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, 2003

                                       Or

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

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

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

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


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


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

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

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

        Yes X     No-----

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Exchange Act).  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 12, 2003, the issuer had outstanding  43,577,916 shares of Common
Stock, $.01 par value per share.

<PAGE>
                                   Page - (2)


                               Prime Retail, Inc.
                                    Form 10-Q


                                      INDEX


PART I:  FINANCIAL INFORMATION                                            PAGE
                                                                          ----


Item 1.  Financial Statements (Unaudited)

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

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

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

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

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

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


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

PART II:  OTHER INFORMATION

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

Item 3.  Defaults Upon Senior Securities.............................      51

Item 4.  Submission of Matters to a Vote of Security Holders.........      52

Item 6.  Exhibits and Reports on Form 8-K............................      52

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

<PAGE>
                                   Page - (3)


Introduction

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

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

Forward-Looking Statements

     Statements  contained in this Quarterly Report on Form 10-Q,  including the
section entitled  "Management's  Discussion and Analysis of Financial  Condition
and Results of Operations" contain certain forward-looking statements within the
meaning of the Private  Securities  Litigation Reform Act of 1995, which reflect
management's   current  views  with  respect  to  future  events  and  financial
performance.  In  addition,  we may make  forward-looking  statements  in future
filings with the  Securities and Exchange  Commission  and in written  material,
press   releases   and  oral   statements   issued  by  us  or  on  our  behalf.
Forward-looking  statements include statements regarding the intent,  belief, or
current  expectations of us or our officers,  including  statements preceded by,
followed by, or including  forward-looking  terminology  such as "may,"  "will,"
"should," believe," "expect,"  "anticipate,"  "estimate," "continue," "predict,"
or similar expressions with respect to various matters.

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

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

<PAGE>
                                   Page - (4)


                               PRIME RETAIL, INC.

                      Unaudited Consolidated Balance Sheets

                (Amounts in thousands, except share information)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                             September 30,           December 31,
                                                                                                      2003                   2002
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                              <C>                    <C>
Assets
Investment in rental property:
     Land                                                                                        $  97,893              $ 101,546
     Buildings and improvements                                                                    699,161                740,024
     Furniture and equipment                                                                        11,889                 13,292
                                                                                                 ---------              ---------
                                                                                                   808,943                854,862
     Accumulated depreciation                                                                     (206,693)              (213,604)
                                                                                                 ---------              ---------
                                                                                                   602,250                641,258
Cash and cash equivalents                                                                            7,362                  6,908
Restricted cash                                                                                    109,866                107,037
Accounts receivable, net                                                                             1,093                  3,049
Deferred charges, net                                                                                2,620                  3,766
Investment in unconsolidated joint ventures                                                         49,286                 49,889
Other assets                                                                                         5,990                  6,181
                                                                                                 ---------              ---------
          Total assets                                                                           $ 778,467              $ 818,088
                                                                                                 =========              =========

Liabilities and Shareholders' Equity
Bonds payable                                                                                    $  22,361              $  22,495
Notes payable, including $24,919 in default in 2003                                               488,597                 511,443
Defeased notes payable                                                                              74,046                 74,764
Accrued interest                                                                                     4,327                  3,984
Real estate taxes payable                                                                            5,729                  3,484
Accounts payable and other liabilities                                                              36,987                 43,059
                                                                                                 ---------              ---------
     Total liabilities                                                                             632,047                659,229

Minority interests                                                                                   1,487                  1,487

Shareholders' equity:
  Shares of preferred stock, 24,315,000 shares authorized:
     10.5% Series A Senior Cumulative Preferred Stock,
          $0.01 par value (liquidation preference of $80,895),
          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 $260,163), 7,828,125 shares issued and outstanding                                         78                     78
  Shares of common stock, 150,000,000 shares authorized:
     Common stock, $0.01 par value, 43,577,916 shares
          issued and outstanding                                                                       436                    436
  Additional paid-in capital                                                                       709,373                709,373
  Distributions in excess of earnings                                                             (564,977)              (552,538)
                                                                                                 ---------              ---------
      Total shareholders' equity                                                                   144,933                157,372
                                                                                                 ---------              ---------
          Total liabilities and shareholders' equity                                             $ 778,467              $ 818,088
                                                                                                 =========              =========
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.

<PAGE>
                                   Page - (5)


                               PRIME RETAIL, INC.

                 Unaudited Consolidated Statements of Operations

              (Amounts in thousands, except per share information)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                    Three Months Ended                       Nine Months Ended
                                                                        September 30,                           September 30,
                                                            -------------------------------------   --------------------------------
                                                                     2003                2002               2003               2002
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                              <C>                 <C>                <C>              <C>
Revenues
Base rents                                                       $ 19,001            $ 19,622           $ 55,934         $   66,096
Percentage rents                                                      404                 834              1,853              2,589
Tenant reimbursements                                              10,676              11,424             32,921             36,498
Interest and other                                                  2,892               3,664             10,573              8,737
                                                                 --------            --------           --------         ----------
  Total revenues                                                   32,973              35,544            101,281            113,920

Expenses
Property operating                                                  8,936               9,927             28,184             30,687
Real estate taxes                                                   2,600               2,999              8,392             10,012
Depreciation and amortization                                       6,645               8,229             20,948             27,446
Corporate general and administrative                                5,253               3,366             13,247              9,662
Interest                                                           11,700              13,693             34,929             47,831
Other charges                                                       1,556               1,667              2,979              8,372
Provision for asset impairment                                          -              81,619              6,590             81,619
                                                                 --------            --------           --------         ----------
  Total expenses                                                   36,690             121,500            115,269            215,629
                                                                 --------            --------           --------         ----------
Loss before gain on sale of real estate                            (3,717)            (85,956)           (13,988)          (101,709)
Gain on sale of real estate                                             -                   -                  -              5,802
                                                                 --------            --------           --------         ----------
Loss from continuing operations                                    (3,717)            (85,956)           (13,988)           (95,907)
Discontinued operations, including gains of
  $2,153 on dispositions in 2003 periods,
  respectively, and gains of $17,121 and $9,619
  on dispositions in 2002 periods, respectively                     2,071               2,451              1,549            (16,103)
                                                                 --------            --------           --------         ----------
Net loss                                                           (1,646)            (83,505)           (12,439)          (112,010)
Allocations to preferred shareholders                              (5,668)             (5,668)           (17,004)           (17,004)
                                                                 --------            --------           --------         ----------
Net loss applicable to common shares                             $ (7,314)           $(89,173)          $(29,443)        $ (129,014)
                                                                 ========            ========           ========         ==========

Basic and diluted earnings per common share:
Loss from continuing operations                                  $  (0.22)           $  (2.11)          $ (0.72)         $    (2.59)
Discontinued operations                                              0.05                0.06               0.04              (0.37)
                                                                 --------            --------           --------         ----------
  Net loss                                                       $  (0.17)           $  (2.05)          $ (0.68)         $    (2.96)
                                                                 ========            ========           ========         ==========

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

<PAGE>
                                   Page - (6)


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

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Nine Months Ended September 30,                                                                    2003                    2002
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                           <C>                     <C>
Operating Activities
Loss from continuing operations                                                               $ (13,988)              $ (95,907)
Adjustments to reconcile loss from continuing
  operations to net cash provided by operating activities:
     Gain on sale of real estate                                                                      -                  (5,802)
     Provision for asset impairment                                                               6,590                  81,619
     Equity in earnings of unconsolidated joint ventures                                         (2,273)                    181
     Depreciation and amortization                                                               20,948                  27,446
     Amortization of deferred financing costs                                                     1,251                   4,015
     Amortization of debt premiums                                                               (1,482)                 (1,416)
     Bad debt expense                                                                               972                   2,985
     Discontinued operations                                                                       (341)                  7,873
Changes in operating assets and liabilities:
     Decrease (increase) in accounts receivable                                                   1,127                    (585)
     Increase in restricted cash                                                                 (2,833)                 (3,851)
     Decrease (increase) in other assets                                                            313                  (2,229)
     Decrease in accounts payable and other liabilities                                          (6,070)                   (764)
     Increase in real estate taxes payable                                                        2,559                   2,628
     Increase in accrued interest                                                                   854                     233
                                                                                              ---------               ---------
       Net cash provided by operating activities                                                  7,627                  16,426
                                                                                              ---------               ---------

Investing Activities
Additions to investment in rental property                                                       (5,631)                 (4,127)
Distributions from unconsolidated joint ventures                                                  2,876                       -
Proceeds from sales of operating properties and land                                              1,085                  22,320
                                                                                              ---------               ---------
       Net cash provided by (used in) investing activities                                       (1,670)                 18,193
                                                                                              ---------               ---------

Financing Activities
Principal repayments on notes payable                                                            (5,503)                (36,117)
                                                                                              ---------               ---------
       Cash used in financing activities                                                         (5,503)                (36,117)
                                                                                              ---------               ---------

Increase (decrease) in cash and cash equivalents                                                    454                  (1,498)
Cash and cash equivalents at beginning of period                                                  6,908                   7,537
                                                                                              ---------               ---------
Cash and cash equivalents at end of period                                                    $   7,362               $   6,039
                                                                                              =========               =========
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.

<PAGE>
                                   Page - (7)


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


Supplemental Disclosure of Non-cash Investing and Financing Activities

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

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Nine Months Ended September 30,                                                                 2003                     2002
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                         <C>                     <C>
Book value of net assets disposed                                                           $ 14,490                $ 269,381
Notes payable paid                                                                                 -                 (147,845)
Notes payable assumed by buyer                                                                     -                  (46,862)
Notes payable transferred to lender                                                          (16,643)                 (58,685)
Accounts payable and other liabilities                                                             -                   17,237
Investment in unconsolidated joint ventures                                                        -                  (26,327)
Discontinued operations - net gain on disposals                                                2,153                    9,619
Gain on sale of real estate, net                                                                   -                    5,802
                                                                                            --------                ---------
  Cash received, net                                                                        $      -                $  22,320
                                                                                            ========                =========
====================================================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>
                                   Page - (8)


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


Note 1 - Interim Financial Presentation

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

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

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

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

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

Note 2 - Recent Accounting Pronouncements

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

<PAGE>
                                   Page - (9)


     In January  2003,  the FASB issued FIN No. 46,  "Consolidation  of Variable
Interest  Entities."  FIN No. 46 requires the  consolidation  of an entity by an
enterprise  (i) if that  enterprise,  known as a  "primary  beneficiary",  has a
variable interest that will absorb a majority of the entity's expected losses if
they occur, receive a majority of the entity's expected residual returns if they
occur, or both and (ii) if the entity is a variable  interest entity, as defined
by FIN No. 46. We did not create any variable  interest entities during the nine
months  ended  September  30,  2003.  We plan to adopt FIN No. 46 in the  fourth
quarter of 2003 and do not believe that this  adoption  will have a  significant
impact  on  our   financial   statements   for  our  existing   investments   in
unconsolidated joint ventures.

     In May 2003, the FASB issued FAS No 150,  "Accounting for Certain Financial
Instruments  with  Characteristics  of both Liabilities and Equity." FAS No. 150
establishes  standards  for  how  an  issuer  classifies  and  measures  certain
financial  instruments with  characteristics  of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some  circumstances).  Many of these  instruments
were  previously  classified  as equity.  In October  2003,  the FASB decided to
indefinitely  delay the effective  date of the provisions of FAS No. 150 related
to finite life entities and also  indicated that it may modify other guidance in
FAS No. 150. In its original  form, we did not  anticipate  FAS No. 150 having a
significant  impact on our financial  statements.  However,  that assessment may
change if the FASB modifies the guidance in FAS No. 150.

Note 3 - Property Dispositions

     We disposed of 17 and 2 properties through various transactions  (including
sale, joint venture  arrangements,  foreclosure and transfer of ownership to the
respective  lender)  during 2002 and 2003. In  accordance  with FAS No. 144, the
operating  results of these  properties are reflected in either our results from
continuing operations or discontinued operations through the respective dates of
disposition as discussed below.

2002 Dispositions

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

          The following table summarizes these dispositions.

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

     We have  classified  the  operating  results,  including  gains and  losses
related to  disposition,  for  certain  properties  disposed  of during  2002 as
discontinued  operations in the  Consolidated  Statements of Operations  through
their respective dates of disposition.

<PAGE>
                                  Page - (10)


        The following table summarizes these dispositions.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                              Gain/(Loss)  Provision
                              Date of                                        Sales    Reduction      Net      on Sale/     for Asset
Discontinued Operations:    Disposition        Property Type       GLA       Price     of Debt     Proceeds   Disposition Impairment
------------------------------------------------------------------------------------------------------------------------------------
<S>                                  <C>       <C>                <C>      <C>       <C>            <C>        <C>         <C>
Conroe Center                January 2002      1 Outlet Center    282,000  $      -  $(15,621.00)   $(554.00)  $      -    $      -
Edinburgh Center               April 2002      1 Outlet Center    305,000    27,000      (16,317)      9,551     (9,623)          -
Western Plaza                   June 2002   1 Community Center    205,000     9,500       (9,467)        688      2,121           -
Jeffersonville II             August 2002      1 Outlet Center    314,000         -      (17,938)          -     17,121           -
Vero Beach                 September 2002      1 Outlet Center    326,000         -      (25,126)          -          -      12,200
Melrose Place                October 2002   1 Community Center     27,000     2,500       (1,935)        555        990           -
Puerto Rico Center          December 2002      1 Outlet Center    176,000    36,500      (19,202)     13,958          -      15,557
Colorado Properties         December 2002     2 Outlet Centers    808,000    96,000      (74,849)     12,628     15,543           -
                                                                --------- ---------  -----------    --------   --------    ---------
  Total                                                         2,443,000 $ 171,500  $  (180,455)   $ 36,826   $ 26,152    $ 27,757
                                                                ========= =========  ===========    ========   ========    =========
====================================================================================================================================
</TABLE>

2003 Dispositions

Latham Center

     On March 31, 2003,  PFP Venture LLC (the "PFP  Venture"),  a joint  venture
partnership in which we indirectly have an ownership  interest of  approximately
26.4% as of September  30, 2003,  completed  the sale of Prime Outlets at Latham
(the "Latham Center"),  an outlet center located in Latham, New York. The Latham
Center, which was one of the Bridge Properties,  was sold to 400 Old Loudon Road
Realty,  LLC for cash  consideration  of $2,200.  The net cash proceeds from the
sale were $184, after (i) repayment of $1,870 of existing mortgage  indebtedness
on the  Bridge  Properties  and (ii)  prorations,  closing  costs and  fees.  In
connection with the sale of the Latham Center,  the PFP Venture  recorded a gain
on the sale of real estate of $117 during the first  quarter of 2003. We account
for our investment in the Bridge Properties in accordance with the equity method
of accounting.

