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, 2001

                                        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 13, 2001, 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

     Consolidated Balance Sheets as of September 30, 2001 and
       December 31, 2000................................................       1

     Consolidated Statements of Operations for the three and nine
       months ended September 30, 2001 and 2000.........................       2

     Consolidated Statements of Cash Flows for the nine
       months ended September 30, 2001 and 2000.........................       3

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

Item 2.  Management's Discussion and Analysis of Financial
           Condition and Results of Operations..........................      14

Item 3.  Quantitative and Qualitative Disclosures of Market Risk........      33

PART II:  OTHER INFORMATION

Item 1.  Legal Proceedings..............................................      34

Item 2.  Changes in Securities..........................................      35

Item 3.  Defaults Upon Senior Securities................................      35

Item 4.  Submission of Matters to a Vote of Security Holders............      35

Item 5.  Other Information..............................................      36

Item 6.  Exhibits or Reports on Form 8-K................................      36

Signatures..............................................................      37
<PAGE>
                                       -1-
                               PRIME RETAIL, INC.

                           Consolidated Balance Sheets
                (Amounts in thousands, except share information)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                        September 30, 2001         December 31, 2000
------------------------------------------------------------------------------------------------------------------------------------
                                                                                          (Unaudited)
<S>                                                                                           <C>                        <C>
Assets
Investment in rental property:
     Land                                                                                     $  151,991                 $  151,941
     Buildings and improvements                                                                1,268,856                  1,322,368
     Property under development                                                                    6,125                      3,573
     Furniture and equipment                                                                      15,416                     15,225
                                                                                              ----------                 ----------
                                                                                               1,442,388                  1,493,107
     Accumulated depreciation                                                                   (256,730)                  (217,569)
                                                                                              ----------                 ----------
                                                                                               1,185,658                  1,275,538
Cash and cash equivalents                                                                          4,822                      8,906
Restricted cash                                                                                   43,600                     54,920
Accounts receivable, net                                                                           8,671                     13,480
Deferred charges, net                                                                             13,422                     19,533
Assets held for sale                                                                               8,460                     43,230
Investment in partnerships                                                                        21,627                     21,610
Other assets                                                                                      13,549                     24,804
                                                                                              ----------                 ----------
          Total assets                                                                        $1,299,809                 $1,462,021
                                                                                              ==========                 ==========

Liabilities and Shareholders' Equity
Bonds payable                                                                                 $   32,455                   $ 32,455
Notes payable                                                                                    947,004                    997,698
Accrued interest                                                                                   7,813                      5,267
Real estate taxes payable                                                                          8,711                      8,555
Accounts payable and other liabilities                                                            33,569                     62,063
                                                                                              ----------                 ----------
     Total liabilities                                                                         1,029,552                  1,106,038
                                                                                              ----------                 ----------

Minority interests                                                                                 1,494                      1,495




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 $68,820), 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 $226,893),
          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 net income                                                         (441,147)                  (355,422)
                                                                                              ----------                 ----------
      Total shareholders' equity                                                                 268,763                    354,488
                                                                                              ----------                 ----------
          Total liabilities and shareholders' equity                                          $1,299,809                 $1,462,021
                                                                                              ==========                 ==========
------------------------------------------------------------------------------------------------------------------------------------
</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                        Nine Months Ended
                                                                           September 30,                             September 30,
                                                                         2001             2000                2001              2000
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>             <C>                 <C>              <C>
Revenues
Base rents                                                            $ 35,202        $ 46,133            $ 107,439        $134,842
Percentage rents                                                         1,283           1,754                2,736           4,347
Tenant reimbursements                                                   15,266          21,232               50,995          63,612
Interest and other                                                       3,009           2,289                8,811          10,032
                                                                      --------        --------            ---------        --------
  Total revenues                                                        54,760          71,408              169,981         212,833

Expenses
Property operating                                                      12,017          17,204               39,796          50,694
Real estate taxes                                                        4,793           5,575               15,159          16,813
Depreciation and amortization                                           13,766          17,679               41,164          49,699
Corporate general and administrative                                     4,192           4,067               10,845          17,519
Interest                                                                22,841          25,430               70,618          73,167
Other charges                                                            7,377           5,654               16,051          11,686
Provision for asset impairment                                          63,026               -               63,026           8,538
Loss on eOutlets.com                                                         -             424                    -          14,703
(Gain) loss on Designer Connection                                           -            (274)                   -           1,811
                                                                      --------        --------            ---------        --------
  Total expenses                                                       128,012          75,759              256,659         244,630
                                                                      --------        --------            ---------        --------

Loss before gain on sale of real estate and
    minority interests                                                 (73,252)         (4,351)             (86,678)        (31,797)
Gain on sale of real estate                                                  -               -                  552               -
                                                                      --------        --------            ---------        --------
Loss before minority interests                                         (73,252)         (4,351)             (86,126)        (31,797)
Loss allocated to minority interests                                         -             767                  401             735
                                                                      --------        --------            ---------        --------
Net loss                                                               (73,252)         (3,584)             (85,725)        (31,062)
Income allocated to preferred shareholders                              (5,668)         (5,668)             (17,004)        (17,004)
                                                                      --------        --------            ---------        --------
Net loss applicable to common shares                                  $(78,920)       $ (9,252)           $(102,729)       $(48,066)
                                                                      ========        ========            =========        ========
Basic and diluted loss per common share:
   Net loss                                                           $  (1.81)       $ (0.21)            $   (2.36)        $ (1.11)
                                                                      ========        ========            =========        ========
Weighted-average basic and diluted
  common shares outstanding                                             43,578          43,578               43,578          43,498
                                                                      ========        ========             ========        ========
------------------------------------------------------------------------------------------------------------------------------------
</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,                                                                          2001                 2000
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                  <C>                  <C>
Operating Activities
Net loss                                                                                             $ (85,725)           $ (31,062)
Adjustments to reconcile net loss to net cash
  provided by operating activities:
     Loss allocated to minority interests                                                                 (401)                (735)
     Gain on sale of real estate                                                                          (552)                   -
     Depreciation                                                                                       40,801               49,225
     Amortization of deferred financing costs                                                            5,285                2,564
     Amortization of debt premiums                                                                      (2,362)              (2,343)
     Amortization of leasing commissions                                                                   363                  474
     Provision for uncollectible accounts receivable                                                     9,614                5,095
     Provision for asset impairment                                                                     63,026                8,538
     Loss on eOutlets.com                                                                                    -               14,703
     Loss on Designer Connection                                                                             -                1,811
     Gain on sale of land                                                                                    -               (2,472)
Changes in operating assets and liabilities:
     Increase in accounts receivable                                                                    (4,992)              (4,343)
     Decrease in restricted cash                                                                        11,260                2,631
     Decrease in other assets                                                                               14                1,452
     Decrease in accounts payable and other liabilities                                                (19,315)                 685
     Increase in real estate taxes payable                                                                 762                1,599
     Increase in accrued interest                                                                        2,545                  336
                                                                                                     ---------            ---------
       Net cash provided by operating activities                                                        20,323               48,158
                                                                                                     ---------            ---------

Investing Activities
Additions to investment in rental property                                                             (15,553)             (42,828)
Payments made for eOutlets.com                                                                          (2,170)             (10,227)
Proceeds from repayment of notes receivable, net                                                         8,286                    -
Proceeds from sale of land                                                                                   -                4,622
Proceeds from sales of operating properties                                                             33,547               11,063
                                                                                                     ---------            ---------
       Net cash provided by (used in) investing activities                                              24,110              (37,370)
                                                                                                     ---------            ---------

Financing Activities
Proceeds from notes payable                                                                             16,899               13,039
Principal repayments on notes payable                                                                  (65,231)             (24,341)
Contributions from minority interests                                                                      400                    -
Financing costs                                                                                           (585)                (842)
                                                                                                     ---------            ---------
       Net cash used in financing activities                                                           (48,517)             (12,144)
                                                                                                     ---------            ---------

Decrease in cash and cash equivalents                                                                   (4,084)              (1,356)
Cash and cash equivalents at beginning of period                                                         8,906                7,343
                                                                                                     ---------            ---------
Cash and cash equivalents at end of period                                                           $   4,822            $   5,987
                                                                                                     =========            =========
------------------------------------------------------------------------------------------------------------------------------------
</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 sold in connection with the sale of
Prime Outlets at Williamsburg on February 23, 2000:

    Book value of assets disposed, net................................ $ 53,563
    Cash received.....................................................  (11,063)
    Promissory note received..........................................  (10,000)
                                                                       --------
    Debt disposed..................................................... $ 32,500
                                                                       ========
================================================================================

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, 2000.

     Unless the context requires otherwise, all references to 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 the Company has operational
control.  Profits and losses are allocated in  accordance  with the terms of the
agreement of limited  partnership of the Operating  Partnership.  Investments in
partnerships  in  which  the  Company  does  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.

     The  preparation of financial  statements in conformity  with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities  and disclosure of contingent  liabilities at the date of
the  financial  statements  and the  reported  amounts of revenues  and expenses
during the reporting  period.  Actual results could differ from those estimates.
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 -- Dispositions

     On February 2, 2001, the Company 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,  the Company sold Prime  Outlets at  Silverthorne,  an
outlet center  located in  Silverthorne,  Colorado  consisting of 257,000 square
feet of GLA, to Silverthorne Factory Stores, LLC for aggregate  consideration of
$29,000.  The net cash proceeds  from the sale of Prime Outlets at  Silverthorne
were $8,993, after the repayment of certain mortgage  indebtedness of $18,078 on
Prime  Outlets  at  Lebanon  (see  below) and  closing  costs and fees.  The net
proceeds  from these sales of were used to prepay an  aggregate of $9,137 of the
Company's  outstanding  mezzanine loan (the "Mezzanine Loan") in accordance with
the terms of such loan agreement.  In connection  with these sales,  the Company
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 the
Company's results of operations through the respective dates of disposition.  At
December 31, 2000,  these  properties were classified as assets held for sale in
the Consolidated Balance Sheet with an aggregate carrying value of $34,770.
<PAGE>
     Prior to the sale of Prime Outlets at  Silverthorne,  it was one of fifteen
properties  securing the Company's first mortgage and expansion loan (the "First
Mortgage and Expansion  Loan"),  which had an outstanding  principal  balance of
$343,616 at September 30, 2001. In conjunction with the sale of Prime Outlets at
Silverthorne, the Company substituted Prime Outlets at Lebanon for Prime Outlets
at Silverthorne in the  cross-collateral  asset pool securing the First Mortgage
and Expansion Loan pursuant to the collateral  substitution provisions contained
in the loan agreement.

     On May 8, 2001, Prime Outlets at New River, an outlet center located in New
River,  Arizona  consisting  of 326,000  square  feet of GLA,  was sold  through
foreclosure. An affiliate of the Company and an affiliate of Fru-Con Development
Corporation ("Fru-Con") each own 50% of the partnership which owned the project.
The Company  accounted for its ownership  interest in the partnership that owned
the project in accordance with the equity method of accounting  through the date
of  foreclosure  sale.  In connection  with the  foreclosure  sale,  the Company
recorded a loss on the sale of real estate of $180 during the second  quarter of
2001.

Note 3 -- Bonds and Notes Payable

Debt Transactions

     In  connection  with the sales of  Northgate  Plaza and  Prime  Outlets  at
Silverthorne  during the first  quarter of 2001,  the  Company  repaid  mortgage
indebtedness of $5,966 and $18,078, respectively. In addition, net cash proceeds
from  these  property  sales were used to prepay an  aggregate  of $9,137 of the
Company's  outstanding Mezzanine Loan. As of September 30, 2001, the outstanding
principal balance of the Mezzanine Loan was $72,863. See Note 2 - "Dispositions"
for additional information.

     The  Company,  through  affiliates,  holds a 51%  interest  in the owner of
Phases II and III of an outlet  center in Bellport,  New York on which the first
mortgage loan of $7,795 matured on May 1, 2001. On May 21, 2001, the Company, on
behalf of the  owner,  made a  principal  payment  of  $2,295  to the  lender in
exchange  for a  modification  to the  terms  and a  one-year  extension  of the
maturity of this mortgage  indebtedness.  The  outstanding  balance of the first
mortgage loan was $5,500 as of September 30, 2001.

