SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT OF
1934 (Fee Required)

For the fiscal year ended December 31, 2001

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (No Fee Required)

                        Commission file number: 001-13301
                               PRIME RETAIL, INC.
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             (Exact name of Registrant as specified in its Charter)

         Maryland                                              38-2559212
------------------------------------------    ----------------------------------
     (State or other jurisdiction of           (IRS employer identification no.)
      incorporation or organization)

       100 East Pratt Street
      Baltimore, MD  21202                                 (410) 234-0782
------------------------------------------    ----------------------------------
 (Address of principal executive offices,        (Registrant's telephone number,
           including zip code)                         including area code)

           Securities registered pursuant to Section 12(b) of the Act:
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                                      None
                                     ------
                                (Title of class)
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           Securities registered pursuant to Section 12(g) of the Act:

                          Common Stock, $0.01 par value
           10.5% Series A Cumulative Preferred Stock, $0.01 par value
8.5% Series B Cumulative Participating Convertible Preferred Stock, $0.01 par
value
--------------------------------------------------------------------------------
                                (Title of class)

     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             No

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the best
of  registrant's  knowledge,  in  definitive  proxy  or  information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.

The  aggregate  market value of the Common Stock held by  non-affiliates  of the
registrant was  approximately $7,844,024 on March 25, 2002 (based on the closing
price per share as reported on the OTC Bulletin Board).

The  number  of outstanding  shares of the registrant's Common Stock as of March
27, 2002 was 43,577,916.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the following documents of the registrant are incorporated herein by
reference:

                                                           Part of Form 10-K
                                                           Into Which Document
Document                                                   Is Incorporated
--------                                                   ---------------------
Proxy Statement for the 2002 annual meeting of             Part III of Form 10-K
shareholders
<PAGE>
                               PRIME RETAIL, INC.
                                    Form 10-K
                                December 31, 2001

                                TABLE OF CONTENTS

Part I                                                                      Page

Item 1.       Business......................................................   2
Item 2.       Properties....................................................   6
Item 3.       Legal Proceedings.............................................   9
Item 4.       Submission of Matters to a Vote of Security Holders...........  11

Part II
Item 5.       Market for Registrant's Common Equity and Related
                Shareholder Matters.........................................  12
Item 6.       Selected Financial Data.......................................  13
Item 7.       Management's Discussion and Analysis of Financial
                Condition and Results of Operations.........................  15
Item 7A.      Quantitative and Qualitative Disclosures About
                Material Risk...............................................  36
Item 8.       Financial Statements and Supplementary Data...................  36
Item 9.       Changes in and Disagreements with Accountants on
                Accounting and Financial Disclosure.........................  36

Part III
Item 10.      Directors and Executive Officers of the Registrant............  37
Item 11.      Executive Compensation........................................  37
Item 12.      Security Ownership of Certain Beneficial Owners and
                Management..................................................  37
Item 13.      Certain Relationships and Related Transactions................  37

Part IV
Item 14.      Exhibits, Financial Statement Schedules, and Reports
                on Form 8-K.................................................  37

              Signatures....................................................  42
<PAGE>
                                     PART I

                               ITEM 1 -- BUSINESS

The Company

     Prime Retail, Inc. (the "Company") was organized as a Maryland  corporation
on July 16,  1993.  We are a  self-administered  and  self-managed  real  estate
investment trust ("REIT") that primarily owns and operates outlet centers. As of
December 31, 2001, our outlet center portfolio, including three properties owned
through joint venture partnerships, consists of 45 properties (the "Properties")
in 26 states  (including  Puerto Rico),  which total  12,670,000  square feet of
gross leasable area ("GLA"). As a fully-integrated  real estate firm, we provide
accounting,  finance,  leasing,  marketing,  and  management  services  for  the
Properties. Prime Retail, L.P. (the "Operating Partnership"), a Delaware limited
partnership,  is the entity  through which we conduct  substantially  all of our
business  and  operations  and own  (either  directly  or through  subsidiaries)
substantially  all of our  assets  including  the  Properties.  We  control  the
Operating  Partnership  as its sole general  partner and are dependent  upon the
distributions  or other  payments  from the  Operating  Partnership  to meet our
financial obligations.

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

     Our principal  executive offices are located at 100 East Pratt Street, 19th
Floor, Baltimore, Maryland 21202 and our telephone number is 410-234-0782.

Tax Status

     We have elected to be taxed as a REIT under Sections 856 through 860 of the
Internal Revenue Code of 1986, as amended (the "Code").  As a REIT, we generally
are not  subject  to  federal  income  tax at the  corporate  level on income we
distribute  to our  stockholders  so long as we  distribute  at least 90% of our
taxable  income  (excluding  any net capital gain) each year.  Since our initial
public offering ("IPO") on March 22, 1994, we believe that we have complied with
the tax regulations to maintain our status as a REIT. If we fail to qualify as a
REIT in any taxable  year, we will be subject to federal  income tax  (including
any  applicable  alternative  minimum  tax) on our  taxable  income  at  regular
corporate  rates.  Even if we  qualify  as a REIT,  we may be subject to certain
state and local taxes on our income and property.

Business of the Company

     We  are  engaged  primarily  in  the  ownership,   leasing,  marketing  and
management of outlet centers.  Outlet centers are an established  segment of the
retail  industry,  enabling  value-oriented  shoppers to purchase  designer  and
brand-name products directly from manufacturers at discounts.

     Since entering the outlet center  business in 1988 (as the retail  division
of The  Prime  Group,  Inc.  ("PGI"),  from  which  we  later  acquired  certain
Properties and simultaneously assumed management and development operations with
the  completion of our IPO), we have become a  significant  owner,  operator and
developer in the outlet center sector.  Our outlet centers feature a diversified
mix  of  nationally   recognized   manufacturers  of  designer  and  brand  name
merchandise with which we have long-standing  relationships.  As of December 31,
2001,  our outlet  center  portfolio  consisted  of 45  properties  in 26 states
(including  Puerto  Rico)  totaling  12,670,000  square feet of GLA. The average
outlet center in our portfolio  contained  approximately  281,556 square feet of
GLA at December 31, 2001.

Business Strategy

     Our current  strategy is to use the cash flow from the  Properties  to fund
property  level  improvements  and reduce debt  levels  over time.  We will also
pursue,  on a selective  basis,  the sale of  properties,  including  (i) outlet
centers,  (ii) community centers and (iii) land holdings, in order to reduce our
overall leverage.  See Item 7 - "Management's  Discussion of Financial Condition
and Results of Operations" contained herein for recent developments.