Woodbury Center

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

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

     Effective July 24, 2003, John Hancock foreclosed on the Woodbury Center and
its  related  assets  and  liabilities,  including  our  carrying  value  of the
indebtedness of $16,643  (principal of $16,331 and  unamortized  debt premium of
$312) were  transferred to John Hancock.  In connection  with the foreclosure of
the Woodbury Center, we recorded a non-recurring  gain on disposition  (included
in  discontinued  operations) of $2,153.  Foreclosure on the Woodbury Center did
not have a material impact on our results of operations or financial condition.

     The operating results of the Woodbury Center are classified as discontinued
operations in the  Consolidated  Statements  of  Operations  through the date of
disposition for all periods.

<PAGE>
                                  Page - (11)


        The following table summarizes the operating results of all properties
classified as discontinued operations in the Consolidated Statements of
Operations.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                  Three Months Ended                                   Nine Months Ended
                                                    September 30,                                        September 30,
                                         ------------------------------------------      ------------------------------------------
                                                 2003                    2002                       2003                   2002
------------------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>                     <C>                        <C>                    <C>
Revenues
Base rents                                   $    77                 $ 4,670                      $ 672                  $ 16,539
Percentage rents                                   -                     139                          1                       514
Tenant reimbursements                             60                   2,644                        589                     8,601
Interest and other                                 6                     192                         42                       744
                                             -------                 -------                    -------                ----------
  Total revenues                                 143                   7,645                      1,304                    26,398

Expenses
Property operating                                79                   2,093                        537                     6,598
Real estate taxes                                 36                     901                        314                     3,155
Depreciation and amortization                     31                   1,561                        289                     5,514
Interest                                          73                   2,363                        644                     8,760
Other charges                                      6                    (160)                       124                       336
Provision for asset impairment                     -                  15,557                          -                    27,757
                                             -------                 -------                    -------                ----------
  Total expenses                                 225                  22,315                      1,908                    52,120
                                             -------                 -------                    -------                ----------
Loss before gain on                              (82)                (14,670)                      (604)                  (25,722)
  sale of real estate
Gain on sale of real estate                    2,153                  17,121                      2,153                     9,619
                                             -------                 -------                    -------                ----------
Discontinued operations                      $ 2,071                 $ 2,451                    $ 1,549                $  (16,103)
                                             =======                 =======                    =======                ==========
====================================================================================================================================
</TABLE>

Note 4 - Debt

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

<PAGE>
                                  Page - (12)


     Notes payable included unamortized debt premiums of $6,091 in the aggregate
at September 30, 2003.  Our debt premiums are being  amortized over the terms of
the related debt  instruments in accordance with the effective  interest method.
Amortization of debt premiums  (included in interest expense in the Consolidated
Statements  of  Operations)  was $499 and $1,482  for the three and nine  months
ended  September 30, 2003,  respectively,  and $478 and $1,416 for the three and
nine months ended September 30, 2002, respectively.

Defaults on Certain Non-recourse Mortgage Indebtedness

     In December 2002, we notified the servicer of certain non-recourse mortgage
loans  (cross-collateralized  by Prime  Outlets at Bend,  Prime  Outlets at Post
Falls and Prime  Outlets at Sedona)  totaling  $24,919 as of September  30, 2003
that the net cash flow from the properties  securing the loans was  insufficient
to fully pay the required  monthly debt  service.  At that time,  certain of our
subsidiaries  suspended the regularly  scheduled  monthly debt service payments.
Subsequent  to our  notification  to the servicer,  we have been  remitting on a
monthly basis all available cash flow from the  properties,  after a reserve for
monthly operating expenses,  as partial payment of the debt service. The failure
to pay the full amount due constitutes a default under the loan agreements which
allows  the  lender to  accelerate  the loan and to  exercise  various  remedies
contained in the loan  agreements,  including  application of escrow balances to
delinquent  payments  and,  ultimately,  foreclosure  on  the  properties  which
collateralize  the loans. The lender has notified us that it has accelerated the
loans and intends to acquire the properties  through a foreclosure action on the
collateral  properties  unless the parties can  negotiate a mutually  acceptable
transfer of the properties to the lender. However, any foreclosure action on, or
other transfer of, these properties is not expected to have a material impact on
our results of operations or financial  condition  because we are currently only
remitting  available cash flow. The aggregate carrying value of these properties
was $21,415 as of September  30, 2003.  Such amount is exceeded by the aggregate
outstanding  balance  of  the  non-recourse  mortgage  loans  of  $24,919  as of
September 30, 2003. Upon  foreclosure or transfer of the collateral  properties,
we will record a  non-recurring  gain for the  difference  between the  carrying
value of the properties and their related net asset,  including the  outstanding
loan balances.

Defeased Notes Payable

     On December 6, 2002, we completed the sale of two outlet centers (together,
the "Colorado  Properties"),  which were part of the 15 properties  contained in
the collateral pool securing a first mortgage and expansion loan (the "Mega Deal
Loan"), which had a then outstanding balance of $338,940. In connection with the
release of the Colorado Properties from the collateral pool, we were required to
partially  defease  the  Mega  Deal  Loan.  Therefore,  the Mega  Deal  Loan was
bifurcated  into (i) a defeased  portion in the amount of $74,849 (the "Defeased
Notes Payable") and (ii) an undefeased portion in the amount of $264,091,  which
is still referred to as the Mega Deal Loan.  Both the Defeased Notes Payable and
the Mega Deal Loan (i) bore  interest at a fixed-rate  of 7.782%  through  their
optional prepayment date of November 11, 2003 and (ii) required monthly payments
of principal and interest pursuant to a 30-year amortization  schedule. The Mega
Deal Loan is secured by the remaining 13 properties  contained in the collateral
pool.

     We used  $79,257  of the  gross  proceeds  from  the  sale of the  Colorado
Properties  to  purchase  US  Treasury  Securities  with a par value of $78,277,
including  accrued  interest of $226. The US Treasury  Securities were deposited
into an escrow  account  controlled  by a trustee (the  "Trustee  Escrow").  The
Trustee Escrow was used to pay all scheduled  debt service,  including a balloon
payment of $73,882 on November 11, 2003,  due under the Defeased  Notes Payable.
The $980  premium we paid for the US  Treasury  Securities  was  amortized  as a
reduction to the interest  income  (included in interest and other income in the
Consolidated  Statements of  Operations)  earned on the Trustee  Escrow on basis
that approximated the effective interest method.

<PAGE>
                                  Page - (13)


     As of September 30, 2003,  the  outstanding  balance of the Defeased  Notes
Payable was $74,046 and the balance of the Trustee Escrow was $74,103  (included
in restricted  cash in the  Consolidated  Balance  Sheet).  As stated above,  on
November  11,  2003,  the  Defeased  Notes  Payable  was repaid in full with the
remaining funds in the Trustee Escrow.

     Furthermore,  in  connection  with the partial  defeasance of the Mega Deal
Loan we  amended  the Mega  Deal  Loan so that (i) we were  required  to fund 10
monthly  payments of $500 (an  aggregate of $5,000)  into a lender  escrow to be
used as additional  cash collateral and (ii) release prices for the remaining 13
properties  in the  collateral  pool were  amended to provide for a more orderly
refinancing  of the Mega Deal Loan.  As of  September  30, the  additional  cash
collateral  had been fully  funded and is  included  in  restricted  cash in the
Consolidated Balance Sheet.

Debt Service Obligations

     The following table  summarizes (A) the scheduled  principal  maturities of
our debt,  excluding (i)  unamortized  debt premiums of $6,091,  (ii) $24,919 of
aggregate  non-recourse  mortgage  indebtedness  in default  (see  "Defaults  on
Certain Non-recourse Mortgage  Indebtedness" above) and (iii) the Defeased Notes
Payable of $74,046, which was paid in full on November 11, 2003 (see above), and
(B) the related  average  contractual  interest  rates by year of maturity as of
September 30, 2003.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                            Bonds Payable
                                  (including sinking fund payments)        Notes Payable                       Total Debt
                                -----------------------------------  ------------------------     ----------------------------------
                                    Average                            Average                         Average
                                   Interest      Principal            Interest     Principal           Interest         Principal
Years Ended December 31,            Rates        Maturities            Rates       Maturities           Rates          Maturities
------------------------------------------------------------------------------------------------------------------------------------
<C>                                 <C>          <C>                   <C>        <C>                   <C>             <C>
2003                                6.79%        $    546              7.78%      $ 262,008             7.78%           $ 262,554
2004                                6.34%             726              7.97%          4,571             7.75%               5,297
2005                                6.34%             773              8.58%         11,574             8.44%              12,347
2006                                6.34%             820              8.83%        120,437             8.81%             121,257
2007                                6.34%             878              7.60%          1,002             7.02%               1,880
Thereafter                          6.52%          18,618              7.59%         57,995             7.33%              76,613
                                    ----         --------              ----       ---------             ----            ---------
                                    6.50%        $ 22,361              8.06%      $ 457,587             7.98%           $ 479,948
                                    ====         ========              ====       =========             ====            =========
====================================================================================================================================
</TABLE>

     Such indebtedness in the amount of $479,948 had a weighted-average maturity
of 2.1 years and bore contractual  interest at a weighted-average  rate of 7.98%
per annum.  At September  30, 2003,  all of such  indebtedness  bore interest at
fixed rates.  Our remaining  scheduled  principal  payments during 2003 for such
indebtedness  aggregated  $262,555,  which includes $261,259 related to the Mega
Deal Loan. See "Going Concern" for additional information.

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

<PAGE>
                                  Page - (14)


Defaults  on  Certain  Non-recourse   Mortgage  Indebtedness  of  Unconsolidated
Partnerships

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

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

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

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

Guarantees and Guarantees of Indebtedness of Others

HGP Guarantees

     On July 15, 2002, Horizon Group Properties, Inc. and its affiliates ("HGP")
announced they had refinanced a secured credit facility (the "HGP Secured Credit
Facility")  through  a series  of new loans  aggregating  $32,500.  Prior to the
refinancing,  we were a guarantor  under the HGP Secured Credit  Facility in the
amount of $10,000. In connection with the refinancing, our guarantee was reduced
to a maximum  of  $4,000 as  security  for a $3,000  mortgage  loan and a $4,000
mortgage loan  (collectively,  the "HGP Monroe  Mortgage Loan") secured by HGP's
outlet shopping center located in Monroe,  Michigan. In the event the HGP Monroe
Mortgage  Loan  was  reduced  to  $5,000  or less  through  repayments  then our
guarantee  would be  extinguished.  In August 2003, HGP repaid $2,000 of the HGP
Mortgage Loan and our guarantee obligation was satisfied.

     Additionally,  we  were  a  guarantor  with  respect  to  certain  mortgage
indebtedness  (the "HGP Office  Building  Mortgage")  in the amount of $2,129 on
HGP's corporate office building and related  equipment located in Norton Shores,
Michigan.  However,  the HGP Office  Building  Mortgage was refinanced in August
2003 and our guarantee obligation was, thus removed.

<PAGE>
                                  Page - (15)


Prime/Estein Venture Guarantees

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

     In August 2001, we, through affiliates,  completed a refinancing of $63,000
of first  mortgage loans secured by the Birch Run Center.  The  refinanced  loan
(the "Birch Run First Mortgage") (i) has a term of 10-years, (ii) bears interest
at an effective rate of 8.12% and (iii) requires  monthly  payments of principal
and  interest  pursuant  to a 25-year  amortization  schedule.  Pursuant  to the
Interest  Rate Subsidy  Agreement,  we are  required to pay to the  Prime/Estein
Venture the  difference  between the cost of the financing at an assumed rate of
7.75% and the actual  cost of such  financing  at the annual  rate of 8.12% (the
"Interest Rate Subsidy Obligation").  The net present value of the Interest Rate
Subsidy  Obligation  (included in accounts payable and other  liabilities in the
Consolidated Balance Sheet) was $1,354 as of September 30, 2003.

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

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

<PAGE>
                                  Page - (16)


Second Horizon First Mortgage Loan

     In  April  1998,  Horizon  consummated  an  agreement  with  Castle & Cooke
Properties,  Inc. ("CCP") which released Horizon from future obligations under a
long-term  lease of the Dole  Cannery  outlet  center in  Honolulu,  Hawaii.  In
connection  with an amendment of the Second  Horizon Group  Limited  Partnership
("Second  Horizon")  agreement (the "Amended  Partnership  Agreement"),  Horizon
transferred to an affiliate of CCP (the "CCP  Affiliate")  substantially  all of
Horizon's economic interest, but not legal title, in an outlet center (the "Lake
Elsinore Center") in Lake Elsinore,  California. The Lake Elsinore Center is one
of five properties  owned by Second Horizon which jointly and severally secure a
non-recourse,  first mortgage loan (the "Second Horizon  Mortgage  Loan").  As a
result of our merger with Horizon in June 1998, we own the economic interests of
the other four properties (the "Prime  Properties")  and legal title to all five
entities.  The  outstanding  balance of the Second  Horizon  Mortgage Loan as of
September  30, 2003 was  $94,586,  of which  $66,330 was  allocated to the Prime
Properties and is included in notes payable in our Consolidated Balance Sheet as
of that date.  The remaining  $28,034  outstanding  as of September 30, 2003 was
allocated to the Lake Elsinore Center.