     On June 8, 2001,  the  Company,  through  affiliates,  obtained a two-month
extension  through  August 10, 2001 to the terms and maturity  date of a $16,330
first mortgage loan secured by Prime Outlets at Edinburgh (the "Edinburgh Outlet
Center") located in Edinburgh,  Indiana. On June 29, 2001, the Company,  through
affiliates,  completed a refinancing  of this first mortgage loan. The new first
mortgage loan (the  "Edinburgh  First Mortgage  Loan") provides for an aggregate
commitment up to $18,000 and is non-recourse to the Company. The Edinburgh First
Mortgage Loan,  which is secured by the Edinburgh  Outlet Center,  has a term of
three  years,   requires  monthly  principal   payments  based  upon  a  15-year
amortization  schedule  and  is  pre-payable  at any  time  subject  to  certain
prepayment and exit fees. The Edinburgh  First Mortgage Loan bears interest at a
floating  rate based on  six-month  LIBOR plus 350 basis  points,  subject to an
8.00% minimum, and may be adjusted semi-annually with a maximum 1.0% increase or
decrease per adjustment.  As of September 30, 2001, the Edinburgh First Mortgage
Loan bore  interest at the minimum  rate.  At closing,  $16,700 of the Edinburgh
First Mortgage Loan was funded, resulting in net proceeds of $88 after repayment
of the old first  mortgage  loan and closing  costs.  The  remaining  commitment
provides  for the  funding of up to an  additional  $1,300 for  leasing  related
capital expenditures at the Edinburgh Outlet Center.

     On August 7, 2001, the Company, through affiliates,  obtained an additional
one-month  extension to September  10, 2001 to the terms and maturity  date of a
$10,003  first  mortgage  loan secured by Prime Outlets at Birch Run (the "Birch
Run Outlet Center") located in Birch Run, Michigan.  The terms and maturity date
of the $10,003 first  mortgage loan had  previously  been extended to August 10,
2001. The Company and Estein & Associates USA, Ltd.,  through  affiliates,  have
30% and 70% ownership interests,  respectively, in the joint venture partnership
(the  "Prime/Estein  Venture") that indirectly owns the Birch Run Outlet Center.
The Company completed a refinancing of first mortgage loans aggregating  $63,000
on the Birch Run Outlet Center on August 21, 2001.  These first  mortgage  loans
were  included  in  a  "wrap-around"   loan  provided  by  the  Company  to  the
Prime/Estein  Venture in connection with the November 19, 1999 sale of the Birch
Run Outlet Center.

     The new first mortgage loan (the "Birch Run First Mortgage Loan") is in the
amount of $63,000,  is secured by the Birch Run Outlet Center, has a term of ten
years,  and  requires  monthly  principal  amortization  based  upon  a  25-year
schedule.  The Birch Run First  Mortgage  Loan bears  interest  at an  effective
fixed-rate of 8.12%.  Greenwich  Capital Financial  Products,  Inc. provided the
financing.  The  Prime/Estein  Venture used the net proceeds  from the Birch Run
First  Mortgage  Loan to repay in full loans  aggregating  $63,000,  including a
"wrap-around"  loan of $10,731 due to the Company.  Net proceeds to the Company,
after payment of closing and other  transaction costs were $8,286. In connection
with the refinancing  transaction,  the Company recorded a non-recurring loss of
$1,036 during the third quarter of 2001.

     Pursuant to Prime/Estein  Venture-related  documents to which affiliates of
the Company are parties,  the Company is obligated to provide to, or obtain for,
the  Prime/Estein  Venture fixed rate financing at an annual rate of 7.75%. As a
result,  each  month  during the term of the Birch Run First  Mortgage  Loan the
Company  will be  obligated to pay to the  Prime/Estein  Venture the  difference
between the cost of the financing at an annual  effective  rate of 8.12% and the
cost of the financing at an annual rate of 7.75% (the "Interest Rate  Subsidy").
The total of the payments to be made by the Company to the Prime/Estein  Venture
over the term of the Birch Run First  Mortgage  Loan will be $2,723.  During the
third quarter of 2001, the Company  recorded a  non-recurring  loss of $1,882 in
other charges representing the net present value of the Interest Rate Subsidy.

Debt Service Obligations

     The Company's aggregate indebtedness,  excluding unamortized debt premiums,
was $967,677 at September 30, 2001. At September 30, 2001, such indebtedness had
a  weighted-average  maturity  of 3.4 years and bore  contractual  interest at a
weighted-average  rate of 8.93% per annum. At September 30, 2001,  $799,765,  or
82.6%, of such indebtedness bore interest at fixed rates and $167,912, or 17.4%,
of such  indebtedness  bore  interest at variable  rates.  The Company  utilizes
derivative  financial  instruments  to  manage  some of the  interest  rate risk
associated with variable rate debt.

     As of September  30, 2001,  the  Company's  remaining  scheduled  principal
payments  for 2001 and 2002 were  $17,023 and  $65,694,  respectively.  The 2001
remaining  scheduled  principal  payments  included  (i)  a  non-recourse  first
mortgage  loan of $3,460 on Western  Plaza (the  "Western  Plaza First  Mortgage
Loan"),  a community  center located in Knoxville,  Tennessee,  which matured on
October  31,  2001 and (ii) a recourse  first  mortgage  (the  "Camarillo  First
Mortgage  Loan") of $6,527 on land located in  Camarillo,  California  which was
scheduled to mature on November 1, 2001. The Company has signed a term sheet and
made a payment of $25 to the lender to extend the maturity of the Western  Plaza
First  Mortgage  until October 31, 2002 and is in the process of finalizing  the
terms of such extension.  Certain of the Company's debt  obligations,  including
the Mezzanine Loan and fixed-rate bonds  aggregating  $7,000 secured by a second
mortgage  on  Western  Plaza,  contain  cross-default  provisions  that would be
triggered by a continuing  default under the Western Plaza First  Mortgage Loan.
In the event such  cross-default  provisions were triggered,  the holders of the
Mezzanine Loan could elect to accelerate  such debt and the holders of the bonds
could elect to put such  obligations to the Company at a price equal to par plus
accrued interest.

     On  November  1, 2001,  the  Company  made a  principal  payment of $300 in
exchange  for a  modification  to the  terms  and a  one-year  extension  of the
maturity of the  Camarillo  First  Mortgage  Loan.  The new maturity date of the
Camarillo First Mortgage Loan is November 1, 2002 and,  pursuant to the terms of
the loan modification,  additional  principal pay-downs of $300 and $400 will be
due on January 2, 2002 and on April 1, 2002,  respectively.  The Camarillo First
Mortgage  Loan will  continue to (i) bear interest at a fixed-rate of 13.50% and
(ii) except as set forth in the prior sentence,  require  monthly  interest-only
payments.

     As of November 14, 2001,  during 2002 the Company will be obligated to make
scheduled  principal  payments  of  $42,756,   including  $33,069  of  scheduled
amortization  payments,  $3,460 under the Western Plaza First Mortgage Loan, and
$6,227 under the Camarillo  First  Mortgage Loan. The $32,625 of debt related to
Prime  Outlets  at  Jeffersonville  II and Prime  Outlets  at  Conroe,  which is
non-recourse  debt, is not included  because the Company intends to not pay such
amount.  The Company is seeking to  generate  additional  liquidity  through new
financings  and the sale of assets and is negotiating  with existing  lenders to
defer a portion of the  principal  payments  due during the next year;  however,
there can be no assurance  that the Company be unable to secure such  additional
sources of liquidity or reach  satisfactory  resolution with its lenders,  there
would be  substantial  risk as to whether the Company  would be able to continue
during 2002 as a going concern.

Guaranty

     The  Company is a  guarantor  or  otherwise  obligated  with  respect to an
aggregate of $12,471 of the indebtedness of Horizon Group  Properties,  Inc. and
its affiliates ("HGP"),  including $10,000 of obligations under a secured credit
facility (the "HGP Secured Credit  Facility").  HGP is a publicly traded company
that was formed in  connection  with the  Company's  merger with  Horizon  Group
Properties, Inc. in June 1998.

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

Debt Compliance

     As of September 30, 2001, the Company was in compliance  with all financial
debt  covenants  under its recourse loan  agreements.  However,  there can be no
assurance  that  the  Company  will be in  compliance  with its  financial  debt
covenants in future periods since the Company's future financial  performance is
subject to various risks and uncertainties,  including,  but not limited to, the
effects of increases in market interest rates from current  levels,  the risk of
potential  increases in vacancy rates and the resulting  impact on the Company's
revenue,  and risks  associated  with  refinancing  the  Company's  current debt
obligations  or obtaining new financing  under terms as favorable as the Company
has experienced in prior periods.

Defaults on Certain Non-recourse Mortgage Indebtedness

     Subsidiaries of the Company have suspended regularly scheduled monthly debt
service payments on two non-recourse  mortgage loans  aggregating  $33,378 which
are  cross-collateralized  by Prime  Outlets at  Jeffersonville  II,  located in
Jeffersonville, Ohio, and Prime Outlets at Conroe, located in Conroe, Texas. The
Company  remains in discussions  with the holder of the mortgage loans regarding
these two  mortgage  loans.  The Company  expects  that the lender  will bring a
foreclosure  action  concerning  one of the two  properties and the Company will
convey  the  second  property  to the  lender  by  means  of a  deed-in-lieu  of
foreclosure.  Because the two mortgage loans are non-recourse and the Company is
currently not  receiving any cash flow from these two centers,  the Company does
not  believe  the  existing  defaults  or any  related  foreclosure  will have a
material impact on its results of operations or financial position.

Defaults on Certain Non-recourse Mortgage Indebtedness of Unconsolidated
Partnerships

     Various  mortgage  loans related to projects in which the Company,  through
subsidiaries,  indirectly  owns joint venture  interests have matured and are in
default.  The mortgage loans are (i) a $10,389 first mortgage loan on Phase I of
the Bellport  Outlet Center located in Bellport,  New York,  held by Union Labor
Life Insurance  Company ("Union Labor");  and (ii) a $13,338 first mortgage loan
on the Oxnard Outlet Center located in Oxnard,  California,  held by Fru-Con. An
affiliate of the Company has a 50% ownership  interest in the partnership  which
owns Phase I of the Bellport  Outlet Center.  Fru-Con and the Company are each a
50.0% partner in the partnership that owns the Oxnard Outlet Center.

     Union Labor has filed for  foreclosure  on Phase I of the  Bellport  Outlet
Center.  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 Phase I of the Bellport  Outlet Center.  Union Labor filed a motion for
summary  judgment  against the owner of Phase I of Bellport  Outlet  Center,  an
affiliate of the Company.  Because the Union Labor loan matured, the Company has
not contested Union Labor's motion for summary  judgment.  The Company continues
to  negotiate  the terms of a transfer of its  ownership  interest in the Oxnard
Outlet Center to Fru-Con.

     The Company does not believe that these  mortgage loans are recourse to the
Company. In addition, the Company and its affiliates are currently not receiving
any cash flow from the Oxnard Outlet Center and were not receiving any cash flow
from Phase I of the Bellport  Outlet Center prior to the loss of control of this
project.  Therefore,  the Company does not believe the existing  defaults  under
these loans or any related  foreclosures on the mortgaged properties will have a
material impact on its results of operations or financial position.

Note 4 - Shareholders' Equity

Delisting from the New York Stock Exchange

     Effective  prior to the opening of the stock market on September  27, 2001,
the  Company's  securities  were  terminated  from listing by the New York Stock
Exchange  ("NYSE").  Previously,  the Company's  Common  Stock,  Series A Senior
Cumulative  Preferred  Stock and Series B Cumulative  Participating  Convertible
Preferred  Stock had been listed on the NYSE.  The Company's  securities are now
trading on the "over the  counter"  market  under the  auspices of the  National
Association of Securities Dealers.

     As the Company previously announced, the NYSE had informed the Company that
it would take this step because the decline in the price of the Company's Common
Stock  had  resulted  in the  Company  no  longer  meeting  the  NYSE's  listing
requirements.  On August 21,  2001 at the annual  meeting of  shareholders,  the
Company's  shareholders  approved  an  amendment  to the  Company's  articles of
incorporation to provide the Company's board of directors with the discretion to
implement a ten-for-one reverse stock split.

