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 September 30, 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 November 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 September 30, 2002 and
       December 31, 2001................................................       1

     Consolidated Statements of Operations for the three and nine
       months ended September 30, 2002 and 2001.........................       2

     Consolidated Statements of Cash Flows for the nine
       months ended September 30, 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..........................      20

Item 3.  Quantitative and Qualitative Disclosures of Market Risk........      44

Item 4.  Controls and Procedures........................................      45

PART II:  OTHER INFORMATION

Item 1.  Legal Proceedings..............................................      46

Item 2.  Changes in Securities..........................................      47

Item 3.  Defaults Upon Senior Securities................................      48

Item 4.  Submission of Matters to a Vote of Security Holders............      48

Item 5.  Other Information..............................................      48

Item 6.  Exhibits and Reports on Form 8-K...............................      48

Signatures..............................................................      49

Certifications of Chief Executive Officer and Chief Financial Officer...      50

<PAGE>
                               PRIME RETAIL, INC.

                      Unaudited Consolidated Balance Sheets

                (Amounts in thousands, except share information)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                     September 30,                 December 31,
                                                                                            2002                           2001
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                            <C>                   <C>
Assets
Investment in rental property:

     Land                                                                                      $ 115,087             $ 148,463
     Buildings and improvements                                                                  829,614             1,208,568
     Property under development                                                                    3,450                 3,352
     Furniture and equipment                                                                      14,006                15,225
                                                                                               ---------           -----------
                                                                                                 962,157             1,375,608
     Accumulated depreciation                                                                   (233,787)             (258,124)
                                                                                               ---------           -----------
                                                                                                 728,370             1,117,484
Cash and cash equivalents                                                                          6,039                 7,537
Restricted cash                                                                                   36,764                37,885
Accounts receivable, net                                                                           2,916                 5,017
Deferred charges, net                                                                              5,571                11,789
Assets held for sale                                                                              33,022                54,628
Investment in partnerships                                                                        33,151                24,539
Other assets                                                                                       5,276                 3,629
                                                                                               ---------           -----------
          Total assets                                                                         $ 851,109           $ 1,262,508
                                                                                               =========           ===========

Liabilities and Shareholders' Equity
Bonds payable                                                                                  $  23,008           $    31,975
Notes payable                                                                                    621,748               867,414
Mortgage debt on assets held for sale                                                             21,306                58,078
Accrued interest                                                                                   4,449                 7,643
Real estate taxes payable                                                                          8,777                 8,091
Accounts payable and other liabilities                                                            25,905                31,380
                                                                                               ---------           -----------
     Total liabilities                                                                           705,193             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 $74,858),
          2,300,000 shares issued and outstanding                                                     23                    23
     8.5% Series B Cumulative Participating Convertible
          Preferred Stock, $0.01 par value (liquidation preference
          of $243,528), 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                                                           (565,481)             (453,470)
                                                                                               ---------           -----------
      Total shareholders' equity                                                                 144,429               256,440
                                                                                               ---------           -----------
          Total liabilities and shareholders' equity                                           $ 851,109           $ 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 September 30,       Nine Months Ended September 30,
                                                        -------------------------------------    -----------------------------------
                                                                     2002               2001               2002               2001
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                               <C>                <C>               <C>               <C>
Revenues
Base rents                                                        $  22,645          $  25,246         $   69,480        $   78,297
Percentage rents                                                      1,036              1,014              2,624             2,137
Tenant reimbursements                                                11,486             11,085             34,443            36,854
Interest and other                                                    3,684              2,120              8,005             6,535
                                                                  ---------          ---------         ----------        ----------
  Total revenues                                                     38,851             39,465            114,552           123,823

Expenses
Property operating                                                   10,579              8,744             30,476            28,706
Real estate taxes                                                     3,607              3,429             10,979            10,912
Depreciation and amortization                                         9,129              9,601             27,067            28,836
Corporate general and administrative                                  3,366              4,192              9,662            10,845
Interest                                                             14,155             16,377             43,871            50,699
Other charges                                                         1,477              6,230              7,803            12,775
Provision for asset impairment                                       81,619             63,026             81,619            63,026
                                                                  ---------          ---------         ----------        ----------
  Total expenses                                                    123,932            111,599            211,477           205,799
                                                                  ---------          ---------         ----------        ----------
Loss before gain (loss) on sale of real
  estate and minority interests                                     (85,081)           (72,134)           (96,925)          (81,976)
Gain (loss) on sale of real estate, net                                   -                  -               (703)              552
                                                                  ---------          ---------         ----------        ----------
Loss from continuing operations
  before minority interests                                         (85,081)           (72,134)           (97,628)          (81,424)
Loss allocated to minority interests                                      -                  -                  -               401
                                                                  ---------          ---------         ----------        ----------
Loss from continuing operations                                     (85,081)           (72,134)           (97,628)          (81,023)
Discontinued operations, including net gains of $17,120
  and $16,123 on dispositions in 2002 periods, respectively           1,575             (1,118)           (14,383)           (4,702)
                                                                  ---------          ---------         ----------        ----------
Net loss                                                            (83,506)           (73,252)          (112,011)          (85,725)
Income allocated to preferred shareholders                           (5,668)            (5,668)           (17,004)          (17,004)
                                                                  ---------          ---------         ----------        ----------
Net loss applicable to common shares                              $ (89,174)         $ (78,920)        $ (129,015)       $ (102,729)
                                                                  =========          =========         ==========        ==========

Basic and diluted earnings per common share:
Loss from continuing operations                                   $   (2.09)         $   (1.78)        $    (2.63)       $    (2.25)
Discontinued operations                                                0.04              (0.03)             (0.33)            (0.11)
                                                                  ---------          ---------         ----------        ----------
  Net loss                                                        $   (2.05)         $   (1.81)        $    (2.96)       $    (2.36)
                                                                  =========          =========         ==========        ==========

Weighted-average common shares
  outstanding - basic and diluted                                    43,578             43,578             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>
------------------------------------------------------------------------------------------------------------------------------------
Nine Months Ended September 30,                                                             2002                2001
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>                 <C>
Operating Activities
Loss from continuing operations                                                         $ (97,628)          $ (81,023)
Adjustments to reconcile net loss to net cash
  provided by operating activities:
     Loss allocated to minority interests                                                       -                (401)
     (Gain) loss on sale of real estate, net                                                  703                (552)
     Depreciation and amortization                                                         27,067              28,836
     Amortization of deferred financing costs                                               4,188               5,020
     Amortization of debt premiums                                                         (1,506)             (1,438)
     Provision for uncollectible accounts receivable                                        2,235               6,650
     Provision for asset impairment                                                        81,619              63,026
     Discontinued operations                                                                4,135               9,931
Changes in operating assets and liabilities:
     Increase in accounts receivable                                                         (585)             (4,992)
     (Increase) decrease in restricted cash                                                (3,851)             11,260
     (Increase) decrease in other assets                                                   (2,048)                 14
     Decrease in accounts payable and other liabilities                                      (764)            (19,315)
     Increase in real estate taxes payable                                                  2,628                 762
     Increase in accrued interest                                                             233               2,545
                                                                                        ---------           ---------
       Net cash provided by operating activities                                           16,426              20,323
                                                                                        ---------           ---------

Investing Activities
Additions to investment in rental property                                                 (4,127)            (17,723)
Proceeds from repayment of notes receivable, net                                                -               8,286
Proceeds from sales of operating properties and land                                       22,320               9,503
                                                                                        ---------           ---------
       Net cash provided by investing activities                                           18,193                  66
                                                                                        ---------           ---------

Financing Activities
Proceeds from notes payable                                                                     -              16,899
Principal repayments on notes payable                                                     (36,117)            (41,187)
Contributions from minority interests                                                           -                 400
Deferred costs                                                                                  -                (585)
                                                                                        ---------           ---------
       Net cash used in financing activities                                              (36,117)            (24,473)
                                                                                        ---------           ---------

Decrease in cash and cash equivalents                                                      (1,498)             (4,084)
Cash and cash equivalents at beginning of period                                            7,537               8,906
                                                                                        ---------           ---------
Cash and cash equivalents at end of period                                              $   6,039           $   4,822
                                                                                        =========           =========
====================================================================================================================================
</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
disposition of properties during the periods indicated:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Nine Months Ended September 30,                                                             2002                 2001
------------------------------------------------------------------------------------------------------------------------------------
  <S>                                                                                   <C>                   <C>
  Book value of net assets disposed                                                     $ 271,891             $ 32,815
  Notes payable paid                                                                     (147,845)             (24,044)
  Notes payable assumed by joint venture                                                  (46,862)                   -
  Notes payable transferred to lender                                                     (58,410)                   -
  Discontinued operations - net gain on disposals                                         (16,123)                   -
  Discontinued operations - provision for impairment                                       12,200                    -
  Investment in unconsolidated partnerships                                                 6,766                    -
  Loss on sale of real estate                                                                 703                  732
                                                                                        ---------             --------
      Cash received, net                                                                $  22,320             $  9,503
                                                                                        =========             ========
====================================================================================================================================
</TABLE>

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 (i) reported amounts of assets and liabilities, (ii)
disclosure of contingent liabilities at the date of the financial statements and
(iii)  reported  amounts of revenues and expenses  during the reporting  period.
Actual results could differ from those estimates.

Investments  in  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  ("FAS") No. 144,  "Accounting for Impairment or
Disposal of Long-lived  Assets." FAS No. 144 supercedes FAS 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,  FAS 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." FAS No. 144 is effective  for fiscal years
beginning after December 15, 2001.

<PAGE>
Effective  January  1, 2002 we  adopted  FAS No.  144.  In  accordance  with the
requirements of FAS No. 144, we have classified the operating results, including
gains and losses related to disposition, for those properties either disposed of
or classified as assets held for sale during 2002 as discontinued  operations in
the  accompanying   Consolidated   Statements  of  Operations  for  all  periods
presented.  See Note 3 - "Property  Dispositions"  for  additional  information.
Below is a summary of the  results of  operations  of these  properties  through
their dates of disposition:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                            Three Months Ended September 30,         Nine Months Ended September 30,
                                                            -------------------------------         --------------------------------
                                                                2002                2001               2002                2001
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>                 <C>               <C>                 <C>
Revenues
Base rents                                                     $ 2,438             $ 9,956           $ 15,530            $ 29,142
Percentage rents                                                    62                 269                853                 599
Tenant reimbursements                                            1,666               4,181              7,907              14,141
Interest and other                                                 172                 889              1,476               2,276
                                                               -------             -------           --------            --------
  Total revenues                                                 4,338              15,295             25,766              46,158

Expenses
Property operating                                               1,441               3,273              6,809              11,090
Real estate taxes                                                  293               1,364              2,188               4,247
Depreciation and amortization                                      661               4,165              5,893              12,328
Interest                                                         1,901               6,464             12,720              19,919
Provision for impairment                                        15,557                   -             27,757                   -
Other charges                                                       30               1,147                905               3,276
                                                               -------             -------           --------            --------
  Total expenses                                                19,883              16,413             56,272              50,860
                                                               -------             -------           --------            --------
Loss before loss on sale of real estate, net                   (15,545)             (1,118)           (30,506)             (4,702)
Gain on sale of real estate, net                                17,120                   -             16,123                   -
                                                               -------             -------           --------            --------
Discontinued operations                                        $ 1,575             $(1,118)          $(14,383)           $ (4,702)
                                                               =======             =======           ========            ========
====================================================================================================================================
</TABLE>

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 a mezzanine loan (the
"Mezzanine  Loan")  obtained  in  December  2000 from FRIT PRT  Lending  LLC and
Greenwich  Capital  Financial  Products,  Inc.  (collectively,   the  "Mezzanine
Lender")  in the  original  amount  of  $90,000.  See Note 4 - "Bonds  and Notes
Payable" for additional information.

<PAGE>
The operating  results of the Hagerstown  Center through the date of disposition
are  classified  as  discontinued  operations in the  accompanying  Consolidated
Statements  of  Operations  for all periods  presented  in  accordance  with the
requirements  of FAS No.  144.  In  connection  with the sale of the  Hagerstown
Center, we recorded a gain on the sale of real estate of $16,795,  also included
in  discontinued  operations,  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 accompanying  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 3.32% as of September 30, 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 and additional undeveloped land. 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 the Mezzanine Loan.

The operating  results of the Edinburgh  Center  through the date of disposition
are  classified  as  discontinued  operations in the  accompanying  Consolidated
Statements  of  Operations  for all periods  presented  in  accordance  with the
requirements  of FAS No. 144.  During the first  quarter of 2002,  we recorded a
loss on the  sale of real  estate  of  $9,625,  also  included  in  discontinued
operations,  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.

On April 19, 2002,  we  completed  the sale of Phases II and III of the 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.

We  accounted  for our  ownership  interest  in the  Bellport  Outlet  Center in
accordance with the equity method of accounting through the date of disposition.
In connection with the sale of the Bellport Outlet Center, we recorded a loss on
the sale of real estate of $703 during the second quarter of 2002.

<PAGE>
On June 17, 2002, we completed the sale of the Shops at Western Plaza  ("Western
Plaza"),  a community  center  located in  Knoxville,  Tennessee,  consisting of
205,000 square feet of GLA. Western Plaza was sold to WP General Partnership for
cash  consideration  of $9,500.  The net cash  proceeds from the sale were $688,
after (i)  repayment  of $9,467  (of which  $2,467  was  scheduled  to mature on
October 31, 2002) of existing recourse  mortgage  indebtedness on Western Plaza,
(ii)  payment of closing  costs and fees and (iii)  release of certain  escrowed
funds. We used these net proceeds to make a mandatory  principal payment of $661
on the Mezzanine Loan.

The  operating  results of Western  Plaza  through the date of  disposition  are
classified  as  discontinued   operations  in  the   accompanying   Consolidated
Statements  of  Operations  for all periods  presented  in  accordance  with the
requirements  of FAS No. 144. In connection  with the sale of Western Plaza,  we
recorded  a gain  on the  sale  of real  estate  of  $2,122,  also  included  in
discontinued operations, during the second quarter of 2002.