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

Mandatory Redemption Obligation

     On July 26, 2002,  we sold the Bridge  Properties  to the PFP  Venture.  In
connection  with the  sale,  we  guaranteed  FRIT  PRT  Bridge  Acquisition  LLC
("FRIT"),  a third-party joint venture partner,  (i) a 13% return on its initial
$17,236 of invested  capital and (ii) the full  return of its  invested  capital
(the  "Mandatory  Redemption  Obligation") by December 31, 2003. As of September
30, 2003, our Mandatory Redemption Obligation with respect to the full return of
FRIT's  invested  capital was $14,489  (included  in accounts  payable and other
liabilities  in  the  Consolidated  Balance  Sheet).  See  "Going  Concern"  for
additional information.

Going Concern

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

<PAGE>
                                  Page - (17)


     As of September 30, 2003, our Mega Deal Loan had an  outstanding  principal
balance  of  $261,259.  The Mega Deal Loan had an  optional  prepayment  date of
November 11, 2003 and an outstanding principal balance of $260,681 on such date.
As discussed below,  certain  restrictions have been placed upon us with respect
to  refinancing  the Mega Deal  Loan.  The Mega Deal Loan was not  repaid on the
optional prepayment date and as a result the interest rate shall be increased by
up to 5.0% to 12.782%. Additionally,  commencing on November 11, 2003 the lender
may retain all excess  cash flow from the 13  properties  which  secure the Mega
Deal  Loan.  Any  excess  cash flow  retained  by the  lender  can be applied to
principal  after payment of interest.  The  aforementioned  increase in the Mega
Deal Loan's interest rate and the potential loss of excess cash flow from the 13
properties could have severe consequences on our ability to fund our operations.

     We currently  believe a shortfall  could occur with respect to  refinancing
the Mega Deal Loan because we may be unable to place  mortgage  indebtedness  at
commercially reasonable terms on all of the properties in the current collateral
pool. We are actively  marketing for sale several of the  collateral  properties
because their sale could  alleviate some or all of any potential  shortfall.  We
also  continue  to  evaluate  other  capital  raising  activities,  such  as the
placement of mezzanine  level debt on certain of the collateral  properties.  We
caution  that  our  assumptions  regarding  the  refinancing  and  sale  of  the
collateral properties are based on current market conditions and, therefore, are
subject to  various  risks and  uncertainties,  including  changes  in  economic
conditions  which may  adversely  impact our ability to refinance  the Mega Deal
Loan at  favorable  rates or in a timely  and  orderly  fashion  and  which  may
adversely impact our ability to consummate  various asset sales or other capital
raising activities.

     On July 8, 2003, an affiliate of The Lightstone  Group, LLC  ("Lightstone")
and the  Company  entered  into a  merger  agreement  (the  "Merger  Agreement")
pursuant to which the Company would be acquired by such  affiliate (the "Merger"
or  the  "Transaction").  (See  Note  10 -  "Merger  Agreement"  for  additional
information.) In connection with the execution of the Merger Agreement,  certain
restrictions  were placed on us with respect to the refinancing of the Mega Deal
Loan.  Specifically,  we were  restricted  from  negotiating  or discussing  the
refinancing of the properties securing the Mega Deal Loan with any lenders until
September 15, 2003, at which time we were  permitted to discuss  refinancing  of
the Mega Deal Loan with certain enumerated  lenders.  However,  we are precluded
from closing any loans  relating to the  refinancing of the Mega Deal Loan until
January  11,  2004.  Lightstone  is  obligated  to (i) pay (A)  one-half  of the
additional  interest  incurred by us between  November 11, 2003 and December 31,
2003, and (B) all of the additional  interest  incurred by us between January 1,
2004 and January  11, 2004 with  respect to the Mega Deal Loan and (ii) loan us,
at a rate of 7% and for a term of not less than one year, an amount equal to any
excess cash flow retained by the lender and applied to principal  under the Mega
Deal Loan commencing on November 11, 2003 and through January 11, 2004.

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

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

<PAGE>
                                  Page - (18)


     In connection  with the completion of the sale of the Bridge  Properties in
July 2002,  we  guaranteed  to FRIT (i) a 13% return on its  $17,236 of invested
capital,  and (ii) the full return of the  Mandatory  Redemption  Obligation  by
December 31, 2003. As of September 30, 2003, the Mandatory Redemption Obligation
(included in accounts payable and other liabilities in the Consolidated Balance
Sheet) was $14,489.

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

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

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

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

Note 5 - Shareholders' Equity

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

<PAGE>
                                  Page - (19)


     Our policy  remains to pay  distributions  only to the extent  necessary to
maintain our status as a REIT for federal  income tax purposes.  During 2002, we
were not required to pay any  distributions in order to maintain our status as a
REIT and based on our current federal income tax  projections,  we do not expect
to pay any distributions during 2003. On November 15, 2003 we will be in arrears
on 16 quarters of preferred  stock  distributions  due February 15, 2000 through
November 15, 2003, respectively.

     We may not make distributions to our common  shareholders or our holders of
common  units of limited  partnership  interests  in the  Operating  Partnership
unless  we  are  current  with  respect  to   distributions   to  our  preferred
shareholders.  As of  September  30,  2003,  unpaid  dividends  for  the  period
beginning on November 16, 1999 through September 30, 2003 on our Series A Senior
Cumulative  Preferred  Stock  ("Series A Senior  Preferred  Stock") and Series B
Cumulative  Convertible  Participating  Preferred  Stock  ("Series B Convertible
Preferred Stock") aggregated $23,395 and $64,460,  respectively.  The annualized
dividends  on our  2,300,000  shares  of  Series A Senior  Preferred  Stock  and
7,828,125  shares of Series B  Convertible  Preferred  Stock  outstanding  as of
September 30, 2003 are $6,037 ($2.625 per share) and $16,635 ($2.125 per share),
respectively.

Note 6 - Legal Proceedings

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

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

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

<PAGE>
                                  Page - (20)


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

     Several entities (the "eOutlets  Plaintiffs")  filed or stated an intention
to file  lawsuits  (collectively,  the "eOutlets  Lawsuits")  against us and our
affiliates  arising out of our on-line  venture,  primeoutlets.com.  inc.,  also
known as  eOutlets,  an  affiliate  of ours.  primeoutlets.com,  inc.  filed for
protection  under Chapter 7 of the United States  Bankruptcy Code in November of
2000 under the name E-Outlets  Resolution  Corp.  (the  "Debtor").  The eOutlets
Plaintiffs sought to hold us and our affiliates  responsible under various legal
theories for  liabilities  incurred by  primeoutlets.com,  inc.,  including  the
theories that we  guaranteed  the  obligations  of eOutlets and that we were the
"alter-ego"  of  eOutlets.  Other  than the suit filed on  November  5, 2002 and
discussed  below,  these eOutlets  Lawsuits against us have been resolved or are
now barred by the applicable statute of limitations or otherwise. On November 5,
2002, the  bankruptcy  trustee for the Debtor brought suit against Prime Retail,
L.P.,  Prime  Retail,  Inc.,  and Prime  Retail  E-Commerce,  Inc.  (the "Entity
Defendants")  and  certain  former  directors  of the  Debtor  (the  "Individual
Defendants").  Motions to dismiss  the suit were filed by all  Defendants  and a
hearing  was held on  September  23,  2003.  After the  hearing,  the  Trustee's
remaining  claims involve  promissory  estoppel,  breach of contract,  breach of
fiduciary duty, tortious  interference with prospective business advantage,  and
preferences  against the Entity  Defendants,  and breach of  fiduciary  duty and
gross negligence against the individual  defendants.  We have tendered the suit,
both as to the Entity  Defendants and Individual  Defendants,  to the Directors'
and Officers'  insurance  carrier.  All  Defendants  believe the suit is without
merit and plan on defending  it  vigorously.  Nevertheless,  the outcome of this
lawsuit,  and the ultimate  liability of us, if any, cannot be predicted at this
time.

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

<PAGE>
                                  Page - (21)


     On August 29, 2003, the Company received notice of a purported class action
lawsuit  against the Company,  the Company's  board of directors,  Prime Outlets
Acquisition   Company,   LLC  and  The  Lightstone  Group,  LLC   (collectively,
"Lightstone")  filed  by four  related  series  A  preferred  stockholders  (the
"Plaintiffs"),  in the Circuit Court for Baltimore City,  Maryland (the "Court")
on August 12, 2003  concerning  the Merger.  The  lawsuit  alleges,  among other
things,  that  the  Company's  directors  breached  their  fiduciary  duties  in
approving the Merger, that the consideration  payable in respect of the series A
preferred stock is unfair and inadequate and that the information made available
by the Company in connection with the  transaction is deficient.  The plaintiffs
sought,  among other things,  that the  transaction  contemplated  by the Merger
Agreement be enjoined or, in the event such transaction is consummated,  that it
be rescinded and damages be awarded to class members. On September 29, 2003, the
defendants  filed a motion to dismiss the original  complaint.  In response,  on
October 8, 2003,  the  Plaintiffs  filed a Verified  First  Amended Class Action
Complaint  along  with  a  motion  for  expedited   proceedings  and  subsequent
preliminary  injunction  hearing.  After  a  court  conference,  the  Plaintiffs
converted  their motion for a  preliminary  injunction  into one for a temporary
restraining  order  seeking to enjoin the special  meeting for and the scheduled
vote on the transaction.  The Court held a hearing on the defendants'  motion to
dismiss  and the motion for  temporary  restraining  order on October 24 and 28,
2003. On October 28, 2003, the Plaintiffs  announced that they were  withdrawing
their request for injunctive  relief,  and would not seek to prevent the special
meeting from occurring.  The Court ruled that it would dismiss the First Amended
Complaint, but allow the Plaintiffs 30 days to file a second amended complaint.

Note 7 - Investment in Unconsolidated Partnerships

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

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

     Our equity in earnings of  unconsolidated  joint venture  partnerships  was
$521 and $2,273  during the three and nine  months  ended  September  30,  2003,
respectively,  and $255 and  $(181)  during  the  three  and nine  months  ended
September 30, 2002, respectively. Our equity in earnings of unconsolidated joint
venture   partnerships   is  included  in  interest  and  other  income  in  the
Consolidated Statements of Operations.

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

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                 Three Months Ended                       Nine Months Ended
                                                                     September 30,                           September 30,
                                                        ----------------------------------      ---------------------------------
                                                              2003                2002                2003                2002
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>                 <C>                 <C>                 <C>
Total revenues                                             $ 14,599            $ 12,945            $ 43,791            $ 30,753
Total expenses                                               12,705              10,892              38,323              28,298
                                                           --------            --------            --------            --------
  Net income                                               $  1,894            $  2,053            $  5,468            $  2,455
                                                           ========            ========            ========            ========
====================================================================================================================================
</TABLE>
<PAGE>
                                  Page - (22)


Note 8 - Stock-Based Compensation

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

     Pro-forma  information  regarding  net  income  and  earnings  per share is
required by FAS No. 123, "Accounting for Stock-Based Compensation," and has been
determined  as if we had  accounted  for our stock  compensation  under the fair
value method of that  statement.  Under the fair value method of FAS No. 123, we
would have  recognized no additional  compensation  expense during the three and
nine months ended September 30, 2003 and 2002.


Note 9 - Special Charges

Provision for Asset Impairment

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

     During  the  third  quarter  of  2002,  certain  events  and  circumstances
occurred,   including  changes  to  our  anticipated  holding  periods,  reduced
occupancy and limited leasing success,  that indicated certain of our properties
were  impaired  on an other than  temporary  basis.  As a result,  we recorded a
provision for asset impairment  aggregating $81,619  representing the write-down
of these  properties  to their  estimated  fair  values in  accordance  with the
requirements of FAS No. 144.

Non-recurring Other Charges

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

<PAGE>
                                  Page - (23)


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

Note 10 - Merger Agreement

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

     We are currently a party to the Merger  Agreement (dated as of July 8, 2003
and as amended by that first  amendment  dated as of September  3, 2003,  and as
otherwise amended), with Prime Outlets Acquisition Company, LLC (the "Buyer"), a
Delaware limited  liability  company which is an affiliate of Lightstone,  a New
Jersey-based  real estate  company,  which provides for us to be merged with and
into the  Buyer.  Consummation  of the  Transaction  is  subject  to a number of
conditions including the approval of the Transaction and the Merger Agreement by
the holders of at least 66 2/3% of both our Series A Senior  Preferred Stock and
Series B Convertible Preferred Stock, each voting separately as a class, and the
approval of a majority of our common stockholders voting as a separate class, as
well as other customary approvals.

     The Transaction,  which will result in aggregate  consideration of $115,514
payable to our stockholders and unit holders, has a total value of approximately
$638,000, including debt expected to be assumed by the Buyer. Under the terms of
the Merger  Agreement,  each holder of our Series A Senior  Preferred Stock will
receive  cash in the  amount of $18.40 per  share,  each  holder of our Series B
Convertible Preferred Stock will receive cash in the amount of $8.169 per share,
and each holder of our common stock will receive cash in the amount of $0.17 per
share.

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

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

     Formal  documentation  relating to the Transaction and the Merger Agreement
has been filed  with the  Securities  and  Exchange  Commission  and sent to our
stockholders and limited partners.

