<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

              [X] Quarterly Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934

                 For the quarterly period ended MARCH 31, 2000

                                       OR

             [ ] Transition Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934

                         COMMISSION FILE NUMBER: 0-24123

                         HORIZON GROUP PROPERTIES, INC.
                         ------------------------------
             (Exact name of Registrant as specified in its Charter)


               MARYLAND                                38-3407933
 ---------------------------------         ------------------------------------
   (State or other jurisdiction            (I.R.S. employer identification no.)
 of incorporation or organization)


77 WEST WACKER DRIVE, SUITE 4200, CHICAGO, IL                  60601
---------------------------------------------                ----------
   (Address of principal executive offices)                  (Zip Code)


                                 (312) 917-8870
                                 --------------
              (Registrant's telephone number, including area code)


                                 NOT APPLICABLE
                                 --------------
              Former name, former address and 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 period 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
                                                         ---      ---

     NUMBER OF COMMON SHARES OUTSTANDING AT MAY 8, 2000         2,851,729
                                                                =========


                                       1
<PAGE>

                         HORIZON GROUP PROPERTIES, INC.
                               Index to Form 10-Q

                                 March 31, 2000

                                                                      PAGE NO.
                                                                      --------
Part I.  Financial Information:

Item 1.  Financial Statements (unaudited)

  Condensed Consolidated Statements of Operations of the
    Company for the Three Months Ended March 31, 2000 and
    March 31, 1999 ..........................................................3

  Condensed Consolidated Balance Sheets of the Company at
    March 31, 2000 and December 31, 1999 ....................................4

  Condensed Consolidated Statements of Cash Flows of the
    Company for the Three Months Ended March 31, 2000 and
    March 31, 1999 ..........................................................5

  Notes to Condensed Consolidated Financial Statements ......................6

Item 2.  Management's Discussion and Analysis of Financial
    Condition and Results of Operations ....................................15

Item 3.  Quantitative and Qualitative Disclosure of Market
    Risk ...................................................................19

Part II.  Other Information:

Item 1.  Legal Proceedings .................................................20
Item 2.  Changes in Securities .............................................20
Item 3.  Defaults Upon Senior Securities ...................................20
Item 4.  Submission of Matters to a Vote of Security Holders ...............20
Item 5.  Other Information .................................................20
Item 6.  Exhibits or Reports on Form 8-K ...................................21

Signatures .................................................................23


                                        2
<PAGE>

                         HORIZON GROUP PROPERTIES, INC.
                 Condensed Consolidated Statements of Operations
                                   (unaudited)

                                        Three months ended   Three months ended
                                          March 31, 2000       March 31, 1999
                                        ------------------   ------------------
                                           (thousands, except per share data)
REVENUE

  Base rent                                   $ 5,058              $ 5,520
  Percentage rent                                  42                   30
  Expense recoveries                            1,302                1,515
  Other                                           373                  439
                                              -------              -------
   Total revenue                                6,775                7,504
                                              -------              -------

EXPENSES

  Property operating                            1,574                1,621
  Real estate taxes                               348                  865
  Land leases and other                           508                  616
  Depreciation and amortization                 1,313                1,199
  General and administrative                    1,049                1,254
  Interest                                      2,412                2,168
                                              -------              -------
   Total expenses                               7,204                7,723
                                              -------              -------

Loss from joint ventures                           --                 (306)
                                              -------              -------

Loss before minority interests                   (429)                (525)

Minority interests                                (56)                 (90)
                                              -------              -------

Net loss                                      $  (373)             $  (435)
                                              =======              =======

PER COMMON SHARE - BASIC AND DILUTED:
  Net loss - basic and diluted                $ (0.13)             $ (0.16)
                                              =======              =======

Weighted average common shares
outstanding
  Basic                                         2,848                2,791
                                              =======              =======
  Diluted                                       3,389                3,389
                                              =======              =======



     SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.


                                       3
<PAGE>

                         HORIZON GROUP PROPERTIES, INC.
                      Condensed Consolidated Balance Sheets
                                   (unaudited)

                                                March 31,        December 31,
                                                  2000               1999
                                                ---------        ------------
                                                        (thousands)


ASSETS
Real estate - at cost:
  Land                                         $  13,105          $  13,094
  Buildings and improvements                     136,082            135,479
  Less accumulated depreciation                   (8,421)            (7,154)
                                                --------           --------
   Total net real estate                         140,766            141,419
                                                --------           --------

Cash and cash equivalents                          3,348              4,955
Restricted cash                                    3,365              3,757
Tenant accounts receivable                         1,488              1,351
Deferred costs (net of accumulated
 amortization of $466 and $372 at March
 31, 2000 and March 31, 1999, respectively)        1,880              1,810
Other assets                                       1,682              1,708
                                                --------           --------
  Total assets                                  $152,529           $155,000
                                                ========           ========

LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:

Mortgages and other debt                        $106,542           $107,128
Accounts payable and accrued expenses              4,107              5,229
Prepaid rents and other tenant liabilities         1,475              1,795
Other liabilities                                    887                901
                                                --------           --------
  Total liabilities                              113,011            115,053

MINORITY INTERESTS                                 6,304              6,419

SHAREHOLDERS' EQUITY:

Common shares ($.01 par value, 50,000 shares
authorized, 2,849 and 2,845 issued and
outstanding at March 31, 2000 and
December 31, 1999, respectively)                      29                 29
Additional paid-in capital                        34,114             34,056
Retained earnings (deficit)                         (929)              (557)
                                                --------           --------
  Total shareholders' equity                      33,214             33,528
                                                --------           --------
   Total liabilities and shareholders' equity   $152,529           $155,000
                                                ========           ========


     SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.


                                       4
<PAGE>

                         HORIZON GROUP PROPERTIES, INC.
                 Condensed Consolidated Statements of Cash Flows
                                   (unaudited)

                                               Three months     Three months
                                                   ended            ended
                                              March 31, 2000    March 31, 1999
                                              --------------    --------------
                                                        (thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                       $   (373)      $   (435)
  Adjustments to reconcile net loss
   to net cash provided by (used in)
   operating activities:
   Loss from joint ventures                             -            306
   Minority interests in net loss                     (56)           (90)
   Depreciation                                     1,269          1,167
   Amortization                                        90             77
  Changes in assets and liabilities:
   Restricted cash                                    392            378
   Tenant accounts receivable                        (137)           416
   Deferred costs and other assets                   (136)          (476)
   Accounts payable and accrued expenses           (1,122)          (980)
   Other liabilities                                  (14)            58
   Prepaid rents and other tenant
     liabilities                                     (320)          (220)
                                                  -------        -------
     NET CASH PROVIDED BY (USED IN)
       OPERATING ACTIVITIES                          (407)           201
                                                  -------        -------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Expenditures for real estate and
    improvements                                     (614)        (1,101)
                                                  -------        -------
     CASH USED IN INVESTING ACTIVITIES               (614)        (1,101)
                                                  -------        -------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Principal payments on mortgages and other
    debt                                             (586)        (1,446)
  Proceeds from borrowings                              -          1,000
                                                  -------        -------
     NET CASH USED IN FINANCING ACTIVITIES           (586)          (446)
                                                  -------        -------

NET DECREASE IN CASH AND CASH EQUIVALENTS          (1,607)        (1,346)

CASH AND CASH EQUIVALENTS:
     BEGINNING OF PERIOD                            4,955          2,686
                                                  -------        -------
     END OF PERIOD                               $  3,348       $  1,340
                                                  =======        =======


     SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.


