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, 1999

                                       or

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


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

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

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


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


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

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

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

Yes   X           No
     ---

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

As of August 5, 1999,  the issuer had  outstanding  43,273,772  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, 1999 and
     December 31, 1998 ....................................................... 1

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

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

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

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

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

PART II:  OTHER INFORMATION

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

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

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

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

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

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

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

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


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

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

Assets
Investment in rental property:
     Land                                                                                  $    206,362             $    206,386
     Buildings and improvements                                                               1,768,719                1,753,641
     Property under development                                                                  65,193                   45,068
     Furniture and equipment                                                                     13,892                   10,627
                                                                                           ------------             ------------
                                                                                              2,054,166                2,015,722
     Accumulated depreciation                                                                  (161,011)                (127,747)
                                                                                           ------------             ------------
                                                                                              1,893,155                1,887,975
Cash and cash equivalents                                                                         1,606                    5,765
Restricted cash                                                                                  34,997                   34,969
Accounts receivable, net                                                                         24,475                   21,233
Deferred charges, net                                                                            11,295                   12,518
Investment in partnerships                                                                        9,575                    8,386
Other assets                                                                                      6,694                    5,618
                                                                                           ------------              -----------
     Total assets                                                                          $  1,981,797              $ 1,976,464
                                                                                           ============              ===========
Liabilities and Shareholders' Equity

Bonds payable                                                                              $     32,900              $    32,900
Notes payable                                                                                 1,256,126                1,184,607
Accrued interest                                                                                  7,774                    7,878
Real estate taxes payable                                                                        18,481                   11,229
Construction costs payable                                                                        2,386                    3,754
Accounts payable and other liabilities                                                           61,903                   69,879
                                                                                           ------------             ------------
     Total liabilities                                                                        1,379,570                1,310,247

Minority interests                                                                                9,569                   22,483
Series C Cumulative Convertible Redeemable Preferred Stock,
     1,063,636 shares issued and outstanding at June 30, 1999                                    10,636                        -
Shareholders' equity:
Shares of preferred stock, 24,315,000 shares authorized:
     10.5% Series A Senior Cumulative Preferred Stock, $0.01
        par value (liquidation preference of $57,500), 2,300,000
        shares issued and outstanding                                                                23                       23
     8.5% Series B Cumulative Participating Convertible Preferred
        Stock, $0.01 par value (liquidation preference of $195,703)
        7,828,125 shares issued and outstanding                                                      78                       78
     Series C Cumulative Participating Convertible Redeemable
        Preferred Stock, $.01 par value (liquidation preference
        $60,000), 4,363,636 shares issued and outstanding
        at December 31, 1998                                                                          -                       44
Shares of common stock, 150,000,000 shares authorized:
     Common stock, $0.01 par value, 43,276,552 and 42,736,742
     shares issued and outstanding, respectively                                                    433                      427
Additional paid-in capital                                                                      707,759                  759,105
Distributions in excess of net income                                                          (126,271)                (115,943)
                                                                                           ------------             ------------
     Total shareholders' equity                                                                 582,022                  643,734
                                                                                           ------------             ------------
     Total liabilities and shareholders' equity                                            $  1,981,797             $  1,976,464
                                                                                           ============             ============
====================================================================================================================================
</TABLE>
See accompanying notes to financial statements.

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

------------------------------------------------------------------------------------------------------------------------------------
                                                                              Three months                    Six months
                                                                             ended June 30                  ended June 30
                                                                      -----------------------------  -----------------------------
                                                                               1999           1998            1999           1998
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>            <C>              <C>            <C>

Revenues
Base rents                                                                 $ 48,356       $ 28,047        $ 97,658        $51,130
Percentage rents                                                              1,978          1,174           4,040          2,039
Tenant reimbursements                                                        22,609         13,534          46,297         24,647
Interest and other                                                            3,170          2,351           6,892          5,191
                                                                           --------       --------        --------        -------
     Total revenues                                                          76,113         45,106         154,887         83,007

Expenses
Property operating                                                           17,204         10,563          36,141         19,282
Real estate taxes                                                             5,727          3,364          11,293          6,220
Depreciation and amortization                                                18,658          9,935          37,015         17,758
Corporate general and administrative                                          2,799          1,756           5,587          3,448
Interest                                                                     22,463         10,939          43,725         19,313
Other charges                                                                 1,585          1,390           4,151          2,376
                                                                           --------       --------        --------        -------
     Total expenses                                                          68,436         37,947         137,912         68,397
                                                                           --------       --------        --------        -------
Income before loss on sale of real estate,
     minority interests, and extraordinary loss                               7,677          7,159          16,975         14,610

Loss on sale of real estate                                                       -        (15,461)              -        (15,461)
                                                                           --------       --------        --------        -------
Income (loss) before minority interests and
     extraordinary loss                                                       7,677         (8,302)         16,975           (851)
(Income) loss allocated to minority interests                                  (534)         3,219            (534)        (2,242)
                                                                           --------       --------        --------        -------

Income (loss) before extraordinary loss                                       7,143         (5,083)         16,441         (3,093)
Extraordinary loss on early extinguishment of debt,
   net of minority interests of $534                                         (2,106)             -          (2,106)             -
                                                                           --------       --------        --------        -------

Net income (loss)                                                             5,037         (5,083)         14,335         (3,093)
(Income) loss allocated to preferred shareholders                            (6,046)        (6,741)          1,754        (10,907)
                                                                           --------       --------        --------        -------
Net income (loss) applicable to common shares                              $ (1,009)      $(11,824)        $16,089      $ (14,000)
                                                                           ========       ========        ========        =======
Earnings per common share - basic:
     Income (loss) before extraordinary item                               $   0.03       $  (0.40)        $  0.42      $   (0.49)
     Extraordinary loss                                                       (0.05)             -           (0.05)             -
                                                                           --------       --------        --------        -------
     Net income (loss)                                                     $  (0.02)      $  (0.40)        $  0.37      $   (0.49)
                                                                           ========       ========        ========        =======
Earnings per common share - diluted:
     Income (loss) before extraordinary item                               $   0.03       $  (0.40)        $  0.08      $   (0.49)
     Extraordinary loss                                                       (0.05)             -           (0.04)             -
                                                                           --------       --------        --------        -------
     Net income (loss)                                                     $  (0.02)      $  (0.40)        $  0.04      $   (0.49)
                                                                           ========       ========        ========        =======
Weighted average common shares outstanding:
     Basic                                                                   43,186         29,859          43,069         28,584
                                                                           ========       ========         =======      =========
     Dilulted                                                                43,186         29,859          55,720         28,584
                                                                           ========       ========         =======      =========
====================================================================================================================================
</TABLE>
See accompanying notes to financial statements.

<PAGE>
<TABLE>
                               Prime Retail, Inc.
                      Consolidated Statements of Cash Flows
                                 (in thousands)
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Six months ended June 30,                                                                           1999                   1998
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                             <C>                    <C>
Operating Activities
Net income (loss)                                                                                $14,335               $ (3,093)
Adjustments to reconcile net income to
    net cash provided by operating activities:
      Income allocated to minority interests                                                           -                  2,242
      Loss on sale of real estate                                                                      -                 15,461
      Depreciation                                                                                36,610                 17,120
      Amortization of deferred financing costs and
         interest rate protection contracts                                                          800                  1,329
      Amortization of leasing commissions                                                            405                    638
      Provision for uncollectible accounts receivable                                              1,249                    530
Changes in operating assets and liabilities:
      Increase in accounts receivable                                                             (4,475)                (6,032)
      Decrease in other assets                                                                     1,952                  3,788
      Increase (decrease) in accrued interest                                                       (104)                   570
      Decrease in accounts payable and other liabilities                                            (693)               (14,382)
                                                                                                  ------                 ------
         Net cash provided by operating activities                                                50,079                 18,171

Investing Activities
Proceeds from sale of Prime Transferred Properties                                                     -                 26,015
Acquisition of Horizon, net of cash acquired and
    spin-off of HGP                                                                                    -                (35,124)
Purchase of buildings and improvements                                                           (39,774)               (23,820)
Increase in property under development                                                            (7,078)               (45,448)
                                                                                                  ------                 ------
         Net Cash used in investing activities                                                   (46,852)               (78,377)

Financing Activities
Proceeds from notes payable                                                                      124,136                368,128
Principal repayments on notes payable                                                            (85,617)              (241,512)
Deferred financing costs                                                                               -                 (2,730)
Series C preferred stock redemption                                                               (1,038)                     -
Distributions and dividends paid                                                                 (38,381)               (40,970)
Distributions to minority interests                                                               (6,486)               (10,346)
                                                                                                  ------                 ------
         Net cash provided by (used in) financing activities                                      (7,386)                72,570
                                                                                                   ------                ------
Increase (decrease) in cash and cash equivalents                                                  (4,159)                12,364
Cash and cash equivalents at beginning of period                                                   5,765                  6,373
                                                                                                  ------                 ------
Cash and cash equivalents at end of period                                                       $ 1,606               $ 18,737
                                                                                                  ======                 ======
====================================================================================================================================
</TABLE>
See accompanying notes to financial statements.

