights to make claims  under
leases such  tenants  had with  affiliates  of the Company and alleged  that the
Company and its affiliates  overcharged such tenants for common area maintenance
charges and  promotion  fund  charges.  The U.S.  District  Court  dismissed the
lawsuit on June 19, 2000. AFS appealed the U.S. District Court's decision to the
United States Court of Appeals for the Fourth Circuit. Briefs were submitted and
oral argument before a panel of judges of the United States Court of Appeals for
the Fourth  Circuit  was held on October  30,  2001,  during  which the panel of
judges requested further briefing of certain issues. The Fourth Circuit received
the  briefs,  but has not yet  ruled.  The  Company  believes  that it has acted
properly  and will  continue to defend this lawsuit  vigorously.  The outcome of
this lawsuit,  and the ultimate  liability of the defendants,  if any, cannot be
predicted at this time.
<PAGE>
     Affiliates of the Company  routinely file lawsuits to collect past due rent
from, and to evict,  tenants which have defaulted under their leases.  There are
currently dozens of such actions pending.  In addition to defending  against the
Company's   affiliates'   claims  and  eviction   actions,   some  tenants  file
counterclaims  against  the  Company's  affiliates.  A tenant  who files  such a
counterclaim typically claims that the Company's affiliate which owns the outlet
center in question has defaulted under the tenant's  lease,  has overcharged the
tenant for CAM and promotion  fund charges,  or has failed to maintain or market
the  outlet  center in  question  as  required  by the  lease.  In spite of such
counterclaims,  the  Company's  affiliates  usually  elect to continue to pursue
their  collection or eviction  actions.  The Company and its 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 the
Company and its affiliates, cannot be predicted at this time.

     Since October 13, 2000 there have been eight complaints filed in the United
States District Court for the District of Maryland  against the Company and five
individual defendants.  The five individual defendants are Glenn D. Reschke, the
President, Chief Executive Officer and Chairman of the Board of Directors of the
Company;  William H.  Carpenter,  Jr., the former  President and Chief Operating
Officer and a former  director of the  Company;  Abraham  Rosenthal,  the former
Chief  Executive  Officer  and a former  director  of the  Company;  Michael  W.
Reschke, the former Chairman of the Board and a current director of the Company;
and Robert P. Mulreaney,  the former  Executive Vice President - Chief Financial
Officer and  Treasurer  of the  Company.  The  complaints  have been  brought by
alleged  stockholders  of the Company,  individually  and  purportedly  as class
actions  on behalf of all other  stockholders  of the  Company.  The  complaints
allege that the individual  defendants  made  statements  about the Company that
were  in  violation  of  the  federal   securities  laws.  The  complaints  seek
unspecified  damages and other  relief.  Lead  plaintiffs  and lead counsel were
subsequently  appointed.  A consolidated  amended complaint  captioned The Marsh
Group,  et al. v. Prime Retail,  Inc., et al. dated May 21, 2001 was filed.  The
Company and the individual  defendants  filed a motion to dismiss the complaint,
which was granted on November 8, 2001. The plaintiffs appealed the matter to the
Fourth Circuit.  The appeal is now pending. The Company believes that the claims
are without merit and will defend vigorously  against the appeal. The outcome of
this lawsuit,  and the ultimate  liability of the defendants,  if any, cannot be
predicted at this time.

     Several  entities  (the  "eOutlets  Plaintiffs")  have  filed or  stated an
intention to file lawsuits  (collectively,  the "eOutlets Lawsuits") against the
Company and its affiliates. The eOutlets Plaintiffs seek to hold the Company and
its affiliates responsible under various legal theories for liabilities incurred
by primeoutlets.com,  inc., also known as eOutlets,  including the theories that
the Company  guaranteed the obligations of eOutlets and that the Company was the
"alter-ego" of eOutlets.  primeoutlets.com inc. is also a defendant in some, but
not all, of the eOutlets Lawsuits. The Company believes that it is not liable to
the eOutlets  Plaintiffs as there was no privity of contract  between it and the
various  eOutlets  Plaintiffs.  The Company will continue to defend all eOutlets
Lawsuits vigorously.  primeoutlets.com inc. filed for protection under Chapter 7
of the  United  States  Bankruptcy  Code  during  November  2000  under the name
E-Outlets  Resolution  Corp.  The trustee for  E-Outlets  Resolution  Corp.  has
notified the Company that he is  contemplating an action against the Company and
the Operating Partnership in which he may assert that E-Outlets Resolution Corp.
was the "alter-ego" of the Company and the Operating  Partnership and that, as a
result,  the Company and the Operating  Partnership  are liable for the debts of
E-Outlets  Resolution  Corp. If the trustee pursues such an action,  the Company
and the Operating  Partnership will defend  themselves  vigorously.  In the case
captioned  Convergys Customer  Management Group, Inc. v. Prime Retail,  Inc. and
primeoutlets.com  inc. in the Court of Common Pleas for Hamilton  County (Ohio),
the  Company  prevailed  in a motion to dismiss the  plaintiff's  claim that the
Company was liable for  primeoutlets.com  inc.'s breach of contract based on the
doctrine of piercing the corporate  veil. The outcome of the eOutlets  Lawsuits,
and the  ultimate  liability  of the  Company in  connection  with the  eOutlets
Lawsuits and related claims, if any, cannot be predicted at this time.
<PAGE>
     In May, 2001, the Company,  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 due to the maturation of
the loan. The Company and its affiliates  allege that they have been damaged due
to FCC's  failure to  dispose of the  collateral  in a  commercially  reasonable
manner. The Company, through affiliates, has also filed suit against The Fru-Con
Projects,  Inc. ("Fru-Con"),  a partner in Arizona Factory Shops Partnership and
an affiliate of FCC. The Company and its  affiliates  allege that Fru-Con failed
to use reasonable efforts to assist in obtaining refinancing. Fru-Con has claims
pending  against  the  Company  and its  affiliates,  as part of the same  suit,
alleging  that the Company  and its  affiliates  breached  their  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 managing and leasing the Sedona Project.  The Company and its affiliates will
vigorously  defend the claims filed  against them and  prosecute the claims they
filed.  However, the ultimate outcome of the suit,  including the liability,  if
any, of the Company and its affiliates, cannot be predicted at this time.

     The New York  Stock  Exchange  ("NYSE")  and the  Securities  and  Exchange
Commission have notified the Company that they are reviewing transactions in the
stock of the Company  prior to the  Company's  January  18,  2000 press  release
concerning  financial matters. The initial notice of such review was received by
the Company on March 13, 2000.

Item 2.           Changes in Securities

None

Item 3.           Defaults Upon Senior Securities

The Company is currently in arrears in the payment of distributions on its 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 March 31, 2002, the aggregate arrearage
on the Series A Senior  Preferred  Stock and the Series B Convertible  Preferred
Stock was $14,339 and $39,508, respectively.

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

None

Item 5.           Other Information

None
<PAGE>
Item 6.           Exhibits or Reports on Form 8-K

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

         Amendment No. 2 to the Third Amended and Restated  Agreement of Limited
         Partnership of Prime Retail, L.P. dated April 15, 2002.

         Reports on Form 8-K:

         None
<PAGE>
                                   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: May 15, 2002                         /s/ Robert A. Brvenik
      ------------                         -------------------------------------
                                           Robert A. Brvenik
                                           Executive Vice President,
                                           Chief Financial Officer and Treasurer