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 June 30, 2002

                                                              Or

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

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

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

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


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


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

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

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

Yes   X           No
    -----            ------

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

As of August 14, 2002, the issuer had  outstanding  43,577,916  shares of Common
Stock, $.01 par value per share.

<PAGE>
                               Prime Retail, Inc.
                                    Form 10-Q


                                      INDEX



PART I:  FINANCIAL INFORMATION                                             PAGE
                                                                           ----


Item 1.  Financial Statements (Unaudited)

     Consolidated Balance Sheets as of June 30, 2002 and
       December 31, 2001...............................................       1

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

     Consolidated Statements of Cash Flows for the six
       months ended June 30, 2002 and 2001.............................       3

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

Item 2.  Management's Discussion and Analysis of Financial

           Condition and Results of Operations.........................      20

Item 3.  Quantitative and Qualitative Disclosures of Market Risk.......      43

PART II:  OTHER INFORMATION

Item 1.  Legal Proceedings.............................................      44

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

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

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

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

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

Signatures.............................................................      50

<PAGE>
                               PRIME RETAIL, INC.

                      Unaudited Consolidated Balance Sheets

                (Amounts in thousands, except share information)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                 June 30,            December 31,
                                                                                                   2002                  2001
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                            <C>                   <C>
Assets
Investment in rental property:
     Land                                                                                      $   126,267           $   148,463
     Buildings and improvements                                                                    994,835             1,208,568
     Property under development                                                                      3,400                 3,352
     Furniture and equipment                                                                        14,461                15,225
                                                                                               -----------           -----------
                                                                                                 1,138,963             1,375,608
     Accumulated depreciation                                                                     (239,645)             (258,124)
                                                                                               -----------           -----------
                                                                                                   899,318             1,117,484
Cash and cash equivalents                                                                            5,201                 7,537
Restricted cash                                                                                     36,145                37,885
Accounts receivable, net                                                                             3,056                 5,017
Deferred charges, net                                                                                7,233                11,789
Assets held for sale                                                                               115,924                54,628
Investment in partnerships                                                                          26,129                24,539
Other assets                                                                                         4,274                 3,629
                                                                                               -----------           -----------
          Total assets                                                                         $ 1,097,280           $ 1,262,508
                                                                                               ===========           ===========

Liabilities and Shareholders' Equity
Bonds payable                                                                                  $    24,975           $    31,975
Notes payable                                                                                      799,877               925,492
Accrued interest                                                                                     6,997                 7,643
Real estate taxes payable                                                                            8,757                 8,091
Accounts payable and other liabilities                                                              27,252                31,380
                                                                                               -----------           -----------
     Total liabilities                                                                             867,858             1,004,581

Minority interests                                                                                   1,487                 1,487

Shareholders' equity:
  Shares of preferred stock, 24,315,000 shares authorized:
     10.5% Series A Senior Cumulative Preferred Stock,
          $0.01 par value (liquidation preference of $73,348),
          2,300,000 shares issued and outstanding                                                       23                    23
     8.5% Series B Cumulative Participating Convertible Preferred
          Preferred Stock, $0.01 par value (liquidation preference
          of $239,369), 7,828,125 shares issued and outstanding                                         78                    78
  Shares of common stock, 150,000,000 shares authorized:
     Common stock, $0.01 par value, 43,577,916 shares
          issued and outstanding                                                                       436                   436
  Additional paid-in capital                                                                       709,373               709,373
  Distributions in excess of earnings                                                             (478,975)             (453,470)
                                                                                               -----------           -----------
      Total shareholders' equity                                                                   227,935               256,440
                                                                                               -----------           -----------
          Total liabilities and shareholders' equity                                           $ 1,097,280           $ 1,262,508
                                                                                               ===========           ===========
====================================================================================================================================
</TABLE>
See accompanying notes to financial statements.

<PAGE>
                               PRIME RETAIL, INC.

                 Unaudited Consolidated Statements of Operations

              (Amounts in thousands, except per share information)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                  Three Months Ended June 30,            Six Months Ended June 30,
                                                                 ----------------------------          ----------------------------
                                                                    2002               2001               2002               2001
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                              <C>                <C>                <C>               <C>
Revenues
Base rents                                                       $  24,943          $  27,813          $  51,031         $  57,170
Percentage rents                                                       431                614              1,720             1,184
Tenant reimbursements                                               12,430             13,993             24,804            27,940
Interest and other                                                   2,076              2,443              4,510             4,616
                                                                 ---------          ---------          ---------         ---------
  Total revenues                                                    39,880             44,863             82,065            90,910

Expenses
Property operating                                                  11,063             10,702             21,557            21,865
Real estate taxes                                                    3,962              3,994              7,846             8,078
Depreciation and amortization                                        9,531             10,480             19,710            21,001
Corporate general and administrative                                 2,877              3,352              6,296             6,653
Interest                                                            15,867             17,839             32,193            36,926
Other charges                                                        4,207              4,363              6,541             7,345
Provision for asset impairment                                      12,200                  -             12,200                 -
                                                                 ---------          ---------          ---------         ---------
  Total expenses                                                    59,707             50,730            106,343           101,868
                                                                 ---------          ---------          ---------         ---------
Loss before gain (loss) on sale of real
  estate and minority interests                                    (19,827)            (5,867)           (24,278)          (10,958)
Gain (loss) on sale of real estate, net                               (703)              (180)              (703)              552
                                                                 ---------          ---------          ---------         ---------
Loss from continuing operations
  before minority interests                                        (20,530)            (6,047)           (24,981)          (10,406)
Loss allocated to minority interests                                     -                400                  -               401
                                                                 ---------          ---------          ---------         ---------
Loss from continuing operations                                    (20,530)            (5,647)           (24,981)          (10,005)
Discontinued operations, including loss of $8,167
  and $997 on dispositions in 2002 periods, respectively            (9,656)            (1,196)            (3,524)           (2,468)
                                                                 ---------          ---------          ---------         ---------
Net loss                                                           (30,186)            (6,843)           (28,505)          (12,473)
Income allocated to preferred shareholders                          (5,668)            (5,668)           (11,336)          (11,336)
                                                                 ---------          ---------          ---------         ---------
Net loss applicable to common shares                             $ (35,854)         $ (12,511)         $ (39,841)        $ (23,809)
                                                                 =========          =========          =========         =========

Basic and diluted earnings per common share:
Loss from continuing operations                                  $   (0.60)         $   (0.26)         $   (0.83)        $   (0.49)
Discontinued operations                                              (0.22)             (0.03)             (0.08)            (0.06)
                                                                 ---------          ---------          ---------         ---------
  Net loss                                                       $   (0.82)         $   (0.29)         $   (0.91)        $   (0.55)
                                                                 =========          =========          =========         =========

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

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

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Six Months Ended June 30,                                                                    2002                2001
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                       <C>                 <C>
Operating Activities
Loss from continuing operations                                                           $ (24,981)          $ (10,005)
Adjustments to reconcile net loss to net cash
  provided by operating activities:
     Loss allocated to minority interests                                                         -                (401)
     (Gain) loss on sale of real estate, net                                                    703                (552)
     Depreciation and amortization                                                           19,710              21,001
     Amortization of deferred financing costs                                                 3,273               3,613
     Amortization of debt premiums                                                           (1,088)             (1,246)
     Provision for uncollectible accounts receivable                                          2,672               5,658
     Provision for asset impairment                                                          12,200                   -
     Discontinued operations                                                                  1,519               4,802
Changes in operating assets and liabilities:
     (Increase) decrease in accounts receivable                                                 957              (4,566)
     Decrease in restricted cash                                                                 57              17,061
     Increase in other assets                                                                  (427)             (2,814)
     Decrease in accounts payable and other liabilities                                      (5,316)            (19,112)
     Increase in real estate taxes payable                                                    1,101               2,022
     Increase (decrease) in accrued interest                                                   (444)              2,699
                                                                                          ---------           ---------
       Net cash provided by operating activities                                              9,936              18,160
                                                                                          ---------           ---------

Investing Activities
Additions to investment in rental property                                                   (2,649)            (14,023)
Proceeds from sales of operating properties and land                                         22,320               9,503
                                                                                          ---------           ---------
       Net cash provided by (used in) investing activities                                   19,671              (4,520)
                                                                                          ---------           ---------

Financing Activities
Proceeds from notes payable                                                                       -              16,899
Principal repayments on notes payable                                                       (31,943)            (35,447)
Contributions from minority interests                                                             -                 400
Deferred costs                                                                                    -                (325)
                                                                                          ---------           ---------
       Net cash used in financing activities                                                (31,943)            (18,473)
                                                                                          ---------           ---------

Decrease in cash and cash equivalents                                                        (2,336)             (4,833)
Cash and cash equivalents at beginning of period                                              7,537               8,906
                                                                                          ---------           ---------
Cash and cash equivalents at end of period                                                $   5,201           $   4,073
                                                                                          =========           =========
====================================================================================================================================
</TABLE>
See accompanying notes to financial statements.

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


Supplemental Disclosure of Non-cash Investing and Financing Activities

The following  assets and liabilities  were disposed in connection with the sale
of properties during the periods indicated:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Six Months Ended June 30,                                                                     2002                 2001
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                       <C>                   <C>
  Book value of net assets disposed                                                       $ 119,940             $ 32,815
  Notes payable paid                                                                        (36,991)             (24,044)
  Notes payable assumed by joint venture                                                    (46,862)                   -
  Notes payable transferred to lender                                                       (15,467)                   -
  Discontinued operations, loss on disposal                                                     997                    -
  Loss on sale of real estate                                                                   703                  732
                                                                                          ---------             --------
      Cash received, net                                                                  $  22,320             $  9,503
                                                                                          =========             ========
====================================================================================================================================
</TABLE>
See accompanying notes to financial statements.

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


Note 1 -- Interim Financial Presentation

The accompanying  unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
("GAAP") for interim financial information and the instructions to Form 10-Q and
Article  10 of  Regulation  S-X.  Accordingly,  they do not  include  all of the
information and footnotes required by GAAP for complete financial statements. In
the opinion of management, all adjustments consisting only of recurring accruals
considered  necessary  for a fair  presentation  have been  included.  Operating
results for such interim periods are not  necessarily  indicative of the results
that may be expected for a full fiscal year. For further  information,  refer to
the consolidated  financial  statements and footnotes  included in Prime Retail,
Inc.'s (the  "Company")  Annual Report on Form 10-K for the year ended  December
31, 2001.

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

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

Investments  in  partnerships  in which we do not have  operational  control are
accounted for under the equity method of accounting. Income (loss) applicable to
minority interests and common shares as presented in the consolidated statements
of operations is allocated  based on income  (loss)  before  minority  interests
after income allocated to preferred shareholders.

Significant  inter-company  accounts and  transactions  have been  eliminated in
consolidation.  Certain prior period financial information has been reclassified
to conform to the current period presentation.

Note 2 - New Accounting Pronouncements

In October,  2001, the Financial  Accounting Standards Board issued Statement of
Financial  Accounting  Standard  ("FAS") No. 144,  "Accounting for Impairment of
Disposal of Long-lived  Assets." FAS No. 144 supercedes FAS No. 121,  however it
retains the fundamental  provisions of that statement related to the recognition
and measurement of the impairment of long-lived assets to be "held and used." In
addition,  FAS No. 144  provides  more  guidance on  estimating  cash flows when
performing  a  recoverability  test,  requires  that a  long-lived  asset  to be
disposed  of other than by sale (e.g.,  abandoned)  be  classified  as "held and
used" until it is disposed  of, and  established  more  restrictive  criteria to
classify an asset as "held for sale." FAS No. 144 is effective  for fiscal years
beginning after December 15, 2001.

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

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                 Three Months Ended June 30,             Six Months Ended June 30,
                                                               --------------------------------        ----------------------------
                                                                  2002                2001                2002                2001
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>                 <C>                 <C>                 <C>
Revenues
Base rents                                                     $  3,786            $  7,492            $  8,896            $ 15,067
Percentage rents                                                    288                 122                 659                 269
Tenant reimbursements                                             2,034               4,012               4,394               7,789
Interest and other                                                  491                 615               1,115               1,186
                                                               --------            --------            --------            --------
  Total revenues                                                  6,599              12,241              15,064              24,311

Expenses
Property operating                                                1,797               2,944               3,708               5,914
Real estate taxes                                                   666               1,146               1,421               2,288
Depreciation and amortization                                     1,416               3,243               3,460               6,397
Interest                                                          4,007               5,495               8,342              10,851
Other charges                                                       202                 609                 660               1,329
                                                               --------            --------            --------            --------
  Total expenses                                                  8,088              13,437              17,591              26,779
                                                               --------            --------            --------            --------
Loss before loss on sale of real estate, net                     (1,489)             (1,196)             (2,527)             (2,468)
Loss on sale of real estate, net                                 (8,167)                  -                (997)                  -
                                                               --------            --------            --------            --------
Discontinued operations                                        $ (9,656)           $ (1,196)           $ (3,524)           $ (2,468)
                                                               ========            ========            ========            ========
====================================================================================================================================
</TABLE>

Note 3 - Property Dispositions

2002 Sales Transactions

On January 11, 2002, we completed  the sale of Prime Outlets at Hagerstown  (the
"Hagerstown  Center"),   an  outlet  center  located  in  Hagerstown,   Maryland
consisting of approximately  487,000 square feet of gross leasable area ("GLA"),
for  $80,500  to  an  existing  joint  venture  partnership  (the  "Prime/Estein
Venture")  between one of our affiliates and an affiliate of Estein & Associates
USA, Ltd. ("Estein"),  a real estate investment company.  Estein and we have 70%
and 30% ownership  interests,  respectively,  in the  Prime/Estein  Venture.  In
connection with the sale  transaction,  the  Prime/Estein  Venture assumed first
mortgage indebtedness of $46,862 on the Hagerstown Center (the "Assumed Mortgage
Indebtedness");  however,  our  guarantee of the Assumed  Mortgage  Indebtedness
remains in place.

The net cash proceeds from the sale, including the release of certain funds held
in escrow, were $12,113 after (i) a pay-down of $11,052 of mortgage indebtedness
on the Hagerstown Center and (ii) closing costs. The net proceeds from this sale
were used to prepay $11,647 of principal outstanding under a mezzanine loan (the
"Mezzanine  Loan")  obtained  in  December  2000 from FRIT PRT  Lending LLC (the
"Mezzanine  Lender") in the original  amount of $90,000.  See Note 4 - Bonds and
Notes Payable" for additional information.

<PAGE>
The operating  results of the Hagerstown  Center through the date of disposition
are  classified  as  discontinued  operations in the  accompanying  Consolidated
Statements  of  Operations  for all periods  presented  in  accordance  with the
requirements  of FAS No.  144.  In  connection  with the sale of the  Hagerstown
Center, we recorded a gain on the sale of real estate of $16,795,  also included
in  discontinued  operations,  during the first quarter of 2002. At December 31,
2001, the carrying  value of the Hagerstown  Center of $54,628 was classified as
assets held for sale in the Consolidated Balance Sheet. Effective on the date of
disposition,  we have accounted for our 30% ownership interest in the Hagerstown
Center in accordance with the equity method of accounting.

We are obligated to refinance the Assumed Mortgage Indebtedness on behalf of the
Prime/Estein  Venture  on or  before  June  1,  2004,  the  date on  which  such
indebtedness  matures.  Additionally,  the  Prime/Estein  Venture's  cost of the
Assumed  Mortgage  Indebtedness and any refinancing of it are fixed at an annual
rate of 7.75% for a period of 10 years. If the actual cost of such  indebtedness
should exceed 7.75% at any time during the ten-year period, we will be obligated
to pay the difference to the Prime/Estein  Venture.  However, if the actual cost
of such  indebtedness is less than 7.75% at any time during the ten-year period,
the  Prime/Estein  Venture will be obligated  to pay the  difference  to us. The
actual cost of the Assumed Mortgage  Indebtedness is currently 30-day LIBOR plus
1.50%, or 3.34% as of June 30, 2002.