                                       5
<PAGE>

                         HORIZON GROUP PROPERTIES, INC.
              Notes to Condensed Consolidated Financial Statements
                                   (unaudited)

NOTE 1 - FORMATION OF THE COMPANY

Horizon Group Properties, Inc. (together with its subsidiaries "HGP" or the
"Company") is a self-administered and self-managed Maryland corporation that was
established in connection with the merger of Horizon Group, Inc., a Michigan
corporation ("Horizon") with and into Prime Retail, Inc., a Maryland corporation
("Prime") which was consummated on June 15, 1998 ("the Merger"). HGP's initial
portfolio consisted of 14 factory outlet centers and one power center located in
12 states. Twelve of the factory outlet centers and the power center were
contributed to the Company by Horizon in connection with the consummation of the
Merger pursuant to a Contribution Agreement entered into in connection with the
Merger (the "Contribution Agreement") and two factory outlet centers were
purchased by the Company from Prime immediately subsequent to the consummation
of the Merger.

Also in connection with the Merger and pursuant to the Amended and Restated
Agreement and Plan of Merger dated as of February 1, 1998 by and among Prime,
Horizon, HGP and other parties thereto (the "Merger Agreement"), the shares of
Common Stock of the Company, $.01 par value per share (the "Common Stock"), were
distributed to the holders of Common Stock, Series B Preferred Stock, and Series
C Preferred Stock of Prime and the holders of Common Stock of Horizon in
accordance with the applicable exchange ratio for each such security as set
forth in the Merger Agreement.

The operations of the Company are primarily conducted through a subsidiary
limited partnership, Horizon Group Properties, L.P. ("HGP LP") of which the
Company is the sole general partner. As of March 31, 2000, HGP owned
approximately 84.1% of the partnership interests (the "Common Units") of HGP LP.
In connection with the Merger, the Common Units were distributed to the original
holders (other than Prime) of partnership interests of a limited partnership
affiliate of Prime and a limited partnership affiliate of Horizon, respectively,
in accordance with the exchange ratios set forth in the Merger Agreement. Common
Units are exchangeable for shares of Common Stock on a one-for-one basis at any
time (or for an equivalent cash amount at the Company's election).

Horizon's former administrative office building located in Norton Shores,
Michigan and the following centers were owned by Horizon prior to the Merger and
contributed to the Company pursuant to the Contribution Agreement (collectively,
such assets are referred to as the "Predecessor Properties" for periods prior to
the Merger):

      Bellport Outlet Center in Bellport, New York
      Dry Ridge Outlet Center in Dry Ridge, Kentucky
      Holland Outlet Center in Holland, Michigan
      Horizon Outlet Center-Laughlin in Laughlin, Nevada
      Horizon Outlet Center-Monroe in Monroe, Michigan
      Horizon Outlet Center-Traverse City in Traverse City, Michigan
      Horizon Outlet Center-Tulare in Tulare, California
      Lakeshore Marketplace in Norton Shores, Michigan
      Medford Outlet Center in Medford, Minnesota
      New Mexico Outlet Center in Algodones, New Mexico (vacant)
      Sealy Outlet Center in Sealy, Texas
      The Factory Shops at Georgian Place in Somerset, Pennsylvania
      Warrenton Outlet Center in Warrenton, Missouri

The merger was accounted for under the purchase method of accounting under which
contributed assets acquired and liabilities assumed were recorded at their
relative fair values as of the date of the Merger. The condensed consolidated
financial statements include the accounts of the Company's subsidiary, HGP LP,
and other wholly owned subsidiaries. The Company accounts for its investments in
and advances to two joint ventures using the equity method of accounting. Under
this method of accounting, the net equity investment of the Company is reflected
on the balance sheet and the statements of operations include the Company's
share of the net income or loss from the joint ventures.


                                       6
<PAGE>

                         HORIZON GROUP PROPERTIES, INC.
              Notes to Condensed Consolidated Financial Statements
                                   (unaudited)

Immediately after the Merger, the Company acquired the two properties listed
below for total consideration of $26,015,000. Each property was purchased from
an affiliate of Prime.

      Nebraska Crossing Factory Stores in Gretna, Nebraska
      Indiana Factory Shops in Daleville, Indiana

The following summarizes the assets, liabilities and equity contributed to and
assumed by the Company pursuant to the Contribution Agreement including the
acquisition of the two centers from Prime as of June 15, 1998. The amounts
presented include purchase accounting adjustments made to the original
preliminary estimates during 1999. The net effect of these adjustments was a
$1,362,000 decrease in real estate, a $980,000 increase in other assets and a
$382,000 decrease in other liabilities.

                                                  (IN THOUSANDS)
               Real estate                             $141,158
               Other assets                              21,258
                                                       --------
                                                       $162,416
                                                       ========

               Mortgages and other debt                $115,514
               Other liabilities                          6,337
               Minority interests                         7,763
               Shareholders' equity                      32,802
                                                       --------
                                                       $162,416
                                                       ========

Pursuant to the Contribution Agreement, the Company agreed to assume, undertake
to pay, satisfy and discharge when due in accordance with their terms certain
assumed liabilities (the "Assumed Liabilities"), which are defined to include
all liabilities of Horizon which arise from the ownership and operation of the
Predecessor Properties and include (i) all obligations to indemnify present and
former officers and directors of Horizon under certificates or articles of
incorporation, by-laws, partnership agreements, employment agreements,
indemnification agreements or otherwise, for any matter existing or occurring
after the Merger, (ii) all leases and related contracts, and service contracts,
relating to any Contributed Asset (as defined in the Contribution Agreement) and
(iii) certain other specified obligations.

Also pursuant to the Contribution Agreement, certain partnership interests in
three joint ventures, MG Patchogue Limited Partnership and MG Patchogue II
Limited Partnership, which own the Bellport Outlet Center, and MG Long Island
Limited Partnership, which owned vacant land, were transferred from an affiliate
of Horizon to HGP LP and an affiliate of HGP LP. These partnership interests
were subsequently transferred by the Company back to Prime on September 1, 1999
(see Note 7).

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

INTERIM PERIOD FINANCIAL PRESENTATION

The condensed consolidated financial statements include the accounts of the
Company's subsidiary, HGP LP, and other wholly owned subsidiaries.

The accompanying unaudited condensed consolidated financial statements are
prepared in accordance with generally accepted accounting principles for interim
financial information and with 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 generally accepted accounting principles for complete
financial statements, and, therefore, should be read in conjunction with the
Company's Annual Report on Form 10-K for the year ended December 31, 1999.


                                       7
<PAGE>

                         HORIZON GROUP PROPERTIES, INC.
              Notes to Condensed Consolidated Financial Statements
                                   (unaudited)

The financial statements have been prepared in conformity with generally
accepted accounting principles which require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
(including disclosure of contingent assets and liabilities) at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.

In the opinion of management, all adjustments necessary for a fair statement of
the financial position and results of operations for the interim periods
presented have been included in these financial statements and are of a normal
and recurring nature. Certain amounts in prior periods have been reclassified to
conform to the current presentation.

Operating results for the three months ended March 31, 2000 are not necessarily
indicative of the results that may be achieved in future periods.

REAL ESTATE AND DEPRECIATION

For periods subsequent to the Merger, the Predecessor Properties are stated on
the books of the Company at fair value as of June 15, 1998, the date the
Predecessor Properties were contributed to the Company, less accumulated
depreciation. The two centers purchased from an affiliate of Prime are stated at
their purchase prices, less accumulated depreciation. Costs incurred for the
acquisition, development, construction and improvement of properties, as well as
significant renovations and betterments to the properties, are capitalized.
Maintenance and repairs are charged to expense as incurred. Interest costs
incurred with respect to qualified expenditures relating to the construction of
assets are capitalized during the construction period.

