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SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-Q

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

For
the quarterly period ended March 31, 2002

OR

o    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(State or other jurisdiction of incorporation or organization)                          |  | 38-3407933(I.R.S. employer identification no.)
|----------------------------------------------------------------------------------------------- |  | ----------------------------------------------
|77 West Wacker Drive, Suite 4200, Chicago, IL(Address of principal executive offices)           |  | 60601(Zip Code)                               
|(312) 917-8870(Registrant's telephone number, including area code)                             
|Not ApplicableFormer 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 ý        No o

Number of common shares outstanding at May 10, 2002        2,870,194

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HORIZON GROUP PROPERTIES, INC.  Index to Form 10-Q  March 31, 2002

|           |  |                                                                                                              |  | Page No.
|---------- |  | ------------------------------------------------------------------------------------------------------------ |  | --------
|Part I.    |  | Financial Information:                                                                                       |  |         
|Item 1.    |  | Financial Statements (unaudited)                                                                             |  |         
|           |  | Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2002 and March 31, 2001 |  | 3       
|           |  | Condensed Consolidated Balance Sheets at March 31, 2002 and December 31, 2001                                |  | 4       
|           |  | Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2002 and March 31, 2001 |  | 5       
|           |  | Notes to Condensed Consolidated Financial Statements                                                         |  | 6       
|Item 2.    |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                        |  | 14      
|Item 3.    |  | Quantitative and Qualitative Disclosure of Market Risk                                                       |  | 20      
|Part II.   |  | Other Information:                                                                                           |  |         
|Item 1.    |  | Legal Proceedings                                                                                            |  | 21      
|Item 2.    |  | Changes in Securities                                                                                        |  | 21      
|Item 3.    |  | Defaults Upon Senior Securities                                                                              |  | 21      
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                                          |  | 21      
|Item 5.    |  | Other Information                                                                                            |  | 21      
|Item 6.    |  | Exhibits or Reports on Form 8-K                                                                              |  | 21      
|Signatures |  | 25                                                                                                          

2

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

|                                                                      |                               | Three months ended March 31, 2002 |        | Three months ended March 31, 2001 |      
|--------------------------------------------------------------------- | ----------------------------- | --------------------------------- | ------ | --------------------------------- | -----
|
|REVENUE                                                               |                               |                                   |        |                                   |      
|                                                                      | Base rent                     |                                   | $      | 4,099                             |      
|                                                                      | Percentage rent               |                                   |        | 47                                |      
|                                                                      | Expense recoveries            |                                   |        | 950                               |      
|                                                                      | Other                         |                                   |        | 235                               |      
|                                                                      |                               |                                   |        |                                   |      
|                                                                      |                               | Total revenue                     |        |                                   | 5,331
|                                                                      |                               |                                   |        |                                   |      
|EXPENSES                                                              |                               |                                   |        |                                   |      
|                                                                      | Property operating            |                                   |        | 1,513                             |      
|                                                                      | Real estate taxes             |                                   |        | 637                               |      
|                                                                      | Land leases and other         |                                   |        | 354                               |      
|                                                                      | Depreciation and amortization |                                   |        | 1,289                             |      
|                                                                      | General and administrative    |                                   |        | 672                               |      
|                                                                      | Interest                      |                                   |        | 3,010                             |      
|                                                                      |                               |                                   |        |                                   |      
|                                                                      |                               | Total expenses                    |        |                                   | 7,475
|                                                                      |                               |                                   |        |                                   |      
|Loss before gain/(loss) on sale of real estate and minority interests |                               |                                   | (2,144 | )                                 |      
|Gain/(loss) on sale of real estate                                    |                               |                                   | 155    |                                   |      
|                                                                      |                               |                                   |        |                                   |      
|Loss before minority interests                                        |                               |                                   | (1,989 | )                                 |      
|Minority interests                                                    |                               |                                   | 296    |                                   |      
|                                                                      |                               |                                   |        |                                   |      
|Net loss                                                              |                               | $                                 | (1,693 | )                                 | $    
|                                                                      |                               |                                   |        |                                   |      
|Per Common ShareBasic and Diluted:                                   |                               |                                   |        |                                   |      
|                                                                      | Net lossbasic and diluted    |                                   | $      | (0.59                             | )    
|                                                                      |                               |                                   |        |                                   |      
|Weighted average shares outstanding                                   |                               |                                   |        |                                   |      
|                                                                      | Basic                         |                                   |        | 2,870                             |      
|                                                                      |                               |                                   |        |                                   |      
|                                                                      | Diluted                       |                                   |        | 3,380                             |      
|                                                                      |                               |                                   |        |                                   |      

See accompanying notes to condensed consolidated financial statements.

3

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

|                                                                                       |                            | March 31, 2002                             |         | December 31, 2001 |        
|-------------------------------------------------------------------------------------- | -------------------------- | ------------------------------------------ | ------- | ----------------- | -------
|
|ASSETS                                                                                 |                            |                                            |         |                   |        
|Real estateat cost:                                                                   |                            |                                            |         |                   |        
|Land                                                                                   |                            | $                                          | 8,376   |                   | $      
|Buildings and improvements                                                             |                            |                                            | 120,516 |                   |        
|Less accumulated depreciation                                                          |                            |                                            | (17,672 | )                 |        
|                                                                                       |                            |                                            |         |                   |        
|                                                                                       | Total net real estate      |                                            |         | 111,220           |        
|Cash and cash equivalents                                                              |                            |                                            | 1,386   |                   |        
|Restricted cash                                                                        |                            |                                            | 3,181   |                   |        
|Tenant accounts receivable                                                             |                            |                                            | 1,395   |                   |        
|Real estate held for sale                                                              |                            |                                            | 1,279   |                   |        
|Deferred costs (net of accumulated amortization of $1,667 and $1,341, respectively)    |                            |                                            | 2,281   |                   |        
|Other assets                                                                           |                            |                                            | 1,339   |                   |        
|                                                                                       |                            |                                            |         |                   |        
|                                                                                       | Total assets               |                                            | $       | 122,081           |        
|                                                                                       |                            |                                            |         |                   |        
|LIABILITIES AND SHAREHOLDERS' EQUITY                                                   |                            |                                            |         |                   |        
|Liabilities:                                                                           |                            |                                            |         |                   |        
|Mortgages and other debt                                                               |                            | $                                          | 102,354 |                   | $      
|Accrued interest                                                                       |                            |                                            | 3,733   |                   |        
|Accounts payable and other accrued expenses                                            |                            |                                            | 2,490   |                   |        
|Prepaid rents and other tenant liabilities                                             |                            |                                            | 1,039   |                   |        
|Other liabilities                                                                      |                            |                                            | 756     |                   |        
|                                                                                       |                            |                                            |         |                   |        
|                                                                                       | Total liabilities          |                                            |         | 110,372           |        
|Minority Interests                                                                     |                            |                                            | 1,766   |                   |        
|Shareholders' equity:                                                                  |                            |                                            |         |                   |        
|Common shares ($.01 par value, 50,000 shares authorized, 2,870 issued and outstanding) |                            |                                            | 29      |                   |        
|Additional paid-in capital                                                             |                            |                                            | 34,452  |                   |        
|Accumulated deficit                                                                    |                            |                                            | (24,538 | )                 |        
|                                                                                       |                            |                                            |         |                   |        
|                                                                                       | Total shareholders' equity |                                            |         | 9,943             |        
|                                                                                       |                            |                                            |         |                   |        
|                                                                                       |                            | Total liabilities and shareholders' equity |         | $                 | 122,081
|                                                                                       |                            |                                            |         |                   |        

