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


                                    FORM 10-Q

[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange 
    Act of 1934 for the Quarterly Period Ended March 31, 1997

                                       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   0-23616
                                                  -------

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

         Maryland                                       52-1836258
--------------------------------            ------------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
 incorporation or organization)

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


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

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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such shorter  periods that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

Yes   X           No
     ---             ---

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

As of May 14,  1997,  the issuer  had  outstanding  15,794,951  shares of Common
Stock, $.01 par value per share.


<PAGE>


                               PRIME RETAIL, INC.
                                    FORM 10-Q


                                      INDEX
                                      -----


PART I:  FINANCIAL INFORMATION                                              PAGE
                                                                            ----

ITEM 1.  FINANCIAL STATEMENTS (UNAUDITED)

     Consolidated Balance Sheets as of March 31, 1997 and
     December 31, 1996.                                                       1

     Consolidated Statements of Operations for the three months
     ended March 31, 1997 and 1996.                                           2

     Consolidated Statements of Cash Flows for the three
     months ended March 31, 1997 and 1996.                                    3

     Notes to the Consolidated Financial Statements                           4

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
           CONDITION AND RESULTS OF OPERATIONS                                6


PART II:  OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS                                                    15
ITEM 2.  CHANGES IN SECURITIES                                                15
ITEM 3.  DEFAULTS UPON SENIOR SECURITIES                                      15
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                  15
ITEM 5.  OTHER INFORMATION                                                    15
ITEM 6.  EXHIBITS OR REPORTS ON FORM 8-K                                      15

SIGNATURES                                                                    16


<PAGE>


PART I:  FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS (UNAUDITED)

                                                   PRIME RETAIL, INC.
                                             CONSOLIDATED BALANCE SHEETS
                                        (in thousands, except share information)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                        MARCH 31, 1997             December 31, 1996
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                               <C>                         <C>
ASSETS
Investment in rental property:
     Land                                                                                     $ 52,317                     $ 44,731
     Buildings and improvements                                                                604,729                      570,761
     Property under development                                                                 25,562                       20,900
     Furniture and equipment                                                                     4,466                        4,367
                                                                                              --------                     --------
                                                                                               687,074                      640,759
     Accumulated depreciation                                                                  (63,196)                     (57,674)
                                                                                              --------                     --------
                                                                                               623,878                      583,085
Cash and cash equivalents                                                                       20,082                        3,924
Restricted cash                                                                                 46,419                       45,127
Accounts receivable, net                                                                         7,043                        6,096
Deferred charges, net                                                                           20,069                       20,841
Due from affiliates, net                                                                         1,386                        1,549
Investment in partnerships                                                                       6,076                        5,625
Other assets                                                                                       857                          556
                                                                                              --------                     --------
     Total assets                                                                             $725,810                     $666,803
                                                                                              ========                     ========

LIABILITIES AND SHAREHOLDERS' EQUITY
Bonds payable                                                                                 $ 32,900                     $ 32,900
Notes payable                                                                                  501,509                      466,623
Accrued interest                                                                                 3,701                        3,640
Real estate taxes payable                                                                        3,068                        2,138
Construction costs payable                                                                       2,602                        3,047
Accounts payable and other liabilities                                                          16,943                       19,246
                                                                                              --------                     --------
     Total liabilities                                                                         560,723                      527,594
                                                                                              --------                     --------

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 $57,500), 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 $74,545 and $70,150,  respectively),
       2,981,800 and 2,806,000 shares
       issued and outstanding, respectively                                                         30                           28
Shares of common stock, 75,000,000 shares authorized:
     Common stock, $0.01 par value, 15,794,951 and 13,404,651
       shares issued and outstanding, respectively                                                 158                          134
Additional paid-in capital                                                                     197,250                      165,346
Distributions in excess of net income                                                          (32,374)                     (26,322)
                                                                                              --------                    ---------
     Total shareholders' equity                                                                165,087                      139,209
                                                                                              --------                     --------

     Total liabilities and shareholders' equity                                               $725,810                     $666,803
                                                                                              ========                     ========
====================================================================================================================================
</TABLE>

See accompanying notes to financial statements.


                                      -1-
<PAGE>




                                                  PRIME RETAIL, INC.
                                        CONSOLIDATED STATEMENTS OF OPERATIONS
                                    (in thousands, except per share information)

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
                                                                                            THREE MONTHS ENDED MARCH 31
                                                                                       --------------------------------------
                                                                                               1997                     1996
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                            <C>                      <C>
REVENUES
Base rents                                                                                  $18,066                  $12,744
Percentage rents                                                                                669                      443
Tenant reimbursements                                                                         8,949                    6,139
Income from investment partnerships                                                              38                      441
Interest and other                                                                            2,440                    1,364
                                                                                            -------                  -------
     Total revenues                                                                          30,162                   21,131

EXPENSES
Property operating                                                                            6,633                    4,619
Real estate taxes                                                                             2,390                    1,473
Depreciation and amortization                                                                 6,328                    4,387
Corporate general and administrative                                                          1,350                      893
Interest                                                                                      9,169                    6,056
Other charges                                                                                   799                      646
                                                                                            -------                  -------
     Total expenses                                                                          26,669                   18,074
                                                                                            -------                  -------

INCOME BEFORE MINORITY INTERESTS                                                              3,493                    3,057

(Income) loss allocated to minority interests                                                (2,591)                   1,477
                                                                                            -------                  -------

NET INCOME                                                                                      902                    4,534
Income allocated to preferred shareholders                                                    3,093                    5,236
                                                                                            -------                  -------

NET LOSS APPLICABLE TO COMMON SHARES                                                       $ (2,191)                 $  (702)
                                                                                           ========                  ======= 

NET LOSS PER COMMON SHARE                                                                  $  (0.15)                 $ (0.24)
                                                                                           ========                  ======= 

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING                                                   14,344                    2,875
                                                                                           ========                  ======= 

DISTRIBUTIONS DECLARED PER COMMON SHARE                                                    $  0.295                  $ 0.295
                                                                                           ========                  ======= 
=============================================================================================================================
</TABLE>

See accompanying notes to financial statements.