     Subsequent to the annual meeting of  shareholders,  the Company's  board of
directors  considered  relevant  factors  and  determined  not to  exercise  its
discretion to implement the reverse stock split.  Among other things,  the board
of directors  concluded it was likely that,  subsequent to a ten-for-one reverse
stock split,  the per share price of the Company's Common Stock would trade at a
level  substantially less than ten times its current per share price,  resulting
in a  substantial  loss of value for the  Company's  shareholders.  The board of
directors also took into consideration  that, even with the reverse stock split,
there  could be no  assurance  that the  Company  would  continue to satisfy the
NYSE's  listing  requirements.

Dividends and Distributions

     In order to qualify as a real estate  investment trust ("REIT") for federal
income tax purposes,  the Company is required to pay distributions to its common
and  preferred  shareholders  of at least  90% of its  REIT  taxable  income  in
addition to satisfying other requirements.  Although the Company intends to make
distributions  in accordance with the  requirements of the Internal Revenue Code
of 1986, as amended, necessary to remain qualified as a REIT, it also intends to
retain such amounts as it considers  necessary from time to time for capital and
liquidity needs of the Company.

     The Company's  current  policy is to pay  distributions  only to the extent
necessary  to  maintain  its status as a REIT for federal  income tax  purposes.
Based on the Company's  current federal income tax projections for 2001, it does
not  expect to pay any  distributions  on its 10.5%  Series A Senior  Cumulative
Preferred   Stock  ("Senior   Preferred   Stock"),   8.5%  Series  B  Cumulative
Participating  Convertible  Preferred  Stock  ("Series B  Convertible  Preferred
Stock"),  common  stock or common units of limited  partnership  interest in the
Operating Partnership during 2001.

     The Company is prohibited from paying dividends or distributions  except to
the  extent  necessary  to  maintain  its REIT  status  under  the  terms of its
Mezzanine Loan. In addition, the Company may make no distributions to its common
shareholders or its holders of common units of limited  partnership  interest in
the Operating  Partnership unless it is current with respect to distributions to
its preferred  shareholders.  As of September 30, 2001, unpaid dividends for the
period  November 16, 1999  through  September  30, 2001 on the Senior  Preferred
Stock and Series B Convertible  Preferred Stock aggregated  $11,320 and $31,190,
respectively.  The annual dividends on the Company's  2,300,000 shares of Senior
Preferred Stock and 7,828,125 shares of Series B Convertible Preferred Stock are
$6,038 ($2.625 per share) and $16,636 ($2.125 per share), respectively.

     The Company is  currently in arrears on seven  quarters of preferred  stock
distributions  in  respect of the Series A and  Series B  Preferred  Stock.  The
holders of the Series A  Preferred  Stock and Series B Preferred  Stock,  voting
together as a single class,  have the right to elect two  additional  members to
the Company's  Board of Directors so long as the  equivalent of six  consecutive
quarterly  dividends on these series of preferred stock remain in arrears.  Each
of such  directors  would be  elected  to serve  until  the  earlier  of (i) the
election and qualification of such director's successor,  or (ii) payment of the
dividend  arrearage.  The Company will hold a Special  Meeting of its  Preferred
Stockholders  for the  purpose  of  electing  two  additional  directors  to the
Company's  board of  directors  on  December  6, 2001.  The record  date for the
Special Meeting of Preferred Stockholders is October 11, 2001.

Note 5-- Risk Management Activities

     In June 2000, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement of Financial  Accounting  Standards ("SFAS") No. 138,  "Accounting for
Certain  Derivative  Instruments and Certain Hedging  Activities,"  which amends
SFAS No. 133,  "Accounting for Derivative  Instruments and Hedging  Activities."
SFAS No. 133 was previously amended by SFAS No. 137,  "Accounting for Derivative
Instruments  and  Hedging  Activities--Deferral  of the  Effective  Date of FASB
Statement No. 133," which  deferred the effective date of SFAS No. 133 to fiscal
years  beginning  after June 15, 2000. The Company adopted SFAS No. 138 and SFAS
No.  133  effective  January 1, 2001 and such  adoption  did not have a material
impact on its results of operations or financial position.

Note 6 -- Special Charges

     During the third quarter of 2001, management determined that certain events
and circumstances had occurred,  including reduced occupancy and limited leasing
success, that indicated that four of the Company's wholly-owned  properties were
permanently  impaired.  As a  result,  the  Company  recorded  a  third  quarter
provision for asset impairment aggregating $63,026,  representing the write-down
of the carrying value of these four  properties to their estimated fair value in
accordance with the requirements of SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and Long-Lived Assets to be Disposed of".
<PAGE>
     During the second quarter of 2000, management  established a formal plan to
sell two of its  properties  and,  accordingly,  reclassified  their  respective
carrying  values  to  held  for  sale in the  Consolidated  Balance  Sheets.  In
accordance  with the  requirements  of SFAS No.  121,  the  Company  incurred  a
provision for asset impairment  aggregating  $8,538 to reduce the carrying value
of these properties to their estimated sales value, less cost to dispose. One of
these properties, Northgate Plaza was subsequently sold in February of 2001. See
"Note 2 - "Dispositions" for additional information.

     The operating results for the Company's  Designer  Connection outlet stores
are reflected in loss on Designer  Connection in the Consolidated  Statements of
Operations  for all periods  presented.  The Company  ceased  operations  of its
Designer Connection outlet stores in 2000.

     On April  12,  2000,  the  Company  announced  that it had been  unable  to
conclude an  agreement  to transfer  ownership  of its wholly  owned  e-commerce
subsidiary,   primeoutlets.com   inc.,   also  known  as   eOutlets.com,   to  a
management-led  investor group comprised of eOutlets.com  management and outside
investors.  Effective April 12, 2000,  eOutlets.com ceased all operations and on
November 6, 2000 filed for  bankruptcy  under Chapter 7. In connection  with the
discontinuance  of eOutlets.com,  the Company  incurred a non-recurring  loss of
$424 and $14,703  during the three and nine months  ended  September  30,  2000,
respectively.  The  non-recurring  loss for the nine months ended  September 30,
2000 includes the  write-off of $3,497 of costs  previously  capitalized  during
1999.

Note 7 -- Legal Proceedings

     Dinnerware Plus Holdings, Inc., which operates under the trade name Mikasa,
and affiliates (the "Mikasa  Plaintiffs")  filed in Superior Court of New Jersey
on March 29, 2001 a lawsuit  against the  Company  and various  affiliates.  The
Mikasa  Plaintiffs assert a number of causes of action in which they allege that
the  Company  and its  affiliates  breached  various  provisions  in the  Mikasa
Plaintiffs'  leases  and, as a result,  overcharged  the Mikasa  Plaintiffs  for
common area  maintenance  and similar charges ("CAM") and promotion fund charges
at various centers where the Mikasa Plaintiffs are tenants.  The Company filed a
motion to dismiss the complaint on behalf of the Company  affiliates who entered
into  leases  with the Mikasa  plaintiffs,  based on lack of  jurisdiction.  The
motion   was   granted,   but  the   Mikasa   Plaintiffs   filed  a  motion  for
reconsideration,  upon which the court has not ruled. The remaining  defendants,
Prime Retail,  Inc. and Prime Retail,  L.P. have answered the  complaint.  Melru
Corporation,  which operates under the trade name Jones New York, in response to
a collection  action filed by the Company and its  affiliates,  filed on October
15,  2001  several  counterclaims  in which it alleges  that the Company and its
affiliates overcharged Melru Corporation for CAM and promotion fund charges. The
Company has not filed its response to the Melru Corporation counterclaims. Other
tenants  in  the  Company's  outlet  centers  have  made  or  may  make  similar
allegations to those made by the Mikasa  Plaintiffs and Melru  Corporation.  The
outcome of the Mikasa Plaintiffs' lawsuit, the Melru Corporation counter-claims,
and other potential  claims,  and the ultimate  liability of the defendants,  if
any, cannot be predicted.

     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 and 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.  An oral  argument  before a panel of
judges of the United States Court of Appeals for the Fourth  Circuit was held on
October 30, 2001 and the panel of judges  requested  further briefing of certain
issues.  Management  believes  that the  Company  has  acted  properly  and will
continue to defend this lawsuit vigorously. The outcome of this lawsuit, and the
ultimate liability of the defendants, if any, cannot be predicted.

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

     Several  entities  (the  "eOutlets  Plaintiffs")  have  filed or  stated an
intention to file lawsuits (the "eOutlets Lawsuits") against the Company and its
affiliates in which the eOutlets  Plaintiffs are seeking 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 theory that the
Company  guaranteed the  obligations of eOutlets and the theory that the Company
was the alter ego of  eOutlets.  primeoutlets.com  inc. is also a  defendant  in
some, but not all, of the eOutlets Lawsuits. The Company believes that it is not
liable to the eOutlets Plaintiffs as there was no privity of contract between it
and the various  eOutlets  Plaintiffs.  The Company will  continue to defend all
eOutlets Lawsuits vigorously.  primeoutlets.com  inc. filed for protection under
Chapter 7 of the United States  Bankruptcy  Code during  November 2000 under the
name E-Outlets  Resolution Corp. The trustee for E-Outlets  Resolution Corp. has
notified the Company that he is  contemplating an action against the Company and
the Operating Partnership in which he may assert that E-Outlets Resolution Corp.
was the "alter-ego" of the Company and the Operating  Partnership and that, as a
result,  the Company and the Operating  Partnership  are liable for the debts of
E-Outlets  Resolution  Corp. If the trustee pursues such an action,  the Company
and the Operating  Partnership will defend  themselves  vigorously.  In the case
captioned  Convergys Customer  Management Group, Inc. v. Prime Retail,  Inc. and
primeoutlets.com  inc. in the Court of Common Pleas for Hamilton  County (Ohio),
the  Company  prevailed  in a motion to dismiss the  plaintiff's  claim that the
Company was liable for  primeoutlets.com  inc.'s breach of contract based on the
doctrine of piercing the corporate  veil. The outcome of the eOutlets  Lawsuits,
and the  ultimate  liability  of the  Company in  connection  with the  eOutlets
Lawsuits and related claims, if any, cannot be predicted.

     The NYSE and the  Securities  and  Exchange  Commission  have  notified the
Company that they are reviewing  transactions  in the stock of the Company prior
to the Company's January 18, 2000 press release  concerning  financial  matters.
The initial notice of such review was received on March 13, 2000.
<PAGE>
Item 2.    Management's Discussion and Analysis of
           Financial Condition and Results of Operations

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


Introduction

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

Cautionary Statements

     The  following  discussion  in  "Management's  Discussion  and  Analysis of
Financial Condition and Results of Operations" contains certain  forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995, which reflect management's current views with respect to future events and
financial  performance.  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, risks associated with the Company's high level of
leverage and its ability to refinance such  indebtedness  as it becomes due; the
risk that the  Company  or its  subsidiaries  be able to satisfy  schedule  debt
service  obligations  or will  not  remain  in  compliance  with  existing  loan
covenants;  the  effects of future  events,  including  tenant  bankruptcies  or
abandonments on the Company's financial performance; risks related to the retail
industry in which the Company's outlet centers compete,  including the potential
adverse  impact of external  factors,  such as inflation,  consumer  confidence,
unemployment  rates and consumer tastes and  preferences;  risks associated with
tenant  bankruptcies,  store closings and the non-payment of contractual  rents;
risks associated with the Company's potential asset sales; the risk of potential
increase in market  interest rates from current  levels;  risks  associated with
real estate ownership,  such as the potential adverse impact of changes in local
economic  climate on the  revenues  and the value of the  Company's  properties;
risks  associated with  litigation;  and risks  associated with competition from
web-based and catalogue retailers.