     We actively manage the Properties in an effort to maintain and increase the
sales and profitability of our merchants and ultimately improve occupancy levels
and rental  income.  In this regard we have  employed  and will  employ  various
strategies, including the following:

o    Tenant Mix. We will  continue to evaluate the tenant mix at the  Properties
     and seek to enhance,  if  possible,  the  representation  of those  tenants
     considered  the biggest and best draws in the outlet  industry.  We believe
     that an increase in the  representation of such tenants  positively affects
     consumer  traffic  and  leads to  overall  higher  sales  for all  tenants.
     Additionally,  we will  continue to explore the  addition of new tenants to
     the outlet sector to strengthen our competitive position.
<PAGE>
o    Marketing Strategies.  We operate the majority of our current outlet center
     portfolio  under the "Prime  Outlets" brand name. In addition to the "Prime
     Outlets"   brand  name,  we  use  on-site   management   teams  to  develop
     individualized  property specific marketing programs.  In addition, we have
     also  augmented  marketing  dollars  received  from  tenants  with  our own
     contributions  aggregating  approximately $3.8 million during 2001. We have
     and will continue to evaluate our marketing  programs and make enhancements
     as appropriate.  Furthermore,  we will continue to seek strategic marketing
     alliances  with  companies  who desire to utilize the customer  base of our
     outlet center portfolio.

o    Operating  Expenses.  Generally,  we manage and lease our  properties  with
     in-house  personnel,  thereby reducing our reliance on third-party  service
     providers and enabling us to  continually  monitor and control the expenses
     associated with these  functions.  We strive to minimize the occupancy cost
     of our tenants  through  active  management  of  operating  expenses at the
     property, regional and corporate levels. Whenever possible, we leverage the
     size of our portfolio to obtain favorable rates from vendors and suppliers.

Competition

     Our  outlet  centers  compete  for  customers  primarily  with  traditional
shopping malls,  "off-price"  retailers and other outlet centers. The tenants of
outlet centers usually attempt to avoid direct  competition with major retailers
and their own full-price stores.  They accomplish this by locating outlet stores
only in outlet  centers at least 20 miles from the nearest  regional  mall.  For
this reason,  our outlet  centers are often  located in  relatively  undeveloped
areas and therefore  compete only to a limited  extent with  traditional  retail
malls in or near metropolitan  areas. In addition to the traditional  sources of
competition  faced by our outlet  centers,  our outlet centers also compete with
web-based and catalogue retailers for customers.

     Because  a  number  of  our  outlet   centers  are  located  in  relatively
undeveloped   areas,   there  are  often  other   potential   sites  for  retail
opportunities near our outlet centers that may be developed by competitors.  The
existence or development of other retail venues with a more convenient  location
or the offer of lower rent may  attract  our  tenants or cause them to seek more
favorable  lease  terms at or  prior to  renewal  of their  leases  with us and,
accordingly, may affect adversely the business, revenues and sales volume of our
outlet centers.

     In addition, the success of tenants in our outlet centers which are located
in relatively  undeveloped  areas,  and thus the success of such outlet  centers
themselves,  depends on shoppers  traveling  significant  distances to shop.  If
shoppers should become less willing to travel the distances necessary to shop at
our remote outlet  centers,  the business of our tenants  would likely  decline.
Such a decline would likely cause the value, business,  revenue and sales volume
of such outlet centers to decline.

     Our community  shopping centers compete with similar  properties located in
the same geographic trade areas.

Environmental Matters

     Under various federal,  state and local laws and  regulations,  an owner of
real  estate is liable  for the  costs of  removal  or  remediation  of  certain
hazardous substances on their property. Such laws often impose liability without
regard to whether the owner knew of, or was responsible for, the presence of the
hazardous  substances.  The costs of remediation or removal may be  substantial,
and the  presence  of the  hazardous  substances,  or the  failure  to  promptly
remediate them, may adversely affect the owner's ability to sell the real estate
or to  borrow  using the real  estate  as  collateral.  In  connection  with our
ownership and operation of the Properties,  we may be potentially liable for the
costs of removal or remediation of hazardous substances.

     We have  no  knowledge,  nor  have we  been  notified  by any  governmental
authority,  of any  material  noncompliance,  liability  or  claim  relating  to
hazardous substances in connection with any properties,  in which we now have or
heretofore had an interest.  However, no assurances can be given that (i) future
laws,  ordinances  or  regulations  will not impose any  material  environmental
liability or (ii) the current environmental condition of the Properties will not
be affected by merchants  and occupants of the  Properties,  by the condition of
properties  in  the  vicinity  of  the  Properties  (such  as  the  presence  of
underground storage tanks) or by third parties unrelated to the us.

Insurance

     Recent  events and the state of the  insurance  industry  in  general  have
resulted in substantial increases to insurance costs, and in some cases, changes
in the economic  viability of certain coverages.  Nevertheless,  we believe that
each of the  Properties  is covered by  adequate  fire,  flood,  earthquake  and
property  insurance  provided  by  reputable  companies  and  with  commercially
reasonable deductibles and limits.

Employees

     As of  December  31,  2001,  we had 772  employees.  We  believe  that  our
relations with employees are satisfactory.
<PAGE>
Liquidity

     Our liquidity  depends on cash provided by operations and potential capital
raising  activities  such as funds  obtained  through  borrowings,  particularly
refinancings of existing debt, and cash generated through asset sales.  Although
we believe that  estimated  cash flows from  operations  and  potential  capital
raising  activities  will be sufficient  to satisfy our  scheduled  debt service
obligations  and  sustain  our  operations  for the next  year,  there can be no
assurance  that we will be successful in obtaining the required  amount of funds
for these items or that the terms of the potential  capital raising  activities,
if they should  occur,  will be as  favorable  as we have  experienced  in prior
periods.

     During 2002, we are required to make certain additional mandatory principal
pay-downs to a mezzanine loan (the "Mezzanine  Loan")  aggregating  $25,367 from
net  proceeds  from asset  dispositions  or other  capital  transactions  within
specified  periods.  Although  we are in the  process  of  seeking  to  generate
additional  liquidity though new financings and the sale of assets, there can be
no  assurance  that we will be able to  complete  asset  dispositions  or  other
capital   transactions   within  the  specified   periods  or  that  such  asset
dispositions or other capital transactions,  if they should occur, will generate
sufficient proceeds to make the additional  mandatory pay-downs of the Mezzanine
Loan. Any failure to satisfy these mandatory  principal  prepayments  within the
specified time periods  indicated will  constitute a default under the Mezzanine
Loan.

     As of December 31, 2001,  we were in  compliance  with all  financial  debt
covenants under our recourse loan agreements. However, there can be no assurance
that we will be in  compliance  with our  financial  debt  covenants  in  future
periods since our future  financial  performance is subject to various risks and
uncertainties, including, but not limited to, the effects of increases in market
interest rates from current levels,  the risk of potential  increases in vacancy
rates  and the  resulting  impact on our  revenue,  and  risks  associated  with
refinancing our current debt  obligations or obtaining new financing under terms
less  favorable  than we have  experienced  in prior  periods.