                                      -2-
<PAGE>



                                                       PRIME RETAIL, INC.
                                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                        (in thousands)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                   THREE MONTHS ENDED MARCH 31
                                                                                               -------------------------------------
                                                                                                       1997                   1996
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                     <C>                    <C>
OPERATING ACTIVITIES
Net income                                                                                         $    902                $ 4,534
Adjustments to reconcile net income to
   net cash provided by operating activities:
      Income (loss) allocated to minority interests                                                   2,591                 (1,477)
      Depreciation and amortization                                                                   6,328                  4,387
      Amortization of deferred financing costs and
        interest rate protection contracts                                                              944                  1,112
      Equity earnings in excess of cash distributions
        from joint ventures                                                                             (38)                  (282)
      Provision for uncollectible accounts receivable                                                   253                    224
Changes in operating assets and liabilities:
      (Increase) decrease in accounts receivable                                                     (1,200)                 1,074
      Decrease in due from affiliates, net                                                              163                     44
      Increase in other assets                                                                       (1,675)                  (224)
      Increase in accrued interest                                                                       61                     87
      Decrease in accounts payable and other liabilities                                             (1,373)                  (260)
                                                                                                  ---------                -------
        Net cash provided by operating activities                                                     6,956                  9,219

INVESTING ACTIVITIES
Purchase of buildings and improvements                                                               (4,782)                (1,779)
Increase in property under development                                                               (5,107)                (9,969)
Acquisition of outlet centers                                                                       (37,658)                     -
                                                                                                   --------                -------
        Cash used in investing activities                                                           (47,547)               (11,748)

FINANCING ACTIVITIES
Net proceeds from issuance of common and preferred stock                                             31,930                      -
Proceeds from notes payable                                                                          58,215                    500
Principal repayments on notes payable                                                               (23,329)                  (434)
Deferred financing fees                                                                                (522)                (1,679)
Distributions and dividends paid                                                                     (6,954)                (6,084)
Distributions to minority interests                                                                  (2,591)                (2,112)
                                                                                                   --------                -------
        Net cash provided by (used in) financing activities                                          56,749                 (9,809)
                                                                                                   --------                --------
Increase (decrease) in cash and cash equivalents                                                     16,158                (12,338)
Cash and cash equivalents at beginning of period                                                      3,924                 14,927
                                                                                                   --------                -------
Cash and cash equivalents at end of period                                                          $20,082                $ 2,589
                                                                                                   ========                =======
====================================================================================================================================
</TABLE>

See accompanying notes to financial statements.




                                      -3-
<PAGE>




                               PRIME RETAIL, INC.
                   NOTES TO 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 generally accepted accounting principles ("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  which may be
expected  for a  full  fiscal  year.  For  further  information,  refer  to  the
consolidated  financial statements and footnotes included in Prime Retail's (the
"Company") annual report on Form 10-K for the year ended December 31, 1996.

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  assets and 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   intercompany  accounts  and  transactions  have  been
eliminated in consolidation.  Certain prior year financial statement amounts and
related footnote  information have been reclassified to conform with the current
year presentation.


NOTE 2 -- RECENTLY ISSUED ACCOUNTING STANDARDS

In February 1997, the Financial  Accounting Standards Board issued Statement No.
128, "Earnings per Share", which is required to be adopted on December 31, 1997.
At that time,  the Company will be required to change the method  currently used
to compute  earnings per share and to restate all prior  periods.  Under the new
requirements  for calculating  basic earnings per share,  the dilutive effect of
stock options will be excluded. The adoption of Statement No. 128 is expected to
have no impact on the Company's primary and fully diluted earnings per share for
the three months ended March 31, 1997 and 1996.






                                      -4-
<PAGE>





NOTE 3 -- MINORITY INTERESTS

Cash  distributions and losses allocated to minority  interests have reduced the
minority  interests  balance to zero.  After  reducing  the  minority  interests
balance to zero,  additional  distributions and losses of $2,335 incurred during
the three months ended March 31, 1997 that were allocable to minority  interests
were allocated to common  shareholders.  The cumulative  amount of distributions
and losses that were  allocable  to minority  interests  that were  allocated to
common  shareholders at March 31, 1997 was $5,792.  There were no  distributions
and losses  allocable  to  minority  interests  which were  allocated  to common
shareholders during the three months ended March 31, 1996.


NOTE 4 -- ACQUISITIONS

On February 7, 1997,  the Company  purchased  an  additional  20.0%  partnership
interest in Oxnard Factory  Outlet from an unrelated  third party for $334. As a
result of this  purchase,  the Company  owns a 50.0%  equity  interest in Oxnard
Factory Outlet.  The remaining 50.0% equity interest is owned by an affiliate of
Fru-Con Projects, Inc.