On July 26, 2002,  we  completed  the sale of six outlet  centers for  aggregate
consideration of $118,650 to wholly-owned affiliates of PFP Venture LLC, a joint
venture (the "PFP  Venture")  (i) 29.8% owned by PWG Prime  Holdings LLC ("PWG")
and (ii) 70.2% owned by FP Investment LLC ("FP").  FP is a joint venture between
FRIT PRT Bridge Acquisition LLC ("FRIT"),  a Delaware limited liability company,
and us. Through FP, FRIT and we indirectly have ownership interests of 50.4% and
19.8%, respectively, in the PFP Venture.

The six outlet centers  (collectively,  the "Bridge Loan  Properties") that were
sold are located in  Anderson,  California;  Calhoun,  Georgia;  Gaffney,  South
Carolina;  Latham,  New York; Lee,  Massachusetts  and Lodi, Ohio and contain an
aggregate of 1,304,000  square feet of GLA. Under the terms of the  transaction,
for a five-year period, we will continue to manage,  market and lease the Bridge
Loan Properties for a fee on behalf of the PFP Venture.

In connection with the sale,  $111,009 of recourse  mortgage  indebtedness  (the
"Bridge  Loan") on the Bridge Loan  Properties  was repaid in full. Our net cash
proceeds of $6,762 from the sale were  contributed to FP. FP used these proceeds
along  with a  $17,236  capital  contribution  from  FRIT  to  purchase  a 70.2%
ownership interest in the PFP Venture.  Financing for the PFP Venture's purchase
of the Bridge Loan  Properties  was  provided by GMAC  Mortgage in the form of a
$90,000, four-year,  non-recourse mortgage loan, of which $74,000 bears interest
at LIBOR  plus  4.25%  (minimum  of 7.00%  for the first  three  years and 7.25%
thereafter)  and $16,000 bears  interest at LIBOR plus 4.50% (minimum of 7.75%).
Furthermore,  subject to satisfaction of certain conditions, the PFP Venture may
extend the maturity of the $74,000  portion of the loan for one additional  year
with the minimum interest rate continuing at 7.25%.

Pursuant to certain venture-related documents, we have guaranteed FRIT (i) a 13%
return on its  $17,236  of  invested  capital,  and (ii) the full  return of its
invested capital (the "Mandatory  Redemption  Obligation") by December 31, 2003.
Our guarantee is secured by junior security  interests in collateral  similar to
that pledged to the Mezzanine  Lender. FP is entitled to receive a 15% preferred
return on its  invested  capital of $23,998  (approximately  $3,600 on an annual
basis) in the PFP  Venture.  Then PWG is  entitled  to  receive a 15%  preferred
return on its invested  capital of $10,200.  From FP's  preferred  return,  FRIT
first receives its 13% return on its invested capital with the remainder applied
towards the payment of the Mandatory Redemption Obligation. Upon satisfaction of
the  Mandatory  Redemption  Obligation,  we will be entitled  to FP's  preferred
return  until  such time as we have been  repaid in full our  invested  capital,
together with a 13% return on our invested capital. Thereafter, FRIT and we will
share any cash flow due to FP on an approximate equal basis. As of September 30,
2002, the Mandatory Redemption Obligation was $17,005.

FRIT,  indirectly through affiliates,  was the owner of the Bridge Loan that was
repaid in full in connection  with the sale of the Bridge Loan Properties and is
a 50%  participant in the Mezzanine  Loan,  which had an  outstanding  principal
balance of $33,195 as of September 30, 2002.

<PAGE>
The  operating  results  of the  Bridge  Loan  Properties  through  the  date of
disposition  are  classified  as  discontinued  operations  in the  accompanying
Consolidated  Statements of Operations  for all periods  presented in accordance
with the  requirements  of FAS No. 144.  During the second  quarter of 2002,  we
recorded  a loss  on the  sale of real  estate  of  $10,289,  also  included  in
discontinued operations,  related to the write-down of the carrying value of the
Bridge Loan  Properties to their net realizable  value based on the terms of the
sale agreement.

Assets Held for Sale

On October 30, 2002, we completed the sale of Melrose Place, a community  center
located  in  Knoxville,  Tennessee,  consisting  of 27,000  square  feet of GLA.
Melrose Place was sold to Melrose Place Tennessee  General  Partnership for cash
consideration  of $2,500.  The net cash proceeds from the sale were $555,  after
(i) repayment of $1,935 of existing  recourse  mortgage  indebtedness on Melrose
Place,  (ii)  payment  of  closing  costs and fees and (iii)  release of certain
escrowed funds. We used these net proceeds to make a mandatory principal payment
of $533 on the Mezzanine Loan.

The operating results of Melrose Place are classified as discontinued operations
in the  accompanying  Consolidated  Statements  of  Operations  for all  periods
presented in accordance  with the  requirements  of FAS No. 144. As of September
30, 2002, the carrying value of Melrose Place of $1,527 was classified as assets
held for sale and its related  indebtedness of $1,935 was classified as mortgage
debt on assets held for sale in the accompanying Consolidated Balance Sheet.

We have entered into an agreement to sell (i) Prime  Outlets of Puerto Rico,  an
outlet center located in Barceloneta,  Puerto Rico, consisting of 176,000 square
feet of GLA and (ii)  certain  adjacent  parcels  of land  being  developed  for
non-outlet retail use  (collectively,  the "Puerto Rico Property").  Although we
expect  to close on the sale of the  Puerto  Rico  Property  during  the  fourth
quarter  of  2002,  there  can be no  assurance  that  the  transaction  will be
consummated.

As a result, the operating results of the Puerto Rico Property are classified as
discontinued   operations  in  the  accompanying   Consolidated   Statements  of
Operations for all periods  presented in accordance with the requirements of FAS
No. 144.  During the third quarter of 2002,  we recorded an  impairment  loss of
$15,557, also included in discontinued operations,  related to the write-down of
the carrying  value of the Puerto Rico Property to its estimated net  realizable
value based on the terms of the sale  agreement.  As of September 30, 2002,  the
carrying  value of the Puerto Rico Property of $31,495 was  classified as assets
held for sale and its related indebtedness of $19,371 was classified as mortgage
debt on assets held for sale in the accompanying Consolidated Balance Sheet.

2002 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")  at the  time of the  suspension.  These
non-recourse  mortgage loans were  cross-defaulted and  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 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. 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.

<PAGE>
Effective July 18, 2002,  New York Life sold its interest in the  Jeffersonville
II Center loan. On August 13, 2002, we transferred our ownership interest in the
Jeffersonville  II  Center  to New York  Life's  successor.  As a result  of the
transfer of our ownership  interest in the Jeffersonville II Center, we recorded
a non-recurring gain of $17,120  during the third quarter of 2002,  representing
the difference  between our carrying value of the  Jeffersonville  II Center and
its related  net assets and the  outstanding  loan  balance,  including  accrued
interest, as of the date of transfer.  The transfer of our ownership interest in
the  Jeffersonville  II Center did not have a material  impact on our results of
operations or financial  condition  because during 2001 and through the transfer
date in 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 operating results, including related gains or losses on disposition,  of the
Conroe Center and the  Jeffersonville  II Center are classified as  discontinued
operations in the  accompanying  Consolidated  Statements of Operations  through
their respective  disposition dates for all periods presented in accordance with
the requirements of FAS No. 144. No gain or loss was recorded in connection with
the foreclosure of the Conroe Center. See Note 4 - "Bonds and Notes Payable" for
additional information.

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

During the second quarter of 2002, we incurred a provision for asset  impairment
of  $12,200  to  adjust  the  carrying  values of the Vero  Beach  Center to its
estimated fair value in accordance with the provisions of FAS No. 144. Effective
September  9, 2002,  John  Hancock  foreclosed  on the Vero Beach Center and its
related assets and liabilities, including $24,497 of principal outstanding under
the non-recourse mortgage loan, were transferred to John Hancock.  Additionally,
we are  currently  negotiating  a  transfer  of our  ownership  interest  in the
Woodbury  Center to John Hancock.  Foreclosure  on the Vero Beach Center and the
expected  transfer  of our  ownership  interest in the  Woodbury  Center are not
expected to have a material  impact on our results of  operations  or  financial
condition  because  during 2002, all excess cash flow from the operations of the
John Hancock Properties has been utilized for debt service on their non-recourse
mortgage loans. The carrying value of the Woodbury Center  approximates  $12,346
as of  September  30,  2002.  Such  value  is  exceeded  by the  balance  of the
associated  non-recourse  mortgage  indebtedness  of $16,331 as of September 30,
2002.  If we were to transfer our ownership  interest in the Woodbury  Center to
John Hancock,  we would record a non-recurring  gain for the difference  between
the  carrying  value of the  Woodbury  Center and its related net assets and the
outstanding loan balance.

The operating  results of the Vero Beach Center are  classified as  discontinued
operations in the accompanying Consolidated Statements of Operations through the
disposition  date for all periods  presented in accordance with the requirements
of FAS No. 144. No gain or loss was recorded in connection  with the foreclosure
of the Vero Beach Center.  See Note 4 - "Bonds and Notes Payable" for additional
information.

<PAGE>
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 (the "Silverthorne  Center"), 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  the
Silverthorne  Center  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 the 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.

Prior to its  sale,  the  Silverthorne  Center,  was one of  fifteen  properties
securing a first mortgage and expansion loan (the "First  Mortgage and Expansion
Loan"). In conjunction with the sale of the Silverthorne  Center, we substituted
Prime Outlets at Lebanon for the Silverthorne Center 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.

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 the 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.

2001 Foreclosure Sale

On May 8, 2001,  Prime Outlets at New River (the "New River Center"),  an outlet
center located in New River,  Arizona, was sold through foreclosure.  Affiliates
of Fru-Con Development Corporation and us each own 50% of the partnership, which
owned the New River Center.  We accounted for our ownership  interest in the New
River Center in accordance with the equity method of accounting through the date
of foreclosure  sale. In connection with the  foreclosure  sale of the New River
Center,  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

We are  required  to  make,  in  addition  to  scheduled  monthly  amortization,
mandatory  principal payments on our Mezzanine Loan in an aggregate amount of at
least  $12,000  with net  proceeds  from  asset  dispositions  or other  capital
transactions  by  December  31, 2002 (see  "Mezzanine  Loan  Modifications"  for
additional information).

<PAGE>
We have  entered  into an  agreement  for the sale of the Puerto Rico  Property,
which we  currently  expect to close  during  the fourth  quarter  of 2002,  and
therefore, have classified its net carrying value to assets held for sale in the
accompanying  Consolidated  Balance  Sheet  as of  September  30,  2002 and have
included  its  results  from  operations  in  discontinued   operations  in  the
accompanying  Consolidated  Statements of Operations  for all periods  presented
pursuant  to  the   requirements  of  FAS  No.  144  (see  Note  3  -  "Property
Dispositions" for additional information).  The sale of the Puerto Rico Property
is expected to generate estimated net proceeds of approximately  $12,000,  after
repayment of existing  mortgage  indebtedness  and closing costs,  sufficient to
satisfy the required  December 2002 mandatory  principal  repayment amount under
the  Mezzanine  Loan.  However,  the sale of the Puerto  Rico  Property  remains
subject  to  customary  closing  conditions  and,  accordingly,  there can be no
assurance as to the timing, terms or completion of the proposed sale.

In addition to the proposed sale of the Puerto Rico Property discussed above, we
continue to seek to generate  additional  liquidity  through  other asset sales,
financings  and  other  capital  raising  activities,  however,  there can be no
assurance  that  we  will  be able to  complete  such  transactions  within  the
specified period or that such transactions,  if they should occur, will generate
sufficient  proceeds to make required  payments  under the Mezzanine  Loan.  Any
failure  to  satisfy  the  required  mandatory  principal  payments  within  the
specified  time period or the scheduled  monthly  principal  payments  under the
terms of the Mezzanine Loan will constitute a default.

Based on our results for the three months ended June 30, 2002 and  September 30,
2002, we are not in compliance  with respect to the debt service  coverage ratio
under our fixed rate tax-exempt  revenue bonds (the "Affected Fixed Rate Bonds")
in the amount of $18,390.  As a result of our noncompliance,  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.  If the holders of the Affected  Fixed Rate
Bonds make such an election and we are unable to repay such obligations, certain
cross-default  provisions with respect to other debt  facilities,  including the
Mezzanine Loan may be triggered.

We  continue to work with  holders of the  Affected  Fixed Rate Bonds  regarding
potential resolution, including forbearance, waiver or amendment with respect to
the applicable provisions. If we are unable to reach satisfactory resolution, 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
resolution  with the holders of the Affected Fixed Rate Bonds 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.

As of  September  30,  2002,  we were in  compliance  with  all  financial  debt
covenants under our recourse loan agreements  other than the Affected Fixed Rate
Bonds. Nevertheless, there can be no assurance that we will remain in compliance
with our financial debt covenants in future periods because our future financial
performance is subject to various risks and  uncertainties,  including,  but not
limited  to, the  effects of current  and future  economic  conditions,  and the
resulting  impact on our revenue;  the effects of  increases in market  interest
rates from current levels;  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; risks
associated with litigation,  including  pending and potential tenant claims with
respect  to  lease  provisions  related  to  their   pass-through   charges  and
promotional fund charges; 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.

<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 Modifications

Effective January 31, 2002, we entered into a modification to the original terms
of the Mezzanine  Loan obtained in December  2000.  The Mezzanine Loan amendment
(the "First  Amendment"),  among other  things,  (i)  reduced  required  monthly
principal  amortization  for the period February 1, 2002 through January 1, 2003
("Year 2") from $1,667 to $800,  which could be further  reduced to a minimum of
$500 per month under certain limited circumstances, provided no defaults existed
under the Mezzanine Loan and certain other  conditions had been satisfied at the
Mezzanine  Lender's sole discretion,  (ii) required certain mandatory  principal
payments  from net  proceeds  from  asset  sales or other  capital  transactions
pursuant  to the  schedule  set forth in the  second  paragraph  below and (iii)
reduced 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 First  Amendment  (i)
increased  the interest  rate from LIBOR plus 9.50% to the greater of LIBOR plus
9.75% (rounded up to nearest 0.125%) or 14.75%), (ii) changed 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 First  Amendment also required  additional  Year 2 monthly  payments of $250
(the "Escrowed Funds") into an escrow account controlled by the Lender. Provided
certain conditions are satisfied, at the Mezzanine Lender's sole discretion, the
Escrowed Funds could be released to us for limited purposes.  The Escrowed Funds
not used at the end of each  quarter,  subject  to  certain  exceptions,  may be
applied by the  Mezzanine  Lender to amortize the Mezzanine  Loan.  The required
monthly principal  amortization of $2,333, at the time commencing on February 1,
2003  through the new  maturity  date of  September  30,  2003  ("Year 3"),  was
unchanged.