Outlet Center Portfolio

Portfolio GLA and Occupancy

     The Company's outlet center portfolio  consisted of 45 properties  totaling
12,670,000  square feet of gross  leasable  area ("GLA") at September  30, 2001,
compared to 48 properties totaling 13,497,000 square feet of GLA at December 31,
2000 and 52 properties  totaling  15,089,000 square feet of GLA at September 30,
2000.  The  changes in the  Company's  outlet  center GLA are due to certain (i)
sales  transactions  during 2001 and 2000, (ii)  development  activities  during
2000,  and (iii) the loss of an outlet center  through  foreclosure  sale.  Such
changes are discussed below and are  collectively  referred to as the "Portfolio
GLA Activity".
<PAGE>
     The Company's outlet center portfolio was 90% and 92% occupied on September
30, 2001 and 2000,  respectively.  For the three and nine months ended September
30, 2001,  weighted-average  occupancy in the outlet  center  portfolio  was 90%
compared  to 91%  for  the  same  periods  in  2000.  The  decline  in the  2001
weighted-average  and  period-end  occupancies  was  primarily  attributable  to
certain tenant bankruptcies, abandonments and store closings.

2001 Sales Transactions

     On February 2, 2001, the Company 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,  the Company sold Prime  Outlets at  Silverthorne,  an
outlet center  located in  Silverthorne,  Colorado  consisting of 257,000 square
feet of GLA, to Silverthorne Factory Stores, LLC for aggregate  consideration of
$29,000.  The net cash proceeds  from the sale of Prime Outlets at  Silverthorne
were $8,993, after the repayment of certain mortgage  indebtedness of $18,078 on
Prime  Outlets  at  Lebanon  (see  below) and  closing  costs and fees.  The net
proceeds  from  these  sales  were used to repay an  aggregate  of $9,137 of the
Company's  outstanding  mezzanine loan (the "Mezzanine Loan") in accordance with
the terms of such loan agreement.  In connection  with these sales,  the Company
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 the
Company's results of operations through the respective dates of disposition.  At
December 31, 2000,  these  properties were classified as assets held for sale in
the Consolidated Balance Sheet with an aggregate carrying value of $34,770.

     On March 16,  2001,  the  Company  completed  the sale of Prime  Outlets at
Silverthorne,  an outlet center located in Silverthorne,  Colorado consisting of
257,000 square feet of GLA, to Silverthorne  Factory Stores,  LLC. The operating
results of Prime Outlets at Silverthorne  are included in the Company's  results
of operations through the date of disposition.

     On May 8, 2001, Prime Outlets at New River, an outlet center located in New
River,  Arizona  consisting  of 326,000  square  feet of GLA,  was sold  through
foreclosure. An affiliate of the Company and an affiliate of Fru-Con Development
Corporation ("Fru-Con") each own 50% of the partnership which owned the project.
The Company  accounted for its ownership  interest in the partnership that owned
the project in accordance with the equity method of accounting  through the date
of  foreclosure  sale.  In connection  with the  foreclosure  sale,  the Company
recorded a loss on the sale of real estate of $180 during the second  quarter of
2001.

2000 Sales Transactions

     On February 23, 2000, the Company sold Prime Outlets at Williamsburg, which
contains  274,000  square  feet of  GLA,  to a joint  venture  partnership  (the
"Prime/Estein Venture").  The Company, through affiliates,  indirectly has a 30%
ownership  interest  in the  Prime/Estein  Venture.  Commencing  on the  date of
disposition,  the  Company  accounts  for the  operating  results of this outlet
center in accordance with the equity method of accounting.

     On December 22, 2000, the Company completed the sale of four outlet centers
aggregating  1,592,000  square  feet  of  GLA  to a  joint  venture  partnership
comprised of Chelsea Property Group, Inc. and Fortress  Investment Group, L.L.C.
The four  outlet  centers  that were sold are  located  in  Gilroy,  California;
Michigan City, Indiana; Waterloo, New York; and Kittery, Maine.

Development Activities

     During 2000 the Company completed the development of 390,000 square feet of
GLA  consisting  of the opening of (i) Prime  Outlets of Puerto Rico,  the first
outlet center in Puerto Rico,  which  contains  176,000  square feet of GLA, and
(ii) four  expansions to outlet  centers  totaling  214,000  square feet of GLA.
During 2001, the Company has not engaged in any development  activity other than
completing   post-opening  work  related  to  2000  development  and  consulting
activities in Europe with a joint venture partner.

<PAGE>
        The following table sets forth certain information with respect to the
Company's outlet center portfolio as of September 30, 2001.
<TABLE>
<CAPTION>
                                                                                            Grand            GLA         Occupancy
Outlet Centers                                                                          Opening Date      (Sq. Ft.)    Percentage(1)
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>                     <C>                  <C>
Prime Outlets at Fremont-- Fremont, Indiana............................               October 1985          229,000              87%

Prime Outlets at Birch Run (2)-- Birch Run, Michigan...................             September 1986          724,000               93

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

Prime Outlets at Williamsburg (2)-- Williamsburg, Virginia.............                 April 1988          274,000               98

Prime Outlets at Pleasant Prairie-- Kenosha, Wisconsin.................             September 1988          269,000               89

Prime Outlets at Edinburgh-- Edinburgh, Indiana........................             September 1989          298,000               96

Prime Outlets at Burlington-- Burlington, Washington ..................                   May 1989          174,000               91

Prime Outlets at Queenstown-- Queenstown, Maryland.....................                  June 1989          221,000               97

Prime Outlets at Hillsboro-- Hillsboro, Texas..........................               October 1989          359,000               86

Prime Outlets at Oshkosh-- Oshkosh, Wisconsin..........................              November 1989          260,000               94

Prime Outlets at Warehouse Row (3)-- Chattanooga, Tennessee............              November 1989           95,000               79

Prime Outlets at Perryville-- Perryville, Maryland.....................                  June 1990          148,000               93

Prime Outlets at Sedona-- Sedona, Arizona .............................                August 1990           82,000              100

Prime Outlets at San Marcos-- San Marcos, Texas........................                August 1990          549,000               90

Prime Outlets at Anderson-- Anderson, California.......................                August 1990          165,000               95

Prime Outlets at Post Falls-- Post Falls, Idaho .......................                  July 1991          179,000               77

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

Prime Outlets at Morrisville-- Raleigh - Durham, North Carolina........               October 1991          187,000               91

Prime Outlets at Naples-- Naples/Marco Island, Florida.................              December 1991          146,000               85

Prime Outlets at Conroe-- Conroe, Texas................................               January 1992          282,000               87

Bellport Outlet Center (4)-- Bellport, New York--  Phases II/III.......              November 1996          197,000               71

Prime Outlets at Niagara Falls USA-- Niagara Falls, New York...........                  July 1992          534,000               94

Prime Outlets at Woodbury-- Woodbury, Minnesota........................                  July 1992          250,000               76

Prime Outlets at Calhoun-- Calhoun, Georgia............................               October 1992          254,000               86

Prime Outlets at Castle Rock-- Castle Rock, Colorado...................              November 1992          480,000               98

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

Prime Outlets at Jeffersonville II-- Jeffersonville, Ohio..............                 March 1993          314,000               51
</TABLE>
<PAGE>
<TABLE>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                           Grand             GLA         Occupancy
Outlet Centers                                                                         Opening Date       (Sq. Ft.)    Percentage(1)
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>                  <C>                     <C>

Prime Outlets at Jeffersonville I-- Jeffersonville, Ohio...............                  July 1993          407,000              94%

Prime Outlets at Gainesville-- Gainesville, Texas......................                August 1993          316,000               81

Prime Outlets at Loveland-- Loveland, Colorado.........................                   May 1994          328,000               93

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

Prime Outlets at Huntley-- Huntley, Illinois...........................                August 1994          282,000               81

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

Prime Outlets at Pismo Beach-- Pismo Beach, California.................              November 1994          148,000               95

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

Prime Outlets at Vero Beach-- Vero Beach, Florida......................              November 1994          326,000               89

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

Prime Outlets at Darien (5)-- Darien, Georgia..........................                  July 1995          307,000               74

Prime Outlets at Gulfport (6)-- Gulfport, Mississippi..................              November 1995          306,000               83

Prime Outlets at Lodi-- Burbank, Ohio..................................              November 1996          313,000               94

Prime Outlets at Gaffney (5)-- Gaffney, South Carolina.................              November 1996          305,000               97

Prime Outlets at Lee-- Lee, Massachusetts..............................                  June 1997          224,000              100

Prime Outlets at Lebanon--  Lebanon, Tennessee.........................                 April 1998          229,000               96

Prime Outlets at Hagerstown-- Hagerstown, Maryland.....................                August 1998          487,000               99

Prime Outlets of Puerto Rico-- Barceloneta, Puerto Rico................                  July 2000          176,000               98
                                                                                                         ----------              ---
Total Outlet Centers (7)                                                                                 12,670,000              90%
                                                                                                         ===============         ===
===================================================================================================================================
</TABLE>

Notes:
(1)  Percentage reflects occupied space as of September 30, 2001 as a percent of
     available square feet of GLA.
(2)  The Company, through affiliates, has  a 30% ownership interest in the joint
     venture partnership that owns this outlet center.
(3)  The  Company owns a  2% partnership interest as the sole general partner in
     Phase I of this property but is 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, 2001.
(4)  The Company,  through affiliates, has a 51% ownership interest in the joint
     venture  partnership  that  owns  Phases II  and III of the Bellport Outlet
     Center.
(5)  The  Company  operates  this  outlet  center pursuant to a long-term ground
     lease  under  which  the  Company  receives  the economic benefit of a 100%
     ownership interest.
(6)  The  real  property on which  this outlet center is located is subject to a
     long-term ground lease.
(7)  The  Company  owns  two  community  centers,  not  included  in this table,
     containing  219,000  square  fee t of  GLA in  the  aggregate that were 80%
     occupied as of September 30, 2001.
<PAGE>
Results of Operations

Comparison  of  the  three  months  ended September 30, 2001 to the three months
ended September 30, 2000

Summary

     The Company  reported net losses of $73,252 and $3,584 for the three months
ended  September  30, 2001 and 2000,  respectively.  For the three  months ended
September 30, 2001, the net loss applicable to common  shareholders was $78,920,
or $1.81 per common  share on a basic and diluted  basis.  For the three  months
ended  September 30, 2000, the net loss  applicable to common  shareholders  was
$9,252, or $0.21 per common share on a basic and diluted basis.

     The 2001 results  include (i) a provision for asset  impairment of $63,026,
(ii) a  non-recurring  charge of $1,882  related  to an  interest  rate  subsidy
agreement,  and (iii) a non-recurring  loss of $1,036 related to the refinancing
of first mortgage loans on Prime Outlets at Birch Run. The 2000 results  reflect
certain  non-recurring items,  including (i) other charges of $1,100 incurred in
connection  with  the  termination  of the sale of joint  venture  interests  in
certain  properties,  (ii) a loss on  eOutlets.com  of $424 and  (iii) a gain on
Designer Connection of $274.

Revenues

     Total  revenues were $54,760 for the three months ended  September 30, 2001
compared to $71,408 for the three months ended September 30, 2000, a decrease of
$16,648,  or 23.3%. Base rents decreased by $10,931, or 23.7%, to $35,202 during
the three  months ended  September  30, 2001 from $46,133 for the same period in
2000.  These  decreases were primarily due to the Portfolio GLA Activity and the
reduction in outlet center occupancy during the 2001 period.  Straight-line rent
expense (income),  included in base rent, was $33 and $(92) for the three months
ended September 30, 2001 and 2000, respectively.

     Percentage  rents,  which  represent  rents based on a percentage  of sales
volume  above a specified  threshold,  decreased  by $471,  or 26.9%,  to $1,283
during the three months ended September 30, 2001 from $1,754 for the same period
in 2000. This decline was primarily due to the Portfolio GLA Activity.

     Tenant  reimbursements,  which  represent  the  contractual  recovery  from
tenants of certain operating expenses, decreased by $5,966, or 28.1%, to $15,266
in 2001 from $21,232 in 2000.  This decline was  primarily  due to the Portfolio
GLA  Activity  and the  reduction  in outlet  center  occupancy  during the 2001
period.  Tenant reimbursements as a percentage of recoverable property operating
expenses and real estate taxes was 90.8% during the three months ended September
30, 2001 compared to 93.2% for the same period in 2000.

     Interest and other income increased by $720, or 31.5%, to $3,009 during the
three months ended  September  30, 2001 from $2,289 for the same period in 2000.
The  increase was  primarily  attributable  to a reduction  in equity  losses on
unconsolidated partnerships of $671.