See accompanying notes to condensed consolidated financial statements.

4

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

|                                                     |                                                                                           | Three months ended March 31, 2002                   |     | Three months ended March 31, 2001 |      
|---------------------------------------------------- | ----------------------------------------------------------------------------------------- | --------------------------------------------------- | --- | --------------------------------- | -----
|
|Cash flows from operating activities:                |                                                                                           |                                                     |     |                                   |      
|                                                     | Net loss                                                                                  |                                                     | $   | (1,693                            | )    
|                                                     | (Gain)/loss on sale of real estate                                                        |                                                     |     | (155                              | )    
|                                                     | Adjustments to reconcile net loss to net cash provided by/(used in) operating activities: |                                                     |     |                                   |      
|                                                     |                                                                                           | Minority interests in net loss                      |     |                                   | (296 
|                                                     |                                                                                           | Depreciation                                        |     |                                   | 1,154
|                                                     |                                                                                           | Amortization                                        |     |                                   | 374  
|                                                     | Changes in assets and liabilities:                                                        |                                                     |     |                                   |      
|                                                     |                                                                                           | Restricted cash                                     |     |                                   | 325  
|                                                     |                                                                                           | Tenant accounts receivable                          |     |                                   | 266  
|                                                     |                                                                                           | Deferred costs and other assets                     |     |                                   | 87   
|                                                     |                                                                                           | Accounts payable and accrued expenses               |     |                                   | 752  
|                                                     |                                                                                           | Other liabilities                                   |     |                                   | (13  
|                                                     |                                                                                           | Prepaid rents and other tenant liabilities          |     |                                   | (271 
|                                                     |                                                                                           |                                                     |     |                                   |      
|                                                     |                                                                                           | Net cash provided by/(used in) operating activities |     |                                   | 530  
|                                                     |                                                                                           |                                                     |     |                                   |      
|Cash flows from investing activities:                |                                                                                           |                                                     |     |                                   |      
|                                                     | Expenditures for building and improvements                                                |                                                     |     | (60                               | )    
|                                                     | Net proceeds from sale of real estate                                                     |                                                     |     | 601                               |      
|                                                     |                                                                                           |                                                     |     |                                   |      
|                                                     |                                                                                           | Net cash provided by investing activities           |     |                                   | 541  
|                                                     |                                                                                           |                                                     |     |                                   |      
|Cash flows from financing activities:                |                                                                                           |                                                     |     |                                   |      
|                                                     | Principal payments on mortgages and other debt                                            |                                                     |     | (781                              | )    
|                                                     |                                                                                           |                                                     |     |                                   |      
|                                                     |                                                                                           | Cash used in financing activities                   |     |                                   | (781 
|                                                     |                                                                                           |                                                     |     |                                   |      
|Net increase/(decrease) in cash and cash equivalents |                                                                                           |                                                     | 290 |                                   |      
|Cash and cash equivalents:                           |                                                                                           |                                                     |     |                                   |      
|                                                     | Beginning of period                                                                       |                                                     |     | 1,096                             |      
|                                                     |                                                                                           |                                                     |     |                                   |      
|                                                     | End of period                                                                             |                                                     | $   | 1,386                             |      
|                                                     |                                                                                           |                                                     |     |                                   |      

See accompanying notes to condensed consolidated financial statements.

5

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

Note 1Formation of the Company

Horizon Group Properties, Inc. ("HGPI" or, 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 initial factory outlet centers and the power center were
contributed to the Company by Horizon pursuant to a Contribution Agreement entered into in connection with the Merger (the "Contribution Agreement"). Two factory outlet centers were purchased by the
Company from Prime immediately subsequent to the consummation of the Merger. As of March 31, 2002, HGP's operating portfolio consisted of 11 factory outlet centers and one power center located
in 9 states.

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, 2002, HGP owned approximately 84.9% of the partnership interests (the "Common Units") of HGP LP. Common Units are exchangeable for shares of Common Stock
on a one-for-one basis (or for an equivalent cash amount at the Company's election).

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 were prepared in accordance with accounting principles generally accepted in the United States 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 accounting principles generally accepted in the United States 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, 2001.

The
financial statements have been prepared in conformity with accounting principles generally accepted in the United States, 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, 2002, are not necessarily indicative of the results that may be achieved in future periods.

6

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Real Estate and 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 yearsTenant improvements

10 years or lease term, if lessFurniture, fixtures or equipment

37 years


In accordance with Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-lived
Assets", the Company records impairment losses on long-lived assets used in operations when events and circumstances indicated that the assets might be impaired and the undiscounted cash
flows estimated to be generated over their expected holding periods are less than the carrying amounts of those assets. Impairment losses are measured as the difference between carrying value and fair
value for assets to be held in the portfolio. For assets to be sold, impairment is measured as the difference between carrying value and fair value, less costs to dispose. Fair value may be based upon
estimated cash flows discounted at a risk-adjusted rate of interest, comparable sales in the marketplace, or estimated replacement cost, as adjusted to consider the costs of retenanting
and repositioning those properties which have significant vacancy issues, depending on the facts and circumstances of each property.

The
Company currently leases the land under its center in Laughlin, Nevada. Pursuant to provisions contained in the ground lease, the Company has exercised its right to purchase the land
underlying its center in Laughlin, Nevada for $2.5 million. The Company expects to pay $500,000 at closing and a $2.0 million unsecured promissory note will be provided by the seller.
This note will have a term of ten years and bear interest at a rate of 2.0% above the weighted average cost of funds index for the Eleventh District Savings Institutions, adjusted annually. This
transaction is expected to close during the second quarter of 2002.