The First Amendment also required 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 were 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 were also required to pay any interest, including deferred interest,
accrued thereon and the additional fees provided for in the Mezzanine Loan.

On July 1, 2002, the Mezzanine  Lender  further  amended the Mezzanine Loan (the
"Second  Amendment") to extend the July 1, 2002 mandatory  principal payment due
date to the  earlier of (i) August 15,  2002 (the  "Extended  Date") or (ii) the
occurrence of an event of default under the Mezzanine Loan.  Additionally,  upon
satisfaction of certain conditions, the Extended Date was automatically extended
again to the earlier of (i) October 31, 2002, (ii) the occurrence of an event of
default under the Mezzanine Loan, or (iii) the closing or termination of certain
asset sales.

<PAGE>
Effective  November 1, 2002,  we entered into an  additional  modification  (the
"Third  Amendment") to the terms of the Mezzanine  Loan. The Third Amendment (i)
terminated our obligation to make mandatory principal payments with net proceeds
from asset dispositions or other capital transactions on or prior to October 31,
2002 and  November 1, 2002,  respectively,  (ii)  requires  mandatory  principal
payments in an aggregate  amount of not less than $12,000 from net proceeds from
asset dispositions or other capital  transactions on or before December 31, 2002
and (iii) increases the required monthly principal  amortization  payment due on
January  1, 2003 from $800 to  $2,333.  Additionally,  the Third  Amendment  (i)
increases the interest rate from the greater of LIBOR plus 9.50%  (rounded up to
nearest  0.125%)  or 14.75% to a  fixed-rate  of 19.75%  and (ii)  requires a 2%
amendment fee on the outstanding  principal  balance of the Mezzanine Loan as of
November  1,  2002.  Half  of the  amendment  fee was  paid  at the  time of the
modification  and half  will be  payable  on  December  31,  2002  provided  the
Mezzanine  Loan has not been repaid in full. If the Mezzanine  Loan is repaid in
full by December 31, 2002,  the payment of the second half of the  amendment fee
will be  waived.  Any  failure  to  satisfy  the  mandatory  principal  payments
requirement or other  payments  pursuant to the terms of the Mezzanine Loan will
constitute a default.

Debt Service Obligations

Our aggregate  indebtedness  as adjusted for the terms of the Third Amendment to
the Mezzanine Loan and excluding (i) unamortized  debt premiums of $8,468,  (ii)
mortgage indebtedness of $1,935 on Melrose Place and (iii) non-recourse mortgage
indebtedness  of $16,331 on the  Woodbury  Center was  $639,328  (the  "Adjusted
Indebtedness")  as of September 30, 2002. The mortgage  indebtedness  on Melrose
Place was repaid in full in connection with the sale of such property on October
30, 2002. Additionally, we are currently negotiating a transfer of our ownership
interest  in the  Woodbury  Center  to  John  Hancock.  See  Note 3 -  "Property
Dispositions" and "Defaults on Certain Non-recourse  Mortgage  Indebtedness" for
additional information.

At September 30, 2002 the Adjusted Indebtedness had a weighted-average  maturity
of 2.7 years and bore contractual  interest at a weighted-average  rate of 8.50%
per  annum.  At  September  30,  2002,  $619,957,  or  97.0%,  of  the  Adjusted
Indebtedness  bore  interest at fixed rates and $19,371 or 3.0%, 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 September 30, 2002, our scheduled  principal payments for the remainder of
2002 and 2003 for the Adjusted  Indebtedness  aggregated  $17,002 and  $380,544,
respectively.  The remaining  scheduled  principal payments for 2002 include (i)
principal  amortization  aggregating $5,002 (including an aggregate of $2,400 of
scheduled monthly principal payments on the Mezzanine Loan, which may be further
reduced  subject  to the terms of its  modification  specified  above)  and (ii)
mandatory principal payments on the Mezzanine Loan in an aggregate amount of not
less  than  $12,000  (see   "Mezzanine   Loan   Modifications"   for  additional
information).  The  outstanding  principal  balance of the Mezzanine  Loan as of
September  30, 2002 was  $33,195.  The  scheduled  principal  payments  for 2003
include (i)  obligations  of $338,558 due in respect of a mortgage  loan that is
secured by 15 of our properties  and matures in November  2003,  (ii) $18,795 of
principal  payments  under the Mezzanine Loan and (iii) an obligation of $19,156
due in respect to a mortgage loan secured by the Puerto Rico  Property.  We have
entered into an agreement to sell the Puerto Rico Property. See "Assets Held for
Sale" in Note 3 - "Property Dispositions" for additional information.

<PAGE>
Guarantees of Indebtedness of Others

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

Additionally,  we are a guarantor with respect to certain mortgage  indebtedness
(the "HGP Office Building  Mortgage") in the amount of $2,311 on HGP's corporate
office building and related  equipment located in Norton Shores,  Michigan.  The
HGP Office Building  Mortgage  matures in December 2002, bears interest at LIBOR
plus 2.50%, and requires monthly debt service payments of approximately $23.

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 Monroe Mortgage
Loan or the HGP Office Building Mortgage nor did they constitute a default under
the HGP Secured Credit  Facility.  No claims have been made under our guarantees
with  respect  to the  HGP  Monroe  Mortgage  Loan or the  HGP  Office  Building
Mortgage.  HGP is a publicly  traded company that was formed in connection  with
our merger with Horizon Group, Inc. in June 1998.

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.

On July  26,  2002,  we sold  the  Bridge  Properties  to the  PFP  Venture.  In
connection  with the sale, we guaranteed FRIT (i) a 13% return on its $17,236 of
invested  capital and (ii) the full return of its  invested  capital by December
31, 2003. See Note 3 - "Property Dispositions" for additional information. As of
September 30, 2002, our Mandatory Redemption Obligation with respect to the full
return of FRIT's invested capital was $17,005.

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. At
the time of suspension,  these non-recourse mortgage loans were held by New York
Life.  Effective January 1, 2002, New York Life foreclosed on the Conroe Center.
Effective July 18, 2002,  New York Life sold its interest in the  Jeffersonville
II Center loan. On August 13, 2002, we transferred our ownership interest in the
Jeffersonville  II Center to New York Life's  successor.  See "2002  Foreclosure
Sales" of Note 3 - "Property Dispositions" for additional information.

<PAGE>
During August of 2002, certain of our subsidiaries suspended regularly scheduled
monthly  debt service  payments on two  non-recourse  mortgage  loans which were
cross-collateralized  by the Vero Beach  Center and the Woodbury  Center.  These
non-recourse  mortgage loans were held by John Hancock.  Effective  September 9,
2002,  John Hancock  foreclosed on the Vero Beach Center.  Additionally,  we are
currently  negotiating  a transfer of our  ownership  interest  in the  Woodbury
Center to John  Hancock.  See  "2002  Foreclosure  Sales" of Note 3 -  "Property
Dispositions" for additional information.

Defaults  on  Certain  Non-recourse   Mortgage  Indebtedness  of  Unconsolidated
Partnerships

Two  mortgage  loans  related to  projects  in which we,  through  subsidiaries,
indirectly  own joint  venture  interests  have matured and are in default.  The
mortgage loans,  at the time of default,  were (i) a $10,389 first mortgage loan
on Phase I of the Bellport  Outlet  Center,  held by Union Labor Life  Insurance
Company  ("Union  Labor");  and (ii) a  $13,338  first  mortgage  loan on Oxnard
Factory Outlet, an outlet center located in Oxnard, California, held by Fru-Con.
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 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  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
September 30, 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.  As of September  30, 2002,  we were eleven
quarters in arrears with respect to preferred stock distributions.

<PAGE>
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  interests in the  Operating
Partnership unless we are current with respect to distributions to our preferred
shareholders.  As of  September  30,  2002,  unpaid  dividends  for  the  period
beginning on November 16, 1999 through September 30, 2002 on the Series A Senior
Preferred Stock and Series B Convertible  Preferred Stock aggregated $17,358 and
$47,825,  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 September  30, 2002 are $6,037  ($2.625 per
share) and $16,635 ($2.125 per share), respectively.

Note 6 - Special Charges

Provision for Asset Impairment

During the third quarter of 2002,  certain  events and  circumstances  occurred,
including  changes to our anticipated  holding  periods,  reduced  occupancy and
limited  leasing  success,  that indicated  that certain of our properties  were
impaired on an other than temporary basis. Accordingly,  we recorded a provision
for asset  impairment  aggregating  $81,619,  representing the write-down of the
carrying value of these  properties to their estimated fair values in accordance
with the  requirements  of FAS 144.  As a  result,  the  balance  of  associated
non-recourse  mortgage debt exceeds the carrying value of certain  properties by
an aggregate of $25,364 as of September 30, 2002.

Non-Recurring Other Charges

During the second  quarter of 2002,  we recorded a  non-recurring  charge in the
amount of $3,000 to establish a reserve for pending and potential  tenant claims
with  respect to lease  provisions  related to their  pass-through  charges  and
promotional fund charges. We had previously  recorded a non-recurring  charge in
the amount of $2,000 to  establish  a reserve  for  similar  matters  during the
fourth  quarter of 2001.  To date,  we have entered into  settlement  agreements
providing for payments  aggregating  $2,560, of which $2,000 had been paid as of
September  30,  2002.  The  remaining  reserve of $3,000 is included in accounts
payable and other liabilities in the accompanying  Consolidated Balance Sheet as
of  September  30,  2002.  See  Note  7 -  "Legal  Proceedings"  for  additional
information.

These reserves were estimated in accordance  with our  established  policies and
procedures with respect to loss contingencies (see "Critical Accounting Policies
and  Estimates" of Item 2 -  "Management's  Discussion and Analysis of Financial
Condition  and Results of  Operations"  for  additional  information.)  Based on
presently available information, we believe it is probable the remaining reserve
will be utilized over the next several years in connection  with the  resolution
of further claims relating to the  pass-through  and promotional fund provisions
contained  in  our  leases.  We  caution,   however,  that  given  the  inherent
uncertainties of litigation and the complexities  associated with a large number
of leases and other factual questions at issue,  actual costs may vary from this
estimate.

Note 7 - Legal Proceedings

Except  as  described  below  or  previously  disclosed  by the  Company  in its
Quarterly Report on Form 10-Q for the period ended June 30, 2002, 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.

<PAGE>
On October 3, 2002, the Company  entered into a settlement  agreement with Brown
Group  Retail,  Inc.,  which  operates  under the trade names  Famous  Footwear,
Factory Brand Shoes and Naturalizer. The Company does not believe the settlement
will have a material impact on the Company's  financial  condition or results of
operations.  See  "Settlement  of Tenant  Matters"  contained in "Liquidity  and
Capital Resources" of Item 2 - "Management's  Discussion of Financial  Condition
and  Results  of  Operations"  and Note 6 -  "Special  Charges"  for  additional
information.

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 (the "Fourth Circuit").  Argument before
a Fourth Circuit panel of judges was held on October 30, 2001,  during which the
panel of judges requested  further briefing of certain issues. On July 29, 2002,
the Fourth Circuit denied the appeal of AFS. AFS requested further review by the
same panel of judges as well as all judges of the Fourth  Circuit.  This request
was denied on October 21, 2002. The Company  believes that it has acted properly
and will continue to defend this lawsuit  vigorously if AFS petitions the United
States  Supreme Court for a writ of  certiorari.  The outcome of this lawsuit if
additional appeal efforts of AFS are successful,  and the ultimate  liability of
the defendants, if any, 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
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 were brought by alleged stockholders of
the Company,  individually  and  purportedly as class actions on behalf of other
stockholders  of  the  Company.  The  complaints  alleged  that  the  individual
defendants  made  statements  about the Company  that were in  violation  of the
federal  securities laws. The complaints  sought  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.
Briefs were filed and oral  arguments were held on June 4, 2002. On September 3,
2002 the Fourth Circuit  affirmed the dismissal.  Plaintiffs  have agreed not to
seek further review of the dismissal.

<PAGE>
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. On November 5, 2002 the Chapter 7 Bankruptcy trustee
of E-Outlets Resolution Corp. filed suit against the Company, an affiliate,  and
eOutlets' directors.  The claims include alter ego, piercing the corporate veil,
improper preference payments,  and other claims against the entities, and breach
of fiduciary  duty and similar claims  against the  individual  defendants.  The
Company,  on its own behalf and on behalf of its  affiliates  and the individual
defendants,  intend  to  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.  In the case  captioned  J. Walter
Thompson v. Prime  Retail,  Inc. et al., in the Circuit  Court for Wayne  County
(Michigan) the plaintiff alleged that the Company and Operating Partnership were
the  alter ego of  primeoutlets.com  inc.,  that the  corporate  veil  should be
pierced,  that  it  had  a  direct  contract  with  the  Company  and  Operating
Partnership,  and that the Company and Operating  Partnership  committed "silent
fraud".  The court  dismissed  the alter ego and  piercing  the  corporate  veil
claims.  Trial for the remaining  claims is scheduled for February of 2003.  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.

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
because  of  FCC's  failure  to  dispose  of the  collateral  in a  commercially
reasonable manner and that FCC's use of the mark "Prime Outlets" violated United
States  trademark  law. 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. In addition, as part of the same action, Fru-Con filed suit against
the Company and affiliates.  On October 25, 2002, following a motion for summary
judgment, the court dismissed several claims made by Fru-Con, limiting Fru-Con's
counter suit to the following claims:  the Company and affiliates are improperly
withholding partnership funds;  prospective tenants at New River were improperly
diverted to an outlet project in Sedona, Arizona (the "Sedona Project"); and the
Company and affiliates  breached its contract with Fru-Con by not allowing it to
participate  in  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.