On February  13,  1997,  the Company  acquired Oak Creek  Factory  Stores,  Bend
Factory  Outlets and Factory Outlets at Post Falls from an unrelated third party
for an aggregate  purchase price of $37,250.  The Company  financed the purchase
with loan proceeds from a financial  institution  and a $4,000  promissory  note
issued to the seller.  The operating results of the Company for the three months
ended March 31, 1997 include the results of these  acquisitions  effective  with
the closing on February 13, 1997.


NOTE 5 -- PUBLIC STOCK OFFERINGS

On February  20,  1997,  the Company  completed a public  offering of its Common
Stock and  Series B  Cumulative  Participating  Convertible  Preferred  Stock by
issuing  2,080,000  shares at $12.50 per share and 175,800  shares at $22.75 per
share, respectively (the "1997 Stock Offering"). In addition, on March 10, 1997,
the underwriter of the 1997 Stock Offering exercised its overallotment option to
purchase  310,300 shares of the Company's Common Stock at $12.50 per share. As a
result of the 1997 Stock Offering,  the Company received net proceeds of $31,930
that  were  used  to (i)  repay  certain  outstanding  indebtedness  aggregating
$26,500,  (ii) to fund  development and construction  activities,  and (iii) for
general corporate purposes.









                                      -5-
<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 Prime Retail,  Inc. (the "Company")  should be read
in conjunction  with the  Consolidated  Financial  Statements and Notes thereto.
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.  Such  forward-looking  statements are subject to certain risks and
uncertainties;  including,  but not limited to, the effects of future  events on
the Company's financial performance;  the risk that the Company may be unable to
finance its planned development activities; risks related to the retail industry
in which the Company's  factory 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
the Company's property  development  activities,  such as the potential for cost
overruns,  delays and the lack of  predictability  with respect to the financial
returns  associated  with these  development  activities;  the risk of potential
increase in market interest rates from current levels; and risks associated with
real estate ownership,  such as the potential adverse impact of changes in local
economic climate on the revenues and the value of the Company's properties.

RESULTS OF OPERATIONS

GENERAL

The Company has grown by developing  and acquiring  factory  outlet  centers and
expanding certain of its existing factory outlet centers. As summarized in TABLE
1, the Company's  factory outlet  portfolio  consisted of twenty-four  operating
factory outlet  centers  totaling  6,138,000  square feet of gross leasable area
("GLA") at March 31,  1997,  compared  to  seventeen  operating  factory  outlet
centers totaling 4,331,000 square feet of GLA at March 31, 1996.

The Company  purchased  three factory outlet centers during the first quarter of
1997,  adding  358,000  square feet of GLA in the  aggregate.  During 1996,  the
Company opened two new factory outlet centers and nine expansions,  and acquired
two  factory  outlet  centers,  adding  1,449,000  square  feet  of  GLA  in the
aggregate. Additionally, the Company purchased its joint venture partner's first
mortgage and 50% partnership interest in Grove City Factory Shops Partnership on
November 1, 1996 and now owns 100% of this  factory  outlet  center with 533,000
square  feet of  GLA.  The  significant  increase  in the  number  of  operating
properties  and  total  GLA at March  31,  1997  compared  to the  portfolio  of
properties  at March 31, 1996,  is  collectively  referred to as the  "Portfolio
Expansion".





                                      -6-
<PAGE>

TABLE 1 -- PORTFOLIO OF PROPERTIES AS OF MARCH 31, 1997

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
                                                                                       GRAND          GLA      PERCENTAGE
FACTORY OUTLET CENTER                                             PHASE         OPENING DATE    (SQ. FT.)      LEASED(12)
-----------------------------------------------------------------------------------------------------------------------------
<S>                        <C>                                       <C>               <C>        <C>                  <C>
Warehouse Row Factory Shops(1)(2)--Chattanooga, Tennessee             I        November 1989       95,000               94%
                                                                     II          August 1993       26,000               94
                                                                                                ---------             ----
                                                                                                  121,000               94

Oak Creek Factory Outlets(3)--Sedona, Arizona                         I          August 1990       82,000               99

San Marcos Factory Shops--San Marcos, Texas                           I          August 1990      177,000              100
                                                                     II          August 1991       67,000               96
                                                                    III          August 1993      117,000               98
                                                                   IIIB        November 1994       20,000               91
                                                                   IIIC        November 1995       35,000              100
                                                                                                ---------             ----
                                                                                                  416,000               98

The Factory Outlets at Post Falls(3)--Post Falls, Idaho               I            July 1991      111,000               84
                                                                     II            July 1992       68,000               95
                                                                                                ---------             ----
                                                                                                  179,000               88

Gulf Coast Factory Shops--Ellenton, Florida                           I         October 1991      187,000               98
                                                                     II          August 1993      123,000              100
                                                                    III         October 1996       30,000              100
                                                                                                ---------             ----
                                                                                                  340,000               99

Triangle Factory Shops--Raleigh-Durham, North Carolina                I         October 1991      181,000               95
                                                                     II            July 1996        6,000              100
                                                                                                ---------             ----
                                                                                                  187,000               95

Coral Isle Factory Shops--Naples/Marco Island, Florida                I        December 1991       94,000              100
                                                                     II        December 1992       32,000              100
                                                                                                ---------             ----
                                                                                                  126,000              100