<PAGE>
                                  Page - (24)


     Concurrent  with the  consummation  of the  Transaction,  the  agreement of
limited  partnership of the Operating  Partnership  will be amended and restated
(the "Amended Partnership  Agreement") pursuant to which holders of common units
in the Operating  Partnership (other than common units held by us) will have the
opportunity  to exchange  all,  but not less than all, of their units for a like
number of preferred units in the Operating Partnership  ("Preferred Unit"). Each
holder of Preferred Units will be entitled to require the Operating  Partnership
to redeem all of such holder's  Preferred  Units for an amount per unit equal to
$0.17 (the  consideration paid for a share of common stock of the Company in the
Transaction) plus accrued and unpaid  distributions at the rate of 6% per annum.
In addition,  the Amended  Partnership  Agreement  contains  certain tax related
provisions  that,  subject  to  certain  exceptions,  will  benefit  holders  of
Preferred Units for a period of seven years  including  restrictions on the sale
of properties and requirements to allocate debt in a certain manner.

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

     The special meeting of stockholders (the "Special Meeting") for the purpose
of, among other things,  voting on the Transaction was originally  scheduled for
Thursday,  October 30, 2003. On October 30, 2003, we announced  that the Special
Meeting had been  adjourned to November 4, 2003 and later  announced on November
4, 2003  that the  Special  Meeting  had been  adjourned  again  until  Tuesday,
November 18, 2003 to provide  stockholders  with  additional  time to cast their
vote on the  Transaction.  Before  the  adjournment  of the  Special  Meeting on
October 30, 2003, our common  stockholders  approved an amendment to our charter
to reduce the required vote of the common  stockholders to approve a merger from
two-thirds to a majority.

     There can be no  assurance  as to the timing,  terms or  completion  of the
Transaction.

<PAGE>
                                  Page - (25)


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

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


Introduction

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

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

Critical Accounting Policies and Estimates

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

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

Revenue Recognition

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

<PAGE>
                                  Page - (26)


Bad Debt Expense

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

Impairment of Rental Property

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

Capitalization and Depreciation of Significant Renovations and Improvements

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

Contingencies

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

<PAGE>
                                  Page - (27)


Outlet Center Portfolio

Portfolio GLA and Occupancy

     Our outlet center  portfolio size reflects (i) our past  development  (both
new outlet centers and expansions to outlet centers) and acquisition  activities
and (ii) our more recent disposition activities. Our outlet portfolio (including
properties owned through joint venture partnerships)  consisted of 35 properties
totaling  9,976,000  square feet of gross leasable area ("GLA") at September 30,
2003  compared  to 40  properties  totaling  11,253,000  square  feet  of GLA at
September 30, 2002 and 38 properties  totaling  10,269,000 square feet of GLA at
December  31,  2002.  The change in our outlet  center GLA is because of certain
property  dispositions,  which are discussed  below. Our outlet center portfolio
was 85.3% and 86.8%  occupied as of September  30, 2003 and 2002,  respectively.
The  weighted-average  occupancy of our outlet center portfolio (excluding those
properties  disposed of whose results are included in  discontinued  operations)
during the three months ended  September  30, 2003 and 2002 was 84.4% and 86.7%,
respectively.  The  weighted-average  occupancy of our outlet  center  portfolio
(excluding  those   properties   disposed  of  whose  results  are  included  in
discontinued  operations)  during the nine months ended  September  30, 2003 and
2002 was 85.2% and 87.0%, respectively.

     We disposed of certain properties through various  transactions  (including
sale, joint venture  arrangements,  foreclosure and transfer of ownership to the
applicable lender). These transactions have had a significant impact on the size
of our portfolio for the periods  presented and are summarized below. See Note 3
- "Property  Dispositions" of the Notes to Consolidated Financial Statements for
additional information.

2002 Dispositions

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

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

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

<PAGE>
                                  Page - (28)


2003 Dispositions

     During 2003, we completed  transactions  involving 2 properties aggregating
293,000  square feet of GLA.  These  transactions  included  (i) the sale of one
outlet  center,  Prime  Outlets at Latham (the "Latham  Center")  consisting  of
43,000  square feet of GLA that we  partially  owned  through an  unconsolidated
joint venture and (ii) the  foreclosure  sale of one outlet  center  aggregating
250,000  square  feet of GLA to the  applicable  lender.  We  accounted  for our
ownership  interest in the Latham Center in accordance with the equity method of
accounting  through its date of disposition.  The operating results of the other
disposed   property  through  its  respective  date  of  disposition  have  been
classified  as  discontinued   operations  in  the   accompanying   Consolidated
Statements of Operations.

     Effective  January 1, 2002,  we adopted  Statement of Financial  Accounting
Standards  ("FAS")  No.  144,  "Accounting  for the  Impairment  or  Disposal of
Long-Lived  Assets." In accordance with the requirements of FAS No. 144, we have
classified  the  operating  results,  including  gains  and  losses  related  to
disposition,  for  certain  properties  disposed  of  during  2003  and  2002 as
discontinued   operations  in  the  accompanying   Consolidated   Statements  of
Operations for all periods presented.  The operating results for properties that
were sold into joint venture  partnerships  during 2002 have not been classified
to  discontinued  operations  in the  accompanying  Consolidated  Statements  of
Operations because we still retain a significant continuing involvement in their
operations.  Such properties and/or their operating results through the dates of
their  respective  disposition are  collectively  referred to as the "2002 Joint
Venture  Properties".  The following  discussion and tables regarding  operating
results  for  the  comparable  periods  are  reflective  of  the  classification
requirements  under FAS No. 144 and relate to operating  results from continuing
operations unless otherwise indicated.

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

<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------------------------------
                                                                                     Grand          GLA         Occupancy
Outlet Centers                                                                Opening Date         (Sq. Ft.)    Percentage (1)
------------------------------------------------------------------------------------------------------------------------------------

<S>                                                                         <C>                   <C>                   <C>
Prime Outlets at Fremont - Fremont, Indiana                                   October 1985        229,000               81%

Prime Outlets at Birch Run (2) - Birch Run, Michigan                        September 1986        724,000               85

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

Prime Outlets at Pleasant Prairie - Kenosha, Wisconsin                      September 1988        269,000               97

Prime Outlets at Burlington - Burlington, Washington                              May 1989        174,000               88

Prime Outlets at Queenstown - Queenstown, Maryland                               June 1989        221,000               99

Prime Outlets at Hillsboro - Hillsboro, Texas                                 October 1989        359,000               88

Prime Outlets at Oshkosh - Oshkosh, Wisconsin                                November 1989        260,000               89

Prime Outlets at Warehouse Row (4) - Chattanooga, Tennessee                  November 1989         95,000               69

Prime Outlets at Perryville - Perryville, Maryland                               June 1990        148,000               96

Prime Outlets at Sedona - (5) Sedona, Arizona                                  August 1990         82,000               90

Prime Outlets at San Marcos - San Marcos, Texas                                August 1990        549,000               82

Prime Outlets at Anderson - (3) Anderson, California                           August 1990        165,000               95

</TABLE>
<PAGE>
                                  Page - (29)


<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                    Grand            GLA        Occupancy
Outlet Centers                                                               Opening Date      (Sq. Ft.)       Percentage(1)
------------------------------------------------------------------------------------------------------------------------------------

<S>                                                                         <C>                   <C>                  <C>
Prime Outlets at Post Falls - (5) Post Falls, Idaho                              July 1991        179,000               62%

Prime Outlets at Ellenton - Ellenton, Florida                                 October 1991        481,000               99

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

Prime Outlets at Naples - Naples/Marco Island, Florida                       December 1991        146,000               84

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

Prime Outlets at Calhoun - (3) Calhoun, Georgia                               October 1992        254,000               86

Prime Outlets at Bend - (5) Bend, Oregon                                     December 1992        132,000               90

Prime Outlets at Jeffersonville I - Jeffersonville, Ohio                         July 1993        407,000               93

Prime Outlets at Gainesville - Gainesville, Texas                              August 1993        316,000               62

Prime Outlets at Grove City - Grove City, Pennsylvania                         August 1994        533,000              100

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

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

Prime Outlets at Pismo Beach - Pismo Beach, California                       November 1994        148,000               97

Prime Outlets at Tracy - Tracy, California                                   November 1994        153,000               94

Prime Outlets at Odessa - Odessa, Missouri                                       July 1995        296,000               64

Prime Outlets at Darien (6) - Darien, Georgia                                   July 1995         307,000               57

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

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

Prime Outlets at Gaffney (3) (6) -  Gaffney, South Carolina                 November 1996         305,000               91

Prime Outlets at Lee - (3) Lee, Massachusetts                                   June 1997         224,000               95

Prime Outlets at Lebanon -  Lebanon, Tennessee                                 April 1998         229,000               87

Prime Outlets at Hagerstown (2) -  Hagerstown, Maryland                       August 1998         487,000               82
                                                                                                ---------              ---
Total Outlet Centers (8)                                                                        9,976,000               85%
                                                                                                =========              ===
====================================================================================================================================
</TABLE>
Notes:
(1)     Percentage reflects occupied space as of September 30, 2003 as a percent
        of available square feet of GLA.
(2)     Through  affiliates,  we  have  a  30%  ownership  interest in the joint
        venture partnership that owns this outlet center.
(3)     Through affiliates, we have an ownership interest of approximately 26.4%
        in the joint venture  partnership  that  owns  this  outlet center as of
        September 30, 2003.
(4)     We own a 2% partnership interest as the  sole  general  partner  in this
        property, but are entitled to 99% of the property's operating  cash flow
        and net proceeds from a sale or refinancing. This mixed-use  development
        also includes  approximately  154,000  square feet of office  space, not
        included in this table, which was 95% occupied as of September 30, 2003.
(5)     Non-recourse  mortgage  loans  cross-collateralized  by Prime Outlets at
        Bend, Prime Outlets  at  Post Falls and  Prime  Outlets  at  Sedona  are
        currently in default and we are in the process of negotiating a transfer
        of our ownership interests in  these  outlet  centers to the lender. See
        Note 4 - "Debt" of the Notes to  Consolidated  Financial  Statements for
        additional information.
(6)     We operate this outlet center pursuant to a long-term ground lease under
        which we receive the  economic  benefit of a 100% ownership interest.
(7)     The real property on which this outlet center is located is subject to a
        long-term ground lease.
(8)     Excludes Oxnard  Factory Outlet.  Through  an  affiliate,  we have a 50%
        legal ownership interest in the joint venture partnership that owns this
        outlet center. However, we are currently  receiving  no economic benefit
        from the Oxnard Factory Outlet.

<PAGE>
                                  Page - (30)


Results of Operations

Table 1 - Consolidated Statements of Operations

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

                                                Three Months Ended        2003 vs. 2002      Nine Months Ended     2003 vs. 2002
                                                                       -----------------                         -----------------
                                                  September 30,                      %         September 30,                    %
                                                --------------------                       --------------------
                                                 2003         2002      Change     Change     2003       2002      Change     Change
------------------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>         <C>        <C>           <C>    <C>        <C>         <C>          <C>
Revenues
Base rents                                     $ 19,001    $ 19,622   $   (621)    -3.2%   $ 55,934   $  66,096   $(10,162)   -15.4%
Percentage rents                                    404         834       (430)   -51.6%      1,853       2,589       (736)   -28.4%
Tenant reimbursements                            10,676      11,424       (748)    -6.5%     32,921      36,498     (3,577)    -9.8%
Interest and other                                2,892       3,664       (772)   -21.1%     10,573       8,737      1,836     21.0%
                                               --------    --------   --------    -----    --------   ---------   --------    ------
  Total revenues                                 32,973      35,544     (2,571)    -7.2%    101,281     113,920    (12,639)   -11.1%

Expenses
Property operating                                8,936       9,927       (991)   -10.0%     28,184      30,687     (2,503)    -8.2%
Real estate taxes                                 2,600       2,999       (399)   -13.3%      8,392      10,012     (1,620)   -16.2%
Depreciation and amortization                     6,645       8,229     (1,584)   -19.2%     20,948      27,446     (6,498)   -23.7%
Corporate general and administrative              5,253       3,366      1,887     56.1%     13,247       9,662      3,585     37.1%
Interest                                         11,700      13,693     (1,993)   -14.6%     34,929      47,831    (12,902)   -27.0%
Other charges                                     1,556       1,667       (111)    -6.7%      2,979       8,372     (5,393)   -64.4%
Provision for asset impairment                        -      81,619    (81,619)      n/m      6,590      81,619    (75,029)      n/m
                                               --------    --------   --------    -----    --------   ---------   --------    ------
  Total expenses                                 36,690     121,500    (84,810)   -69.8%    115,269     215,629   (100,360)   -46.5%
                                               --------    --------   --------    -----    --------   ---------   --------    ------
Loss before gain on sale of real estate          (3,717)    (85,956)    82,239    -95.7%    (13,988)   (101,709)    87,721    -86.2%
Gain on sale of real estate, net                      -           -          -       n/m          -       5,802     (5,802)      n/m
                                               --------    --------   --------    -----    --------   ---------   --------    ------
Loss from continuing operations                  (3,717)    (85,956)    82,239    -95.7%    (13,988)    (95,907)    81,919    -85.4%
Discontinued operations, including gains of
  $2,153 on dispositions in 2003 periods,
  respectively, and gains of $17,121 and
  $9,619 in 2002 periods, respectively            2,071       2,451       (380)      n/m      1,549     (16,103)    17,652       n/m
                                               --------    --------   --------    -----    --------   ---------   --------    ------
Net loss                                         (1,646)    (83,505)    81,859    -98.0%    (12,439)   (112,010)    99,571    -88.9%
Allocations to preferred shareholders            (5,668)     (5,668)         -      0.0%    (17,004)    (17,004)         -      0.0%
                                               --------    --------   --------    -----    --------   ---------   --------    ------
Net loss applicable to common shares           $ (7,314)   $(89,173)  $ 81,859    -91.8%   $(29,443)  $(129,014)  $ 99,571    -77.2%
                                               ========    ========   ========    =====    ========   =========   ========    ======

Basic and diluted earnings per common share:
Loss from continuing operations                $  (0.22)   $  (2.11)                       $  (0.72)  $  (2.59)
Discontinued operations                            0.05        0.06                            0.04      (0.37)
                                               --------    --------                        --------   --------
  Net loss                                     $  (0.17)   $  (2.05)                       $  (0.68)  $  (2.96)
                                               ========    ========                        ========   ========

Weighted-average common shares
  outstanding - basic and diluted                43,578      43,578                          43,578     43,578
                                               ========    ========                        ========   ========
====================================================================================================================================
</TABLE>

<PAGE>
                                  Page - (31)


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

Summary

     We reported losses from continuing operations of $3,717 and $85,956 for the
three  months ended  September  30, 2003 and 2002,  respectively.  For the three
months  ended  September  30,  2003,  the  net  loss  applicable  to our  common
shareholders  was $7,314,  or $0.17 per common share. For the three months ended
September  30, 2002,  the net loss  applicable  to our common  shareholders  was
$89,173, or $2.05 per common share.