<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  operations of Prime  Retail,  Inc.  (the
"Company")   are  conducted   through  Prime   Retail,   L.P.  (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 risks associated with our current non-compliance with respect to the
        debt service coverage ratio on fixed rate tax-exempt bonds in the amount
        of $18,390  and  the  resulting  ability  of the affected bondholders to
        elect  to  put  such  obligations  to us,  as  well  as  the  risk  that
        cross-default  provisions  under  other  indebtedness  may be triggered,
        including  our  mezzanine  loan  (the "Mezzanine Loan") in the amount of
        $33,195 as of September 30, 2002;

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  respect  to  loan  covenants under other indebtedness;
        including obligations to make mandatory  principal  payments  or monthly
        debt service payments as required under the terms of the Mezzanine Loan;

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;

<PAGE>
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, including pending and potential
        tenant claims with regard to  various  lease provisions related to their
        pass-through charges and promotion fund charges;

o       the risk associated with competition from other outlet centers and value
        discount centers, including existing or those that could be built in the
        future; and

o       The risks associated with changes in the distribution channels of outlet
        center merchandise.

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,  including  tenant  disputes,  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.

<PAGE>
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 either  actual sales price,  when  available,  or 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.

Contingencies

We are subject to  proceedings,  lawsuits,  and other claims  related to various
matters  (see  Note  7  -  "Legal  Proceedings"  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 in which we have an ownership  interest  through  joint venture
partnerships.  At September 30, 2002,  our portfolio of properties  consisted of
(i) 40 outlet centers aggregating  11,253,000 square feet of gross leasable area
("GLA")  (including  2,789,000  square feet of GLA at nine outlet  centers owned
through joint  venture  partnerships).  This compares to 45 properties  totaling
12,670,000  square feet of GLA at December 31, 2001 and September 30, 2001.  The
changes in our outlet  center GLA are due to certain sales  transactions  during
2002 and 2001,  including the loss of four outlet  centers  through  foreclosure
sale or transfer of our ownership interest. See Note 3 - "Property Dispositions"
for additional information.

Our outlet  center  portfolio  was 89.1% and 89.4%  occupied as of September 30,
2002 and 2001,  respectively.  For the three and nine months ended September 30,
2002,  weighted-average  occupancy in our outlet center  portfolio was 88.1% and
87.4%,  respectively,  compared to 89.6% and 89.7%,  respectively,  for the same
periods  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 September 30, 2002:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                              Grand                GLA               Occupancy
Outlet Centers                                                             Opening Date          (Sq. Ft.)         Percentage (1)
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                      <S>                    <S>                       <S>
Prime Outlets at Fremont--  Fremont, Indiana                               October 1985            229,000                 89%

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

Prime Outlets at Latham (3)--  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                 94

Prime Outlets at Burlington--  Burlington, Washington                          May 1989            174,000                 94

Prime Outlets at Queenstown--  Queenstown, Maryland                           June 1989            221,000                 98

Prime Outlets at Hillsboro--  Hillsboro, Texas                             October 1989            359,000                 92

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

Prime Outlets at Warehouse Row (4)--  Chattanooga, Tennessee              November 1989             95,000                 81

Prime Outlets at Perryville--  Perryville, Maryland                           June 1990            148,000                 87

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 (3)--  Anderson, California                       August 1990            165,000                 80

Prime Outlets at Post Falls--  Post Falls, Idaho                              July 1991            179,000                 74

Prime Outlets at Ellenton--  Ellenton, Florida                             October 1991            481,000                 94

Prime Outlets at Morrisville--  Raleigh/Durham, North Carolina             October 1991            187,000                 73

Prime Outlets at Naples--  Naples/Marco Island, Florida                   December 1991            146,000                 82

Prime Outlets at Niagara Falls USA--  Niagara Falls, New York                 July 1992            534,000                 91

Prime Outlets at Woodbury (5)--  Woodbury, Minnesota                          July 1992            250,000                 76

Prime Outlets at Calhoun (3)--  Calhoun, Georgia                           October 1992            254,000                 84

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

Prime Outlets at Bend--  Bend, Oregon                                     December 1992            132,000                 98

Prime Outlets at Jeffersonville I--  Jeffersonville, Ohio                     July 1993            407,000                 91

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

Prime Outlets at Loveland--  Loveland, Colorado                                May 1994            328,000                 95

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>                                                                      <S>                    <S>                       <S>
Prime Outlets at Huntley--  Huntley, Illinois                               August 1994            282,000                 70%

Prime Outlets at Florida City--  Florida City, Florida                   September 1994            208,000                 63

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

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

Prime Outlets at Odessa--  Odessa, Missouri                                   July 1995            296,000                 73

Prime Outlets at Darien (6)--  Darien, Georgia                                July 1995            307,000                 67

Prime Outlets at Gulfport (7)--  Gulfport, Mississippi                    November 1995            306,000                 88

Prime Outlets at Lodi (3)--  Burbank, Ohio                                November 1996            313,000                 86

Prime Outlets at Gaffney (3) (6)--  Gaffney, South Carolina               November 1996            305,000                 95

Prime Outlets at Lee (3)--  Lee, Massachusetts                                June 1997            224,000                100

Prime Outlets at Lebanon--  Lebanon, Tennessee                               April 1998            229,000                 99

Prime Outlets at Hagerstown (8)--  Hagerstown, Maryland                     August 1998            487,000                 99

Prime Outlets of Puerto Rico--  Barceloneta, Puerto Rico                      July 2000            176,000                 95
                                                                                                ----------                ---

Total Outlet Centers (9)                                                                        11,253,000                 89%
                                                                                                ==========                ===

====================================================================================================================================
</TABLE>

Notes:
(1)     Percentage reflects occupied space as of September 30, 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  July 26, 2002,  we  sold  this  outlet  center  to  a  joint venture
        partnership  in  which  we,  through  affiliates, have a 19.8% ownership
        interest.
(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 September 30, 2002.
(5)     Non-recourse  mortgage  loans  on  Prime Outlets at Vero Beach and Prime
        Outlets at Woodbury were cross-collateralized.  The lender foreclosed on
        Prime  Outlets  at  Vero  Beach  on September 9, 2002.  We are currently
        negotiating  a  transfer  of  our ownership interest in Prime Outlets at
        Woodbury to the lender.
(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  January 11, 2002,  we  sold  this  outlet  center to a joint venture
        partnership  in  which  we,  through affiliates,  have  a  30% ownership
        interest.
(9)     Excludes Oxnard Factory Outlet. We, through affiliates, have a 50% legal
        ownership  interest  in  the  joint  venture  partnership that owns this
        outlet center.  However,  we  currently receive no economic benefit from
        the Oxnard Factory Outlet.

<PAGE>
Results of Operations

Comparison  of  the  three  months ended  September 30, 2002 to the three months
ended September 30, 2001

Summary

We reported  losses from  continuing  operations  of $85,081 and $72,134 for the
three  months ended  September  30, 2002 and 2001,  respectively.  For the three
months  ended  September  30,  2002,  the  net  loss  applicable  to our  common
shareholders  was  $89,174,  or $2.05 per  common  share on a basic and  diluted
basis. For the three months ended September 30, 2001, the net loss applicable to
our common  shareholders  was $78,920,  or $1.81 per common share on a basic and
diluted basis.

Effective  January  1,  2002,  we  adopted  Statement  of  Financial  Accounting
Standards  ("FAS")  No.  144,  "Accounting  for the  Impairment  or  Disposal of
Long-Lived  Assets." In accordance with the requirements of FAS No. 144, we have
classified  the  operating  results,  including  gains  and  losses  related  to
disposition,  for those  properties  either  disposed of or classified as assets
held  for  sale  during  2002 as  discontinued  operations  in the  accompanying
statements of operations for all periods presented.

During the three  months  ended  September  30,  2002,  we  reported a gain from
discontinued  operations of $1,575,  or $0.04 per basic and diluted share.  This
gain from  discontinued  operations  also  reflects  (i) a net gain  related  to
dispositions  of $17,120 and (ii) a provision  for asset  impairment of $15,557.
During  the three  months  ended  September  30,  2001,  we  reported  a loss on
discontinued operations of $1,118, or $0.03 per basic and diluted share.

The 2002  results  from  continuing  operations  also  include  a  non-recurring
provision for asset impairment of $81,619, or $1.87 per basic and diluted share.
The 2001 results from  continuing  operations  also reflect (i) a  non-recurring
provision for asset impairment of $63,026, or $1.45 per basic and diluted share,
(ii) a  non-recurring  loss  charge of  $1,882,  or $0.04 per basic and  diluted
share,  related to an interest rate subsidy  agreement and (iii) a non-recurring
loss of $1,036, or $0.02 per basic and diluted share, related to the refinancing
of first mortgage loans on Prime Outlets at Birch Run.

The following  discussion regarding operating results for the comparable periods
are  reflective  of the  classification  requirements  under  FAS No.  144.  The
operating  results for properties  disposed of during 2001 are not classified as
discontinued  operations.  Their  operating  results  through the dates of their
respective  disposition  are  collectively  referred  to as the  "2001  Property
Dispositions".

Revenues

Total  revenues  were  $38,851 for the three months  ended  September  30, 2002,
compared to $39,465,  for the same period in 2001, a decrease of $614,  or 1.6%.
Base rents decreased  $2,601, or 10.3%, to $22,645 during the three months ended
September  30,  2002  compared  to $25,246  for the same  period in 2001.  These
decreases are primarily due to (i) the 2001 Property Dispositions,  (ii) changes
in economic  rental  rates and (iii) the  reduction in outlet  center  occupancy
during the 2002 period.  Straight-line  rent expense,  included in base rent was
$269  and  $42  for  the  three  months  ended  September  30,  2002  and  2001,
respectively.

<PAGE>
Tenant reimbursements,  which represent the contractual recovery from tenants of
various  operating  expenses,  increased by $401, or 3.6%, to $11,486 during the
three months ended  September 30, 2002 compared to $11,085 in the same period in
2001. This increase was primarily  attributable to higher  recoverable  property
operating  expenses and real estate taxes expense  during the three months ended
September 30, 2002 compared to the same period in 2001. Tenant reimbursements as
a percentage of recoverable  property  operating  expenses and real estate taxes
were  81.0%  in  2002  compared  to  91.1%  in  2001.   The  decline  in  tenant
reimbursements as a percentage of recoverable  property  operating  expenses and
real estate taxes was primarily attributable to changes in economic rental rates
and the reduction in outlet center occupancy during the 2002 period.

Interest and other income  increased by $1,564,  or 73.8%,  to $3,684 during the
three  months  ended  September  30, 2002  compared to $2,120 for same period in
2001. The increase was primarily attributable to higher (i) equity earnings from
investment in partnerships of $609, (ii) temporary  tenant income of $298, (iii)
property  management fees of $286, (iv) lease termination income of $200 and (v)
all other income of $171.

Expenses

Property operating expenses increased by $1,835, or 21.0%, to $10,579 during the
three months ended  September 30, 2002 compared to $8,744 for the same period in
2001.  This  increase was  primarily  attributable  to  increases in  marketing,
utilities and insurance  costs during the three months ended  September 30, 2002
compared to the same period in 2001.  Real estate  taxes  expense  increased  by
$178,  or 5.2%,  to $3,607  during the three  months  ended  September  30, 2002
compared  to $3,429 for the same period in 2001.  This  increase  was  primarily
attributable to higher assessments for certain properties.

As shown in TABLE 1, depreciation and amortization expense decreased by $472, or
4.9%,  to $9,129 during the three months ended  September 30, 2002,  compared to
$9,601 for the same period in 2001. This decrease was primarily  attributable to
reduced  depreciation and  amortization  associated with the provision for asset
impairment of $63,026 recorded during the third quarter of 2001.

Table 1--Components of Depreciation and Amortization Expense

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Three Months ended September 30,                                                                  2002                    2001
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                             <C>                     <C>
Building and improvements                                                                       $ 5,249                 $ 4,995
Land improvements                                                                                 1,040                   1,099
Tenant improvements                                                                               2,169                   2,762
Furniture and fixtures                                                                              610                     660
Leasing commissions                                                                                  61                      85
                                                                                                -------                 -------
  Total                                                                                         $ 9,129                 $ 9,601
                                                                                                =======                 =======
====================================================================================================================================
</TABLE>

As shown in TABLE 2, interest expense  decreased by $2,222, or 13.6%, to $14,155
during the three months  ended  September  30, 2002  compared to $16,377 for the
same period in 2001.  This  decrease  reflects  (i) lower  interest  incurred of
$1,753,  (ii) a decrease in amortization of deferred financing costs of $446 and
(iii) an increase in amortization of debt premiums of $23.

<PAGE>
The decrease in interest  incurred is primarily  attributable  to a reduction of
$53,393 in our  weighted-average  debt  outstanding,  excluding  debt  premiums,
during the three months ended  September 30, 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 September 30, 2002
compared   to  the  same  period  in  2001.   The   significant   reduction   in
weighted-average debt outstanding was primarily attributable to debt prepayments
on the Mezzanine  Loan with net proceeds  from (i) the sales of  properties  and
(ii) the 2001 Property Dispositions.  The weighted-average  contractual interest
rates for the three  months  ended  September  30,  2002 and 2001 were 8.54% and
8.90%, respectively.  The Mezzanine Loan was obtained in December 2000 from FRIT
Lending LLC and Greenwich Capital Financial Products,  Inc.  (collectively,  the
"Mezzanine  Lender") in the original amount of $90,000.  See Note 4 - "Bonds and
Notes Payable" for additional information.