On April 1, 2002,  we  completed  the sale of Prime  Outlets at  Edinburgh  (the
"Edinburgh Center"),  an outlet center located in Edinburgh,  Indiana consisting
of approximately 305,000 square feet of GLA and additional undeveloped land. The
Edinburgh  Center  was sold to CPG  Partners,  L.P.  for cash  consideration  of
$27,000.

The net cash proceeds from the sale were $9,551,  after (i) repayment in full of
$16,317 of existing first mortgage indebtedness on the Edinburgh Center and (ii)
closing costs and fees. We used these net proceeds to make a mandatory principal
payment of $9,178 on the Mezzanine Loan.

The operating  results of the Edinburgh  Center  through the date of disposition
are  classified  as  discontinued  operations in the  accompanying  Consolidated
Statements  of  Operations  for all periods  presented  in  accordance  with the
requirements  of FAS No. 144.  During the first  quarter of 2002,  we recorded a
loss on the  sale of real  estate  of  $9,625,  also  included  in  discontinued
operations,  related to the  write-down  of the carrying  value of the Edinburgh
Center to its net realizable value based on the terms of the sale agreement.

On April 19, 2002,  we  completed  the sale of Phases II and III of the Bellport
Outlet  Center (the  "Bellport  Outlet  Center"),  an outlet  center  located in
Bellport,  New York consisting of  approximately  197,000 square feet of GLA. We
had a 51%  ownership  interest in the joint venture  partnership  that owned the
Bellport Outlet Center.  The Bellport Outlet Center was sold to Sunrise Station,
L.L.C.,  an  affiliate  of  one  of  our  joint  venture   partners,   for  cash
consideration  of $6,500.  At closing,  recourse first mortgage  indebtedness of
$5,500,  which was  scheduled to mature on May 1, 2002,  was repaid in full.  To
date we have received  $522 of cash  proceeds from the sale,  which were used to
make a mandatory principal payment of $502 on the Mezzanine Loan.

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

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

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

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

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

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

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

<PAGE>
FRIT,  indirectly through affiliates,  was the owner of the Bridge Loan that was
repaid in full in connection  with the sale of the Bridge Loan Properties and is
a 50%  participant in the Mezzanine  Loan,  which had an  outstanding  principal
balance of $35,431 as of June 30, 2002.

Effective  June 30,  2002,  the  aggregate  carrying  value of the  Bridge  Loan
Properties  of  $115,924  was   classified  as  assets  held  for  sale  in  the
Consolidated  Balance Sheet. The operating results of the Bridge Loan Properties
are  classified  as  discontinued  operations in the  accompanying  Consolidated
Statements  of  Operations  for all periods  presented  in  accordance  with the
requirements  of FAS No. 144.  During the second  quarter of 2002, we recorded a
loss on the sale of real  estate  of  $10,289,  also  included  in  discontinued
operations,  related to the  write-down of the carrying value of the Bridge Loan
Properties  to  their  net  realizable  value  based  on the  terms  of the sale
agreement.

2002 Foreclosure Sale

During 2001, certain of our subsidiaries  suspended  regularly scheduled monthly
debt service payments on two  non-recourse  mortgage loans held by New York Life
Insurance  Company  ("New  York  Life")  at the  time of the  suspension.  These
non-recourse  mortgage loans were  cross-defaulted and  cross-collateralized  by
Prime Outlets at Jeffersonville II (the "Jeffersonville II Center"),  located in
Jeffersonville,  Ohio and Prime Outlets at Conroe (the "Conroe Center"), located
in Conroe,  Texas.  Effective  January 1, 2002, New York Life  foreclosed on the
Conroe  Center.  Effective  July 18,  2002,  New York  Life  sold its  remaining
interest  in the loan  still  encumbering  the  Jeffersonville  II  Center  to a
successor lender.  On August 13, 2002, we transferred our ownership  interest in
the  Jeffersonville II Center to New York Life's successor lender.  See Note 4 -
"Bonds and Notes Payable" of the Notes to Consolidated  Financial Statements for
additional information.

2001 Sales Transactions

On February 2, 2001, we sold  Northgate  Plaza,  a community  center  located in
Lombard,  Illinois to Arbor  Northgate,  Inc.  for  aggregate  consideration  of
$7,050.  After the  repayment  of  mortgage  indebtedness  of $5,966 and closing
costs,  the net cash proceeds from the Northgate  Plaza sale were $510. On March
16, 2001, we sold Prime Outlets at Silverthorne (the "Silverthorne  Center"), an
outlet center  located in  Silverthorne,  Colorado  consisting of  approximately
257,000 square feet of GLA, to Silverthorne  Factory  Stores,  LLC for aggregate
consideration  of  $29,000.   The  net  cash  proceeds  from  the  sale  of  the
Silverthorne  Center  were  $8,993,  after the  repayment  of  certain  mortgage
indebtedness  of $18,078 on Prime  Outlets at Lebanon  (see  below) and  closing
costs  and  fees.  The net  proceeds  from  these  sales  were used to prepay an
aggregate $9,137 of principal outstanding under the Mezzanine Loan in accordance
with the terms of such loan  agreement.  In  connection  with  these  sales,  we
recorded an  aggregate  gain on the sale of real estate of $732 during the first
quarter of 2001. The operating  results of these  properties are included in our
results of operations through the respective dates of disposition.

Prior to its  sale,  the  Silverthorne  Center,  was one of  fifteen  properties
securing a first mortgage and expansion loan (the "First  Mortgage and Expansion
Loan"). In conjunction with the sale of the Silverthorne  Center, we substituted
Prime Outlets at Lebanon for the Silverthorne Center in the cross-collateralized
asset pool  securing  the First  Mortgage  and  Expansion  Loan  pursuant to the
collateral   substitution   provisions  contained  in  the  loan  agreement.  In
conjunction  with  adding  Prime  Outlets at Lebanon as  security  for the First
Mortgage and Expansion Loan, we repaid,  as discussed  above,  certain  mortgage
indebtedness on Prime Outlets at Lebanon of $18,078.

<PAGE>
On November 27, 2001, we sold certain land located in Camarillo,  California for
aggregate  consideration  of  $7,150.  The net  cash  proceeds  from  the  sale,
including  the release of certain funds held in escrow,  were $1,859,  after the
repayment of certain mortgage indebtedness of $6,227 and closing costs and fees.
The net  proceeds  from  this sale  were  used to  prepay  $1,787  of  principal
outstanding  under the Mezzanine Loan. In connection with this sale, we recorded
a loss on the sale of real estate of $1,615 during the fourth quarter of 2001.

2001 Foreclosure Sale

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

Note 4 - Bonds and Notes Payable

Going Concern

During  2002,  we are  required  to  make,  in  addition  to  scheduled  monthly
amortization,  certain  mandatory  principal  payments  on  the  Mezzanine  Loan
aggregating  $25,367 with net proceeds  from asset sales,  excluding our January
11, 2002 sale of a 70% joint  venture  partnership  interest  in the  Hagerstown
Center, or other capital  transactions  within specified periods (see "Mezzanine
Loan Modification" for additional  information).  Through June 30, 2002, we have
made mandatory principal payments aggregating  $10,341.  Although we continue to
seek to generate  additional  liquidity  through new  financings and the sale of
assets,  there can be no assurance  that we will be able to complete asset sales
or other capital  transactions  within the specified  periods or that such asset
sales or  other  capital  transactions,  if they  should  occur,  will  generate
sufficient  proceeds to make the remaining  mandatory payments of $15,026 due in
2002 under the Mezzanine Loan. Any failure to satisfy these mandatory  principal
payments  within the specified time periods will  constitute a default under the
Mezzanine Loan.

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

We are working with holders of the Affected Fixed Rate Bonds regarding potential
resolution,  including  waiver  or  amendment  with  respect  to the  applicable
provisions.  If we are unable to reach satisfactory resolution,  we will look to
(i) obtain alternative  financing from other financial  institutions,  (ii) sell
the  projects  subject to the  affected  debt or (iii)  explore  other  possible
capital  transactions  to generate cash to repay the amounts  outstanding  under
such debt. There can be no assurance that we will obtain satisfactory resolution
with the  holders  of the  Affected  Fixed Rate Bonds or that we will be able to
complete asset sales or other capital raising activities sufficient to repay the
amount outstanding under the affected Fixed Rate Bonds.

<PAGE>
As of June 30, 2002, we were in compliance  with all  financial  debt  covenants
under our recourse  loan  agreements  other than the Affected  Fixed Rate Bonds.
Nevertheless,  there can be no assurance that we will remain in compliance  with
our financial  debt  covenants in future  periods  because our future  financial
performance is subject to various risks and  uncertainties,  including,  but not
limited  to, the  effects of current  and future  economic  conditions,  and the
resulting  impact on our revenue;  the effects of  increases in market  interest
rates from current levels;  the risks  associated with existing vacancy rates or
potential  increases in vacancy  rates because of, among other  factors,  tenant
bankruptcies and store closures,  and the resulting impact on our revenue; risks
associated with litigation,  including  pending and potential tenant claims with
respect  to  lease  provisions  related  to  their  pass-through   charges,  and
promotional fund charges; and risks associated with refinancing our current debt
obligations  or obtaining new financing  under terms less favorable than we have
experienced in prior  periods.  See "Defaults on Certain  Non-recourse  Mortgage
Indebtedness"  and "Defaults on Certain  Non-recourse  Mortgage  Indebtedness of
Unconsolidated Partnerships" for additional information.

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

Mezzanine Loan Modification

Effective January 31, 2002, we entered into a modification to the original terms
of the Mezzanine  Loan obtained in December  2000.  The Mezzanine Loan amendment
(the  "Amendment"),  among other things,  (i) reduces required monthly principal
amortization  for the period February 1, 2002 through January 1, 2003 ("Year 2")
from $1,667 to $800, which may be further reduced to a minimum of $500 per month
under  certain  limited  circumstances,  provided  no  defaults  exist under the
Mezzanine Loan and certain other conditions have been satisfied at the Mezzanine
Lender's sole discretion,  (ii) requires certain  mandatory  principal  payments
from net proceeds from asset sales or other capital transactions pursuant to the
schedule set forth below and (iii) reduces the  threshold  level at which excess
cash flow from  operations  must be applied to  principal  pay-downs,  primarily
resulting  from  a  reduction  in  the  available   working  capital   reserves.
Additionally,  the  Amendment  (i)  increases  the interest rate from LIBOR plus
9.50% to LIBOR plus 9.75%  (rounded up to nearest  0.125% with a minimum rate of
14.75%), (ii) changes the Mezzanine Loan maturity date from December 31, 2003 to
September 30, 2003 and (iii) required a 0.25% fee, which was paid at the time of
the modification, on the outstanding principal balance. Pursuant to the terms of
the Amendment, the Mezzanine Loan monthly principal payments for May and June of
2002, were reduced to $611 and $649, respectively.

The Amendment  also  requires  additional  Year 2 monthly  payments of $250 (the
"Escrowed  Funds") into an escrow  account  controlled  by the Lender.  Provided
certain conditions are satisfied, at the Mezzanine Lender's sole discretion, the
Escrowed  Funds may be released to us for limited  purposes.  The Escrowed Funds
not used at the end of each  quarter,  subject  to certain  exceptions,  will be
applied by the  Mezzanine  Lender to amortize the Mezzanine  Loan.  The required
monthly principal amortization of $2,333 commencing on February 1, 2003, through
the new maturity date of September 30, 2003, remains unchanged.

<PAGE>
The Amendment also requires mandatory  principal payments with net proceeds from
asset  sales,  excluding  our  January  11,  2002  sale of a 70%  joint  venture
partnership   interest  in  the  Hagerstown  Center  (see  Note  3  -  "Property
Dispositions" for additional information),  or other capital transactions of not
less than (i) $8,906 by May 1, 2002, (ii) $24,406,  inclusive of the $8,906,  by
July 1, 2002  (subject  to  extension  to  October  31,  2002  provided  certain
conditions are met to the Lender's satisfaction) and (iii) $25,367, inclusive of
the  $24,406,  by November 1, 2002.  In  addition  to each  mandatory  principal
payment,  we must also pay any interest,  including deferred  interest,  accrued
thereon and the additional  fees provided for in the Mezzanine Loan. Any failure
to satisfy  these  mandatory  principal  payments or other  payments  within the
specified time periods will constitute a default under the Mezzanine Loan.

On July 1,  2002,  the  Mezzanine  Lender  elected  to  extend  the July 1, 2002
mandatory  principal payment due date to the earlier of (i) August 15, 2002 (the
"Extended  Date")  or (ii)  the  occurrence  of an event of  default  under  the
Mezzanine  Loan.  Additionally,  upon  satisfaction of certain  conditions,  the
Extended Date can be automatically extended again to the earlier of (i) October
31, 2002,  (ii) the occurrence of an event of default under the Mezzanine  Loan,
or (iii) the  closing or  termination  of certain  asset  sales,  with such date
hereafter  referred to as the  "Second  Mandatory  Principal  Payment Due Date."
There can be no assurance that these conditions will be met.

On April 1, 2002, we sold our Edinburgh Center and used the net proceeds to make
a $9,178  mandatory  payment on the Mezzanine Loan.  Additionally,  on April 19,
2002, we sold our ownership  interest in the Bellport Outlet Center and used the
net proceeds to make a $502 mandatory payment on the Mezzanine Loan. (See Note 3
- "Property Dispositions" for additional information.) As a result, we satisfied
the May 1, 2002 mandatory principal payment requirement.

On June 17,  2002,  we sold  Western  Plaza and used the net  proceeds to make a
mandatory  principal  payment  of  $661 on the  Mezzanine  Loan.  (See  Note 3 -
"Property  Dispositions"  for  additional  information.)  We are now required to
complete  additional  asset sales or other capital  transactions  generating net
proceeds  aggregating $14,065 by the Second Mandatory Principal Payment Due Date
and $15,026 (inclusive of the $14,065) by November 1, 2002.

The Mezzanine  Loan was also amended on January 11, 2002 to, among other things,
(i) release the  partnership  interests in Outlet Village of Hagerstown  Limited
Partnership  ("Hagerstown  LP") as  collateral  under the Mezzanine  Loan,  (ii)
release  Hagerstown LP of all obligations under the Mezzanine Loan and (iii) add
Hagerstown Land,  L.L.C., a Delaware limited liability  company,  as a guarantor
under the Mezzanine Loan.  Hagerstown Land, L.L.C. is the owner of three parcels
of land adjacent to the Hagerstown Center.

Debt Service Obligations

Our aggregate  indebtedness  excluding (i) unamortized  debt premiums of $9,639,
(ii) mortgage  indebtedness  of $111,059 on the Bridge Loan Properties and (iii)
non-recourse mortgage indebtedness of $17,768 on Prime Outlets at Jeffersonville
II was $686,216 (the  "Adjusted  Indebtedness")  at June 30, 2002.  The mortgage
indebtedness on the Bridge Loan Properties was repaid in full in connection with
the  sale of such  properties  on  July  26,  2002.  The  non-recourse  mortgage
indebtedness on the Jeffersonville II Center was relieved in connection with the
transfer of our ownership interest in such property to New York Life's successor
on August 13,  2002.  See Note 3 -  "Property  Dispositions"  and  "Defaults  on
Certain Non-recourse Mortgage Indebtedness" for additional information.