     During the three months ended  September  30, 2003, we reported a gain from
discontinued  operations of $2,071,  or $0.05 per common  share.  This gain from
discontinued  operations  included  a gain  related to  dispositions  of $2,153.
During the three  months  ended  September  30,  2002,  we  reported a gain from
discontinued  operations of $2,451,  or $0.06 per common  share.  This gain from
discontinued  operations  included (i) a gain related to dispositions of $17,121
and (ii) a provision for asset impairment of $15,557.

     The  2002  results  from  continuing  operations  include  a third  quarter
provision for asset impairment of $81,619, or $1.87 per common share.

Revenues

     Total  revenues were $32,973 for the three months ended  September 30, 2003
compared to $35,544 for the same period in 2002, a decrease of $2,571,  or 7.2%.
Base rents  decreased  $621,  or 3.2%, to $19,001 in 2003 compared to $19,622 in
2002. These decreases are primarily due to (i)  transactions  involving the 2002
Joint Venture  Properties,  (ii) changes in economic rental rates and (iiii) the
reduction in outlet center occupancy during the 2003 period.  Straight-line rent
(expense),  included in base rent was $18 and $(255) for the three  months ended
September 30, 2003 and 2002, respectively.

     Percentage  rents,  which  represent  rents based on a percentage  of sales
volume above a specified threshold, decreased $430, or 51.6%, to $404 during the
three months ended  September  30, 2003  compared to $834 for the same period in
2002.  This decrease was primarily  due to (i)  transactions  involving the 2002
Joint Venture Properties and (ii) changes in economic rental rates.

     Tenant  reimbursements,  which  represent  the  contractual  recovery  from
tenants of certain  operating  expenses,  decreased by $748, or 6.5%, to $10,676
during the three months  ended  September  30, 2003  compared to $11,424 for the
same period in 2002. This decline is primarily due to (i) transactions involving
the 2002 Joint  Venture  Properties,  (ii) changes in economic  rental rates and
(iii) the reduced aggregate outlet center weighted-average  occupancy during the
2003 period.

     As shown in TABLE 2, tenant  reimbursements  as a percentage of recoverable
property  operating  expenses  and real estate  taxes was 92.5% during the three
months ended  September  30, 2003 compared to 88.4% for the same period in 2002.
This increase reflects the aforementioned changes in economic rental rates.

<PAGE>
                                  Page - (32)


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

<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------------------------------
Three Months Ended September 30,                                                   2003                   2002
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>                    <C>
Tenant reimbursements                                                          $ 10,676               $ 11,424
                                                                               ========               ========

Recoverable Expenses:
Property operating                                                             $  8,936               $  9,927
Real estate taxes                                                                 2,600                  2,999
                                                                               --------               --------
  Total recoverable expenses                                                   $ 11,536               $ 12,926
                                                                               ========               ========

Tenant reimbursements as a percentage
  of total recoverable expenses                                                   92.5%                  88.4%
                                                                               ========               ========
====================================================================================================================================
</TABLE>

     Interest and other income decreased by $772, or 21.1%, to $2,892 during the
three months ended  September 30, 2003 compared to $3,664 for the same period in
2002.  This  decrease  reflects  lower (i) interest  income of $364,  (ii) other
income of $249,  (iii)  gains on sales of  outparcel  land of $195,  (iv)  lease
termination  income of $86, (v) leasing  commissions  of $86 and (vi)  municipal
assistance  income of $58,  partially  offset by higher  equity in  earnings  of
unconsolidated joint venture partnerships of $266.

Expenses

     Property  operating  expenses decreased by $991, or 10.0%, to $8,936 during
the three months ended September 30, 2003 compared to $9,927 for the same period
in 2002. Real estate taxes expense decreased by $399, or 13.3%, to $2,600 during
the three months ended September 30, 2003 compared to $2,999 for the same period
in 2002. The decrease in property operating expenses is primarily because of (i)
the  transactions  involving the 2002 Joint Venture  Properties and (ii) reduced
marketing  costs  during the 2003  period.  The  decrease in real  estate  taxes
expense is primarily  attributable  to (i) the  transactions  involving the 2002
Joint Venture Properties and (ii) reduced assessments on certain properties.

     As shown in TABLE 3,  depreciation  and amortization  expense  decreased by
$1,584 or 19.2%,  to $6,645  during the three  months ended  September  30, 2003
compared to $8,229 for the same period in 2002.  This decrease was primarily due
to (i) a reduction  in  depreciation  and  amortization  resulting  from certain
provisions  for  asset  impairment  recorded  during  2002 and 2003 and (ii) the
transactions involving the 2002 Joint Venture Properties.

Table 3  - Components of Depreciation and Amortization Expense

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

<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------------------------------
Three Months Ended September 30,                                                    2003                    2002
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>                     <C>
Building and improvements                                                        $ 3,133                 $ 4,695
Land improvements                                                                    935                     944
Tenant improvements                                                                2,167                   1,935
Furniture and fixtures                                                               365                     606
Leasing commissions                                                                   45                      49
                                                                                 -------                 -------
  Total                                                                          $ 6,645                 $ 8,229
                                                                                 =======                 =======
====================================================================================================================================
</TABLE>
<PAGE>
                                  Page - (33)


     As shown in TABLE 4, interest  expense  decreased by $1,993,  or 14.6%,  to
$11,700 during the three months ended September 30, 2003 compared to $13,693 for
the same period in 2002.  This decrease  reflects (i) lower  interest  incurred,
excluding defeased debt, of $2,883,  (ii) a decrease in amortization of deferred
financing  costs of $628 and (iii) higher  amortization of debt premiums of $21.
Partially  offsetting these items was interest expense of $1,539 associated with
certain mortgage debt that was defeased in December 2002. See Note 4 - "Debt" of
the Notes to Consolidated Financial Statements for additional information.

        The decrease in interest incurred, excluding defeased debt, is primarily
attributable to (i) a reduction of approximately $15,476 in our weighted-average
debt outstanding, excluding debt premiums, during the three months ended
September 30, 2003 compared to the same period in 2002 and (ii) a decrease in
the weighted-average contractual interest rate on our debt for the three months
ended September 30, 2003 compared to the same period in 2002. The decrease in
weighted-average debt outstanding was primarily attributable to asset
dispositions. The weighted-average contractual interest rates for the 2003 and
2002 periods were approximately 8.07% and 8.76%, respectively.

Table 4 - Components of Interest Expense

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

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Three Months Ended September 30,                                                    2003                    2002
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>                     <C>
Interest incurred                                                               $ 10,256                $ 13,139
Amortization of deferred financing costs                                             404                   1,032
Amortization of debt premiums                                                       (499)                   (478)
Interest incurred - defeased debt                                                  1,539                       -
                                                                                --------                --------
  Total                                                                         $ 11,700                $ 13,693
                                                                                ========                ========
====================================================================================================================================
</TABLE>

     Other  charges  decreased by $111,  or 6.7%, to $1,556 for the three months
ended  September  30,  2003  compared  to $1,667 for same  period in 2002.  This
decrease  reflects  lower (i) other expenses of $88 and (ii) bad debt expense of
$23.

     Corporate  general and  administrative  expenses  increased  by $1,987,  or
59.0%,  to $5,253  during the three months ended  September 30, 2003 compared to
$3,366 for the same period in 2002.  This increase is primarily  attributable to
legal,  financial  advisory and proxy costs  aggregating  $1,469  related to our
proposed merger transaction and higher insurance costs of $276.

     During the third quarter of 2002 certain events and circumstances occurred,
including  (i)  changes to the  anticipated  holding  periods  and (ii)  further
reduced  occupancy and limited leasing  success,  that indicated  certain of our
properties  were  impaired on an other than  temporary  basis.  As a result,  we
recorded a provision for asset impairment  aggregating $81,619  representing the
write-down of these properties to their estimated fair values in accordance with
the requirements of Statement of Financial Accounting Standards ("FAS") No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets."

<PAGE>
                                  Page - (34)


Comparison of the nine months ended  September 30, 2003 to the nine months ended
September 30, 2002

Summary

     We reported  losses from  continuing  operations of $13,988 and $95,907 for
the nine months ended  September 30, 2003 and 2002,  respectively.  For the nine
months  ended  September  30,  2003,  the  net  loss  applicable  to our  common
shareholders  was $29,443,  or $0.68 per common share. For the nine months ended
September  30, 2002,  the net loss  applicable  to our common  shareholders  was
$129,014, or $2.96 per common share.

     During the nine months ended  September  30, 2003,  we reported a gain from
discontinued  operations of $1,549,  or $0.04 per common  share.  This gain from
discontinued  operations  included  a gain  related to  dispositions  of $2,153.
During  the nine  months  ended  September  30,  2002,  we  reported a gain from
discontinued  operations of $16,103,  or $0.37 per common share.  This gain from
discontinued  operations  included a (i) a net gain related to  dispositions  of
$9,619 and (ii) a provision for asset impairment of $27,757.

     The 2003  results  from  continuing  operations  include  a second  quarter
provision for asset  impairment of $6,590,  or $0.15 per common share.  The 2002
results from  continuing  operations  include (i) a third quarter  provision for
asset impairment of $81,619,  or $1.87 per common share,  (ii) a net gain on the
sale of real  estate  of  $5,802,  or $0.13 per  common  share and (ii) a second
quarter non-recurring charge (included in other charges) of $3,000, or $0.07 per
common  share,  related to pending and  potential  tenant claims with respect to
certain lease provisions.

Revenues

     Total  revenues were $101,281 for the nine months ended  September 30, 2003
compared to  $113,920  for the same  period in 2002,  a decrease of $12,639,  or
11.1%.  Base rents decreased  $10,162,  or 15.4%, to $55,934 in 2003 compared to
$66,096 in 2002. These decreases are primarily due to (i) transactions involving
the 2002 Joint  Venture  Properties,  (ii) changes in economic  rental rates and
(iiii)  the  reduction  in  outlet  center  occupancy  during  the 2003  period.
Straight-line rent expense, included in base rent was $348 and $300 for the nine
months ended September 30, 2003 and 2002, respectively.

     Percentage  rents,  which  represent  rents based on a percentage  of sales
volume above a specified  threshold,  decreased $736, or 28.4%, to $1,853 during
the nine months ended  September 30, 2003 compared to $2,589 for the same period
in 2002. This decrease was primarily due to (i) transactions  involving the 2002
Joint Venture Properties and (ii) changes in economic rental rates.

     Tenant  reimbursements,  which  represent  the  contractual  recovery  from
tenants of certain operating expenses,  decreased by $3,577, or 9.8%, to $32,921
during the nine months ended September 30, 2003 compared to $36,498 for the same
period in 2002. This decline is primarily due to (i) transactions  involving the
2002 Joint Venture  Properties,  (ii) changes in economic rental rates and (iii)
the reduced aggregate outlet center  weighted-average  occupancy during the 2003
period.

     As shown in TABLE 5, tenant  reimbursements  as a percentage of recoverable
property  operating  expenses  and real estate  taxes was 90.0%  during the nine
months ended  September  30, 2003 compared to 89.7% for the same period in 2002.
This increase reflects the aforementioned changes in economic rental rates.

<PAGE>
                                  Page - (35)


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

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Nine Months Ended September 30,                                                    2003                   2002
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>                    <C>
Tenant reimbursements                                                          $ 32,921               $ 36,498
                                                                               ========               ========

Recoverable Expenses:
Property operating                                                             $ 28,184               $ 30,687
Real estate taxes                                                                 8,392                 10,012
                                                                               --------               --------
  Total recoverable expenses                                                   $ 36,576               $ 40,699
                                                                               ========               ========

Tenant reimbursements as a percentage
  of total recoverable expenses                                                   90.0%                  89.7%
                                                                               ========               ========
====================================================================================================================================
</TABLE>

     Interest and other income increased by $1,836,  or 21.0%, to $10,573 during
the nine months ended  September 30, 2003 compared to $8,737 for the same period
in 2002. This increase  reflects higher (i) equity in earnings of unconsolidated
joint ventures of $2,092,  (ii) property management fee income of $398 and (iii)
other income of $204.  Partially offsetting these items were lower (i) municipal
assistance  income of $518 and (ii)  interest  income of $340.  The  significant
increase in equity in earnings of  unconsolidated  joint  ventures is  primarily
associated with the transactions involving the 2002 Joint Venture Properties.

Expenses

     Property operating expenses decreased by $2,503, or 8.2%, to $28,184 during
the nine months ended September 30, 2003 compared to $30,687 for the same period
in 2002.  Real estate taxes  expense  decreased by $1,620,  or 16.2%,  to $8,392
during the nine months ended September 30, 2003 compared to $10,012 for the same
period in 2002. The decrease in property operating expenses is primarily because
of the transactions involving the 2002 Joint Venture Properties partially offset
by higher insurance and marketing costs during the 2003 period.  The decrease in
real estate taxes expense is primarily because of the transactions involving the
2002 Joint Venture Properties.