Table 2--Components of Interest Expense

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Three Months ended September 30,                                                                  2002                    2001
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                            <C>                     <C>
Interest incurred                                                                              $ 13,578                $ 15,331
Amortization of deferred financing costs                                                          1,085                   1,531
Amortization of debt premiums                                                                      (508)                   (485)
                                                                                               --------                --------
  Total                                                                                        $ 14,155                $ 16,377
                                                                                               ========                ========
====================================================================================================================================
</TABLE>

Other  charges  decreased  by $4,753,  or 76.3%,  to $1,477 for the three months
ended September 30, 2002 compared to $6,230 for the same period in 2001.  During
the third  quarter of 2001,  we recorded  (i) a  non-recurring  charge of $1,882
related to an interest rate subsidy  agreement and (ii) a non-recurring  loss of
$1,036  related to the  refinancing  of first mortgage loans on Prime Outlets at
Birch Run.

Excluding the effect of the 2001 non-recurring items, other charges decreased by
$1,835,  or 55.4%,  to $1,477 for the three  months  ended  September  30,  2002
compared  to $3,312 for the same  period in 2001.  This  decrease  is  primarily
attributable  to a lower  provision  for  uncollectible  accounts  receivable of
$1,845 partially offset by an increase all other expenses of $10.

During the third quarter of 2002,  certain  events and  circumstances  occurred,
including  changes to our anticipated  holding  periods,  reduced  occupancy and
limited  leasing  success,  that indicated  that certain of our properties  were
impaired on an other than temporary basis. As a result,  we recorded a provision
for asset  impairment  aggregating  $81,619,  representing the write-down of the
carrying value of these  properties to their estimated fair values in accordance
with the requirements of FAS 144.

During  the third  quarter  of 2001,  we  determined  that  certain  events  and
circumstances  had occurred,  including  reduced  occupancy and limited  leasing
success,  that  indicated  that  certain  of  our  properties  were  permanently
impaired. As a result, we recorded a provision for asset impairment  aggregating
$63,026,  representing  the write-down of the carrying value of these properties
to their  estimated fair values in accordance  with the  requirements of FAS No.
121,  "Accounting for the Impairment of Long-Lived  Assets and Long-Lived Assets
to be Disposed of."

<PAGE>
Comparison  of the nine months ended September 30, 2002 to the nine months ended
September 30, 2001

Summary

We reported  losses from  continuing  operations  of $97,628 and $81,023 for the
nine months ended September 30, 2002 and 2001, respectively. For the nine months
ended September 30, 2002, the net loss applicable to our common shareholders was
$129,015,  or $2.96 per common share on a basic and diluted basis.  For the nine
months  ended  September  30,  2001,  the  net  loss  applicable  to our  common
shareholders  was  $102,729,  or $2.36 per common  share on a basic and  diluted
basis.

Effective  January 1, 2002,  we adopted  FAS No.  144.  In  accordance  with the
requirements of FAS No. 144, we have classified the operating results, including
gains and losses related to disposition, for those properties either disposed of
or classified as assets held for sale during 2002 as discontinued  operations in
the accompanying statements of operations for all periods presented.

During  the nine  months  ended  September  30,  2002,  we  reported a loss from
discontinued  operations of $14,383,  or $0.33 per basic and diluted share. This
loss  from  discontinued   operations   reflects  (i)  a  net  gain  related  to
dispositions  of $16,123 and (ii) a provision  for asset  impairment of $27,525.
During  the  nine  months  ended  September  30,  2001,  we  reported  a loss on
discontinued operations of $4,702, or $0.11 per basic and diluted share.

The  2002  results  from  continuing  operations  reflect  (i)  a  non-recurring
provision for asset impairment of $81,619, or $1.89 per basic and diluted share,
(ii) a loss on the sale of real  estate of $703,  or $0.02 per basic and diluted
share,  attributable  to the sale of our  ownership  interest in a joint venture
partnership and (iii) a non-recurring  charge of $3,000,  or $0.07 per basic and
diluted  share,  for pending and  potential  tenant claims with respect to lease
provisions related to pass-through charges and promotional fund charges.

The  2001  results  from  continuing  operations  reflect  (i)  a  non-recurring
provision for asset impairment of $63,026, or $1.45 per basic and diluted share,
(ii) a  non-recurring  loss  charge of  $1,882,  or $0.04 per basic and  diluted
share, related to an interest rate subsidy agreement, (iii) a non-recurring loss
of $1,036,  or $0.02 per basic and diluted share,  related to the refinancing of
first  mortgage  loans on Prime Outlets at Birch Run and (iv) a gain on the sale
of real  estate of $552,  or $0.01 per basic  and  diluted  share,  for the 2001
Property Dispositions.

The following  discussion regarding operating results for the comparable periods
are  reflective  of the  classification  requirements  under  FAS No.  144.  The
operating  results for properties  disposed of during 2001 are not classified as
discontinued  operations.  Their  operating  results  through the dates of their
respective  disposition  are  collectively  referred  to as the  "2001  Property
Dispositions".

Revenues

Total  revenues  were  $114,552  for the nine months ended  September  30, 2002,
compared to $123,823 for the same period in 2001, a decrease of $9,271, or 7.5%.
Base rents decreased  $8,817,  or 11.3%, to $69,480 during the nine months ended
September  30,  2002  compared  to $78,297  for the same  period in 2001.  These
decreases are primarily due to (i) the 2001 Property Dispositions,  (ii) changes
in economic  rental  rates and (iii) the  reduction in outlet  center  occupancy
during the 2002 period.  Straight-line  rent expense,  included in base rent was
$344  and  $404  for  the  nine  months  ended  September  30,  2002  and  2001,
respectively.

<PAGE>
Tenant reimbursements,  which represent the contractual recovery from tenants of
certain operating expenses,  decreased by $2,411, or 6.5%, to $34,443 during the
nine months ended  September  30, 2002 compared to $36,854 in the same period in
2001.  These decreases are primarily due to (i) the 2001 Property  Dispositions;
(ii) changes in economic  rental rates and (iii) 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 83.1% in 2002
compared to 93.0% in 2001. The decline in tenant  reimbursements as a percentage
of recoverable  property  operating expenses and real estate taxes was primarily
attributable  to changes in economic  rental  rates and the  reduction in outlet
center occupancy during the 2002 period.

Interest and other income  increased by $1,470,  or 22.5%,  to $8,005 during the
nine months ended September 30, 2002 compared to $6,535 for same period in 2001.
The increase  was  primarily  attributable  to higher (i) equity  earnings  from
investment in partnerships of $1,623,  (ii) temporary  tenant income of $496 and
(iii) property  management fees of $437,  partially  offset by reductions in (i)
lease termination income of $895 and (ii) all other income of $191.

Expenses

Property  operating expenses increased by $1,770, or 6.2%, to $30,476 during the
nine months ended  September 30, 2002 compared to $28,706 for the same period in
2001. This increase was primarily  attributable to higher  marketing,  utilities
and insurance costs  partially  offset by the 2001 Property  Dispositions.  Real
estate  taxes  expense  increased  by $67, or 0.6%,  to $10,979  during the nine
months ended September 30, 2002 compared to $10,912 for the same period in 2001.
This  increase was  primarily  attributable  to higher  assessments  for certain
properties partially offset by the 2001 Property Dispositions.

As shown in TABLE 3, depreciation and amortization  expense decreased by $1,769,
or 6.1%, to $27,067 during the nine months ended September 30, 2002, compared to
$28,836 for the same period in 2001. This decrease was primarily attributable to
(i)  the  2001  Property   Dispositions   and  (ii)  reduced   depreciation  and
amortization  associated  with the  provision  for asset  impairment  of $63,026
recorded during the third quarter of 2001.

Table 3--Components of Depreciation and Amortization Expense

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Nine Months ended September 30,                                                                   2002                    2001
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                            <C>                     <C>
Building and improvements                                                                      $ 14,358                $ 14,974
Land improvements                                                                                 3,097                   3,163
Tenant improvements                                                                               7,567                   8,433
Furniture and fixtures                                                                            1,851                   2,033
Leasing commissions                                                                                 194                     233
                                                                                               --------                --------
  Total                                                                                        $ 27,067                $ 28,836
                                                                                               ========                ========
====================================================================================================================================
</TABLE>

As shown in TABLE 4, interest expense  decreased by $6,828, or 13.5%, to $43,871
during the nine months ended September 30, 2002 compared to $50,699 for the same
period in 2001.  This decrease  reflects (i) lower interest  incurred of $5,928,
(ii) a decrease in amortization of deferred financing costs of $832 and (iii) an
increase in amortization of debt premiums of $68.

The decrease in interest  incurred is primarily  attributable  to a reduction of
$59,090 in our  weighted-average  debt  outstanding,  excluding  debt  premiums,
during the nine months ended  September  30, 2002 compared to the same period in
2001.  Also  contributing  to the  decrease  in  interest  incurred  were  lower
weighted-average  interest rates during the nine months ended September 30, 2002
compared   to  the  same  period  in  2001.   The   significant   reduction   in
weighted-average debt outstanding was primarily attributable to debt prepayments
on the Mezzanine  Loan with net proceeds  from (i) the sales of  properties  and
(ii) the 2001 Property Dispositions.  The weighted-average  contractual interest
rates for the nine  months  ended  September  30,  2002 and 2001 were  8.50% and
8.91%, respectively.

<PAGE>
Table 4--Components of Interest Expense

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Nine Months ended September 30,                                                           2002                    2001
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                            <C>                     <C>
Interest incurred                                                                              $ 41,189                $ 47,117
Amortization of deferred financing costs                                                          4,188                   5,020
Amortization of debt premiums                                                                    (1,506)                 (1,438)
                                                                                               --------                --------
  Total                                                                                        $ 43,871                $ 50,699
                                                                                               ========                ========
====================================================================================================================================
</TABLE>

Other charges decreased by $4,972, or 38.9%, to $7,803 for the nine months ended
September 30, 2002  compared to $12,775 for the same period in 2001.  During the
second quarter of 2002, we recorded a non-recurring charge of $3,000 for pending
and potential  tenant claims with respect to lease  provisions  related to their
pass-through  charges  and  promotional  fund  charges  (see  Note  7  -  "Legal
Proceedings"  for  additional   information).   This  non-recurring  charge  was
estimated in accordance with our aforementioned  "Critical  Accounting  Policies
and Estimates"  with respect to loss  contingencies  and is based on our current
assessment  of the  likelihood  of any  adverse  judgments  or outcomes to these
matters. During the third quarter of 2001, we recorded a non-recurring charge of
$1,882 related to an interest rate subsidy agreement and a non-recurring loss of
$1,036  related to the  refinancing  of first mortgage loans on Prime Outlets at
Birch Run.

Excluding  the  above-noted  non-recurring  items,  other  charges  decreased by
$5,054,  or 51.3%,  to $4,803  for the nine  months  ended  September  30,  2002
compared  to $9,857 for the same  period in 2001.  The  decrease  was  primarily
attributable to (i) a lower provision for uncollectible  accounts  receivable of
$4,416 and (ii) a decrease in corporate marketing costs of $645 partially offset
by an increase in all other expenses of $7.

During the third quarter of 2002,  certain  events and  circumstances  occurred,
including  changes to our anticipated  holding  periods,  reduced  occupancy and
limited  leasing  success,  that indicated  that certain of our properties  were
impaired on an other than temporary basis. As a result,  we recorded a provision
for asset  impairment  aggregating  $81,619,  representing the write-down of the
carrying value of these  properties to their estimated fair values in accordance
with the requirements of FAS 144.

During  the third  quarter  of 2001,  we  determined  that  certain  events  and
circumstances  had occurred,  including  reduced  occupancy and limited  leasing
success,  that  indicated  that  certain  of  our  properties  were  permanently
impaired. As a result, we recorded a provision for asset impairment  aggregating
$63,026,  representing  the write-down of the carrying value of these properties
to their  estimated fair values in accordance  with the  requirements of FAS No.
121,  "Accounting for the Impairment of Long-Lived  Assets and Long-Lived Assets
to be Disposed of."

Merchant Sales

For the three and nine months ended September 30, 2002,  same-store sales in our
outlet center portfolio decreased 5.6% and 4.1%,  respectively,  compared to the
same  periods 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.

<PAGE>
Liquidity and Capital Resources

Sources and Uses of Cash

For the nine months ended  September  30, 2002,  net cash  provided by operating
activities  was $16,426,  net cash provided by investing  activities was $18,193
and net cash used in financing activities was $36,117.

The net cash  provided by  investing  activities  during the nine  months  ended
September  30, 2002  consisted  of $22,320 of aggregate  net  proceeds  from the
disposition  of  assets,  partially  offset  by $4,127  of  additions  to rental
property.  The net proceeds  from asset sales  consisted of (i) $12,113 from the
January 11, 2002 sale of a 70% ownership interest in the Hagerstown Center, (ii)
$9,551 from the April 1, 2002 sale of the Edinburgh Center,  (iii) $522 from the
April 19, 2002 sale of our 51% ownership  interest in the Bellport Outlet Center
and (iv) $688 from the June 17, 2002 sale of Western Plaza,  partially offset by
aggregate  cash of $554 assumed by the lender in connection  with the January 1,
2002  foreclosure  sale of the Conroe.  The  additions to rental  property  were
primarily costs incurred in connection with re-leasing space to new merchants.

The gross  uses of cash for  financing  activities  of  $36,117  during the nine
months  ended   September  30,  2002   consisted  of  (i)  scheduled   principal
amortization  on notes payable of $14,129 and (ii) principal  prepayments on the
Mezzanine Loan aggregating  $21,988 including $10,341 of mandatory  prepayments,
with net proceeds from the sales of properties.

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 a mezzanine loan (the
"Mezzanine  Loan")  obtained  in  December  2000 from FRIT PRT  Lending  LLC and
Greenwich  Capital  Financial  Products,  Inc.  (collectively,   the  "Mezzanine
Lender")  in the  original  amount  of  $90,000.  See Note 4 - "Bonds  and Notes
Payable" for additional information.

The operating  results of the Hagerstown  Center through the date of disposition
are  classified  as  discontinued  operations in the  accompanying  Consolidated
Statements  of  Operations  for all periods  presented  in  accordance  with the
requirements  of FAS No.  144.  In  connection  with the sale of the  Hagerstown
Center, we recorded a gain on the sale of real estate of $16,795,  also included
in  discontinued  operations,  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 accompanying  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.

<PAGE>
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 3.32% as of September 30, 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 and additional undeveloped land. 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 the Mezzanine Loan.