Castle Rock Factory Shops--Castle Rock, Colorado                      I        November 1992      181,000              100
                                                                     II          August 1993       94,000               99
                                                                    III        November 1993       95,000              100
                                                                                                ---------             ----
                                                                                                  370,000              100

Bend Factory Outlets(3)--Bend Oregon                                  I        December 1992       97,000              100

Ohio Factory Shops--Jeffersonville, Ohio                              I            July 1993      186,000               99
                                                                     II        November 1993      100,000              100
                                                                    IIB        November 1994       13,000              100
                                                                   IIIA          August 1996       35,000               77
                                                                                                ---------             ----
                                                                                                  334,000               97

Gainesville Factory Shops--Gainesville, Texas                         I          August 1993      210,000               87
                                                                     II        November 1994      106,000               89
                                                                                                ---------             ----
                                                                                                  316,000               88

Nebraska Crossing Factory Shops--Gretna, Nebraska                     I         October 1993      192,000              90

Rocky Mountain Factory Stores(4)--Loveland, Colorado                  I             May 1994      139,000              100
                                                                     II        November 1994       50,000              100
                                                                    III             May 1995      114,000              100
                                                                     IV             May 1996       25,000              100
                                                                                                ---------             ----
                                                                                                  328,000              100

Oxnard Factory Outlet(5)--Oxnard, California                          I            June 1994      148,000               89

Grove City Factory Shops(6)--Grove City, Pennsylvania                 I          August 1994      235,000              100
                                                                     II        November 1994       95,000               99
                                                                    III        November 1995       85,000               99
                                                                     IV        November 1996      118,000               89
                                                                                                ---------             ----
                                                                                                  533,000               97
</TABLE>


                                      -7-
<PAGE>

TABLE 1 -- PORTFOLIO OF PROPERTIES AS OF MARCH 31, 1997 (CONTINUED)

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
                                                                                       GRAND          GLA      PERCENTAGE
FACTORY OUTLET CENTER                                             PHASE         OPENING DATE    (SQ. FT.)      LEASED(12)
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>                  <C>       <C>                 <C>
Huntley Factory Shops--Huntley, Illinois                              I          August 1994      192,000               87%
                                                                     II        November 1995       90,000               64
                                                                                                ---------             ----
                                                                                                  282,000               80

Florida Keys Factory Shops--Florida City, Florida                     I       September 1994      208,000               92

Indiana Factory Shops--Daleville, Indiana                             I        November 1994      208,000               94
                                                                    IIA        November 1996       26,000               35
                                                                                                ---------             ----
                                                                                                  234,000               87

Kansas City Factory Outlets(4)--Odessa, Missouri                      I            July 1995      191,000               99
                                                                     II        November 1996      105,000               50
                                                                                                ---------             ----
                                                                                                  296,000               81

Magnolia Bluff Factory Shops(7)--Darien, Georgia                      I            July 1995      238,000               89
                                                                    IIA        November 1995       56,000               69
                                                                    IIB            July 1996       21,000               66
                                                                                                ---------             ----
                                                                                                  315,000               84

Arizona Factory Shops(8)--Phoenix, Arizona                            I       September 1995      217,000               98
                                                                     II       September 1996      109,000               75
                                                                                                ---------             ----
                                                                                                  326,000               91

Gulfport Factory Shops(9)--Gulfport, Mississippi                      I        November 1995      228,000               98
                                                                    IIA        November 1996       40,000               64
                                                                                                ---------             ----
                                                                                                  268,000               93

Buckeye Factory Shops(10)--Burbank, Ohio                              I        November 1996      205,000               89

Carolina Factory Shops--Gaffney, South Carolina                       I        November 1996      235,000               77
                                                                                                ---------             ----

TOTAL FACTORY OUTLET CENTERS(11)                                                                6,138,000               92%
                                                                                                =========             ==== 
=============================================================================================================================
<FN>
Notes:
(1)  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.  Ford
     Motor Credit  Company holds a 35% limited  partnership  interest and the
     Company holds a 65% general partnership interest in the partnership that
     owns Phase II of this property.
(2)  Phase I of this mixed-use  development  includes  154,000 square feet of
     office space and Phase II includes  5,000  square feet of office  space.
     The total office space of 159,000  square feet of GLA is not included in
     this table and such space was 100% leased as of March 31, 1997.
(3)  The Company acquired this factory outlet center on February 13, 1997 from
     an unrelated third party. 
(4)  The Company acquired this factory outlet center on November 1, 1996 from 
     an unrelated  third party.  
(5)  On February 7, 1997, the Company  purchased an additional 20% partnership
     interest  from  a  joint  venture  partner  which increased the Company's 
     ownership interest to 50%.
(6)  On November 1, 1996, the Company  purchased its joint venture  partner's
     50% partnership interest in Grove City Factory Shops Partnership and now
     owns 100% of this factory outlet center.
(7)  The Company  operates this property  pursuant to a long-term lease under
     which it receives the economic benefit of a 100% ownership interest.
(8)  The  Company  owns  50% of  this factory outlet center in a joint venture 
     partnership with an unrelated third party.
(9)  The real  property  on  which  this  outlet  center is located is subject 
     to a long-term  ground  lease.  The Company receives the economic benefit
     of a 100% ownership interest.
(10) The Company owns 75% of this  factory  outlet  center in a joint  venture
     partnership  with an unrelated third party.
(11) The Company also owns  three  community centers containing 424,000 square 
     feet of GLA in the aggregate that were 95% leased as of March 31, 1997.
(12) Fully  executed  leases  as  of March 31, 1997 as a percent of square feet 
     of GLA.
</FN>
</TABLE>