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


Supplemental Disclosure of Noncash Investing and Financing Activities:
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Six months ended June 30,                                                                   1999                1998
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                      <C>                    <C>

Series C Preferred Stock redeemed in exchange for issuance of note
     payable                                                                             $33,000                $  -
                                                                                         =======                =======

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

See accompanying notes to financial statements.

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


Note 1 - Interim Financial Presentation

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

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

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

Note 2 - Earnings Per Share

The Company  reports  earnings per share ("EPS") in accordance with Statement of
Financial  Accounting  Standards  ("SFAS") No. 128,  "Earnings  per Share" which
specifies the method of computation,  presentation, and disclosure. SFAS No. 128
requires the  presentation of basic EPS and diluted EPS. Basic EPS is calculated
by dividing net income available to common  shareholders by the weighted average
number of shares  outstanding  during  the  period.  Diluted  EPS  includes  the
potentially  dilutive  effect,  if any,  which  would occur if  outstanding  (i)
options  to  purchase  Common  Stock  were  exercised,  (ii)  Common  Units were
converted into shares of Common Stock,  (iii) shares of Series C Preferred Stock
were  converted  into  shares of Common  Stock,  and (iv)  Series B  Convertible
Preferred  Stock were converted into shares of Common Stock.  For the six months
ended June 30, 1999, a redemption  discount of $13,718  related to the Company's
agreement to repurchase  its Series C Preferred  Stock (see Note 5 - "Redeemable
Equity" of the Notes to Consolidated Financial Statements) was excluded from the
numerator and  incremental  shares of 12,651 are included in the  denominator of
the computation of diluted EPS. For the three months ended June 30, 1999 and for
the three and six months ended June 30, 1998, diluted EPS is equivalent to basic
EPS as the effect of these exercises and conversions was anti-dilutive.

<PAGE>
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                                              Three months                    Six months
                                                                             ended June 30                  ended June 30
                                                                      -----------------------------  -----------------------------
                                                                               1999           1998            1999           1998
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>           <C>              <C>             <C>
Numerator:
Income (loss) before extraordinary loss and
     minority interests                                                     $ 7,677       $ (8,302)        $16,975       $   (851)
(Income) loss allocated to minority interests                                  (534)         3,219            (534)        (2,242)
                                                                            -------       --------         -------       --------
Net income (loss) before extraordinary loss                                   7,143         (5,083)         16,441         (3,093)
(Income) loss allocated to preferred shareholders                            (6,046)        (6,741)          1,754        (10,907)
                                                                            -------       --------         -------       --------

Numerator for basic earnings per share -
     income (loss) available to common shareholders
     before extraordinary loss                                                1,097        (11,824)         18,195        (14,000)

Effect of dilutive securities:
Series C preferred stock redemption discount                                      -              -         (13,718)             -
                                                                            -------       --------         -------       --------
Numerator for diluted earnings per share -
     income (loss) available to common shareholders
     before extraordinary loss                                              $ 1,097       $(11,824)       $  4,477      $ (14,000)
                                                                            =======       ========        ========      =========


Denominator:
Denominator for basic earnings per share -
     weighted average common s hares outstanding                             43,186         29,859          43,069         28,584

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

Denominator for diluted earnings per share -
     adjusted weighted average common shares
     outstanding                                                             43,186         29,859          55,720         28,584
                                                                             ======        =======         =======       ========

Basic earnings per common share before
     extraordinary loss                                                      $ 0.03        $ (0.40)         $ 0.42        $ (0.49)
                                                                             ======        =======         =======       ========
Diluted earnings per common share before
     extraordinary loss                                                      $ 0.03        $ (0.40)         $ 0.08        $ (0.49)
                                                                             ======        =======         =======       ========

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

<PAGE>
Note 3 - Minority Interests

In prior periods,  cash distributions and losses allocated to minority interests
reduced the  minority  interests  balance to zero.  After  reducing the minority
interests  balance  to zero,  additional  distributions  and  losses  of  $4,342
incurred during the six months ended June 30, 1998 that were otherwise allocable
to minority  interests  were  allocated to common  shareholders.  During the six
months ended June 30, 1999, the cumulative  amount of  distributions  and losses
that were  allocable to minority  interests  that were  previously  allocated to
common  shareholders was reduced by $3,907 and the remaining balance at June 30,
1999 was $10,722.

Note 4 - Notes Payable

On  August  11,  1999,  the  Company  obtained  a  commitment  from a  group  of
institutional  investors  to  provide a $40,000  line of  credit  (the  "Line of
Credit").  The Line of Credit (i) bears interest at a fixed-rate of 11.0%,  (ii)
requires monthly interest-only  payments,  and (iii) matures in nine months. The
Line of Credit may be repaid at anytime without  penalty.  Upon repayment of the
loan,  the initial  investors  will also be  entitled to receive a cash  payment
designed to increase the internal  rate of return to such  investors by 4.0% per
annum  (the  "Cash  Payment").  The Line of Credit is secured by a pledge of the
Company's  interest in a subsidiary of the Company that will be formed to engage
in the design,  development  and  operation  of a virtual  outlet  center on the
internet. The Company will provide the institutional  investors with warrants to
purchase  a 5.0%  interest  in this  e-commerce  subsidiary  for a nominal  sum,
subject to adjustment under certain  circumstances.  The investors must elect to
forgo all or a portion  of the Cash  Payment or the  warrants  in the event this
subsidiary  completes an initial public offering prior to the scheduled maturity
date of the  Line of  Credit.  Closing  of the  Line of  Credit  is  subject  to
customary conditions, including the execution of definitive loan documents.

On July 11, 1999, the Company's $20,000 unsecured line of credit (the "Corporate
Line") was renewed and increased to $25,000.  The purpose of the Corporate  Line
is to provide working capital to facilitate the funding of short-term  operating
cash needs of the Company.  The Corporate  Line bears an interest rate of 30-day
LIBOR plus 2.50% and matures on July 11, 2000. No amounts were outstanding as of
June 30, 1999.

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

As of June 30,  1999,  the Company is a guarantor or  otherwise  obligated  with
respect  to an  aggregate  of  $35,284  of the  indebtedness  of  Horizon  Group
Properties, Inc. and its affiliates ("HGP"). As of June 30, 1999, the components
of such indebtedness included (i) a mortgage loan with an outstanding balance of
$11,793 which bears interest at a rate of prime, matures on August 31, 1999, and
is  collateralized  by a first mortgage on Phases II and III of property located
in  Patchogue,  New York;  (ii) a mortgage loan with an  outstanding  balance of
$10,637 which bears  interest at a rate of 10.25%,  matures in July 2018, and is
collateralized  by a first mortgage on Phase I of property located in Patchogue,
New York;  (iii) a mortgage  loan with an  outstanding  balance of $2,611  which
bears  interest at a rate of LIBOR plus 2.50%,  matures in December 2002, and is
collateralized  by a first mortgage on a office building in Muskegon,  Michigan;
and (iv) a secured loan with an outstanding balance of $243 which bears interest
at a rate of prime,  matures in December 2000 and is collateralized by furniture
and fixtures. In addition,

<PAGE>
the Company is a guarantor of $10,000 of obligations  under HGP's secured credit
facility  which bears a rate of  interest  of LIBOR plus 1.90%,  matures in July
2001, and is  collateralized by seven properties  located  throughout the United
States. The Company is pursuing an agreement with HGP pursuant to which it would
purchase HGP's and its affiliates' general and limited partnership interests and
a portion of a third party's limited partnership interest in the Bellport Outlet
Center and undeveloped parcels located in Patchogue,  New York. If the agreement
is consummated,  it is expected that the aggregate indebtedness of HGP for which
the  Company  remains  contingently  liable as a  guarantor  would be reduced to
$12,854.