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 5) and includes $652,000 in capital improvement and
tenant allowance reserves, $432,000 in real estate tax, insurance and ground lease escrows, and $2.1 million for debt service and operating expenses, including $1.4 million of cash flow
remitted as debt service on the JP Morgan Loans after October 12, 2001 (See Note 5).

Tenant Accounts Receivable

Management regularly reviews accounts receivable and estimates the necessary amounts to be recorded as an allowance for uncollectibility. These reserves are
established on a tenant-specific basis and are based upon, among other factors, the period of time an amount is past due and the financial condition of the obligor.

7

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Real Estate Held for Sale

Periodically in the course of reviewing the performance of its portfolio, management may determine that certain properties no longer meet the parameters set forth
for its properties, or are ancillary to the Company's focus, and accordingly, such properties will be classified as held for sale. In accordance with SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-lived Assets," assets held for sale are valued at the lower of carrying value or fair value less costs to dispose. The Company owns parcels of land near
several of its properties, which it reviews periodically in comparison with its business plans. As of March 31, 2002, portions of this land were classified as held for sale and two parcels were
sold during the quarter ended March 31, 2002.

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 receives a deduction for dividends paid to its shareholders for federal income tax purposes. 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 in the current period and past fiscal
years, the Company is not and has not been obligated to make any dividend distributions to qualify as a REIT. Accordingly, the condensed consolidated financial statements do not include any federal
income tax expense.

Minority Interests

Minority interests represent the interests of unitholders of HGP LP, other than the Company, in the net earnings and net equity of HGP LP. 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 15.1% at March 31, 2002.
During the three months ended March 31, 2002, no units were converted into shares of common stock.

Revenue Recognition

Leases with tenants are accounted for as operating leases. Minimum annual rentals are 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 $816,000 and $830,000, as of March 31, 2002 and
December 31, 2001, respectively, which is 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.

8

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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.

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 will not have a material adverse effect on the consolidated financial statements of the Company.

Note 3Earnings Per Share

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

Three months ended March 31, 2002

Three months ended March 31, 2001Numerator:Net lossbasic

$
(1,693
)
$
(920
)Minority interests of unitholders


(296
)

(169
)Net lossdiluted

$
(1,989
)
$
(1,089
)Denominator:Weighted average shares outstandingbasic


2,870


2,870Effect of converting units to shares


510


511Weighted average shares outstandingdiluted


3,380


3,381Net loss per sharebasic and diluted

$
(0.59
)
$
(0.32
)


Outstanding
stock options were excluded in computing diluted earnings per share because the effect was anti-dilutive.

Note 4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 and options covering 326,000 shares were outstanding at March 31, 2002.

Note 5Mortgage Debt and Other Liabilities

HGP Credit Facility

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"), which initially matured

9

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on July 11, 2001 (the "Initial Maturity Date"). The HGP Credit Facility was acquired from Nomura by CDC Mortgage Capital, Inc. ("CDC"). On July 30, 2001, certain of the terms of
the HGP Credit Facility were modified, including the maturity date, which was extended to July 11, 2002 (the "Extended Maturity Date"). The HGP Credit Facility is guaranteed by HGP and
HGP LP. As of March 31, 2002, the HGP Credit Facility is secured by cross-collateralized mortgages on four of the Company's operating outlet centers (located in Laughlin, Nevada;
Medford, Minnesota; Monroe, Michigan and Warrenton, Missouri) together with a pledge of the Company's ownership interests in Third Horizon Group Limited Partnership, the entity which holds title to
those properties.

The
HGP Credit Facility contains restrictions on the ability of HGP and HGP LP to incur additional indebtedness. The Company is also restricted from paying dividends while the
loan is outstanding. In connection with the HGP Credit Facility, the Company established certain escrow accounts and cash collection accounts, which are classified on the balance sheet of the Company
as restricted cash (see Note 2).

Prior
to the Initial Maturity Date, the interest rate on the HGP Credit Facility was the 30-day LIBOR rate plus 1.90% per annum and was payable monthly. Annual principal
payments of $1.5 million, $1.5 million and $2.0 million during the first, second and third years, respectively were also payable on a monthly basis. From July 1999 to the
Initial Maturity Date, exit fees which totaled $1.2 million were recognized as a component of interest expense.

Subsequent
to the Initial Maturity Date, the interest rate on the HGP Credit Facility is the 30-day LIBOR rate (but not less than 4.1%) plus 3.95% per annum, payable monthly.
Monthly principal payments of $225,000 are also required. An extension fee of 2% of the loan amount was incurred in conjunction with the extension of the loan and is being amortized over the one year
period as a component of interest expense. The loan is pre-payable at any time without penalty or fee. The HGP Credit Facility requires the monthly funding of escrow accounts for the
payment of future debt service payments, real estate taxes, insurance, capital improvements and ground lease payments. Such accounts had a total balance of $775,000 at March 31, 2002. Funds in
excess of those specified in the loan agreement are disbursed to the Company monthly. The balance of the HGP Credit Facility was $31.4 million and $32.1 million at March 31, 2002
and December 31, 2001, respectively.

The
Company is currently pursuing refinancing of the HGP Credit Facility in anticipation of its maturity in July 2002. There can be no assurances that management will be
successful. The condensed consolidated financial statements do not contain any adjustments that may ultimately arise from the outcome of this uncertainty.

Prime
Retail, Inc. is the guarantor of $10.0 million of the HGP Credit Facility, and the indebtedness related to the Company's corporate office building (the "Prime
Guarantee"). In connection with the Prime Guarantee, HGP agreed to pay Prime a fee of $400,000 per annum through June 15, 2001. In connection with the extension of the maturity date of the HGP
Credit Facility, Prime reaffirmed its obligations with respect to the Prime Guarantee. Beginning on June 15, 2001, the Company agreed to pay Prime an annual fee of $150,000, payable quarterly,
for such guarantee until the HGP Credit Facility is repaid in full.

On
January 26, 2001, the Company sold its outlet center in Dry Ridge, Kentucky for $2.5 million. The net proceeds were used to reduce the balance on the HGP Credit
Facility.

On
June 29, 2001, the Company completed a $3.5 million refinancing of its outlet center in Holland, Michigan, with Republic Bank. The outstanding balance of this loan was
$3.4 million and $3.5 million at March 31, 2002 and December 31, 2001, respectively. The loan is for a term of five years, requires monthly debt service payments of $30,000
based on a twenty-year amortization schedule, and bears interest at a fixed rate of 8.21%. The net proceeds from the loan were used to reduce the

10

---

balance of the HGP Credit Facility. This loan requires the monthly funding of an escrow account for the payment of real estate taxes. This escrow account has a balance of $97,000 at March 31,
2002.