                                      -8-
<PAGE>

COMPARISON  OF THE THREE  MONTHS  ENDED MARCH 31, 1997 
TO THE THREE MONTHS ENDED MARCH 31, 1996

Summary

For the three months ended March 31,  1997,  the Company  reported net income of
$902 on total  revenues of $30,162.  For the three  months ended March 31, 1997,
the net loss  applicable to common  shareholders  was $2,191 or $0.15 per common
share.  For the three  months  ended March 31,  1996,  the Company  reported net
income of $4,534 on total revenues of $21,131. For the same period, the net loss
applicable to common shareholders was $702, or $0.24 per common share.

Revenues

Total  revenues  were $30,162 for the three months ended March 31, 1997 compared
to $21,131 for the three months ended March 31, 1996, an increase of $9,031,  or
42.7%.  Base rents increased  $5,322,  or 41.8%, in 1997 compared to 1996. These
increases  are primarily due to the  Portfolio  Expansion.  Straight-line  rents
(included in base rents) were $125 and $156 for the three months ended March 31,
1997  and  1996,  respectively.  Tenant  reimbursements,   which  represent  the
contractual  recovery from tenants of certain operating  expenses,  increased by
$2,810,  or 45.8%,  during the three  months  ended March 31, 1997 over the same
period in 1996. These increases were primarily due to the Portfolio Expansion.

Income from investment partnerships decreased by $403 for the three months ended
March 31, 1997,  or 91.4%,  to $38 compared to $441 for the same period in 1996.
This  decrease  reflects the Company's  purchase of its joint venture  partner's
first  mortgage  and 50%  partnership  interest  in  Grove  City  Factory  Shops
Partnership  on November 1, 1996.  As a result of its  acquisition,  the Company
owns 100.0% of this factory outlet center and, therefore, commencing November 1,
1996, its operations  are included in the  consolidated  results of the Company.
Prior to November 1, 1996,  the Company  accounted  for its  interest  under the
equity method of accounting. The decrease in income from investment partnerships
in 1997 compared to 1996 was offset, in part, by the openings of Arizona Factory
Shops (Phase  II--September  1996) and Buckeye Factory Shops (Phase  I--November
1996).

Interest and other income  increased by $1,076,  or 78.9%,  to $2,440 during the
three  months  ended March 31,  1997 as compared to $1,364 for the three  months
ended March 31, 1996. The increase  reflects higher interest  income,  temporary
tenant  income,   municipal   assistance   income,   property   development  and
construction  management fees and ancillary  income of $828, $143, $101, $90 and
$5, respectively, partially offset by reduced lease termination income of $91.

Expenses

Property  operating  expenses  increased by $2,014,  or 43.6%, to $6,633 for the
three  months  ended  March 31,  1997  compared to $4,619 for the same period in
1996.  Real estate taxes  increased by $917,  or 62.3%,  to $2,390 for the three
months  ended  March 31,  1997,  from  $1,473 in the same  period for 1996.  The
increases in property operating expenses and real estate taxes are primarily due
to the Portfolio  Expansion.  As shown in TABLE 2, depreciation and amortization
expense  increased  by $1,941,  or 44.2%,  to $6,328 for the three  months ended
March 31,  1997,  compared to $4,387 for 1996.  This  increase  results from the
depreciation and amortization of assets associated with the Portfolio Expansion.



                                      -9-
<PAGE>


TABLE 2 -- COMPONENTS OF DEPRECIATION AND AMORTIZATION EXPENSE

The  components  of  depreciation  and  amortization  expense are  summarized as
follows:

--------------------------------------------------------------------------------
                                                           THREE MONTHS 
                                                           ENDED MARCH 31
                                                     ---------------------------
                                                          1997           1996
--------------------------------------------------------------------------------
Building and improvements                               $3,258         $2,228
Land improvements                                          627            479
Tenant improvements                                      1,827          1,106
Furniture and fixtures                                     202            156
Leasing commissions(1)                                     414            418
                                                        ------         ------
       Total                                            $6,328         $4,387
                                                        ======         ======
================================================================================
Note:
(1)  In accordance  with  generally  accepted  accounting  principles  ("GAAP"),
     leasing  commissions are classified as intangible  assets.  Therefore,  the
     amortization  of  leasing   commissions  is  reported  as  a  component  of
     depreciation and amortization expense.

TABLE 3 -- COMPONENTS OF INTEREST EXPENSE

The components of interest expense are summarized as follows:

--------------------------------------------------------------------------------
                                                           THREE MONTHS 
                                                           ENDED MARCH 31
                                                     ---------------------------
                                                          1997           1996
--------------------------------------------------------------------------------
Interest incurred                                       $9,109         $5,641
Interest capitalized                                      (845)          (613)
Interest earned on interest 
  rate protection contracts                                (39)           (84)
Amortization of deferred financing costs                   608            793
Amortization of interest rate protection contracts         336            319
                                                        ------         ------
       Total                                            $9,169         $6,056
                                                        ======         ======
================================================================================

As shown in TABLE 3, interest  expense for the three months ended March 31, 1997
increased by $3,113,  or 51.4%, to $9,169 compared to $6,056 for the same period
in 1996. This increase  reflects higher interest incurred of $3,468, an increase
in amortization of interest rate protection  contracts of $17 and a reduction in
interest earned on interest rate protection  contracts of $45,  partially offset
by a  decrease  in  amortization  of  deferred  financing  costs  of $185 and an
increase in the amount of interest  capitalized in connection  with  development
projects of $232.