Note 5 - Redeemable Equity

On March 31,  1999,  the Company  entered into an  agreement  providing  for the
repurchase  of all of its  outstanding  shares of Series C  Preferred  Stock for
$43,636 or $10.00 per share. The agreement  provides for the repurchase to occur
in two stages.  In the first stage,  on March 31, 1999, the Company  repurchased
3,300,000 shares of the Series C Preferred Stock in exchange for the issuance of
a $33,000  unsecured  promissory  note.  The  unsecured  promissory  note  bears
interest at a rate of 12.0% per annum,  matures on September 30, 1999,  requires
monthly  interest-only  payments  and may be prepaid by the  Company at any time
without  penalty.  Second,  the Company is obligated to repurchase the remaining
1,063,636  outstanding  shares of its Series C Preferred  Stock for an aggregate
purchase price of $10,636 on or before September 30, 1999.

On March  31,  1999 the  remaining  1,063,636  outstanding  shares  of  Series C
Preferred  Stock  were  reclassified  to  redeemable  equity at their  aggregate
repurchase price of $10,636 in the Consolidated Balance Sheets.  Additionally, a
redemption discount of $13,718 representing the excess of the carrying amount of
the Series C Preferred  Stock over its  redemption  amount is  reflected  in the
Consolidated   Statements  of  Operations  as  a  loss  allocated  to  preferred
shareholders.

Note 6 - Legal Proceedings

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

The  Company  is  defendant  in a  lawsuit  filed on July  27,  1998 in the U.S.
District  Court for the Central  District of  California  whereby the  plaintiff
alleges that the Company and its related entities overcharged tenants for common
area maintenance expenditures. The outcome of, and the ultimate liability of the
Company,  if any, from, this lawsuit cannot  currently be predicted.  Management
believes that the Company has acted  properly and intends to defend this lawsuit
vigorously.

Note 7 - Dispositions

On August 6, 1999, the Company entered into a definitive agreement to sell three
factory outlet centers,  including two future expansions, to a new joint venture
(the "Venture) between an affiliate of Estein & Associates USA, Ltd.  ("Estein")
and the Company.  The total purchase price for the three centers,  including the
two  expansions,  is $274,000.  The purchase price includes an $8,000 payment to
the Company for a ten-year  covenant-not-to-compete  and a $6,000 payment to the
Company for a ten-year licensing  agreement with the Venture to continue the use
of the "Prime Outlets" brand name.
<PAGE>
The  Venture  expects  to close  on the  three  centers  and two  expansions  in
accordance with the following schedule:

--------------------------------------------------------------------------------

Expected
Closing
  Date     Center                                            GLA
--------------------------------------------------------------------------------
11/18/99   Prime Outlets at Birch Run                      724,000
 2/15/00   Prime Outlets at Williamsburg                   274,000
 4/15/00   Prime Outlets at Hagerstown                     321,000
 4/15/00   Prime Outlets at Hagerstown (Phase III)         162,000
 9/30/00   Prime Outlets at Williamsburg (Phase II)         70,000
                                                         ---------
             TOTAL                                       1,551,000
                                                         =========
================================================================================

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

The Company  expects to realize an  aggregate of  approximately  $78,000 of cash
proceeds,  net of (i)  all  closing  costs,  (ii)  the  cost of  completing  the
expansions,  and (iii) the Company's  approximate  $10,000 net investment in the
"wrap-around"  first mortgage  being provided on the Birch Run center.  Prior to
the  closing,  the  Company  expects  to receive  an  additional  $10,000 of net
proceeds from the refinancing of the existing Williamsburg center.

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

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


Introduction

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

Cautionary Statements

The following  discussion in "Management's  Discussion and Analysis of Financial
Condition and Results of Operations" contains certain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 which
reflect  management's  current views with respect to future events and financial
performance.  The words "believes",  "expects",  "anticipates",  "estimates" and
similar words or expressions are generally intended to identify  forward-looking
statements.  These statements  contain  potential risks and  uncertainties  and,
therefore, actual results may differ materially. Such forward-looking statements
are subject to certain risks and uncertainties;  including,  but not limited to,
the effects of future events on the Company's  financial  performance;  the risk
that  the  Company  may  be  unable  to  finance  its  planned  acquisition  and
development  activities;  risks  related  to the  retail  industry  in which the
Company's manufacturers' outlet centers compete, including the potential adverse
impact of external factors, such as inflation, consumer confidence, unemployment
rates and consumer tastes and  preferences;  risks associated with the Company's
property  acquisitions,  such as the  lack of  predictability  with  respect  to
financial  returns;  risks  associated with the Company's  property  development
activities,  such as the  potential  for cost  overruns,  delays and the lack of
predictability  with  respect to the  financial  returns  associated  with these
development activities;  the risk of potential increase in market interest rates
from current levels;  risks associated with real estate  ownership,  such as the
potential  adverse impact of changes in local  economic  climate on the revenues
and the value of the Company's properties;  and risks associated with the impact
of the Year 2000 issue on the  processing of  date-sensitive  information by the
Company's computerized  information systems as well as the Company's tenants and
vendors.

Merger with Horizon Group, Inc.

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

<PAGE>
Portfolio Growth

The Company has grown by developing and acquiring  manufacturers' outlet centers
and  expanding  certain  of  its  existing  manufacturers'  outlet  centers.  As
summarized in TABLE 1, the Company's  manufacturers'  outlet portfolio consisted
of 50  manufacturers'  outlet centers totaling  14,343,000 square  feet of gross
leasable area ("GLA") at June 30, 1999, compared to 49 operating  manufacturers'
outlet centers totaling 13,706,000 square feet of GLA at June 30, 1998.

During the six months ended June 30, 1999, the Company opened an expansion to an
existing  manufacturers'  outlet center  totaling  21,000 square feet of GLA. In
connection with the Merger Transactions which were consummated on June 15, 1998,
the Company  acquired  and  integrated  22 of  Horizon's  manufacturers'  outlet
centers into its existing  portfolio  adding 6,626,000 square feet of GLA in the
aggregate  and  sold  two   manufacturers'   outlet  centers  to  Horizon  Group
Properties,  Inc.  ("HGP") totaling 426,000 square feet of GLA. During 1998, the
Company opened two new  manufacturers'  outlet centers and added nine expansions
to existing manufacturers' outlet centers totaling 931,000 square feet of GLA in
the aggregate (of which one new manufacturers' outlet center and four expansions
to existing  manufacturers'  outlet centers  totaling 289,000 square feet of GLA
opened during the six months ended June 30, 1998).  The significant  increase in
the number of the Company's  operating  properties  and total GLA since June 30,
1998 are  collectively  referred to as the "Portfolio  Expansion and the Horizon
Merger".