The operating  results of the Edinburgh  Center  through the date of disposition
are  classified  as  discontinued  operations in the  accompanying  Consolidated
Statements  of  Operations  for all periods  presented  in  accordance  with the
requirements  of FAS No. 144.  During the first  quarter of 2002,  we recorded a
loss on the  sale of real  estate  of  $9,625,  also  included  in  discontinued
operations,  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.

On April 19, 2002,  we  completed  the sale of Phases II and III of the 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.

We  accounted  for our  ownership  interest  in the  Bellport  Outlet  Center in
accordance with the equity method of accounting through the date of disposition.
In connection with the sale of the Bellport Outlet Center, we recorded a loss on
the sale of real estate of $703 during the second quarter of 2002.

On June 17, 2002, we completed the sale of the Shops at Western Plaza  ("Western
Plaza"),  a community  center  located in  Knoxville,  Tennessee,  consisting of
205,000 square feet of GLA. Western Plaza was sold to WP General Partnership for
cash  consideration  of $9,500.  The net cash  proceeds from the sale were $688,
after (i)  repayment  of $9,467  (of which  $2,467  was  scheduled  to mature on
October 31, 2002) of existing recourse  mortgage  indebtedness on Western Plaza,
(ii)  payment of closing  costs and fees and (iii)  release of certain  escrowed
funds. We used these net proceeds to make a mandatory  principal payment of $661
on the Mezzanine Loan.

The  operating  results of Western  Plaza  through the date of  disposition  are
classified  as  discontinued   operations  in  the   accompanying   Consolidated
Statements  of  Operations  for all periods  presented  in  accordance  with the
requirements  of FAS No. 144. In connection  with the sale of Western Plaza,  we
recorded  a gain  on the  sale  of real  estate  of  $2,122,  also  included  in
discontinued operations, during the second quarter of 2002.

<PAGE>
On July 26, 2002,  we  completed  the sale of six outlet  centers for  aggregate
consideration of $118,650 to wholly-owned affiliates of PFP Venture LLC, a joint
venture (the "PFP  Venture")  (i) 29.8% owned by PWG Prime  Holdings LLC ("PWG")
and (ii) 70.2% owned by FP Investment LLC ("FP").  FP is a joint venture between
FRIT PRT Bridge Acquisition LLC ("FRIT"),  a Delaware limited liability company,
and us. Through FP, FRIT and we indirectly have ownership interests of 50.4% and
19.8%, respectively, in the PFP Venture.

The six outlet centers  (collectively,  the "Bridge Loan  Properties") that were
sold are located in  Anderson,  California;  Calhoun,  Georgia;  Gaffney,  South
Carolina;  Latham,  New York; Lee,  Massachusetts  and Lodi, Ohio and contain an
aggregate of 1,304,000  square feet of GLA. Under the terms of the  transaction,
for a five-year period, we will continue to manage,  market and lease the Bridge
Loan Properties for a fee on behalf of the PFP Venture.

In connection with the sale,  $111,009 of recourse  mortgage  indebtedness  (the
"Bridge  Loan") on the Bridge Loan  Properties  was repaid in full. Our net cash
proceeds of $6,762 from the sale were  contributed to FP. FP used these proceeds
along  with a  $17,236  capital  contribution  from  FRIT  to  purchase  a 70.2%
ownership interest in the PFP Venture.  Financing for the PFP Venture's purchase
of the Bridge Loan  Properties  was  provided by GMAC  Mortgage in the form of a
$90,000, four-year,  non-recourse mortgage loan, of which $74,000 bears interest
at LIBOR  plus  4.25%  (minimum  of 7.00%  for the first  three  years and 7.25%
thereafter)  and $16,000 bears  interest at LIBOR plus 4.50% (minimum of 7.75%).
Furthermore,  subject to satisfaction of certain conditions, the PFP Venture may
extend the maturity of the $74,000  portion of the loan for one additional  year
with the minimum interest rate continuing at 7.25%.

Pursuant to certain venture-related documents, we have guaranteed FRIT (i) a 13%
return on its  $17,236  of  invested  capital,  and (ii) the full  return of its
invested capital (the "Mandatory  Redemption  Obligation") by December 31, 2003.
Our guarantee is secured by junior security  interests in collateral  similar to
that pledged to the Mezzanine  Lender. FP is entitled to receive a 15% preferred
return on its  invested  capital of $23,998  (approximately  $3,600 on an annual
basis) in the PFP  Venture.  Then PWG is  entitled  to  receive a 15%  preferred
return on its invested  capital of $10,200.  From FP's  preferred  return,  FRIT
first receives its 13% return on its invested capital with the remainder applied
towards the payment of the Mandatory Redemption Obligation. Upon satisfaction of
the  Mandatory  Redemption  Obligation,  we will be entitled  to FP's  preferred
return  until  such time as we have been  repaid in full our  invested  capital,
together with a 13% return on our invested capital. Thereafter, FRIT and we will
share any cash flow due to FP on an approximate equal basis. As of September 30,
2002, the Mandatory Redemption Obligation was $17,005.

FRIT,  indirectly through affiliates,  was the owner of the Bridge Loan that was
repaid in full in connection  with the sale of the Bridge Loan Properties and is
a 50%  participant in the Mezzanine  Loan,  which had an  outstanding  principal
balance of $33,195 as of September 30, 2002.

The  operating  results  of the  Bridge  Loan  Properties  through  the  date of
disposition  are  classified  as  discontinued  operations  in the  accompanying
Consolidated  Statements of Operations  for all periods  presented in accordance
with the  requirements  of FAS No. 144.  During the second  quarter of 2002,  we
recorded  a loss  on the  sale of real  estate  of  $10,289,  also  included  in
discontinued operations,  related to the write-down of the carrying value of the
Bridge Loan  Properties to their net realizable  value based on the terms of the
sale agreement.

<PAGE>
Assets Held for Sale

On October 30, 2002, we completed the sale of Melrose Place, a community  center
located  in  Knoxville,  Tennessee,  consisting  of 27,000  square  feet of GLA.
Melrose Place was sold to Melrose Place Tennessee  General  Partnership for cash
consideration  of $2,500.  The net cash proceeds from the sale were $555,  after
(i) repayment of $1,935 of existing  recourse  mortgage  indebtedness on Melrose
Place,  (ii)  payment  of  closing  costs and fees and (iii)  release of certain
escrowed funds. We used these net proceeds to make a mandatory principal payment
of $533 on the Mezzanine Loan.

The operating results of Melrose Place are classified as discontinued operations
in the  accompanying  Consolidated  Statements  of  Operations  for all  periods
presented in accordance  with the  requirements  of FAS No. 144. As of September
30, 2002, the carrying value of Melrose Place of $1,527 was classified as assets
held for sale and its related  indebtedness of $1,935 was classified as mortgage
debt on assets held for sale in the accompanying Consolidated Balance Sheet.

We have entered into an agreement to sell (i) Prime  Outlets of Puerto Rico,  an
outlet center located in  Barceloneta,  Puerto Rico consisting of 176,000 square
feet of GLA,  and (ii)  certain  adjacent  parcels of land being  developed  for
non-outlet retail use  (collectively,  the "Puerto Rico Property").  Although we
expect  to close on the sale of the  Puerto  Rico  Property  during  the  fourth
quarter  of  2002,  there  can be no  assurance  that  the  transaction  will be
consummated.

As a result, the operating results of the Puerto Rico Property are classified as
discontinued   operations  in  the  accompanying   Consolidated   Statements  of
Operations for all periods  presented in accordance with the requirements of FAS
No. 144.  During the third quarter of 2002,  we recorded an  impairment  loss of
$15,557, also included in discontinued operations,  related to the write-down of
the carrying  value of the Puerto Rico Property to its estimated net  realizable
value based on the terms of the sale  agreement.  As of September 30, 2002,  the
carrying  value of the Puerto Rico Property of $31,495 was  classified as assets
held for sale and its related indebtedness of $19,371 was classified as mortgage
debt on assets held for sale in the accompanying Consolidated Balance Sheet.

2002 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")  at the  time of the  suspension.  These
non-recourse  mortgage loans were  cross-defaulted and  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 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. 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.

<PAGE>
Effective July 18, 2002,  New York Life sold its interest in the  Jeffersonville
II Center loan. On August 13, 2002, we transferred our ownership interest in the
Jeffersonville  II  Center  to New York  Life's  successor.  As a result  of the
transfer of our ownership  interest in the Jeffersonville II Center, we recorded
a non-recurring  gain of $17,120 during the third quarter of 2002,  representing
the difference  between our carrying value of the  Jeffersonville  II Center and
its related  net assets and the  outstanding  loan  balance,  including  accrued
interest, as of the date of transfer.  The transfer of our ownership interest in
the  Jeffersonville  II Center did not have a material  impact on our results of
operations or financial  condition  because during 2001 and through the transfer
date in 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 operating results, including related gains or losses on disposition,  of the
Conroe Center and the  Jeffersonville  II Center are classified as  discontinued
operations in the  accompanying  Consolidated  Statements of Operations  through
their respective  disposition dates for all periods presented in accordance with
the requirements of FAS No. 144. No gain or loss was recorded in connection with
the foreclosure of the Conroe Center. See Note 4 - "Bonds and Notes Payable" for
additional information.

During the second quarter of 2002, we incurred a provision for asset  impairment
of  $12,200  to  adjust  the  carrying  values of the Vero  Beach  Center to its
estimated fair value in accordance with the provisions of FAS No. 144. Effective
September  9, 2002,  John  Hancock  foreclosed  on the Vero Beach Center and its
related assets and liabilities, including $24,497 of principal outstanding under
the non-recourse mortgage loan, were transferred to John Hancock.  Additionally,
we are  currently  negotiating  a  transfer  of our  ownership  interest  in the
Woodbury  Center to John Hancock.  Foreclosure  on the Vero Beach Center and the
expected  transfer  of our  ownership  interest in the  Woodbury  Center are not
expected to have a material  impact on our results of  operations  or  financial
condition  because  during 2002, all excess cash flow from the operations of the
John Hancock Properties has been utilized for debt service on their non-recourse
mortgage loans. The carrying value of the Woodbury Center  approximates  $12,346
as of  September  30,  2002.  Such  value  is  exceeded  by the  balance  of the
associated  non-recourse  mortgage  indebtedness  of $16,331 as of September 30,
2002.  If we were to transfer our ownership  interest in the Woodbury  Center to
John Hancock,  we would record a non-recurring  gain for the difference  between
the  carrying  value of the  Woodbury  Center and its related net assets and the
outstanding loan balance.

The operating  results of the Vero Beach Center are  classified as  discontinued
operations in the accompanying Consolidated Statements of Operations through the
disposition  date for all periods  presented in accordance with the requirements
of FAS No. 144. No gain or loss was recorded in connection  with the foreclosure
of the Vero Beach Center.  See Note 4 - "Bonds and Notes Payable" for additional
information.

Going Concern

We are  required  to  make,  in  addition  to  scheduled  monthly  amortization,
mandatory  principal payments on our Mezzanine Loan in an aggregate amount of at
least  $12,000  with net  proceeds  from  asset  dispositions  or other  capital
transactions  by  December  31, 2002 (see  "Mezzanine  Loan  Modifications"  for
additional information).

<PAGE>
We have  entered  into an  agreement  for the sale of the Puerto Rico  Property,
which we  currently  expect to close  during  the fourth  quarter  of 2002,  and
therefore, have classified its net carrying value to assets held for sale in the
accompanying  Consolidated  Balance  Sheet  as of  September  30,  2002 and have
included  its  results  from  operations  in  discontinued   operations  in  the
accompanying  Consolidated  Statements of Operations  for all periods  presented
pursuant  to  the   requirements  of  FAS  No.  144  (see  Note  3  -  "Property
Dispositions" for additional information).  The sale of the Puerto Rico Property
is expected to generate estimated net proceeds of approximately  $12,000,  after
repayment of existing  mortgage  indebtedness  and closing costs,  sufficient to
satisfy the required  December 2002 mandatory  principal  repayment amount under
the  Mezzanine  Loan.  However,  the sale of the Puerto  Rico  Property  remains
subject  to  customary  closing  conditions  and,  accordingly,  there can be no
assurance as to the timing, terms or completion of the proposed sale.

In addition to the proposed sale of the Puerto Rico Property discussed above, we
continue to seek to generate  additional  liquidity  through  other asset sales,
financings  and  other  capital  raising  activities,  however,  there can be no
assurance  that  we  will  be able to  complete  such  transactions  within  the
specified period or that such transactions,  if they should occur, will generate
sufficient  proceeds to make required  payments  under the Mezzanine  Loan.  Any
failure  to  satisfy  the  required  mandatory  principal  payments  within  the
specified  time period or the scheduled  monthly  principal  payments  under the
terms of the Mezzanine Loan will constitute a default.

Based on our results for the three months ended June 30, 2002 and  September 30,
2002, we are not in compliance  with respect to the debt service  coverage ratio
under our fixed rate tax-exempt  revenue bonds (the "Affected Fixed Rate Bonds")
in the amount of $18,390.  As a result of our noncompliance,  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.  If the holders of the Affected  Fixed Rate
Bonds make such an election and we are unable to repay such obligations, certain
cross-default  provisions with respect to other debt  facilities,  including the
Mezzanine Loan may be triggered.

We  continue to work with  holders of the  Affected  Fixed Rate Bonds  regarding
potential resolution, including forbearance, waiver or amendment with respect to
the applicable provisions. If we are unable to reach satisfactory resolution, 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
resolution  with the holders of the Affected Fixed Rate Bonds 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.

As of  September  30,  2002,  we were in  compliance  with  all  financial  debt
covenants under our recourse loan agreements  other than the Affected Fixed Rate
Bonds. Nevertheless, there can be no assurance that we will remain in compliance
with our financial debt covenants in future periods because our future financial
performance is subject to various risks and  uncertainties,  including,  but not
limited  to, the  effects of current  and future  economic  conditions,  and the
resulting  impact on our revenue;  the effects of  increases in market  interest
rates from current levels;  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; risks
associated with litigation,  including  pending and potential tenant claims with
respect  to  lease  provisions  related  to  their   pass-through   charges  and
promotional fund charges; 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.

