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, 1999

                                      or

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


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

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

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


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


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

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

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

Yes   X           No
     ---
Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practical date.

As of October 31, 1999, the issuer had outstanding  43,368,104  shares of Common
Stock, $.01 par value per share.


<PAGE>


                               Prime Retail, Inc.
                                    Form 10-Q


                                      INDEX


PART I:  FINANCIAL INFORMATION                                             PAGE


Item 1.  Financial Statements (Unaudited)

     Consolidated Balance Sheets as of September 30, 1999 and
     December 31, 1998 ....................................................   1

     Consolidated Statements of Operations for the three and nine months
     ended September 30, 1999 and 1998....................................... 2

     Consolidated Statements of Cash Flows for the nine
     months ended September 30, 1999 and 1998................................ 3

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

Item 2.  Management's Discussion and Analysis of Financial
           Condition and Results of Operations...............................10

Item 3. Quantitative and Qualitative Disclosures About Market Risk...........27

PART II:  OTHER INFORMATION

Item 1.  Legal Proceedings...................................................28

Item 2.  Changes in Securities...............................................28

Item 3.  Defaults Upon Senior Securities.....................................28

Item 4.  Submission of Matters to a Vote of Security Holders.................28

Item 5.  Other Information...................................................29

Item 6.  Exhibits or Reports on Form 8-K.....................................29

Signatures...................................................................30


<PAGE>
PART I:  FINANCIAL INFORMATION
Item 1.    Financial Statements (Unaudited)
<TABLE>


                               Prime Retail, Inc.
                           Consolidated Balance Sheets
                    (in thousands, except share information)
<CAPTION>

------------------------------------------------------------------------------------------------------------------------------------
                                                                                     September 30, 1999        December 31, 1998
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                        <C>                      <C>

Assets
Investment in rental property:
     Land                                                                                  $    212,680             $    206,386
     Buildings and improvements                                                               1,803,137                1,753,641
     Property under development                                                                  58,348                   45,068
     Furniture and equipment                                                                     15,859                   10,627
                                                                                           ------------             ------------
                                                                                              2,090,024                2,015,722
     Accumulated depreciation                                                                  (180,106)                (127,747)
                                                                                           ------------             ------------
                                                                                              1,909,918                1,887,975
Cash and cash equivalents                                                                         3,384                    5,765
Restricted cash                                                                                  30,914                   34,969
Accounts receivable, net                                                                         21,998                   21,233
Deferred charges, net                                                                            16,186                   12,518
Investment in partnerships                                                                        9,416                    8,386
Other assets                                                                                     10,011                    5,618
                                                                                           ------------              -----------
     Total assets                                                                          $  2,001,827              $ 1,976,464
                                                                                           ============              ===========
Liabilities and Shareholders' Equity
Bonds payable                                                                              $     32,900              $    32,900
Notes payable                                                                                 1,290,594                1,184,607
Accrued interest                                                                                  7,753                    7,878
Real estate taxes payable                                                                        23,685                   11,229
Construction costs payable                                                                        5,649                    3,754
Accounts payable and other liabilities                                                           66,818                   69,879
                                                                                           ------------             ------------
     Total liabilities                                                                        1,427,399                1,310,247
Minority interests                                                                                4,234                   22,483
Shareholders' equity:
Shares of preferred stock, 24,315,000 shares authorized:
     10.5% Series A Senior Cumulative Preferred Stock, $0.01
        par value (liquidation preference of $57,500), 2,300,000
        shares issued and outstanding                                                                23                       23
     8.5% Series B Cumulative Participating Convertible Preferred
        Stock, $0.01 par value (liquidation preference of $195,703)
        7,828,125 shares issued and outstanding                                                      78                       78
     Series C Cumulative Participating Convertible Redeemable
        Preferred Stock, $.01 par value (liquidation preference
        $60,000), 4,363,636 shares issued and outstanding
        at December 31, 1998                                                                          -                       44
Shares of common stock, 150,000,000 shares authorized:
     Common stock, $0.01 par value, 43,326,537 and 42,736,742
     shares issued and outstanding, respectively                                                    434                      427
Additional paid-in capital                                                                      708,499                  759,105
Distributions in excess of net income                                                          (138,840)                (115,943)
                                                                                           ------------             ------------
     Total shareholders' equity                                                                 570,194                  643,734
                                                                                           ------------             ------------
     Total liabilities and shareholders' equity                                            $  2,001,827             $  1,976,464
                                                                                           ============             ============
====================================================================================================================================
</TABLE>
See accompanying notes to financial statements.

<PAGE>
<TABLE>
                               Prime Retail, Inc.
                      Consolidated Statements of Operations
                  (in thousands, except per share information)
<CAPTION>

------------------------------------------------------------------------------------------------------------------------------------
                                                                              Three months                    Nine months
                                                                           ended September 30              ended September 30
                                                                      -----------------------------  -------------------------------
                                                                               1999           1998            1999           1998
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>            <C>             <C>            <C>

Revenues
Base rents                                                                 $ 49,178       $ 47,516        $146,836       $ 98,646
Percentage rents                                                              1,956          1,960           5,996          3,999
Tenant reimbursements                                                        22,144         21,638          68,441         46,285
Interest and other                                                            4,109          2,403          11,001          7,594
                                                                           --------       --------        --------       --------
     Total revenues                                                          77,387         73,517         232,274        156,524

Expenses
Property operating                                                           17,777         17,140          53,918         36,422
Real estate taxes                                                             5,753          5,380          17,046         11,600
Depreciation and amortization                                                19,452         16,509          56,467         34,267
Corporate general and administrative                                          2,189          2,260           7,776          5,708
Interest                                                                     24,289         20,086          68,014         39,399
Other charges                                                                 1,475          1,570           5,626          2,376
                                                                           --------       --------        --------       --------
     Total expenses                                                          70,935         62,945         208,847        131,342
                                                                           --------       --------        --------       --------
Income before loss on sale of real estate,
     minority interests, and extraordinary loss                               6,452         10,572          23,427         25,182

Loss on sale of real estate                                                       -              -               -        (15,461)
                                                                           --------       --------        --------       --------
Income before minority interests and
     extraordinary loss                                                       6,452         10,572          23,427          9,721
(Income) loss allocated to minority interests                                    78           (214)           (456)        (2,456)
                                                                           --------       --------        --------       --------
Income before extraordinary loss                                              6,530         10,358          22,971          7,265
Extraordinary loss on early extinguishment of debt,
   net of minority interests of $534                                              -              -          (2,106)             -
                                                                           --------       --------        --------       --------

Net income                                                                    6,530         10,358          20,865          7,265
Income allocated to preferred shareholders                                   (6,048)        (6,741)         (4,294)       (17,648)
                                                                           --------       --------        --------       --------
Net income (loss) applicable to common shares                              $    482       $  3,617        $ 16,571       $(10,383)
                                                                           ========       ========        ========       ========
Earnings per common share - basic:
     Income (loss) before extraordinary loss                               $   0.01       $   0.09        $   0.43       $  (0.31)
     Extraordinary loss                                                           -              -           (0.05)             -
                                                                           --------       --------        --------       --------
     Net income (loss)                                                     $   0.01       $   0.09        $   0.38       $  (0.31)
                                                                           ========       ========        ========       ========
Earnings per common share - diluted:
     Income (loss) before extraordinary loss                               $   0.01       $   0.09        $   0.10       $  (0.31)
     Extraordinary loss                                                           -              -           (0.04)             -
                                                                           --------       --------        --------       --------
     Net income (loss)                                                     $   0.01       $   0.09        $   0.06       $  (0.31)
                                                                           ========       ========        ========       ========
Weighted average common shares outstanding:
     Basic                                                                   43,286         42,314          43,142         33,211
                                                                           ========       ========        ========       ========
     Diluted                                                                 43,286         42,314          55,557         33,211
                                                                           ========       ========        ========       ========
Distributions declared per common share                                    $  0.295       $  0.295        $  0.885      $   1.385
                                                                           ========       ========        ========      =========
====================================================================================================================================
</TABLE>
See accompanying notes to financial statements.

<PAGE>
<TABLE>
                               Prime Retail, Inc.
                      Consolidated Statements of Cash Flows
                                 (in thousands)
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Nine months ended September 30,                                                                     1999                   1998
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                             <C>                    <C>
Operating Activities
Net income                                                                                       $20,865               $  7,265
Adjustments to reconcile net income to
    net cash provided by operating activities:
      (Loss) income allocated to minority interests                                                  (78)                 2,456
      Loss on sale of real estate                                                                      -                 15,461
      Depreciation                                                                                55,866                 33,413
      Amortization of deferred financing costs and
         interest rate protection contracts                                                        2,427                  2,199
      Amortization of leasing commissions                                                            601                    854
      Provision for uncollectible accounts receivable                                              1,396                    788
Changes in operating assets and liabilities:
      Increase in accounts receivable                                                             (5,125)                (1,656)
      Increase in other assets                                                                    (3,385)                (1,147)
      Increase (decrease) in accrued interest                                                        (24)                 2,553
      Decrease in accounts payable and other liabilities                                           4,594                 (9,668)
                                                                                                 -------               --------
         Net cash provided by operating activities                                                77,137                 52,518

Investing Activities
Proceeds from sale of Prime Transferred Properties                                                     -                 26,015
Acquisition of Horizon, net of cash acquired and
    spin-off of HGP                                                                                    -                (35,124)
Purchase of buildings and improvements                                                           (26,292)               (42,916)
Increase in property under development                                                           (31,369)               (70,821)
                                                                                                 -------               --------
         Net Cash used in investing activities                                                   (57,931)              (122,846)

Financing Activities
Proceeds from notes payable                                                                      190,684                421,970
Principal repayments on notes payable                                                            (95,709)              (266,722)
Deferred financing costs                                                                          (4,696)                (3,247)
Series C preferred stock redemption                                                              (45,054)                     -
Distributions and dividends paid                                                                 (57,100)               (60,143)
Distributions to minority interests                                                               (9,712)               (14,145)
                                                                                                 -------               --------
         Net cash (used in) provided by financing activities                                     (21,587)                77,713
                                                                                                 --------              --------
(Decrease) increase in cash and cash equivalents                                                  (2,381)                 7,385
Cash and cash equivalents at beginning of period                                                   5,765                  6,373
                                                                                                 -------               --------
Cash and cash equivalents at end of period                                                       $ 3,384               $ 13,758
                                                                                                 =======               ========
====================================================================================================================================
</TABLE>
See accompanying notes to financial statements.