<PAGE>
<TABLE>
                             Portfolio of Properties
                                  June 30, 1999
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                          Grand            GLA           Percentage
Manufacturers' Outlet Centers                                           Phase          Opening Date      (Sq. Ft.)        Leased(1)
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>            <C>               <C>             <C>


Prime Outlets at Kittery  - Kittery Maine..............................     I            April 1984         25,000            100%
                                                                           II              May 1984         78,000             99
                                                                          III           August 1989         18,000            100
                                                                           IV              May 1998         10,000            100
                                                                                                           -------            ---
                                                                                                           131,000            100

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

Prime Outlets at Birch Run (2) - Birch Run, Michigan................... I-XVI               Various        591,000             99
                                                                      XVII-XVIII
                                                                                               1997        133,000             95
                                                                                                           -------            ---
                                                                                                           724,000             99

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

Prime Outlets at Michigan City (2) - Michigan City, Indiana............     I         November 1987        199,000            100
                                                                           II              May 1988        130,000             97
                                                                          III             July 1991         36,000             97
                                                                           IV             July 1994         42,000             93
                                                                            V         December 1994         26,000             98
                                                                           VI              May 1995         58,000             96
                                                                                                           -------            ---
                                                                                                           491,000             98

Prime Outlets at Williamsburg (2) - Williamsburg, Virginia.............     I            April 1988         67,000            100
                                                                           II         November 1988         60,000            100
                                                                          III          October 1990         49,000             91
                                                                           IV                  1995         98,000            100
                                                                                                           -------            ---
                                                                                                           274,000             98

Prime Outlets at Kenosha (2) - Kenosha, Wisconsin......................     I        September 1988         89,000            100
                                                                           II             July 1989         65,000             97
                                                                          III              May 1990        115,000             86
                                                                                                           -------            ---
                                                                                                           269,000             93

Prime Outlets at Silverthorne (2) - Silverthorne, Colorado.............     I         November 1988         95,000             90
                                                                           II         November 1990         75,000             95
                                                                          III         November 1993         88,000             83
                                                                                                           -------            ---
                                                                                                           258,000             89

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

Prime Outlets at Burlington (2) - Burlington, Washington ..............     I              May 1989         89,000             87
                                                                           II          October 1989         36,000            100
                                                                          III            April 1993         49,000             97
                                                                                                           -------            ---
                                                                                                           174,000             92

Prime Outlets at Queenstown (2) - Queenstown, Maryland.................     I             June 1989         67,000            100
                                                                           II             June 1990         55,000             88
                                                                          III          January 1991         16,000             97
                                                                           IV             June 1992         14,000             97
                                                                            V           August 1993         69,000            100
                                                                                                           -------            ---
                                                                                                           221,000             97
</TABLE>

<PAGE>
<TABLE>
                       Portfolio of Properties (continued)
                                  June 30, 1999
------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                                                          Grand             GLA          Percentage
Manufacturers; Outlet Centers                                           Phase          Opening Date      (Sq. Ft.)        Leased(1)
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>            <C>               <C>            <C>
Prime Outlets at Hillsboro (2) - Hillsboro, Texas......................     I          October 1989         95,000             97%
                                                                           II          January 1992        101,000             95
                                                                          III              May 1995        163,000             91
                                                                                                           -------             --
                                                                                                           359,000             94

Prime Outlets at Oshkosh (2) - Oshkosh, Wisconsin......................     I         November 1989        215,000             96
                                                                           II             July 1991         45,000             99
                                                                                                           -------             --
                                                                                                           260,000             97

Prime Outlets at Warehouse Row (3) - Chattanooga, Tennessee............     I         November 1989         95,000             94

Prime Outlets at Gilroy (2) - Gilroy, California.......................     I          January 1990         94,000            100
                                                                           II           August 1991        109,000            100
                                                                          III          October 1992        137,000             96
                                                                           IV             July 1994        170,000             96
                                                                            V         November 1995         69,000            100
                                                                                                           -------            ---
                                                                                                           579,000             98

Prime Outlets at Perryville (2) - Perryville, Maryland.................     I             June 1990        148,000             96

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

Prime Outlets at San Marcos - San Marcos, Texas........................     I           August 1990        177,000            100
                                                                           II           August 1991         70,000             92
                                                                          III           August 1993        117,000             78
                                                                         IIIB         November 1994         20,000             91
                                                                         IIIC         November 1995         35,000            100
                                                                         IIID              May 1998         18,000            100
                                                                                                           -------            ---
                                                                                                           437,000             92

Prime Outlets at Anderson - Anderson, California.......................     I           August 1990        165,000             93

Prime Outlets at Post Falls - Post Falls, Idaho .......................     I             July 1991        111,000             82
                                                                           II             July 1992         68,000             85
                                                                                                           -------             --
                                                                                                           179,000             83

Prime Outlets at Ellenton - Ellenton, Florida..........................     I         October 1991         187,000             99
                                                                           II          August 1993         123,000            100
                                                                          III         October 1996          30,000            100
                                                                           IV        November 1998         141,000             94
                                                                                                           -------            ---
                                                                                                           481,000             98

Prime Outlets at Morrisville - Raleigh - Durham, North Carolina........     I         October 1991         181,000             87
                                                                           II            July 1996           6,000            100
                                                                                                           -------            ---
                                                                                                           187,000             88

Prime Outlets at Naples - Naples/Marco Island, Florida.................     I        December 1991          94,000             96
                                                                           II        December 1992          32,000            100
                                                                          III           March 1998          20,000             98
                                                                                                           -------            ---
                                                                                                           146,000             97

Prime Outlets at Conroe (2) - Conroe, Texas............................     I         January 1992          93,000             94
                                                                           II            June 1994         163,000             88
                                                                          III         October 1994          26,000             79
                                                                                                           -------            ---
                                                                                                           282,000             89

Prime Outlets at Niagara Falls USA - Niagara Falls, New York...........     I             July 1992        300,000             97
                                                                           II           August 1995        234,000             90
                                                                                                           -------            ---
                                                                                                           534,000             94
</TABLE>

<PAGE>
<TABLE>
                       Portfolio of Properties (continued)
                                  June 30, 1999
------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                                                           Grand            GLA          Percentage
Manufacturers' Outlet Centers                                           Phase          Opening Date      (Sq. Ft.)        Leased(1)
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>            <C>               <C>             <C>
Prime Outlets at Woodbury (2) - Woodbury, Minnesota....................     I            July 1992         129,000             91%
                                                                           II        November 1993         100,000             88
                                                                          III          August 1994          21,000            100
                                                                                                           -------            ---
                                                                                                           250,000             90

Prime Outlets at Calhoun (2) - Calhoun, Georgia........................     I         October 1992         123,000            100
                                                                           II         October 1995         131,000             92
                                                                                                           -------            ---
                                                                                                           254,000             96

Prime Outlets at Castle Rock - Castle Rock, Colorado...................     I        November 1992         181,000             98
                                                                           II          August 1993          94,000             97
                                                                          III        November 1993          95,000            100
                                                                           IV          August 1997         110,000             97
                                                                                                           -------            ---
                                                                                                           480,000             98

Prime Outlets at Bend - Bend, Oregon...................................     I        December 1992          97,000            100
                                                                           II       September 1998          35,000             99
                                                                                                           -------            ---
                                                                                                           132,000            100

Prime Outlets at Jeffersonville II (2) - Jeffersonville, Ohio..........     I           March 1993         126,000             80
                                                                           II          August 1993         123,000             73
                                                                          III         October 1994          65,000             77
                                                                                                           -------            ---
                                                                                                           314,000             76

Prime Outlets at Jeffersonville I - Jeffersonville, Ohio...............     I            July 1993         186,000             90
                                                                           II        November 1993         100,000             81
                                                                          IIB        November 1994          13,000             64
                                                                         IIIA          August 1996          35,000            100
                                                                         IIIB           March 1997          73,000            100
                                                                                                           -------            ---
                                                                                                           407,000             89

Prime Outlets at Gainesville - Gainesville, Texas......................     I           August 1993        210,000             89
                                                                           II         November 1994        106,000             95
                                                                                                           -------            ---
                                                                                                           316,000             91

Prime Outlets at Loveland - Loveland, Colorado.........................     I              May 1994        139,000             97
                                                                           II         November 1994         50,000            100
                                                                          III              May 1995        114,000             88
                                                                           IV              May 1996         25,000            100
                                                                                                           -------            ---
                                                                                                           328,000             94

Prime Outlets at Oxnard (4) - Oxnard, California.......................     I             June 1994        148,000             92

Prime Outlets at Grove City - Grove City, Pennsylvania.................     I           August 1994        235,000            100
                                                                           II         November 1994         95,000            100
                                                                          III         November 1995         85,000             97
                                                                           IV         November 1996        118,000             99
                                                                                                           -------            ---
                                                                                                           533,000             99

Prime Outlets at Huntley - Huntley, Illinois...........................     I           August 1994        192,000             97
                                                                           II         November 1995         90,000             83
                                                                                                           -------            ---
                                                                                                           282,000             93

Prime Outlets at Florida City - Florida City, Florida..................     I        September 1994        208,000             92

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

Prime Outlets at Tracy  (2) - Tracy, California........................     I         November 1994        153,000             94