     As shown in TABLE 6,  depreciation  and amortization  expense  decreased by
$6,498,  or 23.7%,  to $20,948  during the nine months ended  September 30, 2003
compared to $27,446 for the same period in 2002. This decrease was primarily due
to (i) a reduction  in  depreciation  and  amortization  resulting  from certain
provisions  for  asset  impairment  recorded  during  2002 and 2003 and (ii) the
transactions involving the 2002 Joint Venture Properties.

Table 6  - Components of Depreciation and Amortization Expense

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

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Nine Months Ended September 30,                                                     2003                    2002
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>                     <C>
Building and improvements                                                       $  9,859                $ 14,069
Land improvements                                                                  2,806                   3,135
Tenant improvements                                                                6,361                   8,223
Furniture and fixtures                                                             1,766                   1,861
Leasing commissions                                                                  156                     158
                                                                                --------                --------
  Total                                                                         $ 20,948                $ 27,446
                                                                                ========                ========
====================================================================================================================================
</TABLE>

     As shown in TABLE 7, interest  expense  decreased by $12,902,  or 27.0%, to
$34,929 during the nine months ended  September 30, 2003 compared to $47,831 for
the same period in 2002.  This decrease  reflects (i) lower  interest  incurred,
excluding defeased debt, of $14,606, (ii) a decrease in amortization of deferred
financing costs of $2,764 and (iii) higher amortization of debt premiums of $66.
Partially  offsetting these items was interest expense of $4,534 associated with
certain mortgage debt that was defeased in December 2002. See Note 4 - "Debt" of
the Notes to Consolidated Financial Statements for additional information.

<PAGE>
                                  Page - (36)


     The decrease in interest  incurred,  excluding  defeased debt, is primarily
attributable   to   (i)  a   reduction   of   approximately   $120,657   in  our
weighted-average  debt  outstanding,  excluding debt  premiums,  during the nine
months ended  September  30, 2003 compared to the same period in 2002 and (ii) a
decrease in the  weighted-average  contractual interest rate on our debt for the
nine months ended  September 30, 2003  compared to the same period in 2002.  The
decrease in  weighted-average  debt  outstanding  was primarily  attributable to
asset dispositions. The weighted-average contractual interest rates for the 2003
and 2002 periods were approximately 8.08% and 8.61%, respectively.

Table 7 - Components of Interest Expense

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

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Nine Months Ended September 30,                                                     2003                    2002
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>                     <C>
Interest incurred                                                               $ 30,626                $ 45,232
Amortization of deferred financing costs                                           1,251                   4,015
Amortization of debt premiums                                                     (1,482)                 (1,416)
Interest incurred - defeased debt                                                  4,534                       -
                                                                                --------                --------
  Total                                                                         $ 34,929                $ 47,831
                                                                                ========                ========
====================================================================================================================================
</TABLE>

     Other  charges were $2,979 and $8,372 for the nine months  ended  September
30, 2003 and 2002, respectively, which includes a non-recurring charge of $3,000
in the 2002 period.  Excluding the effect of this non-recurring charge, which is
discussed below,  other charges decreased by $2,393, or 44.5%, to $2,979 for the
nine months ended  September  30, 2003 compared to $5,372 for the same period in
2002. This decrease reflects lower (i) bad debt expense of $2,013 and (ii) other
expenses  of  $380.  The  significant  decrease  in bad  debt  expense  resulted
primarily from (i) resolution of certain  disputes with tenants and (ii) reduced
tenant bankruptcies, abandonments and store closings during 2003.

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

     Corporate  general and  administrative  expenses  increased  by $3,585,  or
37.1%,  to $13,247  during the nine months ended  September 30, 2003 compared to
$9,662 for the same period in 2002.  This increase is primarily  attributable to
legal,  financial  advisory and proxy costs  aggregating  $2,645  related to our
proposed merger transaction and higher insurance costs of $1,034.

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

     During the third quarter of 2002 certain events and circumstances occurred,
including  (i)  changes to the  anticipated  holding  periods  and (ii)  further
reduced  occupancy and limited leasing  success,  that indicated  certain of our
properties  were  impaired on an other than  temporary  basis.  As a result,  we
recorded a provision for asset impairment  aggregating $81,619  representing the
write-down of these properties to their estimated fair values in accordance with
the requirements of FAS No. 144.

<PAGE>
                                  Page - (37)


Merchant Sales

     For the three and nine months ended September 30, 2003, same-store sales in
our  outlet  center   portfolio   increased  by  1.4%  and  decreased  by  1.2%,
respectively,  compared  to the same  periods  in 2002.  "Same-store  sales"  is
defined as the weighted-average  sales per square foot reported by merchants for
stores open since January 1, 2002.  The  weighted-average  sales per square foot
reported as reported by our merchants  were $245 for the year ended December 31,
2002.

Liquidity and Capital Resources

Sources and Uses of Cash

     For the  nine  months  ended  September  30,  2003,  net cash  provided  by
operating  activities  was $7,627,  net cash used in  investing  activities  was
$1,670 and cash used in financing activities was $5,503.

     The net cash used in  investing  activities  during the nine  months  ended
September 30, 2003 consisted of $5,631 of additions to rental property partially
offset by $1,085 of net proceeds from the  disposition of excess land and $2,876
of distributions from unconsolidated joint venture  partnerships.  The additions
to rental property  included costs incurred in connection with re-leasing  space
to new merchants and costs associated with  renovations.  During the nine months
ended  September  30,  2003,  we did not engage in any  significant  development
activities  other  than  pre-leasing  for  an  expansion  to  Prime  Outlets  at
Williamsburg and certain consulting activities in Europe. We do not expect these
activities to have a significant impact on our liquidity or financial condition.

     The gross  uses of cash for  financing  activities  of $5,503  during  nine
months ended September 30, 2003 consisted of scheduled principal amortization on
debt.

Defaults on Certain Non-recourse Mortgage Indebtedness

     In December 2002, we notified the servicer of certain non-recourse mortgage
loans  (cross-collateralized  by Prime  Outlets at Bend,  Prime  Outlets at Post
Falls and Prime  Outlets at Sedona)  totaling  $24,919 as of September  30, 2003
that the net cash flow from the properties  securing the loans was  insufficient
to fully pay the required  monthly debt  service.  At that time,  certain of our
subsidiaries  suspended the regularly  scheduled  monthly debt service payments.
Subsequent  to our  notification  to the servicer,  we have been  remitting on a
monthly basis all available cash flow from the  properties,  after a reserve for
monthly operating expenses,  as partial payment of the debt service. The failure
to pay the full amount due constitutes a default under the loan agreements which
allows  the  lender to  accelerate  the loan and to  exercise  various  remedies
contained in the loan  agreements,  including  application of escrow balances to
delinquent  payments  and,  ultimately,  foreclosure  on  the  properties  which
collateralize  the loans. The lender has notified us that it has accelerated the
loans and intends to acquire the properties  through a foreclosure action on the
collateral  properties  unless the parties can  negotiate a mutually  acceptable
transfer of the properties to the lender. However, any foreclosure action on, or
other transfer of, these properties is not expected to have a material impact on
our results of operations or financial  condition  because we are currently only
remitting  available cash flow. The aggregate carrying value of these properties
was $21,415 as of September  30, 2003.  Such amount is exceeded by the aggregate
outstanding  balance  of  the  non-recourse  mortgage  loans  of  $24,919  as of
September 30, 2003. Upon  foreclosure or transfer of the collateral  properties,
we will record a  non-recurring  gain for the  difference  between the  carrying
value of the properties and their related net asset,  including the  outstanding
loan balances.

<PAGE>
                                  Page - (38)


Defeased Notes Payable

     On December 6, 2002, we completed the sale of two outlet centers (together,
the "Colorado  Properties"),  which were part of the 15 properties  contained in
the collateral pool securing a first mortgage and expansion loan (the "Mega Deal
Loan"), which had a then outstanding balance of $338,940. In connection with the
release of the Colorado Properties from the collateral pool, we were required to
partially  defease  the  Mega  Deal  Loan.  Therefore,  the Mega  Deal  Loan was
bifurcated  into (i) a defeased  portion in the amount of $74,849 (the "Defeased
Notes Payable") and (ii) an undefeased portion in the amount of $264,091,  which
is still referred to as the Mega Deal Loan.  Both the Defeased Notes Payable and
the Mega Deal Loan (i) bore  interest at a fixed-rate  of 7.782%  through  their
optional prepayment date of November 11, 2003 and (ii) required monthly payments
of principal and interest pursuant to a 30-year amortization  schedule. The Mega
Deal Loan is secured by the remaining 13 properties  contained in the collateral
pool.

     We used  $79,257  of the  gross  proceeds  from  the  sale of the  Colorado
Properties  to  purchase  US  Treasury  Securities  with a par value of $78,277,
including  accrued  interest of $226. The US Treasury  Securities were deposited
into an escrow  account  controlled  by a trustee (the  "Trustee  Escrow").  The
Trustee Escrow was used to pay all scheduled  debt service,  including a balloon
payment of $73,882 on November 11, 2003,  due under the Defeased  Notes Payable.
The $980  premium we paid for the US  Treasury  Securities  was  amortized  as a
reduction to the interest  income  (included in interest and other income in the
Consolidated  Statements of  Operations)  earned on the Trustee  Escrow on basis
that approximated the effective interest method.

     As of September 30, 2003,  the  outstanding  balance of the Defeased  Notes
Payable was $74,046 and the balance of the Trustee Escrow was $74,103  (included
in restricted  cash in the  Consolidated  Balance  Sheet).  As stated above,  on
November  11,  2003,  the  Defeased  Notes  Payable  was repaid in full with the
remaining funds in the Trustee Escrow.

     Furthermore,  in  connection  with the partial  defeasance of the Mega Deal
Loan we  amended  the Mega  Deal  Loan so that (i) we were  required  to fund 10
monthly  payments of $500 (an  aggregate of $5,000)  into a lender  escrow to be
used as additional  cash collateral and (ii) release prices for the remaining 13
properties  in the  collateral  pool were  amended to provide for a more orderly
refinancing  of the Mega Deal Loan.  As of  September  30, the  additional  cash
collateral  had been fully  funded and is  included  in  restricted  cash in the
Consolidated Balance Sheet.

Debt Service Obligations

     The following table  summarizes (A) the scheduled  principal  maturities of
our debt,  excluding (i)  unamortized  debt premiums of $6,091,  (ii) $24,919 of
aggregate  non-recourse  mortgage  indebtedness  in default  (see  "Defaults  on
Certain Non-recourse Mortgage  Indebtedness" above) and (iii) the Defeased Notes
Payable of $74,046, which was paid in full on November 11, 2003 (see above), and
(B) the related  average  contractual  interest  rates by year of maturity as of
September 30, 2003:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                            Bonds Payable
                                  (including sinking fund payments)        Notes Payable                       Total Debt
                                -----------------------------------  ------------------------     ----------------------------------
                                    Average                            Average                         Average
                                   Interest      Principal            Interest     Principal           Interest         Principal
Years Ended December 31,            Rates        Maturities            Rates       Maturities           Rates          Maturities
------------------------------------------------------------------------------------------------------------------------------------
<C>                                 <C>          <C>                   <C>        <C>                   <C>             <C>
2003                                6.79%        $    546              7.78%      $ 262,008             7.78%           $ 262,554
2004                                6.34%             726              7.97%          4,571             7.75%               5,297
2005                                6.34%             773              8.58%         11,574             8.44%              12,347
2006                                6.34%             820              8.83%        120,437             8.81%             121,257
2007                                6.34%             878              7.60%          1,002             7.02%               1,880
Thereafter                          6.52%          18,618              7.59%         57,995             7.33%              76,613
                                    ----         --------              ----       ---------             ----            ---------
                                    6.50%        $ 22,361              8.06%      $ 457,587             7.98%           $ 479,948
                                    ====         ========              ====       =========             ====            =========
====================================================================================================================================
</TABLE>
<PAGE>
                                  Page - (39)


     Such indebtedness in the amount of $479,948 had a weighted-average maturity
of 2.1 years and bore contractual  interest at a weighted-average  rate of 7.98%
per annum.  At September  30, 2003,  all of such  indebtedness  bore interest at
fixed rates.  Our remaining  scheduled  principal  payments during 2003 for such
indebtedness  aggregated  $262,554,  which includes $261,259 related to the Mega
Deal Loan. See "Going Concern" for additional information.

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

Defaults  on  Certain  Non-recourse   Mortgage  Indebtedness  of  Unconsolidated
Partnerships

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

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

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

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

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Guarantees and Guarantees of Indebtedness of Others

HGP Guarantees

     On July 15, 2002, Horizon Group Properties, Inc. and its affiliates ("HGP")
announced they had refinanced a secured credit facility (the "HGP Secured Credit
Facility")  through  a series  of new loans  aggregating  $32,500.  Prior to the
refinancing,  we were a guarantor  under the HGP Secured Credit  Facility in the
amount of $10,000. In connection with the refinancing, our guarantee was reduced
to a maximum  of  $4,000 as  security  for a $3,000  mortgage  loan and a $4,000
mortgage loan  (collectively,  the "HGP Monroe  Mortgage Loan") secured by HGP's
outlet shopping center located in Monroe,  Michigan. In the event the HGP Monroe
Mortgage  Loan  was  reduced  to  $5,000  or less  through  repayments  then our
guarantee  would be  extinguished.  In August 2003, HGP repaid $2,000 of the HGP
Mortgage Loan and our guarantee obligation was satisfied.

     Additionally,  we  were  a  guarantor  with  respect  to  certain  mortgage
indebtedness  (the "HGP Office  Building  Mortgage")  in the amount of $2,129 on
HGP's corporate office building and related  equipment located in Norton Shores,
Michigan.  However,  the HGP Office  Building  Mortgage was refinanced in August
2003 and our guarantee obligation was thus, removed.