<PAGE>
                               Prime Retail, Inc.
                Consolidated Statements of Cash Flows (continued)
                                 (in thousands)


Supplemental Disclosure of Noncash Investing and Financing Activities:

The  following  assets and liabilities were acquired and sold in connection with
the consummation of the Merger Transactions on June 15, 1998:

Acquisition of Horizon, net of spin-off of HGP:
  Fair value of assets acquired                                      $1,014,973
  Cash paid, net of cash and cash equivalents acquired                  (35,559)
  Common shares issued                                                 (214,282)
  Common units issued                                                   (56,023)
  Series B convertible preferred shares issued                         (118,735)
                                                                     ----------
  Fair value of liabilities assumed                                  $  590,374
                                                                     ==========
Disposition of Prime Transferred Properties:
  Book value of assets disposed                                      $   42,218
  Cash received                                                         (26,015)
  Loss on sale                                                          (15,461)
                                                                     ----------
  Liabilities disposed                                               $      742
                                                                     ==========
================================================================================
See accompanying notes to financial statements.

<PAGE>

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


Note 1 -- Interim Financial Presentation

The accompanying  unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles ("GAAP") for interim
financial  information  and the  instructions  to Form  10-Q and  Article  10 of
Regulation  S-X.  Accordingly,  they do not include all of the  information  and
footnotes required by GAAP for complete financial statements.  In the opinion of
management,  all adjustments  consisting only of recurring  accruals  considered
necessary for a fair presentation have been included. Operating results for such
interim  periods are not  necessarily  indicative  of the  results  which may be
expected  for a  full  fiscal  year.  For  further  information,  refer  to  the
consolidated financial statements and footnotes included in Prime Retail, Inc.'s
(the "Company") annual report on Form 10-K for the year ended December 31, 1998.

Unless the context requires otherwise, all references to the Company herein mean
Prime Retail, Inc. and those entities owned or controlled by Prime Retail, Inc.,
including Prime Retail,  L.P. (the "Operating  Partnership").  The  consolidated
financial  statements  include  the  accounts  of  the  Company,  the  Operating
Partnership and the  partnerships in which the Company has operational  control.
Profits and losses are allocated in  accordance  with the terms of the agreement
of limited partnership of the Operating Partnership. Investments in partnerships
in which the Company does not have  operational  control are accounted for under
the equity method of accounting.  Income (loss) applicable to minority interests
and common shares as presented in the  consolidated  statements of operations is
allocated  based  on  income  (loss)  before  minority  interests  after  income
allocated to preferred shareholders.

The  preparation  of  financial  statements   inconformity  with  GAAP  requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities  and disclosure of contingent  liabilities at the date of
the  financial  statements  and the  reported  amounts of revenues  and expenses
during the reporting  period.  Actual results could differ from those estimates.
Significant  intercompany  accounts and  transactions  have been  eliminated  in
consolidation.  Certain prior period financial information has been reclassified
to conform with the current period presentation.

Note 2 -- Earnings Per Share

The Company  reports  earnings per share ("EPS") in accordance with Statement of
Financial  Accounting  Standards  ("SFAS") No. 128,  "Earnings  per Share" which
specifies the method of computation,  presentation, and disclosure. SFAS No. 128
requires the  presentation of basic EPS and diluted EPS. Basic EPS is calculated
by dividing net income available to common  shareholders by the weighted average
number of shares  outstanding  during  the  period.  Diluted  EPS  includes  the
potentially  dilutive  effect,  if any,  which  would occur if  outstanding  (i)
options  to  purchase  Common  Stock  were  exercised,  (ii)  Common  Units were
converted into shares of Common Stock,  (iii) shares of Series C Preferred Stock
were  converted  into  shares of Common  Stock,  and (iv)  Series B  Convertible
Preferred Stock were converted into shares of Common Stock.  For the nine months
ended  September 30, 1999, (i) a redemption  discount and dividends  aggregating
$13,338 related to the Company's  repurchase of its Series C Preferred Stock and
(ii) income of $422  allocated  to Common  Unitholders  were  excluded  from the
numerator and  incremental  shares of 12,415 were included in the denominator of
the  computation  of diluted EPS. For the three months ended  September 30, 1999
and for the three and nine  months  ended  September  30,  1998,  diluted EPS is
equivalent to basic EPS as the inclusion of the effect of assumed  exercises and
conversions was anti-dilutive.
<PAGE>
<TABLE>

The following table sets forth the computation of basic and diluted earnings per share:

----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                                              Three months                    Six months
                                                                           ended September 30                 ended June 30
                                                                      -----------------------------  -----------------------------
                                                                               1999           1998            1999           1998
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>           <C>              <C>             <C>
Numerator:
Income before extraordinary loss and
     minority interests                                                     $ 6,452       $ 10,572        $23,427       $  9,721
(Income) loss allocated to minority interests                                    78           (214)          (456)        (2,456)
                                                                            -------       --------        -------       --------
Net income before extraordinary loss                                          6,530         10,358         22,971          7,265
Income loss allocated to preferred shareholders                              (6,048)        (6,741)        (4,294)       (17,648)
                                                                            -------       --------        -------       --------

Numerator for basic earnings per share -
     income (loss) available to common shareholders
     before extraordinary loss                                                  482          3,617         18,677        (10,383)

Effect of dilutive securities:
Income allocated to common unitholders                                            -              -             422              -
Series C preferred stock redemption discount                                      -              -         (13,338)             -
                                                                            -------       --------         -------       --------
Numerator for diluted earnings per share -
     income (loss) available to common shareholders
     before extraordinary loss                                              $   482       $  3,617       $   5,761      $ (10,383)
                                                                            =======       ========        ========      =========


Denominator:
Denominator for basic earnings per share -
     weighted average common shares outstanding                              43,286         42,314          43,069         33,211

Effect of dilutive securities:
Series C preferred shares                                                         -              -           1,623              -
Limited partner common units                                                      -              -          11,028              -
                                                                            -------       --------         -------       --------
                                                                                  -              -          12,651              -
                                                                            -------       --------         -------       --------

Denominator for diluted earnings per share -
     adjusted weighted average common shares
     outstanding                                                             43,286         42,314          55,720         33,211
                                                                            =======        =======         =======       ========

Basic earnings per common share before
     extraordinary loss                                                      $ 0.01        $  0.09         $ 0.42        $ (0.31)
                                                                             ======        =======         =======       ========
Diluted earnings per common share before
     extraordinary loss                                                      $ 0.01        $  0.09         $ 0.08        $ (0.31)
                                                                             ======        =======         =======       ========

====================================================================================================================================
</TABLE>
<PAGE>
Note 3 -- Minority Interests

In prior periods,  cash distributions and losses allocated to minority interests
reduced the  minority  interests  balance to zero.  After  reducing the minority
interests  balance  to zero,  additional  distributions  and  losses  of  $3,369
incurred  during the nine months ended  September 30, 1998,  that were otherwise
allocable to minority  interests were allocated to common  shareholders.  During
the nine months ended September 30, 1999, the cumulative amount of distributions
and losses  that were  allocable  to  minority  interests  that were  previously
allocated to common shareholders was reduced by $4,261 and the remaining balance
at September 30, 1999 was $10,368.

Note 4 - Notes Payable

On November 15, 1999,  the Company  closed on a $20,000  subordinated  loan (the
"Subordinated  Loan") from an institutional  lender.  The Subordinated  Loan (i)
bears  interest at a fixed-rate of 15.0%,  (ii) requires  monthly  interest-only
payments, (iii) matures on December 31, 1999, and (iv) is secured by a pledge of
a security interest in certain of the Company's  ownership interests in, and the
available cash flow from five outlet centers,  including Prime Outlets of Puerto
Rico, which is currently under construction.  This collateral is also pledged to
secure  borrowings under the Line of Credit (as defined  below).

On November 12, 1999, the Company closed on $55,000 term loan (the "$55,000 Term
Loan") from a financial institution. The $55,000 Term Loan (i) bears interest at
30-day LIBOR plus 6.0%, (ii) requires monthly  principal and interest  payments,
and (iii) matures in two years. The Term Loan was issued by Prime Retail Capital
I, L.L.C. ("PRC"), a newly-formed wholly-owned subsidiary of Prime Retail, L.P.,
and is secured  by the excess  cash flow from 15  manufacturer'  outlet  centers
after the payment of senior debt service and reserves under an existing $350,645
first  mortgage  loan.  The Term Loan also is secured by a pledge of PRC's 49.9%
limited  partnership  interest in  partnerships  that own twelve of those outlet
centers and Prime Retail,  L.P.'s 100% equity  interest in PRC. The Term Loan is
unconditionally  guaranteed  by Prime Retail,  L.P. and Prime  Retail,  Inc.

The Company used the net cash  proceeds  from the Term Loan to repay  $40,944 of
short-term  indebtedness and to repay a portion of the borrowings under the Line
of  Credit.

During  October  1999,  the Company  refinanced  its  $28,250 of  variable-rate,
tax-exempt  revenue bonds by issuing  $28,250 of fixed rate  tax-exempt  revenue
bonds (the "Fixed Rate Bonds").  The Fixed Rate Bonds bear interest ranging from
6.875% to 7.0%, require  semi-annual  interest payments and mature from December
15, 2012 through  December 1, 2014.  The Fixed Rate Bonds are  redeemable by the
Company  commencing  in  December  2006  at 102%  of the  outstanding  principal
balance.  The redemption  price  decreases  incrementally  each year  thereafter
through  December 2008, at which date the  redemption  price is fixed at 100% of
the outstanding principal balance.