Prime Outlets at Vero Beach (2) - Vero Beach, Florida..................     I         November 1994        210,000             95
                                                                           II           August 1995        116,000             99
                                                                                                           -------            ---
                                                                                                           326,000             96
</TABLE>

<PAGE>
<TABLE>
                       Portfolio of Properties (continued)
                                  June 30, 1999

------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                                                            Grand           GLA          Percentage
Manufacturers' Outlet Centers                                           Phase          Opening Date       (Sq. Ft.)       Leased(1)
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>            <C>               <C>             <C>
Prime Outlets at Waterloo (2) - Waterloo, New York.....................     I            March 1995         208,000            99%
                                                                           II        September 1996         115,000           100
                                                                          III            April 1997          68,000           100
                                                                                                            -------           ---
                                                                                                            391,000           100

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

Prime Outlets at Darien (5) - Darien, Georgia..........................     I             July 1995         238,000            87
                                                                          IIA         November 1995          49,000            93
                                                                          IIB             July 1996          20,000           100
                                                                                                            -------           ---
                                                                                                            307,000            89

Prime Outlets at New River (4) - Phoenix, Arizona......................     I        September 1995         217,000            91
                                                                           II        September 1996         109,000            83
                                                                                                            -------           ---
                                                                                                            326,000            88

Prime Outlets at Gulfport (5) - Gulfport, Mississippi..................     I         November 1995         228,000            95
                                                                          IIA         November 1996          40,000            73
                                                                          IIB         November 1997          38,000            91
                                                                                                            -------           ---
                                                                                                            306,000            92

Prime Outlets at Lodi - Burbank, Ohio..................................     I         November 1996         205,000            96
                                                                          IIA              May 1998          33,000            92
                                                                          IIB         November 1998          75,000            83
                                                                                                            -------           ---
                                                                                                            313,000            93

Prime Outlets at Gaffney - Gaffney, South Carolina.....................     I         November 1996         235,000            96
                                                                           II             July 1998          70,000            92
                                                                                                            -------           ---
                                                                                                            305,000            95

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

Prime Outlets at Lebanon -  Lebanon, Tennessee.........................     I            April 1998         208,000            98
                                                                          IIA            March 1999          21,000            79
                                                                                                            -------           ---
                                                                                                            229,000            96

Prime Outlets at Hagerstown - Hagerstown, Maryland.....................     I           August 1998         218,000           100
                                                                           II         November 1998         103,000            93
                                                                                                            -------           ---
                                                                                                            321,000            97
                                                                                                         ----------           ---
Total Manufacturers' Outlet Centers (6)................................                                  14,343,000            94%
                                                                                                         ==========           ===


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

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

<PAGE>
Results of Operations

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

Summary

The Company reported net income (loss)of $5,037 and $(5,083)for the three months
ended June 30, 1999 and 1998,  respectively.  During the second quarter of 1999,
the Company recorded an extraordinary  loss of $2,106 (net of minority interests
of $534),  relating to the early  extinguishment of certain long-term debt.  For
the  three  months  ended  June 30,  1999,  the net loss  applicable  to  common
shareholders was $1,009, or $0.02 per common share on a basic and diluted basis.
During the second quarter of 1998,  the Company  recorded a loss on sale of real
estate of $15,461 in  connection  with the  Merger  Transactions.  For the three
months ended June 30, 1998, the net loss applicable to common  shareholders  was
$11,824, or $0.40 per common share on a basic and diluted basis.

Revenues

Total revenues were $76,113 for the three months ended June 30, 1999 compared to
$45,106 for the three  months ended June 30,  1998,  an increase of $31,007,  or
68.7%.  Base  rents  increased  $20,309,  or 72.4%,  in 1999  compared  to 1998.
Straight-line  rents  (included  in base rents) were $221 and $286 for the three
months ended June 30, 1999 and 1998, respectively. These increases are primarily
due to the Portfolio Expansion and the Horizon Merger.

Percentage  rents,  which  represent rents based on a percentage of sales volume
above a specified  threshold,  increased $804, or 68.5%, during the three months
ended June 30,  1999  compared  to the same period in 1998.  This  increase  was
attributable  to  the  Portfolio  Expansion  and  the  Horizon  Merger.   Tenant
reimbursements, which represent the contractual recovery from tenants of certain
operating expenses, increased by $9,075, or 67.1%, during the three months ended
June 30, 1999 over the same period in 1998.  These  increases were primarily due
to the Portfolio Expansion and the Horizon Merger.

Interest and other  income  increased by $819,  or 34.8%,  to $3,170  during the
three  months  ended June 30, 1999 as  compared  to $2,351 for the three  months
ended June  30, 1998. The increase is due to higher (i) temporary  tenant income
of $350,  (ii) management  fee income of $197, (iii) municipal assistance income
of $78 and (iv) other ancillary income of $194.

Expenses

Property  operating  expenses  increased by $6,641, or 62.9%, to $17,204 for the
three  months  ended  June 30,  1999  compared  to $10,563  for the same  period
in 1998.  Real estate  taxes  increased by $2,363,  or 70.2%,  to $5,727 for the
three  months ended June 30, 1999 from $3,364 in the same period  for 1998.  The
increases in property operating expenses and real estate taxes are primarily due
to the  Portfolio  Expansion  and the  Horizon  Merger.  As  shown  in  TABLE 2,
depreciation and amortization  expense increased by $8,723, or 87.8%, to $18,658
for the three  months  ended June 30,  1999  compared to $9,935  for 1998.  This
increase results from the  depreciation  and  amortization of assets  associated
with the Portfolio Expansion and the Horizon Merger.

<PAGE>
TABLE 2 - Components of Depreciation and Amortization Expense

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

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

Building and improvements                        $10,116                  $5,669
Land improvements                                  1,452                     889
Tenant improvements                                6,398                   2,743
Furniture and fixtures                               472                     308
Leasing commissions                                  220                     326
                                                 -------                  ------
     Total                                       $18,658                  $9,935
                                                 =======                  ======
================================================================================


TABLE 3 - Components of Interest Expense

The components of interest expense are summarized as follows:

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

Interest incurred                                $22,807                $11,508
Interest capitalized                              (1,144)                (1,389)
Amortization of deferred financing costs             797                    481
Amortization of interest rate protection
   contracts                                           3                    339
                                                 -------                -------
     Total                                       $22,463                $10,939
                                                 =======                =======
================================================================================


As shown in TABLE 3,  interest  expense for the three months ended June 30, 1999
increased  by $11,524,  or 105.3%,  to $22,463  compared to $10,939 for the same
period in 1998.  This increase reflects (i) higher interest incurred of $11,299,
(ii) an increase in amortization of deferred financing costs of $316 and (iii) a
reduction in the amount of interest  capitalized in connection with  development
projects  of  $245.   Partially   offsetting  these  items  was  a  decrease  in
amortization of interest rate protection contracts of $336.

The increase in interest  incurred is primarily  attributable  to an increase of
$635,015 in the Company's average debt outstanding during the three months ended
June 30, 1999 compared to the same period in 1998 offset by a slight decrease in
the  weighted  average  interest  rate for the six months  ended  June 30,  1999
compared to the same period in 1998.  The weighted  average  interest rates were
7.19% and 7.25% for the 1999 and 1998 periods, respectively.

Other  charges  increased by $195,  or 14.0%,  to $1,585 during the three months
ended June 30, 1999 as compared  to $1,390 for the three  months  ended June 30,
1998.  This  increase is primarily  due to higher  ground lease rent of $135 and
other miscellaneous charges of $60.

In connection with re-leasing  space to new merchants,  the Company incurred $53
and $245 in capital expenditures during the three months ended June 30, 1999 and
1998, respectively.

<PAGE>
Comparison  of the six months  ended June 30, 1999 to the six months  ended June
30, 1998

Summary

The  Company  reported  net income  (loss) of $14,335 and  $(3,093)  for the six
months ended June 30, 1999 and 1998, respectively.  During the second quarter of
1999,  the  Company  recorded an  extraordinary  loss of $2,106 (net of minority
interest of $534),  relating to the early  extinguishment  of certain  long-term
debt.  For the six months  ended June 30,  1999,  the net income  applicable  to
common  shareholders was $16,089, or $0.37 and $0.04 per common share on a basic
and diluted basis, respectively.  During the second quarter of 1998, the Company
recorded a loss on sale of real estate of $15,461 in connection  with the Merger
Transactions. For the six months ended June 30, 1998, the net loss applicable to
common  shareholders  was  $14,000,  or $0.49  per  common  share on a basic and
diluted basis.