     See Item 7 - "Management's Discussion of Financial Condition and Results of
Operations" contained herein for additional information.

Executive Officers

     The  following  table  sets  forth  the name and  position  of the  current
executive officers of the Company as of the date of this filing along with their
age as of December 31, 2001:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
<S>                             <C>                                                                     <C>
Name                            Position                                                                Age
------------------------------------------------------------------------------------------------------------------------------------
Glenn D. Reschke                President and Chief Executive Officer,                                  50
                                        Chairman of the Board

R. Kelvin Antill                Executive Vice President - General Counsel                              42
                                        and Secretary

Robert A. Brvenik               Executive Vice President - Chief Financial                              46
                                        Officer and Treasurer

David G. Phillips               Executive Vice President - Leasing, International                       40
                                        and New Business Development

Frederick J. Meno IV           Senior Vice President - Operations & Marketing                           44
====================================================================================================================================
</TABLE>

     Glenn D. Reschke.  Glenn D. Reschke is President,  Chief Executive  Officer
and Chairman of the Board of Directors. Reporting to the Board of Directors, Mr.
Reschke is  responsible  for all aspects of the Company,  its outlet centers and
all its employees,  including the leasing, operations,  marketing,  development,
finance and administrative  functions.  In addition,  Mr. Reschke is responsible
for developing and implementing the long-term  strategic goals and objectives of
the Company as approved by the Board of Directors. Mr. Reschke has been a member
of the Board of Directors  since 1997. Mr.  Reschke  became  President and Chief
Operating  Officer of the  Company on October 6, 1999;  acting  Chief  Executive
Officer on February 25, 2000;  and Chief  Executive  Officer and Chairman of the
Board of Directors of the Company on July 19, 2000.  From the  Company's  IPO in
1994 through  October 6, 1999,  Mr. Reschke served as Executive Vice President -
Development  and  Acquisitions.  Prior to his  employment  by the  Company,  Mr.
Reschke worked for The Prime Group,  Inc. ("PGI") which he joined 1983 and, from
that time  until  the  Company's  IPO,  served as Vice  President,  Senior  Vice
President and Executive Vice  President.  Mr. Reschke was  responsible for PGI's
multi-family,  senior housing, single family and land development divisions. Mr.
Reschke  received a Masters in Business  Administration  from  Eastern  Michigan
University  with a  specialization  in finance  after  receiving  a Bachelor  of
Science degree with honors in Chemical Engineering from Rose Hulman Institute of
Technology in Terre Haute, Indiana.
<PAGE>
     R. Kelvin  Antill.  R. Kelvin Antill is Executive  Vice President - General
Counsel and Secretary of the Company. Mr. Antill assumed his current position on
January 31,  2002.  Mr.  Antill  joined the Company in 1995.  Since  joining the
Company,  Mr. Antill served as Vice  President - Assistant  General  Counsel and
Senior Vice President - Assistant General Counsel. Prior to joining the Company,
Mr.  Antill was  associated  for three years with  Ballard,  Spahr,  Andrews and
Ingersoll,  and for four years  prior to that with  Frank,  Bernstein,  Conway &
Goldman,  both  based  in  Baltimore,  Maryland.  Mr.  Antill  received  a Juris
Doctorate  from the  University  of Virginia and a Bachelor of Arts in Economics
with an additional  emphasis in Government  and Politics from the  University of
Maryland at College Park. Mr. Antill is licensed to practice law in the state of
Maryland.

     Robert A. Brvenik.  Robert A. Brvenik is Executive  Vice  President - Chief
Financial  Officer and Treasurer of the Company.  Mr. Brvenik joined the Company
and assumed his current  position in 2000. Mr. Brvenik's  responsibilities  with
the Company include capital market activities, increasing revenue and occupancy,
corporate  budgeting,  financial  reporting,  investor  relations,   accounting,
taxation,  treasury,  and management  information systems.  Prior to joining the
Company,  Mr. Brvenik was associated for 13 years with Pyramid Management Group,
Inc.  where he  served in  several  key  capacities  including  Chief  Financial
Officer,  Chief  Operating  Officer,  Director of Development and Senior Leasing
Representative,  in  addition  to liaison  with  several  large  commercial  and
investment  banks.  Mr. Brvenik has also held positions at Arthur Andersen & Co.
and Citicorp.  He received his B.S. in Accounting from Utica College of Syracuse
University and is a Certified Public Accountant.

     David G. Phillips. David G. Phillips is Executive Vice President - Leasing,
International and New Business Development of Prime Retail. Mr. Phillips assumed
his current  position  on January  10,  2002.  In this  capacity,  he focuses on
increasing   occupancy  and  revenue  throughout  the  Company's  outlet  center
portfolio and oversees the Company's international interests. From the Company's
IPO in 1994  until  January  9,  2002,  Mr.  Phillips  held  various  management
positions,  including  Executive  Vice  President -  Operations,  Marketing  and
Leasing,  and Executive Vice President - International.  Prior to his employment
with the  Company,  Mr.  Phillips  worked  for PGI  from  1989 to 1994 as a Vice
President  and Senior Vice  President  of  Leasing.  Prior to joining  PGI,  Mr.
Phillips was a leasing representative at D.I. Realty, Inc., leasing a variety of
retail projects  including  outlet centers and traditional and specialty  malls.
Mr. Phillips  received a Masters of Science in Real Estate  Development at Johns
Hopkins  University  and  received a  Bachelor  of  Science  degree in  Business
Administration  from the University of Vermont.  Mr. Phillips is a member of the
ICSC, with a CLS (Certified  Leasing Specialist) designation, and the Urban Land
Institute.