Expenses

     Property  operating  expenses  decreased  by $5,187,  or 30.2%,  to $12,017
during the three  months  ended  September  30,  2001 from  $17,204 for the same
period in 2000. Real estate taxes expense decreased by $782, or 14.0%, to $4,793
during the three months ended September 30, 2001 from $5,575 for the same period
in 2000. These decreases were primarily due to the Portfolio GLA Activity.
<PAGE>
     As shown in TABLE 1,  depreciation  and amortization  expense  decreased by
$3,913,  or 22.1%,  to $13,766 during the three months ended  September 30, 2001
from  $17,679  for  the  same  period  in  2000.  This  decrease  was  primarily
attributable  to the  depreciation  of assets  associated with the Portfolio GLA
Activity and the  reclassification  of Prime Outlets at  Hagerstown  from assets
held for sale to investment in rental  property  during 2000. In connection with
the   reclassification,   the  Company   recorded  $1,967  of  depreciation  and
amortization  expense  related to the  Hagerstown  Center  for the  period  from
January  1,  2000  through  September  30,  2000 in the third  quarter  of 2000.
Corresponding  depreciation and  amortization  expense related to the Hagerstown
Center recorded in the third quarter of 2001 was $733.

Table 1--Components of Depreciation and Amortization Expense

        The components of depreciation and amortization expense were as follows:

--------------------------------------------------------------------------------
 Three months ended September 30,                           2001          2000
--------------------------------------------------------------------------------
 Building and improvements...............................   $6,915        $9,370
 Land improvements.......................................    1,608         1,767
 Tenant improvements.....................................    4,396         5,689
 Furniture and fixtures..................................      722           710
 Leasing commissions.....................................      125           143
                                                            ------        ------

       Total.............................................  $13,766       $17,679
                                                           =======       =======
================================================================================

     As shown in TABLE 2, interest  expense  decreased by $2,589,  or 10.2%,  to
$22,841  during the three months ended  September  30, 2001 from $25,430 for the
same period in 2000.  This decrease  reflects lower interest  incurred of $4,145
partially offset by (i) an increase in amortization of deferred  financing costs
of $771,  (ii) a reduction in the amount of interest  capitalized  in connection
with  development  projects of $727 and (iii) a decrease in amortization of debt
premiums of $58.

     The decrease in interest incurred was primarily attributable to a reduction
of $231,817 in the Company's  weighted average debt outstanding,  excluding debt
premiums,  during the three months ended September 30, 2001 compared to the same
period in 2000. The effect of the reduction in weighted-average debt outstanding
was partially offset by an increase of 0.46% in the weighted-average contractual
interest rate on outstanding  indebtedness  for the three months ended September
30, 2001 compared to the same period in 2000. The  weighted-average  contractual
interest rates for the 2001 and 2000 periods were 9.07% and 8.61%, respectively.

Table 2--Components of Interest Expense

        The components of interest expense were as follows:

--------------------------------------------------------------------------------
 Three months ended September 30,                           2001          2000
--------------------------------------------------------------------------------
 Interest incurred.................................       $21,938       $26,083
 Amortization of debt premiums.....................          (723)         (781)
 Interest capitalized..............................             -          (727)
 Amortization of deferred financing costs..........         1,626           855
                                                          -------       -------
       Total.......................................       $22,841       $25,430
                                                          =======       =======
================================================================================

     Other charges increased by $1,723, or 30.5%, to $7,377 for the three months
ended  September 30, 2001 from $5,654 for the same period in 2000.  The increase
was primarily attributable to (i) a non-recurring charge of $1,882 related to an
interest rate subsidy  agreement (ii) a non-recurring  loss of $1,036 related to
the  refinancing of first mortgage loans on Prime Outlets at Birch Run and (iii)
a higher provision for uncollectible  accounts receivable of $1,171 resulting in
part from certain tenant  bankruptcies,  abandonments  and store closings during
the three months ended September 30, 2001. Partially offsetting these items were
(i) costs of $1,100 incurred in the third quarter of 2000 in connection with the
termination  of the  sales of  joint  venture  interests  in  Prime  Outlets  at
Hagerstown and a proposed  expansion to Prime Outlets at Williamsburg  which was
not  constructed,   (ii)  lower  marketing   expenses  of  $294,  (iii)  reduced
pre-development  costs of $589, (iv) a decrease in ground lease expense of $293,
and (v) a decrease in all other expenses of $90.

Comparison of the nine months ended September 30, 2001 to the nine months ended
September 30, 2000

Summary

     The Company  reported net losses of $85,725 and $31,062 for the nine months
ended  September  30, 2001 and 2000,  respectively.  For the nine  months  ended
September 30, 2001, the net loss applicable to common shareholders was $102,729,
or $2.36 per common  share on a basic and  diluted  basis.  For the nine  months
ended  September 30, 2000, the net loss  applicable to common  shareholders  was
$48,066, or $1.11 per common share on a basic and diluted basis.

     The 2001 results  include (i) a provision for asset  impairment of $63,026,
(ii) a  non-recurring  charge of $1,882  related  to an  interest  rate  subsidy
agreement,  (iii) a  non-recurring  loss of $1,036 related to the refinancing of
first  mortgage  loans on Prime  Outlets at Birch Run, and (iv) a  non-recurring
gain on the sale of real  estate  of  $552.  The 2000  results  reflect  certain
non-recurring  items,  including (i) a loss on eOutlets.com  of $14,703,  (ii) a
provision  for asset  impairment  of $8,538,  (iii)  general and  administrative
expenses  consisting  of  severance  and other  compensation  costs  aggregating
$2,421, (iv) professional fees of $1,455 related to refinancing activities,  (v)
a loss on  Designer  Connection  of  $1,811  and (vi)  other  charges  of $1,100
incurred  in  connection  with the  termination  of the  sales of joint  venture
interests in certain properties.

Revenues

     Total  revenues were $169,981 for the nine months ended  September 30, 2001
compared to $212,833 for the nine months ended September 30, 2000, a decrease of
$42,852, or 20.1%. Base rents decreased by $27,403, or 20.3%, to $107,439 during
the nine months ended  September  30, 2001 from  $134,842 for the same period in
2000.  These  decreases  are primarily due to the Portfolio GLA Activity and the
reduction in outlet center occupancy during the 2001 period.  Straight-line rent
expense,  included  in base rent,  was $446 and $288 for the nine  months  ended
September 30, 2001 and 2000, respectively.

     Percentage  rents,  which  represent  rents based on a percentage  of sales
volume above a specified  threshold,  decreased by $1,611,  or 37.1%,  to $2,736
during the nine months ended  September 30, 2001 from $4,347 for the same period
in 2000. This decline was primarily due to the Portfolio GLA Activity.

     Tenant  reimbursements,  which  represent  the  contractual  recovery  from
tenants of certain  operating  expenses,  decreased  by  $12,617,  or 19.8%,  to
$50,995 in 2001 from  $63,612 in 2000.  This  decline was  primarily  due to the
Portfolio GLA Activity and the reduction in outlet center  occupancy  during the
2001 period.  Tenant  reimbursements  as a percentage  of  recoverable  property
operating  expenses and real estate taxes was 92.8% during the nine months ended
September 30, 2001 compared to 94.2% for the same period in 2000.

     Interest and other income  decreased by $1,221,  or 12.2%, to $8,811 during
the nine months  ended  September  30, 2001 from  $10,032 for the same period in
2000. The decrease was primarily attributable to a non-recurring gain on sale of
outparcel land of $2,472 during the 2000 period  partially offset by a reduction
in equity losses on unconsolidated partnerships of $1,335.
<PAGE>
Expenses

     Property  operating  expenses  decreased by $10,898,  or 21.5%,  to $39,796
during the nine months ended September 30, 2001 from $50,694 for the same period
in 2000.  Real estate taxes  expense  decreased by $1,654,  or 9.8%,  to $15,159
during the nine months ended September 30, 2001 from $16,813 for the same period
in 2000. These decreases are primarily due to the Portfolio GLA Activity.

     As shown in TABLE 3,  depreciation  and amortization  expense  decreased by
$8,535,  or 17.2%,  to $41,164  during the nine months ended  September 30, 2001
from  $49,699  for  the  same  period  in  2000.  This  decrease  was  primarily
attributable  to the  depreciation  of assets  associated with the Portfolio GLA
Activity.

Table 3--Components of Depreciation and Amortization Expense

        The components of depreciation and amortization expense were as follows:

--------------------------------------------------------------------------------
 Nine months ended September 30,                            2001          2000
--------------------------------------------------------------------------------
 Building and improvements...............................  $20,672       $26,826
 Land improvements.......................................    4,685         4,532
 Tenant improvements.....................................   13,254        16,149
 Furniture and fixtures..................................    2,190         1,718
 Leasing commissions.....................................      363           474
                                                           -------       -------
       Total.............................................  $41,164       $49,699
                                                           =======       =======
================================================================================

     As shown in TABLE 4,  interest  expense  decreased by $2,549,  or 3.5%,  to
$70,618  during the nine months  ended  September  30, 2001 from $73,167 for the
same,  period in 2000.  This decrease  reflects (i) lower  interest  incurred of
$8,339 and (ii) an increase in amortization  of debt premiums of $18.  Partially
offsetting these items was (i) an increase in amortization of deferred financing
costs of $2,721 and (ii) a reduction  in the amount of interest  capitalized  in
connection with development projects of $3,087.

     The decrease in interest incurred was primarily attributable to a reduction
of $231,579 in the Company's  weighted average debt outstanding,  excluding debt
premiums,  during the nine months ended  September 30, 2001 compared to the same
period in 2000. The effect of the reduction in weighted-average debt outstanding
was partially offset by an increase of 0.83% in the weighted-average contractual
interest rate on outstanding  indebtedness  for the nine months ended  September
30, 2001 compared to the same period in 2000. The  weighted-average  contractual
interest rates for the 2001 and 2000 periods were 9.19% and 8.36%, respectively.

Table 4--Components of Interest Expense

        The components of interest expense were as follows:

--------------------------------------------------------------------------------
 Nine months ended September 30,                            2001          2000
--------------------------------------------------------------------------------
 Interest incurred.................................       $67,694       $76,033
 Amortization of debt premiums.....................        (2,361)       (2,343)
 Interest capitalized..............................             -        (3,087)
 Amortization of deferred financing costs..........         5,285         2,564
                                                          -------       -------
       Total.......................................       $70,618       $73,167
                                                          =======       =======
================================================================================

     Other charges increased by $4,365, or 37.4%, to $16,051 for the nine months
ended  September 30, 2001 from $11,686 for the same period in 2000. The increase
was primarily  attributable to (i) a higher provision for uncollectible accounts
receivable  of  $4,518  resulting  in part  from  certain  tenant  bankruptcies,
abandonments and store closings during the nine months ended September 30, 2001,
(ii) a  non-recurring  charge of $1,882  related  to an  interest  rate  subsidy
agreement and (iii) a non-recurring loss of $1,036 related to the refinancing of
first mortgage loans on Prime Outlets at Birch Run.  Partially  offsetting these
items  were  (i)  costs of  $1,100  incurred  in the  third  quarter  of 2000 in
connection with the termination of the sales of joint venture interests in Prime
Outlets at Hagerstown and a proposed  expansion to Prime Outlets at Williamsburg
which was not  constructed,  (ii) a decrease  in ground  lease  expense of $954,
(iii) reduced  pre-development  costs of $614, (iv) lower marketing  expenses of
$291 and (v) a decrease in all other expenses of $112.

Special Charges

     During the third quarter of 2001, management determined that certain events
and circumstances had occurred,  including reduced occupancy and limited leasing
success, that indicated that four of the Company's wholly-owned  properties were
permanently  impaired.  As a  result,  the  Company  recorded  a  third  quarter
provision for asset impairment aggregating $63,027,  representing the write-down
of the carrying value of these four  properties to their estimated fair value in
accordance with the requirements of Statement of Financial  Accounting Standards
("SFAS")  No. 121,  "Accounting  for the  Impairment  of  Long-Lived  Assets and
Long-Lived Assets to be Disposed of".