Revenues

Total  revenues were $154,887 for the six months ended June 30, 1999 compared to
$83,007 for the six months  ended June 30,  1998,  an  increase  of $71,880,  or
86.6%.  Base  rents  increased  $46,528,  or 91.0%,  in 1999  compared  to 1998.
Straight-line  rents  (included  in base  rents)  were $430 and $261 for the six
months ended June 30, 1999 and 1998, respectively. These increases are primarily
due to the Portfolio Expansion and the Horizon Merger.

Percentage  rents,  which  represent rents based on a percentage of sales volume
above a specified  threshold,  increased $2,001, or 98.1%, during the six months
ended June 30,  1999  compared  to the same period in 1998.  This  increase  was
attributable  to the  Portfolio  Expansion and the Horizon  Merger.  For the six
months ended June 30,  1999,  same-space  sales in centers  owned by the Company
increased  0.7%  compared  to the same  period  in 1998.  "Same-space  sales" is
defined as the weighted  average sales per square foot reported by merchants for
space open since January 1, 1998. The Company's pro forma  same-space  sales for
the year ended  December  31,  1998 were  $248.44 per square  foot.  For the six
months ended June 30, 1999, same-store sales decreased 0.8% compared to the same
period in 1998.  "Same-store sales" is defined as the weighted average sales per
square foot  reported by  merchants  for stores  opened  since  January 1, 1998.
Tenant reimbursements,  which represent the contractual recovery from tenants of
certain  operating  expenses,  increased  by $21,650,  or 87.8%,  during the six
months ended June 30, 1999 over the same period in 1998.  These  increases  were
primarily due to the Portfolio Expansion and the Horizon Merger.

Interest and other income  increased by $1,701,  or 32.8%,  to $6,892 during the
six months  ended June 30, 1999 as  compared to $5,191 for the six months  ended
June 30, 1998.  The increase is due to increases in (i) temporary  tenant income
of $842, (ii) municipal  assistance  income of $328, (iii) lease commissions and
management fee income of $244, and (iv) other miscellaneous income of $287.

Expenses

Property operating  expenses increased by $16,859,  or 87.4%, to $36,141 for the
six months ended June 30, 1999 compared to $19,282 for the same period  in 1998.
Real estate taxes  increased by $5,073,  or 81.6%, to $11,293 for the six months
ended June 30, 1999 from $6,220 in the same period  for 1998.  The  increases in
property  operating  expenses  and real estate  taxes are  primarily  due to the
Portfolio  Expansion and the Horizon Merger.  As shown in TABLE 4,  depreciation
and amortization expense increased by $19,257, or 108.4%, to $37,015 for the six
months ended June 30, 1999 compared to $17,758  for 1998.  This increase results
from the depreciation  and amortization of assets  associated with the Portfolio
Expansion and the Horizon Merger.

<PAGE>
TABLE 4 - Components of Depreciation and Amortization Expense

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

--------------------------------------------------------------------------------
Six months ended June 30,                            1999                  1998
--------------------------------------------------------------------------------

Building and improvements                         $20,237               $ 9,993
Land improvements                                   2,830                 1,719
Tenant improvements                                12,582                 4,818
Furniture and fixtures                                961                   590
Leasing commissions                                   405                   638
                                                  -------               -------
    Total                                         $37,015               $17,758
                                                  =======               =======
================================================================================

TABLE 5 - Components of Interest Expense

The components of interest expense are summarized as follows:

--------------------------------------------------------------------------------
Six months ended June 30,                             1999                 1998
--------------------------------------------------------------------------------

Interest incurred                                  $44,493              $20,761
Interest capitalized                                (2,218)              (2,777)
Amortization of deferred financing costs             1,390                  648
Amortization of interest rate protection contracts      60                  681
                                                   -------              -------
     Total                                         $43,725              $19,313
                                                   =======              =======
================================================================================

As shown in TABLE 5,  interest  expense  for the six months  ended June 30, 1999
increased  by  $24,412,  or 124.9%, to $43,725  compared to $19,313 for the same
period in 1998.  This increase reflects (i) higher interest incurred of $23,732,
(ii) an increase in amortization of deferred financing costs of $742 and (iii) a
reduction in the amount of interest  capitalized in connection with  development
projects  of  $559.   Partially   offsetting  these  items  was  a  decrease  in
amortization of interest rate protection contracts of $621.

The increase in interest  incurred is primarily  attributable  to an increase of
$668,938 in the Company's  average debt outstanding  during the six months ended
June 30, 1999 compared to the same period in 1998 offset by a slight decrease in
the  weighted  average  interest  rate for the six months  ended  June 30,  1999
compared to the same period in 1998.  The weighted  average  interest rates were
7.18% and 7.22% for the 1999 and 1998 periods, respectively.

Other charges increased by $1,775,  or 74.7%, to $4,151.  This increase reflects
(i)  increased  selling  and  marketing  costs  of  $1,072  associated  with the
Company's  operation of the outlet store known as Designer Connection and (ii) a
higher provision for uncollectible accounts of $719. These increases were offset
by a decrease in miscellaneous charges of $16.

In connection with re-leasing space to new merchants,  the Company incurred $839
and $441 in capital  expenditures  during the six months ended June 30, 1999 and
1998, respectively.

<PAGE>
Liquidity and Capital Resources

Sources and Uses of Cash

For the six  months  ended  June  30,  1999,  net  cash  provided  by  operating
activities  was $50,079  cash used in investing  activities  was $46,852 and net
cash used in financing activities was $7,386.

The primary uses of cash for  investing  activities  during the six months ended
June  30,  1999  included:   (i)  costs  associated  with  the  development  and
construction  of  two  expansions  to  existing  manufacturers'  outlet  centers
aggregating 101,000 square feet of GLA which opened during 1999 (of which 21,000
and 80,000  square feet opened in March and  August,  respectively),  (ii) costs
associated  with the  completion of two new  manufacturers'  outlet  centers and
expansions to existing  manufacturers' outlet centers aggregating 931,000 square
feet of GLA  which  opened  during  1998,  and (iii)  costs for  pre-development
activities associated with future developments.

The primary uses of cash for  financing  activities  during the six months ended
June 30, 1999 were (i) principal  repayments  on notes payable of $85,617,  (ii)
preferred and common stock  distributions  of $38,381,  (iii)  distributions  to
minority interests (including distributions to limited partners of the Operating
Partnership) of $6,486,  and (iv) Series C preferred stock  redemption  costs of
$1,038.  Such uses were  partially  offset by proceeds  from new  borrowings  of
$124,136 during the period.

The  Company  anticipates  that  cash  flow  from  (i)  certain  line of  credit
facilities,  (ii) operations,  (iii) new borrowings, (iv) refinancing of certain
existing  debt,  (v) the potential  sale of a joint venture  interest in certain
manufacturers'  outlet  centers,  and (vi) the potential  sale of equity or debt
securities  in the public or  private  capital  markets  will be  sufficient  to
satisfy  its  debt  service  obligations,  expected  distribution  and  dividend
requirements  and  operating  cash  needs  for the next  year.  There  can be no
assurance  that the Company will be successful in obtaining the required  amount
of funds for these  items or that the terms of capital  raising  activities,  if
any, will be as favorable as the Company has  experienced in prior  periods.  At
June 30, 1999,  unused  commitments  available for borrowings under various loan
facilities were $26,054 in the aggregate.

Debt Repayments and Preferred Stock Dividends

The Company's  aggregate  indebtedness was $1,289,026 and $1,217,507 at June 30,
1999 and December 31, 1998,  respectively.  At June 30, 1999, such  indebtedness
had a weighted  average  maturity  of 5.5 years and bore  interest at a weighted
average  interest  rate of 7.24% per annum.  At June 30,  1999,  $1,013,675,  or
78.6%, of such indebtedness bore interest at fixed rates and $275,351, or 21.4%,
of such  indebtedness,  including  $28,250 of tax-exempt bonds, bore interest at
variable rates.