<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 Modifications

Effective January 31, 2002, we entered into a modification to the original terms
of the Mezzanine  Loan obtained in December  2000.  The Mezzanine Loan amendment
(the "First  Amendment"),  among other  things,  (i)  reduced  required  monthly
principal  amortization  for the period February 1, 2002 through January 1, 2003
("Year 2") from $1,667 to $800,  which could be further  reduced to a minimum of
$500 per month under certain limited circumstances, provided no defaults existed
under the Mezzanine Loan and certain other  conditions had been satisfied at the
Mezzanine  Lender's sole discretion,  (ii) required certain mandatory  principal
payments  from net  proceeds  from  asset  sales or other  capital  transactions
pursuant  to the  schedule  set forth in the  second  paragraph  below and (iii)
reduced 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 First  Amendment  (i)
increased  the interest  rate from LIBOR plus 9.50% to the greater of LIBOR plus
9.50% (rounded up to nearest 0.125%) or 14.75%), (ii) changed 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 First  Amendment also required  additional  Year 2 monthly  payments of $250
(the "Escrowed Funds") into an escrow account controlled by the Lender. Provided
certain conditions are satisfied, at the Mezzanine Lender's sole discretion, the
Escrowed Funds could be released to us for limited purposes.  The Escrowed Funds
not used at the end of each  quarter,  subject  to  certain  exceptions,  may be
applied by the  Mezzanine  Lender to amortize the Mezzanine  Loan.  The required
monthly principal  amortization of $2,333, at the time commencing on February 1,
2003  through the new  maturity  date of  September  30,  2003  ("Year 3"),  was
unchanged.

The First Amendment also required 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 were 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 were also required to pay any interest, including deferred interest,
accrued thereon and the additional fees provided for in the Mezzanine Loan.

On July 1, 2002, the Mezzanine  Lender  further  amended the Mezzanine Loan (the
"Second  Amendment") to extend the July 1, 2002 mandatory  principal payment due
date to the  earlier of (i) August 15,  2002 (the  "Extended  Date") or (ii) the
occurrence of an event of default under the Mezzanine Loan.  Additionally,  upon
satisfaction of certain conditions, the Extended Date was automatically extended
again to the earlier of (i) October 31, 2002, (ii) the occurrence of an event of
default under the Mezzanine Loan, or (iii) the closing or termination of certain
asset sales.

<PAGE>
Effective  November 1, 2002,  we entered into an  additional  modification  (the
"Third  Amendment") to the terms of the Mezzanine  Loan. The Third Amendment (i)
terminated our obligation to make mandatory principal payments with net proceeds
from asset dispositions or other capital transactions on or prior to October 31,
2002 and  November 1, 2002,  respectively,  (ii)  requires  mandatory  principal
payments in an aggregate  amount of not less than $12,000 from net proceeds from
asset dispositions or other capital  transactions on or before December 31, 2002
and (iii) increases the required monthly principal  amortization  payment due on
January  1, 2003 from $800 to  $2,333.  Additionally,  the Third  Amendment  (i)
increases the interest rate from the greater of LIBOR plus 9.50%  (rounded up to
nearest  0.125%)  or 14.75% to a  fixed-rate  of 19.75%  and (ii)  requires a 2%
amendment fee on the outstanding  principal  balance of the Mezzanine Loan as of
November  1,  2002.  Half  of the  amendment  fee was  paid  at the  time of the
modification  and half  will be  payable  on  December  31,  2002  provided  the
Mezzanine  Loan has not been repaid in full. If the Mezzanine  Loan is repaid in
full by December 31, 2002,  the payment of the second half of the  amendment fee
will be  waived.  Any  failure  to  satisfy  the  mandatory  principal  payments
requirement or other  payments  pursuant to the terms of the Mezzanine Loan will
constitute a default.

Debt Service Obligations

Our aggregate  indebtedness  as adjusted for the terms of the Third Amendment to
the Mezzanine Loan and excluding (i) unamortized  debt premiums of $8,468,  (ii)
mortgage indebtedness of $1,935 on Melrose Place and (iii) non-recourse mortgage
indebtedness  of $16,331 on the  Woodbury  Center was  $639,328  (the  "Adjusted
Indebtedness")  as of September 30, 2002. The mortgage  indebtedness  on Melrose
Place was repaid in full in connection with the sale of such property on October
30, 2002. Additionally, we are currently negotiating a transfer of our ownership
interest  in the  Woodbury  Center  to  John  Hancock.  See  Note 3 -  "Property
Dispositions" and "Defaults on Certain Non-recourse  Mortgage  Indebtedness" for
additional information.

At September 30, 2002 the Adjusted Indebtedness had a weighted-average  maturity
of 2.7 years and bore contractual  interest at a weighted-average  rate of 8.50%
per  annum.  At  September  30,  2002,  $619,957,  or  97.0%,  of  the  Adjusted
Indebtedness  bore  interest at fixed rates and $19,371 or 3.0%, 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 September 30, 2002, our scheduled  principal payments for the remainder of
2002 and 2003 for the Adjusted  Indebtedness  aggregated  $17,002 and  $380,544,
respectively.  The remaining  scheduled  principal payments for 2002 include (i)
principal  amortization  aggregating $5,002 (including an aggregate of $2,400 of
scheduled monthly principal payments on the Mezzanine Loan, which may be further
reduced  subject  to the terms of its  modification  specified  above)  and (ii)
mandatory principal payments on the Mezzanine Loan in an aggregate amount of not
less  than  $12,000  (see   "Mezzanine   Loan   Modifications"   for  additional
information).  The  outstanding  principal  balance of the Mezzanine  Loan as of
September  30, 2002 was  $33,195.  The  scheduled  principal  payments  for 2003
include (i)  obligations  of $338,558 due in respect of a mortgage  loan that is
secured by 15 of our properties  and matures in November  2003,  (ii) $18,795 of
principal  payments  under the Mezzanine Loan and (iii) an obligation of $19,156
due in respect to a mortgage loan secured by the Puerto Rico  Property.  We have
entered into an agreement to sell the Puerto Rico Property. See "Assets Held for
Sale" in Note 3 - "Property Dispositions" for additional information.

<PAGE>
Guarantees of Indebtedness of Others

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

Additionally,  we are a guarantor with respect to certain mortgage  indebtedness
(the "HGP Office Building  Mortgage") in the amount of $2,311 on HGP's corporate
office building and related  equipment located in Norton Shores,  Michigan.  The
HGP Office Building  Mortgage  matures in December 2002, bears interest at LIBOR
plus 2.50%, and requires monthly debt service payments of approximately $23.

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 Monroe Mortgage
Loan or the HGP Office Building Mortgage nor did they constitute a default under
the HGP Secured Credit  Facility.  No claims have been made under our guarantees
with  respect  to the  HGP  Monroe  Mortgage  Loan or the  HGP  Office  Building
Mortgage.  HGP is a publicly  traded company that was formed in connection  with
our merger with Horizon Group, Inc. in June 1998.

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.

On July  26,  2002,  we sold  the  Bridge  Properties  to the  PFP  Venture.  In
connection  with the sale, we guaranteed FRIT (i) a 13% return on its $17,236 of
invested  capital and (ii) the full return of its  invested  capital by December
31, 2003. See Note 3 - "Property Dispositions" for additional information. As of
September 30, 2002, our Mandatory Redemption Obligation with respect to the full
return of FRIT's invested capital was $17,005.

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. At
the time of suspension,  these non-recourse mortgage loans were held by New York
Life.  Effective January 1, 2002, New York Life foreclosed on the Conroe Center.
Effective July 18, 2002,  New York Life sold its interest in the  Jeffersonville
II Center loan. On August 13, 2002, we transferred our ownership interest in the
Jeffersonville  II Center to New York Life's  successor.  See "2002  Foreclosure
Sales" of Note 3 - "Property Dispositions" for additional information.

<PAGE>
During August of 2002, certain of our subsidiaries suspended regularly scheduled
monthly  debt service  payments on two  non-recourse  mortgage  loans which were
cross-collateralized  by the Vero Beach  Center and the Woodbury  Center.  These
non-recourse  mortgage loans were held by John Hancock.  Effective  September 9,
2002,  John Hancock  foreclosed on the Vero Beach Center.  Additionally,  we are
currently  negotiating  a transfer of our  ownership  interest  in the  Woodbury
Center to John  Hancock.  See  "2002  Foreclosure  Sales" of Note 3 -  "Property
Dispositions" for additional information.

Defaults  on  Certain  Non-recourse  Mortgage   Indebtedness  of  Unconsolidated
Partnerships

Two  mortgage  loans  related to  projects  in which we,  through  subsidiaries,
indirectly  own joint  venture  interests  have matured and are in default.  The
mortgage loans,  at the time of default,  were (i) a $10,389 first mortgage loan
on Phase I of the Bellport  Outlet  Center,  held by Union Labor Life  Insurance
Company  ("Union  Labor");  and (ii) a  $13,338  first  mortgage  loan on Oxnard
Factory Outlet, an outlet center located in Oxnard, California, held by Fru-Con.
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 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  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
September 30, 2002, the carrying value of our investment in these properties was
$0.

Strategic Alternatives

We have engaged  Houlihan Lokey Howard & Zukin Capital to assist us in exploring
recapitalization,  restructuring,  financing  and other  strategic  alternatives
designed to strengthen our financial  position and address our long-term capital
requirements. There can be no assurance as to the timing, terms or completion of
any transaction.

Settlement of Tenant Matters

To date,  we have entered  into  settlement  agreements  with respect to certain
tenant matters providing for aggregate payments of $2,560.  Through November 14,
2002, we have made approximately  $2,253 of such required payments using certain
Escrowed Funds (see "Mezzanine Loan  Modifications" for additional  information)
released  by the  Mezzanine  Lender.  We expect to make the  remaining  required
payments of approximately $307 from the Escrowed Funds by December 31, 2002.

These  settlement  agreements  did not have a material  impact on our  financial
condition or our results from operations. We had previously established reserves
aggregating  $5,000 for the  settlement of such  matters.  See Note 6 - "Special
Charges" and Note 7 - "Legal Proceedings" for additional information.

<PAGE>
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 Senior  Preferred  Stock,  Series B Convertible  Preferred
Stock,  common  stock or common  units of limited  partnership  interest  in the
Operating  Partnership  during 2002.  As of September  30, 2002,  we were eleven
quarters in arrears with respect to preferred stock distributions.

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  interests in the  Operating
Partnership unless we are current with respect to distributions to our preferred
shareholders.  As of  September  30,  2002,  unpaid  dividends  for  the  period
beginning on November 16, 1999 through September 30, 2002 on the Series A Senior
Preferred Stock and Series B Convertible  Preferred Stock aggregated $17,358 and
$47,825,  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 September  30, 2002 are $6,037  ($2.625 per
share) and $16,635 ($2.125 per share), respectively.

Development Activities

During  the nine  months  ended  September  30,  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.

New Accounting Pronouncements

In October 2001, the Financial  Accounting  Standards  Board issued FAS No. 144.
FAS  No.  144  supercedes  FAS 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,  FAS 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."
FAS No. 144 is effective for fiscal years beginning after December 15, 2001.

Effective  January  1, 2002 we  adopted  FAS No.  144.  In  accordance  with the
requirements of FAS No. 144, we have classified the operating results, including
gains and losses related to disposition, for those properties either disposed of
or classified as assets held for sale during 2002 as discontinued  operations in
the  accompanying   Consolidated   Statements  of  Operations  for  all  periods
presented.  See Note 2 - "New Accounting  Pronouncements" and Note 3 - "Property
Dispositions" for additional information.

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

We believe  that FFO is an important  and widely used  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 5 provides a  reconciliation  of income (loss) from continuing  operations
before allocations to minority  interests and preferred  shareholders to FFO for
the three and nine  months  ended  September  30, 2002 and 2001.  FFO  increased
$1,411,  or 25.6%,  to $6,890 for the three months ended September 30, 2002 from
$5,479 for the same period in 2001. FFO decreased  $3,800,  or 19.1%, to $16,109
for the nine months ended September 30, 2002 from $19,909 for the same period in
2001.

The increase in FFO for the three months ended  September  30, 2002  compared to
the same period in 2001  reflects  (i) lower  interest  expense  during the 2002
period  primarily  resulting from  principal  payments on our Mezzanine Loan and
(ii) the reduction in our provision for uncollectible accounts receivable during
the 2002 period. Additionally,  the FFO results for 2001 include a third quarter
non-recurring  loss of $1,036  related to the  refinancing  of Prime  Outlets at
Birch Run.  These items were  partially  offset by the reduced  occupancy in our
portfolio  during the 2002 period as well as the impact of  economic  changes in
rental rates.

The decrease in FFO for the nine months ended September 30, 2002 compared to the
same period in 2001 is primarily due to (i) the  aforementioned  second  quarter
non-recurring  charge of $3,000 recorded during 2002, (ii) the reduced occupancy
in our portfolio during the 2002 period and (iii) the impact of economic changes
in rental rates.  These items have been  partially  offset by (i) lower interest
expense in the 2002 period  primarily  resulting from principal  payments on our
Mezzanine  Loan,  (ii) a reduction in our provision for  uncollectible  accounts
receivable  during the 2002 period.  Additionally,  the FFO results for the 2001
period  include a third  quarter  non-recurring  loss of $1,036  related  to the
refinancing of Prime Outlets at Birch Run.