     During the second quarter of 2000, management  established a formal plan to
sell two of its  properties  and,  accordingly,  reclassified  their  respective
carrying  values  to  held  for  sale in the  Consolidated  Balance  Sheets.  In
accordance  with the  requirements  of SFAS No.  121,  the  Company  incurred  a
provision for asset impairment  aggregating  $8,538 to reduce the carrying value
of these properties to their estimated sales value, less cost to dispose. One of
these properties, Northgate Plaza was subsequently sold in February of 2001. See
"Liquidity  and Capital  Resources  - 2001 Sales  Transactions"  for  additional
information.

     The operating results for the Company's  Designer  Connection outlet stores
are reflected in loss on Designer  Connection in the Consolidated  Statements of
Operations  for all periods  presented.  The Company  ceased  operations  of its
Designer Connection outlet stores in 2000.

     On April  12,  2000,  the  Company  announced  that it had been  unable  to
conclude an  agreement  to transfer  ownership  of its wholly  owned  e-commerce
subsidiary,   primeoutlets.com   inc.,   also  known  as   eOutlets.com,   to  a
management-led  investor group comprised of eOutlets.com  management and outside
investors.  Effective April 12, 2000,  eOutlets.com ceased all operations and on
November 6, 2000 filed for  bankruptcy  under Chapter 7. In connection  with the
discontinuance  of eOutlets.com,  the Company  incurred a non-recurring  loss of
$424 and $14,703  during the three and nine months  ended  September  30,  2000,
respectively.  The  non-recurring  loss for the nine months ended  September 30,
2000 includes the  write-off of $3,497 of costs  previously  capitalized  during
1999.

Capital Expenditures

     In connection with re-leasing space to new merchants,  the Company incurred
$7,923 and $2,730 in capital expenditures during the nine months ended September
30, 2001 and 2000, respectively.

Merchant Sales

     For the nine months  ended  September  30,  2001,  same-space  sales in the
Company's outlet center portfolio  decreased 3.1% compared to the same period in
2000.  "Same-space  sales" is defined as the  weighted-average  sales per square
foot reported by merchants  for space open since  January 1, 2000.  For the nine
months ended September 30, 2001,  same-store sales decreased by 6.2% compared to
the same period in 2000.  "Same-store sales" is defined as the  weighted-average
sales per square foot  reported by merchants  for stores  opened and operated by
the same merchant since January 1, 2000. The  weighted-average  sales per square
foot reported by all merchants were $245 for the year ended December 31, 2000.

Liquidity and Capital Resources

Sources and Uses of Cash

     For the  nine  months  ended  September  30,  2001,  net cash  provided  by
operating  activities was $20,323, net cash provided by investing activities was
$24,110 and net cash used in financing activities was $48,517.

     The gross cash  provided  by  investing  activities  during the nine months
ended  September  30, 2001 was  $42,869  which  consisted  of (i) $27,071 of net
proceeds from the sale of Prime Outlets at  Silverthorne on March 16, 2001, (ii)
$6,476 of net proceeds  from the  February 2, 2001 sale of  Northgate  Plaza and
(iii) $8,286 of net proceeds from the August 21, 2001 Birch Run Outlet  Center
refinancing transaction.  Partially offsetting theses sources were gross uses of
cash totaling  $17,723  comprised of (i) $15,553 of additions to rental property
and (ii) $2,170 of payments  related to  eOutlets.com.  The  additions to rental
property are primarily attributable to (i) the payment of remaining construction
costs for Prime Outlets of Puerto Rico which opened on July 27, 2000, (ii) costs
incurred in connection with re-leasing  space to new merchants and (iii) capital
expenditures  associated  with the  renovation  and  rehabilitation  of existing
outlet centers.

     The gross uses of cash for financing  activities of $65,816 during the nine
months  ended   September  30,  2001   consisted  of  (i)  scheduled   principal
amortization  on notes  payable of $15,720,  (ii)  repayment  in full of certain
mortgage indebtedness  aggregating $40,374, (iii) principal prepayments totaling
$9,137 on the Company's mezzanine loan (the "Mezzanine Loan") and (iv) financing
costs of $585.  Partially  offsetting  these  items were  proceeds  from (i) the
Edinburgh First Mortgage Loan of $16,700,  (ii) other new borrowings of $199 and
(iii) contributions from minority interests of $400.

     The  Company's  liquidity  depends on cash  provided by  operations,  funds
obtained  through  borrowings,  particularly  refinancings of existing debt, and
cash  generated  through asset sales.  The Company  believes that estimated cash
flows from  operations and current  financial  resources may be  insufficient to
repay  scheduled  principal  obligations in 2002 and fund operating  activities.
Accordingly, the Company is in the process of (i) seeking to generate additional
liquidity  through new financings and the sale of assets,  (ii) negotiating with
existing  lenders to defer a portion of the  principal  payments  due during the
next  year and  (iii)  reducing  its cost of  operations  (see  "Cost  Reduction
Initiative"  for  additional  information).  There can be no assurance  that the
Company  will be  able to  secure  additional  sources  of  liquidity  or  reach
satisfactory resolution with its lenders. Should the Company be unable to secure
additional  sources  of  liquidity  or reach  satisfactory  resolution  with its
lenders, there would be substantial risk as to whether the Company would be able
to continue during 2002 as a going concern.

Debt Service Obligations

     The Company's aggregate indebtedness,  excluding unamortized debt premiums,
was $967,677 at September 30, 2001. At September 30, 2001, such indebtedness had
a  weighted-average  maturity  of 3.4 years and bore  contractual  interest at a
weighted-average  rate of 8.93% per annum. At September 30, 2001,  $799,765,  or
82.6%, of such indebtedness bore interest at fixed rates and $167,912, or 17.4%,
of such  indebtedness  bore  interest at variable  rates.  The Company  utilizes
derivative  financial  instruments  to manage its interest rate risk  associated
with variable rate debt.

     As of September  30, 2001,  the  Company's  remaining  scheduled  principal
payments  for 2001 and 2002 were  $17,023 and  $65,694,  respectively.  The 2001
remaining  scheduled  principal  payments  included  (i)  a  non-recourse  first
mortgage  loan of $3,460 on Western  Plaza (the  "Western  Plaza First  Mortgage
Loan"),  a community  center located in Knoxville,  Tennessee,  which matured on
October  31,  2001 and (ii) a recourse  first  mortgage  (the  "Camarillo  First
Mortgage  Loan") of $6,527 on land located in  Camarillo,  California  which was
scheduled to mature on November 1, 2001. The Company has signed a term sheet and
made a payment of $25 to the lender to extend the maturity of the Western  Plaza
First  Mortgage  until October 31, 2002 and is in the process of finalizing  the
terms of such extension.  Certain of the Company's debt  obligations,  including
the Mezzanine Loan and fixed-rate bonds  aggregating  $7,000 secured by a second
mortgage  on  Western  Plaza,  contain  cross-default  provisions  that would be
triggered by a continuing  default under the Western Plaza First  Mortgage Loan.
In the event such  cross-default  provisions were triggered,  the holders of the
Mezzanine Loan could elect to accelerate  such debt and the holders of the bonds
could elect to put such  obligations to the Company at a price equal to par plus
accrued interest.

     On  November  1, 2001,  the  Company  made a  principal  payment of $300 in
exchange  for a  modification  to the  terms  and a  one-year  extension  of the
maturity of the  Camarillo  First  Mortgage  Loan.  The new maturity date of the
Camarillo  First  Mortgage Loan is November 1, 2002 and pursuant to the terms of
the loan modification,  additional  principal pay-downs of $300 and $400 will be
due on January 2, 2002 and on April 1, 2002,  respectively.  The Camarillo First
Mortgage  Loan will  continue to (i) bear interest at a fixed-rate of 13.50% and
(ii) except as set forth in the prior sentence,  require  monthly  interest-only
payments.

     As of November 14, 2001,  during 2002 the Company will be obligated to make
scheduled  principal  payments  of  $42,756,   including  $33,069  of  scheduled
amortization  payments,  $3,460 under the Western Plaza First Mortgage Loan, and
$6,227 under the Camarillo  First  Mortgage Loan. The $32,625 of debt related to
Prime  Outlets  at  Jeffersonville  II and Prime  Outlets  at  Conroe,  which is
non-recourse  debt, is not included  because the Company intends to not pay such
amount.  The Company is seeking to  generate  additional  liquidity  through new
financings  and the sale of assets and is negotiating  with existing  lenders to
defer a portion of the  principal  payments  due during the next year;  however,
there can be no assurance  that the Company be unable to secure such  additional
sources of liquidity or reach  satisfactory  resolution with its lenders,  there
would be  substantial  risk as to whether the Company  would be able to continue
during 2002 as a going concern.

Guaranty

     The  Company is a  guarantor  or  otherwise  obligated  with  respect to an
aggregate of $12,471 of the indebtedness of Horizon Group  Properties,  Inc. and
its affiliates ("HGP"),  including $10,000 of obligations under a secured credit
facility (the "HGP Secured Credit  Facility").  HGP is a publicly traded company
that was formed in  connection  with the  Company's  merger with  Horizon  Group
Properties, Inc. in June 1998.

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

Debt Compliance

     As of September 30, 2001, the Company was in compliance  with all financial
debt  covenants  under its recourse loan  agreements.  However,  there can be no
assurance  that  the  Company  will be in  compliance  with its  financial  debt
covenants in future periods since the Company's future financial  performance is
subject to various risks and uncertainties,  including,  but not limited to, the
effects of increases in market interest rates from current  levels,  the risk of
potential  increases in vacancy rates and the resulting  impact on the Company's
revenue,  and risks  associated  with  refinancing  the  Company's  current debt
obligations  or obtaining new financing  under terms as favorable as the Company
has experienced in prior periods.

Defaults on Certain Non-recourse Mortgage Indebtedness

     Subsidiaries of the Company have suspended regularly scheduled monthly debt
service payments on two non-recourse  mortgage loans  aggregating  $33,378 which
are  cross-collateralized  by Prime  Outlets at  Jeffersonville  II,  located in
Jeffersonville, Ohio, and Prime Outlets at Conroe, located in Conroe, Texas. The
Company  remains in discussions  with the holder of the mortgage loans regarding
potential  restructuring of their existing terms. There can be no assurance that
such  discussions  will lead to any  modification  to the terms of the  mortgage
loans and that the lender will not bring a foreclosure action concerning the two
properties.  Because the two mortgage loans are  non-recourse and the Company is
currently not  receiving any cash flow from these two centers,  the Company does
not  believe  the  existing  defaults  or any  related  foreclosure  will have a
material impact on its results of operations or financial position.

Defaults   on  Certain  Non-recourse  Mortgage  Indebtedness  of  Unconsolidated
Partnerships

     Various  mortgage  loans related to projects in which the Company,  through
subsidiaries,  indirectly  owns joint venture  interests have matured and are in
default.  The mortgage loans are (i) a $10,389 first mortgage loan on Phase I of
the Bellport  Outlet Center located in Bellport,  New York,  held by Union Labor
Life Insurance  Company ("Union Labor");  and (ii) a $13,338 first mortgage loan
on the Oxnard Outlet Center located in Oxnard,  California,  held by Fru-Con. An
affiliate of the Company has a 50% ownership  interest in the partnership  which
owns Phase I of the Bellport  Outlet Center.  Fru-Con and the Company are each a
50.0% partner in the partnership that owns the Oxnard Outlet Center.

     Union Labor has filed for  foreclosure  on Phase I of the  Bellport  Outlet
Center.  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  Phase I of the  Bellport  Outlet  Center.  The  Company  continues  to
negotiate the terms of a transfer of its ownership interest in the Oxnard Outlet
Center to Fru-Con.

     The  Company  believes  none of these  mortgage  loans is  recourse  to the
Company. In addition, the Company and its affiliates are currently not receiving
any cash flow from the Oxnard Outlet Center and were not receiving any cash flow
from Phase I of the Bellport  Outlet Center prior to the loss of control of this
project.  Therefore,  the Company does not believe the existing  defaults  under
these loans or any related  foreclosures on the mortgaged properties will have a
material impact on its results of operations or financial position.