Amounts included under buildings and improvements on the condensed consolidated
balance sheets include the following types of assets and are depreciated on the
straight-line method over estimated useful lives which are:

       Buildings and improvements           31.5 years
       Tenant improvements                  10 years or lease term, if less
       Furniture, fixtures or equipment     3 - 7 years

Periodically, in the course of reviewing the performance of its properties,
management may determine that certain properties no longer meet the parameters
set forth for its properties and accordingly, such properties will be classified
as held for sale. As of March 31, 2000 and December 31, 1999, no properties were
classified as held for sale.

CASH EQUIVALENTS

The Company considers all liquid investments with a maturity of three months or
less when purchased to be cash equivalents.

RESTRICTED CASH

Restricted cash consists of amounts deposited in accounts with the Company's
primary lenders (see Note 6) and includes $1.1 million in capital improvement
and tenant allowance reserves, $1.2 million in real estate tax, insurance and
ground lease escrows, and $1.1 million for debt service and operating expenses
at March 31, 2000.

INVESTMENTS IN AND ADVANCES TO JOINT VENTURES

Prior to September 1, 1999, the Company owned a 50% partnership interest in MG
Patchogue Limited Partnership and a 45% partnership interest in and interest
bearing construction advances to MG Patchogue II Limited Partnership, which
partnerships own the Bellport Outlet Center. The Company also owned a 95%
interest in MG Long Island Limited Partnership which owned 14 acres of raw land.
Such interests were recorded at fair value upon formation of the Company based
on the estimated fair value of the Company's interests in the underlying real
estate and related advances. The Company accounted for such investments (in
consideration of its priority return position) under the equity method of


                                       8
<PAGE>

                         HORIZON GROUP PROPERTIES, INC.
              Notes to Condensed Consolidated Financial Statements
                                   (unaudited)

accounting reflecting the Company's attributable share of income and loss in the
statements of operations. On September 1, 1999, the Company transferred its
interests in these partnerships to Prime (see Note 7).

DEFERRED COSTS

Leasing and deferred financing costs are capitalized at cost. Amortization of
deferred leasing costs is recorded on the straight-line method over the life of
the lease. Amortization of deferred financing costs is recorded using a method
that approximates the effective interest method over the life of the related
debt and is included as a component of interest expense.

INCOME TAXES

The Company has elected to be taxed as a REIT under Sections 856 through 860 of
the Internal Revenue Code of 1986, as amended (the "Code"). A REIT is a legal
entity that holds real estate interests, and, through payments of dividends to
shareholders, receives a deduction for such dividends for federal income tax
purposes. As a REIT, HGP intends to distribute its REIT taxable income to its
shareholders and satisfy certain other requirements as defined in the Code so as
to reduce or eliminate federal income tax liability. Based on its taxable loss
generated since the Merger, the Company is not obligated to make any dividend
distributions to qualify as a REIT.

MINORITY INTERESTS

Minority interests represent the interests of unitholders of HGP LP, other than
the Company. The unitholder minority interest is adjusted at the end of each
period to reflect the ownership at that time. The unitholder minority interest
in HGP was approximately 15.9% at March 31, 2000. During the three months ended
March 31, 2000, 3,723 units were converted into shares of common stock.

REVENUE RECOGNITION

Leases with tenants are accounted for as operating leases. Minimum annual
rentals are generally recognized on a straight-line basis over the terms of the
respective leases. As a result of recording rental revenue on a straight-line
basis, tenant accounts receivable include $523,000 and $437,000 of accrued
straight line rents at March 31, 2000 and December 31, 1999, respectively, which
are expected to be collected over the remaining lives of the leases. Rents which
represent basic occupancy costs, including fixed amounts and amounts computed as
a function of sales, are classified as base rent. Amounts which may become
payable in addition to base rent and which are computed as a function of sales
in excess of certain thresholds are classified as percentage rents. Percentage
rents are accrued on the basis of reported tenant sales only after the sales
exceed the thresholds above which such rent is due. Expense recoveries based on
common area maintenance expenses and certain other expenses are accrued in the
period in which the related expense is incurred.

OTHER REVENUE

Other revenue consists primarily of interest income, income related to marketing
services that is recovered from tenants pursuant to lease agreements and income
from tenants with lease terms of less than one year.

SHARE OPTIONS

The Company has elected to follow Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees" ("APB 25"), in accounting for its
options on common shares. Under APB 25, no compensation expense is recognized
because the exercise price of the Company's employee share options equals or
exceeds the market price of the underlying shares at the date of grant.


                                       9
<PAGE>

                         HORIZON GROUP PROPERTIES, INC.
              Notes to Condensed Consolidated Financial Statements
                                   (unaudited)

NOTE 3 - SUMMARIZED FINANCIAL INFORMATION

Historical condensed combined financial information of the joint ventures which
owned the Bellport Outlet Center in Bellport, New York, in which the Company
held interests prior to September 1, 1999 (see Note 7), is summarized as
follows:

                                        Three months ended
                                          March 31, 1999
                                        ------------------
                                          (IN THOUSANDS)
         Total revenue                       $  960

         Net loss                              (580)

         Total assets                        30,892

         Total liabilities                   32,758


NOTE 4 - EARNINGS PER SHARE

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

                                           Three months     Three months
                                               ended           ended
                                          March 31, 2000   March 31, 1999
                                          --------------   --------------

NUMERATOR:
Net loss - basic                          $    (373)        $    (435)
Minority interests of unitholders               (56)              (90)
                                          ---------         ---------
Net loss - diluted                        $    (429)        $    (525)
                                          =========         =========

DENOMINATOR:
Weighted average shares outstanding -
  basic                                       2,848             2,791
Effect of converting units to shares            541               598
                                          ---------         ---------
Weighted average shares outstanding -
  diluted                                     3,389             3,389
                                          =========         =========
Net loss per share - basic and diluted    $   (0.13)           $(0.16)
                                          =========         =========

Outstanding stock options and the potential conversion of units to shares were
excluded in computing diluted earnings per share because the effect of such
items was anti-dilutive for the periods presented.

NOTE 5 - LONG TERM STOCK INCENTIVE PLAN

The Company has adopted the HGP 1998 Long Term Stock Incentive Plan (the "HGP
Stock Plan") to advance the interests of the Company by encouraging and enabling
the acquisition of a financial interest in the Company by key employees and
directors of the Company and its subsidiaries through equity awards. The Company
reserved 338,900 common shares for issuance pursuant to the HGP Stock Plan.


                                       10
<PAGE>

                         HORIZON GROUP PROPERTIES, INC.
              Notes to Condensed Consolidated Financial Statements
                                   (unaudited)

NOTE 6 - MORTGAGE DEBT AND OTHER LIABILITIES

On June 15, 1998, certain wholly owned affiliates of the Company entered into a
credit facility (the "HGP Credit Facility") with Nomura Asset Capital
Corporation, succeeded by Capital Corporation of America, ("Nomura") providing
for initial borrowings of $108.2 million. The outstanding balance equaled $56.7
million and $57.1 million as of March 31, 2000 and December 31, 1999,
respectively. On July 9, 1999, the Company refinanced six of the centers
originally securing the HGP Credit Facility and repaid $46.8 million of
principal related to those centers. The HGP Credit Facility is guaranteed by HGP
and HGP LP. The HGP Credit Facility matures in July 2001 and bears interest at
the 30-day LIBOR Rate (as defined in the HGP Credit Facility) plus 1.90% per
annum. The effective rate was 7.89% and 8.36% as of March 31, 2000 and December
31, 1999, respectively. The HGP Credit Facility is cross-collateralized by
mortgages on six of the Company's operating outlet centers and one power center
at March 31, 2000. The HGP Credit Facility requires monthly payments of
interest. In addition, the HGP Credit Facility requires principal payments
totaling $1.5 million, $1.5 million and $2.0 million during the first, second
and third years, respectively, payable in equal monthly installments. The HGP
Credit Facility contains restrictions on the ability of HGP and HGP LP to incur
additional indebtedness and, under certain circumstances, requires the Company
to enter into an interest rate lock arrangement which would fix the interest
rate on the full outstanding amount of the HGP Credit Facility. In connection
with the HGP Credit Facility, the Company established certain escrow accounts
and cash collection accounts for the benefit of Nomura which are classified on
the balance sheet of the Company as restricted cash (see Note 2).