Prime/Estein Venture Guarantees

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

     In August 2001, we, through affiliates,  completed a refinancing of $63,000
of first  mortgage loans secured by the Birch Run Center.  The  refinanced  loan
(the "Birch Run First Mortgage") (i) has a term of 10-years, (ii) bears interest
at an effective rate of 8.12% and (iii) requires  monthly  payments of principal
and  interest  pursuant  to a 25-year  amortization  schedule.  Pursuant  to the
Interest  Rate Subsidy  Agreement,  we are  required to pay to the  Prime/Estein
Venture the  difference  between the cost of the financing at an assumed rate of
7.75% and the actual  cost of such  financing  at the annual  rate of 8.12% (the
"Interest Rate Subsidy Obligation").  The net present value of the Interest Rate
Subsidy  Obligation  (included in accounts payable and other  liabilities in the
Consolidated Balance Sheet) was $1,354 as of September 30, 2003.

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

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

Second Horizon First Mortgage Loan

     In  April  1998,  Horizon  consummated  an  agreement  with  Castle & Cooke
Properties,  Inc. ("CCP") which released Horizon from future obligations under a
long-term  lease of the Dole  Cannery  outlet  center in  Honolulu,  Hawaii.  In
connection  with an amendment of the Second  Horizon Group  Limited  Partnership
("Second  Horizon")  agreement (the "Amended  Partnership  Agreement"),  Horizon
transferred to an affiliate of CCP (the "CCP  Affiliate")  substantially  all of
Horizon's economic interest, but not legal title, in an outlet center (the "Lake
Elsinore Center") in Lake Elsinore,  California. The Lake Elsinore Center is one
of five properties  owned by Second Horizon which jointly and severally secure a
non-recourse,  first mortgage loan (the "Second Horizon  Mortgage  Loan").  As a
result of our merger with Horizon in June 1998, we own the economic interests of
the other four properties (the "Prime  Properties")  and legal title to all five
entities.  The  outstanding  balance of the Second  Horizon  Mortgage Loan as of
September  30, 2003 was  $94,586,  of which  $66,330 was  allocated to the Prime
Properties and is included in notes payable in our Consolidated Balance Sheet as
of that date.  The remaining  $28,034  outstanding  as of September 30, 2003 was
allocated to the Lake Elsinore Center.

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

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Mandatory Redemption Obligation

     On July 26, 2002,  we sold the Bridge  Properties  to the PFP  Venture.  In
connection  with the  sale,  we  guaranteed  FRIT  PRT  Bridge  Acquisition  LLC
("FRIT"),  a third-party joint venture partner,  (i) a 13% return on its initial
$17,236 of invested  capital and (ii) the full  return of its  invested  capital
(the  "Mandatory  Redemption  Obligation") by December 31, 2003. As of September
30, 2003, our Mandatory Redemption Obligation with respect to the full return of
FRIT's  invested  capital was $14,489  (included  in accounts  payable and other
liabilities  in  the  Consolidated  Balance  Sheet).  See  "Going  Concern"  for
additional information.

Going Concern

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

     As of September 30, 2003, our Mega Deal Loan had an  outstanding  principal
balance  of  $261,259.  The Mega Deal Loan had an  optional  prepayment  date of
November 11, 2003 and an outstanding principal balance of $260,681 on such date.
As discussed below,  certain  restrictions have been placed upon us with respect
to  refinancing  the Mega Deal  Loan.  The Mega Deal Loan was not  repaid on the
optional prepayment date and as a result the interest rate shall be increased by
up to 5.0% to 12.782%. Additionally,  commencing on November 11, 2003 the lender
may retain all excess  cash flow from the 13  properties  which  secure the Mega
Deal  Loan.  Any  excess  cash flow  retained  by the  lender  can be applied to
principal  after payment of interest.  The  aforementioned  increase in the Mega
Deal Loan's interest rate and the potential loss of excess cash flow from the 13
properties could have severe consequences on our ability to fund our operations.

     We currently  believe a shortfall  could occur with respect to  refinancing
the Mega Deal Loan because we may be unable to place  mortgage  indebtedness  at
commercially reasonable terms on all of the properties in the current collateral
pool. We are actively  marketing for sale several of the  collateral  properties
because their sale could  alleviate some or all of any potential  shortfall.  We
also  continue  to  evaluate  other  capital  raising  activities,  such  as the
placement of mezzanine  level debt on certain of the collateral  properties.  We
caution  that  our  assumptions  regarding  the  refinancing  and  sale  of  the
collateral properties are based on current market conditions and, therefore, are
subject to  various  risks and  uncertainties,  including  changes  in  economic
conditions  which may  adversely  impact our ability to refinance  the Mega Deal
Loan at  favorable  rates or in a timely  and  orderly  fashion  and  which  may
adversely impact our ability to consummate  various asset sales or other capital
raising activities.

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     On July 8, 2003, an affiliate of The Lightstone  Group, LLC  ("Lightstone")
and the  Company  entered  into a  merger  agreement  (the  "Merger  Agreement")
pursuant to which the Company would be acquired by such  affiliate (the "Merger"
or the  "Transaction").  (See  Note 10 -  "Merger  Agreement"  of the  Notes  to
Consolidated  Financial  Statements for additional  information.)  In connection
with the execution of the Merger Agreement,  certain restrictions were placed on
us with respect to the refinancing of the Mega Deal Loan. Specifically,  we were
restricted  from  negotiating  or discussing  the  refinancing of the properties
securing the Mega Deal Loan with any lenders until  September 15, 2003, at which
time we were permitted to discuss refinancing of the Mega Deal Loan with certain
enumerated lenders. However, we are precluded from closing any loans relating to
the  refinancing  of the Mega Deal Loan until  January 11, 2004.  Lightstone  is
obligated  to (i) pay (A)  one-half of the  additional  interest  incurred by us
between  November 11, 2003 and December 31, 2003,  and (B) all of the additional
interest  incurred  by us between  January  1, 2004 and  January  11,  2004 with
respect  to the Mega  Deal Loan and (ii) loan us, at a rate of 7% and for a term
of not less than one year,  an amount equal to any excess cash flow  retained by
the  lender and  applied to  principal  under the Mega Deal Loan  commencing  on
November 11, 2003 and through January 11, 2004.

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

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

     In connection  with the completion of the sale of the Bridge  Properties in
July 2002,  we  guaranteed  to FRIT (i) a 13% return on its  $17,236 of invested
capital,  and (ii) the full return of the  Mandatory  Redemption  Obligation  by
December 31, 2003. As of September 30, 2003, the Mandatory Redemption Obligation
(included in accounts payable and other liabilities in the Consolidated  Balance
Sheet) was $14,489.

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

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

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

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

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

Dividends and Distributions

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

     Our policy  remains to pay  distributions  only to the extent  necessary to
maintain our status as a REIT for federal  income tax purposes.  During 2002, we
were not required to pay any  distributions in order to maintain our status as a
REIT and based on our current federal income tax  projections,  we do not expect
to pay any distributions during 2003. On November 15, 2003 we will be in arrears
on 16 quarters of preferred  stock  distributions  due February 15, 2000 through
November 15, 2003, respectively.

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     We may not make distributions to our common  shareholders or our holders of
common  units of limited  partnership  interests  in the  Operating  Partnership
unless  we  are  current  with  respect  to   distributions   to  our  preferred
shareholders.  As of  September  30,  2003,  unpaid  dividends  for  the  period
beginning  on  November  16,  1999  September  30,  2003 on our  Series A Senior
Cumulative  Preferred  Stock  ("Series A Senior  Preferred  Stock") and Series B
Cumulative  Convertible  Participating  Preferred  Stock  ("Series B Convertible
Preferred Stock") aggregated $23,395 and $64,460,  respectively.  The annualized
dividends  on our  2,300,000  shares  of  Series A Senior  Preferred  Stock  and
7,828,125  shares of Series B  Convertible  Preferred  Stock  outstanding  as of
September 30, 2003 are $6,037 ($2.625 per share) and $16,635 ($2.125 per share),
respectively.

Merger Agreement

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

     We are currently a party to the Merger  Agreement (dated as of July 8, 2003
and as amended by that first  amendment  dated as of September  3, 2003,  and as
otherwise amended) with Prime Outlets Acquisition  Company, LLC (the "Buyer"), a
Delaware limited  liability  company which is an affiliate of Lightstone,  a New
Jersey-based  real estate  company,  which provides for us to be merged with and
into the  Buyer.  Consummation  of the  Transaction  is  subject  to a number of
conditions including the approval of the Transaction and the Merger Agreement by
the holders of at least 66 2/3% of both our Series A Senior  Preferred Stock and
Series B Convertible Preferred Stock, each voting separately as a class, and the
approval of a majority of our common stockholders voting as a separate class, as
well as other customary approvals.

     The Transaction,  which will result in aggregate  consideration of $115,514
payable to our stockholders and unit holders, has a total value of approximately
$638,000, including debt expected to be assumed by the Buyer. Under the terms of
the Merger  Agreement,  each holder of our Series A Senior  Preferred Stock will
receive  cash in the  amount of $18.40 per  share,  each  holder of our Series B
Convertible Preferred Stock will receive cash in the amount of $8.169 per share,
and each holder of our common stock will receive cash in the amount of $0.17 per
share.

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

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

     Formal  documentation  relating to the Transaction and the Merger Agreement
has been filed  with the  Securities  and  Exchange  Commission  and sent to our
stockholders and limited partners.

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     Concurrent  with the  consummation  of the  Transaction,  the  agreement of
limited  partnership of the Operating  Partnership  will be amended and restated
(the "Amended Partnership  Agreement") pursuant to which holders of common units
in the Operating  Partnership (other than common units held by us) will have the
opportunity  to exchange  all,  but not less than all, of their units for a like
number of preferred units in the Operating Partnership  ("Preferred Unit"). Each
holder of Preferred Units will be entitled to require the Operating  Partnership
to redeem all of such holder's  Preferred  Units for an amount per unit equal to
$0.17 (the  consideration paid for a share of common stock of the Company in the
Transaction) plus accrued and unpaid  distributions at the rate of 6% per annum.
In addition,  the Amended  Partnership  Agreement  contains  certain tax related
provisions  that,  subject  to  certain  exceptions,  will  benefit  holders  of
Preferred Units for a period of seven years  including  restrictions on the sale
of properties and requirements to allocate debt in a certain manner.

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

     The special meeting of stockholders (the "Special Meeting") for the purpose
of, among other things,  voting on the Transaction was originally  scheduled for
Thursday,  October 30, 2003. On October 30, 2003, we announced  that the Special
Meeting had been  adjourned to November 4, 2003 and later  announced on November
4, 2003  that the  Special  Meeting  had been  adjourned  again  until  Tuesday,
November 18, 2003 to provide  stockholders  with  additional  time to cast their
vote on the  Transaction.  Before  the  adjournment  of the  Special  Meeting on
October 30, 2003, our common  stockholders  approved an amendment to our charter
to reduce the required vote of the common  stockholders to approve a merger from
two-thirds to a majority.

     There can be no  assurance  as to the timing,  terms or  completion  of the
Transaction.

Settlement of Tenant Matters

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

Development Activities and Capital Expenditures

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

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

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Recent Accounting Pronouncements

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

     In January  2003,  the FASB issued FIN No. 46,  "Consolidation  of Variable
Interest  Entities."  FIN No. 46 requires the  consolidation  of an entity by an
enterprise  (i) if that  enterprise,  known as a  "primary  beneficiary",  has a
variable interest that will absorb a majority of the entity's expected losses if
they occur, receive a majority of the entity's expected residual returns if they
occur, or both and (ii) if the entity is a variable  interest entity, as defined
by FIN No. 46. We did not create any variable  interest entities during the nine
months  ended  September  30,  2003.  We plan to adopt FIN No. 46 in the  fourth
quarter of 2003 and do not believe that this  adoption  will have a  significant
impact  on  our   financial   statements   for  our  existing   investments   in
unconsolidated joint ventures.

     In May 2003, the FASB issued FAS No 150,  "Accounting for Certain Financial
Instruments  with  Characteristics  of both Liabilities and Equity." FAS No. 150
establishes  standards  for  how  an  issuer  classifies  and  measures  certain
financial  instruments with  characteristics  of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some  circumstances).  Many of these  instruments
were  previously  classified  as equity.  In October  2003,  the FASB decided to
indefinitely  delay the effective  date of the provisions of FAS No. 150 related
to finite life entities and also  indicated that it may modify other guidance in
FAS No. 150. In its original  form, we did not  anticipate  FAS No. 150 having a
significant  impact on our financial  statements.  However,  that assessment may
change if the FASB modifies the guidance in FAS No. 150.

Risk Management Activities

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

<PAGE>
                                  Page - (48)


Interest Rate Risk

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

Economic Conditions

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

Funds from Operations

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

Previously,  we excluded  provisions for asset  impairment from our reported FFO
computations  in accordance  with  guidelines  established  by NAREIT;  however,
because of recent  guidance  issued by the  Securities  and Exchange  Commission
("SEC"), we now include provisions for asset impairment in our FFO computations.
Accordingly, the provision for asset impairment of $6,590 incurred in the second
quarter of 2003 is included  in the FFO  computation  for the nine months  ended
September  30, 2003 and the FFO for the quarter and nine months ended  September
30,  2002  have  been  restated  to  include  provisions  for  asset  impairment
aggregating  $97,176 (of which $15,557 is included in  discontinued  operations)
and  $109,376  (of  which  $27,757  is  included  in  discontinued  operations),
respectively.

<PAGE>
                                  Page - (49)


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

     FFO was $3,914 for the three months ended  September  30, 2003  compared to
$(90,286) for the same period in 2002.  The FFO results for the third quarter of
2003 include $1,224 of net interest  expense (the "Defeased  Interest  Expense")
attributable to mortgage  indebtedness  that was defeased in December 2002. This
net  interest  expense  had no impact on our  operating  cash flow  during  2003
because such payments were made from  previously  established  escrows.  The FFO
results for the third  quarter of 2002 reflect an aggregate  provision for asset
impairment of $97,176 (of which $15,557 is included in discontinued operations).