Cost Reduction Initiative

     The  Company  has  undertaken  steps  to  reduce  its  cost of  operations,
including   laying-off  employees  and  reducing  its  office  space.  The  cost
reductions  initiative  is  expected  to  reduce  gross  2002  costs  to a level
approximately $7,500 (or 30%) less than 2001 costs, which will be a reduction of
$14,000 or (44%)  compared  to 2000 costs.  As a result of a  reduction-in-force
implemented in November 2001, the Company  expects to incur a one-time charge of
approximately $500 during the fourth quarter of 2001.

2001 Sales Transactions

     On May 8, 2001, Prime Outlets at New River, an outlet center located in New
River,  Arizona  consisting  of 326,000  square  feet of GLA,  was sold  through
foreclosure.  In connection  with the foreclosure  sale, the Company  recorded a
loss on the sale of real estate of $180 during the second quarter of 2001.

     On February 2, 2001, the Company 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,  the Company sold Prime  Outlets at  Silverthorne,  an
outlet center  located in  Silverthorne,  Colorado  consisting of 257,000 square
feet of GLA, to Silverthorne Factory Stores, LLC for aggregate  consideration of
$29,000.  The net cash proceeds  from the sale of Prime Outlets at  Silverthorne
were $8,993, after the repayment of certain mortgage  indebtedness of $18,078 on
Prime  Outlets  at  Lebanon  (see  below) and  closing  costs and fees.  The net
proceeds  from  these  sales were used to prepay an  aggregate  of $9,137 of the
Company's  outstanding  mezzanine loan (the "Mezzanine Loan") in accordance with
the terms of such loan agreement.  In connection  with these sales,  the Company
recorded an  aggregate  gain on the sale of real estate of $732 during the first
quarter of 2001.

     Prior to the sale of Prime Outlets at  Silverthorne,  it was one of fifteen
properties  securing the Company's first mortgage and expansion loan (the "First
Mortgage and Expansion  Loan"),  which had an outstanding  principal  balance of
$343,616 at September 30, 2001. In conjunction with the sale of Prime Outlets at
Silverthorne, the Company substituted Prime Outlets at Lebanon for Prime Outlets
at Silverthorne in the  cross-collateral  asset pool securing the First Mortgage
and Expansion Loan pursuant to the collateral  substitution provisions contained
in the loan agreement.

Dividends and Distributions

     In order to qualify as a real estate  investment trust ("REIT") for federal
income tax purposes,  the Company is required to pay distributions to its common
and  preferred  shareholders  of at least  90% of its  REIT  taxable  income  in
addition to satisfying other requirements.  Although the Company intends to make
distributions  in accordance with the  requirements of the Internal Revenue Code
of 1986, as amended, necessary to remain qualified as a REIT, it also intends to
retain such amounts as it considers  necessary from time to time for capital and
liquidity needs of the Company.

     The Company's  current  policy is to pay  distributions  only to the extent
necessary  to  maintain  its status as a REIT for federal  income tax  purposes.
Based on the Company's  current federal income tax projections for 2001, it does
not  expect to pay any  distributions  on its 10.5%  Series A Senior  Cumulative
Preferred   Stock  ("Senior   Preferred   Stock"),   8.5%  Series  B  Cumulative
Participating  Convertible  Preferred  Stock  ("Series B  Convertible  Preferred
Stock"),  common  stock or common units of limited  partnership  interest in the
Operating Partnership during 2001.

     The Company is prohibited from paying dividends or distributions  except to
the  extent  necessary  to  maintain  its REIT  status  under  the  terms of its
Mezzanine Loan. In addition, the Company may make no distributions to its common
shareholders or its holders of common units of limited  partnership  interest in
the Operating  Partnership unless it is current with respect to distributions to
its preferred  shareholders.  As of September 30, 2001, unpaid dividends for the
period  November 16, 1999  through  September  30, 2001 on the Senior  Preferred
Stock and Series B Convertible  Preferred Stock aggregated  $11,320 and $31,190,
respectively.  The annual dividends on the Company's  2,300,000 shares of Senior
Preferred Stock and 7,828,125 shares of Series B Convertible Preferred Stock are
$6,038 ($2.625 per share) and $16,636 ($2.125 per share), respectively.

     The Company is  currently in arrears on seven  quarters of preferred  stock
distributions  due in respect of the Series A and Series B Preferred  Stock. The
holders of the Series A  Preferred  Stock and Series B Preferred  Stock,  voting
together as a single class,  have the right to elect two  additional  members to
the Company's  Board of Directors so long as the  equivalent of six  consecutive
quarterly  dividends on these series of preferred stock remain in arrears.  Each
of such  directors  would be  elected  to serve  until  the  earlier  of (i) the
election and qualification of such director's successor,  or (ii) payment of the
dividend  arrearage.  The Company will hold a Special  Meeting of its  Preferred
Stockholders  for the  purpose  of  electing  two  additional  directors  to the
Company's  board of  directors  on  December  6, 2001.  The record  date for the
special meeting is October 11, 2001.

Debt Transactions

     In  connection  with the sales of  Northgate  Plaza and  Prime  Outlets  at
Silverthorne  during the first  quarter of 2001,  the  Company  repaid  mortgage
indebtedness of $5,966 and $18,078, respectively. In addition, net cash proceeds
from  these  property  sales were used to prepay an  aggregate  of $9,137 of the
Company's  outstanding Mezzanine Loan. As of September 30, 2001, the outstanding
principal balance of the Mezzanine Loan was $72,863.

     The  Company,  through  affiliates,  holds a 51%  interest  in the owner of
Phases II and III of an outlet  center in Bellport,  New York on which the first
mortgage loan of $7,795 matured on May 1, 2001. On May 21, 2001, the Company, on
behalf of the  owner,  made a  principal  payment  of  $2,295  to the  lender in
exchange  for a  modification  to the  terms  and a  one-year  extension  of the
maturity of this mortgage  indebtedness.  The  outstanding  balance of the first
mortgage loan was $5,500 as of September 30, 2001.

     On June 8, 2001,  the  Company,  through  affiliates,  obtained a two-month
extension  through  August 10, 2001 to the terms and maturity  date of a $16,330
first mortgage loan secured by Prime Outlets at Edinburgh (the "Edinburgh Outlet
Center") located in Edinburgh,  Indiana. On June 29, 2001, the Company,  through
affiliates,  completed a refinancing  of this first mortgage loan. The new first
mortgage loan (the  "Edinburgh  First Mortgage  Loan") provides for an aggregate
commitment up to $18,000 and is non-recourse to the Company. The Edinburgh First
Mortgage Loan,  which is secured by the Edinburgh  Outlet Center,  has a term of
three  years,   requires  monthly  principal   payments  based  upon  a  15-year
amortization  schedule  and  is  pre-payable  at any  time  subject  to  certain
prepayment and exit fees. The Edinburgh  First Mortgage Loan bears interest at a
floating  rate based on  six-month  LIBOR plus 350 basis  points,  subject to an
8.00% minimum, and may be adjusted semi-annually with a maximum 1.0% increase or
decrease per adjustment.  As of September 30, 2001, the Edinburgh First Mortgage
Loan bore  interest at the minimum  rate.  At closing,  $16,700 of the Edinburgh
First Mortgage Loan was funded, resulting in net proceeds of $88 after repayment
of the old first  mortgage  loan and closing  costs.  The  remaining  commitment
provides  for the  funding of up to an  additional  $1,300 for  leasing  related
capital expenditures at the Edinburgh Outlet Center.

     On August 7, 2001, the Company, through affiliates,  obtained an additional
one-month  extension to September  10, 2001 to the terms and maturity  date of a
$10,003  first  mortgage  loan secured by Prime Outlets at Birch Run (the "Birch
Run Outlet Center") located in Birch Run, Michigan.  The terms and maturity date
of the $10,003 first  mortgage loan had  previously  been extended to August 10,
2001. The Company and Estein & Associates USA, Ltd.,  through  affiliates,  have
30% and 70% ownership interests,  respectively, in the joint venture partnership
(the  "Prime/Estein  Venture") that indirectly owns the Birch Run Outlet Center.
The Company completed a refinancing of first mortgage loans aggregating  $63,000
on the Birch Run Outlet Center on August 21, 2001.  These first  mortgage  loans
were  included  in  a  "wrap-around"   loan  provided  by  the  Company  to  the
Prime/Estein  Venture in connection with the November 19, 1999 sale of the Birch
Run Project.

     The new first mortgage loan (the "Birch Run First Mortgage Loan") is in the
amount of  $63,000,  is secured by the Birch Run  Outlet  Center,  has a term of
ten-years,  and requires  monthly  principal  amortization  based upon a 25-year
schedule.  The Birch Run First  Mortgage  Loan bears  interest  at an  effective
fixed-rate of 8.12%.  Greenwich  Capital Financial  Products,  Inc. provided the
financing.  The  Prime/Estein  Venture used the net proceeds  from the Birch Run
First Mortgage Loan to repay in full first mortgage loans  aggregating  $63,000,
including a  "wrap-around"  first  mortgage of $10,731 due to the  Company.  Net
proceeds to the Company,  after payment of closing and other  transaction  costs
were  $8,286.  In  connection  with the  refinancing  transaction,  the  Company
recorded a non-recurring loss of $1,036 during the third quarter of 2001.

     Pursuant to Prime/Estein  Venture-related  documents to which affiliates of
the Company are parties,  the Company is obligated to provide to, or obtain for,
the  Prime/Estein  Venture fixed rate financing at an annual rate of 7.75%. As a
result,  each  month  during the term of the Birch Run First  Mortgage  Loan the
Company  will be  obligated to pay to the  Prime/Estein  Venture the  difference
between the cost of the financing at an annual  effective  rate of 8.12% and the
cost of the financing at an annual rate of 7.75% (the "Interest Rate  Subsidy").
The total of the payments to be made by the Company to the Prime/Estein  Venture
over the term of the Birch Run First  Mortgage  Loan will be $2,723.  During the
third quarter of 2001, the Company  recorded a  non-recurring  loss of $1,882 in
other charges representing the net present value of the Interest Rate Subsidy.
<PAGE>
Development Activity

     As of September  30, 2001,  the Company had $824 held in a lender escrow to
fund the remaining expected development costs for Prime Outlets of Puerto, which
opened on July 27, 2000.

Interest Rate Risk

     In the ordinary course of business, the Company is exposed to the impact of
interest  rate  changes  and,  therefore,   employs  established   policies  and
procedures to manage its exposure to interest  rate changes.  The Company uses a
mix of fixed and  variable  rate debt to (i) limit the impact of  interest  rate
changes on its results from operations and cash flows and (ii) lower its overall
borrowing costs.

     The Company also uses derivative  financial  instruments to manage interest
rate risk associated with certain of its debt. Generally,  the Company purchases
interest  rate  protection  agreements,  such as caps,  which are  designated as
hedges for underlying variable rate debt obligations.  The Company does not hold
derivative financial instruments for trading purposes. The Company is exposed to
credit  losses  in the  event  of  counterparty  nonperformance,  but  does  not
anticipate any such losses based on the creditworthiness of the counterparties.

     Although derivative financial instruments are an important component of the
Company's interest rate management program, their incremental effect on interest
expense for the three and nine months ended  September 30, 2001 and 2000 was not
material.

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.  FFO is  currently
defined by NAREIT as net income (loss)  determined in accordance with accounting
principles generally accepted in the United States ("GAAP"),  excluding gains or
losses  from  provisions  for  impairment  and  sales of  depreciable  operating
property,  plus  depreciation  and  amortization  (other  than  amortization  of
deferred  financing costs and  depreciation of non-real estate assets) and after
adjustment for unconsolidated partnership and joint ventures.

     Management believes 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 the
performance  of the Company.  The  Company's FFO may not be comparable to FFO as
reported  by other  REITs that do not define the term using the  current  NAREIT
definition or that interpret the current NAREIT definition differently than does
the Company.  Therefore,  the Company  cautions that the  calculation of FFO may
vary from  entity to entity and as such the  presentation  of FFO by the Company
may not be  comparable to other  similarly  titled  measures of other  reporting
companies.   The  Company   believes   that  in  order  to  facilitate  a  clear
understanding  of its 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 the Company's
performance  or to cash  flows as a measure  of  liquidity  or  ability  to make
distributions.