     Frederick  J. Meno IV.  Frederick  J. Meno IV is Senior  Vice  President  -
Operations of the Company, a position he has held since he joined the Company in
January  of  1999.  Mr meno  is  responsible  for  supervising  the  management,
operations,   marketing  and  specialty   leasing  programs  for  the  Company's
nationwide  portfolio of outlet centers.  Prior to joining the Company, Mr. Meno
was Executive  Director of Insignia/ESG,  Inc., where he was responsible for all
management,   leasing,   construction   management,   and  business  development
activities  for  Insignia/ESG's  10 million  square foot national  enclosed mall
portfolio,  as well as Insignia/ESG's  Dallas/Fort Worth office,  industrial and
non-enclosed retail portfolio. For 10 years prior to joining Insignia/ESG, Inc.,
Mr. Meno was  President  of the  Woodmont  Property  Management  Company in Fort
Worth, Texas. A 1979 graduate of Ohio State University,  having majored in Urban
Land  Development  and Economics with a degree in Business  Administration,  Mr.
Meno is a member of the Institute of Real Estate  Management  and the ICSC.  Mr.
Meno has achieved the designations of Certified Property Manager,  Real Property
Administrator  and  Certified  Shopping  Manager  and is a licensed  Real Estate
Salesman in the State of Texas.  Mr. Meno is also on the  Advisory  Board of the
Shopping  Center  Management  Insider  Publication  and he is the 2001  Dean for
ICSC's University of Shopping Centers School of Outlet Retailing,  ValueOrientor
and Community Centers.
<PAGE>
                              ITEM 2 -- PROPERTIES

General

     As a  fully-integrated  real estate company,  we provide finance,  leasing,
accounting,  marketing  and  management  services  for  all of  our  Properties,
including  those  which we have an  ownership  interest  through  joint  venture
partnerships. At December 31, 2001, our portfolio of Properties consisted of (i)
45 outlet centers aggregating 12,670,000 square feet of GLA (including 1,195,000
square feet of GLA at outlet centers owned through joint venture  partnerships),
(ii) two community shopping centers  aggregating  219,000 square feet of GLA and
(iii) 154,000 square feet of GLA of office space.

     The table set forth below  summarizes  certain  information with respect to
our  outlet  centers  as of  December  31,  2001 (see Note 6 -- "Bonds and Notes
Payable" of the Notes to the Consolidated  Financial Statements contained herein
for information with respect to mortgage indebtedness on the our Properties).
<TABLE>
<CAPTION>
                                                                                         Grand                GLA          Occupancy
Outlet Centers                                                                    Opening Date          (Sq. Ft.)     Percentage (1)
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>                       <C>                   <C>
Prime Outlets at Fremont-- Fremont, Indiana                                      October 1985             229,000                91%

Prime Outlets at Birch Run (2)-- Birch Run, Michigan                            September 1986            724,000                93

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

Prime Outlets at Williamsburg (2)-- Williamsburg, Virginia                          April 1988            274,000                98

Prime Outlets at Pleasant Prairie-- Kenosha, Wisconsin                          September 1988            269,000                94

Prime Outlets at Edinburgh-- Edinburgh, Indiana                                 September 1989            298,000                99

Prime Outlets at Burlington-- Burlington, Washington                                  May 1989            174,000                91

Prime Outlets at Queenstown-- Queenstown, Maryland                                   June 1989            221,000                94

Prime Outlets at Hillsboro-- Hillsboro, Texas                                     October 1989            359,000                94

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

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

Prime Outlets at Perryville-- Perryville, Maryland                                   June 1990            148,000               100

Prime Outlets at Sedona-- Sedona, Arizona                                          August 1990             82,000               100

Prime Outlets at San Marcos-- San Marcos, Texas                                    August 1990            549,000                98

Prime Outlets at Anderson-- Anderson, California                                   August 1990            165,000                98

Prime Outlets at Post Falls-- Post Falls, Idaho                                      July 1991            179,000                80

Prime Outlets at Ellenton-- Ellenton, Florida                                     October 1991            481,000                97

Prime Outlets at Morrisville-- Raleigh - Durham, North Carolina                   October 1991            187,000                96

Prime Outlets at Naples-- Naples/Marco Island, Florida                           December 1991            146,000                85

Prime Outlets at Conroe (4)-- Conroe, Texas                                       January 1992            282,000                92

Prime Outlets at Niagara Falls USA-- Niagara Falls, New York                         July 1992            534,000                96

Prime Outlets at Woodbury-- Woodbury, Minnesota                                      July 1992            250,000                79

Prime Outlets at Calhoun-- Calhoun, Georgia                                       October 1992            254,000                90
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                         Grand                GLA          Occupancy
Outlet Centers                                                                    Opening Date          (Sq. Ft.)     Percentage (1)
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>                    <C>                      <C>
Prime Outlets at Castle Rock-- Castle Rock, Colorado                            November 1992             480,000                99%

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

Prime Outlets at Jeffersonville II (4)-- Jeffersonville, Ohio                       March 1993            314,000                43

Prime Outlets at Jeffersonville I-- Jeffersonville, Ohio                             July 1993            407,000                99

Prime Outlets at Gainesville-- Gainesville, Texas                                  August 1993            316,000                81

Prime Outlets at Loveland-- Loveland, Colorado                                        May 1994            328,000               100

Prime Outlets at Grove City-- Grove City, Pennsylvania                             August 1994            533,000                98

Prime Outlets at Huntley-- Huntley, Illinois                                       August 1994            282,000                81

Prime Outlets at Florida City-- Florida City, Florida                           September 1994            208,000                78

Prime Outlets at Pismo Beach-- Pismo Beach, California                           November 1994            148,000                96

Prime Outlets at Tracy-- Tracy, California                                       November 1994            153,000                94

Prime Outlets at Vero Beach-- Vero Beach, Florida                                November 1994            326,000                87

Prime Outlets at Odessa-- Odessa, Missouri                                           July 1995            296,000                79

Prime Outlets at Darien (5)-- Darien, Georgia                                        July 1995            307,000                75

Prime Outlets at Gulfport (6)-- Gulfport, Mississippi                            November 1995            306,000                85

Bellport Outlet Center (7)-- Bellport, New York--  Phases II/III                 November 1996            197,000                72

Prime Outlets at Lodi--  Burbank, Ohio                                           November 1996            313,000                93

Prime Outlets at Gaffney (5)--  Gaffney, South Carolina                          November 1996            305,000                98

Prime Outlets at Lee-- Lee, Massachusetts                                            June 1997            224,000               100

Prime Outlets at Lebanon--  Lebanon, Tennessee                                      April 1998            229,000                98

Prime Outlets at Hagerstown (8)--  Hagerstown, Maryland                            August 1998            487,000                99

Prime Outlets of Puerto Rico--  Barceloneta, Puerto Rico                             July 2000            176,000                98
                                                                                                       ----------               ---

Total Outlet Centers (9)                                                                               12,670,000                91%
                                                                                                       ==========               ====