The increase in interest  incurred is primarily  attributable  to an increase of
approximately  $213,379 in the  Company's  average debt  outstanding  during the
three  months  ended  March 31, 1997  compared  to the same period in 1996.  The
weighted  average  interest  rates  were  7.12%  and 7.97% for the 1997 and 1996
periods, respectively.

Other charges  increased by $153,  or 23.7%,  to $799.  This  increase  reflects
higher  marketing costs of $84, a higher  provision for  uncollectible  accounts
receivable of $30 and other miscellaneous charges of $39.

In connection with re-leasing space to new merchants,  the Company incurred $235
and $19 in capital expenditures during the three months ended March 31, 1997 and
1996, respectively.




                                      -10-
<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

SOURCES AND USES OF CASH

For the three  months  ended March 31,  1997,  net cash  provided  by  operating
activities  was $6,956.  Cash used in investing  activities  was $47,547 for the
three months ended March 31, 1997.  The primary use of these funds was for costs
associated  with the completion of factory outlet centers and expansions  opened
during 1996,  costs  associated  with the  acquisition  of three factory  outlet
centers, costs incurred for the purchase of an additional 20% equity interest in
a factory outlet center,  and costs for  pre-development  activities  associated
with future development.  Net cash provided by financing  activities was $56,749
for the three months ended March 31, 1997. The principal  sources of these funds
were the proceeds  from new  borrowings  and the  Company's  public  offering of
certain  stock.  Such  proceeds  were offset by  principal  repayments  on notes
payable of $23,329, distributions to minority interests (including distributions
to the limited  partner unit holders) of $2,591,  and preferred and common stock
distributions of $6,954.

SOURCES AND USES OF CASH -- 1997 PUBLIC OFFERING OF COMMON
STOCK AND CONVERTIBLE PREFERRED STOCK

On February 20, 1997, the Company  completed a public  offering (the "1997 Stock
Offering") by issuing  2,080,000  shares of its Common Stock at $12.50 per share
and 175,800 shares of its  Convertible  Preferred  Stock at $22.75 per share. In
addition,  on  March  10,  1997,  the  underwriter  of the 1997  Stock  Offering
exercised its  overallotment  option to purchase 310,300 shares of the Company's
Common Stock at $12.50 per share.  As a result of the 1997 Stock  Offering,  the
Company  received net  proceeds of $31,930  that were used to (i) repay  certain
outstanding  indebtedness  aggregating  $26,500,  (ii) to fund  development  and
construction activities, and (iii) for general corporate purposes.

On January 10, 1997,  the Company filed a Form S-3  Registration  Statement (the
"Shelf  Registration")  with the Securities and Exchange  Commission to register
$100,000  of the  Company's  equity  securities.  As a result of the 1997  Stock
Offering,  as of March 31, 1997, the Company had $66,122 of  availability  under
the Shelf  Registration.  From time to time,  the Company will consider  issuing
additional  securities  under such Shelf  Registration  for the  development  or
acquisition of additional properties,  the expansion and improvement of existing
properties, and for general corporate purposes.

SOURCES AND USES OF CASH -- PROPERTY ACQUISITIONS

On February 7, 1997,  the Company  purchased  an  additional  20.0%  partnership
interest in Oxnard Factory  Outlet from an unrelated  third party for $334. As a
result of this  purchase,  the Company  owns a 50.0%  equity  interest in Oxnard
Factory Outlet.  The remaining 50.0% equity interest is owned by an affiliate of
Fru-Con Projects, Inc.

On February  13,  1997,  the Company  acquired Oak Creek  Factory  Stores,  Bend
Factory  Outlets and Factory Outlets at Post Falls from an unrelated third party
for an aggregate  purchase price of $37,250.  The Company  financed the purchase
with loan proceeds from a financial  institution  and a $4,000  promissory  note
issued to the seller.  The operating results of the Company for the three months
ended March 31, 1997 include the results of these  acquisitions  effective  with
the closing on February 13, 1997.





                                      -11-
<PAGE>


Oak Creek  Factory  Outlets is located  in  Sedona,  Arizona,  which is north of
Phoenix  and  south of the Grand  Canyon.  Oak Creek  Factory  Outlets  contains
approximately  82,000  square  feet of GLA and was 92.8%  occupied  at March 31,
1997. Bend Factory Outlets is located in Bend, Oregon,  which is east of Eugene,
Oregon and southeast of Portland.  Bend Factory Outlets  contains  approximately
97,000  square feet of GLA and was 100.0%  occupied at March 31,  1997.  Factory
Outlets at Post Falls is located in Post Falls, Idaho, which is 30 miles east of
Spokane,  Washington.  Factory  Outlets  at Post  Falls  contains  approximately
179,000 square feet of GLA and was 88.0% occupied at March 31, 1997.

During 1997, the Company will continue to explore acquisitions of factory outlet
centers in the United States as well as consider possible strategic acquisitions
of other  assets  in the  retail  sector.  The  Company  cannot  predict  if any
transaction  will be  consummated,  nor  the  terms  or  form  of  consideration
required.