<PAGE>
At June 30, 2002 the Adjusted  Indebtedness had a  weighted-average  maturity of
3.0 years and bore contractual interest at a weighted-average  rate of 8.24% per
annum. At June 30, 2002, $631,254,  or 92.0%, of the Adjusted  Indebtedness bore
interest at fixed rates and $54,962 or 8.0%, of the Adjusted  Indebtedness  bore
interest at variable rates. In certain cases,  we utilize  derivative  financial
instruments to manage our interest rate risk associated with variable rate debt.

As of June 30, 2002, our scheduled  principal payments for the remainder of 2002
and  2003  for  the  Adjusted  Indebtedness  aggregated  $24,775  and  $378,465,
respectively.  The remaining  scheduled  principal payments for 2002 include (i)
principal  amortization  aggregating $9,749 (including an aggregate of $4,800 of
scheduled monthly principal payments on the Mezzanine Loan, which may be further
reduced  subject  to the  terms  of its  Amendment  specified  above)  and  (ii)
mandatory  principal  payments on the Mezzanine  Loan  aggregating  $15,026 (see
"Mezzanine  Loan  Modification"  for additional  information).  The  outstanding
principal  balance of the  Mezzanine  Loan as of June 30, 2002 was $35,431.  The
scheduled  principal payment for 2003 include (i) obligations of $338,558 due in
respect of a mortgage loan that is secured by 15 of our  properties  and matures
in November  2003 and (ii) $15,605 of  principal  payments  under the  Mezzanine
Loan.

Guarantees of Indebtedness of Others

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

Additionally,  we are a guarantor with respect to certain mortgage  indebtedness
(the "HGP Office Building  Mortgage") in the amount of $2,352 on HGP's corporate
office building and related  equipment located in Norton Shores,  Michigan.  The
HGP Office Building  Mortgage  matures in December 2002, bears interest at LIBOR
plus 2.50%, and requires monthly debt service payments of approximately $23.

On October 11, 2001,  HGP announced  that it was in default under two loans with
an  aggregate  principal  balance of $45,500  secured by six of its other outlet
centers.  Such defaults do not constitute defaults under the HGP Monroe Mortgage
Loan or the HGP Office Building Mortgage nor did they constitute a default under
the HGP Secured Credit  Facility.  No claims have been made under our guarantees
with  respect  to the  HGP  Monroe  Mortgage  Loan or the  HGP  Office  Building
Mortgage.  HGP is a publicly  traded company that was formed in connection  with
our merger with Horizon Group, Inc. in June 1998.

On January 11, 2002, we sold the Hagerstown Center to the Prime/Estein  Venture.
In  connection  with the sale,  the  Prime/Estein  Venture  assumed  $46,862  of
mortgage  indebtedness;  however,  our guarantee of such indebtedness remains in
place. See Note 3 - "Property Dispositions" for additional information.

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

<PAGE>
Defaults on Certain Non-recourse Mortgage Indebtedness

     During 2001,  certain of our  subsidiaries  suspended  regularly  scheduled
monthly  debt service  payments on two  non-recourse  mortgage  loans which were
cross-collateralized  by the  Jeffersonville II Center and the Conroe Center. At
the time of suspension,  these non-recourse mortgage loans were held by New York
Life.

Effective January 1, 2002, New York Life foreclosed on the Conroe Center and its
related assets and liabilities,  including $554 of cash and $15,467 of principal
outstanding  under the  non-recourse  mortgage loan, were  transferred  from our
subsidiary  that owned the Conroe  Center to New York Life.  No gain or loss was
recorded in connection  with the  foreclosure  action.  The  foreclosure  of the
Conroe  Center did not have a material  impact on our results of  operations  or
financial condition because during 2001 all excess cash flow from the operations
of the Conroe Center was utilized for debt service on its non-recourse  mortgage
loan.

Effective July 18, 2002,  New York Life sold its interest in the  Jeffersonville
II Center loan. On August 13, 2002, we transferred our ownership interest in the
Jeffersonville II Center to New York Life's successor.  As of June 30, 2002, the
carrying value of the Jeffersonville II Center was $3,719 and the balance of the
non-recourse  mortgage  indebtedness was $17,768 and unpaid accrued interest was
$2,492.  As  a  result  of  the  transfer  of  our  ownership  interest  in  the
Jeffersonville  II  Center,  we expect to  record a  non-recurring  gain for the
difference  between the carrying value of the  Jeffersonville  II Center and its
related net assets and the outstanding loan balance, including accrued interest,
during the third quarter of 2002. The transfer of our ownership  interest in the
Jeffersonville  II  Center  did not have a  material  impact on our  results  of
operations or financial  condition  because during 2001 and through the transfer
date in 2002, all excess cash flow from the operations of the  Jeffersonville II
Center was utilized for debt service on its non-recourse mortgage loan.

During August of 2002, certain of our subsidiaries suspended regularly scheduled
monthly debt service  payments on two  non-recourse  mortgage loans  aggregating
$40,829 as of June 30, 2002. These non-recourse mortgage loans which are held by
John Hancock Life Insurance Company ("John Hancock") are cross-collateralized by
Prime  Outlets at Vero Beach (the "Vero Beach  Center"),  located in Vero Beach,
Florida,  and Prime  Outlets at Woodbury  (the  "Woodbury  Center"),  located in
Woodbury, Minnesota (collectively,  the "John Hancock Properties"). John Hancock
has  commenced  foreclosure  proceedings  with regard to the Vero Beach  Center.
Additionally,  we are currently negotiating a transfer of our ownership interest
in the Woodbury Center to John Hancock.

During the second quarter of 2002, we incurred a provision for asset  impairment
of $12,200 to adjust the carrying values of the John Hancock Properties to their
estimated  fair  value  in  accordance  with  the  provisions  of FAS  No.  144.
Foreclosure  on the Vero Beach Center and transfer of our ownership  interest in
the Woodbury Center are not expected to have a material impact on our results of
operations or financial condition because during 2002, all excess cash flow from
the operations of the John Hancock Properties has been utilized for debt service
on their non-recourse mortgage loans.

Defaults   on  Certain  Non-recourse  Mortgage  Indebtedness  of  Unconsolidated
Partnerships

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

<PAGE>
Union Labor filed for foreclosure on Phase I of the Bellport Outlet Center and a
receiver was appointed  March 27, 2001 by the court involved in the  foreclosure
action.  Effective May 1, 2001, a manager hired by the receiver  began  managing
and leasing Phase I of the Bellport Outlet Center.  We continue to negotiate the
terms of a  transfer  of our  ownership  interest  in Oxnard  Factory  Outlet to
Fru-Con. We do not manage or lease Oxnard Factory Outlet.

We do not  believe  either  of these  mortgage  loans is  recourse  to us. It is
possible,  however,  that either or both of the  respective  lenders will file a
lawsuit  seeking to  collect  amounts  due under the loan.  If such an action is
brought, the outcome, and our ultimate liability, if any, cannot be predicted at
this time.

We are  currently  not  receiving,  directly or  indirectly,  any cash flow from
Oxnard  Factory  Outlet and were not receiving any cash flow from Phase I of the
Bellport Outlet Center prior to the loss of control of such project.  We account
for our  ownership  interests in Phase I of the Bellport  Outlet  Center and the
Oxnard Factory Outlet in accordance with the equity method of accounting.  As of
June 30, 2002, the carrying value of our investment in these properties was $0.

Note 5 - Shareholders' Equity

Dividends and Distributions

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

Our  current  policy is to pay  distributions  only to the extent  necessary  to
maintain  our status as a REIT for  federal  income tax  purposes.  Based on our
current  federal  income tax  projections  for 2002, we do not expect to pay any
distributions  on our Senior  Preferred  Stock,  Series B Convertible  Preferred
Stock,  common  stock or common  units of limited  partnership  interest  in the
Operating  Partnership  during 2002.  As of August 15,  2002,  we will be eleven
quarters in arrears with respect to preferred stock distributions.

Under the terms of the Mezzanine Loan, we are prohibited  from paying  dividends
or  distributions  except to the extent  necessary  to maintain  our status as a
REIT. In addition,  we may not make distributions to our common  shareholders or
our holders of common units of limited  partnership  interests in the  Operating
Partnership unless we are current with respect to distributions to our preferred
shareholders.  As of June 30, 2002, unpaid dividends for the period beginning on
November 16, 1999 through June 30, 2002 on the Series A Senior  Preferred  Stock
and  Series B  Convertible  Preferred  Stock  aggregated  $15,848  and  $43,666,
respectively.  The  annualized  dividends  on our  2,300,000  shares of Series A
Senior  Preferred Stock and 7,828,125  shares of Series B Convertible  Preferred
Stock  outstanding as of June 30, 2002 are $6,037 ($2.625 per share) and $16,635
($2.125 per share), respectively.

<PAGE>
Note 6 - Legal Proceedings

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

Dinnerware Plus Holdings,  Inc., which operates under the trade name Mikasa, and
affiliates  (collectively,  the "Mikasa Plaintiffs") filed a lawsuit against the
Company and  various  affiliates  in  Superior  Court of New Jersey on March 29,
2001.  The Mikasa  Plaintiffs  assert a number of causes of action in which they
allege that the Company and its affiliates  breached  various  provisions in the

Mikasa  Plaintiffs'  leases and, as a result,  overcharged the Mikasa Plaintiffs
for common area  maintenance  and similar  charges  ("CAM") and  promotion  fund
charges at various centers where the Mikasa Plaintiffs are tenants.  The Company
filed a motion to dismiss the  complaint on behalf of the  Company's  affiliates
who  entered  into  leases  with  the  Mikasa  Plaintiffs,   based  on  lack  of
jurisdiction.  The motion was granted and the Mikasa  Plaintiffs  filed a motion
for reconsideration,  which was denied. The remaining defendants,  Prime Retail,
Inc. and Prime Retail, L.P., answered the complaint.

Subsequent  efforts in the litigation were deferred while the parties  attempted
to resolve their claims through  negotiation.  As a result of these efforts, the
parties entered into a settlement  agreement on August 7, 2002 pursuant to which
the  lawsuit  is to be  dismissed  with  prejudice,  and all  potential  claims,
including claims and potential  counterclaims for overpayments and underpayments
of various pass-through charges, arising from the litigation are to be released,
with  all  parties  expressly  denying  liability.  Pursuant  to the  settlement
agreement,  the  Company  will make  payments to Mikasa over the next two months
totaling  $2,100,  and various  leases between Mikasa and its affiliates and the
Company will be amended to, among other things,  remove the specific  provisions
that were the  primary  basis of the  dispute  and modify  remaining  provisions
concerning the collection of pass-through  charges.  This settlement,  including
the related lease  modifications,  is not expected to have a material  impact on
the  Company's  financial  condition  or  results  of  operations.  The  Company
previously accrued a reserve of $2,000 for this matter during the fourth quarter
of 2001,  which is  included in accounts  payable and other  liabilities  in its
Consolidated  Balance  Sheet  as of  June  30,  2002.  See  "Mikasa  Settlement"
contained  in  "Liquidity  and  Capital  Resources"  of  Item 2 -  "Management's
Discussion of Financial  Condition  and Results of  Operations"  for  additional
information.

On July 6, 2001,  affiliates  of the  Company  brought an action in the  Circuit
Court for Washington County, Maryland against Melru Corporation,  which operates
under the trade name Jones New York,  alleging that Melru  Corporation owed past
due rent in connection  with 43 leases.  Melru  Corporation,  in response to the
collection action filed by certain  affiliates of the Company,  filed on October
15, 2001 several  counterclaims  against the Company and its affiliates in which
it alleges that the Company and its affiliates overcharged Melru Corporation for
CAM and promotion fund charges.  In addition,  Melru Corporation alleges that an
affiliate of the Company  fraudulently induced Melru Corporation to enter into a
lease and that another  affiliate  violated its lease with Melru  Corporation by
failing to maintain  required  occupancy  levels at the shopping center it owns.
The  Company  and its  affiliates  have not filed  their  response  to the Melru
Corporation counterclaims.

<PAGE>
Subsequent  efforts in the litigation were deferred while the parties  attempted
to resolve their claims through  negotiation.  As a result of these efforts, the
parties have entered into a settlement  agreement on August 13, 2002 pursuant to
which the lawsuit and any related litigation matters are to be dismissed,  or in
one  instance  satisfied,  all  potential  claims  and  counterclaims  are to be
released,  including  claims  for  overpayments  and  underpayments  of  various
pass-through charges, and with all parties expressly denying liability. Pursuant
to the settlement  agreement,  no payments will be made to Melru  Corporation by
the Company, Melru Corporation will satisfy a prior judgment against it, and the
leases between Melru Corporation and the Company will be modified,  including to
provide for extensions of the terms of a limited  number of existing  leases and
the early  termination  of occupancy at one center.  The Company does not expect
this settlement, including the related lease modifications, will have a material
impact on the Company's financial condition or results of operations.

Additionally,  numerous other tenants in the Company's portfolio have clauses in
their leases pursuant to which they may claim under various  circumstances  that
they were not  required  to pay some or all of the  pass-through  charges.  Such
claims, if asserted and found meritorious, could have a material effect upon the
Company's financial condition. Determination of whether liability would exist to
the Company from these claims would depend on  interpretation  of various  lease
clauses  within a  tenant's  lease  and all of the other  leases at each  center
collectively  at any given point in time.  To date,  Designs  Inc.,  Brown Group
Retail,  Inc. and The Gap, Inc. have made  allegations  or have indicated to the
Company that they are considering  making  allegations  that their leases do not
require them to pay some or all of the pass-through  charges.  The Company is in
discussion  with these tenants and is working to resolve any disputes with them,
including wherever  possible,  satisfactorily  modifying or eliminating  clauses
that are the source of the  continuing  disputes.  During the second  quarter of
2002, the Company recorded a non-recurring  charge to establish a reserve in the
amount of $3,000 for  resolution  of these  matters,  in  addition to the Mikasa
matter discussed above. This reserve,  which is included in accounts payable and
other  liabilities  in the Company's  Consolidated  Balance Sheet as of June 30,
2002, was estimated in accordance  with the Company's  established  policies and
procedures with respect to loss contingencies (see "Critical Accounting Policies
and  Estimates" of Item 2 -  "Management's  Discussion and Analysis of Financial
Condition  and Results of  Operations"  for  additional  information.)  Based on
presently  available  information,  the Company  believes  it is  probable  this
reserve will be utilized  over the next  several  years in  connection  with the
resolution  of  claims  relating  to  the   pass-through  and  promotional  fund
provisions  contained in its leases. The Company cautions,  however,  that given
the inherent uncertainties of litigation and the complexities  associated with a
large number of leases and other  factual  questions at issue,  actual costs may
vary from this estimate.

<PAGE>
The Company and its  affiliates  were  defendants  in a lawsuit filed by Accrued
Financial Services ("AFS") on August 10, 1999 in the Circuit Court for Baltimore
City.  The lawsuit was removed to United States  District Court for the District
of Maryland  (the "U.S.  District  Court") on August 20, 1999.  AFS claimed that
certain  tenants had  assigned to AFS their  rights to make claims  under leases
such tenants had with affiliates of the Company and alleged that the Company and
its affiliates  overcharged such tenants for common area maintenance charges and
promotion fund charges.  The U.S.  District Court  dismissed the lawsuit on June
19, 2000. AFS appealed the U.S.  District  Court's decision to the United States
Court of Appeals for the Fourth Circuit. Briefs were submitted and oral argument
before a panel of judges of the United  States  Court of Appeals  for the Fourth
Circuit was held on October 30, 2001, during which the panel of judges requested
further briefing of certain issues.  On July 29, 2002, the Fourth Circuit denied
the appeal of AFS.  The Company  believes  that it has acted  properly  and will
continue to defend this lawsuit  vigorously  if AFS  continues  with  additional
appeal efforts.  The outcome of this lawsuit if additional appeal efforts of AFS
are successful,  and the ultimate liability of the defendants, if any, cannot be
predicted at this time.