<PAGE>
  Table 5--Funds from Operations

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                          Three Months Ended September 30,         Nine Months Ended September 30,
                                                         ----------------------------------       ----------------------------------
                                                               2002                2001                2002               2001
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                           <C>                 <C>                 <C>                <C>
Loss from continuing operations
  before minority interests                                   $ (85,081)          $ (72,134)          $ (97,628)         $ (81,424)
Adjustments:
  Loss (gain) on sale of real estate                                  -                   -                 703               (552)
  Provision for asset impairment                                 81,619              63,026              81,619             63,026
  Depreciation and amortization                                   9,129               9,601              27,067             28,836
  Non-real estate depreciation and amortization                    (601)               (563)             (1,693)            (1,693)
Other items:
  Unconsolidated joint venture adjustments                        1,151                 620               2,897              2,208
  Non-cash joint venture interest subsidy                             -               1,882                   -              1,882
  Discontinued operations                                         1,575              (1,118)            (14,383)            (4,702)
  Discontinued operations - (gain) loss on disposition          (17,120)                  -             (16,123)                 -
  Discontinued operations - provision for impairment             15,557                   -              27,757                  -
  Discontinued operations - depreciation
   and amortization                                                 661               4,165               5,893             12,328
                                                              ---------           ---------           ---------          ---------
FFO before allocations to minority interests
  and preferred shareholders                                  $   6,890           $   5,479           $  16,109          $  19,909
                                                              =========           =========           =========          =========

Other Data:
Net cash provided by operating activities                     $   6,490           $   2,163           $  16,426          $  20,323
Net cash provided by (used in) investing activities              (1,478)              4,586              18,193                 66
Net cash used in financing activities                            (4,174)             (6,000)            (36,117)           (24,473)
====================================================================================================================================
</TABLE>

<PAGE>
Item 3.  Quantitative and Qualitative Disclosures of Market Risk

Market Risk Sensitivity

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

Interest Rate Risk

In the  ordinary  course of  business,  we are exposed to the impact of interest
rate  changes.  We employ  established  policies  and  procedures  to manage our
exposure to interest rate changes.  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) to manage our overall borrowing costs.

The following  table provides a summary of principal  cash flows,  excluding (i)
unamortized  debt premiums of $8,468,  (ii) mortgage  indebtedness  of $1,935 on
Melrose Place and (iii)  non-recourse  mortgage  indebtedness  of $16,331 on the
Woodbury Outlet Center, and related contractual interest rates by fiscal year of
maturity. Variable interest rates are based on the weighted-average rates of the
portfolio at September 30, 2002. The mortgage  indebtedness on Melrose Place has
been excluded  since it was repaid in full in  connection  with the sale of such
property on October 30,  2002.  Additionally,  we are  currently  negotiating  a
transfer of our  ownership  interest in the Woodbury  Center to John Hancock and
therefore, have excluded such non-recourse mortgage indebtedness since we do not
intend to pay it. See Note 3 - "Property  Dispositions"  and Note 4 - "Bonds and
Notes Payable" for additional information.

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

                                                            Year of Maturity
------------------------------------------------------------------------------------------------------------------------------------
                            2002           2003            2004            2005          2006        Thereafter         Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                      <C>           <C>              <C>             <C>           <C>             <C>             <C>
Fixed Rate:
Principal                $ 16,787      $ 361,388        $  5,823        $ 12,925      $ 121,886       $ 101,148       $ 619,957
Average interest rate      17.85%          8.40%           7.12%           8.08%          8.76%           7.55%           8.60%

Variable Rate:
Principal                $    215      $  19,156                                                                      $  19,371
Average interest rate       5.32%          5.32%                                                                          5.32%
====================================================================================================================================
</TABLE>

<PAGE>
Item 4.  Controls and Procedures

(a)      Evaluation of Disclosure Controls and Procedures

         Within  the  90  days prior to  the date of this Form 10-Q, the Company
         carried  out  an  evaluation,  under   the  supervision  and  with  the
         participation  of  the Company's  management,  including  the Company's
         Chairman   and   Chief  Executive  Officer  along  with  the  Company's
         President, Chief  Financial Officer and Treasurer, of the effectiveness
         of  the  design  and operation of the Company's disclosure controls and
         procedures.  Based  upon  that  evaluation,  the Company's Chairman and
         Chief  Executive  Officer  along  with  the  Company's President, Chief
         Financial Officer and Treasurer concluded that the Company's disclosure
         controls and procedures are effective.

(b)      Changes in Internal Controls

         There  have  been  no  significant  changes  in  the Company's internal
         controls or in other factors which could significantly  affect internal
         controls subsequent to the date the Company carried out its evaluation.

<PAGE>
                           PART II: OTHER INFORMATION

Item 1.           Legal Proceedings

For a description of legal proceedings involving the Company and its properties,
please see Part II, Item 1 of the  Company's  Quarterly  Report on Form 10-Q for
the  period  ended  June  30,  2002.  The  following  information  updates  such
disclosure.

As previously  disclosed by the Company,  Brown Group  Retail,  Inc. had alleged
that its  leases did not  require  the  payment  of some or all of  pass-through
charges.  The parties have since reached a settlement on the issue.  The Company
does not believe the  settlement  will have a material  impact on its  financial
condition or results of operations.  See Note 6 - "Special Charges" and Note 7 -
"Legal Proceedings" for additional information.

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 (the "Fourth Circuit").  Argument before
a Fourth Circuit panel of judges was held on October 30, 2001,  during which the
panel of judges requested  further briefing of certain issues. On July 29, 2002,
the Fourth Circuit denied the appeal of AFS. AFS requested further review by the
same panel of judges as well as all judges of the Fourth  Circuit.  This request
was denied on October 21, 2002. The Company  believes that it has acted properly
and will continue to defend this lawsuit  vigorously if AFS petitions the United
States  Supreme Court for a writ of  certiorari.  The outcome of this lawsuit if
additional appeal efforts of AFS are successful,  and the ultimate  liability of
the defendants, if any, 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
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 were brought by alleged stockholders of
the Company,  individually  and  purportedly as class actions on behalf of other
stockholders  of  the  Company.  The  complaints  alleged  that  the  individual
defendants  made  statements  about the Company  that were in  violation  of the
federal  securities laws. The complaints  sought  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.
Briefs were filed and oral  arguments were held on June 4, 2002. On September 3,
2002 the Fourth Circuit  affirmed the dismissal.  Plaintiffs  have agreed not to
seek further review of the dismissal.

<PAGE>
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. On November 5, 2002 the Chapter 7 Bankruptcy trustee
of E-Outlets Resolution Corp. filed suit against the Company, an affiliate,  and
eOutlets' directors.  The claims include alter ego, piercing the corporate veil,
improper preference payments,  and other claims against the entities, and breach
of fiduciary  duty and similar claims  against the  individual  defendants.  The
Company,  on its own behalf and on behalf of its  affiliates  and the individual
defendants,  intend  to  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.  In the case  captioned  J. Walter
Thompson v. Prime  Retail,  Inc. et al., in the Circuit  Court for Wayne  County
(Michigan) the plaintiff alleged that the Company and Operating Partnership were
the  alter ego of  primeoutlets.com  inc.,  that the  corporate  veil  should be
pierced,  that  it  had  a  direct  contract  with  the  Company  and  Operating
Partnership,  and that the Company and Operating  Partnership  committed "silent
fraud".  The court  dismissed  the alter ego and  piercing  the  corporate  veil
claims.  Trial for the remaining  claims is scheduled for February of 2003.  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.

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
because  of  FCC's  failure  to  dispose  of the  collateral  in a  commercially
reasonable manner and that FCC's use of the mark "Prime Outlets" violated United
States  trademark  law. 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. In addition, as part of the same action, Fru-Con filed suit against
the Company and affiliates.  On October 25, 2002, following a motion for summary
judgment, the court dismissed several claims made by Fru-Con, limiting Fru-Con's
counter suit to the following claims:  the Company and affiliates are improperly
withholding partnership funds;  prospective tenants at New River were improperly
diverted to an outlet project in Sedona, Arizona (the "Sedona Project"); and the
Company and affiliates  breached its contract with Fru-Con by not allowing it to
participate  in  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.

Item 2.           Changes in Securities

None

<PAGE>
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  September  30, 2002,  the  aggregate
arrearage on the Series A Senior  Preferred  Stock and the Series B  Convertible
Preferred Stock was $17,358 and $47,825, respectively.

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

None

Item 5.           Other Information

On August 13, 2002,  the board of directors of the Company  approved a long-term
incentive plan, a summary of which is attached as Exhibit 99.3 to this Quarterly
Report on Form 10-Q.

Item 6.           Exhibits and Reports on Form 8-K

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

         Exhibit 99.1      Certification  by Chief Executive Officer pursuant to
                           18  U.S.C.   Section  1350, as  adopted  pursuant  to
                           Section 906 of the Sarbanes-Oxley Act of 2002.

         Exhibit 99.2      Certification  by Chief Financial Officer pursuant to
                           18 U.S.C.   Section  1350,  as  adopted  pursuant  to
                           Section 906 of the Sarbanes-Oxley Act of 2002.

         Exhibit 99.3      Summary   of   Prime  Retail,  Inc.   2002  Long-Term
                           Incentive Plan.

         Exhibit 99.4      Employment   Agreement,  dated June 6, 2002,  by  and
                           between Prime Retail, Inc, and Frederick J. Meno, IV.

         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: November 14, 2002                 /s/ Robert A. Brvenik
                                        ----------------------------------
                                        Robert A. Brvenik
                                        President,  Chief  Financial Officer and
                                        Treasurer

<PAGE>


                    CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Glenn D. Reschke, Chairman and Chief Executive Officer of Prime Retail, Inc.,
certify that:

1.       I  have  reviewed  this  quarterly report on Form 10-Q of Prime Retail,
         Inc.;

2.       Based  on  my  knowledge,  this  quarterly  report does not contain any
         untrue statement of a material fact or omit  to  state  a material fact
         necessary to make the statements made, in  light  of  the circumstances
         under which such statements were made,  not misleading  with respect to
         the period covered by this quarterly report;

3.       Based  on  my knowledge, the  financial statements, and other financial
         information  included  in this  quarterly report, fairly present in all
         material respects the financial  condition,  results  of operations and
         cash flows of the registrant as of, and for, the periods  presented  in
         this quarterly report;

4.       The registrant's other  certifying  officers  and I are responsible for
         establishing and maintaining disclosure  controls  and  procedures  (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         we have:

         a)       designed  such  disclosure  controls  and procedures to ensure
                  that   material   information   relating  to  the  registrant,
                  including its consolidated  subsidiaries,  is made known to us
                  by others  within  those  entities,  particularly  during  the
                  period in which this quarterly report is being prepared;

         b)       evaluated  the  effectiveness  of the  registrant's disclosure
                  controls and procedures as of a date  within  90 days prior to
                  the  filing  date  of  this  quarterly report (the "Evaluation
                  Date"); and

         c)       presented  in  this quarterly report our conclusions about the
                  effectiveness of  the disclosure controls and procedures based
                  on our evaluation as of the Evaluation Date;

5.       The registrant's other  certifying officers and I have disclosed, based
         on  our  most  recent  evaluation, to the registrant's auditors and the
         audit  committee  of   registrant's  board  of  directors  (or  persons
         performing the equivalent function):

         a)       all  significant  deficiencies  in  the design or operation of
                  internal   controls   which   could   adversely   affect   the
                  registrant's ability to record, process, summarize and  report
                  financial  data  and  have  identified  for  the  registrant's
                  auditors any material weaknesses in internal controls; and

         b)       any  fraud,  whether or not material, that involves management
                  or  other  employees  who  have  a  significant  role  in  the
                  registrant's internal controls; and

6.       The registrant's other certifying officers and I have indicated in this
         quarterly  report  whether  or  not  there  were significant changes in
         internal controls or in other factors  that  could significantly affect
         internal controls subsequent to the date of our most recent evaluation,
         including   any   corrective   actions   with   regard  to  significant
         deficiencies and material weaknesses.


Date: November 14, 2002                     /s/ Glenn D. Reschke
                                            --------------------
                                            Glenn D. Reschke
                                            Chairman and Chief Executive Officer

<PAGE>
                    CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Robert A. Brvenik, President, Chief Financial Officer  and Treasurer of Prime
Retail, Inc., certify that:

1.       I  have  reviewed  this  quarterly report on Form 10-Q of Prime Retail,
Inc.;

2.       Based  on  my  knowledge,  this  quarterly  report does not contain any
         untrue  statement  of  a material fact or omit to state a material fact
         necessary to  make  the  statements made, in light of the circumstances
         under  which such  statements were made, not misleading with respect to
         the period covered by this quarterly report;

3.       Based on my  knowledge,  the  financial statements, and other financial
         information  included  in  this quarterly report, fairly present in all
         material respects the financial  condition,  results  of operations and
         cash flows of the registrant as of, and for, the  periods  presented in
         this quarterly report;

4.       The registrant's  other  certifying  officers and I are responsible for
         establishing  and  maintaining disclosure controls  and  procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         we have:

         a)       designed  such  disclosure  controls  and procedures to ensure
                  that   material   information   relating  to  the  registrant,
                  including  its  consolidated subsidiaries, is made known to us
                  by others  within  those  entities,  particularly  during  the
                  period in which this quarterly report is being prepared;

         b)       evaluated  the  effectiveness  of  the registrant's disclosure
                  controls  and  procedures as of a date within 90 days prior to
                  the  filing  date  of  this  quarterly report (the "Evaluation
                  Date"); and

         c)       presented in this quarterly  report  our conclusions about the
                  effectiveness of the disclosure  controls and procedures based
                  on our evaluation as of the Evaluation Date;

5.       The registrant's other certifying  officers and I have disclosed, based
         on our most recent evaluation, to  the  registrant's  auditors  and the
         audit   committee  of  registrant's  board  of  directors  (or  persons
         performing the equivalent function):

         a)       all significant  deficiencies  in  the  design or operation of
                  internal   controls   which   could   adversely   affect   the
                  registrant's ability to record,  process, summarize and report
                  financial  data  and  have  identified  for  the  registrant's
                  auditors any material weaknesses in internal controls; and

         b)       any fraud, whether or  not material,  that involves management
                  or  other  employees  who  have  a  significant  role  in  the
                  registrant's internal controls; and

6.       The registrant's other certifying officers and I have indicated in this
         quarterly  report  whether  or  not  there  were significant changes in
         internal  controls  or in other factors that could significantly affect
         internal controls subsequent to the date of our most recent evaluation,
         including   any   corrective   actions   with   regard  to  significant
         deficiencies and material weaknesses.


Date: November 14, 2002                     /s/ Robert A. Brvenik
                                            ---------------------
                                            Robert A. Brvenik
                                            President, Chief Financial Officer
                                            and Treasurer