The HGP Credit Facility contains a contingent repayment penalty equal to 1% of
amounts repaid during the first loan year and 2% of amounts repaid thereafter
through the stated maturity date. Such penalty is not payable in the event the
Company refinances the HGP Credit Facility with Nomura. The Company sought
long-term financing from Nomura, but was unable to secure such financing.
Accordingly, the Company incurred a 1% penalty in connection with the prepayment
of $46.8 million, as described above. This penalty was an amount negotiated with
Nomura and was recognized as a component of the extraordinary charge on
prepayment of debt in 1999. Although the Company currently intends to seek
long-term financing from Nomura for the remainder of the HGP Credit Facility on
or before its maturity, there can be no assurance that Nomura will provide such
financing. The Company is recognizing estimated potential repayment fees related
to the remaining amounts due under the HGP Credit Facility as an expense over
the remaining term of the HGP Credit Facility beginning July 1, 1999.

On July 9, 1999 the Company completed a $46.7 million debt financing with Morgan
Guaranty Trust Company of New York ("the JP Morgan Loans"). The JP Morgan Loans
consist of (i) nonrecourse loans totaling $22.9 million secured by three factory
outlet centers located in Daleville, Indiana, Somerset, Pennsylvania and Tulare,
California and (ii) nonrecourse loans totaling $23.8 million secured by three
factory outlet centers located in Gretna, Nebraska, Sealy, Texas and Traverse
City, Michigan. The outstanding balance of both loans totaled $46.3 million at
March 31, 2000 and $46.4 million at December 31, 1999. The loans bear interest
at a fixed rate of 8.46%, mature on August 1, 2009 and require the monthly
payment of interest and principal based on a 25-year amortization schedule. The
proceeds from the loans, together with Company funds, were used to repay $46.8
million of indebtedness under the HGP Credit Facility, as described above. The
Company has established certain escrow accounts in connection with this loan
which are classified on the balance sheet of the Company as restricted cash (see
Note 2).

The Company has loans secured by a mortgage on the office building and related
equipment which the Company utilizes as a corporate office in Norton Shores,
Michigan. The principal balance on these loans was $2.6 million on March 31,
2000 and $2.7 million on December 31, 1999. The corporate office loan matures in
December 2002, bears an interest rate of LIBOR plus 2.50% per annum, and
requires monthly debt service payments of $22,500. The effective rate was 8.4%
and 8.5% at March 31, 2000 and December 31, 1999, respectively. The corporate
office equipment and fixture loan matures in December 2000, bears interest at
the lender's prime rate, and requires monthly debt service payments of $13,000.
The effective rate was 8.8% and 8.5% at March 31, 2000 and December 31, 1999,
respectively. The consent of the lender was required in connection with the
transfer of the property to the Company in the merger. The Company is currently
seeking such consent, but as of May 15, 2000 such consent had not been obtained.
The Company can give no assurances that it will be able to obtain the above
mentioned consent. Any such


                                       11
<PAGE>

                         HORIZON GROUP PROPERTIES, INC.
              Notes to Condensed Consolidated Financial Statements
                                   (unaudited)

failure to obtain such consent could have a material adverse effect upon the
Company. The consolidated financial statements of the Company do not include any
adjustments that may result from the ultimate outcome of this uncertainty.

The Company acquired approximately 95 acres of undeveloped land in Muskegon,
Michigan as part of the consideration from the sale of its interests in the
Bellport Outlet Center (see Note 7). Portions of this land are subject to land
contracts with a total balance of $771,000 as of March 31, 2000 and $776,000 at
December 31, 1999. The interest rates vary from 6.9% to 10.0%. Monthly debt
service payments total $6,000 through May 2000 and $1,000 from that time through
June 2001 with balloon payments due on these two dates of $646,000 and $125,000,
respectively.

In connection with the Merger, Prime became potentially liable for, or agreed to
guarantee certain indebtedness of the Company. As of March 31, 2000, the
components of such indebtedness included (1) the loans collateralized by the
Company's corporate office building and equipment in Norton Shores, Michigan
(with a principal balance of $2.6 million on March 31, 2000 and $2.7 million on
December 31, 1999), and (2) $10.0 million of the Company's obligations under its
credit facility with Nomura. The terms of the Working Capital Agreement require
the Company to repay any outstanding balance on the Prime Loan or other related
indebtedness on which Prime is contingently liable to the extent of net sale
proceeds or from an equity offering. The Company intends to use the net proceeds
from the sale of the outlet center in Algodones, New Mexico to pay down the
Nomura loan on or before its maturity pursuant to the terms of the Prime
Guarantee Agreement. The Company has indemnified Prime for any amounts advanced
under the guarantees. There is a $400,000 annual fee due to Prime under the
guarantees which has been prepaid through June 2000.

NOTE 7 - RELATED PARTY TRANSACTIONS

The Company utilizes Thilman & Filippini as its agent for insurance and risk
management programs. E. Thomas Thilman is a Director of the Company and a
partner in Thilman & Filippini. During the three months ended March 31, 2000 and
1999, the Company paid premiums totaling approximately $167,000 and $143,000,
respectively, on insurance policies placed by Thilman & Filippini.

The  Company  sub-leases  office  space on a month to month basis for its senior
executives at 77 W. Wacker,  Chicago,  Illinois  from The Prime Group,  Inc. The
Prime  Group,  Inc. is an  affiliate  of Michael W.  Reschke,  a Director of the
Company.  During the three  months  ended March 31,  2000 and 1999,  the Company
incurred rent expense of $31,000 and $30,000, respectively.

Prior to the Merger, Horizon entered into an agreement (the "PVH Agreement")
with Phillips Van Heusen, Inc. ("PVH") which modified certain provisions of PVH
leases for the benefit of Horizon in exchange for certain payments. Prime is
liable for future payments related to the PVH Agreement, but the Company was
obligated to pay $2,334,000 to Prime for payments related to the PVH Agreement.
This amount was paid in connection with the sale of the Company's interests in
the Bellport Outlet Center and the settlement of the Working Capital Agreement
discussed below.

In connection with the Merger, the Company entered into a Working Capital
Agreement with Prime (the "Working Capital Agreement"). The Working Capital
Agreement provides that Prime will transfer to the Company sufficient cash to
result in net working capital of $545,000, after consideration of the current
assets and current liabilities of the Predecessor Properties and the two
centers which the Company purchased from Prime as of the date of the Merger.
At the date of the merger, Prime transferred $3.0 million to the Company as a
partial payment of amounts due under the Working Capital Agreement. On
September 1, 1999, the Company reached an agreement with Prime to settle
amounts due under the Working Capital Agreement in connection with the
transfer of its interests in the joint ventures related to the outlet center
in Bellport, New York (see Note 1). The consideration for the transfer of the
Bellport interests was $7.5 million and approximately 95 acres of land in
Muskegon, Michigan subject to $800,000 of land contract payments. No gain or
loss was recognized in conjunction with the settlement of the Working Capital
Agreement.