On
July 31, 2001 the Company completed a $16.0 million refinancing of Lakeshore Marketplace in Norton Shores, Michigan, with Greenwich Capital Financial
Products, Inc. ("Greenwich"). The outstanding balance of this loan was $16.0 million at March 31, 2002 and December 31, 2001. The loan is for a term of ten years, requires
monthly payments based on a 30-year amortization schedule and bears interest at a fixed rate of 7.647%. It is non-recourse to HGPI, subject to certain customary exceptions. The
net proceeds from the loan were used to reduce the balance of the HGP Credit Facility. In connection with the Greenwich loan, title to Lakeshore Marketplace was transferred to a new entity, Lakeshore
Marketplace, LLC, a wholly owned subsidiary of the Company. Lakeshore Marketplace LLC, and its managing member, Lakeshore Marketplace Finance Company, Inc., are restricted from owning any
assets other than Lakeshore Marketplace and may not incur additional liabilities, other than normal trade payables. All of the assets of Lakeshore Marketplace, LLC are pledged as security for the
Greenwich loan. This loan requires monthly funding of escrow accounts for the payment of future debt service payments, real estate taxes, insurance, capital and tenant improvements and leasing
commissions. These accounts had a total balance of $523,000 at March 31, 2002. Funds in excess of those specified in the loan agreement are disbursed to Lakeshore Marketplace, LLC monthly.

JP Morgan Loans

In July 1999 the Company completed a debt financing totaling $46.7 million with Morgan Guaranty Trust Company of New York ("the JP Morgan
Loans"). The JP Morgan Loans consist of (i) loans totaling $22.9 million secured by three factory outlet centers located in Daleville, Indiana, Somerset, Pennsylvania and Tulare,
California and (ii) loans totaling $23.8 million secured by three factory outlet centers located in Gretna, Nebraska, Sealy, Texas and Traverse City, Michigan. The total outstanding
principal balance of these loans (excluding accrued interest and penalties) was $45.5 million at March 31, 2002 and December 31, 2001. In the absence of a default, each loan bears
interest at a fixed rate of 8.46%, matures on August 1, 2009 and requires the monthly payment of interest and principal based on a 25-year amortization schedule. Both loans are
non-recourse to HGPI, subject to certain customary exceptions. The proceeds from the loans, together with Company funds, were used to repay $46.8 million of indebtedness under the
HGP Credit Facility.

On
October 10, 2001, the Company notified the servicers of the JP Morgan Loans that the net cash flow from the properties securing the loans was insufficient to fully pay
the required monthly debt service. The Company remits monthly all available cash flow, after a reserve for monthly operating expenses, as partial payment of the debt service. The failure to pay the
full amount due constitutes a default under the loan agreements which would allow the respective lenders to exercise their various remedies contained in the loan agreements, including application of
escrow balances to delinquent payments and foreclosure on the properties which collateralize the loans. The interest rate applicable during the occurrence and continuance of an Event of Default (as
defined in the loan documents) is 13.46%. In addition, a penalty of 5.0% of each monthly installment is imposed in the event that such monthly installment is not timely made in full. The Company has
initiated discussions with the servicers of the JP Morgan Loans regarding restructuring the loans. There can be no assurance that such discussions will result in any modification of the terms
of the loans.

The
JP Morgan Loans require the monthly funding of escrow accounts for the payment of real estate taxes, insurance and capital improvements. Such escrow accounts totaled $400,000
at March 31, 2002. In addition, $1.4 million of cash flow remitted as debt service after October 12, 2001 has been placed in special purpose escrow accounts by the loan servicers,
rather than being applied to the balance due. These escrow accounts are classified on the balance sheet as restricted cash (see Note 2). The Company continues to manage these properties
pursuant to a management agreement entered into

11

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in conjunction with the JP Morgan Loans. The Company receives fees of approximately $25,000 per month for such services.

The
declining results of operations resulting in the inability to service the JP Morgan Loans was judged to represent an indicator of possible impairment in the value of the
collateral properties. The Company has estimated the current value of the six centers that collateralize the loans and concluded that the carrying value of four of the centers exceed the fair values
of those centers. Accordingly, the results of operations for the year ended December 31, 2001 include a provision for asset impairment of $18.0 million, representing a
write-down of the carrying values of the assets to their estimated fair values. The aggregate carrying value of the real estate of such properties collateralizing the JP Morgan
Loans approximates $38.6 million at March 31, 2002. Such value is less than the current outstanding loan balances which total $45.5 million, excluding accrued interest and
penalties. If the lender were to foreclose on the collateral properties, the Company would record a gain for the difference between the carrying value of the properties and related net assets and the
outstanding loan balances and related liabilities.

Other Borrowings

On July 20, 2001, the Company acquired the ownership of a triple net leased property in Roseville, Michigan, which is leased to Petsmart, Inc., as a
replacement property for its center in Dry Ridge, Kentucky in a transaction structured as a tax deferred exchange under the provisions of Section 1031 of the Code. The purchase price of
$3.35 million included the assumption of a $3.2 million mortgage. The
rent payable under the lease is equal to the debt service due under the loan secured by the property (the "Petsmart Loan"). The Petsmart Loan matures on January 8, 2008, bears interest at a
fixed rate of 8.77% and requires the monthly payment of principal computed on a 25-year schedule. The loan is non-recourse to HGPI. The balance of the Petsmart Loan was $3.2 million
at March 31, 2002 and December 31, 2001.

The
Company has a mortgage loan collateralized by its corporate office building and related equipment in Norton Shores, Michigan. The principal balance on this loan was
$2.4 million at March 31, 2002 and December 31, 2001. The loan matures in December 2002, bears interest at a rate equal to LIBOR plus 2.50% per annum, and requires monthly
debt service payments of $22,500. The effective rate was 4.4% and 6.9% at March 31, 2002 and December 31, 2001, respectively.

Portions
of approximately 25 acres of undeveloped land owned by the Company in Norton Shores, Michigan are subject to a land contract which had a balance of $455,000 and $457,000
as of March 31, 2002 and December 31, 2001, respectively. The loan bears interest at 8.5%, requires monthly debt service payments of $4,200 and matures in January 2003.

Note 6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, 2002 and March 31, 2001, the Company paid premiums totaling approximately $145,000 and $154,000,
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 an affiliate of Michael W.
Reschke, a Director of the Company. During the three months ended March 31, 2002 and March 31, 2001, the Company incurred rent expense of $12,000 and $16,000, respectively.