PLANNED DEVELOPMENT

Management believes that there is sufficient demand for continued development of
new factory outlet centers and the expansion of certain  existing factory outlet
centers.  The Company expects to open  approximately  250,000 square feet of GLA
during 1997 in connection  with planned  expansions of existing  factory  outlet
centers.  At March 31, 1997, the remaining  budgeted  capital  expenditures  for
these expansions  aggregated  approximately  $27,000,  while anticipated capital
expenditures  related  to the  completion  of new  factory  outlet  centers  and
expansions opened during the year ended December 31, 1996  (aggregating  930,000
square feet of GLA) approximated $10,200.

Management  believes  that  the  Company  has  sufficient  capital  and  capital
commitments to fund the remaining capital expenditures  associated with its 1996
and 1997 development  activities.  These funding requirements are expected to be
met, in large part, with the proceeds from the 1997 Stock Offering, various loan
facilities,   and  joint  venture  partners.  If  adequate  financing  for  such
development  and  expansion  is not  available,  the  Company may not be able to
develop new centers or expand existing centers at currently planned levels.

The Company plans to open new factory outlet centers and expansions in 1998 that
are expected to contain between approximately 600,000 and 700,000 square feet of
GLA,  in the  aggregate,  and have a total  expected  development  cost  ranging
between approximately $78,000 and $91,000,  respectively. The Company expects to
fund the development  cost of its new factory outlet centers and expansions from
(i)  certain  line of credit  facilities,  (ii) joint  venture  partners,  (iii)
retained  cash  flow  from  operations,  (iv)  construction  loans,  and (v) the
potential  sale of common or preferred  equity in the public or private  capital
markets.  There can be no  assurance  that the  Company  will be  successful  in
obtaining the required  amount of equity  capital or debt financing for the 1998
planned openings or that the terms of such capital raising activities will be as
favorable as the Company has experienced in prior periods.

DEBT REPAYMENTS AND PREFERRED STOCK DISTRIBUTIONS AND DIVIDENDS

The Company's aggregate indebtedness was $534,409 and $499,523 at March 31, 1997
and December 31, 1996, respectively.  At March 31, 1997, such indebtedness had a
weighted  average  maturity of 6.8 years and bore interest at a weighted average
interest rate of 7.02% per annum. At March 31, 1997,  $58,317, or 10.9%, of such
indebtedness  bore  interest  at fixed  rates and  $476,092,  or 89.1%,  of such
indebtedness,   including   $28,250  of  tax-exempt   bonds,  bore  interest  at
variable-rates.





                                      -12-
<PAGE>


At March 31,  1997,  the Company  held  interest  rate  protection  contracts on
$28,250 of floating rate tax-exempt  indebtedness and $357,985 of other floating
rate   indebtedness  (or   approximately   81.1%  of  its  total  floating  rate
indebtedness).  These  contracts  expire  in 1999  and  1998,  respectively.  In
addition,  the Company held  additional  interest rate  protection  contracts on
$43,900  of the  $357,985  floating  rate  indebtedness  to  further  reduce the
Company's exposure to increases in interest rates.

The  Company's  ratio of debt to total market  capitalization  at March 31, 1997
(defined as total debt divided by the sum of: (a) the aggregate  market value of
the  outstanding  shares of Common  Stock,  assuming the full exchange of Common
Units into Common  Stock;  (b) the  aggregate  market  value of the  outstanding
shares of Convertible Preferred Stock; (c) the aggregate liquidation  preference
of the Series A Senior Cumulative  Preferred Stock ("Senior Preferred Stock") at
$25.00 per share; and (d) the total debt of the Company) was 54.7%.

The Company is obligated to repay  $25,433 of mortgage  indebtedness  during the
remainder of 1997 and $38,655 in 1998.  Annualized  cumulative  dividends on the
Company's Senior Preferred Stock and Convertible  Preferred Stock after the 1997
Stock Offering are $6,037 and $6,336, respectively.  These dividends are payable
quarterly, in arrears.

The  Company  anticipates  that cash flow from  operations,  together  with cash
available from  borrowings and other sources,  including  proceeds from the 1997
Stock  Offering  and the  potential  sale of common or  preferred  equity in the
public or private  capital  markets,  will be  sufficient  to  satisfy  its debt
service  obligations,   expected  distribution  and  dividend  requirements  and
operating cash needs for the next year.

ECONOMIC CONDITIONS

Substantially  all 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.  Substantially  all 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.  At March 31, 1997, the Company  maintained  interest rate protection
contracts to protect against significant  increases in interest rates on certain
floating  rate   indebtedness   (see  "Debt   Repayments  and  Preferred   Stock
Distributions and Dividends").

The  Company  intends to reduce  operating  and leasing  risks by  managing  its
existing  portfolio of  properties  with the goal of  improving  its tenant mix,
rental rates and lease terms and attracting high fashion,  upscale manufacturers
and national brand-name manufacturers as merchants.

FUNDS FROM OPERATIONS

Management  believes that to facilitate a clear  understanding  of the Company's
operating  results,  funds  from  operations  ("FFO")  should be  considered  in
conjunction  with net income (loss)  presented in accordance  with GAAP.  FFO is
defined as net income  (loss)  (determined  in accordance  with GAAP)  excluding
gains  (or  losses)  from  debt  restructuring  and  sales  of  property,   plus
depreciation and amortization after adjustments for unconsolidated  partnerships
and joint ventures.