                                       12
<PAGE>

                         HORIZON GROUP PROPERTIES, INC.
              Notes to Condensed Consolidated Financial Statements
                                   (unaudited)

The proceeds from the settlement of the Working Capital Agreement and the
transfer of the Bellport interests were used to repay $9.3 million of current
and future obligations owed by the Company to Prime. These obligations included
(i) $2.2 million which the Company had borrowed from Prime to make principal
repayments on the Nomura facility, (ii) $4.0 million which the Company had
borrowed from Prime to repay a credit facility assumed in the Merger, (iii) $2.3
million related to the PVH Agreement, and (iv) $800,000 related to the guarantee
fee associated with Prime's guarantee of certain of the Company's debt
obligations (see Note 6). The Company also received $230,000 in cash.

The Company made a $1.5 million loan to Prime Outdoor, LLC, an affiliate of
Prime Group, Inc. on April 18, 2000. The Prime Group, Inc. is an affiliate of
Michael W. Reschke, a Director of the Company. The loan matures on June 17,
2000. The loan bears interest at 10% and is secured by a pledge of all of the
unencumbered assets of Prime Outdoor, LLC, Prime Group Inc.'s ownership interest
in Prime Outdoor, LLC and 410,783 units in Horizon Group Properties, LP owned by
Prime Group, Inc. and its affiliates. The loan was approved by a committee of
independent directors of the Company.

NOTE 8 - SEGMENT INFORMATION

The Company operates thirteen shopping centers located in ten states. The
Company separately evaluates the performance of each of its centers. However,
because each of the centers has similar economic characteristics, facilities
and/or tenants, the shopping centers have been aggregated into a single dominant
shopping center segment. The Company evaluates performance and allocates
resources primarily based on the Funds From Operations ("FFO") expected to be
generated by an investment in each individual shopping center. FFO is a widely
used measure of the operating performance of REITs, which provides a relevant
basis for comparison to other REITs. FFO, as defined by the National Association
of Real Estate Investment Trusts, means net income excluding extraordinary items
(as defined by generally accepted accounting principles ("GAAP")) and gains and
losses from sales of depreciable operating property, plus depreciation and
amortization, and after adjustments for unconsolidated partnerships and joint
ventures. This definition, approved by NAREIT in October 1999, clarified the
treatment of non-recurring items that were not considered "extraordinary" under
GAAP. NAREIT adopted this new definition effective January 1, 2000 and required
that prior periods be restated accordingly. FFO should not be considered as an
alternative to net income computed under generally accepted accounting
principles. A reconciliation of income (loss) before minority interests to
diluted FFO is as follows:

                                                  Three             Three
                                               months ended      Months ended
                                              March 31, 2000    March 31, 1999
                                              --------------    --------------

            Loss before minority interests       $ (429)           $ (525)
              FFO adjusted depreciation and
                amortization (1)                  1,267             1,511
                                                 ------            ------

            FFO                                  $  838            $  986
                                                 ======            ======
            FFO per share                        $ 0.25            $ 0.29
                                                 ======            ======

   NOTE:

     (1)  Includes depreciation of the operating real estate and allocated
          amounts relating to joint venture investments accounted for under the
          equity method.

NOTE 9 - OTHER MATTERS

On September 27, 1999, the Company hired Secured Capital Corp as financial
advisor to assist the Company in studying strategic alternatives to enhance
shareholder value including, but not limited to, the sale or other disposition


                                       13
<PAGE>

                         HORIZON GROUP PROPERTIES, INC.
              Notes to Condensed Consolidated Financial Statements
                                   (unaudited)

of some or all of its real estate portfolio. Concurrently, the Company is
assessing alternative business opportunities. There can be no assurance that a
transaction will result involving the Company.

On March 24, 2000, the Company signed a contract with Triple Net, LLC ("Triple
Net") for the sale of seven of the Company's shopping centers. The contract
provides for Triple Net to complete their due diligence on or about April 24,
2000, and to close on the transaction on or about June 7, 2000. The sale price
for the seven centers is $93.5 million, payable in cash at closing. The centers
are subject to debt with a principal balance of $56.7 million at March 31, 2000,
which the Company will repay at closing. During the due diligence period, Triple
Net may terminate the contract for any reason. After the due diligence period, a
penalty of $1.0 million is payable upon termination of the contract by Triple
Net prior to May 24, 2000 (the penalty increases to $1.5 million for the period
from May 24, 2000 to June 7, 2000), with the exception of the occurrence of
limited events. The centers subject to the contract are located in Dry Ridge,
KY; Holland, MI; Laughlin, NV; Medford, MN; Monroe, MI; Norton Shores, MI; and
Warrenton, MO. On April 26, the Company extended by three weeks the time periods
on this contract to provide for Triple Net to complete its due diligence on the
properties by May 16, 2000 and close on the transaction by June 30, 2000. There
can be no assurance at this time that the contract will be consummated.


                                       14
<PAGE>

                         HORIZON GROUP PROPERTIES, INC.
          Management's Discussion and Analysis of Financial Condition
                           and Results of Operations
                   For the three months ended March 31, 2000
                                   (unaudited)

INTRODUCTION

The following discussion and analysis of the condensed consolidated financial
condition and results of operations of Horizon Group Properties, Inc. (together
with its subsidiaries "HGP" or the "Company") should be read in conjunction with
the Condensed Consolidated Financial Statements and Notes thereto. The Company's
operations are conducted primarily through a subsidiary limited partnership,
Horizon Group Properties, L.P. ("HGP LP"). The Company is the sole general
partner of HGP LP and, as of March 31, 2000, owned approximately 84.1% of the
HGP LP partnership interests ("Common Units"). Common Units of HGP LP are
exchangeable for shares of Common Stock on a one-for-one basis at any time (or
for an equivalent cash amount at the Company's election). The Company controls
HGP LP and is dependent on distributions or other payments from HGP LP to meet
its financial obligations.

CAUTIONARY STATEMENTS

The following discussion in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contains certain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 which
reflect management's current views with respect to future events and financial
performance. Such forward-looking statements are subject to certain risks and
uncertainties; including, but not limited to, the effects of future events on
the Company's financial performance; the risk that the Company may be unable to
finance its planned acquisition and development activities; risks related to the
retail industry in which the Company's 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; and risks associated with
real estate ownership, such as the potential adverse impact of changes in local
economic climate on the revenues and the value of the Company's properties. For
further information on factors which could impact the Company and the statements
contained herein, reference is made to the Company's other filings with the
Securities and Exchange Commission, including the Company's Registration
Statement on Form 10, as amended, dated as of June 4, 1998, with respect to the
Company's initial registration of its common stock under the Securities Exchange
Act of 1934, as amended and the Sky Merger Corp. Registration Statement on Form
S-4, as filed with the Securities and Exchange Commission on May 12, 1998
(Registration No. 333-51285).

GENERAL OVERVIEW

The Company is a self-administered and self-managed corporation that was
established in connection with the merger of Horizon Group, Inc., a Michigan
corporation ("Horizon") with and into Prime Retail, Inc., a Maryland corporation
("Prime") which was consummated on June 15, 1998 ("the Merger"). As of March 31,
2000, HGP's portfolio consisted of 12 factory outlet centers and one power
center located in 10 states comprising an aggregate of approximately 2.7 million
square feet of gross leasable area ("GLA"). Ten of the factory outlet centers
and the power center were contributed to the Company in connection with the
consummation of the Merger by Horizon pursuant to a Contribution Agreement
entered into in connection with the Merger (the "Contribution Agreement") and
two factory outlet centers were purchased by the Company from Prime immediately
subsequent to the consummation of the Merger.

COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2000 TO THE THREE MONTHS ENDED
MARCH 31, 1999

The net loss before minority interests was $429,000 for the three months ended
March 31, 2000 compared to net loss before minority interests of $525,000 for
the three months ended March 31, 1999. The main components of this change were
decreases in real estate tax and general and administrative expense, partially
offset by lower rents and increased interest expense.


                                       15
<PAGE>

                         HORIZON GROUP PROPERTIES, INC.
          Management's Discussion and Analysis of Financial Condition
                           and Results of Operations
                   For the three months ended March 31, 2000
                                   (unaudited)

Total revenues decreased $729,000 in the three months ended March 31, 2000
compared to the same period in the prior year primarily as a result of a
decrease in base rents, including rents computed as a function of sales.

Real estate tax expense decreased $517,000 in the three months ended March 31,
2000 compared to the same period in the prior year mainly due to a refund of a
portion of the 1997 through 1999 taxes at the outlet center in Monroe, Michigan,
and a decrease in the tax assessments on this and several other properties.

General and administrative expenses decreased $205,000 in the three months ended
March 31, 2000 compared to the same period in the prior year mainly as a result
of unsuccessful merger costs of $305,000 reported in the three months ended
March 31, 1999. There were no similar costs recorded in the three months ended
March 31, 2000. This decrease was partially offset by 1999 state income tax
expense adjustments recorded in the three months ended March 31, 2000.

Interest expense increased $244,000 in the three months ended March 31, 2000
compared to the same period in the prior year. The primary factors causing the
increase were an increase in interest rates which affected the Company's
floating rate debt and the refinancing of a portion of the Nomura debt with the
proceeds from the JP Morgan loans in July 1999, which carry a fixed rate, but
which rate was greater than the effective rate on the Nomura loan for the same
period in the prior year. Offsetting the increase in interest rates was a net
reduction in debt outstanding of $7.8 million from March 31, 1999 to March 31,
2000.

The effective interest rate on the Nomura facility for the three months ended
March 31, 1999 was 6.94% compared to 7.85% for the three months ended March 31,
2000. The balance of the Nomura facility was $105.0 million as of March 31, 1999
and $56.7 million as of March 31, 2000. The reduction in the principal balance
resulted from the paydown of $46.8 million in connection with the JP Morgan
financing and monthly principal payments totaling $1.5 million made during the
period. The total principal balance of the JP Morgan loans was $46.3 million as
of March 31, 2000 with interest at a fixed rate of 8.46%. During the period, the
Company also repaid $3.2 million of loans to Prime Retail and $3.0 million to
Huntington Bank which were outstanding at March 31, 1999. The effective interest
rates on these loans were 10.0% and 7.75%, respectively, as of March 31, 1999.
In September 1999, the Company assumed loans totaling $771,000 as of March 31,
2000 in connection with land located in Muskegon, Michigan. The average interest
rate on these loans was approximately 7.2% for the three months ended March 31,
2000.

The Company accounted for its investments in the joint ventures, which own the
Bellport Outlet Center, utilizing the equity method. On September 1, 1999, the
Company transferred its investments in the Bellport joint ventures to an
affiliate of Prime.

Average occupancy for the Company's total portfolio of properties for the three
months ended March 31, 2000 was 83.4% compared to 79.5% for the three months
ended March 31, 1999. Occupancy of the Company's total portfolio at March 31,
2000 and 1999, was 83.2% and 79.2%, respectively.

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2000, the aggregate amount of outstanding mortgages and other
debt was approximately $106.5 million. The Company is contemplating the
expansion of its Tulare Outlet Center and has completed approximately 36,000
square feet of partially finished space at its center in Medford, Minnesota. The
Company is obligated to make capital improvements and repairs to certain of its
outlet centers pursuant to the terms of the HGP Credit Facility with Nomura and
the JP Morgan loans (each as hereinafter defined). At March 31, 2000 there was
approximately $1.1 million deposited in escrows with Nomura and JP Morgan which
the Company believes is sufficient to complete the work required under the HGP
Credit Facility and JP Morgan loans. The Company expects to fund other capital
improvements with additional borrowings, existing cash balances or cash flow
from operations.


                                       16
<PAGE>

                         HORIZON GROUP PROPERTIES, INC.
          Management's Discussion and Analysis of Financial Condition
                           and Results of Operations
                   For the three months ended March 31, 2000
                                   (unaudited)

The Company is required to make monthly deposits with Nomura and JP Morgan for
future debt service payments, real estate taxes, insurance, operating expenses
and capital expenditures. These deposits totaled $3.4 million as of March 31,
2000, including the capital improvement escrows described above. Funds are
dispersed to or on behalf of the Company for the above mentioned uses. Funds in
excess of those specified in the loan agreement with Nomura are dispersed to the
Company monthly.

The Company expects to meet its short-term liquidity requirements generally
through working capital and cash flows from operations. The Company expects to
meet its long-term requirements, such as tenant allowances for new leases and
capital improvements, through the use of working capital and cash flows from
operations and, if necessary and available, the additional borrowing of
long-term debt and the potential offering of equity securities in the private or
public capital markets. As a result of the Company's leverage, the Company's
ability to obtain additional financing sources is limited. The Company is
currently seeking to mitigate its interest rate risk through refinancing the HGP
Credit Facility with fixed-rate, longer-term debt. There can be no assurance
that the Company will be able to complete such refinancing or on what terms such
refinancing may be accomplished.

On June 15, 1998, certain wholly owned affiliates of the Company entered into a
credit facility (the "HGP Credit Facility") with Nomura Asset Capital
Corporation ("Nomura"). The facility had an initial balance of $108.2 million
and has a balance of $56.7 million at March 31, 2000. The HGP Credit Facility is
guaranteed by HGP and HGP LP. The HGP Credit Facility expires July 11, 2001 and
bears interest at the 30-day LIBOR Rate (as defined in the HGP Credit Facility)
plus 1.90% per annum. The HGP Credit Facility is cross-collateralized by
mortgages on six of the Company's 12 outlet centers and one power center and
requires monthly payments of interest. In addition, the HGP Credit Facility
requires principal payments totaling $1.5 million, $1.5 million and $2.0 million
during the first, second and third years, respectively, payable in equal monthly
installments. The HGP Credit Facility contains restrictions on the ability of
HGP and HGP LP to incur additional indebtedness, and under certain
circumstances, requires the Company to enter into an interest rate lock
arrangement which would fix the interest rate on the full outstanding amount of
the HGP Credit Facility.

On July 9, 1999 the Company completed a $46.7 million debt financing with Morgan
Guaranty Trust Company of New York ("the JP Morgan Loans"). The proceeds from
the loans, together with Company funds, were used to repay $46.8 million of
indebtedness under the HGP Credit Facility. The JP Morgan Loans consist of (i)
nonrecourse loans totaling $22.9 million secured by three factory outlet centers
located in Daleville, Indiana, Somerset, Pennsylvania and Tulare, California and
(ii) nonrecourse loans totaling $23.8 million secured by three factory outlet
centers located in Gretna, Nebraska, Sealy, Texas and Traverse City, Michigan.
The outstanding balance was $46.3 million at March 31, 2000. The loans bear
interest at a fixed rate of 8.46%, mature on August 1, 2009 and require the
monthly payment of interest and principal based on a 25-year amortization
schedule. The JP Morgan Loans also require the monthly funding of escrow
accounts for the payment of real estate taxes, insurance and capital
improvements. Such escrow accounts currently total $1.3 million for the JP
Morgan Loans.