Affiliates of the Company routinely file lawsuits to collect past due rent from,
and to evict,  tenants  which  have  defaulted  under  their  leases.  There are
currently dozens of such actions pending.  In addition to defending  against the
Company's   affiliates'   claims  and  eviction   actions,   some  tenants  file
counterclaims  against  the  Company's  affiliates.  A tenant  who files  such a
counterclaim typically claims that the Company's affiliate which owns the outlet
center in question has defaulted under the tenant's  lease,  has overcharged the
tenant for CAM and promotion  fund charges,  or has failed to maintain or market
the  outlet  center in  question  as  required  by the  lease.  In spite of such
counterclaims,  the  Company's  affiliates  usually  elect to continue to pursue
their  collection or eviction  actions.  Although the Company and its affiliates
believe that such  counterclaims  are typically without merit and defend against
them vigorously, the outcome of all such counterclaims,  and thus the liability,
if any, of the Company and its affiliates, cannot be predicted at this time.

Since  October  13,  2000 there have been eight  complaints  filed in the United
States District Court for the District of Maryland  against the Company and five
individual defendants.  The five individual defendants are Glenn D. Reschke, the
President, Chief Executive Officer and Chairman of the Board of Directors of the
Company;  William H.  Carpenter,  Jr., the former  President and Chief Operating
Officer and a former  director of the  Company;  Abraham  Rosenthal,  the former
Chief  Executive  Officer  and a former  director  of the  Company;  Michael  W.
Reschke, the former Chairman of the Board and a current director of the Company;
and Robert P. Mulreaney,  the former  Executive Vice President - Chief Financial
Officer and  Treasurer  of the  Company.  The  complaints  have been  brought by
alleged  stockholders  of the Company,  individually  and  purportedly  as class
actions  on behalf of all other  stockholders  of the  Company.  The  complaints
allege that the individual  defendants  made  statements  about the Company that
were  in  violation  of  the  federal   securities  laws.  The  complaints  seek
unspecified  damages and other  relief.  Lead  plaintiffs  and lead counsel were
subsequently  appointed.  A consolidated  amended complaint  captioned The Marsh
Group,  et al. v. Prime Retail,  Inc., et al. dated May 21, 2001 was filed.  The
Company and the individual  defendants  filed a motion to dismiss the complaint,
which was granted on November 8, 2001. The plaintiffs appealed the matter to the
Fourth  Circuit.  Briefs were filed and oral arguments were held on June 4, 2002
but a  decision  has not yet been  issued by the  Fourth  Circuit.  The  Company
believes  that the claims are without merit and will defend  vigorously  against
the appeal.  The outcome of this  lawsuit,  and the  ultimate  liability  of the
defendants, if any, cannot be predicted at this time.

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

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

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

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

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


Introduction

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

Cautionary Statements

The following  discussion in "Management's  Discussion and Analysis of Financial
Condition and Results of Operations" and other sections of this Quarterly Report
on Form 10-Q contain certain  forward-looking  statements  within the meaning of
the Private Securities Litigation Reform Act of 1995, which reflect management's
current  views with respect to future events and  financial  performance.  These
statements  are subject to potential  risks and  uncertainties  and,  therefore,
actual  results  may differ  materially.  Such  forward-looking  statements  are
subject to certain risks and uncertainties,  including,  but not limited to, the
following:

o        the risk associated with our high level of leverage and our ability to
         refinance such indebtedness as it becomes due;

o        the  risks  associated  with our current non-compliance with respect to
         the debt service coverage  ratio  on fixed rate tax-exempt bonds in the
         amount of $18,390 and the resulting ability of the affected bondholders
         to  elect  to  put  such  obligations  to  us, as well as the risk that
         cross-default  provisions  under  other  indebtedness may be triggered,
         including  a  mezzanine  loan  (the "Mezzanine Loan")  in the amount of
         $35,431;

o        the risk  that  we  or  one or more of our subsidiaries are not able to
         satisfy scheduled  debt service  obligations  or  will  not  remain  in
         compliance with  respect  to  loan  covenants under other indebtedness;
         including obligations  to make mandatory principal payments as required
         under the terms of a modification to the Mezzanine Loan;

o        the risk of material adverse effects of future events, including tenant
         bankruptcies or abandonments, on our financial performance;

o        the  risk  related  to  the retail industry in which our outlet centers
         compete, including the  potential  adverse  impact of external factors,
         such as inflation, consumer confidence, unemployment rates and consumer
         tastes and preferences;

o        the risk  associated  with tenant  bankruptcies, store closings and the
         non-payment by tenants of contractual rents and additional rents;

o        the risk associated with our potential asset sales;

o        the risk  of  potential increases in market interest rates from current
         levels;

<PAGE>
o        the risk associated  with real  estate ownership, such as the potential
         adverse impact of changes in local economic climate on the revenues and
         the value of our properties;

o        the risk  associated with litigation,  including  pending and potential
         tenant claims with regard  to various lease provisions related to their
         pass-through charges and promotion fund charges; and

o        the risk associated with competition from web-based and catalogue
         retailers.

Critical Accounting Policies and Estimates

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

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

Bad Debt

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

<PAGE>
Impairment of Rental Property

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

Contingencies

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

Outlet Center Portfolio

Portfolio GLA and Occupancy

As a  fully  integrated  real  estate  company,  we  provide  finance,  leasing,
accounting,  marketing  and  management  services  for  all of  our  Properties,
including  those in which we have an ownership  interest  through  joint venture
partnerships.  At June 30, 2002, our portfolio of properties consisted of (i) 42
outlet centers aggregating 11,893,000 square feet of gross leasable area ("GLA")
(including  1,682,000  square feet of GLA at outlet  centers owned through joint
venture partnerships), (ii) one community shopping center totaling 27,000 square
feet of GLA and (iii) 154,000 square feet of GLA of office space.  This compares
to 45 properties totaling 12,670,000 square feet of GLA at December 31, 2001 and
June 30,  2001.  The changes in our outlet  center GLA are due to certain  sales
transactions  during  2002 and 2001,  including  the loss of two outlet  centers
(Prime  Outlets at New River and Prime  Outlets at Conroe)  through  foreclosure
sale.  See  Note 3 -  "Property  Dispositions"  of  the  Notes  to  Consolidated
Financial Statements for additional information.

Our outlet center portfolio was 86.8% and 89.5% occupied as of June 30, 2002 and
2001,  respectively.  For the three and six months ended June 30, 2002, weighted
average   occupancy  in  our  outlet  center  portfolio  was  87.1%  and  87.5%,
respectively, compared to 89.5% and 89.8%, respectively, for the same periods in
2001. The decline in the 2002 weighted  average and period-end  occupancies  was
primarily  attributable to certain tenant  bankruptcies,  abandonments and store
closings.

<PAGE>
The table set forth below  summarizes  certain  information  with respect to our
outlet centers as of June 30, 2002:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                               Grand                 GLA               Occupancy
Outlet Centers                                                             Opening Date           (Sq. Ft.)          Percentage (1)
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>                        <C>                      <C>
Prime Outlets at Fremont--  Fremont, Indiana                               October 1985             229,000                  88%

Prime Outlets at Birch Run (2)--  Birch Run, Michigan                    September 1986             724,000                  90

Prime Outlets at Latham (3)--  Latham, New York                             August 1987              43,000                  83

Prime Outlets at Williamsburg (2)--  Williamsburg, Virginia                  April 1988             274,000                  94

Prime Outlets at Pleasant Prairie--  Kenosha, Wisconsin                  September 1988             269,000                  92

Prime Outlets at Burlington--  Burlington, Washington                          May 1989             174,000                  90

Prime Outlets at Queenstown--  Queenstown, Maryland                           June 1989             221,000                  90

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

Prime Outlets at Oshkosh--  Oshkosh, Wisconsin                            November 1989             260,000                  93

Prime Outlets at Warehouse Row (4)--  Chattanooga, Tennessee              November 1989              95,000                  79

Prime Outlets at Perryville--  Perryville, Maryland                           June 1990             148,000                  97

Prime Outlets at Sedona--  Sedona, Arizona                                  August 1990              82,000                  88

Prime Outlets at San Marcos--  San Marcos, Texas                            August 1990             549,000                  94

Prime Outlets at Anderson (3)--  Anderson, California                       August 1990             165,000                  82

Prime Outlets at Post Falls--  Post Falls, Idaho                              July 1991             179,000                  70

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

Prime Outlets at Morrisville--  Raleigh/Durham, North Carolina             October 1991             187,000                  74

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

Prime Outlets at Niagara Falls USA--  Niagara Falls, New York                 July 1992             534,000                  89

Prime Outlets at Woodbury (5)--  Woodbury, Minnesota                          July 1992             250,000                  71

Prime Outlets at Calhoun (3)--  Calhoun, Georgia                           October 1992             254,000                  85

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

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

Prime Outlets at Jeffersonville II (6)--  Jeffersonville, Ohio               March 1993             314,000                  42

Prime Outlets at Jeffersonville I--  Jeffersonville, Ohio                     July 1993             407,000                  88

Prime Outlets at Gainesville--  Gainesville, Texas                          August 1993             316,000                  68

Prime Outlets at Loveland--  Loveland, Colorado                                May 1994             328,000                  91

Prime Outlets at Grove City--  Grove City, Pennsylvania                     August 1994             533,000                  95

</TABLE>
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                              Grand                 GLA                Occupancy
Outlet Centers                                                             Opening Date          (Sq. Ft.)           Percentage (1)
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>                     <C>                         <C>
Prime Outlets at Huntley--  Huntley, Illinois                               August 1994             282,000                  68%

Prime Outlets at Florida City--  Florida City, Florida                   September 1994             208,000                  65

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

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

Prime Outlets at Vero Beach (5)--  Vero Beach, Florida                    November 1994             326,000                  88

Prime Outlets at Odessa--  Odessa, Missouri                                   July 1995             296,000                  74

Prime Outlets at Darien (7)--  Darien, Georgia                                July 1995             307,000                  67

Prime Outlets at Gulfport (8)--  Gulfport, Mississippi                    November 1995             306,000                  88

Prime Outlets at Lodi (3)--  Burbank, Ohio                                November 1996             313,000                  87

Prime Outlets at Gaffney (3) (7)--  Gaffney, South Carolina               November 1996             305,000                  94

Prime Outlets at Lee (3)--  Lee, Massachusetts                                June 1997             224,000                  96

Prime Outlets at Lebanon--  Lebanon, Tennessee                               April 1998             229,000                  97

Prime Outlets at Hagerstown (9)--  Hagerstown, Maryland                     August 1998             487,000                  98

Prime Outlets of Puerto Rico--  Barceloneta, Puerto Rico                      July 2000             176,000                  97
                                                                                                 ----------                  --
Total Outlet Centers (10)                                                                        11,893,000                  86%
                                                                                                 ==========                  ==
====================================================================================================================================
</TABLE>

Notes:
(1)     Percentage  reflects  occupied space as of June 30, 2002 as a percent of
        available square feet of GLA.
(2)     We,  through  affiliates,  have  a  30%  ownership interest in the joint
        venture partnership that owns this outlet center.
(3)     On  July 26, 2002,  we  sold  this  outlet  center  to  a  joint venture
        partnership  in  which  we,  through  affiliates, have a 19.8% ownership
        interest.
(4)     We own a 2%  partnership interest as the sole general partner in Phase I
        of  this  property  but  are entitled to 99% of the property's operating
        cash  flow  and  net proceeds from a sale or refinancing. This mixed-use
        development  includes  154,000 square feet of office space, not included
        in this table, which was 95% occupied as of June 30, 2002.
(5)     Non-recourse  mortgage  loans  on  Prime Outlets at Vero Beach and Prime
        Outlets at Woodbury  are cross-collateralized.  The lender has commenced
        foreclosure proceedings on Prime Outlets at Vero Beach. We are currently
        negotiating  a  transfer  of  our ownership interest in Prime Outlets at
        Woodbury to the lender.
(6)     On  August 13, 2002,  we  transferred  our  ownership  interest in Prime
        Outlets at Jeffersonville II to a successor of the lender.
(7)     We operate this outlet center pursuant to a long-term ground lease under
        which we receive the economic  benefit of a 100% ownership interest.
(8)     The real property on which this outlet center is located is subject to a
        long-term ground lease.
(9)     On  January 11, 2002,  we  sold  this  outlet  center to a joint venture
        partnership  in  which  we,  through  affiliates,  have  a 30% ownership
        interest.
(10)    We  also own one community shopping center,  not included in this table,
        containing approximately  27,000 square feet that was 82% occupied as of
        June 30, 2002.

<PAGE>
Results of Operations

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

Summary

We reported  losses  from  continuing  operations  of $20,530 and $5,647 for the
three  months ended June 30, 2002 and 2001,  respectively.  For the three months
ended June 30, 2002,  the net loss  applicable  to our common  shareholders  was
$35,854,  or $0.82 per common share on a basic and diluted basis.  For the three
months ended June 30, 2001, the net loss  applicable to our common  shareholders
was $12,511, or $0.29 per common share on a basic and diluted basis.

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

During  the  three  months  ended  June  30,  2002,  we  reported  a  loss  from
discontinued  operations of $9,656,  or $0.22 per basic and diluted  share.  The
loss from  discontinued  operations  includes  losses related to dispositions of
$8,167.  During the three  months  ended June 30,  2001,  we  reported a loss on
discontinued operations of $1,196, or $0.03 per basic and diluted share.

The 2002 results also reflect (i) a loss on the sale of real estate of $703,  or
$0.02 per basic and diluted  share,  attributable  to the sale of our  ownership
interest in a joint venture partnership,  (ii) a non-recurring charge of $3,000,
or $0.07 per basic and diluted  share,  for pending and potential  tenant claims
with respect to lease provisions related to pass-through charges and promotional
fund charges and (iii) a provision for asset impairment of $12,200, or $0.28 per
basic and diluted share, for two outlet centers. The 2001 results reflect a loss
on the sale of real estate of $180 for those properties sold during 2001.

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

Revenues

Total  revenues were $39,880 for the three months ended June 30, 2002,  compared
to $44,863 for the same period in 2001,  a decrease  of $4,983,  or 11.1%.  Base
rents decreased  $2,870, or 10.3%, to $24,943 during the three months ended June
30, 2002  compared to $27,813 for the same period in 2001.  These  decreases are
primarily  due to (i) the 2001 Property  Dispositions,  (ii) changes in economic
rental rates and (iii) the reduction in outlet center  occupancy during the 2002
period.  Straight-line rent income (expense),  included in base rent was $21 and
$(198) for the three months ended June 30, 2002 and 2001, respectively.

<PAGE>
Tenant reimbursements,  which represent the contractual recovery from tenants of
various operating expenses, decreased by $1,563, or 11.1%, to $12,430 during the
three months ended June 30, 2002 compared to $13,993 in the same period in 2001.
This  decrease was primarily  due to (i) the 2001  Property  Dispositions;  (ii)
changes  in  economic  rental  rates and (iii) the  reduction  in outlet  center
occupancy  during the 2002 period.  Tenant  reimbursements  as a  percentage  of
recoverable  property operating expenses and real estate taxes was 82.7% in 2002
compared to 95.2% in 2001. The decline in tenant  reimbursements as a percentage
of recoverable  property  operating expenses and real estate taxes was primarily
attributable  to changes in economic  rental  rates and the  reduction in outlet
center occupancy during the 2002 period.

Interest and other  income  decreased by $367,  or 15.0%,  to $2,076  during the
three months ended June 30, 2002 compared to $2,443 for same period in 2001. The
decrease was  primarily  attributable  to  reductions  in (i) lease  termination
income of $467 and (ii) all other  income of $97.  These  items  were  partially
offset by an increase in equity  earnings  from  investment in  partnerships  of
$197.