On September 29, 1999, the Company  received  $40,000 of proceeds from a line of
credit  facility (the "Line of Credit") with a group of  institutional  lenders.
These proceeds were used to repurchase the Company's  Series C Preferred  Stock.
The Line of Credit (i) bears  interest at a fixed-rate  of 11.0%,  (ii) requires
monthly  interest-only  payments,  and (iii) matures in nine months. The Line of
Credit may be repaid at anytime without  penalty.  The Line of Credit  initially
was secured by a pledge of the  Company's  interest  in one of its  subsidiaries
that will be formed to engage in the  design,  development  and  operation  of a
virtual  outlet center on the internet.  Subsequently  this facility was amended
to, among other things,  permit the Subordinated Loan and provide for the pledge
of assets securing such loan as additional  collateral under the Line of Credit.
Borrowings under the Line of Credit rank senior to the Subordinated Loan and the
Company is  prohibited  from making any payment of  principal  in respect of the
Subordinated Loan so long as any obligations  remain  outstanding under the Line
of Credit.  Upon  repayment  of the Line of Credit in full,  the lenders will be
entitled to receive a cash payment that increases  their internal rate of return
with  respect to amounts  advanced  under such  facility  by 4.0% per annum (the
"Cash  Payment").  Lenders  under the Line of Credit also  received  warrants to
purchase a 5% interest in the Company's e-commerce subsidiary. In the event this
subsidiary  completes an initial  public  offering  prior to September 10, 2000,
such lenders must elect to (i)  surrender  these  warrants,  (ii) forgo the Cash
Payment or (iii)  surrender a portion of the warrants and forgo a portion of the
Cash Payment based on the number of warrants so surrendered.

On July 11, 1999, the Company's $20,000 unsecured line of credit (the "Corporate
Line") was renewed and increased to $25,000.  The purpose of the Corporate  Line
is to provide working capital to facilitate the funding of short-term  operating
cash needs of the Company.  The Corporate  Line bears an interest rate of 30-day
LIBOR plus 2.50% and  matures on July 11,  2000.  At  September  30,  1999,  the
Corporate Line had an outstanding principal balance of $22,175.

On April  27,  1999,  the  Company  closed on a $63,000  debt  financing  with a
financial institution that provided  approximately $27,900 of net proceeds.  The
$63,000  note is (i)  collateralized  by a first  mortgage  on Prime  Outlets at
Niagara Falls USA, (ii) bears interest at a fixed rate of 7.604%, (iii) requires
monthly   principal  and  interest  payments  of  $450  pursuant  to  a  30-year
amortization schedule, and (iv) matures in 10 years. In connection with the debt
refinancing,  the Company incurred an extraordinary loss on early extinguishment
of debt of $2,106, net of minority interests of $534, representing a pre-payment
penalty.

As of September 30, 1999, the Company is a guarantor or otherwise obligated with
respect  to an  aggregate  of  $12,774  of the  indebtedness  of  Horizon  Group
Properties, Inc. and its affiliates ("HGP") including a $10,000 obligation under
HGP's  secured  credit  facility  which  bears a rate of  interest of LIBOR plus
1.90%,  matures in July 2001, and is collateralized by seven properties  located
throughout the United States.

Note 5 - Redeemable Equity

On March 31,  1999,  the Company  entered into an  agreement  providing  for the
repurchase  of all of its  outstanding  shares of Series C  Preferred  Stock for
$43,636 or $10.00 per share. The agreement  provided for the repurchase to occur
in two stages.  In the first stage,  on March 31, 1999, the Company  repurchased
3,300,000 shares of the Series C Preferred Stock in exchange for the issuance of
a 12.0%  fixed  rate  $33,000  unsecured  promissory  note  which was  repaid on
September 29, 1999. In the second stage,  the Company  repurchased the remaining
1,063,636  outstanding  shares of its Series C Preferred  Stock for an aggregate
purchase  price of $10,636 on September  29, 1999.

During the nine months  ended  September  30,  1999,  a  redemption  discount of
$13,338 representing the excess of the carrying amount of the Series C Preferred
Stock over its redemption amount is reflected in the Consolidated  Statements of
Operations as a loss allocated to preferred shareholders.

Note 6 - Legal Proceedings

In the  ordinary  course of  business  the  Company is subject to certain  legal
actions.  While any litigation  contains an element of  uncertainty,  management
believes the losses, if any,  resulting from such matters,  including the matter
described  below,  will not have a material  adverse effect on the  consolidated
financial statements of the Company.

The Company and its  affiliates  are defendants in a lawsuit filed on August 10,
1999 in the Circuit Court for Baltimore City and removed to U.S.  District Court
for the  District of Maryland on August 20, 1999.  The lawsuit  alleges that the
Company and its related entities overcharged tenants for common area maintenance
charges and promotional fund charges. The outcome of, and the ultimate liability
of the Company,  if any,  from,  this  lawsuit  cannot  currently be  predicted.
Management  believes  that the Company has acted  properly and intends to defend
this lawsuit vigorously.

Note 7 - Proposed Sale of Majority Interests in Three Outlet Centers

On August 6, 1999,  the Company  entered into an agreement to sell three factory
outlet  centers,  including  two future  expansions  expected to be completed in
2000, to a new joint venture (the "Prime/Estein Venture") that will be 70% owned
by an  affiliate  of  Estein  &  Associates  USA,  Ltd.,  a German  real  estate
investment company ("Estein"),  and 30% owned by the Company. The total purchase
price for the three centers, including the two proposed expansions, is $274,000.

The  Prime/Estein  Venture  expects to purchase the three outlet centers and two
expansions subject to $151,500 of new first mortgage  indebtedness,  including a
$64,500  "wrap-around" first mortgage to be provided by the Company on the Prime
Outlets at Birch Run. The balance of the purchase  price  ($122,500) is expected
to be funded 70% by Estein in cash  ($85,750) and 30% by the Company in the form
of a credit to its capital  account  ($36,750).  In accordance with the terms of
the joint  venture  agreement,  the first  mortgage debt is required to be for a
ten-year term at a fixed interest rate of 7.75%,  requiring  monthly payments of
principal and interest pursuant to a 25-year amortization schedule.

The Company expects to receive  approximately  $78,000 of cash proceeds,  net of
(i) all closing costs, (ii) the cost of completing the proposed expansions,  and
(iii) the Company's  approximate  $10,000 net  investment  in the  "wrap-around"
first  mortgage  being  provided on Prime  Outlets at Birch Run.  An  additional
$10,000  of net  proceeds  is  expected  as a result of the  refinancing  of the
existing Williamsburg first mortgage loan.

Consummation  of  this  transaction   remains  subject  to  various  conditions,
including  receipt of requisite  financing.  There can be no assurance  that the
Prime/Estein  Venture will close this  transaction  or that, if  completed,  the
terms of this transaction will not differ materially from those described above.
<PAGE>




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

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


Introduction

The following  discussion and analysis of the consolidated  financial  condition
and results of operations of Prime Retail,  Inc. (the "Company")  should be read
in conjunction with the Consolidated Financial Statements and Notes thereto. The
Company's  operations are conducted  through Prime Retail,  L.P. (the "Operating
Partnership").  The  Company  controls  the  Operating  Partnership  as its sole
general partner and is dependent upon the  distributions  or other payments from
the Operating Partnership to meet its financial obligations.  Historical results
and percentage  relationships set forth herein are not necessarily indicative of
future operations.

Cautionary Statements

The following  discussion in "Management's  Discussion and Analysis of Financial
Condition and Results of Operations" contains certain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 which
reflect  management's  current views with respect to future events and financial
performance.  The words "believes",  "expects",  "anticipates",  "estimates" and
similar words or expressions are generally intended to identify  forward-looking
statements.  These statements  contain  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 effects of future events on the Company's  financial  performance;  the risk
that  the  Company  may  be  unable  to  finance  its  planned  acquisition  and
development  activities;  risks  related  to the  retail  industry  in which the
Company's manufacturers' outlet centers compete, including the potential adverse
impact of external factors, such as inflation, consumer confidence, unemployment
rates and consumer tastes and  preferences;  risks associated with the Company's
property  acquisitions,  such as the  lack of  predictability  with  respect  to
financial  returns;  risks  associated with the Company's  property  development
activities,  such as the  potential  for cost  overruns,  delays and the lack of
predictability  with  respect to the  financial  returns  associated  with these
development activities;  the risk of potential increase in market interest rates
from current levels;  risks associated with real estate  ownership,  such as the
potential  adverse impact of changes in local  economic  climate on the revenues
and the value of the Company's properties;  and risks associated with the impact
of the Year 2000 issue on the  processing of  date-sensitive  information by the
Company's computerized  information systems as well as the Company's tenants and
vendors.

Merger with Horizon Group, Inc.

On June 15, 1998, the merger and other transactions  (collectively,  the "Merger
Transactions")  between the Company and Horizon  Group,  Inc.  ("Horizon")  were
consummated for an aggregate consideration of $1,134,682,  including liabilities
assumed and related  transaction  costs. The merger has been accounted for using
the purchase  method of  accounting  and the purchase  price of  $1,134,682  was
allocated to the assets acquired and the liabilities  assumed based on estimates
of their respective fair values.  Accordingly,  the operating  results of the 22
properties   acquired   from  Horizon  have  been   included  in  the  Company's
consolidated  results of operations  commencing on June 15, 1998.