====================================================================================================================================
</TABLE>
Notes:
(1)    Percentage  reflects occupied  space as of December 31, 2001 as a percent
       of available square feet of GLA.
(2)    We,  through affiliates,  have  a  30%  ownership  interest in  the joint
       venture partnership that owns this outlet center.
(3)    We  own  a 2% partnership interest as the sole general partner in Phase I
       of this property but are entitled to 99% of the property's operating cash
       flow  and  net  proceeds  from  a  sale  or  refinancing.  This mixed-use
       development includes 154,000 square feet of office space, not included in
       this table, which was 95% occupied as of December 31, 2001.
(4)    Non-recourse  mortgage loans on Prime Outlets at Conroe and Prime Outlets
       at Jeffersonville II are cross-collateralized. Effective January 1, 2002,
       the  lender  foreclosed  on  Prime  Outlets at Conroe.  The lender and we
       remain in discussions regarding the transfer of our ownership interest in
       Prime Outlets at Jeffersonville II.
(5)    We  operate this outlet center pursuant to a long-term ground lease under
       which we receive the economic benefit of a 100% ownership interest.
(6)    The real property on which this outlet center is  located is subject to a
       long-term ground lease.
(7)    We,  through  affiliates,  have  a  51%  ownership  interest in the joint
       venture partnership that owns Phases II and III of the Bellport Outlet
       Center.
<PAGE>
(8)    On  January 11,  2002,  we  sold  this  outlet  center to a joint venture
       partnership   in  which  we,  through  affiliates,  have  a 30% ownership
       interest.     See  Note 3  -  "Property    Dispositions"  for  additional
       information.
(9)    We  own  two  community centers,  not included in this table,  containing
       approximately 219,000 square feet in the aggregate that were 81% occupied
       as of December 31, 2001.

Lease Terms

     In general,  the leases  relating to our outlet centers have terms of three
to five  years.  The  majority of leases  provide for the payment of  percentage
rents for annual sales in excess of certain thresholds. In addition, the typical
lease  agreement  generally  provides  for  (i)  the  recovery  of a  merchant's
proportionate share of actual costs of common area maintenance  ("CAM"),  refuse
removal,  insurance,  and real estate taxes, (ii) a contribution for advertising
and  promotion,  and (iii) an  administrative  fee. CAM  includes  items such as
utilities,  security,  parking lot  cleaning,  maintenance  and repair of common
areas, capital replacement reserves,  landscaping,  seasonal decorations, public
restroom  maintenance  and  certain  administrative   expenses.  We  continually
evaluate  our  lease  provisions  in  light of  current  and  expected  economic
conditions and other factors. In this regard, we are exploring alternative lease
provisions including fixed CAM where appropriate.

     The  following  table sets forth,  as of December  31,  2001,  tenant lease
expirations, assuming that none of the tenants exercise any renewal option, over
the next 10 years for our outlet center  portfolio,  including outlet centers we
own through joint venture partnerships but excluding Prime Outlets at Conroe and
Prime  Outlets at  Jeffersonville  II (see  "Defaults  on  Certain  Non-recourse
Mortgage  Indebtedness"  of Note 6 - "Bonds and Notes  Payable"  of the Notes to
Consolidated Financial Statements contained herein for additional information):

<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------------------------------
                        Lease Expirations - Outlet Center

                                                                                                                     % of Total
                                            Number of               Approximate              Annualized              Annualized
                                             Leases                    GLA                  Minimum Rent            Minimum Rent
 Year                                       Expiring               (Sq. Ft.)             of Expiring Leases       of Expiring Leases
--------                                 ---------------         ----------------        --------------------    -------------------
<S>                                            <C>                 <C>                       <C>                         <C>
 2002                                          739                 2,597,274                 $ 28,829,741                18.79%
 2003                                          597                 2,540,282                   33,557,125                21.87%
 2004                                          443                 1,720,286                   25,443,030                16.58%
 2005                                          374                 1,558,512                   23,736,138                15.47%
 2006                                          254                 1,062,460                   16,914,363                11.02%
 2007                                          155                   616,334                    7,802,788                 5.09%
 2008                                           48                   260,396                    4,262,683                 2.78%
 2009                                           22                   138,448                    2,082,258                 1.36%
 2010                                           48                   251,935                    4,277,856                 2.79%
 2011                                           42                   220,293                    3,859,533                 2.52%
====================================================================================================================================
</TABLE>

Tenants

     In management's  view,  tenant mix is an important factor in determining an
outlet center's  success.  Our outlet centers are managed to attract and retain,
if  possible,  a  diverse  mix  of  nationally  and  internationally  recognized
manufacturers of moderate to upscale  designer and brand name products.  Crucial
to the success of an outlet center is the presence of lead tenants. Lead tenants
are  manufacturers  that may  potentially  attract a large  number of  qualified
consumers  to the outlet  center due to the strength of their brand name and the
value  offered to the consumer.  Lead tenants  generally are placed in strategic
locations  designed to draw  customers  into the outlet  center and to encourage
them to shop at more than one store.  We  continually  examine the  placement of
tenants within each center and, in  collaboration  with our tenants,  adjust the
size and  location  of their  space  within  each center in an effort to improve
sales per square foot.

     During the year ended  December 31, 2001,  no group of tenants under common
control  accounted for more than 4.4% of our gross  revenues or leased more than
5.3% of our total GLA. During the years ended December 31, 2001 and 2000,  total
bad debt expense was approximately  $13.4 million, or 5.9%, and $7.4 million, or
2.6%,  of total  revenues,  respectively.  The  majority of bad debt  expense is
attributable to tenant bankruptcies, disputes, abandonments and store closings.
<PAGE>
                           ITEM 3 -- LEGAL PROCEEDINGS

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

     Dinnerware Plus Holdings, Inc., which operates under the trade name Mikasa,
and affiliates  (collectively,  the "Mikasa Plaintiffs") filed a lawsuit against
the Company and various  affiliates in Superior Court of New Jersey on March 29,
2001.  The Mikasa  Plaintiffs  assert a number of causes of action in which they
allege that the Company and its affiliates  breached  various  provisions in the
Mikasa  Plaintiffs'  leases and, as a result,  overcharged the Mikasa Plaintiffs
for common area  maintenance  and similar  charges  ("CAM") and  promotion  fund
charges at various centers where the Mikasa Plaintiffs are tenants.  The Company
filed a motion to dismiss the  complaint on behalf of the  Company's  affiliates
who  entered  into  leases  with  the  Mikasa  Plaintiffs,   based  on  lack  of
jurisdiction.  The motion was granted,  but the Mikasa Plaintiffs filed a motion
for  reconsideration,  upon  which  the  court  has  not  ruled.  The  remaining
defendants,  Prime  Retail,  Inc.  and Prime  Retail,  L.P.,  have  answered the
complaint.  The  outcome of this  lawsuit,  and the  ultimate  liability  of the
defendants, if any, cannot be predicted at this time.