Prime has guaranteed approximately $10.0 million of obligations under the HGP
Credit Facility, together with other indebtedness (the "Prime Guarantee"). The
terms of the Working Capital Agreement require the Company to repay any
outstanding balance on indebtedness on which Prime is contingently liable to the
extent of net sale proceeds or from an equity offering. The Company intends to
use the net proceeds from the sale of the outlet center in Algodones, New
Mexico, to pay down the Nomura loan on or before its maturity pursuant to the
terms of the Prime Guarantee Agreement. In connection with the Prime Guarantee,
HGP has agreed to pay Prime a fee of $400,000 per annum until Prime is released
from its guarantee obligations related to the HGP Credit Facility. The Company
has paid this fee through June 2000.

The Company has loans secured by a mortgage on the office building and related
equipment which the Company utilizes as a corporate office in Norton Shores,
Michigan. The principal balance on these loans was $2.6 million on March 31,
2000 and $2.7 million on December 31, 1999. This building was previously owned
by an affiliate of Horizon and was contributed to the Company pursuant to the
Contribution Agreement. The consent of the lender to


                                       17
<PAGE>

                         HORIZON GROUP PROPERTIES, INC.
          Management's Discussion and Analysis of Financial Condition
                           and Results of Operations
                   For the three months ended March 31, 2000
                                   (unaudited)

the previous owner of the property was required in connection with the transfer
of the property to the Company. The Company is currently seeking such consent
but, as of May 15, 2000 such consent had not been obtained. The consolidated
financial statements of the Company do not include any adjustments that may
result from the ultimate outcome of this uncertainty.

The Company acquired approximately 95 acres of undeveloped land in Muskegon,
Michigan in the transfer of it's interests in the Bellport Outlet Center (see
Note 7). Portions of this land are subject to land contracts with a total
balance of $771,000 as of March 31, 2000. The interest rates vary from 6.9% to
10.0%. Monthly debt service payments total $6,000 through May 2000 and $1,000
through June 2001 with balloon payments due on these two dates of $646,000 and
$125,000, respectively.

On September 27, 1999, the Company hired Secured Capital Corp as financial
advisor to assist the Company in studying strategic alternatives to enhance
shareholder value including, but not limited to, the sale or other disposition
of some or all of its real estate portfolio. Concurrently, the Company is
assessing alternative business opportunities going forward. There can be no
assurance that a transaction will result involving the Company.

On March 24, 2000, the Company signed a contract with Triple Net, LLC ("Triple
Net") for the sale of seven of the Company's shopping centers. The contract
provides for Triple Net to complete their due diligence on or about April 24,
2000, and to close on the transaction on or about June 7, 2000. The sale price
for the seven centers is $93.5 million, payable in cash at closing. The centers
are subject to debt with a principal balance of $56.7 million at March 31, 2000,
which the Company will repay at closing. During the due diligence period, Triple
Net may terminate the contract for any reason. After the due diligence period, a
penalty of $1.0 million is payable upon termination of the contract by Triple
Net prior to May 24, 2000 (the penalty increases to $1.5 million for the period
from May 24, 2000 to June 7, 2000), with the exception of the occurrence of
limited events. The centers subject to the contract are located in Dry Ridge,
KY; Holland, MI; Laughlin, NV; Medford, MN; Monroe, MI; Norton Shores, MI; and
Warrenton, MO. There can be no assurance at this time that the contract will be
consummated on the terms described above.

The Company made a $1.5 million loan to Prime Outdoor, LLC, an affiliate of
Prime Group, Inc. on April 18, 2000. The Prime Group, Inc. is an affiliate of
Michael W. Reschke, a Director of the Company. The loan matures on June 17,
2000. The loan bears interest at 10% and is secured by a pledge of all of the
unencumbered assets of Prime Outdoor, LLC, Prime Group Inc.'s ownership interest
in Prime Outdoor, LLC and 410,783 units in Horizon Group Properties, LP owned by
Prime Group, Inc. and its affiliates. The loan was approved by a committee of
independent directors of the Company.


                                       18
<PAGE>

                         HORIZON GROUP PROPERTIES, INC.
             Quantitative and Qualitative Disclosure of Market Risk
                                   (unaudited)

The Company's primary market risk exposure is associated with the HGP Credit
Facility from Nomura. This facility had a balance of $56.7 million at March 31,
2000. The interest rate is set monthly at a rate equal to the 30 day London
Interbank Offered Rate ("LIBOR") plus 190 basis points. The facility matures in
July of 2001. The monthly interest rates applicable from June 15, 1998 to March
31, 2000 ranged from 6.80% to 8.36%. As of March 31, 2000, the effective rate
was 7.89%. The Company is currently seeking to mitigate this interest rate risk
through refinancing the facility with fixed rate, longer-term debt. There can be
no assurance that the Company will be able to complete such refinancing or on
what terms such refinancing may be accomplished.

The following table shows sensitivity of annual interest expense and net income
per share - diluted based on an increase in the LIBOR of 156 basis points
(1.56%).

<TABLE>
<CAPTION>
PRINCIPAL AMOUNT   CHANGE IN LIBOR RATE    CHANGE IN INTEREST EXPENSE    PER SHARE - DILUTED
----------------   --------------------    --------------------------    -------------------

<S>                       <C>                       <C>                          <C>
   $56,700,000            1.56%                     $884,520                     $.26
</TABLE>





INFLATION

HGP's leases with the majority of its tenants require the tenants to reimburse
HGP for most operating expenses and increases in common area maintenance
expense, which reduces HGP's exposure to increases in costs and operating
expenses resulting from inflation.


                                       19
<PAGE>

                         HORIZON GROUP PROPERTIES, INC.
                           Part II - Other Information

ITEM 1.  LEGAL PROCEEDINGS - None

ITEM 2.  CHANGES IN SECURITIES - None

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

The Company has loans totaling $2.6 million and $2.7 million as of March 31,
2000 and December 31, 1999, respectively, secured by a mortgage on the office
building and related equipment which the Company utilizes as a corporate office
in Norton Shores, Michigan. This building was previously owned by an affiliate
of Horizon and was contributed to the Company pursuant to the Contribution
Agreement. The consent of the lender to the previous owner of the property was
required in connection with the transfer of the property to the Company. The
Company is currently seeking such consent but, as of May 15, 2000 such consent
had not been obtained.

The Company can give no assurances that it will be able to obtain the above
mentioned consent. Any such failure to obtain such consent could have a material
adverse effect upon the Company.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None

ITEM 5.  OTHER INFORMATION

The Company appointed former Illinois Governor Jim Edgar to the Company's Board
of Directors on March 30, 2000. He replaced Norman Perlmutter, who resigned his
position in February 2000.