12

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Note 7Segment Information

During the three months ended March 31, 2002, and March 31, 2001, the Company operated twelve shopping centers located in nine states and thirteen
shopping centers located in ten states, respectively. 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 ("NAREIT"), means net income excluding
extraordinary items (as defined by accounting principles generally accepted in the United States ("GAAP")) and gains and losses from sales of depreciable operating property, plus depreciation and
amortization, and after adjustments for unconsolidated partnerships and joint ventures. Gains and losses on non-depreciable real estate assets, including land parcels, are included in FFO.
FFO should not be considered as an alternative to net income computed under accounting principles generally accepted in the United States. A reconciliation of the loss before minority interests to FFO
is as follows:

Three months ended March 31, 2002

Three months ended March 31, 2001Loss before minority interests

$
(1,989
)
$
(1,089
)Adjustments for depreciation and amortization


1,281


1,420FFO

$
(708
)
$
331


The
line item entitled general and administrative expenses on the Company's statements of operations represents corporate level general and administrative expenses.

Note 8Property Disposition

On January 26, 2001, the Company sold its outlet center in Dry Ridge, Kentucky for $2.5 million. The net proceeds were used to reduce the
outstanding balance on the HGP Credit Facility (See Note 5). In conjunction with the disposition, the Company acquired a replacement property in Roseville, Michigan in a transaction structured
as a tax deferred exchange under the provisions of Section 1031 of the Code.

On
January 25, 2002, the Company sold 7.1 acres of land ancillary to its center in Warrenton, Missouri. The proceeds from this sale were $235,000 and a loss on sale of
$1,000 was recognized. This land was classified as held for sale on the Company's balance sheet at December 31, 2001.

On
February 15, 2002, a tenant exercised its option to purchase the land subject to its ground lease at Lakeshore Marketplace in Norton Shores, Michigan. The proceeds from this
sale were $373,000 and a gain on sale of $156,000 was recognized. This land was classified as held for sale on the Company's balance sheet at December 31, 2001.

13

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HORIZON GROUP PROPERTIES, INC.  Management's Discussion and Analysis of Financial Condition and Results of Operations  For the three months ended March 31, 2002  (unaudited)

Introduction

The following discussion and analysis of the condensed consolidated financial condition and results of operations of Horizon Group Properties, Inc. ("HGPI"
or, 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, 2002,
owned approximately 84.9% 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 refinance its current debt as it matures; risks related to the retail industry in which the Company's shopping centers compete, including the potential adverse impact of external factors, such as
competition from existing or newly constructed shopping centers, 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 increases 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).

The
statements of financial condition and results of operations of the Company reflect the application of the Company's accounting policies, the most significant of which are outlined in
Note 2 to the Condensed Consolidated Financial Statements. These policies are applied in accordance with accounting principles generally accepted in the United States and reflect significant
assumptions and estimates of the management of the company.

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

14

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Prime Retail, Inc., a Maryland corporation ("Prime") which was consummated on June 15, 1998 ("the Merger"). As of March 31, 2002, HGP's portfolio consisted of 11 factory outlet
centers and one power center located in nine states comprising an aggregate of approximately 2.6 million square feet of gross leasable area ("GLA"). Nine of the factory outlet centers and the
power center were contributed to the Company 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.

The
Company currently is in default with respect to the obligations of two loans originated by JP Morgan in July 1999 (the "JP Morgan Loans"). The defaults are the
result of the Company's failure to pay in full the amounts due under the loans commencing with the payment due October 1, 2001. Each loan is secured by a group of three properties. The first
group consists of the Indiana Factory Shops, The Factory Shops in Georgian Place and Horizon Outlet CenterTulare; the second group consists of Nebraska Crossing Factory Stores, Sealy
Outlet Center and Horizon Outlet CenterTraverse City. The loans are non-recourse to HGPI, subject to certain customary exceptions. The Company continues to manage the centers
and remit the net cash flow each month as partial payment on the loans. Interest expense since October 2001 has been accrued at the default rate of interest (an annual rate of 13.46%) together
with a penalty equal to 5% of each monthly amount due under the related notes. The results of operations of the Company reflect the revenues and expenses, including accrued interest, of the properties
subject to the JP Morgan Loans together with the revenues and expenses of the other properties owned by the Company. The defaults under the loan agreements allow the respective lenders to
exercise their various remedies contained in the loan agreements, including termination of the Company as manager of the centers, application of escrow balances to delinquent payments and foreclosure
on the properties which collateralize the loan.

Comparison of the Three Months Ended March 31, 2002 to the Three Months Ended March 31, 2001

The net loss before minority interests increased $900,000 for the three months ended March 31, 2002 compared to the same period in the prior year. The main
components of this change were lower rents and increased interest expense due to the default interest and late payment penalties accrued on the JP Morgan Loans.

Total
revenue decreased $780,000 in the three months ended March 31, 2002, compared to the same period in the prior year. The primary factors were a decrease in base rents due to
declines in occupancy and reductions in rental rates for several tenants and lower expense recoveries due to declines in the percentage of tenants subject to those charges and lower expenses subject
to recovery. Average occupancy for the six properties subject to the JP Morgan Loans was 65.6% and 71.6% for the three month periods ended March 31, 2002 and 2001, respectively. Total
revenue for those properties was $1.5 million and $1.8 million for the three month periods ended March 31, 2002 and 2001, respectively. Average occupancy for the Company's six
other properties (excluding Dry Ridge, Kentucky which was sold in January 2001) was 81.9% and 86.0% for the three month periods ended March 31, 2002 and 2001, respectively. Total revenue
for those properties was $3.8 million and $4.1 million for the three month periods ended March 31, 2002 and 2001, respectively.

Depreciation
and amortization expense decreased $178,000 in the three months ended March 31, 2002, compared to the same period in the prior year. This decrease primarily resulted
from the reductions in the carrying values of four of the properties subject to the JP Morgan Loans which were recorded in the third quarter of 2001. Depreciation and amortization expense for
the three months ended March 31, 2002 includes charges totaling $140,000 for unamortized capitalized costs related to unscheduled tenant move-outs.

General
and administrative expense decreased $79,000 in the three months ended March 31, 2002, compared to the same period in the prior year mainly as a result of reductions in
corporate staffing.

15

---

The
increase in interest expense of $654,000 in the three months ended March 31, 2002 compared to the same period in the prior year was primarily the result of default interest
and late fees totaling $635,000 related to the JP Morgan Loan default (See Note 5 to the Condensed Consolidated Financial Statements). The JP Morgan Loans are
non-recourse to HGPI, subject to limited customary exceptions. Currently, the net cash flow from the collateral properties is being remitted as a partial payment of the contractual debt
service.