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

     In addition to the Mikasa Plaintiffs and Melru Corporation,  other tenants,
including  Design's  Inc.  and  Brown  Group  Retail,  Inc.,  in  the  Company's
affiliates'  outlet  centers  have  made  or  may  make  allegations  concerning
overcharging  for CAM and  promotion  fund charges  similar to those made by the
Mikasa  Plaintiffs and Melru  Corporation.  No other such tenant,  however,  has
filed a suit. It is too early to make any  predictions as to whether the Company
or its affiliates may be found liable with respect to such other tenants,  or to
predict damages should liability be found.

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

     Affiliates of the Company  routinely file lawsuits to collect past due rent
from, and to evict,  tenants which have defaulted under their leases.  There are
currently dozens of such actions pending.  In addition to defending  against the
Company's   affiliates'   claims  and  eviction   actions,   some  tenants  file
counterclaims  against  the  Company's  affiliates.  A tenant  who files  such a
counterclaim typically claims that the Company's affiliate which owns the outlet
center in question has defaulted under the tenant's  lease,  has overcharged the
tenant for CAM and promotion  fund charges,  or has failed to maintain or market
the  outlet  center  in  question  as  required  by  the  lease.   Usually  such
counterclaims are without merit. In response to such counterclaims the Company's
affiliates  usually  continue to pursue their collection or eviction actions and
defend  against  the  counterclaims.  Despite  the fact that the Company and its
affiliates  believe such counterclaims are without merit and defend against them
vigorously,  the outcome of all such counterclaims,  and thus the liability,  if
any, of the Company and its affiliates, cannot be predicted at this time.
<PAGE>
     Since October 13, 2000 there have been eight complaints filed in the United
States District Court for the District of Maryland  against the Company and five
individual defendants.  The five individual defendants are Glenn D. Reschke, the
President, Chief Executive Officer and Chairman of the Board of Directors of the
Company;  William H.  Carpenter,  Jr., the former  President and Chief Operating
Officer and a former  director of the  Company;  Abraham  Rosenthal,  the former
Chief  Executive  Officer  and a former  director  of the  Company;  Michael  W.
Reschke, the former Chairman of the Board and a current director of the Company;
and Robert P. Mulreaney,  the former  Executive Vice President - Chief Financial
Officer and  Treasurer  of the  Company.  The  complaints  have been  brought by
alleged  stockholders  of the Company,  individually  and  purportedly  as class
actions  on behalf of all other  stockholders  of the  Company.  The  complaints
allege that the individual  defendants  made  statements  about the Company that
were  in  violation  of  the  federal   securities  laws.  The  complaints  seek
unspecified  damages and other  relief.  Lead  plaintiffs  and lead counsel were
subsequently  appointed.  A consolidated  amended complaint  captioned The Marsh
Group,  et al. v. Prime Retail,  Inc., et al. dated May 21, 2001 was filed.  The
Company and the individual  defendants  filed a motion to dismiss the complaint,
which was granted on November 8, 2001. The plaintiffs appealed the matter to the
Fourth Circuit.  The appeal is now pending. The Company believes that the claims
are without merit and will defend vigorously  against the appeal. The outcome of
this lawsuit,  and the ultimate  liability of the defendants,  if any, cannot be
predicted at this time.

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

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

        The  New  York  Stock  Exchange ("NYSE") and the Securities and Exchange
Commission have notified the Company that they are reviewing transactions in the
stock  of  the  Company  prior  to  the Company's January 18, 2000 press release
concerning financial matters.  The initial notice of such review was received by
the Company on March 13, 2000.
<PAGE>
           ITEM 4 -- SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

     Our  Amended  and  Restated  Articles  of  Incorporation  state,  "whenever
dividends  payable on the  Preferred  Stock  shall be in arrears for six or more
consecutive  quarterly  periods,  then the holders of  Preferred  Stock,  voting
together  as  a  single  class,  shall  be  entitled  at  the  next  meeting  of
stockholders  or at any special  meeting  called for such purpose,  to elect two
additional  directors  to the  Company's  Board  of  Directors  until  the  full
dividends accumulated on all outstanding shares of the Preferred Stock have been
paid  in full or  declared  and a sum of  money  sufficient  for the  prepayment
thereof set aside for payment."

     On December 6, 2001,  a meeting (the  "Special  Meeting") of the holders of
shares our 10.5%  Series A Senior  Cumulative  Preferred  Stock  (the  "Series A
Senior Preferred Stock") and 8.5% Series B Cumulative Participating  Convertible
Preferred Stock (the "Series B Convertible  Preferred Stock",  and, together the
"Preferred Stock") was held for the purpose of electing two additional directors
to our Board of Directors. The Special Meeting was adjourned to allow sufficient
time to  tabulate  the votes.  On December  11,  2001,  the Special  Meeting was
reconvened.  Howard Amster and Robert H. Kanner were elected to serve as members
of the Board of Directors.
<PAGE>
                                     PART II

 ITEM 5-- MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS

     Our common stock trades on the OTC Bulletin  Board under the trading symbol
"PRME". Our common stock previously traded through September 26, 2001 on the New
York Stock Exchange under the trading symbol "PRT".

     The following  table sets forth the quarterly  high,  low and end of period
closing  sales  prices  per share of our  common  stock as  reported  on the OTC
Bulletin Board and NYSE:

     Market Price of Common Stock and Cash Dividends Paid per Share
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                      2001                                                2000
---------------------------------------------------------------------------------     ----------------------------------------------
                                    Fourth       Third       Second       First         Fourth       Third       Second        First
                                   Quarter      Quarter      Quarter     Quarter        Quarter     Quarter      Quarter     Quarter
------------------------------------------------------------------------------------------------------------------------------------
<S>                                 <C>         <C>          <C>         <C>            <C>         <C>          <C>          <C>
Market price per
  common share:
     High                           $ 0.20      $ 0.30       $ 0.42      $ 0.70         $ 0.69      $ 1.63       $ 2.13       $ 6.63
     Low                              0.09        0.16         0.26        0.36           0.25        0.22         0.94         1.94
     End of period close              0.10        0.17         0.27        0.39           0.47        0.34         1.27         2.19
Cash dividends paid
  per common share                  $    -      $    -       $    -      $    -         $    -      $    -       $    -       $    -
====================================================================================================================================
</TABLE>

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

     Our current policy is to pay distributions  only to the extent necessary to
maintain  our status as a REIT for  federal  income tax  purposes.  Based on our
current  federal  income tax  projections  for 2002, we do not expect to pay any
distributions  on our  Series A Senior  Preferred  Stock,  Series B  Convertible
Preferred Stock, common stock or common units of limited partnership interest in
the  Operating  Partnership  during  2002.  We are  currently in arrears on nine
quarters of preferred stock distributions due February 15, 2000 through February
15, 2002, respectively.