<PAGE>


Portfolio Growth

The Company has grown by developing  and acquiring  outlet centers and expanding
certain of its existing outlet centers.  As summarized in TABLE 1, the Company's
outlet portfolio  consisted of 51 outlet centers totaling 14,699,000 square feet
of gross  leasable area ("GLA") at September 30, 1999,  compared to 50 operating
outlet  centers  totaling  14,029,000  square feet of GLA at September 30, 1998.
During the nine months  ended  September  30,  1999,  the Company (i) opened two
expansions to existing outlet centers  aggregating 85,000 square feet of GLA (of
which  21,000 and 64,000  square feet opened in March and August,  respectively)
and  (ii)  acquired  from  Horizon  Group  Properties,  Inc.  ("HGP")  ownership
interests in the Bellport Outlet Center which consists of 292,000 square feet of
GLA. In connection with the Merger  Transactions  which were consummated on June
15, 1998,  the Company  acquired and  integrated 22 of Horizon's  outlet centers
into its existing portfolio adding 6,626,000 square feet of GLA in the aggregate
and  sold  two  outlet  centers  to HGP  totaling  426,000  square  feet of GLA.
Additionally,  during 1998,  the Company opened two new outlet centers and added
nine expansions to existing outlet centers  totaling  931,000 square feet of GLA
in the aggregate (of which seven  expansions to existing outlet centers totaling
402,000 square feet of GLA opened after September 30, 1998). The increase in the
Company's  total GLA since  September 30, 1998 is referred to as the  "Portfolio
Expansion".  The significant  increase in the number of the Company's  operating
properties and total GLA since January 1, 1998 are  collectively  referred to as
the "Portfolio Expansion and the Horizon Merger".


<PAGE>
<TABLE>
Table 1 - Portfolio of Properties September 30, 1999
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                          Grand            GLA           Percentage
                                                                        Phase          Opening Date      (Sq. Ft.)        Leased(1)
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>            <C>               <C>             <C>
Prime Outlets at Kittery -- Kittery Maine..............................     I            April 1984         25,000            100%
                                                                           II              May 1984         78,000             99
                                                                          III           August 1989         18,000            100
                                                                           IV              May 1998         10,000            100
                                                                                                           -------            ---
                                                                                                           131,000            100

Prime Outlets at Fremont (2)-- Fremont, Indiana........................     I          October 1985        118,000             92
                                                                           II         November 1993         51,000            100
                                                                          III          October 1994         60,000            100
                                                                                                           -------            ---
                                                                                                           229,000             96

Prime Outlets at Birch Run (2)-- Birch Run, Michigan................... I-XVI               Various        591,000             96
                                                                   XVII-XVIII                  1997        133,000             97
                                                                                                           -------            ---
                                                                                                           724,000             97

Prime Outlets at Latham-- Latham, New York.............................     I           August 1987         43,000             98

Prime Outlets at Michigan City (2)-- Michigan City, Indiana............     I         November 1987        199,000            100
                                                                           II              May 1988        130,000            100
                                                                          III             July 1991         36,000             86
                                                                           IV             July 1994         42,000            100
                                                                            V         December 1994         26,000             98
                                                                           VI              May 1995         58,000             96
                                                                                                           -------            ---
                                                                                                           491,000             98

Prime Outlets at Williamsburg (2)-- Williamsburg, Virginia.............     I            April 1988         67,000            100
                                                                           II         November 1988         60,000            100
                                                                          III          October 1990         49,000             86
                                                                           IV                  1995         98,000            100
                                                                                                           -------            ---
                                                                                                           274,000             97

Prime Outlets at Kenosha (2)-- Kenosha, Wisconsin......................     I        September 1988         89,000             96
                                                                           II             July 1989         65,000            100
                                                                          III              May 1990        115,000             93
                                                                                                           -------            ---
                                                                                                           269,000             96

Prime Outlets at Silverthorne (2)-- Silverthorne, Colorado.............     I         November 1988         95,000             90
                                                                           II         November 1990         75,000             92
                                                                          III         November 1993         88,000             83
                                                                                                           -------            ---
                                                                                                           258,000             88

Prime Outlets at Edinburgh (2)-- Edinburgh, Indiana....................     I                  1988        156,000            100
                                                                           II         November 1994        142,000            100
                                                                                                           -------            ---
                                                                                                           298,000            100

Prime Outlets at Burlington (2)-- Burlington, Washington ..............     I              May 1989         89,000             89
                                                                           II          October 1989         36,000            100
                                                                          III            April 1993         49,000             97
                                                                                                           -------            ---
                                                                                                           174,000             93

Prime Outlets at Queenstown (2)-- Queenstown, Maryland.................     I             June 1989         67,000            100
                                                                           II             June 1990         55,000             88
                                                                          III          January 1991         16,000             97
                                                                           IV             June 1992         14,000             97
                                                                            V           August 1993         69,000            100
                                                                                                           -------            ---
                                                                                                           221,000             97
</TABLE>
<PAGE>
<TABLE>
Table 1 - Portfolio of Properties September 30, 1999
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                           Grand            GLA           Percentage
                                                                        Phase          Opening Date      (Sq. Ft.)        Leased(1)
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>            <C>               <C>             <C>
Prime Outlets at Hillsboro (2)-- Hillsboro, Texas......................     I          October 1989         95,000             90%
                                                                           II          January 1992        101,000             92
                                                                          III              May 1995        163,000             95
                                                                                                           -------            ---
                                                                                                           359,000             93

Prime Outlets at Oshkosh (2)-- Oshkosh, Wisconsin......................     I         November 1989        215,000             95
                                                                           II             July 1991         45,000             93
                                                                                                           -------            ---
                                                                                                           260,000             95

Prime Outlets at Warehouse Row (3)-- Chattanooga, Tennessee............     I         November 1989         95,000             89

Prime Outlets at Gilroy (2)-- Gilroy, California.......................     I          January 1990         94,000            100
                                                                           II           August 1991        109,000            100
                                                                          III          October 1992        137,000             94
                                                                           IV             July 1994        170,000             97
                                                                            V         November 1995         69,000            100
                                                                                                           -------            ---
                                                                                                           579,000             98

Prime Outlets at Perryville (2)-- Perryville, Maryland.................     I             June 1990        148,000             91

Prime Outlets at Sedona-- Sedona, Arizona .............................     I           August 1990         82,000             96

Prime Outlets at San Marcos-- San Marcos, Texas........................     I           August 1990        177,000            100
                                                                           II           August 1991         70,000             91
                                                                          III           August 1993        117,000             78
                                                                         IIIB         November 1994         20,000             91
                                                                         IIIC         November 1995         35,000            100
                                                                         IIID              May 1998         18,000            100
                                                                            V           August 1999         64,000             99
                                                                                                           -------            ---
                                                                                                           501,000             93

Prime Outlets at Anderson-- Anderson, California.......................     I           August 1990        165,000             94

Prime Outlets at Post Falls-- Post Falls, Idaho .......................     I             July 1991        111,000             82
                                                                           II             July 1992         68,000             89
                                                                                                           -------            ---
                                                                                                           179,000             85

Prime Outlets at Ellenton-- Ellenton, Florida..........................     I         October 1991         187,000             98
                                                                           II          August 1993         123,000            100
                                                                          III         October 1996          30,000            100
                                                                           IV        November 1998         141,000             97
                                                                                                           -------            ---
                                                                                                           481,000             98

Prime Outlets at Morrisville-- Raleigh - Durham, North Carolina........     I         October 1991         181,000             95
                                                                           II            July 1996           6,000            100
                                                                                                           -------            ---
                                                                                                           187,000             95


Prime Outlets at Naples-- Naples/Marco Island, Florida.................     I        December 1991          94,000             88
                                                                           II        December 1992          32,000            100
                                                                          III           March 1998          20,000             98
                                                                                                           -------            ---
                                                                                                           146,000             92

Prime Outlets at Conroe (2)-- Conroe, Texas............................     I         January 1992          93,000             94
                                                                           II            June 1994         163,000             90
                                                                          III         October 1994          26,000             79
                                                                                                           -------            ---
                                                                                                           282,000             90

Prime Outlets at Bellport (4) -- Bellport, New York....................     I             May 1992          95,000             88
                                                                           II        November 1996         126,000             91
                                                                          III         October 1997          71,000             60
                                                                                                           -------            ---
                                                                                                           292,000             83
</TABLE>
<PAGE>
<TABLE>
Table 1 - Portfolio of Properties September 30, 1999
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                           Grand            GLA           Percentage
                                                                        Phase          Opening Date      (Sq. Ft.)        Leased(1)
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>            <C>               <C>             <C>
Prime Outlets at Niagara Falls USA-- Niagara Falls, New York...........     I            July 1992         300,000            100%
                                                                           II          August 1995         234,000             89
                                                                                                           -------            ---
                                                                                                           534,000             95

Prime Outlets at Woodbury (2)-- Woodbury, Minnesota....................     I            July 1992         129,000             93
                                                                           II        November 1993         100,000             88
                                                                          III          August 1994          21,000            100
                                                                                                           -------            ---
                                                                                                           250,000             91

Prime Outlets at Calhoun (2)-- Calhoun, Georgia........................     I         October 1992         123,000             97
                                                                           II         October 1995         131,000             94
                                                                                                           -------            ---
                                                                                                           254,000             95

Prime Outlets at Castle Rock-- Castle Rock, Colorado...................     I        November 1992         181,000             96
                                                                           II          August 1993          94,000             98
                                                                          III        November 1993          95,000            100
                                                                           IV          August 1997         110,000            100
                                                                                                           -------            ---
                                                                                                           480,000             98

Prime Outlets at Bend-- Bend, Oregon...................................     I        December 1992          97,000             98
                                                                           II       September 1998          35,000             99
                                                                                                           -------            ---
                                                                                                           132,000             98

Prime Outlets at Jeffersonville II (2)-- Jeffersonville, Ohio..........     I           March 1993         126,000             73
                                                                           II          August 1993         123,000             60
                                                                          III         October 1994          65,000             74
                                                                                                           -------            ---
                                                                                                           314,000             68

Prime Outlets at Jeffersonville I-- Jeffersonville, Ohio...............     I            July 1993         186,000             89
                                                                           II        November 1993         100,000            100
                                                                          IIB        November 1994          13,000             64
                                                                         IIIA          August 1996          35,000             97
                                                                         IIIB           March 1997          73,000            100
                                                                                                           -------            ---
                                                                                                           407,000             94

Prime Outlets at Gainesville-- Gainesville, Texas......................     I           August 1993        210,000             90
                                                                           II         November 1994        106,000             90
                                                                                                           -------            ---
                                                                                                           316,000             90