The Company is obligated to repay $102,714 of indebtedness  during the remainder
of 1999 and $44,789 in 2000.  The 1999 principal  obligations  include a $33,000
unsecured  promissory  note  issued on March  31,  1999 in  connection  with the
Company's  repurchase  of 3,300,000  shares of Series C  Cumulative  Convertible
Redeemable   Preferred  Stock  ("Series  C  Preferred  Stock").  The  annualized
cumulative dividends on the Company's Series A Senior Cumulative Preferred Stock
("Senior  Preferred  Stock"),  Series  B  Cumulative  Participating  Convertible
Preferred Stock ("Series B Convertible Preferred Stock"), and Series C Preferred
Stock  outstanding  as of  June  30,  1999  are  $6,038,  $16,635,  and  $1,255,
respectively. These dividends are paid quarterly, in arrears.

<PAGE>
Repurchase of Shares of Series C Preferred Stock

On March 31,  1999,  the Company  entered into an  agreement  providing  for the
repurchase  of all of its  outstanding  shares of Series C  Preferred  Stock for
$43,636 or $10.00 per share. The agreement  provides for the repurchase to occur
in two stages.  In the first stage,  on March 31, 1999, the Company  repurchased
3,300,000 shares of the Series C Preferred Stock in exchange for the issuance of
a $33,000  unsecured  promissory  note.  The  unsecured  promissory  note  bears
interest at a rate of 12.0% per annum,  matures on September 30, 1999,  requires
monthly  interest-only  payments  and may be prepaid by the  Company at any time
without  penalty.  Second,  the Company is obligated to repurchase the remaining
1,063,636  outstanding  shares of its Series C Preferred  Stock for an aggregate
purchase price of $10,636 on or before September 30, 1999.

Debt and Equity Offerings

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

Property Acquisitions

During 1999,  the Company will explore  acquisitions  of  manufacturers'  outlet
centers in the United  States and Western  Europe as well as  consider  possible
strategic  acquisitions  of other assets in the retail  sector.  The Company has
evaluated and is evaluating such  opportunities  and prospects and will continue
to do so throughout  1999. The Company cannot predict if any transaction will be
consummated, nor the terms or form of consideration required.

On December 31, 1998, the Company entered into an agreement to purchase,  at its
option,  its joint venture  partner's 50% ownership  interest in Arizona Factory
Shops Partnership for total  consideration of approximately  $3,600.  The option
expires on August 31, 1999.  If the Company  exercises  its option,  the Company
will own 100% of Prime Outlets at New River which contains approximately 326,000
square feet and was 88% leased at June 30, 1999.

Debt Transactions

On August 11, 1999, the Company obtained a commitment from certain institutional
investors to provide a $40,000  line of credit (the "Line of Credit").  The Line
of  Credit  (i)  bears  interest  at a rate  of  11.0%,  (ii)  requires  monthly
interest-only  payments, and (iii) matures in nine months. Upon repayment of the
loan,  the initial  investors  will also be  entitled to receive a cash  payment
designed to increase the internal  rate of return to such  investors by 4.0% per
annum (the "Cash  Payment").  The Line of Credit  will be secured by a pledge of
the  outstanding  stock of the subsidiary to be formed by Prime Retail to engage
in the design,  development  and  operation  of a virtual  outlet  center on the
internet.  The Company will provide the  institutional  investors  with warrants
representing   5.0%  of  the  outstanding   capital  stock  of  this  e-commerce
subsidiary,  subject to adjustment  under certain  circumstances.  The investors
must elect to forgo all or a portion of the Cash  Payment or the warrants in the
event  this  subsidiary  completes  an  initial  public  offering  prior  to the
scheduled maturity date of the Line of Credit.  Closing of the Line of Credit is
subject to customary  conditions,  including the  execution of  definitive  loan
documents.
<PAGE>

On April  27,  1999,  the  Company  closed on a $63,000  debt  financing  with a
financial institution that provided  approximately $27,900 of net proceeds.  The
$63,000 note is (i) collateralized by a first

mortgage on Prime Outlets at Niagara  Falls USA, (ii) bears  interest at a fixed
rate of 7.604%,  (iii) requires monthly  principal and interest payments of $450
pursuant to a 30-year  amortization  schedule,  and (iv) matures in 10 years. In
connection with the debt refinancing, the Company incurred an extraordinary loss
on early  extinguishment of debt of $2,106,  net of minority  interests of $534,
representing a pre-payment penalty.

As of June 30,  1999,  the Company is a guarantor or  otherwise  obligated  with
respect  to an  aggregate  of  $35,284  of the  indebtedness  of  Horizon  Group
Properties, Inc. and its affiliates ("HGP"). As of June 30, 1999, the components
of such indebtedness included (i) a mortgage loan with an outstanding balance of
$11,793 which bears interest at a rate of prime, matures on August 31, 1999, and
is  collateralized  by a first mortgage on Phases II and III of property located
in  Patchogue,  New York;  (ii) a mortgage loan with an  outstanding  balance of
$10,637 which bears  interest at a rate of 10.25%,  matures in July 2018, and is
collateralized  by a first mortgage on Phase I of property located in Patchogue,
New York;  (iii) a mortgage  loan with an  outstanding  balance of $2,611  which
bears  interest at a rate of LIBOR plus 2.50%,  matures in December 2002, and is
collateralized  by a first mortgage on a office building in Muskegon,  Michigan;
and (iv) a secured loan with an outstanding balance of $243 which bears interest
at a rate of prime,  matures in December 2000 and is collateralized by furniture
and fixtures. In addition,  the Company is a guarantor of $10,000 of obligations
under HGP's secured credit facility which bears a rate of interest of LIBOR plus
1.90%,  matures in July 2001, and is collateralized by seven properties  located
throughout  the United  States.  The Company is pursuing an  agreement  with HGP
pursuant  to which it would  purchase  HGP's  and its  affiliates'  general  and
limited  partnership  interests  and  a  portion  of  a  third  party's  limited
partnership  interest in the  Bellport  Outlet  Center and  undeveloped  parcels
located in Patchogue, New York. If the agreement is consummated,  it is expected
that  the  aggregate   indebtedness   of  HGP  for  which  the  Company  remains
contingently liable as a guarantor would be reduced to $12,854.

Property Dispositions

On August 6, 1999, the Company entered into a definitive agreement to sell three
factory outlet centers,  including two future expansions, to a new joint venture
between an affiliate of Estein & Associates USA, Ltd. ("Estein") and the Company
(collectively,  the "Venture").  The total purchase price for the three centers,
including the two expansions, is $274,000. The purchase price includes an $8,000
payment  to the  Company  for a  ten-year  covenant-not-to-compete  and a $6,000
payment to the Company for a ten-year  licensing  agreement  with the Venture to
continue the use of the "Prime Outlets" brand name.

The  Venture  expects  to close  on the  three  centers  and two  expansions  in
accordance with the following schedule:
--------------------------------------------------------------------------------

Expected
Closing
  Date     Center                                            GLA
--------------------------------------------------------------------------------
11/18/99   Prime Outlets at Birch Run                      724,000
 2/15/00   Prime Outlets at Williamsburg                   274,000
 4/15/00   Prime Outlets at Hagerstown                     321,000
 4/15/00   Prime Outlets at Hagerstown (Phase III)         162,000
 9/30/00   Prime Outlets at Williamsburg (Phase II)         70,000
                                                         ---------
             TOTAL                                       1,551,000
                                                         =========
================================================================================
<PAGE>

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

The Company  expects to realize an  aggregate of  approximately  $78,000 of cash
proceeds,  net of (i)  all  closing  costs,  (ii)  the  cost of  completing  the
expansions,  and (iii) the Company's  approximate  $10,000 net investment in the
"wrap-around"  first mortgage  being provided on the Birch Run center.  Prior to
the  closing,  the  Company  expects  to receive  an  additional  $10,000 of net
proceeds from the refinancing of the existing Williamsburg center.

The Venture has agreed to retain the Company as its sole and exclusive  managing
and leasing  agent for a property  management  fee equal to 4.0% of gross rental
receipts,  payable monthly,  and leasing  commissions  equal to 4.0% of the base
rent payable under the first term of the lease, payable 50% upon lease execution
and 50% over the term of the lease.  The Venture  also will pay a monthly  asset
management and partnership administration fee to an affiliate of Estein equal to
3.0% of the monthly net operating income from the centers.