                                       20
<PAGE>

                         HORIZON GROUP PROPERTIES, INC.
                           Part II - Other Information

ITEM 6.  EXHIBITS OR REPORTS ON FORM 8-K

(a)  Exhibits

Exhibit 3(i)   Articles of Incorporation of Horizon Group Properties, Inc. (the
               "Company") (1)

Exhibit 3(ii)  By-laws of the Company (1)

Exhibit 3(iii) Amendment to By-laws of the Company dated March 17, 1999 (4)

Exhibit 4.1    Specimen certificate for common stock, $.01 par value per share,
               of the Company (1)

Exhibit 10.1   Sky Merger Corp. Registration Statement on Form S-4 (excluding
               exhibits thereto), as filed with the Securities and Exchange
               Commission on May 12, 1998 (Registration No. 333-51285) (1)

Exhibit 10.2   Amended and Restated Agreement and Plan of Merger by and among
               Prime Retail, Inc., Prime Retail, L.P., Horizon Group, Inc., Sky
               Merger Corp., the Company, Horizon Group Properties, L.P. and
               Horizon/Glen Outlet Centers Limited Partnership dated as of
               February 1, 1998 (Incorporated by reference to Exhibit 10(a) to
               Horizon Group, Inc.'s current report on Form 8-K dated
               February 1, 1998 (SEC File No. 1-12424) (1)

Exhibit 10.3   Form of 1998 Stock Option Plan of the Company (1)

Exhibit 10.4   Employment Agreement between Gary J. Skoien and the Company (1)

Exhibit 10.5   Employment Agreement between David R. Tinkham and the Company (1)

Exhibit 10.6   Form of Indemnification Agreement for the Board of Directors of
               the Company (1)

Exhibit 10.7   Form of Registration Rights Agreement (1)

Exhibit 10.8   Form of Contribution Agreement (incorporated by reference to
               Appendix E to Exhibit 10.1) (1)

Exhibit 10.9   Employment Agreement between Richard Berman and the Company (3)

Exhibit 10.10  Working Capital Agreement with Prime Retail, Inc. (3)

Exhibit 10.11  Loan Agreement dated as of June 15, 1998 by and among Third
               Horizon Group Limited Partnership, Nebraska Crossing Factory
               Shops, L.L.C., and Indiana Factory Shops, L.L.C. and Nomura Asset
               Capital Corporation (2)

Exhibit 10.12  Form of Deed of Trust, Assignment of Leases and Rents and
               Security Agreement with Nomura Asset Capital Corporation (2)

Exhibit 10.13  Form of Mortgage, Assignment of Leases and Rents and Security
               Agreement by and between Horizon Group Properties, Inc. and
               Nomura Asset Capital Corporation (2)

Exhibit 10.14  Form of Assignment of Leases and Rents by and between Horizon
               Group Properties, Inc. and Nomura Asset Capital Corporation (2)

Exhibit 10.15  Guaranty dated as of June 15, 1998 by the Company and Horizon
               Group Properties, L.P. to and for the benefit of Nomura Asset
               Capital Corporation (2)

Exhibit 10.16  Guaranty and Indemnity Agreement dated as of June 15, 1998 by and
               among the Company, Horizon Group Properties, L.P., Prime Retail,
               Inc., and Prime Retail, L.P. (2)

Exhibit 10.17  Assignment and Assumption Agreement, dated as of June 15, 1998 by
               and among Prime Retail, Inc., Prime Retail, L.P., Indianapolis
               Factory Shops Limited Partnership, and Indiana Factory Shops,
               L.L.C. (3)

Exhibit 10.18  Assignment and Assumption Agreement, dated as of June 15, 1998 by
               and among Prime Retail, Inc., Prime Retail, L.P., Nebraska
               Factory Shops Limited Partnership, and Nebraska Factory Shops
               L.L.C. (3)

Exhibit 10.19  Form of Option Agreement (3)

Exhibit 10.20  Fixed Rate Note dated as of July 9, 1999 between Gretna, Sealy,
               Traverse City Outlet Centers, L.L.C. and Morgan Guaranty Trust
               Company of New York related to the financing of the factory
               outlet center in Gretna, Nebraska (5)

Exhibit 10.21  Deed of Trust and Security Agreement for the benefit of Morgan
               Guaranty Trust Company of New York, as lender, from Gretna,
               Sealy, Traverse City Outlet Centers, L.L.C., as borrower, related
               to the financing of the factory outlet center in Gretna, Nebraska
               (5)

Exhibit 10.22  Guaranty for the benefit of Morgan Guaranty Trust Company of New
               York by Horizon Group Properties, Inc. related to the Gretna,
               Sealy and Traverse City loans (5)

Exhibit 10.23  Agreement between Andrew F. Pelmoter and the Company (7)

Exhibit 10.24  Agreement of Purchase and Sale and Escrow Instructions dated
               March 24, 2000 between Third Horizon Group Limited Partnership
               and Triple Net Properties, LLC.

Exhibit 10.25  First Amendment to Agreement of Purchase and Sale and Escrow
               Instructions between Third Horizon Group Limited Partnership and
               Triple Net Properties, LLC, dated as of April 21, 2000

                                       21
<PAGE>

                         HORIZON GROUP PROPERTIES, INC.
                           Part II - Other Information


Exhibit 10.26  Second Amendment to Agreement of Purchase and Sale and Escrow
               Instructions between Third Horizon Group Limited Partnership and
               Triple Net Properties, LLC, dated as of April 25, 2000

Exhibit 10.27  Promissory Note dated April 18, 2000, between Horizon Group
               Properties, LP as Lender and Prime Outdoor Group, LLC as Borrower

Exhibit 10.28  Security Agreement dated April 18, 2000, between Horizon Group
               Properties, LP and Prime Outdoor Group, LLC

Exhibit 10.29  Pledge Agreement by and among Horizon Group Properties, LP; Prime
               Group Limited Partnership; Prime Group II, LP; Prime Group III,
               LP; Prime Group IV, LP; Prime Group V, LP and Prime Financing
               Limited Partnership

Exhibit 10.30  Collateral Assignment of Membership Interests dated April 18,
               2000, between Horizon Group Properties, LP and The Prime Group,
               Inc.

Exhibit 10.31  Guarantee dated April 18, 2000, between Horizon Group Properties,
               LP; Prime Group Limited Partnership; Prime Group II, LP; Prime
               Group III, LP; Prime Group IV, LP; Prime Group V, LP and Prime
               Financing Limited Partnership

Exhibit 10.32  Letter Agreement dated April 18, 2000, between Horizon Group
               Properties, Inc., Prime Group, Inc. and Prime Outdoor Group, LLC

Exhibit 10.33  Agreement between Andrew F. Pelmoter and the Company

Exhibit 27     Financial Data Schedule

Exhibit 99.11  Press release issued by the Company on March 28, 2000 announcing
               the execution of a contract for the sale of seven of the
               Company's shopping centers (6)


1    Incorporated by reference to the Company's Registration Statement on Form
     10, as amended, dated as of June 4, 1998 (Commission file no. 0-24123).

2    Incorporated by reference to the Company's Current Report on Form 8-K dated
     as of June 30, 1998 (Commission file no. 0-24123).

3    Incorporated by reference to the Company's Form 10-Q dated as of August 14,
     1998 (Commission file no. 0-24123).

4    Incorporated by reference to the Company's Form 10-Q dated as of May 17,
     1998 (Commission file no. 0-24123).

5    Incorporated by reference to the Company's Current Report on Form 8-K dated
     as of August 3, 1999 (Commission file no. 0-24123).

6    Incorporated by reference to the Company's Current Report on Form 8-K dated
     as of March 31, 2000 (Commission file no. 0-24123).

7    Incorporated by reference to the Company's Form 10-K dated as of March 6,
     2000 (Commission file no. 0-24123).


(b)  Reports on Form 8-K


A Form 8-K was filed on March 31, 2000 by the Company announcing that it had
executed a contract for the sale of seven of the Company's shopping centers.


                                       22
<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.

                                    HORIZON GROUP PROPERTIES, INC.
                                    Registrant

DATE: MAY 15, 2000                  BY: /s/ GARY J. SKOIEN
------------------                  ------------------------------------
                                    Gary J. Skoien, President and
                                    Chief Executive Officer


DATE: MAY 15, 2000                  BY: /s/ DAVID R. TINKHAM
------------------                  ------------------------------------
                                    David R. Tinkham, Chief Accounting
                                    and Chief Financial Officer