Prime Outlets at Loveland-- Loveland, Colorado.........................     I              May 1994        139,000             97
                                                                           II         November 1994         50,000            100
                                                                          III              May 1995        114,000             93
                                                                           IV              May 1996         25,000            100
                                                                                                           -------            ---
                                                                                                           328,000             96

Prime Outlets at Oxnard (5)-- Oxnard, California.......................     I             June 1994        148,000             92

Prime Outlets at Grove City-- Grove City, Pennsylvania.................     I           August 1994        235,000            100
                                                                           II         November 1994         95,000            100
                                                                          III         November 1995         85,000             99
                                                                           IV         November 1996        118,000             99
                                                                                                           -------            ---
                                                                                                           533,000            100

Prime Outlets at Huntley-- Huntley, Illinois...........................     I           August 1994        192,000             96
                                                                           II         November 1995         90,000             89
                                                                                                           -------            ---
                                                                                                           282,000             94

Prime Outlets at Florida City-- Florida City, Florida..................     I        September 1994        208,000             86

Prime Outlets at Pismo Beach (2)-- Pismo Beach, California.............     I         November 1994        148,000             98

Prime Outlets at Tracy  (2)-- Tracy, California........................     I         November 1994        153,000             91
</TABLE>
<PAGE>
<TABLE>
Table 1 - Portfolio of Properties September 30, 1999
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                           Grand            GLA           Percentage
                                                                        Phase          Opening Date      (Sq. Ft.)        Leased(1)
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>            <C>               <C>             <C>
Prime Outlets at Vero Beach (2)-- Vero Beach, Florida..................     I         November 1994         210,000            98%
                                                                           II           August 1995         116,000            98
                                                                                                           -------            ---
                                                                                                            326,000            98

Prime Outlets at Waterloo (2)-- Waterloo, New York.....................     I            March 1995         208,000            99
                                                                           II        September 1996         115,000           100
                                                                          III            April 1997          68,000            94
                                                                                                            -------           ---
                                                                                                            391,000            99

Prime Outlets at Odessa-- Odessa, Missouri.............................     I             July 1995         191,000            93
                                                                           II         November 1996         105,000            58
                                                                                                            -------           ---
                                                                                                            296,000            81

Prime Outlets at Darien (6)-- Darien, Georgia..........................     I             July 1995         238,000            87
                                                                          IIA         November 1995          49,000            93
                                                                          IIB             July 1996          20,000           100
                                                                                                            -------           ---
                                                                                                            307,000            89

Prime Outlets at New River (5)-- Phoenix, Arizona......................     I        September 1995         217,000            96
                                                                           II        September 1996         109,000            86
                                                                                                            -------           ---
                                                                                                            326,000            92

Prime Outlets at Gulfport (6)-- Gulfport, Mississippi..................     I         November 1995         228,000            95
                                                                          IIA         November 1996          40,000            72
                                                                          IIB         November 1997          38,000            84
                                                                                                            -------           ---
                                                                                                            306,000            91

Prime Outlets at Lodi-- Burbank, Ohio..................................     I         November 1996         205,000            94
                                                                          IIA              May 1998          33,000            92
                                                                          IIB         November 1998          75,000            83
                                                                                                            -------           ---
                                                                                                            313,000            91

Prime Outlets at Gaffney-- Gaffney, South Carolina.....................     I         November 1996         235,000            95
                                                                           II             July 1998          70,000            92
                                                                                                            -------           ---
                                                                                                            305,000            94

Prime Outlets at Lee (2)-- Lee, Massachusetts..........................     I             June 1997         224,000           100

Prime Outlets at Lebanon--  Lebanon, Tennessee.........................     I            April 1998         208,000            97
                                                                          IIA            March 1999          21,000            79
                                                                                                            -------           ---
                                                                                                            229,000            95

Prime Outlets at Hagerstown-- Hagerstown, Maryland.....................     I           August 1998         218,000           100
                                                                           II         November 1998         103,000           100
                                                                                                            -------           ---
                                                                                                            321,000           100
                                                                                                         ----------           ---
Total Outlet Centers (7)...............................................                                  14,699,000            94%
                                                                                                         ==========           ===

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

Notes:
(1)  Percentage  reflects  fully  executed  leases as of September 30, 1999 as a
     percent of square feet of GLA.
(2)  The Company acquired this outlet center on June 15, 1998 as a result of its
     merger with Horizon.
(3)  The Company owns a 2% partnership  interest as the sole general partner but
     is entitled to 99% of the  property's  operating cash flow and net proceeds
     from a sale or refinancing.  This mixed-use project includes 154,000 square
     feet of office space which is not included in this table and such space was
     98% leased as of September 30, 1999.
(4)  On September 1, 1999, the Company acquired 50% of Phase I and 51% of Phases
     II  and  III  of  this  outlet  center  which  it  owns  in  joint  venture
     partnerships with unrelated third parties.
(5)  The Company owns 50% of this outlet center in a joint  venture  partnership
     with an unrelated third party.
(6)  The Company  operates  this outlet  center  pursuant to a long-term  ground
     lease under  which the  Company  receives  the  economic  benefit of a 100%
     ownership interest.
(7)  The Company  also owns three  community  centers not included in this table
     containing 424,000 square feet of GLA in the aggregate that were 86% leased
     as of September 30, 1999.


<PAGE>




Results of Operations

Comparison  of the three  months  ended  September  30, 1999 to the three months
ended September 30, 1998

Summary

The Company reported net income of $6,530 and $10,358 for the three months ended
September 30, 1999 and 1998, respectively.  For the three months ended September
30, 1999, the net income  applicable to common  shareholders  was $482, or $0.01
per  common  share on a basic and  diluted  basis.  For the three  months  ended
September 30, 1998, the net income applicable to common shareholders was $3,617,
or $0.09 per common share on a basic and diluted basis.

Revenues

Total  revenues  were  $77,387 for the three  months  ended  September  30, 1999
compared to $73,517 for the three months ended  September  30, 1998, an increase
of $3,870,  or 5.3%.  Base rents increased  $1,662,  or 3.5%,  in 1999  compared
to 1998. Straight-line rents (included in base rents) were $335 and $140 for the
three months ended  September 30, 1999 and 1998,  respectively.  These increases
are primarily due to the Portfolio Expansion.

Tenant reimbursements,  which represent the contractual recovery from tenants of
certain operating expenses,  increased by $506, or 2.3%, during the three months
ended  September  30,  1999 over the same  period  in 1998.  This  increase  was
primarily due to the Portfolio Expansion.

Interest and other income  increased by $1,706,  or 71.0%,  to $4,109 during the
three months ended September 30, 1999 as compared to $2,403 for the three months
ended September 30, 1998. This increase  reflects higher (i) lease buyout income
of $798, (ii) temporary tenant income of $489, (iii) municipal assistance income
of $216, and (iv) other miscellaneous income of $203.

Expenses

Property operating expenses increased by $637, or 3.7%, to $17,777 for the three
months ended September 30, 1999 compared to $17,140 for the same period in 1998.
Real estate  taxes  increased by $373,  or 6.9%,  to $5,753 for the three months
ended  September 30, 1999 from $5,380 in the same period for 1998. The increases
in property  operating  expenses and real estate taxes are  primarily due to the
Portfolio Expansion.  As shown in TABLE 2, depreciation and amortization expense
increased by $2,943,  or 17.8%,  to $19,452 for the three months ended September
30, 1999 compared to $16,509 for 1998. This increase  primarily results from the
depreciation and amortization of assets associated with the Portfolio Expansion.



<PAGE>




TABLE 2 -- Components of Depreciation and Amortization Expense

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

--------------------------------------------------------------------------------
Three months ended September 30,              1999                       1998
--------------------------------------------------------------------------------

Building and improvements                  $10,244                    $ 9,440
Land improvements                            1,442                        899
Tenant improvements                          6,841                      5,611
Furniture and fixtures                         729                        343
Leasing commissions                            196                        216
                                           -------                    -------
     Total                                 $19,452                    $16,509
                                           =======                    =======
================================================================================


TABLE 3 -- Components of Interest Expense

The components of interest expense are summarized as follows:

--------------------------------------------------------------------------------
Three months ended September 30,              1999                       1998
--------------------------------------------------------------------------------

Interest incurred                          $24,480                    $20,950
Interest capitalized                        (1,168)                    (1,734)
Amortization of deferred financing costs       974                        545
Amortization of interest rate protection
  contracts                                      3                        325
                                           -------                    -------
     Total                                 $24,289                    $20,086
                                           =======                    =======
================================================================================


As shown in TABLE 3, interest  expense for the three months ended  September 30,
1999 increased by $4,203,  or 20.9%, to $24,289 compared to $20,086 for the same
period in 1998. This increase  reflects (i) higher interest  incurred of $3,530,
(ii) an increase in amortization of deferred financing costs of $429 and (iii) a
reduction in the amount of interest  capitalized in connection with  development
projects  of  $566.   Partially   offsetting  these  items  was  a  decrease  in
amortization of interest rate protection contracts of $322.

The increase in interest  incurred is primarily  attributable  to an increase of
$138,540 in the Company's average debt outstanding during the three months ended
September  30,  1999  compared to the same period in 1998 and an increase in the
weighted  average  interest  rate for the three months ended  September 30, 1999
compared to the same period in 1998.  The weighted  average  interest rates were
7.47% and 7.15% for the 1999 and 1998 periods, respectively.

In connection  with  re-leasing  space to new  merchants,  the Company  incurred
$1,392  and  $1,055  in  capital  expenditures  during  the three  months  ended
September 30, 1999 and 1998, respectively.