     Excluding  the impact of (i) the  Defeased  Interest  Expense  and (ii) the
provision for asset  impairment,  FFO for the third quarter of 2003 and 2002 was
$5,138 and $6,890, respectively.  This decrease in our FFO results for the third
quarter  of 2003  compared  to our FFO  results  for the same  period in 2002 is
attributable to (i) the impact of reduced  weighted-average  portfolio occupancy
during the 2003  period,  (ii) the impact of changes in economic  rental  rates,
(iii) legal,  financial advisory and proxy costs associated with the Transaction
during the 2003 period and (iv) the loss of net operating  income resulting from
dispositions of properties  primarily  during 2002.  Partially  offsetting these
items were interest savings resulting from the repayment of indebtedness.

     FFO was $8,466 for the nine months  ended  September  30, 2003  compared to
$(93,267) for the same period in 2002. The FFO results for the nine months ended
September 30, 2003 include $3,177 of Defeased Interest Expense.  The FFO results
for the nine months ended  September 30, 2003 also reflect a provision for asset
impairment of $6,590 and the FFO results for the nine months ended September 30,
2002 reflect an aggregate  provision for asset  impairment of $109,376 (of which
$27,757 is included in discontinued operations).

     Excluding  the impact of (i) the  Defeased  Interest  Expense  and (ii) the
provisions  for asset  impairment,  FFO for the nine months ended  September 30,
2003 and 2002 was $18,233 and $16,109,  respectively.  This  increase in our FFO
results  during the nine months  ended  September  30, 2003  compared to our FFO
results for the same period in 2002 was  attributable  to (i)  interest  savings
resulting  from the repayment of  indebtedness,  (ii) the  previously  discussed
non-recurring  charge of $3,000 in the second  quarter of 2002 and (iii) reduced
bad debt expense. These items were partially offset by (i) the impact of reduced
weighted-average  portfolio occupancy during the 2003 period, (ii) the impact of
changes in economic  rental  rates,  (iii) legal,  financial  advisory and proxy
costs  associated with the Transaction  during the 2003 period and (iv) the loss
of net operating  income  resulting from  dispositions  of properties  primarily
during 2002.

<PAGE>
                                  Page - (50)


        TABLE 8 provides a reconciliation of loss from continuing operations to
FFO for the three and nine months ended September 30, 2003 and 2002.

Table 8 - Funds from Operations

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                        Three Months Ended                     Nine Months Ended
                                                                           September 30,                          September 30,
                                                                --------------------------------     -------------------------------
                                                                      2003               2002               2003               2002
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                               <C>               <C>                <C>                <C>
Loss from continuing operations                                   $ (3,717)         $ (85,956)         $ (13,988)         $ (95,907)
Adjustments:
  Gain on sale of real estate                                            -                  -                  -             (5,802)
  Depreciation and amortization                                      6,645              8,229             20,948             27,446
  Non-real estate depreciation and amortization                       (377)              (601)            (1,654)            (1,693)
  Unconsolidated joint ventures' adjustments                         1,414              1,151              3,475              2,897
  Discontinued operations                                              (51)           (13,109)              (315)           (20,208)
                                                                  --------          ---------          ---------          ---------
FFO per NAREIT Definition                                         $  3,914          $ (90,286)         $   8,466          $ (93,267)
                                                                  ========          =========          =========          =========

Other Data:
Net cash provided by operating activities                         $  3,629          $   6,490          $   7,627          $  16,426
Net cash provided by (used in) investing activities                   (480)            (1,478)            (1,670)            18,193
Cash used in financing activities                                   (1,795)            (4,174)            (5,503)           (36,117)
====================================================================================================================================
</TABLE>
<PAGE>
                                  Page - (51)


Item 3.  Quantitative and Qualitative Disclosures of Market Risk


Market Risk Sensitivity

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

Interest Rate Risk

     In the  ordinary  course  of  business,  we are  exposed  to the  impact of
interest rate changes.  We employ established  policies and procedures to manage
our exposure to interest rate changes. Historically, we have used a mix of fixed
and  variable-rate  debt to (i) limit the impact of interest rate changes on our
results  from  operations  and cash flows and (ii) lower our  overall  borrowing
costs.  Nevertheless,   as  of  September  30,  2003,  all  of  our  outstanding
indebtedness bore interest at fixed rates.

     The following table  summarizes (A) scheduled  principal  maturities of our
debt,  excluding  (i)  unamortized  debt  premiums  of $6,091,  (ii)  $24,919 of
aggregate non-recourse mortgage indebtedness in default and (iii) defeased notes
payable in the amount of $74,046,  which was paid in full on November  11, 2003,
and (B) the related average contractual interest rates by year of maturity as of
September 30, 2003. See Note 4 - "Debt" of the Notes to  Consolidated  Financial
Statements contained herein for additional information.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                Year of Maturity
------------------------------------------------------------------------------------------------------------------------------------
                                        2003           2004          2005          2006           2007     Thereafter         Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                                <C>              <C>          <C>          <C>              <C>           <C>          <C>

Bonds Payable
Principal                          $    546        $   726      $    773     $     820        $   878       $ 18,618     $  22,361
Average interest rate                  6.79%          6.34%         6.34%         6.34%          6.34%          6.52%         6.50%

Notes Payable
Principal                          $262,008        $ 4,571      $ 11,574     $ 120,437        $ 1,002       $ 57,995     $ 457,587
Average interest rate                  7.78%          7.97%         8.58%         8.83%          7.60%          7.59%         8.06%
====================================================================================================================================
</TABLE>

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

<PAGE>
                                  Page - (52)


Item 4.  Controls and Procedures

(a)      Evaluation of Disclosure Controls and Procedures

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

(b)      Changes in Internal Controls

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

<PAGE>
                                  Page - (53)


                           PART II: OTHER INFORMATION

Item 1.         Legal Proceedings

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

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

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

<PAGE>
                                  Page - (54)


Several  entities (the  "eOutlets  Plaintiffs")  filed or stated an intention to
file  lawsuits  (collectively,  the  "eOutlets  Lawsuits")  against  us and  our
affiliates  arising out of our on-line  venture,  primeoutlets.com.  inc.,  also
known as  eOutlets,  an  affiliate  of ours.  primeoutlets.com,  inc.  filed for
protection  under Chapter 7 of the United States  Bankruptcy Code in November of
2000 under the name E-Outlets  Resolution  Corp.  (the  "Debtor").  The eOutlets
Plaintiffs sought to hold us and our affiliates  responsible under various legal
theories for  liabilities  incurred by  primeoutlets.com,  inc.,  including  the
theories that we  guaranteed  the  obligations  of eOutlets and that we were the
"alter-ego"  of  eOutlets.  Other  than the suit filed on  November  5, 2002 and
discussed  below,  these eOutlets  Lawsuits against us have been resolved or are
now barred by the applicable statute of limitations or otherwise. On November 5,
2002, the  bankruptcy  trustee for the Debtor brought suit against Prime Retail,
L.P.,  Prime  Retail,  Inc.,  and Prime  Retail  E-Commerce,  Inc.  (the "Entity
Defendants")  and  certain  former  directors  of the  Debtor  (the  "Individual
Defendants").  Motions to dismiss  the suit were filed by all  Defendants  and a
hearing  was held on  September  29,  2003.  After the  hearing,  the  Trustee's
remaining  claims involve  promissory  estoppel,  breach of contract,  breach of
fiduciary duty, tortious  interference with prospective business advantage,  and
preferences  against the Entity  Defendants,  and breach of  fiduciary  duty and
gross negligence against the individual  defendants.  We have tendered the suit,
both as to the Entity  Defendants and Individual  Defendants,  to the Directors'
and Officers'  insurance  carrier.  All  Defendants  believe the suit is without
merit and plan on defending  it  vigorously.  Nevertheless,  the outcome of this
lawsuit,  and the ultimate  liability of us, if any, cannot be predicted at this
time.

On August 29,  2003,  the Company  received  notice of a purported  class action
lawsuit  against the Company,  the Company's  board of directors,  Prime Outlets
Acquisition   Company,   LLC  and  The  Lightstone  Group,  LLC   (collectively,
"Lightstone")  filed  by four  related  series  A  preferred  stockholders  (the
"Plaintiffs"),  in the Circuit Court for Baltimore City,  Maryland (the "Court")
on August  12,  2003  concerning  the  Company's  merger  with  Lightstone  (the
"Merger"). The lawsuit alleges, among other things, that the Company's directors
breached their fiduciary duties in approving the Merger,  that the consideration
payable in respect of the series A preferred  stock is unfair and inadequate and
that the  information  made  available  by the  Company in  connection  with the
transaction is deficient.  The plaintiffs sought,  among other things,  that the
transaction  contemplated  by the Merger  Agreement be enjoined or, in the event
such transaction is consummated,  that it be rescinded and damages be awarded to
class members.  On September 29, 2003, the defendants  filed a motion to dismiss
the original complaint.  In response, on October 8, 2003, the Plaintiffs filed a
Verified First Amended Class Action  Complaint along with a motion for expedited
proceedings  and  subsequent  preliminary  injunction  hearing.  After  a  court
conference,  the Plaintiffs converted their motion for a preliminary  injunction
into one for a temporary restraining order seeking to enjoin the special meeting
for and the scheduled vote on the  transaction.  The Court held a hearing on the
defendants' motion to dismiss and the motion for temporary  restraining order on
October 24 and 28, 2003. On October 28, 2003, the Plaintiffs announced that they
were  withdrawing  their request for  injunctive  relief,  and would not seek to
prevent  the  special  meeting  from  occurring.  The Court  ruled that it would
dismiss the First Amended Complaint,  but allow the Plaintiffs 30 days to file a
second amended complaint.

Item 3.           Defaults Upon Senior Securities

We are currently in arrears in the payment of  distributions on our 10.5% Series
A Senior Cumulative Preferred Stock ("Series A Senior Preferred Stock") and 8.5%
Series  B  Cumulative  Participating  Convertible  Preferred  Stock  ("Series  B
Convertible Preferred Stock"). As of September 30, 2003, the aggregate arrearage
on the Series A Senior  Preferred  Stock and the Series B Convertible  Preferred
Stock  was  approximately   $23.4  million  and  approximately   $64.6  million,
respectively.

<PAGE>
                                  Page - (55)


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

On October 30, 2003 at a special meeting,  our common  stockholders  approved an
amendment to our charter  which  reduced the  required  vote to approve a merger
from  two-thirds  to a  majority.  23,377,680  shares  voted for the  amendment,
4,345,594 shares voted against the amendment,  and 214,241 shares abstained. See
Note 10 - "Merger Agreement" of the Notes to Consolidated  Financial  Statements
contained herein for additional information.

Item 6.           Exhibits and Reports on Form 8-K

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

         Exhibit 3.1       Charter Amendment

         Exhibit 31.1      Certification of Glenn D. Reschke pursuant to Section
                           302 of the Sarbanes-Oxley Act of 2002, dated November
                           13, 2003.

         Exhibit 31.2      Certification   of  Robert  A.  Brvenik  pursuant  to
                           Section 302 of the Sarbanes-Oxley Act of 2002, dated
                           November 13, 2003.

         Exhibit 32.1      Certification   of   Glenn  D.  Reschke  pursuant  to
                           Section 1350,  Chapter 63 of Title 18,  United States
                           Code,  as  adopted  pursuant  to  Section  906 of the
                           Sarbanes-Oxley Act of 2003, dated as of November 13,
                           2003.

         Exhibit 32.2      Certification  of  Robert  A.  Brvenik  pursuant   to
                           Section 1350,  Chapter 63  of Title 18, United States
                           Code,  as  adopted  pursuant  to  Section  906 of the
                           Sarbanes-Oxley Act of 2003, dated as of November 13,
                           2003.

         Reports on Form 8-K:

         On  August 14, 2003, we filed a Current Report on Form 8-K dated August
         14, 2003 announcing our second quarter financial  results  pursuant  to
         Item 12., Results of Operations and Financial Condition, under Item 9.,
         Regulation  FD  Disclosure,  in  accordance  with  the  Securities  and
         Exchange  Commission's  interim  filing  guidance  set forth in Release
         No. 34-47583.

         On  September 4, 2003,  we  filed  a  Current  Report on Form 8-K dated
         September 3, 2003,  under Item 5,  Other Events,  relating to the joint
         announcement between us and The Lightstone Group, LLC ("Lightstone"), a
         New  Jersey-based  real  estate  company,  that they amended the merger
         agreement (the "Merger Agreement") entered into on July 8, 2003 between
         Prime Outlets Acquisition Company, LLC (the "Buyer), a Delaware limited
         liability company which is  an affiliate of Lightstone,  and us,  which
         provides for us to  be  merged  with and into the Buyer.  The amendment
         increases the aggregate  consideration  payable to our shareholders and
         unit  holders  from $115.0  million  to $115.5  million  and reflects a
         revised allocation  of  the  consideration among our classes of capital
         stock. The filing  included as exhibits: (i) a copy of the amendment to
         the Merger Agreement  and (ii) a copy of the joint press release issued
         by us and Lightstone regarding the amendment of the Merger Agreement.*

         * Pursuant to  General  Instruction B of Form 8-K, the report submitted
         to the Securities and  Exchange C ommission under Item 9, Regulation FD
         Disclosure,  is not deemed to be  "filed"  for purpose of Section 18 of
         the Securities  Exchange  Act  of 1934 (the "Exchange Act"), and we are
         not  subject  to the  liabilities of that  section with respect to such
         reports.  We  are  not  incorporating,  and  will  not  incorporate  by
         reference, such report into filings under the Securities Act of 1933 or
         the Exchange Act.
<PAGE>
                                  Page - (56)


                                   SIGNATURES



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



                                PRIME RETAIL, INC.
                                Registrant



Date: November 13, 2003         /s/ Robert A. Brvenik
                                ----------------------------------
                                Robert A. Brvenik
                                President, Chief Financial Officer and Treasurer