<PAGE>

Planned Development

One of the  Company's  business  strategies is to expand its portfolio of outlet
centers by  developing  new centers and  expansions  to  existing  centers.  The
Company  intends to develop new centers and expand its existing  centers only if
the expected returns on such development  would reasonably be expected to exceed
the  Company's  weighted  average  cost of debt and equity  capital.  Management
believes that there is demand for continued  development  of new  manufacturers'
outlet centers and expansions of certain existing manufacturers' outlet centers.
The Company opened a 21,000 square foot expansion at Prime Outlets at Lebanon in
March 1999 and an 80,000 square foot expansion at Prime Outlets at San Marcos on
August 2, 1999. The Home Co., the Company's first home  furnishings  store which
it owns a 47.6% interest  through a joint venture occupies 63,000 square feet of
the  expansion  at San Marcos.  In  addition,  construction  continues  at Prime
Outlets of Puerto  Rico,  the first  outlet  center in Puerto  Rico,  which will
contain  175,000  square feet of GLA and is  scheduled to open at the end of the
first quarter of next year. At June 30, 1999,  the  remaining  budgeted  capital
expenditures  for  these  projects  aggregated   approximately   $21,500,  while
anticipated  capital  expenditures  related to the  completion  of expansions of
existing  manufacturers'  outlet centers opened during 1998 (aggregating 931,000
square feet of GLA) approximated $13,400.

In addition to the projects currently under construction,  the Company continues
to  pre-lease  new  manufacturers'  outlet  centers and  expansions  to existing
centers and expects to start  construction  of 325,000 to 450,000 square feet of
GLA over the next six to nine  months.  However,  management  may elect to delay
construction of certain projects until such time that it is reasonably confident
that certain  minimum returns will be achieved on total  development  cost. Such
projects are expected to have a total development cost of approximately  $41,000
to $57,000. As of June 30, 1999, there were no material  commitments with regard
to the construction of these projects.

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

Legal Proceedings

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

The  Company  is  defendant  in a  lawsuit  filed on July  27,  1998 in the U.S.
District  Court for the Central  District of  California  whereby the  plaintiff
alleges that the Company and its related entities overcharged tenants for common
area maintenance expenditures. The outcome of, and the ultimate liability of the
Company,  if any, from, this lawsuit cannot  currently be predicted.  Management
believes that the Company has acted  properly and intends to defend this lawsuit
vigorously.

<PAGE>
Economic Conditions

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

The  Company  intends to reduce  operating  and leasing  risks by  managing  its
existing  portfolio of  properties  with the goal of  improving  its tenant mix,
rental rates and lease terms and attracting high fashion,  upscale manufacturers
and national brand-name manufacturers as merchants.
Year 2000

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

Information Technology

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

Non-information Technology

Non-information technology consists mainly of facilities management systems such
as  telephone,  utility and security  systems for the  corporate  office and the
outlet  centers.  Based on the  Company's  inquiry of the  building  owner,  the
corporate office's  non-information  technology is Y2K compliant. The Company is
in the process of identifying date sensitive systems and equipment at its outlet
centers.  To date,  the Company has not  identified  any critical  non-compliant
systems.  Assessment and testing of non-information  technology at the Company's
outlet centers is expected to be completed during the third quarter of 1999.

Third Parties

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

<PAGE>
Company has obtained or is in the process of obtaining compliance  certification
from suppliers of key services.

Contingency Plans

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

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

Funds from Operations

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

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

TABLE 6 provides a  reconciliation  of income  before  allocations  to  minority
interests and preferred  shareholders  to FFO for the three and six months ended
June 30, 1999 and 1998. FFO increased $9,039, or 52.4%, to $26,292 for the three
months  ended June 30,  1999 from  $17,253 for the three  months  ended June 30,
1998. FFO increased $21,260,  or 65.0%, to $53,968 for the six months ended June
30, 1999 from $32,708 for the six months ended June 30, 1998.  This increase was
primarily due to the Portfolio Expansion and the Horizon Merger.
<TABLE>
TABLE 6 - Funds from Operations
------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                                    Three months ended               Six months ended
                                                                            June 30                     June 30
                                                                 --------------------------------    --------------------------
                                                                    1999            1998              1999             1998
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                           <C>               <C>                <C>             <C>

Income (loss) before extraordinary loss and
  allocation to minority interests                             $  7,677         $ (8,302)          $16,975         $   (851)
FFO adjustments:
Loss on sale of real estate                                           -           15,461                 -           15,461
Real estate depreciation and amortization                        18,441            9,792            36,564           17,493
Unconsolidated joint venture adjustments                            174              302               429              605
                                                               --------         --------           -------         --------
FFO before allocation to minority interests                    $ 26,292         $ 17,253           $53,968          $32,708
                                                               ========         ========           =======         ========
====================================================================================================================================
</TABLE>
<PAGE>

Item 3.    Quantitative and Qualitative Disclosures About Market Risk


Market Risk Sensitivity

Interest Rate Risk

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

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

Fixed rate:
----------
Principal.....................      $41,253      $43,177     $ 50,770    $89,008       $348,761   $17,049     $423,657   $1,013,675
Average interest rate.........        11.04%        7.08%        7.40%      6.98%          7.76%     7.75%        7.10%        7.50%

Variable rate:
-------------
Principal......................     $61,461      $ 1,612     $152,000    $   427       $    778   $30,823     $ 28,250   $  275,351
Average interest rate..........        6.97%        6.91%        6.42%      6.44%          6.44%     6.44%        3.42%        6.24%

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

<PAGE>

PART II: OTHER INFORMATION

Item 1.           Legal Proceedings

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

The  Company  is  defendant  in a  lawsuit  filed on July  27,  1998 in the U.S.
District  Court for the Central  District of  California  whereby the  plaintiff
alleges that the Company and its related entities overcharged tenants for common
area maintenance expenditures. The outcome of, and the ultimate liability of the
Company,  if any, from, this lawsuit cannot  currently be predicted.  Management
believes that the Company has acted  properly and intends to defend this lawsuit
vigorously.

Item 2.           Changes in Securities

                  None

Item 3.           Defaults Upon Senior Securities

                  None

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

                    At the Company's Annual Shareholders Meeting held on June 3,
                    1999,  certain  matters  were  submitted  to the vote of the
                    Company's security holders.  The following  summarizes these
                    matters and the results of the voting.

(a)  The nominees for director  proposed by the Company were elected.  The votes
     cast for these nominees were as set forth below:

                                            For                  Withheld
                                    --------------------    --------------------

      Abraham Rosenthal                   36,439,397                253,547
      Robert D. Perlmutter                36,439,091                253,853
      James R. Thompson                   36,439,197                253,747
      Marvin S. Traub                     36,438,878                254,066

(b)  The proposal to ratify the  selection of the firm of Ernst & Young,  LLP as
     the Company's  independent  auditors for the year ending  December 31, 1999
     was  approved.  The votes cast with  respect to that  proposal  were as set
     forth below:

                   For                    Against                   Abstain
         ----------------------   ---------------------  -----------------------

               36,509,612                 84,129                     99,203
<PAGE>

(c)  The proposal to ratify the adoption of the Prime Retail,  Inc.  Nonemployee
     Director  Stock  Plan was  approved.  The votes  cast with  respect to such
     proposal were as set forth below:

                  For                    Against                   Abstain
        ----------------------   ----------------------    ---------------------

                34,153,935                2,302,895                  236,112


Item 5.           Other Information

                  None

Item 6.           Exhibits or Reports on Form 8-K

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

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

                           Exhibit 27.1 - Financial  Data Schedule
                           (EDGAR filing only)
(b)  Reports on Form 8-K:

                           None.

<PAGE>

                                                              SIGNATURES



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


                                                  PRIME RETAIL, INC.
                                                  Registrant



Date: August 13, 1999                          /s/ Abraham Rosenthal
      ---------------                          ---------------------
                                               Abraham Rosenthal
                                               Chief Executive Officer



Date: August 13, 1999                          /s/ Robert P. Mulreaney
      ---------------                          -----------------------
                                               Robert P. Mulreaney
                                               Executive Vice President,
                                               Chief Financial Officer
                                               and Treasurer