     TABLE 5  provides  a  reconciliation  of the  loss  before  allocations  to
minority  interests  and  preferred  shareholders  to FFO for the three and nine
months  ended  September  30, 2001 and 2000.  FFO was $5,479 and $19,909 for the
three and nine  months  ended  September  30,  2001,  respectively,  compared to
$22,431 and $44,515 for the same periods in 2000, respectively.  The FFO results
for the three and nine months ended  September 30, 2001 include a  non-recurring
loss of $1,036  related  to the  refinancing  of first  mortgage  loans on Prime
Outlets  at Birch  Run.  The FFO  results  for the three and nine  months  ended
September  30, 2000  include  net  non-recurring  items  totaling  $(1,100)  and
$(2,504), respectively, consisting of the following:

o        a first quarter gain on the sale of outparcel land of $2,472;

o        severance  and  other compensation costs aggregating $2,421 through the
         first two quarters;

o        second  quarter  professional  fees  of  $1,455  related to refinancing
         activities; and

o        third  quarter  termination  costs aggregating $1,100 included in other
         charges.

Excluding  the net  impact of these  non-recurring  items,  FFO was  $6,515  and
$20,945 for the three and nine months ended  September  30, 2001,  respectively,
and FFO was $23,531 and  $47,019 for the three and nine months  ended  September
30, 2000, respectively.

     The  decrease in FFO for the 2001  periods  compared to the same periods in
2000 is primarily attributable to the following factors:

o        the December 2000 sale of four outlet centers, including the assumption
         of mortgage indebtedness by the purchaser, which resulted in a decrease
         in  net  operating  income  during  the  three  and  nine  months ended
         September  30,  2001  of  $7,029  and  $20,680, respectively, partially
         offset  by  interest  savings  on  the debt assumed by the purchaser of
         $3,162  and  $9,464  for  the three and nine months ended September 30,
         2000, respectively;

o        higher  interest  expense  during  the  three  and  nine  months  ended
         September 30, 2001  of  $573  and  $6,915, respectively, reflecting (i)
         higher  borrowing  costs  and  (ii)  reduced  capitalized  interest  on
         development projects;

o        an  increase  in the provision for uncollectible accounts receivable of
         $1,171  and  $4,518  for  the three and nine months ended September 30,
         2001, respectively, resulting in part from certain tenant bankruptcies,
         abandonments and store-closings;

o        reduced average occupancy in the outlet center portfolio; and

o        the February 2000 sale of a 70% joint venture interest in Prime Outlets
         at Williamsburg which resulted in a decrease in net operating income of
         $1,020 partially offset by decreased interest expense of $390.

Table 5--Funds from Operations
<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------------------------------
                                                                         Three Months Ended                       Nine Months Ended
                                                                            September 30,                           September 30,
                                                                  ------------------------------     -------------------------------
                                                                  2001            2000                     2001            2000
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                               <C>             <C>                      <C>             <C>
FFO:
Loss before minority interests ................................   $(73,252)       $(4,351)                 $(86,126)       $(31,797)
FFO adjustments:
  Gain on sale of real estate..................................          -              -                      (552)              -
  Depreciation and amortization................................     13,766         17,679                    41,164          49,699
  Non-real estate depreciation and amortization................       (563)          (500)                   (1,693)         (1,068)
  Unconsolidated joint venture adjustments.....................        620            915                     2,208           2,629
  Non-cash joint venture interest subsidy adjustment                 1,882              -                     1,882               -
  Discontinued operations - eOutlets.com.......................          -            424                         -          14,703
  Discontinued operations - Designer Connection................          -           (274)                        -           1,811
                                                                  --------        -------                  --------        --------
FFO before adjustment for asset impairment                         (57,547)        13,893                   (43,117)         35,977
  Provision for asset impairment - operating properties             63,026          8,538                    63,026           8,538
                                                                  --------        -------                  --------        --------
FFO before allocations to minority interests
  and preferred shareholders...................................   $  5,479        $22,431                  $ 19,909        $ 44,515
                                                                  ========        =======                  ========        ========
Other Data:
Net cash provided by operating activities......................   $  2,163        $16,184                  $ 20,323        $ 48,158
Net cash provided by (used in)  investing activities...........      4,562        (11,070)                   24,110         (37,370)
Net cash (used in) financing activities........................     (6,000)        (5,732)                  (48,517)        (12,144)
====================================================================================================================================
</TABLE>
<PAGE>

Item 3.    Quantitative and Qualitative Disclosures of Market Risk

Market Risk Sensitivity

Interest Rate Risk

     In the ordinary course of business, the Company is exposed to the impact of
interest rate changes.  The Company employs established  policies and procedures
to manage its exposure to interest  rate changes.  See  "Interest  Rate Risk" of
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations  for additional  information.  The Company uses a mix of fixed and
variable  rate debt to (i) limit the  impact of  interest  rate  changes  on its
results from  operations and cash flows and (ii) to lower its overall  borrowing
costs.  The  following  table  provides  a summary of  principal  cash flows 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,
2001.
<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------------------------------
                                                                Year of Maturity
------------------------------------------------------------------------------------------------------------------------------------
                                                   2001        2002        2003         2004        2005    Thereafter         Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>          <C>         <C>            <C>        <C>        <C>          <C>
Fixed rate:
Principal...........................            $13,335      $41,873     $454,324       $6,831     $50,945    $232,457     $799,765
Average interest rate...............             10.42%        9.07%        9.05%        7.37%       7.95%       8.13%         8.76%
Variable rate:
Principal...........................            $ 3,688      $23,821     $ 72,837       $67,566                            $167,912
Average interest rate...............             13.02%       13.20%       12.12%         5.81%                                9.76%

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

Economic Conditions

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

Item 1.           Legal Proceedings

     Dinnerware Plus Holdings, Inc., which operates under the trade name Mikasa,
and affiliates (the "Mikasa  Plaintiffs")  filed in Superior Court of New Jersey
on March 29, 2001 a lawsuit  against the  Company  and various  affiliates.  The
Mikasa  Plaintiffs assert a number of causes of action in which they allege that
the  Company  and its  affiliates  breached  various  provisions  in the  Mikasa
Plaintiffs'  leases  and, as a result,  overcharged  the Mikasa  Plaintiffs  for
common area  maintenance  and similar charges ("CAM") and promotion fund charges
at various centers where the Mikasa Plaintiffs are tenants.  The Company filed a
motion to dismiss the complaint on behalf of the Company  affiliates who entered
into  leases  with the Mikasa  plaintiffs,  based on lack of  jurisdiction.  The
motion   was   granted,   but  the   Mikasa   Plaintiffs   filed  a  motion  for
reconsideration,  upon which the court has not ruled. The remaining  defendants,
Prime Retail,  Inc. and Prime Retail,  L.P. have answered the  complaint.  Melru
Corporation,  which operates under the trade name Jones New York, in response to
a collection  action filed by the Company and its  affiliates,  filed on October
15,  2001  several  counterclaims  in which it alleges  that the Company and its
affiliates overcharged Melru Corporation for CAM and promotion fund charges. The
Company has not filed its response to the Melru Corporation counterclaims. Other
tenants  in  the  Company's  outlet  centers  have  made  or  may  make  similar
allegations to those made by the Mikasa  Plaintiffs and Melru  Corporation.  The
outcome of the Mikasa Plaintiffs' lawsuit, the Melru Corporation counter-claims,
and other potential  claims,  and the ultimate  liability of the defendants,  if
any, cannot be predicted.

     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 and 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.  An oral  argument  before a panel of
judges of the United States Court of Appeals for the Fourth  Circuit was held on
October 30, 2001 and the panel of judges  requested  further briefing of certain
issues.  Management  believes  that the  Company  has  acted  properly  and will
continue to defend this lawsuit vigorously. The outcome of this lawsuit, and the
ultimate liability of the defendants, if any, cannot be predicted.

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

     Several  entities  (the  "eOutlets  Plaintiffs")  have  filed or  stated an
intention to file lawsuits (the "eOutlets Lawsuits") against the Company and its
affiliates in which the eOutlets  Plaintiffs are seeking 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 theory that the
Company  guaranteed the  obligations of eOutlets and the theory that the Company
was the alter ego of  eOutlets.  primeoutlets.com  inc. is also a  defendant  in
some, but not all, of the eOutlets Lawsuits. The Company believes that it is not
liable to the eOutlets Plaintiffs as there was no privity of contract between it
and the various  eOutlets  Plaintiffs.  The Company will  continue to defend all
eOutlets Lawsuits vigorously.  primeoutlets.com  inc. filed for protection under
Chapter 7 of the United States  Bankruptcy  Code during  November 2000 under the
name E-Outlets  Resolution Corp. The trustee for E-Outlets  Resolution Corp. has
notified the Company that he is  contemplating an action against the Company and
the Operating Partnership in which he may assert that E-Outlets Resolution Corp.
was the "alter-ego" of the Company and the Operating  Partnership and that, as a
result,  the Company and the Operating  Partnership  are liable for the debts of
E-Outlets  Resolution  Corp. If the trustee pursues such an action,  the Company
and the Operating  Partnership will defend  themselves  vigorously.  In the case
captioned  Convergys Customer  Management Group, Inc. v. Prime Retail,  Inc. and
primeoutlets.com  inc. in the Court of Common Pleas for Hamilton  County (Ohio),
the  Company  prevailed  in a motion to dismiss the  plaintiff's  claim that the
Company was liable for  primeoutlets.com  inc.'s breach of contract based on the
doctrine of piercing the corporate  veil. The outcome of the eOutlets  Lawsuits,
and the  ultimate  liability  of the  Company in  connection  with the  eOutlets
Lawsuits and related claims, if any, cannot be predicted.

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

Item 2.           Changes in Securities

None

Item 3.           Defaults Upon Senior Securities

The Company is currently in arrears in the payment of distributions on its 10.5%
Series A Senior Cumulative  Preferred Stock ("Senior  Preferred Stock") and 8.5%
Series  B  Cumulative  Participating  Convertible  Preferred  Stock  ("Series  B
Convertible Preferred Stock"). As of September 30, 2001, the aggregate arrearage
on the Senior  Preferred Stock and the Series B Convertible  Preferred Stock was
$11,320 and $31,190, respectively.

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

At the Company's Annual  Shareholders  Meeting held on August 21, 2001,  certain
matters were submitted to the vote of the holders of the Company's  Common Stock
The following summarizes these matters and the results of the voting.

(a)      The proposal to amend the Company's Charter in order to grant the Board
         of  Directors  the  authority  to  effect  a reverse stock split of the
         Company's  Common  Stock  at  a  ratio  of  ten-to-one, and to effect a
         related  reduction  in  the number of authorized shares of Common Stock
         was  approved.  The  votes  cast  with  respect to the proposal were as
         follows:

                  For                       Against           Abstain
                  ---                       -------           -------
                  37,503,609                3,220,638         77,363


(b)      The  three  nominees for Director proposed by the Company were elected.
         The votes cast for the nominees were as follows:

                Name                   For                 Against
                ----                   ---                 -------
                Norman Perlmutter      37,554,030          3,247,580
                Kenneth A. Randall     37,568,182          3,233,428
                Sharon Sharp           37,577,792          3,223,818

(c)      The  proposal  to  ratify  the  selection  of  Ernst & Young LLP as the
         independent  auditors  of the  Company for the year ending December 31,
         2001 was approved. The votes cast  with respect to the proposal were as
         follows:

                  For                       Against           Abstain
                  ---                       -------           -------
                  38,553,442                1,513,801         334,367


Item 5.           Other Information

William P. Dickey, Norman Perlmutter and Robert P. Perlmutter resigned from the
Company's Board of Directors on November 2, 2001.

Item 6.           Exhibits or Reports on Form 8-K

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

         Exhibit 10.44  -  Amended and Restated Guaranty and Indemnity Agreement
         dated  July 31, 2001  by  and  among  Horizon  Group  Properties, Inc.,
         Horizon  Group  Properties, L.P., Prime Retail, Inc., and Prime Retail,
         L.P.

(b)      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, 2001                    /s/ Robert A. Brvenik
      -----------------                    -------------------------------------
                                           Robert A. Brvenik
                                           Executive Vice President,
                                           Chief Financial Officer and Treasurer