In March  1995,  the  National  Association  of Real  Estate  Investment  Trusts
established  guidelines clarifying the definition of FFO (as modified,  the "New
Definition").  The Company reports FFO under both the Old Definition and the New
Definition.  For the Company,  the primary impact of adopting the New Definition
was a reduction  in FFO since the  amortization  of  capitalized  debt costs and
depreciation  of  non-real  estate  assets are not added  back to income  before
allocations to minority interests and preferred shareholders.


                                      -13-
<PAGE>




The Company  generally  considers FFO an appropriate  measure of liquidity of an
equity REIT because industry analysts have accepted it as a performance  measure
of equity  REITs.  FFO as  defined  by  NAREIT  means net  income  (computed  in
accordance with GAAP) excluding  gains (or losses) from debt  restructuring  and
sales of property, plus depreciation and amortization on real estate assets, and
after  adjustments  for  unconsolidated  partnerships  and joint  ventures.  The
Company's  FFO is not  comparable  to FFO  reported  by other  REITs that do not
define  the term using the  current  NAREIT  definition  or that  interpret  the
current NAREIT  definition  differently  than 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 4 provides a  reconciliation  of income  before  allocations  to  minority
interests  and  preferred  shareholders  to  FFO as  calculated  under  the  New
Definition  and the Old Definition for the three months ended March 31, 1997 and
1996. FFO (New Definition)  increased $2,638, or 34.6%, to $10,252 for the three
months  ended March 31, 1997 from  $7,614 for the three  months  ended March 31,
1996. FFO (Old Definition)  increased $2,341, or 26.3%, to $11,255 for the three
months  ended March 31, 1997 from  $8,914 for the three  months  ended March 31,
1996.  These increases are primarily  attributable  to the Portfolio  Expansion,
including the effect of the  acquisition of certain  properties in November 1996
and February 1997.

TABLE 4 -- FUNDS FROM OPERATIONS

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
                                                                                   THREE MONTHS ENDED MARCH 31
------------------------------------------------------------------------------------------------------------------------------
                                                                            1997        1996                1997         1996
                                                                  ------------------------------------------------------------
                                                                           (Old Definition)                  (New Definition)
<S>                                                                         <C>         <C>                <C>           <C>
Income before allocations to minority interests and
  preferred shareholders                                                 $ 3,493      $3,057             $ 3,493       $3,057
FFO adjustments:
  Depreciation and amortization                                            6,328       4,387               6,274        4,231
  Amortization of deferred financing costs and
    interest rate protection contracts                                       944       1,112                   -            -
  Unconsolidated joint venture adjustments                                   490         358                 485          326
                                                                         -------     -------             -------      -------
FFO before allocations to minority interests and
  preferred shareholders                                                 $11,255      $8,914             $10,252       $7,614
                                                                         =======      ======             =======       ======
==============================================================================================================================
</TABLE>


                                      -14-
<PAGE>


PART II:  OTHER INFORMATION


ITEM 1.           LEGAL PROCEEDINGS

                  None

ITEM 2.           CHANGES IN SECURITIES

                  None

ITEM 3.           DEFAULTS UPON SENIOR SECURITIES

                  None

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

                  None

ITEM 5.           OTHER INFORMATION

                  None

ITEM 6.           EXHIBITS OR REPORTS ON FORM 8-K

                  (a)      The following exhibit is included in this Form 10-Q:

                           Exhibit 12.1 -- Ratio of Earnings to Fixed Charges
                           and Preferred Stock Distributions and Dividends

                  (b)      Reports on Form 8-K:

                           On January  30,  1997,  the  Company  filed a Current
                           Report  on Form  8-K/A-2,  dated  November  1,  1996,
                           reporting  that the Company  closed a $428.3  million
                           loan   refinancing,   purchased  two  factory  outlet
                           centers and purchased the remaining interest in Grove
                           City Factory Shops. Pro forma consolidated  financial
                           statements  of the Company and audited  statements of
                           revenue   and  certain   expenses  of  the   acquired
                           properties were filed with this Form 8-K/A-2.

                           On  January 30, 1997, the  Company  filed  a  Current
                           Report on Form 8-K, dated January 30, 1997, reporting
                           its operating  results for  the  fourth   quarter and
                           year ended December 31, 1996. No financial statements
                           were included.

                           On February  13,  1997,  the Company  filed a Current
                           Report  on  Form  8-K,   dated   February  13,  1997,
                           reporting  that the Company  purchased  three factory
                           outlet  centers and an additional  20.0%  interest in
                           Oxnard Factory Outlet.  No financial  statements were
                           included.

                           On February  14,  1997,  the Company  filed a Current
                           Report on Form 8-K,  dated  February 14, 1997,  which
                           included certain documents  relating to the Company's
                           Registration   Statement   on  Form  S-3   (File  No.
                           333-19505). No financial statements were included.


                                      -15-
<PAGE>


                                   SIGNATURES



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




                                                        PRIME RETAIL, INC.
                                                        Registrant



Date: May 14, 1997                                  /s/ Abraham Rosenthal
      --------------------------------              ----------------------
                                                    Abraham Rosenthal
                                                    Chief Executive Officer





Date: May 14, 1997                                  /s/ Robert P. Mulreaney
      --------------------------------              ----------------------
                                                    Robert P. Mulreaney
                                                    Executive Vice President,
                                                      Chief Financial Officer
                                                      and Treasurer




                                      -16-