<PAGE>


Comparison of the nine months ended  September 30, 1999 to the nine months ended
September 30, 1998

Summary

The Company  reported net income of $20,865 and $7,265 for the nine months ended
September 30, 1999 and 1998,  respectively.  During the second  quarter of 1999,
the Company recorded an extraordinary  loss of $2,106 (net of minority  interest
of $534),  relating to the early  extinguishment  of certain long-term debt. For
the nine months ended  September 30, 1999,  the net income  applicable to common
shareholders  was  $16,571,  or $0.38 and $0.06 per common  share on a basic and
diluted  basis,  respectively.  During the second  quarter of 1998,  the Company
recorded a loss on sale of real estate of $15,461 in connection  with the Merger
Transactions.  For the  nine  months  ended  September  30,  1998,  the net loss
applicable to common  shareholders  was $10,383,  or $0.31 per common share on a
basic and diluted basis.

Revenues

Total  revenues  were  $232,274  for the nine months  ended  September  30, 1999
compared to $156,524 for the nine months ended  September  30, 1998, an increase
of $75,750,  or 48.4%. Base rents increased $48,190,  or 48.9%, in 1999 compared
to 1998. Straight-line rents (included in base rents) were $765 and $974 for the
nine months ended September 30, 1999 and 1998, respectively. These increases are
primarily due to the Portfolio Expansion and the Horizon Merger.

Percentage  rents,  which  represent rents based on a percentage of sales volume
above a specified threshold,  increased $1,997, or 49.9%, during the nine months
ended  September 30, 1999 compared to the same period in 1998. This increase was
attributable  to  the  Portfolio  Expansion  and  the  Horizon  Merger.   Tenant
reimbursements, which represent the contractual recovery from tenants of certain
operating expenses, increased by $22,156, or 47.9%, during the nine months ended
September 30, 1999 over the same period in 1998.
These  increases were  primarily due to the Portfolio  Expansion and the Horizon
Merger.

Interest and other income  increased by $3,407,  or 44.9%, to $11,001 during the
nine months ended  September  30, 1999 as compared to $7,594 for the nine months
ended  September 30, 1998. This increase  reflects  higher (i) temporary  tenant
income of $1,331,  (ii) gross margin  attributable  to sales from the  Company's
operation  of an outlet  store known as to Designer  Connection  of $798,  (iii)
lease buyout income of $577, (iv) municipal  assistance  income of $544, and (v)
miscellaneous income of $157.

Expenses

Property operating  expenses increased by $17,496,  or 48.0%, to $53,918 for the
nine months ended  September 30, 1999 compared to $36,422 for the same period in
1998. Real estate taxes  increased by $5,446,  or 46.9%, to $17,046 for the nine
months ended  September  30, 1999 from $11,600 in the same period for 1998.  The
increases in property operating expenses and real estate taxes are primarily due
to the  Portfolio  Expansion  and the  Horizon  Merger.  As  shown  in  TABLE 4,
depreciation and amortization expense increased by $22,200, or 64.8%, to $56,467
for the nine months ended  September 30, 1999 compared to $34,267 for 1998. This
increase results from the  depreciation  and  amortization of assets  associated
with the Portfolio Expansion and the Horizon Merger.



<PAGE>


TABLE 4 -- Components of Depreciation and Amortization Expense

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

--------------------------------------------------------------------------------
Nine months ended September 30,                1999                      1998
--------------------------------------------------------------------------------

Building and improvements                   $30,481                   $19,433
Land improvements                             4,272                     2,618
Tenant improvements                          19,423                    10,429
Furniture and fixtures                        1,690                       933
Leasing commissions                             601                       854
                                            -------                   -------
     Total                                  $56,467                   $34,267
                                            =======                   =======
================================================================================


TABLE 5 -- Components of Interest Expense

The components of interest expense are summarized as follows:

--------------------------------------------------------------------------------
Nine months ended September 30,                1999                      1998
--------------------------------------------------------------------------------

Interest incurred                           $68,974                   $41,711
Interest capitalized                         (3,387)                   (4,511)
Amortization of deferred financing costs      2,364                     1,193
Amortization of interest rate protection
  contracts                                      63                     1,006
                                            -------                   -------
     Total                                  $68,014                   $39,399
                                            =======                   =======
================================================================================


As shown in TABLE 5,  interest  expense for the nine months ended  September 30,
1999 increased by $28,615, or 72.6%, to $68,014 compared to $39,399 for the same
period in 1998. This increase  reflects (i) higher interest incurred of $27,263,
(ii) an increase in amortization of deferred financing costs of $1,171 and (iii)
a reduction in the amount of interest capitalized in connection with development
projects  of  $1,124.  Partially  offsetting  these  items  was  a  decrease  in
amortization of interest rate protection contracts of $943.


Other charges increased by $1,680,  or 42.6%, to $5,626.  This increase reflects
(i) increased  selling,  genral and administrative of $1,023 associated with the
Company's  operation of its Designer  Connection  outlet  stores,  (ii) a higher
provision  for  uncollectible  accounts  of  $608,  and  (iii)  increased  other
miscellaneous charges of $49.

In connection  with  re-leasing  space to new  merchants,  the Company  incurred
$2,231 and $1,496 in capital expenditures during the nine months ended September
30, 1999 and 1998, respectively.


<PAGE>


Liquidity and Capital Resources

Sources and Uses of Cash

For the nine months ended  September  30, 1999,  net cash  provided by operating
activities  was $77,137,  cash used in investing  activities was $57,931 and net
cash used in financing activities was $21,587.

The primary uses of cash for investing  activities  during the nine months ended
September 30, 1999  included:  (i) costs  associated  with the  development  and
construction  of two expansions to existing  outlet centers  aggregating  85,000
square feet of GLA which opened  during 1999 (of which 21,000 and 64,000  square
feet opened in March and August,  respectively),  (ii) costs associated with the
construction  of Prime  Outlets of Puerto Rico and two  expansions  scheduled to
open before the end of the first  quarter of next year,  (iii) costs  associated
with the completion of two new outlet centers and expansions to existing  outlet
centers  aggregating  931,000  square feet of GLA which opened during 1998,  and
(iv) costs for pre-development activities associated with future developments.

The primary uses of cash for financing  activities  during the nine months ended
September  30, 1999 were (i)  principal  repayments on notes payable of $95,709,
(ii) preferred and common stock distributions of $57,100, (iii) distributions to
minority interests (including distributions to limited partners of the Operating
Partnership)  of $9,712,  (iv)  Series C  preferred  stock  redemption  costs of
$45,054 and (v) deferred  financing  costs of $4,696.  Such uses were  partially
offset by proceeds from new borrowings of $190,684 during the period.

The  Company  anticipates  that  cash  flow  from  (i)  certain  line of  credit
facilities,  (ii) operations,  (iii) new borrowings, (iv) refinancing of certain
existing  debt,  (v) the potential  sale of a joint venture  interest in certain
outlet centers,  and (vi) the potential sale of equity or debt securities in the
public or private capital markets will be sufficient to satisfy its debt service
obligations,  and  operating  cash  needs  for the next  year.  There  can be no
assurance  that the Company will be successful in obtaining the required  amount
of funds for these  items or that the terms of capital  raising  activities,  if
any, will be as favorable as the Company has  experienced in prior  periods.  At
September 30, 1999,  unused  commitments  available for borrowings under various
loan facilities were $3,504 in the aggregate.

Debt Repayments and Preferred Stock Dividends

The Company's aggregate  indebtedness was $1,323,494 and $1,217,507 at September
30, 1999 and December  31,  1998,  respectively.  At  September  30, 1999,  such
indebtedness had a weighted average maturity of 4.9 years and bore interest at a
weighted  average  interest  rate of 7.34% per annum.  At  September  30,  1999,
$1,015,936,  or 76.8%,  of such  indebtedness  bore  interest at fixed rates and
$307,558, or 23.2%, of such indebtedness, including $28,500 of tax-exempt bonds,
bore interest at variable rates.

As of  November  15,  1999,  the  Company  is  obligated  to  repay  $49,291  of
indebtedness during the remainder of 1999 and $108,447 in 2000. The indebtedness
to be repaid in the remainder of 1999 includes  $25,000 of borrowings  under the
Line of Credit  that  matures on June 10, 2000 but will be required to be repaid
in advance of any  repayment  of the  Subordinated  Loan which is  scheduled  to
mature  on  December  31,  1999.  The  annualized  cumulative  dividends  on the
Company's Series A Senior Cumulative  Preferred Stock ("Senior Preferred Stock")
and Series B Cumulative  Participating  Convertible  Preferred  Stock ("Series B
Convertible  Preferred  Stock")  outstanding as of September 30, 1999 are $6,038
and $16,635, respectively. These dividends are paid quarterly, in arrears.



<PAGE>


Repurchase of Shares of Series C Preferred Stock

On March 31,  1999,  the Company  entered into an  agreement  providing  for the
repurchase  of all of its  outstanding  shares of Series C  Preferred  Stock for
$43,636 or $10.00 per share. The agreement  provided for the repurchase to occur
in two stages.  In the first stage,  on March 31, 1999, the Company  repurchased
3,300,000 shares of the Series C Preferred Stock in exchange for the issuance of
a 12.0%  fixed  rate  $33,000  unsecured  promissory  note  which was  repaid on
September 29, 1999. In the second stage,  the Company  repurchased the remaining
1,063,636  outstanding  shares of its Series C Preferred  Stock for an aggregate
purchase price of $10,636 on September 29, 1999.

Debt and Equity Offerings

Management intends to continually have access to capital resources  necessary to
expand and develop its business and, accordingly,  may seek to obtain additional
funds through the potential  sale of equity or debt  securities in the public or
private capital markets.  On December 17, 1998, the Company  registered with the
Securities and Exchange  Commission  $400,000 of equity securities pursuant to a
universal shelf registration statement on Form S-3.

Debt Transactions

On November 15, 1999,  the Company  closed on a $20,000  subordinated  loan (the
"Subordinated  Loan") from an institutional  lender.  The Subordinated  Loan (i)
bears  interest at a fixed-rate of 15.0%,  (ii) requires  monthly  interest-only
payments, (iii) matures on December 31, 1999, and (iv) is secured by a pledge of
a security interest in certain of the Company's  ownership interests in, and the
available cash flow from five outlet centers,  including Prime Outlets of Puerto
Rico, which is currently under construction.  This collateral is also pledged to
secure borrowings under the Line of Credit (as defined below).