In
the first quarter of 2001, the Company sold the outlet center in Dry Ridge, Kentucky and recognized a loss of $6,000. In the January 2002, the Company sold 7.1 acres of
land ancillary to its center in Warrenton, Missouri for $235,000 and recognized a loss of $1,000. In February 2002, the Company sold a parcel of land adjacent to its center in Norton Shores,
Michigan to a tenant which exercised the purchase option contained in its ground lease for that parcel for $373,000 and recognized a gain of $156,000. The gains and losses from these transactions are
reflected in the Condensed Consolidated Statements of Operations of the Company.

Average
occupancy for the Company's total operating portfolio for the three months ended March 31, 2002 was 74.8% compared to 79.8% for the three months ended March 31,
2001. Occupancy of the Company's total portfolio at March 31, 2002 and March 31, 2001 was 75.8% and 79.1%, respectively.

Liquidity and Capital Resources

As of March 31, 2002 and December 31, 2001, the aggregate amount of outstanding mortgages and other debt (excluding accrued interest and penalties)
was approximately $102.4 million and $103.1 million, respectively. Of those amounts, $31.4 million matures in July 2002 and $2.4 million matures in
December 2002. The Company currently is in default with respect to the obligations of two loans originated by JP Morgan in July 1999 with an aggregate principal balance of
$45.5 million at March 31, 2002 (excluding accrued interest and penalties). The defaults are the result of the Company's failure to pay in full the amounts due under the loans commencing
with the payment due October 1, 2001. Each loan is secured by a group of three properties. The loans are non-recourse to HGPI, subject to limited customary exceptions (see
Note 5 to the Condensed Consolidated Financial Statements).

On
January 26, 2001, the Company sold its outlet center in Dry Ridge, Kentucky for $2.5 million. The net proceeds were used to reduce the balance on the Company's credit
facility (the "HGP Credit Facility") currently owned by CDC Mortgage Capital, Inc. ("CDC") as discussed further below.

The
mortgage loan secured by the Company's outlet center in Holland, Michigan was made by Republic Bank. The $3.5 million loan matures in July 2006, requires monthly debt
service payments of $30,000 based on a 20-year amortization schedule, and bears interest at a fixed rate of 8.21%. The net proceeds from the loan were used to reduce the balance of the HGP
Credit Facility. This loan requires the monthly funding of an escrow account for the payment of real estate taxes which had a balance of $97,000 at March 31, 2002. The loan requires that the
cash flow from the property be at least 130 percent of the debt service on the loan. In the event that the cash flow is less than that amount, the Company may make principal payments to reduce
the outstanding balance of the loan to an amount which reduces debt service to a level which is in compliance with this requirement.

The
mortgage loan secured by the Company's power center in Norton Shores, Michigan was made by Greenwich Capital Financial Products, Inc. ("Greenwich"). The $16.0 million
loan matures in July 2011, requires monthly payments based on a 30-year amortization schedule and bears interest at a fixed rate of 7.647%. The loan is non-recourse to
HGPI (subject to limited customary exceptions). The net
proceeds from the loan were used to reduce the balance of the HGP Credit Facility. In connection with the Greenwich loan, title to Lakeshore Marketplace was transferred to a new entity, Lakeshore
Marketplace, LLC, a wholly owned subsidiary of the Company. Lakeshore Marketplace LLC, and its managing member, Lakeshore Marketplace Finance Company, Inc., are restricted from owning any

16

---

assets other than Lakeshore Marketplace and may not incur additional liabilities, other than normal trade payables. All of the assets of Lakeshore Marketplace, LLC are pledged as security for the
Greenwich loan. This loan requires monthly funding of escrow accounts for the payment of future debt service payments, real estate taxes, insurance, capital improvements, tenant improvements and
leasing commissions. These accounts had a total balance of $523,000 at March 31, 2002. Funds in excess of certain amounts specified in the loan agreement are disbursed to Lakeshore Marketplace,
LLC monthly.

The
maturity date of the HGP Credit Facility was extended to July 11, 2002. The loan had an original maturity of July 11, 2001. The principal balance as of March 31,
2002 and December 31, 2001 was $31.4 million and $32.1 million, respectively, which includes a 2% extension fee. The loan bears interest at 30-day LIBOR (but not less
than 4.1%) plus 395 basis points and requires monthly principal payments of $225,000. The loan is pre-payable at any time without penalty or fee. The HGP Credit Facility requires the
monthly funding of escrow accounts for future debt service payments, the payment of real estate taxes, insurance, capital improvements and ground lease payments. Such accounts had a total balance of
$775,000 at March 31, 2002. Funds in excess of certain amounts specified in the loan agreement with Nomura are disbursed to the Company monthly. The Company is restricted from paying dividends
until the loan is repaid. This loan is secured by four centers located in Laughlin, Nevada; Medford, Minnesota; Monroe, Michigan and Warrenton, Missouri and a pledge of the partnership interests in
the entity owning those outlet centers.

Prime
Retail, Inc. has guaranteed $10.0 million of obligations under the HGP Credit Facility, together with other indebtedness (the "Prime Guarantee"). In connection with
the Prime Guarantee, HGP agreed to pay Prime a fee of $400,000 per annum through June 15, 2001. In connection with the extension of the maturity date of the HGP Credit Facility, Prime
reaffirmed its obligations with respect to the Prime Guarantee. Beginning on June 15, 2001, the Company agreed to pay Prime an annual fee of $150,000, payable quarterly, for such guarantees
until the HGP Credit Facility is repaid in full.

The
JP Morgan Loans consist of (i) loans totaling $22.3 million at March 31, 2002 (excluding accrued interest and penalties) secured by three factory outlet
centers located in Daleville, Indiana, Somerset, Pennsylvania and Tulare, California and (ii) loans totaling $23.2 million at March 31, 2002 (excluding accrued interest and
penalties) secured by three factory outlet centers located in Gretna, Nebraska, Sealy, Texas and Traverse City, Michigan. In the absence of a default, each loan bears interest at a fixed rate of
8.46%, matures on August 1, 2009 and requires the monthly payment of interest and principal based on a 25-year amortization schedule. Both loans are non-recourse to
HGPI, subject to limited customary exceptions including fraud, willful misconduct or intentional material misrepresentation; the filing of bankruptcy by a borrower; violation of the single purpose
entity provisions of the loan documents; the misappropriation of rents, insurance proceeds or condemnation awards; any act of actual waste or arson; or a transfer of any of the properties securing the
loans without lender approval. The interest rate applicable during the occurrence and continuance of an
Event of Default (as defined in the loan documents) is 13.46%. In addition, a penalty of 5% of each monthly installment is imposed in the event that such monthly installment is not timely made in
full.