Expenses

Property  operating  expenses  increased by $361, or 3.4%, to $11,063 during the
three  months  ended June 30,  2002  compared  to $10,702 for the same period in
2001. This increase was primarily attributable to higher utilities and insurance
costs  partially  offset by the 2001  Property  Dispositions.  Real estate taxes
expense  decreased by $32, or 0.8%, to $3,962 during the three months ended June
30,  2002  compared  to $3,994 for the same period in 2001.  This  decrease  was
primarily attributable to the 2001 Property Dispositions.

As shown in TABLE 1, depreciation and amortization expense decreased by $949, or
9.1%, to $9,531 during the three months ended June 30, 2002, compared to $10,480
for the same period in 2001. This decrease was primarily attributable to (i) the
2001  Property  Dispositions  and (ii)  reduced  depreciation  and  amortization
associated with a provision for impairment losses of $63,026 recorded during the
third quarter of 2001.

Table 1--Components of Depreciation and Amortization Expense

--------------------------------------------------------------------------------
Three Months ended June 30,                      2002                    2001
--------------------------------------------------------------------------------
Building and improvements                      $ 4,459                 $ 5,429
Land improvements                                1,215                   1,222
Tenant improvements                              3,162                   3,084
Furniture and fixtures                             629                     669
Leasing commissions                                 66                      76
                                               -------                --------
  Total                                        $ 9,531                $ 10,480
                                               =======                ========
================================================================================

As shown in TABLE 2, interest expense  decreased by $1,972, or 11.1%, to $15,867
during the three  months  ended June 30,  2002  compared to $17,839 for the same
period in 2001. This decrease reflects (i) lower interest incurred of $1,990 and
(ii) a decrease in amortization of deferred  financing costs of $166,  partially
offset by a reduction in amortization of debt premiums of $184.

<PAGE>
The decrease in interest  incurred is primarily  attributable  to a reduction of
$68,077 in our  weighted-average  debt  outstanding,  excluding  debt  premiums,
during the three months ended June 30, 2002 compared to the same period in 2001.
Also   contributing   to  the   decrease   in  interest   incurred   were  lower
weighted-average  interest  rates  during the three  months  ended June 30, 2002
compared   to  the  same  period  in  2001.   The   significant   reduction   in
weighted-average debt outstanding was primarily attributable to debt prepayments
on the Mezzanine  Loan with net proceeds  from (i) the sales of  properties  and
(ii) the 2001 Property Dispositions.  The weighted-average  contractual interest
rates for the three  months  ended June 30,  2002 and 2001 were 8.38% and 8.82%,
respectively. The Mezzanine Loan was obtained in December 2000 from FRIT Lending
LLC (the  "Mezzanine  Lender") in the original  amount of $90,000.  See Note 4 -
"Bonds and Notes Payable" of the Notes to Consolidated  Financial Statements for
additional information.

Table 2--Components of Interest Expense

--------------------------------------------------------------------------------
Three Months ended June 30,                       2002                    2001
--------------------------------------------------------------------------------
Interest incurred                              $ 14,856                $ 16,846
Amortization of deferred financing costs          1,455                   1,621
Amortization of debt premiums                      (444)                   (628)
                                               --------                --------
  Total                                        $ 15,867                $ 17,839
                                               ========                ========
================================================================================

During the second quarter of 2002, we recorded a non-recurring  charge of $3,000
for pending and potential tenant claims with respect to lease provisions related
to their pass-through  charges and promotional fund charges (see Note 6 - "Legal
Proceedings"  of the Notes to Consolidated  Financial  Statements for additional
information).  This  non-recurring  charge was estimated in accordance  with our
aforementioned "Critical Accounting Policies and Estimates" with respect to loss
contingencies  and is based on our current  assessment of the  likelihood of any
adverse judgments or outcomes to these matters.

Excluding  this  non-recurring  charge,  other charges  decreased by $3,156,  or
72.3%, to $1,207 for the three months ended June 30, 2002 compared to $4,363 for
the same  period in 2001.  This  decrease  reflects  (i) a lower  provision  for
uncollectible  accounts  receivable of $2,652, a decrease in corporate marketing
costs of $494 and (iii) a reduction in all other expenses of $10.

During the second quarter of 2002, we incurred a provision for asset  impairment
of $12,200 to adjust the carrying values of two of our properties (Prime Outlets
at Vero Beach and Prime Outlets at Woodbury) to their  estimated  fair values in
accordance   with  the  provisions  of  FAS  No.  144.   These   properties  are
cross-collateralized by non-recourse mortgage indebtedness on which we suspended
payment of regularly  scheduled  monthly debt service  payment  during August of
2002. See "Defaults on Certain  Non-recourse  Mortgage  Indebtedness"  contained
within Note 4 - "Bonds and Notes Payable" of the Notes to Consolidated Financial
Statements for additional information.

Comparison  of  the  six months ended June 30, 2002 to the six months ended June
30, 2001

Summary

We reported losses from continuing operations of $24,981 and $10,005 for the six
months ended June 30, 2002 and 2001, respectively. For the six months ended June
30, 2002, the net loss  applicable to our common  shareholders  was $39,841,  or
$0.91 per common  share on a basic and diluted  basis.  For the six months ended
June 30, 2001, the net loss applicable to our common shareholders was 23,809, or
$0.55 per common share on a basic and diluted basis.

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

During the six months ended June 30, 2002, we reported a loss from  discontinued
operations  of  $3,524,  or $0.08  per basic and  diluted  share.  The loss from
discontinued  operations  includes losses related to disposition of $997. During
the six  months  ended  June  30,  2001,  we  reported  a loss  on  discontinued
operations of $2,468, or $0.06 per basic and diluted share.

The 2002 results also reflect (i) a loss on the sale of real estate of $703,  or
$0.02 per basic and diluted  share,  attributable  to the sale of our  ownership
interest in a joint venture  partnership (ii) a non-recurring  charge of $3,000,
or $0.07 per basic and diluted  share,  for pending and potential  tenant claims
related  to  pass-through  charges  and  promotional  fund  charges  and (iii) a
provision for asset impairment of $12,200, or $0.28 per basic and diluted share,
for two  outlet  centers.  The 2001  results  reflect a gain on the sale of real
estate of $552 for those properties sold during 2001.

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

Revenues

Total revenues were $82,065 for the six months ended June 30, 2002,  compared to
$90,910 for the same period in 2001, a decrease of $8,845,  or 9.7%.  Base rents
decreased $6,139, or 10.7%, to $51,031 during the six months ended June 30, 2002
compared to $57,170 for the same period in 2001.  These  decreases are primarily
due to (i) the 2001 Property Dispositions, (ii) changes in economic rental rates
and (iii) the  reduction  in outlet  center  occupancy  during the 2002  period.
Straight-line  rent  expense,  included in base rent was $0 and $321 for the six
months ended June 30, 2002 and 2001, respectively.

Tenant reimbursements,  which represent the contractual recovery from tenants of
certain operating expenses, decreased by $3,136, or 11.2%, to $24,804 during the
six months  ended June 30, 2002  compared to $27,940 in the same period in 2001.
These  decreases are primarily due to (i) the 2001 Property  Dispositions;  (ii)
changes  in  economic  rental  rates and (iii) the  reduction  in outlet  center
occupancy  during the 2002 period.  Tenant  reimbursements  as a  percentage  of
recoverable  property operating expenses and real estate taxes was 84.4% in 2002
compared to 93.3% in 2001. The decline in tenant  reimbursements as a percentage
of recoverable  property  operating expenses and real estate taxes was primarily
attributable to changes in economic rental rates and the reduction in outlet
center occupancy during the 2002 period.

Interest and other income  decreased by $106,  or 2.3%, to $4,510 during the six
months  ended June 30,  2002  compared  to $4,616 for same  period in 2001.  The
decrease reflects  reductions in (i) lease  termination  income of $730 and (ii)
all other income of $390 partially  offset by an increase in our equity earnings
from investment in partnerships of $1,014.

<PAGE>
Expenses

Property  operating  expenses  decreased by $308, or 1.4%, to $21,557 during the
six months ended June 30, 2002  compared to $21,865 for the same period in 2001.
This  decrease was  primarily  attributable  to the 2001  Property  Dispositions
partially  offset by higher  utilities  and insurance  costs.  Real estate taxes
expense  decreased by $232,  or 2.9%, to $7,846 during the six months ended June
30,  2002  compared  to $8,078 for the same period in 2001.  This  decrease  was
primarily attributable to the 2001 Property Dispositions.

As shown in TABLE 3, depreciation and amortization  expense decreased by $1,291,
or 6.1%,  to $19,710  during the six months  ended June 30,  2002,  compared  to
$21,001 for the same period in 2001. This decrease was primarily attributable to
(i)  the  2001  Property   Dispositions   and  (ii)  reduced   depreciation  and
amortization  associated  with a  provision  for  impairment  losses of  $63,026
recorded during the third quarter of 2001.

Table 3--Components of Depreciation and Amortization Expense

--------------------------------------------------------------------------------
Six Months ended June 30,                         2002                    2001
--------------------------------------------------------------------------------
Building and improvements                      $ 10,154                $ 10,872
Land improvements                                 2,438                   2,440
Tenant improvements                               5,702                   6,160
Furniture and fixtures                            1,280                   1,375
Leasing commissions                                 136                     154
                                               --------                --------
  Total                                        $ 19,710                $ 21,001
                                               ========                ========
================================================================================

As shown in TABLE 4, interest expense  decreased by $4,733, or 12.8%, to $32,193
during  the six months  ended June 30,  2002  compared  to $36,926  for the same
period in 2001. This decrease reflects (i) lower interest incurred of $4,551 and
(ii) a decrease in amortization of deferred  financing costs of $340,  partially
offset by a reduction in amortization of debt premiums of $158.

The decrease in interest  incurred is primarily  attributable  to a reduction of
$62,518 in our  weighted-average  debt  outstanding,  excluding  debt  premiums,
during the six months  ended June 30, 2002  compared to the same period in 2001.
Also   contributing   to  the   decrease   in  interest   incurred   were  lower
weighted-average  interest  rates  during  the six months  ended  June 30,  2002
compared   to  the  same  period  in  2001.   The   significant   reduction   in
weighted-average debt outstanding was primarily attributable to debt prepayments
on the Mezzanine  Loan with net proceeds  from (i) the sales of  properties  and
(ii) the 2001 Property Dispositions.  The weighted-average  contractual interest
rates for the six  months  ended  June 30,  2002 and 2001 were  8.41% and 8.86%,
respectively.

Table 4--Components of Interest Expense

--------------------------------------------------------------------------------
Six Months ended June 30,                         2002                    2001
--------------------------------------------------------------------------------
Interest incurred                              $ 30,008                $ 34,559
Amortization of deferred financing costs          3,273                   3,613
Amortization of debt premiums                    (1,088)                 (1,246)
                                               --------                --------
  Total                                        $ 32,193                $ 36,926
                                               ========                ========
================================================================================
<PAGE>
During the second quarter of 2002, we recorded a non-recurring  charge of $3,000
for pending and potential tenant claims with respect to lease provisions related
to their pass-through  charges and promotional fund charges (see Note 6 - "Legal
Proceedings'  of the Notes to Consolidated  Financial  Statements for additional
information).  This  non-recurring  charge was estimated in accordance  with our
aforementioned "Critical Accounting Policies and Estimates" with respect to loss
contingencies  and is based on our current  assessment of the  likelihood of any
adverse judgments or outcomes to these matters.

Excluding  this  non-recurring  charge,  other charges  decreased by $3,804,  or
51.8%,  to $3,541 for the six months ended June 30, 2002  compared to $7,345 for
the same period in 2001. The decrease was primarily  attributable to (i) a lower
provision for uncollectible  accounts  receivable of $2,986,  (ii) a decrease in
corporate marketing costs of $494 and (iii) a reduction in all other expenses of
$324.

During the second quarter of 2002, we incurred a provision for asset  impairment
of $12,200 to adjust the carrying values of two of our properties (Prime Outlets
at Vero Beach and Prime Outlets at Woodbury) to their  estimated  fair values in
accordance   with  the  provisions  of  FAS  No.  144.   These   properties  are
cross-collateralized by non-recourse mortgage indebtedness on which we suspended
payment of regularly  scheduled  monthly debt service  payment  during August of
2002. See "Defaults on Certain  Non-recourse  Mortgage  Indebtedness"  contained
within Note 4 - "Bonds and Notes Payable" of the Notes to Consolidated Financial
Statements for additional information.

Merchant Sales

For the  three and six  months  ended  June 30,  2002,  same-store  sales in the
Company's  outlet  center  portfolio  decreased  3.6%  and  2.7%,  respectively,
compared  to the same  periods  in 2001.  "Same-store  sales" is  defined as the
weighted-average  sales per square foot  reported by  merchants  for stores open
since January 1, 2001.  The  weighted-average  sales per square foot reported by
all merchants were $241 for the year ended December 31, 2001.

Liquidity and Capital Resources

Sources and Uses of Cash

For the six  months  ended  June  30,  2002,  net  cash  provided  by  operating
activities was $9,936, net cash provided by investing activities was $19,671 and
net cash used in financing activities was $31,943.

The net cash provided by investing  activities  during the six months ended June
30, 2002 consisted of $22,320 of aggregate net proceeds from the  disposition of
assets,  partially  offset by $2,649 of  additions to rental  property.  The net
proceeds  from asset sales  consisted  of (i) $12,113  from the January 11, 2002
sale of a 70% ownership interest in the Hagerstown Center,  (ii) $9,551 from the
April 1, 2002 sale of the Edinburgh  Center,  (iii) $522 from the April 19, 2002
sale of our 51% ownership  interest in the Bellport  Outlet Center and (iv) $688
from the June 17, 2002 sale of Western Plaza,  partially  offset by cash of $574
assumed by the lender in connection with the January 1, 2002 foreclosure sale of
the Conroe  Center.  The  additions  to rental  property  were  primarily  costs
incurred in connection with re-leasing space to new merchants.

The gross uses of cash for financing activities of $31,943 during the six months
ended June 30, 2002 consisted of (i) scheduled  principal  amortization on notes
payable  of  $9,955  and (ii) a  principal  prepayments  on the  Mezzanine  Loan
aggregating  $21,988,  including  $10,341  of  mandatory  prepayments,  with net
proceeds from the sales of properties.

<PAGE>
2002 Sales Transactions

On January 11, 2002, we completed  the sale of Prime Outlets at Hagerstown  (the
"Hagerstown  Center"),   an  outlet  center  located  in  Hagerstown,   Maryland
consisting  of  approximately  487,000  square  feet of GLA,  for  $80,500 to an
existing joint venture  partnership (the "Prime/Estein  Venture") between one of
our affiliates and an affiliate of Estein & Associates USA, Ltd.  ("Estein"),  a
real  estate  investment  company.  Estein  and we have  70%  and 30%  ownership
interests,  respectively,  in the Prime/Estein  Venture.  In connection with the
sale transaction,  the Prime/Estein Venture assumed first mortgage  indebtedness
of $46,862 on the  Hagerstown  Center  (the  "Assumed  Mortgage  Indebtedness");
however, our guarantee of the Assumed Mortgage Indebtedness remains in place.

The net cash proceeds from the sale, including the release of certain funds held
in escrow, were $12,113 after (i) a pay-down of $11,052 of mortgage indebtedness
on the Hagerstown Center and (ii) closing costs. The net proceeds from this sale
were used to prepay $11,647 of principal outstanding under the Mezzanine Loan.