On November 12, 1999, the Company closed on $55,000 term loan (the "$55,000 Term
Loan") from a financial institution. The $55,000 Term Loan (i) bears interest at
30-day LIBOR plus 6.0%, (ii) requires monthly  principal and interest  payments,
and (iii) matures in two years. The Term Loan was issued by Prime Retail Capital
I, L.L.C. ("PRC"), a newly-formed wholly-owned subsidiary of Prime Retail, L.P.,
and is secured by the excess  cash flow from 15  manufacturers'  outlet  centers
after the payment of senior debt service and reserves under an existing $350,645
first  mortgage  loan.  The Term Loan also is secured by a pledge of PRC's 49.9%
limited  partnership  interest in  partnerships  that own twelve of those outlet
centers and Prime Retail,  L.P.'s 100% equity  interest in PRC. The Term Loan is
unconditionally guaranteed by Prime Retail, L.P. and Prime Retail, Inc.

The Company used the net cash  proceeds  from the Term Loan to repay  $40,944 of
short-term  indebtedness and to repay a portion of the borrowings under the Line
of Credit.

During  October  1999,  the Company  refinanced  its  $28,250 of  variable-rate,
tax-exempt  revenue bonds by issuing  $28,250 of fixed rate  tax-exempt  revenue
bonds (the "Fixed Rate Bonds").  The Fixed Rate Bonds bear interest ranging from
6.875% to 7.0%, require  semi-annual  interest payments and mature from December
15, 2012 through  December 1, 2014.  The Fixed Rate Bonds are  redeemable by the
Company  commencing  in  December  2006  at 102%  of the  outstanding  principal
balance.  The redemption  price  decreases  incrementally  each year  thereafter
through  December 2008, at which date the  redemption  price is fixed at 100% of
the outstanding principal balance.

On September 29, 1999, the Company  received  $40,000 of proceeds from a line of
credit  facility (the "Line of Credit") with a group of  institutional  lenders.
These proceeds were used to repurchase the Company's  Series C Preferred  Stock.
The Line of Credit (i) bears  interest at a fixed-rate  of 11.0%,  (ii) requires
monthly  interest-only  payments,  and (iii) matures in nine months. The Line of
Credit may be repaid at anytime without  penalty.  The Line of Credit  initially
was secured by a pledge of the  Company's  interest  in one of its  subsidiaries
that will be formed to engage in the  design,  development  and  operation  of a
virtual  outlet center on the internet.  Subsequently  this facility was amended
to, among other things,  permit the Subordinated Loan and provide for the pledge
of assets securing such loan as additional  collateral under the Line of Credit.
Borrowings under the Line of Credit rank senior to the Subordinated Loan and the
Company is  prohibited  from making any payment of  principal  in respect of the
Subordinated Loan so long as any obligations  remain  outstanding under the Line
of Credit.  Upon  repayment  of the Line of Credit in full,  the lenders will be
entitled to receive a cash payment that increases  their internal rate of return
with  respect to amounts  advanced  under such  facility  by 4.0% per annum (the
"Cash  Payment").  Lenders  under the Line of Credit also  received  warrants to
purchase a 5% interest in the Company's e-commerce subsidiary. In the event this
subsidiary  completes an initial  public  offering  prior to September 10, 2000,
such lenders must elect to (i)  surrender  these  warrants,  (ii) forgo the Cash
Payment or (iii)  surrender a portion of the warrants and forgo a portion of the
Cash Payment based on the number of warrants so surrendered.

On July 11, 1999, the Company's $20,000 unsecured line of credit (the "Corporate
Line") was renewed and increased to $25,000.  The purpose of the Corporate  Line
is to provide working capital to facilitate the funding of short-term  operating
cash needs of the Company.  The Corporate  Line bears an interest rate of 30-day
LIBOR plus 2.50% and  matures on July 11,  2000.  At  September  30,  1999,  the
Corporate Line had an outstanding principal balance of $22,175.

On April  27,  1999,  the  Company  closed on a $63,000  debt  financing  with a
financial institution that provided  approximately $27,900 of net proceeds.  The
$63,000  note is (i)  collateralized  by a first  mortgage  on Prime  Outlets at
Niagara Falls USA, (ii) bears interest at a fixed rate of 7.604%, (iii) requires
monthly   principal  and  interest  payments  of  $450  pursuant  to  a  30-year
amortization schedule, and (iv) matures in 10 years. In connection with the debt
refinancing,  the Company incurred an extraordinary loss on early extinguishment
of debt of $2,106, net of minority interests of $534, representing a pre-payment
penalty.

As of September 30, 1999, the Company is a guarantor or otherwise obligated with
respect  to an  aggregate  of  $12,774  of the  indebtedness  of  Horizon  Group
Properties, Inc. and its affiliates ("HGP") including a $10,000 obligation under
HGP's  secured  credit  facility  which  bears a rate of  interest of LIBOR plus
1.90%,  matures in July 2001, and is collateralized by seven properties  located
throughout the United States.



<PAGE>


Proposed Sale of Majority Interests in Three Outlet Centers

On August 6, 1999,  the Company  entered into an agreement to sell three factory
outlet  centers,  including  two future  expansions  expected to be completed in
2000, to a new joint venture (the "Prime/Estein Venture") that will be 70% owned
by an  affiliate  of  Estein  &  Associates  USA,  Ltd.,  a German  real  estate
investment company ("Estein"),  and 30% owned by the Company. The total purchase
price for the three centers, including the two proposed expansions, is $274,000.

The  Prime/Estein  Venture  expects to purchase the three outlet centers and two
expansions subject to $151,500 of new first mortgage  indebtedness,  including a
$64,500  "wrap-around" first mortgage to be provided by the Company on the Prime
Outlets at Birch Run. The balance of the purchase  price  ($122,500) is expected
to be funded 70% by Estein in cash  ($85,750) and 30% by the Company in the form
of a credit to its capital  account  ($36,750).  In accordance with the terms of
the joint  venture  agreement,  the first  mortgage debt is required to be for a
ten-year term at a fixed interest rate of 7.75%,  requiring  monthly payments of
principal and interest pursuant to a 25-year amortization schedule.

The Company expects to receive  approximately  $78,000 of cash proceeds,  net of
(i) all closing costs, (ii) the cost of completing the proposed expansions,  and
(iii) the Company's  approximate  $10,000 net  investment  in the  "wrap-around"
first  mortgage  being  provided on Prime  Outlets at Birch Run.  An  additional
$10,000  of net  proceeds  is  expected  as a result of the  refinancing  of the
existing Williamsburg first mortgage loan.

Consummation  of  this  transaction   remains  subject  to  various  conditions,
including  receipt of requisite  financing.  There can be no assurance  that the
Prime/Estein  Venture will close this  transaction  or that, if  completed,  the
terms of this transaction will not differ materially from those described above.

The  Prime/Estein  Venture  has  agreed to retain  the  Company  as its sole and
exclusive managing and leasing agent for a property management fee equal to 4.0%
of gross rental receipts. The Prime/Estein Venture also will pay a monthly asset
management and partnership administration fee to an affiliate of Estein equal to
3.0% of the monthly net operating income from the centers.



<PAGE>


Planned Development

One of the  Company's  business  strategies is to expand its portfolio of outlet
centers by  developing  new centers and  expansions  to  existing  centers.  The
Company  intends to develop new centers and expand its existing  centers only if
the expected returns on such development  would reasonably be expected to exceed
the  Company's  weighted  average  cost of debt and equity  capital.  Management
believes that there is demand for continued  development  of new outlet  centers
and expansions of certain  existing outlet centers.  The Company opened a 21,000
square  foot  expansion  at Prime  Outlets at Lebanon in March 1999 and a 64,000
square foot  expansion at Prime  Outlets at San Marcos In August 1999.  The Home
Co., the Company's first home  furnishings  store which it owns a 47.6% interest
through a joint  venture, occupies  64,000  square feet of the  expansion at San
Marcos. In addition, construction continues at Prime Outlets of Puerto Rico, the
first outlet center in Puerto Rico,  which will contain  175,000  square feet of
GLA, and two  expansions  consisting of 162,000 and 50,000 square feet of GLA at
Prime Outlets at Hagerstown and Prime Outlets at San Marcos, respectively. These
projects  are  scheduled  to open  during the first  quarter  of next  year.  At
September  30, 1999,  the  remaining  budgeted  capital  expenditures  for these
projects   aggregated   approximately   $44,100,   while   anticipated   capital
expenditures  related to the completion of expansions of existing outlet centers
opened  during  1998  (aggregating  931,000  square  feet of  GLA)  approximated
$12,500.

In addition to the projects currently under construction,  the Company continues
to  pre-lease  two new outlet  centers and  expansions  to existing  centers and
expects to start  construction  of between  200,000  to 400,000  square  feet of
additional GLA during 2000. However,  management may elect to delay construction
of certain projects until such time that it is reasonably confident that certain
minimum  returns will be achieved on total  development  cost. Such projects are
expected to have a total  development cost of approximately  $30,000 to $60,000.
As of September 30, 1999, there were no material  commitments with regard to the
construction of these projects.

The Company  expects to fund the  development  cost of these  projects  from (i)
certain line of credit facilities,  (ii) joint venture partners,  (iii) retained
cash flow from operations,  (iv)  construction  loans, (v) the potential sale of
equity or debt securities in the public or private capital markets, and (vi) the
proposed  sale of majority  interests in three outlet  centers.  There can be no
assurance  that the Company will be successful in obtaining the required  amount
of equity capital or debt financing for the planned development projects or that
the terms of such capital raising activities will be as favorable as the Company
has experienced in prior periods. If adequate financing for such development and
expansion is not  available,  the Company may not be able to develop new centers
or expand existing centers at currently planned levels.