On
October 10, 2001, the Company notified the servicers of the JP Morgan Loans that the net cash flow from the properties securing the loans was insufficient to fully pay
the required monthly debt service. The Company remits monthly all available cash flow, after a reserve for monthly operating expenses, as partial payment of the debt service. The failure to pay the
full amount due constitutes a default under the loan agreements which allows the respective lenders to exercise their various remedies contained in the loan agreements, including application of escrow
balances to delinquent payments and foreclosure on the properties which collateralize the loans. The Company has initiated discussions with the servicers of the JP Morgan Loans regarding
restructuring of the loans. There can be no assurance that such discussions will result in any modification of the terms of the loans. Both loans are non-recourse to HGPI, subject to
limited customary exceptions.

17

---

The
JP Morgan Loans require the monthly funding of escrow accounts for the payment of real estate taxes, insurance and capital improvements which totaled $400,000 at
March 31, 2002. In addition, $1.4 million of monthly available cash flow debt service payments have been placed in special purpose escrow accounts by the loan servicers, rather than
being applied to the balances due on the loan. The Company continues to manage these properties pursuant to a management agreement entered into in conjunction with the JP Morgan Loans. The
Company receives fees of approximately $25,000 per month for such services.

The
declining results of operations resulting in the inability to service the JP Morgan Loans was judged to represent an indication of possible impairment in the value of the
properties which secure the loans. In the third quarter of 2001, the Company estimated the current value of the six centers which secure the loans and concluded that the carrying value of four of the
centers exceeded the fair values of those centers. Accordingly, the results of operations for the year ended December 31, 2001, include a provision for asset impairment of $18.0 million,
representing a write-down of the carrying values of the assets to their estimated fair value. The aggregate carrying value of the real estate of the properties collateralizing the
JP Morgan Loans approximates $38.6 million at March 31, 2002. This value is less than the current outstanding loan balances totaling $45.5 million, excluding accrued
interest and penalties. If the lender were to foreclose on the collateral properties in full satisfaction of the loans, the Company would record a gain for the difference between the carrying value of
the properties and related net assets and the outstanding loan balances plus accrued interest and penalties. The estimation of the fair value of the six centers securing the JP Morgan loans
involved estimates by management with respect to future cash flows, market conditions and valuations applicable to such properties. Future events could occur which would cause the Company to conclude
that the carrying values of the Company's properties may need to also be adjusted.

The
Company has a mortgage loan secured by its corporate office building and related equipment in Norton Shores, Michigan which matures in December 2002. The principal balance on
this loan was
$2.4 million at March 31, 2002 and December 31, 2001. This loan bears interest at LIBOR plus 2.50% per annum, and requires monthly debt service payments of $22,500.

Portions
of approximately 25 acres of undeveloped land which the Company owns in Norton Shores, Michigan are subject to a land contract which totaled $455,000 and $457,000 as of
March 31, 2002 and December 31, 2001, respectively. The loan bears interest at 8.5%, requires monthly debt service payments of $4,200 and matures in January 2003.

Pursuant
to the terms of the HGP Credit Facility, Greenwich loan and the JP Morgan Loans, the Company is required to keep the properties in good general repair and to make capital
improvements and repairs to certain of its outlet centers. At March 31, 2002, there was approximately $652,000 deposited in escrows with CDC, Greenwich, and JP Morgan, which the Company
believes is sufficient to fund its ongoing capital requirements. Any additional capital improvements are expected to be funded with additional borrowings, existing cash balances or cash flow from
operations.

The
Company expects to meet its short-term liquidity requirements generally through additional borrowings or the extension of the maturity dates on its loans maturing in
2002, working capital and cash flows from operations including the sale of land parcels reflected in real estate held for sale on the condensed consolidated balance sheet. The Company expects to meet
its long-term requirements, such as tenant allowances for new leases and capital improvements and expansions currently being considered at its centers in Tulare, California, and Medford,
Minnesota, through the use of working capital and cash flows from operations and, if necessary and available, additional borrowings of long-term debt and the potential offering of equity
securities in the private or public capital markets.

The
Company sold its center in Dry Ridge, Kentucky, in January 2001 and refinanced its centers in Norton Shores, Michigan, and Holland, Michigan, in July 2001. It extended
the maturity date of the HGP Credit Facility until July 2002. It is currently seeking longer-term replacement financing for the

18

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HGP Credit Facility and has also explored offers for the sale of some or all of its properties. As a result of the current market conditions with respect to the financing of factory outlet centers,
the Company's relatively high leverage and its current default on the JP Morgan Loans, the Company's ability to obtain additional financing is limited. 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 financial statements have been prepared based on management's judgement that the Company
will meet its maturing loan obligations, either through refinancing or extending the terms of its maturing loans, from the sale of properties or a combination thereof. If future events differ from
this judgement, there would be a significant impact on the condensed consolidated statements of operations of the Company.

On
July 20, 2001, the Company acquired the ownership of a triple net leased property in Roseville, Michigan, which is leased to Petsmart, Inc., as a replacement property
for its center in Dry Ridge, Kentucky in a transaction structured as a tax deferred exchange under the provisions of Section 1031 of
the Code. The purchase price of $3.35 million included the assumption of a $3.2 million mortgage. The rent payable under the lease is equal to the debt service due under the loan secured
by the property (the "Petsmart Loan"). The Petsmart Loan matures on January 8, 2008, bears interest at a fixed rate of 8.77% and requires the monthly payment of principal computed on a
25-year schedule. The loan is non-recourse to HGPI. The balance of the Petsmart Loan was $3.2 million at March 31, 2002 and December 31, 2001.

Pursuant
to provisions contained in the ground lease, the Company has exercised its right to purchase the land underlying its center in Laughlin, Nevada for $2.5 million. The
Company expects to pay $500,000 at closing and a $2.0 million unsecured promissory note will be provided by the seller. This note will have a term of ten years and bear interest at a rate of
2.0% above the weighted average cost of funds index for the Eleventh District Savings Institutions, adjusted annually. This transaction is expected to close during the second quarter of 2002.

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 will not have a material adverse effect on the condensed consolidated financial statements of the Company.

19

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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. This facility had a balance of $31.4 million at March 31,
2002. The facility matured in July of 2001 and was subsequently extended to July of 2002. The interest rate on the extended facility is equal to the 30 day London Interbank Offered Rate
("LIBOR") (but not less than 4.1%) plus 395 basis points. As of March 31, 2002, the effective rate was 8.05%, due to the LIBOR rate falling below the floor of 4.1%. The Company is working to
mitigate this interest rate risk by seeking longer-term, fixed rate refinancing of the facility. 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 rate of 1.0% above the floor of 4.1%.

Principal Amount

Change in LIBOR Rate

Change in Interest Expense

Per ShareDiluted$31,400,000

1.0%

$314,000

$0.09


Inflation

HGP's leases with some 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.