The operating  results of the Hagerstown  Center through the date of disposition
are  classified  as  discontinued  operations in the  accompanying  Consolidated
Statements  of  Operations  for all periods  presented  in  accordance  with the
requirements  of FAS No.  144.  In  connection  with the sale of the  Hagerstown
Center, we recorded a gain on the sale of real estate of $16,795,  also included
in  discontinued  operations,  during the first quarter of 2002. At December 31,
2001, the carrying  value of the Hagerstown  Center of $54,628 was classified as
assets held for sale in the Consolidated Balance Sheet. Effective on the date of
disposition,  we have accounted for our 30% ownership interest in the Hagerstown
Center in accordance with the equity method of accounting.

We are obligated to refinance the Assumed Mortgage Indebtedness on behalf of the
Prime/Estein  Venture  on or  before  June  1,  2004,  the  date on  which  such
indebtedness  matures.  Additionally,  the  Prime/Estein  Venture's  cost of the
Assumed  Mortgage  Indebtedness and any refinancing of it are fixed at an annual
rate of 7.75% for a period of 10 years. If the actual cost of such  indebtedness
should exceed 7.75% at any time during the ten-year period, we will be obligated
to pay the difference to the Prime/Estein  Venture.  However, if the actual cost
of such  indebtedness is less than 7.75% at any time during the ten-year period,
the  Prime/Estein  Venture will be obligated  to pay the  difference  to us. The
actual cost of the Assumed Mortgage  Indebtedness is currently 30-day LIBOR plus
1.50%, or 3.34% as of June 30, 2002.

On April 1, 2002,  we  completed  the sale of Prime  Outlets at  Edinburgh  (the
"Edinburgh Center"),  an outlet center located in Edinburgh,  Indiana consisting
of approximately 305,000 square feet of GLA and additional undeveloped land. The
Edinburgh  Center  was sold to CPG  Partners,  L.P.  for cash  consideration  of
$27,000.

The net cash proceeds from the sale were $9,551,  after (i) repayment in full of
$16,317 of existing first mortgage indebtedness on the Edinburgh Center and (ii)
closing costs and fees. We used these net proceeds to make a mandatory principal
payment of $9,178 on the Mezzanine Loan.

The operating  results of the Edinburgh  Center  through the date of disposition
are  classified  as  discontinued  operations in the  accompanying  Consolidated
Statements  of  Operations  for all periods  presented  in  accordance  with the
requirements  of FAS No. 144.  During the first  quarter of 2002,  we recorded a
loss on the  sale of real  estate  of  $9,625,  also  included  in  discontinued
operations,  related to the  write-down  of the carrying  value of the Edinburgh
Center to its net realizable value based on the terms of the sale agreement.

<PAGE>
On April 19, 2002,  we  completed  the sale of Phases II and III of the Bellport
Outlet  Center (the  "Bellport  Outlet  Center"),  an outlet  center  located in
Bellport,  New York consisting of  approximately  197,000 square feet of GLA. We
had a 51%  ownership  interest in the joint venture  partnership  that owned the
Bellport Outlet Center.  The Bellport Outlet Center was sold to Sunrise Station,
L.L.C.,  an  affiliate  of  one  of  our  joint  venture   partners,   for  cash
consideration  of $6,500.  At closing,  recourse first mortgage  indebtedness of
$5,500,  which was  scheduled to mature on May 1, 2002,  was repaid in full.  To
date we have received  $522 of cash  proceeds from the sale,  which were used to
make a mandatory principal payment of $502 on the Mezzanine Loan.

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

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

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

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

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

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

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

FRIT,  indirectly  through  affiliates,  was the owner of  Bridge  Loan that was
repaid in full in connection  with the sale of the Bridge Loan Properties and is
a 50%  participant in the Mezzanine  Loan,  which had an  outstanding  principal
balance of $35,431 as of June 30, 2002.

Effective  June 30,  2002,  the  aggregate  carrying  value of the  Bridge  Loan
Properties  of  $115,924  was   classified  as  assets  held  for  sale  in  the
Consolidated  Balance Sheet. The operating results of the Bridge Loan Properties
are  classified  as  discontinued  operations in the  accompanying  Consolidated
Statements  of  Operations  for all periods  presented  in  accordance  with the
requirements  of FAS No. 144.  During the second  quarter of 2002, we recorded a
loss on the sale of real  estate  of  $10,289,  also  included  in  discontinued
operations,  related to the  write-down of the carrying value of the Bridge Loan
Properties  to  their  net  realizable  value  based  on the  terms  of the sale
agreement.

2002 Foreclosure Sale

During 2001, certain of our subsidiaries  suspended  regularly scheduled monthly
debt service payments on two  non-recourse  mortgage loans held by New York Life
Insurance  Company  ("New  York  Life")  at the  time of the  suspension.  These
non-recourse  mortgage loans were  cross-defaulted and  cross-collateralized  by
Prime Outlets at Jeffersonville II (the "Jeffersonville II Center"),  located in
Jeffersonville,  Ohio and Prime Outlets at Conroe (the "Conroe Center"), located
in Conroe,  Texas.  Effective  January 1, 2002, New York Life  foreclosed on the
Conroe  Center.  Effective  July 18,  2002,  New York  Life  sold its  remaining
interest  in the loan  still  encumbering  the  Jeffersonville  II  Center  to a
successor lender.  On August 13, 2002, we transferred our ownership  interest in
the  Jeffersonville II Center to New York Life's successor lender.  See Note 4 -
"Bonds and Notes Payable" of the Notes to Consolidated  Financial Statements for
additional information.

<PAGE>
Going Concern

During  2002,  we are  required  to  make,  in  addition  to  scheduled  monthly
amortization,  certain  mandatory  principal  payments  on  the  Mezzanine  Loan
aggregating  $25,367 with net proceeds  from asset sales,  excluding our January
11, 2002 sale of a 70% joint  venture  partnership  interest  in the  Hagerstown
Center, or other capital  transactions  within specified periods (see "Mezzanine
Loan Modification" for additional  information).  Through June 30, 2002, we have
made mandatory principal payments aggregating  $10,341.  Although we continue to
seek to generate  additional  liquidity  through new  financings and the sale of
assets,  there can be no assurance  that we will be able to complete asset sales
or other capital  transactions  within the specified  periods or that such asset
sales or  other  capital  transactions,  if they  should  occur,  will  generate
sufficient  proceeds to make the remaining  mandatory payments of $15,026 due in
2002 under the Mezzanine Loan. Any failure to satisfy these mandatory  principal
payments  within the specified time periods will  constitute a default under the
Mezzanine Loan.

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

We are working with holders of the Affected Fixed Rate Bonds regarding potential
resolutions,  including  waiver or  amendment  with  respect  to the  applicable
provisions.  If we are unable to reach satisfactory resolution,  we will look to
(i) obtain alternative  financing from other financial  institutions,  (ii) sell
the  projects  subject to the  affected  debt or (iii)  explore  other  possible
capital  transactions  to generate cash to repay the amounts  outstanding  under
such  debt.  There  can  be  no  assurance  that  we  will  obtain  satisfactory
resolutions with the holders of the Affected Fixed Rate Bonds or that we will be
able to complete asset sales or other capital raising  activities  sufficient to
repay the amount outstanding under the affected Fixed Rate Bonds.

As of June 30, 2002, we were in compliance  with all  financial  debt  covenants
under our recourse  loan  agreements  other than the Affected  Fixed Rate Bonds.
Nevertheless,  there can be no assurance that we will remain in compliance  with
our financial  debt  covenants in future  periods  because our future  financial
performance is subject to various risks and  uncertainties,  including,  but not
limited  to, the  effects of current  and future  economic  conditions,  and the
resulting  impact on our revenue;  the effects of  increases in market  interest
rates from current levels;  the risks  associated with existing vacancy rates or
potential  increases in vacancy  rates because of, among other  factors,  tenant
bankruptcies and store closures,  and the resulting impact on our revenue; risks
associated with litigation,  including  pending and potential tenant claims with
respect  to  lease  provisions  related  to  their   pass-through   charges  and
promotional fund charges; and risks associated with refinancing our current debt
obligations  or obtaining new financing  under terms less favorable than we have
experienced in prior  periods.  See "Defaults on Certain  Non-recourse  Mortgage
Indebtedness"  and "Defaults on Certain  Non-recourse  Mortgage  Indebtedness of
Unconsolidated Partnerships" for additional information.

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

<PAGE>

Strategic Alternatives

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

Mezzanine Loan Modification

Effective January 31, 2002, we entered into a modification to the original terms
of the Mezzanine  Loan obtained in December  2000.  The Mezzanine Loan amendment
(the  "Amendment"),  among other things,  (i) reduces required monthly principal
amortization  for the period February 1, 2002 through January 1, 2003 ("Year 2")
from $1,667 to $800, which may be further reduced to a minimum of $500 per month
under  certain  limited  circumstances,  provided  no  defaults  exist under the
Mezzanine Loan and certain other conditions have been satisfied at the Mezzanine
Lender's sole discretion,  (ii) requires certain  mandatory  principal  payments
from net proceeds from asset sales or other capital transactions pursuant to the
schedule set forth below and (iii) reduces the  threshold  level at which excess
cash flow from  operations  must be applied to  principal  pay-downs,  primarily
resulting  from  a  reduction  in  the  available   working  capital   reserves.
Additionally,  the  Amendment  (i)  increases  the interest rate from LIBOR plus
9.50% to LIBOR plus 9.75%  (rounded up to nearest  0.125% with a minimum rate of
14.75%), (ii) changes the Mezzanine Loan maturity date from December 31, 2003 to
September 30, 2003 and (iii) required a 0.25% fee, which was paid at the time of
the modification, on the outstanding principal balance. Pursuant to the terms of
the Amendment, the Mezzanine Loan monthly principal payments for May and June of
2002, were reduced to $611 and $649, respectively.

The Amendment  also  requires  additional  Year 2 monthly  payments of $250 (the
"Escrowed  Funds") into an escrow  account  controlled  by the Lender.  Provided
certain conditions are satisfied, at the Mezzanine Lender's sole discretion, the
Escrowed  Funds may be released to us for limited  purposes.  The Escrowed Funds
not used at the end of each  quarter,  subject  to certain  exceptions,  will be
applied by the  Mezzanine  Lender to amortize the Mezzanine  Loan.  The required
monthly principal amortization of $2,333 commencing on February 1, 2003, through
the new maturity date of September 30, 2003, remains unchanged.

The Amendment also requires mandatory  principal payments with net proceeds from
asset  sales,  excluding  our  January  11,  2002  sale of a 70%  joint  venture
partnership   interest  in  the  Hagerstown  Center  (see  Note  3  -  "Property
Dispositions" for additional information),  or other capital transactions of not
less than (i) $8,906 by May 1, 2002, (ii) $24,406,  inclusive of the $8,906,  by
July 1, 2002  (subject  to  extension  to  October  31,  2002  provided  certain
conditions are met to the Lender's satisfaction) and (iii) $25,367, inclusive of
the  $24,406,  by November 1, 2002.  In  addition  to each  mandatory  principal
payment,  we must also pay any interest,  including deferred  interest,  accrued
thereon and the additional  fees provided for in the Mezzanine Loan. Any failure
to satisfy  these  mandatory  principal  payments or other  payments  within the
specified time periods will constitute a default under the Mezzanine Loan.

On July 1,  2002,  the  Mezzanine  Lender  elected  to  extend  the July 1, 2002
mandatory  principal payment due date to the earlier of (i) August 15, 2002 (the
"Extended  Date")  or (ii)  the  occurrence  of an event of  default  under  the
Mezzanine  Loan.  Additionally,  upon  satisfaction of certain  conditions,  the
Extended Date can be automatically  extended again to the earlier of (i) October
31, 2002,  (ii) the occurrence of an event of default under the Mezzanine  Loan,
or (iii) the  closing or  termination  of certain  asset  sales,  with such date
hereafter  referred to as the  "Second  Mandatory  Principal  Payment Due Date."
There can be no assurance that these conditions will be met.

<PAGE>
On April 1, 2002, we sold our Edinburgh Center and used the net proceeds to make
a $9,178  mandatory  payment on the Mezzanine Loan.  Additionally,  on April 19,
2002, we sold our ownership  interest in the Bellport Outlet Center and used the
net proceeds to make a $502 mandatory payment on the Mezzanine Loan. (See Note 3
- "Property  Dispositions"  of Notes to  Consolidated  Financial  Statements for
additional  information.)  As a result,  we satisfied the May 1, 2002  mandatory
principal payment requirement.

On June 17,  2002,  we sold  Western  Plaza and used the net  proceeds to make a
mandatory  principal  payment  of  $661 on the  Mezzanine  Loan.  (See  Note 3 -
"Property  Dispositions"  of  Notes to  Consolidated  Financial  Statements  for
additional  information.) We are now required to complete additional asset sales
or other capital transactions generating net proceeds aggregating $14,065 by the
Second  Mandatory  Principal  Payment  Due Date and  $15,026  (inclusive  of the
$14,065) by November 1, 2002.

The Mezzanine  Loan was also amended on January 11, 2002 to, among other things,
(i) release the  partnership  interests in Outlet Village of Hagerstown  Limited
Partnership  ("Hagerstown  LP") as  collateral  under the Mezzanine  Loan,  (ii)
release  Hagerstown LP of all obligations under the Mezzanine Loan and (iii) add
Hagerstown Land,  L.L.C., a Delaware limited liability  company,  as a guarantor
under the Mezzanine Loan.  Hagerstown Land, L.L.C. is the owner of three parcels
of land adjacent to the Hagerstown Center.

Debt Service Obligations

Our aggregate  indebtedness  excluding (i) unamortized  debt premiums of $9,639,
(ii) mortgage  indebtedness  of $111,059 on the Bridge Loan Properties and (iii)
non-recourse mortgage indebtedness of $17,768 on Prime Outlets at Jeffersonville
II was $686,216 (the  "Adjusted  Indebtedness")  at June 30, 2002.  The mortgage
indebtedness on the Bridge Loan Properties was repaid in full in connection with
the  sale of such  properties  on  July  26,  2002.  The  non-recourse  mortgage
indebtedness on the Jeffersonville II Center was relieved in connection with the
transfer of our ownership interest in such property to New York Life's successor
on August 13,  2002.  See Note 3 -  "Property  Dispositions"  and  "Defaults  on
Certain Non-recourse Mortgage  Indebtedness" of Notes to Consolidated  Financial
Statements for additional information.

At June 30, 2002 the Adjusted  Indebtedness had a  weighted-average  maturity of
3.0 years and bore contractual interest at a weighted-average  rate of 8.24% per
annum. At June 30, 2002, $631,254,  or 92.0%, of the Adjusted  Indebtedness bore
interest at fixed rates and $54,962 or 8.0%, of the Adjusted  Indebtedness  bore
interest at variable rates. In certain cases,  we utilize  derivative  financial
instruments to manage our interest rate risk associated with variable rate debt.

As of June 30, 2002, our scheduled  principal payments for the remainder of 2002
and  2003  for  the  Adjusted  Indebtedness  aggregated  $24,775  and  $378,465,
respectively.  The remaining  scheduled  principal payments for 2002 include (i)
principal  amortization  aggregating $9,749 (including an aggregate of $4,800 of
scheduled monthly principal payments on the Mezzanine Loan, which may be further
reduced  subject  to the  terms  of its  Amendment  specified  above)  and  (ii)
mandatory  principal  payments on the Mezzanine  Loan  aggregating  $15,026 (see
"Mezzanine  Loan  Modification"  for additional  information).  The  outstanding
principal  balance of the  Mezzanine  Loan as of June 30, 2002 was $35,431.  The
scheduled  principal payment for 2003 include (i) obligations of $338,558 due in
respect of a mortgage loan that is secured by 15 of our  properties  and matures
in November  2003 and (ii) $15,605 of  principal  payments  under the  Mezzanine
Loan.