Prime/Athena Venture

On  September  13,  1999,  the  Company  announced  that it had  entered  into a
definitive  agreement  with Athena Group LLC, a private  real estate  investment
firm  affiliated  with A. Alfred  Taubman,  to  establish a joint  venture  (the
"Prime/Athena  Venture") to develop,  own and operate  outlet centers in Europe.
The agreement provides that the Prime/Athena  Venture will be capitalized 80% by
Athena Group and 20% by the Company.  In addition,  the Company will  contribute
certain  management  services to the  Prime/Athena  Venture.  After each partner
receives a specified return on its invested capital,  profits and cash flow will
be allocated 60% to Athena Group and 40% to the Company.  Voting  control of the
Prime/Athena  Venture will be divided equally between Athena and the Company. It
is currently contemplated that the Company will contribute  approximately $2,000
to the Prime/Athena Venture during the next 18 months.

Economic Conditions

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

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

<PAGE>


Year 2000

The year 2000 ("Y2K") issue refers generally to computer applications using only
the last two digits to refer to a year rather than all four digits. As a result,
these applications could fail or create erroneous results if they recognize "00"
as the  year  1900  rather  than  the year  2000.  The  Company  has  taken  Y2K
initiatives in the following three general areas:

Information Technology

The Company has focused  its  efforts on the  high-risk  areas of the  corporate
office  computer  hardware,  operating  systems and software  applications.  The
principal  risks to the  Company  relating  to its  information  technology  are
failure to  correctly  bill tenants and pay  invoices.  However,  the  Company's
assessment and testing of existing equipment revealed that its hardware, network
operating systems and software  applications are Y2K compliant.

Non-information Technology

Non-information technology consists mainly of facilities management systems such
as  telephone,  utility and security  systems for the  corporate  office and the
outlet  centers.  Based on the  Company's  inquiry of the  building  owner,  the
corporate office's non-information  technology is Y2K compliant. The Company has
reviewed  date  sensitive  systems  and  equipment  at its outlet  centers.  The
Company's  assessment of non-information  technology  revealed that such systems
are Y2K compliant.

Third Parties

The  Company has  third-party  relationships  with  tenants  and  suppliers  and
contractors.  Many of these third parties are  publicly-traded  corporations and
subject to disclosure  requirements.  The Company has begun  assessment of major
third  parties' Y2K  readiness  including  tenants,  key suppliers of outsourced
services  including  stock  transfer,  debt  servicing,  banking  collection and
disbursement,  payroll and benefits,  while  simultaneously  responding to their
inquiries regarding the Company's readiness.  The principal risks to the Company
in its relationships  with third parties are the failure of third-party  systems
used to conduct  business  such as (i) tenants being unable to stock stores with
merchandise,  use cash registers,  and pay invoices;  (ii) banks being unable to
process receipts and disbursements;  (iii) vendors being unable to supply needed
materials  and  services  to the  centers;  and (iv)  processing  of  outsourced
employee payroll.  Based on Y2K compliance work done to date, the Company has no
reason  to  believe  that  key  tenants,  banks  and  suppliers  will not be Y2K
compliant in all material  respects or cannot be replaced  within an  acceptable
timeframe.  Additionally,  the  Company  has  obtained  or is in the  process of
obtaining compliance  certification from suppliers of key services.

Contingency Plans

Contingency  plans  generally  involve  the  development  and  testing of manual
procedures  or the  use of  alternate  systems.  Viable  contingency  plans  are
difficult  to develop  for  potential  third  party Y2K  failures.  Based on the
Company's   current   assessment  of  Y2K  readiness   relating  to  information
technology,  non-information  technology, and third parties, the Company has not
implemented a Y2K contingency plan to date.  However,  the Company will continue
to assess the need for such a plan.

<PAGE>


Currently, the Company believes its cost to successfully mitigate the Y2K issue,
estimated at less than $250, has not been and is not  anticipated to be material
to the Company's  financial  position or results from operations.  However,  the
Company's  description  of its Y2K  compliance  issue is based upon  information
obtained by management through evaluations of internal business systems and from
inquiries of key tenants and major vendors concerning their compliance  efforts.
If key tenants or major  vendors  with whom the Company  does  business  fail to
adequately address their Y2K issues, the Company's financial position or results
from operations could be materially adversely affected.

Funds from Operations

Management  believes that to facilitate a clear  understanding  of the Company's
operating  results,  funds  from  operations  ("FFO")  should be  considered  in
conjunction  with net income  (loss)  presented  in  accordance  with  generally
accepted accounting principles ("GAAP"). In March 1995, the National Association
of Real Estate Investment Trusts ("NAREIT")  established  guidelines  clarifying
the  definition  of FFO.  FFO is  defined as net income  (loss)  (determined  in
accordance with GAAP) excluding  gains (or losses) from debt  restructuring  and
sales of property,  plus  depreciation  and amortization  after  adjustments for
unconsolidated partnerships and joint ventures.

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

TABLE 6 provides a  reconciliation  of income  before  allocations  to  minority
interests and preferred  shareholders to FFO for the three and nine months ended
September 30, 1999 and 1998. FFO decreased  $1,073,  or 3.9%, to $26,129 for the
three  months ended  September  30, 1999 from $27,202 for the three months ended
September 30, 1998. This decrease was  attributable to the Company's  repurchase
of its Series C Preferred  Stock  which  resulted  in an  additional  $43,636 of
indebtedness.  FFO increased  $20,187,  or 33.7%, to $80,097 for the nine months
ended  September  30, 1999 from $59,910 for the nine months ended  September 30,
1998. This increase was primarily due to the Portfolio Expansion and the Horizon
Merger.

<PAGE>

<TABLE>
TABLE 6 -- Funds from Operations
------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>

                                                                      Three months ended              Nine months ended
                                                                         September 30                     September 30
                                                               --------------------------------    --------------------------
                                                                   1999             1998               1999           1998
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>              <C>               <C>              <C>

Income before extraordinary loss and
  allocation to minority interests                              $ 6,452          $10,572           $23,427         $ 9,721
FFO adjustments:
Loss on sale of real estate                                           -                -                 -          15,461
Real estate depreciation and amortization                        19,204           16,327            55,768          33,820
Unconsolidated joint venture adjustments                            473              303               902             908
                                                                -------          -------           -------         -------
FFO before allocation to minority interests                     $26,129          $27,202           $80,097         $59,910
                                                                =======          =======           =======         =======
====================================================================================================================================
</TABLE>





<PAGE>


Item 3.    Quantitative and Qualitative Disclosures About Market Risk


Market Risk Sensitivity

Interest Rate Risk

In the  ordinary  course of  business,  the  Company is exposed to the impact of
interest rate changes.  The Company employs established  policies and procedures
to manage its exposure to interest rate changes. The Company uses a mix of fixed
and variable  rate debt to (i) limit the impact of interest  rate changes on its
results from  operations and cash flows and (ii) to lower its overall  borrowing
costs.  The  following  table  provides  a summary of  principal  cash flows and
related interest rates by fiscal year of maturity.  Variable  interest rates are
based on the weighted average rates of the portfolio at September 30, 1999.
<TABLE>

------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                Year of Maturity
------------------------------------------------------------------------------------------------------------------------------------
                                     1999         2000        2001         2002           2003       2004     Thereafter     Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                                <C>          <C>         <C>          <C>           <C>         <C>         <C>       <C>

Fixed rate:
Principal........................  $ 4,291      $82,525      $ 50,645    $89,008       $348,761    $17,049     $423,657  $1,015,936
Average interest rate............     7.19%        8.98%         7.39%      6.98%          7.76%      7.75%        7.10%       7.50%

Variable rate:
Principal........................  $51,167      $43,739      $152,000    $   427       $    778    $31,197     $ 28,250  $  295,763
Average interest rate............     7.58%        8.03%         6.84%      6.88%          6.88%      6.88%        3.60%       6.84%

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







<PAGE>


PART II: OTHER INFORMATION

Item 1.  Legal Proceedings

In the  ordinary  course of  business  the  Company is subject to certain  legal
actions.  While any litigation  contains an element of  uncertainty,  management
believes the losses, if any,  resulting from such matters,  including the matter
described  below,  will not have a material  adverse effect on the  consolidated
financial statements of the Company.

The Company is  defendant  in a lawsuit  filed on August 10, 1999 in the Circuit
Court for Baltimore City and removed to U.S.  District Court for The District of
Maryland  on August 20,  1999.  The  lawsuit  alleges  that the  Company and its
related entities  overcharged  tenants for common area  maintenance  charges and
promotional  fund  charges.  The outcome of, and the  ultimate  liability of the
Company,  if any, from, this lawsuit cannot  currently be predicted.  Management
believes that the Company has acted  properly and intends to defend this lawsuit
vigorously.

Item 2.  Changes in Securities

         None

Item 3.  Defaults Upon Senior Securities

         None

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

         None

Item 5.  Other Information

         None

Item 6.  Exhibits or Reports on Form 8-K

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

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

              Exhibit 27.1 - Financial Data Schedule (EDGAR filing only)

        (b)   Reports on Form 8-K:

     On August 18, 1999,  the Company filed a Current  Report on Form 8-K, dated
     August 11,  1999,  reporting  the Company had entered  into an agreement to
     sell three factory outlet centers,  including two future  expansions,  to a
     new joint venture (the "Prime/Estein Venture") that will be 70% owned by an
     affiliate of Estein  Associates USA, Ltd., a German real estate  investment
     company ("Estein"),  and 30% owned by the Company. The total purchase price
     for the three  centers,  including the two proposed  expansions,  is $274.0
     million.  The Current  Report on Form 8-K also included as exhibits (i) the
     Purchase and Sale Agreement dated August 6, 1999 and (ii) the Press Release
     announcing the proposed transaction dated August 11, 1999.

<PAGE>



                                   SIGNATURES



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



                                        PRIME RETAIL, INC.
                                        Registrant



Date: November 15, 1999                /s/ Abraham Rosenthal
      -----------------                ---------------------
                                       Abraham Rosenthal
                                       Chief Executive Officer



Date: November 15, 1999               /s/ Robert P. Mulreaney
      -----------------               -----------------------
                                      Robert P. Mulreaney
                                      Executive Vice President,
                                      Chief Financial Officer
                                      and Treasurer