20

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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

On October 10, 2001, the Company notified the servicers of the JP Morgan Loans that the net cash flow from the properties securing the loans was
insufficient to fully pay the required monthly debt service. The Company remitted available cash flow, after a reserve for monthly operating expenses, as partial payment of debt service. The failure
to pay in full the amounts due constitutes a default under the loan agreements, which would allow the respective lenders to exercise their various remedies contained in the loan agreements, including
foreclosure on the properties which secure the loans. The Company has initiated discussions with the servicers of the JP Morgan Loans regarding restructuring of the loans. There can be no
assurance that such discussions will result in any modification of the terms of the loans. Both are non-recourse to the HGPI, subject to certain customary exceptions. See Note 5 to
the Condensed Consolidated Financial Statements for further details.

Item 4.    Submission of  Matters to a Vote of Security HoldersNone

Item 5.    Other InformationNone

Item 6.    Exhibits or Reports on Form 8-K

(a)  Exhibits

|Exhibit 3(i)   |  | Articles of Amendment and Restatement of Horizon Group Properties, Inc. (the "Company") (8)                                                                                                                                                                                                                                                                                                                                 
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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 3(iv)  |  | Amendment to By-laws of the Company dated June 8, 2000 (12)                                                                                                                                                                                                                                                                                                                                                                 
|Exhibit 3(v)   |  | Amendment to By-laws of the Company dated May 4, 2001 (12)                                                                                                                                                                                                                                                                                                                                                                  
|Exhibit 3(vi)  |  | Amendment to By-laws of the Company dated May 29, 2001 (13)                                                                                                                                                                                                                                                                                                                                                                 
|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)                                                                                                                                                                                                                                                                                                                                                                       

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|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 (6)                                                                                                                                                                                                          
|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. (7)                                                                                                   
|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 (7)                                                                          
|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 (7)                                                                         
|Exhibit 10.27 |  | Promissory Note dated April 18, 2000, between Horizon Group Properties, LP as Lender and Prime Outdoor Group, LLC as Borrower (7)                                                                                                                                 
|Exhibit 10.28 |  | Security Agreement dated April 18, 2000, between Horizon Group Properties, LP and Prime Outdoor Group, LLC (7)                                                                                                                                                    
|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 (7)                                           
|Exhibit 10.30 |  | Collateral Assignment of Membership Interests dated April 18, 2000, between Horizon Group Properties, LP and The Prime Group, Inc. (7)                                                                                                                            
|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 (7)                                 

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|Exhibit 10.32 |  | Letter Agreement dated April 18, 2000, between Horizon Group Properties, Inc., Prime Group, Inc. and Prime Outdoor Group, LLC (7)                                                                                                           
|------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit 10.33 |  | Agreement between Andrew F. Pelmoter and the Company dated April 11, 2000. (7)                                                                                                                                                              
|Exhibit 10.34 |  | Amendment to Employment Agreement between Gary J. Skoien and the Company dated as of August 29, 2000 (9)                                                                                                                                    
|Exhibit 10.35 |  | Amendment to Employment Agreement between David R. Tinkham and the Company dated as of August 29, 2000 (9)                                                                                                                                  
|Exhibit 10.36 |  | Amendment to Employment Agreement between Andrew F. Pelmoter and the Company dated October 9, 2000. (10)                                                                                                                                    
|Exhibit 10.37 |  | Amendment to Employment Agreement between Thomas R. Rumptz and the Company dated November 11, 2000. (10)                                                                                                                                    
|Exhibit 10.38 |  | Additional Amendment to Employment Agreement between Andrew F. Pelmoter and the Company dated April 26, 2001. (12)                                                                                                                          
|Exhibit 10.39 |  | Additional Amendment to Employment Agreement between Thomas R. Rumptz and the Company dated April 3, 2001. (12)                                                                                                                             
|Exhibit 10.40 |  | Settlement Agreement, dated as of May 4, 2001, by and among the Company, Howard M. Amster, John C. Loring and Robert M. Schwartzberg. (11)                                                                                                  
|Exhibit 10.41 |  | Promissory Note, dated as of July 30, 2001, between Lakeshore Marketplace, LLC and Greenwich Capital Financial Products, Inc. (14)                                                                                                          
|Exhibit 10.42 |  | Mortgage, dated as of July 30, 2001, between Lakeshore Marketplace, LLC and Greenwich Capital Financial Products, Inc. (14)                                                                                                                 
|Exhibit 10.43 |  | Collection and Deposit Account Agreement, dated as of July 30, 2001, by and among LaSalle Bank National Association, Lakeshore Marketplace, LLC and Greenwich Capital Financial Products, Inc. (14)                                         
|Exhibit 10.44 |  | Second Amended and Restated Note dated as of July 31, 2001 between Third Horizon Group Limited Partnership and CDC Mortgage Capital, Inc. (14)                                                                                              
|Exhibit 10.45 |  | Second Amendment to Loan Agreement and Settlement Agreement dated as of July 31, 2001 by and among Third Horizon Group Limited Partnership, Horizon Group Properties, Inc., Horizon Group Properties, LP and
CDC Mortgage Capital, Inc. (14)
|Exhibit 10.46 |  | Reaffirmation of Guaranty dated as of July 31, 2001 by Horizon Group Properties, Inc. and Horizon Group Properties, LP (14)                                                                                                                 
|Exhibit 10.47 |  | Reaffirmation of Guaranty dated as of July 31, 2001 by Prime Retail, LP (14)                                                                                                                                                                
|Exhibit 10.48 |  | Pledge and Security Agreement dated as of July 31, 2001 by and among Horizon Group Properties, LP, Third HGI, LLC and CDC Mortgage Capital, Inc. (14)                                                                                       
|Exhibit 10.49 |  | Amended and Restated Guaranty and Indemnity Agreement dated as of July 31, 2001 by and among Horizon Group Properties, Inc., Horizon Group Properties, LP, Prime Retail, Inc., and Prime Retail, LP.
(14)                                   
|Exhibit 10.50 |  | Amendment to Retention Letter between Thomas R. Rumptz and the Company dated August 29, 2001. (15)                                                                                                                                          
|Exhibit 10.51 |  | Amendment to Retention Letter between Thomas R. Rumptz and the Company dated November 28, 2001. (15)                                                                                                                                        
|Exhibit 10.52 |  | Amendment to Retention Letter between Thomas R. Rumptz and the Company dated February 25, 2002. (15)                                                                                                                                        
|Exhibit 10.53 |  | Amendment to Retention Letter between Andrew Pelmoter and the Company dated May 30, 2001. (15)                                                                                                                                              

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(b)  Report on Form 8-KNone

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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 14, 2002 | By:                                      
|Date: May 14, 2002 | By:                                      

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