<PAGE>
Mikasa Settlement

On  August  7,  2002,  we  entered  into a  settlement  agreement  (the  "Mikasa
Settlement") with Dinnerware Plus Holdings, Inc., which operates under the trade
name  Mikasa.  Pursuant  to the  Mikasa  Settlement,  we are  obligated  to make
aggregate  payments of $2,100 to Mikasa and various lease terms between both our
affiliates and Mikasa's  affiliates  will be amended to reflect the terms of the
Mikasa  Settlement,  including  modifications  of the provisions  concerning the
collection  of pass though  charges over the remaining  terms of the  respective
leases.  On August 9, 2002, we made an initial payment of $1,750 to Mikasa using
Escrowed Funds (see "Mezzanine  Loan  Modification  for additional  information)
released by the Mezzanine Lender.  We are obligated to make additional  payments
to Mikasa  in  September  and  October  of 2002 in the  amount of $250 and $100,
respectively.  We expect to make these  additional  payments  using the Escrowed
Funds. See Note 6 - "Legal Proceedings" for additional information.

The Mikasa Settlement did not have a material impact on our financial  condition
or our results from  operations.  We previously  accrued a reserve of $2,000 for
the  Mikasa  Settlement  during  the fourth  quarter  of 2001.  This  reserve is
included in accounts payable and other  liabilities in our Consolidated  Balance
Sheet as of June 30, 2002.

Guarantees of Indebtedness of Others

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

Additionally,  we are a guarantor with respect to certain mortgage  indebtedness
(the "HGP Office Building  Mortgage") in the amount of $2,352 on HGP's corporate
office building and related  equipment located in Norton Shores,  Michigan.  The
HGP Office Building  Mortgage  matures in December 2002, bears interest at LIBOR
plus 2.50%, and requires monthly debt service payments of approximately $23.

On October 11, 2001,  HGP announced  that it was in default under two loans with
an  aggregate  principal  balance of $45,500  secured by six of its other outlet
centers.  Such defaults do not constitute defaults under the HGP Monroe Mortgage
Loan or the HGP Office Building Mortgage nor did they constitute a default under
the HGP Secured Credit  Facility.  No claims have been made under our guarantees
with  respect  to the  HGP  Monroe  Mortgage  Loan or the  HGP  Office  Building
Mortgage.  HGP is a publicly  traded company that was formed in connection  with
our merger with Horizon Group, Inc. in June 1998.

On January 11, 2002, we sold the Hagerstown Center to the Prime/Estein  Venture.
In  connection  with the sale,  the  Prime/Estein  Venture  assumed  $46,862  of
mortgage  indebtedness;  however,  our guarantee of such indebtedness remains in
place. See Note 3 - "Property  Dispositions" of Notes to Consolidated  Financial
Statements for additional information.

<PAGE>
On July  26,  2002,  we sold  the  Bridge  Properties  to the  PFP  Venture.  In
connection  with the sale, we guaranteed FRIT (i) a 13% return on its $17,236 of
invested  capital and (ii) the full return of its  invested  capital by December
31,  2003.  See  Note 3 -  "Property  Dispositions"  of  Notes  to  Consolidated
Financial Statements for additional information.

Defaults on Certain Non-recourse Mortgage Indebtedness

During 2001, certain of our subsidiaries  suspended  regularly scheduled monthly
debt  service   payments  on  two   non-recourse   mortgage   loans  which  were
cross-collateralized  by the  Jeffersonville II Center and the Conroe Center. At
the time of suspension,  these non-recourse mortgage loans were held by New York
Life.

Effective January 1, 2002, New York Life foreclosed on the Conroe Center and its
related assets and liabilities,  including $554 of cash and $15,467 of principal
outstanding  under the  non-recourse  mortgage loan, were  transferred  from our
subsidiary  that owned the Conroe  Center to New York Life.  No gain or loss was
recorded in connection  with the  foreclosure  action.  The  foreclosure  of the
Conroe  Center did not have a material  impact on our results of  operations  or
financial condition because during 2001 all excess cash flow from the operations
of the Conroe Center was utilized for debt service on its non-recourse  mortgage
loan.

Effective July 18, 2002,  New York Life sold its interest in the  Jeffersonville
II Center loan. On August 13, 2002, we transferred our ownership interest in the
Jeffersonville II Center to New York Life's successor.  As of June 30, 2002, the
carrying value of the Jeffersonville II Center was $3,719 and the balance of the
non-recourse  mortgage  indebtedness was $17,768 and unpaid accrued interest was
$2,492.  As  a  result  of  the  transfer  of  our  ownership  interest  in  the
Jeffersonville  II  Center,  we expect to  record a  non-recurring  gain for the
difference  between the carrying value of the  Jeffersonville  II Center and its
related net assets and the outstanding loan balance, including accrued interest,
during the third quarter of 2002. The transfer of our ownership  interest in the
Jeffersonville  II  Center  did not have a  material  impact on our  results  of
operations or financial  condition  because during 2001 and through the transfer
date in 2002, all excess cash flow from the operations of the  Jeffersonville II
Center was utilized for debt service on its non-recourse mortgage loan.

During August of 2002, certain of our subsidiaries suspended regularly scheduled
monthly debt service  payments on two  non-recourse  mortgage loans  aggregating
$40,829 as of June 30, 2002. These non-recourse mortgage loans which are held by
John Hancock Life Insurance Company ("John Hancock") are cross-collateralized by
Prime  Outlets at Vero Beach (the "Vero Beach  Center"),  located in Vero Beach,
Florida,  and Prime  Outlets at Woodbury  (the  "Woodbury  Center"),  located in
Woodbury, Minnesota (collectively,  the "John Hancock Properties"). John Hancock
has  commenced  foreclosure  proceedings  with regard to the Vero Beach  Center.
Additionally,  we are currently negotiating a transfer of our ownership interest
in the Woodbury Center to John Hancock.

During the second quarter of 2002, we incurred a provision for asset  impairment
of $12,200 to adjust the carrying values of the John Hancock Properties to their
estimated  fair  value  in  accordance  with  the  provisions  of FAS  No.  144.
Foreclosure  on the Vero Beach Center and transfer of our ownership  interest in
the Woodbury Center are not expected to have a material impact on our results of
operations or financial condition because during 2002, all excess cash flow from
the operations of the John Hancock Properties has been utilized for debt service
on their non-recourse mortgage loans.

<PAGE>
Defaults   on  Certain  Non-recourse  Mortgage  Indebtedness  of  Unconsolidated
Partnerships

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

Union Labor filed for foreclosure on Phase I of the Bellport Outlet Center and a
receiver was appointed  March 27, 2001 by the court involved in the  foreclosure
action.  Effective May 1, 2001, a manager hired by the receiver  began  managing
and leasing Phase I of the Bellport Outlet Center.  We continue to negotiate the
terms of a  transfer  of our  ownership  interest  in Oxnard  Factory  Outlet to
Fru-Con. We do not manage or lease Oxnard Factory Outlet.

We do not  believe  either  of these  mortgage  loans is  recourse  to us. It is
possible,  however,  that either or both of the  respective  lenders will file a
lawsuit  seeking to  collect  amounts  due under the loan.  If such an action is
brought, the outcome, and our ultimate liability, if any, cannot be predicted at
this time.

We are  currently  not  receiving,  directly or  indirectly,  any cash flow from
Oxnard  Factory  Outlet and were not receiving any cash flow from Phase I of the
Bellport Outlet Center prior to the loss of control of such project.  We account
for our  ownership  interests in Phase I of the Bellport  Outlet  Center and the
Oxnard Factory Outlet in accordance with the equity method of accounting.  As of
June 30, 2002, the carrying value of our investment in these properties was $0.

Interest Rate Risk

In the  ordinary  course of  business,  we are exposed to the impact of interest
rate changes and,  therefore,  employ  established  policies and  procedures  to
manage our exposure to interest rate changes. We use a mix of fixed and variable
rate debt to (i) limit the impact of interest  rate  changes on our results from
operations and cash flows and (ii) lower our overall borrowing costs.

In certain  circumstances,  we use  derivative  financial  instruments to manage
interest rate risk  associated  with our variable  rate debt. In such cases,  we
purchase interest rate protection agreements, such as caps, which are designated
as  hedges  for  underlying  variable  rate  debt  obligations.  We do not  hold
derivative financial instruments for trading purposes.

The interest rate caps specifically limit our interest costs with an upper limit
on the underlying  interest rate index.  The cost of such contracts are included
in deferred  charges and are being amortized as a component of interest  expense
over the life of the  contracts.  Amounts  earned from interest rate  protection
contracts,  if any,  are  recorded as a reduction  of interest  expense.  We are
exposed to credit losses in the event of counterparty nonperformance, but do not
anticipate any such losses based on the creditworthiness of the counterparties.

Although  derivative  financial  instruments  are an important  component of our
interest rate management  program,  their incremental effect on interest expense
for the three and six months ended June 30, 2002 and 2001 was not material.

<PAGE>
Dividends and Distributions

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

Our  current  policy is to pay  distributions  only to the extent  necessary  to
maintain  our status as a REIT for  federal  income tax  purposes.  Based on our
current  federal  income tax  projections  for 2002, we do not expect to pay any
distributions  on our Senior  Preferred  Stock,  Series B Convertible  Preferred
Stock,  common  stock or common  units of limited  partnership  interest  in the
Operating  Partnership  during 2002.  As of August 15,  2002,  we will be eleven
quarters in arrears with respect to preferred stock distributions.

Under the terms of the Mezzanine Loan, we are prohibited  from paying  dividends
or  distributions  except to the extent  necessary  to maintain  our status as a
REIT. In addition,  we may not make distributions to our common  shareholders or
our holders of common units of limited  partnership  interests in the  Operating
Partnership unless we are current with respect to distributions to our preferred
shareholders.  As of June 30, 2002, unpaid dividends for the period beginning on
November 16, 1999 through June 30, 2002 on the Series A Senior  Preferred  Stock
and  Series B  Convertible  Preferred  Stock  aggregated  $15,848  and  $43,666,
respectively.  The  annualized  dividends  on our  2,300,000  shares of Series A
Senior  Preferred Stock and 7,828,125  shares of Series B Convertible  Preferred
Stock  outstanding as of June 30, 2002 are $6,037 ($2.625 per share) and $16,635
($2.125 per share), respectively.

Development Activities

During the six months ended June 30, 2002, we did not engage in any  development
activities other than (i)  post-opening  work related to Prime Outlets of Puerto
Rico,  which opened in July,  2000,  and (ii) certain  consulting  activities in
Europe.

New Accounting Pronouncements

In October 2001, the Financial  Accounting  Standards  Board issued FAS No. 144.
FAS  No.  144  supercedes  FAS No.  121,  however  it  retains  the  fundamental
provisions of that statement  related to the  recognition and measurement of the
impairment of long-lived assets to be "held and used." In addition,  FAS No. 144
provides more guidance on estimating cash flows when performing a recoverability
test,  requires  that a  long-lived  asset to be  disposed of other than by sale
(e.g.,  abandoned) be classified as "held and used" until it is disposed of, and
established more  restrictive  criteria to classify an asset as "held for sale."
FAS No. 144 is effective for fiscal years beginning after December 15, 2001.

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

<PAGE>
Funds from Operations

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

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

TABLE 5 provides a  reconciliation  of income (loss) from continuing  operations
before allocations to minority  interests and preferred  shareholders to FFO for
the three and six months ended June 30, 2002 and 2001. FFO decreased  $4,875, or
68.4%,  to $2,256 for the three  months  ended June 30, 2002 from $7,131 for the
same  period in 2001.  FFO  decreased  $5,211,  or 36.1%,  to $9,219 for the six
months ended June 30, 2002 from $14,430 for the same period in 2001.

The decrease in FFO for the three and six months ended June 30, 2002 compared to
the same periods in 2001 is primarily due to (i) a loss in net operating income,
partially  offset by interest expense  savings,  resulting from  dispositions of
certain properties during the comparable periods,  (ii) reduced occupancy in our
portfolio  during the 2002 periods,  (iii) economic  changes in rental rates and
(iv) the  aforementioned  non-recurring  charge of $3,000  recorded  during  the
second quarter of 2002.

The following operating properties were disposed of during 2001 and through June
30, 2002:

        Property Name                      Date of Disposition
        -------------                      -------------------
        Northgate Plaza                    February 2, 2001
        Silverthorne Center                March 16, 2001
        New River Center (i)               May 8, 2001
        Conroe Center                      January 1, 2002
        Hagerstown Center (ii)             January 11, 2002
        Edinburgh Center                   April 1, 2002
        Bellport Outlet Center (iii)       April 19, 2002
        Western Plaza                      June 17, 2002

<PAGE>
        Notes:
        (i)     Prior  to its disposition, we owned 50% of this property through
                a  joint  venture  partnership  and  accounted for our ownership
                interest in accordance with the equity method of accounting.
        (ii)    We  sold  a  70% ownership interest in this property and now own
                30%  of  this  property  through  a  joint  venture partnership.
                Commencing  on  the  date  of  disposition,  we  account for our
                remaining  ownership  interest  in  accordance  with  the equity
                method of accounting.
        (iii)   Prior to its disposition,  we owned 51% of this property through
                a  joint  venture  partnership  and  accounted for our ownership
                interest in accordance with the equity method of accounting.

Table 5--Funds from Operations

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                   Three Months Ended June 30,            Six Months Ended June 30,
                                                                 ------------------------------         ----------------------------
                                                                    2002               2001                2002              2001
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                             <C>                 <C>                <C>                <C>
Loss from continuing operations
  before minority interests                                     $ (20,530)          $ (6,047)          $ (24,981)         $(10,406)
Adjustments:
  Loss (gain) on sale of real estate                                  703                180                 703              (552)
  Provision for asset impairment                                   12,200                  -              12,200                 -
  Depreciation and amortization                                     9,531             10,480              19,710            21,001
  Non-real estate depreciation and amortization                      (538)              (562)             (1,092)           (1,130)
Other items:
  Unconsolidated joint venture adjustments                            963              1,033               1,746             1,588
  Discontinued operations                                          (9,656)            (1,196)             (3,524)           (2,468)
  Discontinued operations - loss on disposition                     8,167                  -                 997                 -
  Discontinued operations - depreciation
   and amortization                                                 1,416              3,243               3,460             6,397
                                                                ---------           --------           ---------          --------
FFO before allocations to minority interests
  and preferred shareholders                                    $   2,256           $  7,131           $   9,219          $ 14,430
                                                                =========           ========           =========          ========

Other Data:
Net cash provided by operating activities                       $   5,268           $ 11,575           $   9,936          $ 18,160
Net cash provided by (used in) investing activities                 9,095             (8,397)             19,671            (4,520)
Net cash used in financing activities                             (15,252)            (4,794)            (31,943)          (18,473)
====================================================================================================================================
</TABLE>

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

Market Risk Sensitivity

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

Interest Rate Risk

In the  ordinary  course of  business,  we are exposed to the impact of interest
rate  changes.  We employs  established  policies and  procedures  to manage our
exposure  to  interest  rate  changes.  See  "Interest  Rate  Risk"  of Item 2 -
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations for additional  information.  We use a mix of fixed and variable rate
debt to (i) limit the  impact of  interest  rate  changes  on our  results  from
operations and cash flows and (ii) to manage our overall borrowing costs.

The following  table provides a summary of principal  cash flows,  excluding (i)
unamortized debt premiums of $9,639,  (ii) mortgage  indebtedness of $111,059 on
the Bridge Loan  Properties  and (iii)  non-recourse  mortgage  indebtedness  of
$17,768 on Prime Outlets at Jeffersonville II (see "2002 Sales Transactions" and
"Defaults  on  Certain   Non-recourse   Mortgage   Indebtedness"  of  Item  2  -
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations for additional  information),  and related contractual interest rates
by  fiscal  year  of  maturity.   Variable  interest  rates  are  based  on  the
weighted-average rates of the portfolio at June 30, 2002.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                     Year of Maturity
------------------------------------------------------------------------------------------------------------------------------------
                             2002            2003           2004            2005           2006         Thereafter        Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                       <C>            <C>              <C>            <C>           <C>             <C>             <C>
Fixed Rate:
Principal                 $  4,574       $ 343,704        $ 7,022        $ 51,147      $ 121,931       $ 102,876       $ 631,254
Average interest rate        7.14%           7.77%          7.20%           7.92%          8.76%           7.54%           7.96%

Variable Rate:
Principal                 $ 20,201       $  34,761                                                                     $  54,962
Average interest rate       14.58%           9.56%                                                                        11.41%
====================================================================================================================================
</TABLE>
<PAGE>
                           PART II: OTHER INFORMATION

Item 1.         Legal Proceedings

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

Dinnerware Plus Holdings,  Inc., which operates under the trade name Mikasa, and
affiliates  (collectively,  the "Mikasa Plaintiffs") filed a lawsuit against the
Company and  various  affiliates  in  Superior  Court of New Jersey on March 29,
2001.  The Mikasa  Plaintiffs  assert a number of causes of action in which they
allege that the Company and its affiliates  breached  various  provisions in the

Mikasa  Plaintiffs'  leases and, as a result,  overcharged the Mikasa Plaintiffs
for common area  maintenance  and similar  charges  ("CAM") and  promotion  fund
charges at various centers where the Mikasa Plaintiffs are tenants.  The Company
filed a motion to dismiss the  complaint on behalf of the  Company's  affiliates
who  entered  into  leases  with  the  Mikasa  Plaintiffs,   based  on  lack  of
jurisdiction.  The motion was granted and the Mikasa  Plaintiffs  filed a motion
for reconsideration,  which was denied. The remaining defendants,  Prime Retail,
Inc. and Prime Retail, L.P., answered the complaint.

Subsequent  efforts in the litigation were deferred while the parties  attempted
to resolve their claims through  negotiation.  As a result of these efforts, the
parties entered into a settlement  agreement on August 7, 2002 pursuant to which
the  lawsuit  is to be  dismissed  with  prejudice,  and all  potential  claims,
including claims and potential  counterclaims for overpayments and underpayments
of various pass-through charges, arising from the litigation are to be released,
with  all  parties  expressly  denying  liability.  Pursuant  to the  settlement
agreement,  the  Company  will make  payments to Mikasa over the next two months
totaling  $2,100,  and various  leases between Mikasa and its affiliates and the
Company will be amended to, among other things,  remove the specific  provisions
that were the  primary  basis of the  dispute  and modify  remaining  provisions
concerning the collection of pass-through  charges.  This settlement,  including
the related lease  modifications,  is not expected to have a material  impact on
the  Company's  financial  condition  or  results  of  operations.  The  Company
previously accrued a reserve of $2,000 for this matter during the fourth quarter
of 2001,  which is  included in accounts  payable and other  liabilities  in its
Consolidated  Balance  Sheet  as of  June  30,  2002.  See  "Mikasa  Settlement"
contained  in  "Liquidity  and  Capital  Resources"  of  Item 2 -  "Management's
Discussion of Financial  Condition  and Results of  Operations"  for  additional
information.

On July 6, 2001,  affiliates  of the  Company  brought an action in the  Circuit
Court for Washington County, Maryland against Melru Corporation,  which operates
under the trade name Jones New York,  alleging that Melru  Corporation owed past
due rent in connection  with 43 leases.  Melru  Corporation,  in response to the
collection action filed by certain  affiliates of the Company,  filed on October
15, 2001 several  counterclaims  against the Company and its affiliates in which
it alleges that the Company and its affiliates overcharged Melru Corporation for
CAM and promotion fund charges.  In addition,  Melru Corporation alleges that an
affiliate of the Company  fraudulently induced Melru Corporation to enter into a
lease and that another  affiliate  violated its lease with Melru  Corporation by
failing to maintain  required  occupancy  levels at the shopping center it owns.
The  Company  and its  affiliates  have not filed  their  response  to the Melru
Corporation counterclaims.

<PAGE>
Subsequent  efforts in the litigation were deferred while the parties  attempted
to resolve their claims through  negotiation.  As a result of these efforts, the
parties have entered into a settlement  agreement on August 13, 2002 pursuant to
which the lawsuit and any related litigation matters are to be dismissed,  or in
one  instance  satisfied,  all  potential  claims  and  counterclaims  are to be
released,  including  claims  for  overpayments  and  underpayments  of  various
pass-through charges, and with all parties expressly denying liability. Pursuant
to the settlement  agreement,  no payments will be made to Melru  Corporation by
the Company, Melru Corporation will satisfy a prior judgment against it, and the
leases between Melru Corporation and the Company will be modified,  including to
provide for extensions of the terms of a limited  number of existing  leases and
the early  termination  of occupancy at one center.  The Company does not expect
this settlement, including the related lease modifications, will have a material
impact on the Company's financial condition or results of operations.

Additionally,  numerous other tenants in the Company's portfolio have clauses in
their leases pursuant to which they may claim under various  circumstances  that
they were not  required  to pay some or all of the  pass-through  charges.  Such
claims, if asserted and found meritorious, could have a material effect upon the
Company's financial condition. Determination of whether liability would exist to
the Company from these claims would depend on  interpretation  of various  lease
clauses  within a  tenant's  lease  and all of the other  leases at each  center
collectively  at any given point in time.  To date,  Designs  Inc.,  Brown Group
Retail,  Inc. and The Gap, Inc. have made  allegations  or have indicated to the
Company that they are considering  making  allegations  that their leases do not
require them to pay some or all of the pass-through  charges.  The Company is in
discussion  with these tenants and is working to resolve any disputes with them,
including wherever  possible,  satisfactorily  modifying or eliminating  clauses
that are the source of the  continuing  disputes.  During the second  quarter of
2002, the Company recorded a non-recurring  charge to establish a reserve in the
amount of $3,000 for  resolution  of these  matters,  in  addition to the Mikasa
matter discussed above. This reserve,  which is included in accounts payable and
other  liabilities  in the Company's  Consolidated  Balance Sheet as of June 30,
2002, was estimated in accordance  with the Company's  established  policies and
procedures with respect to loss contingencies (see "Critical Accounting Policies
and  Estimates" of Item 2 -  "Management's  Discussion and Analysis of Financial
Condition  and Results of  Operations"  for  additional  information.)  Based on
presently  available  information,  the Company  believes  it is  probable  this
reserve will be utilized  over the next  several  years in  connection  with the
resolution  of  claims  relating  to  the   pass-through  and  promotional  fund
provisions  contained in its leases. The Company cautions,  however,  that given
the inherent uncertainties of litigation and the complexities  associated with a
large number of leases and other  factual  questions at issue,  actual costs may
vary from its estimate.

<PAGE>
The Company and its  affiliates  were  defendants  in a lawsuit filed by Accrued
Financial Services ("AFS") on August 10, 1999 in the Circuit Court for Baltimore
City.  The lawsuit was removed to United States  District Court for the District
of Maryland  (the "U.S.  District  Court") on August 20, 1999.  AFS claimed that
certain  tenants had  assigned to AFS their  rights to make claims  under leases
such tenants had with affiliates of the Company and alleged that the Company and
its affiliates  overcharged such tenants for common area maintenance charges and
promotion fund charges.  The U.S.  District Court  dismissed the lawsuit on June
19, 2000. AFS appealed the U.S.  District  Court's decision to the United States
Court of Appeals for the Fourth Circuit. Briefs were submitted and oral argument
before a panel of judges of the United  States  Court of Appeals  for the Fourth
Circuit was held on October 30, 2001, during which the panel of judges requested
further briefing of certain issues.  On July 29, 2002, the Fourth Circuit denied
the appeal of AFS.  The Company  believes  that it has acted  properly  and will
continue to defend this lawsuit  vigorously  if AFS  continues  with  additional
appeal efforts.  The outcome of this lawsuit if additional appeal efforts of AFS
are successful,  and the ultimate liability of the defendants, if any, cannot be
predicted in that case at this time.

Affiliates of the Company routinely file lawsuits to collect past due rent from,
and to evict,  tenants  which  have  defaulted  under  their  leases.  There are
currently dozens of such actions pending.  In addition to defending  against the
Company's   affiliates'   claims  and  eviction   actions,   some  tenants  file
counterclaims  against  the  Company's  affiliates.  A tenant  who files  such a
counterclaim typically claims that the Company's affiliate which owns the outlet
center in question has defaulted under the tenant's  lease,  has overcharged the
tenant for CAM and promotion  fund charges,  or has failed to maintain or market
the  outlet  center in  question  as  required  by the  lease.  In spite of such
counterclaims,  the  Company's  affiliates  usually  elect to continue to pursue
their  collection or eviction  actions.  Although the Company and its affiliates
believe that such  counterclaims  are typically without merit and defend against
them vigorously, the outcome of all such counterclaims,  and thus the liability,
if any, of the Company and its affiliates, cannot be predicted at this time.

Since  October  13,  2000 there have been eight  complaints  filed in the United
States District Court for the District of Maryland  against the Company and five
individual defendants.  The five individual defendants are Glenn D. Reschke, the
President, Chief Executive Officer and Chairman of the Board of Directors of the
Company;  William H.  Carpenter,  Jr., the former  President and Chief Operating
Officer and a former  director of the  Company;  Abraham  Rosenthal,  the former
Chief  Executive  Officer  and a former  director  of the  Company;  Michael  W.
Reschke, the former Chairman of the Board and a current director of the Company;
and Robert P. Mulreaney,  the former  Executive Vice President - Chief Financial
Officer and  Treasurer  of the  Company.  The  complaints  have been  brought by
alleged  stockholders  of the Company,  individually  and  purportedly  as class
actions  on behalf of all other  stockholders  of the  Company.  The  complaints
allege that the individual  defendants  made  statements  about the Company that
were  in  violation  of  the  federal   securities  laws.  The  complaints  seek
unspecified  damages and other  relief.  Lead  plaintiffs  and lead counsel were
subsequently  appointed.  A consolidated  amended complaint  captioned The Marsh
Group,  et al. v. Prime Retail,  Inc., et al. dated May 21, 2001 was filed.  The
Company and the individual  defendants  filed a motion to dismiss the complaint,
which was granted on November 8, 2001. The plaintiffs appealed the matter to the
Fourth  Circuit.  Briefs were filed and oral arguments were held on June 4, 2002
but a  decision  has not yet been  issued by the  Fourth  Circuit.  The  Company
believes  that the claims are without merit and will defend  vigorously  against
the appeal.  The outcome of this  lawsuit,  and the  ultimate  liability  of the
defendants, if any, cannot be predicted at this time.

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

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

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


Item 2.           Changes in Securities

None

<PAGE>
Item 3.           Defaults Upon Senior Securities

The Company is currently in arrears in the payment of distributions on its 10.5%
Series A Senior  Cumulative  Preferred Stock ("Series A Senior Preferred Stock")
and 8.5% Series B Cumulative Participating  Convertible Preferred Stock ("Series
B Convertible Preferred Stock"). As of June 30, 2002, the aggregate arrearage on
the Series A Senior Preferred Stock and the Series B Convertible Preferred Stock
was $15,848 and $43,666, respectively.

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

At the Company's  Annual  Shareholders'  Meeting held on June 11, 2002,  certain
matters were submitted to the vote of the holders of the Company's Common Stock.
The following summarizes these matters and the results of the voting.

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

                            Name                        For          Against
                            ----                        ---          -------
                  Governor James R. Thompson        40,032,248      1,307,130
                  Marvin S. Traub                   40,032,248      1,307,130

         (b)      The proposal to  ratify  the selection of Ernst & Young LLP as
                  the independent  auditors of  the  Company for the year ending
                  December 31, 2002 was approved. The votes cast with respect to
                  the proposal were as follows:

                            For                  Against               Abstain
                            ---                  -------               -------
                         41,150,383              158,058                30,937

Item 5.           Other Information

None

Item 6.           Exhibits and Reports on Form 8-K

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

         Exhibit 10.1      Second  Amended and Restated  Guaranty  and Indemnity
                           Agreement  dated July 10, 2002  by  and among Horizon
                           Group  Properties, Inc.,  Horizon  Group  Properties,
                           L.P., Prime Retail, Inc. and Prime Retail, L.P.

         Exhibit 10.2      Guaranty  Agreement  dated  July 10, 2002  by Horizon
                           Group  Properties,  Inc.,  Horizon  Group Properties,
                           L.P.   and   Prime  Retail,  L.P.,  collectively,  as
                           guarantors, in favor of Beal Bank, S.S.B.

<PAGE>
         Exhibit 10.3      Real Estate Sale Agreement, dated January 9, 2002, by
                           and   between   (i)   Shasta  Outlet  Center  Limited
                           Partnership,  The  Prime  Outlets  at Calhoun Limited
                           Partnership,    Carolina    Factory   Shops   Limited
                           Partnership,    Latham    Factory    Stores   Limited
                           Partnership,   The   Prime   Outlets  at  Lee Limited
                           Partnership,    Prime    Lee    Development   Limited
                           Partnership   and   Buckeye   Factory  Shops  Limited
                           Partnership,  collectively,  as  sellers and (ii) PWG
                           Capital, LLC, as purchaser (incorporated by reference
                           to the Exhibit 10.1  to the  Company's Current Report
                           on Form 8-K dated August 8, 2002).

         Exhibit 10.4      First  Amendment  to Real Estate Sale Agreement dated
                           March 27, 2002  (incorporated  by  reference  to  the
                           Exhibit 10.2  to the Company's Current Report on Form
                           8-K dated August 8, 2002).

         Exhibit 10.5      Second  Amendment to Real Estate Sale Agreement dated
                           April 5, 2002  (incorporated  by   reference  to  the
                           Exhibit 10.3  to the Company's Current Report on Form
                           8-K dated August 8, 2002).

         Exhibit 10.6      Amendment  to  Employment  Agreement,  dated  June 6,
                           2002, by and between Prime Retail, Inc. and R. Kelvin
                           Antill.

         Exhibit 10.7      Second  Amendment to Employment Agreement, dated June
                           6, 2002, by and between Prime Retail, Inc. and Robert
                           A. Brvenik.

         Exhibit 10.8      Amendment  to  Employment  Agreement,  dated  June 6,
                           2002,  by and between Prime Retail, Inc. and David G.
                           Phillips.

         Exhibit 10.9      Amendment  to  Employment  Agreement,  dated  June 6,
                           2002,  by and between Prime Retail, Inc. and Glenn D.
                           Reschke.

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

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

         Reports on Form 8-K:

         On  August 8, 2002,  we  filed a Current Report on Form 8-K relating to
         our  sale  of  six  outlet  centers  (collectively,  the  "Bridge  Loan
         Properties")  on July 26, 2002. The filing included unaudited pro forma
         financial  information  pursuant  to  Article 11  of Regulation S-X and
         certain exhibits, including (i)  the real estate sale agreement related
         to  the  Bridge L oan Properties and the first and second amendments to
         the  real  estate sale agreement and (ii) the Press Release issued July
         31, 2002  regarding   completion  of   the  sale  of  the  Bridge  Loan
         Properties.

<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: August 14, 2002                      /s/ Robert A. Brvenik
      ---------------                      -------------------------------------
                                           Robert A. Brvenik
                                           Executive Vice President,
                                           Chief Financial Officer and Treasurer