     We are  prohibited  from paying  dividends or  distributions  except to the
extent necessary to maintain our REIT status under the terms of a mezzanine loan
(see  "Dividends  and  Distributions"  of Item 7 -  Management's  Discussion and
Analysis of Financial  Condition and Results of  Operations  and Note 6 - "Bonds
and Notes Payable" of the Notes to Consolidated  Financial  Statements contained
herein for additional  information).  In addition, we may not make distributions
to our common shareholders or our holders of common units of limited partnership
interests in the Operating  Partnership  unless we are current  with  respect to
distributions  to our preferred  shareholders.  As of December 31, 2001,  unpaid
dividends  for the period  beginning on November  16, 1999 through  December 31,
2001 on the Series A Senior  Preferred Stock and Series B Convertible  Preferred
Stock aggregated $12.8 million and $35.3 million,  respectively.  The annualized
dividends  on our  2,300,000  shares  of  Series A Senior  Preferred  Stock  and
7,828,125  shares of Series B  Convertible  Preferred  Stock  outstanding  as of
December 31, 2001 are $6.0 million  ($2.625 per share) and $16.6 million ($2.125
per share), respectively.

     The  approximate  number of holders  of record of our common  stock was 536
including participants in security position listings as of March 19, 2002.
<PAGE>
                        ITEM 6 -- SELECTED FINANCIAL DATA

                (Amounts in thousands, except per share amounts)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,                                          2001            2000           1999          1998           1997
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                           <C>            <C>            <C>           <C>             <C>
Revenues
Base rents                                                    $   141,116    $   178,830    $   193,979   $   148,376     $  78,046
Percentage rents                                                    4,220          6,369          8,085         6,384         3,277
Tenant reimbursements                                              67,323         83,350         90,063        67,152        37,519
Interest and other                                                 13,421         14,801         13,829         9,897        10,288
                                                              -----------    -----------    -----------   -----------     ---------
  Total revenues                                                  226,080        283,350        305,956       231,809       129,130
Expenses
Property operating                                                 54,451         68,537         70,862        52,684        29,492
Real estate taxes                                                  19,283         21,776         22,405        16,705         9,417
Depreciation and amortization                                      56,918         67,556         73,640        52,727        26,715
Corporate general and administrative                               14,290         20,847         12,687         7,980         5,603
Interest                                                           92,859         98,234         93,934        60,704        36,122
Other charges                                                      22,646         17,555          6,918         4,495         3,234
Provision for asset impairment                                     63,026         68,663         15,842             -             -
Provision for abandoned projects                                        -              -         16,039             -             -
Loss on eOutlets.com                                                    -         14,703              -             -             -
Loss on Designer Connection                                             -          1,815          6,561         1,067             -
                                                              -----------    -----------    -----------   -----------     ---------
  Total expenses                                                  323,473        379,686        318,888       196,362       110,583
                                                              -----------    -----------    -----------   -----------     ---------
Income (Loss) before loss on sale of real estate,
  extraordinary loss and minority interests                       (97,393)       (96,336)       (12,932)       35,447        18,547
Loss on sale of real estate                                        (1,063)       (42,648)       (15,153)      (15,461)            -
                                                              -----------    -----------    -----------   -----------     ---------
Income (Loss) before minority interests and
  extraordinary loss                                              (98,456)      (138,984)       (28,085)       19,986        18,547
Loss (Income) allocated to minority interests                         408            738         (3,226)       (2,456)      (10,581)
                                                              -----------    -----------    -----------   -----------     ---------
Income (Loss) before minority interests                           (98,048)      (138,246)       (31,311)       17,530         7,966
Extraordinary loss on early extinguishment of debt                      -         (4,206)        (3,518)            -        (2,061)
                                                              -----------    -----------    -----------   -----------    ----------
Net income (loss)                                                 (98,048)      (142,452)       (34,829)       17,530         5,905
Income allocated to preferred shareholders                        (22,672)       (22,672)        (9,962)      (24,604)      (12,726)
                                                              -----------    -----------    -----------   -----------    ----------
Net loss applicable to common shares                          $  (120,720)   $  (165,124)   $   (44,791)  $    (7,074)   $   (6,821)
                                                              ===========    ===========    ===========   ===========    ==========
Basic loss per common share:                                  $     (2.77)   $     (3.79)   $     (1.04)  $     (0.20)   $    (0.36)
                                                              ===========    ===========    ===========   ===========    ==========
Diluted loss per common share:                                $     (2.77)   $     (3.79)   $     (1.30)  $     (0.20)   $    (0.36)
                                                              ===========    ===========    ===========   ===========    ==========
Other Data:
Funds from operations (1)                                     $    25,256    $    57,967    $    84,163   $    90,020    $   46,718
Net cash provided by operating activities                          32,911         32,450         97,815        59,182        49,856
Net cash provided by (used in) investing activities                 5,595          1,095        (56,666)     (145,596)     (229,956)
Net cash provided by (used in) financing activities               (39,875)       (31,982)       (39,571)       85,806       182,549
Distributions declared per common share (2)                   $         -    $         -    $     0.885   $     1.680    $    1.180
Reported merchant sales                                         2,473,830      2,745,923      3,286,917     3,169,268     1,434,163

------------------------------------------------------------------------------------------------------------------------------------
December 31,                                                      2001            2000           1999          1998           1997
------------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data:
Rental property before accumulated depreciation               $ 1,375,608    $ 1,493,107    $ 1,826,551   $ 2,015,722    $  904,782
Net investment in rental property                               1,117,484      1,275,538      1,642,597     1,887,975       822,749
Total assets                                                    1,262,508      1,462,021      1,856,058     1,976,464       904,183
Bonds and notes payable                                           957,467      1,030,153      1,260,670     1,217,507       515,265
Total liabilities and minority interests                        1,006,068      1,107,533      1,359,371     1,332,730       559,655
Stockholders' equity                                              256,440        354,488        496,687       643,734       344,528
Other Data:
Total outlet center GLA at end of period (3)                       12,670         13,497         14,699        14,348         7,217
Number of outlet centers at end of period (3)                          45             48             51            50            28
====================================================================================================================================
</TABLE>
<PAGE>
Notes:

(1)  We  believe  that to  facilitate  a clear  understanding  of our  operating
     results,  funds from operations ("FFO") should be considered in conjunction
     with net income (loss) as presented in accordance  with generally  accepted
     accounting principles ("GAAP").  FFO, pursuant to guidelines established by
     the  National  Association  of Real Estate  Investment  Trusts  ("NAREIT"),
     represents net income (loss) (determined in accordance with GAAP) excluding
     provisions for asset impairment, gains (or losses) from debt restructuring,
     sales  of  property   and   discontinued   operations,   plus  real  estate
     depreciation and amortization  after adjustments for  unconsolidated  joint
     venture  partnerships.  We believe that FFO is an important and widely used
     measure of the  operating  performance  of equity  real  estate  investment
     trusts  ("REITs")  which  provides a relevant basis for comparison to other
     REITs.  Therefore,  FFO is presented to assist  investors in analyzing  our
     performance.  Our FFO is not comparable to FFO reported by other REITs that
     do not define the term using the NAREIT  definition  or that  interpret the
     NAREIT definition  differently than we do.  Therefore,  we caution that the
     calculation  of FFO  may  vary  from  entity  to  entity  and as  such  the
     presentation  of our FFO may not be  comparable to other  similarly  titled
     measures  of  other  reporting  companies.  FFO  does  not  represent  cash
     generated from operating  activities in accordance with GAAP and should not
     be  considered  as an  alternative  to net income as an  indication  of our
     performance  or to cash flows as a measure of  liquidity or ability to make
     distributions.  A  reconciliation  of income (loss) before  allocations  to
     minority interests and preferred shareholders to FFO is as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,                                      2001             2000            1999            1998           1997
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>            <C>              <C>              <C>            <C>
Income (Loss) before minority interests and
  extraordinary loss                                       $ (98,456)     $ (138,984)      $ (28,085)       $ 19,986       $ 18,547
FFO adjustments:
  Loss on sale of real estate                                  1,063          42,648          15,153          15,461              -
  Depreciation and amortization                               56,918          67,556          73,640          52,727         26,715
  Non-real estate depreciation and amortization               (2,251)         (1,703)           (587)           (432)          (302)
  Joint venture adjustments                                    3,074           3,269           1,639           1,211          1,758
  Non-cash joint venture interest subsidy                      1,882               -               -               -              -
  Discontinued operations - eOutlets.com                           -          14,703               -               -              -
  Discontinued operations - Designer Connection                    -           1,815           6,561           1,067              -
                                                           ---------      ----------       ---------        --------       --------
FFO before adjustment for asset impairment                   (37,770)        (10,696)         68,321          90,020         46,718
  DProvisioneforpassetoimpairmentets.com                      63,026          68,663          15,842               -              -
                                                           ---------      ----------       ---------        --------       --------
FFO before allocations to minority interests
  and preferred shareholders                               $  25,256      $   57,967       $  84,163        $ 90,020       $ 46,718
                                                           =========      ==========       =========        ========       ========
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(2)  Includes special cash distribution  during 1998 of  $0.50  per common share
     relating to our merger with Horizon Group, Inc. completed in June, 1998.
(3)  Includes  outlet  centers  we operate under joint venture partnerships with
     unrelated third parties as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
December 31,                                                    2001             2000            1999            1998           1997
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>             <C>             <C>               <C>            <C>
Aggregate GLA                                                  1,195           1,764           1,494             595            595
Number of outlet centers                                           3               5               4               3              3
====================================================================================================================================
</TABLE>
<PAGE>
                ITEM 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

Introduction

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

Cautionary Statements

     The  following  discussion  in  "Management's  Discussion  and  Analysis of
Financial  Condition and Results of Operations"  and other sections of this Form
10-K  contain  certain  forward-looking  statements  within  the  meaning of the
Private  Securities  Litigation  Reform Act of 1995, which reflect  management's
current  views with respect to future events and  financial  performance.  These
statements  are subject to potential  risks and  uncertainties  and,  therefore,
actual  results  may differ  materially.  Such  forward-looking  statements  are
subject to certain risks and uncertainties,  including,  but not limited to, the
risk  associated  with our high level of leverage  and our ability to  refinance
such  indebtedness  as it  becomes  due;  the risk that we or one or more of our
subsidiaries are not able to satisfy scheduled debt service  obligations or will
not remain in  compliance  with existing  loan  covenants;  the risk of material
adverse effects of future events, including tenant bankruptcies or abandonments,
on our financial  performance;  the risk related to the retail industry in which
our outlet centers compete,  including the potential  adverse impact of external
factors, such as inflation, consumer confidence, unemployment rates and consumer
tastes and  preferences;  the risk  associated with tenant  bankruptcies,  store
closings and the  non-payment  by tenants of  contractual  rents and  additional
rents; the risk associated with our potential asset sales; the risk of potential
increases in market interest rates from current levels; the risk associated with
real estate ownership,  such as the potential adverse impact of changes in local
economic  climate  on the  revenues  and the value of our  properties;  the risk
associated  with  litigation;  and the risk  associated  with  competition  from
web-based and catalogue retailers.

Critical Accounting Policies and Estimates

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

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

Bad Debt

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

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

Contingencies

     We are  subject  to  proceedings,  lawsuits,  and other  claims  related to
various  matters  (see  Note  13 -  "Legal  Proceedings"  of  the  Notes  to the
Consolidated Financial Statements for additional information).  Additionally, we
have  guaranteed  certain  indebtedness of others (see Note 6 - "Bonds and Notes
Payable" for additional  information).  With respect to these contingencies,  we
assess the likelihood of any adverse judgments or outcomes to these matters and,
if appropriate  potential  ranges of probable  losses.  A  determination  of the
amount of reserves  required,  if any,  for these  contingencies  are made after
careful analysis of each individual  issue.  Future reserves may be required due
to (i) new  developments  or changes to the  approach in which we deal with each
matter or (ii) if unasserted claims arise.

Outlet Center Portfolio

Portfolio GLA and Occupancy

     Our  outlet  center   portfolio  grew  to  its  present  size  through  the
development and acquisition of outlet centers and through expansions to existing
outlet  centers.  Our  outlet  portfolio  consisted  of 45  properties  totaling
12,670,000  square feet of GLA at December 31, 2001,  compared to 48  properties
totaling  13,497,000  square feet of GLA at December 31, 2000 and 51  properties
totaling  14,699,000 square feet of GLA at December 31, 1999. The changes in our
outlet  center GLA are due to certain  (i) sales  transactions  during  2001 and
2000, (ii) development  activities during 2000 and (iii) the foreclosure sale of
an  outlet  center  during  2001.  Such  changes  are  discussed  below  and are
collectively  referred to as the  "Portfolio  GLA  Activity".  Our outlet center
portfolio  was  91.2% and  92.7%  occupied  as of  December  31,  2001 and 2000,
respectively.  The weighted  average  occupancy of our outlet  center  portfolio
during  the  years  ended  December  31,  2001  and 2000 was  90.3%  and  91.6%,
respectively.

2001 Sales Transactions

     On February 2, 2001, we sold Northgate Plaza, a community center located in
Lombard,  Illinois to Arbor  Northgate,  Inc.  for  aggregate  consideration  of
$7,050.  After the  repayment  of  mortgage  indebtedness  of $5,966 and closing
costs,  the net cash proceeds from the Northgate  Plaza sale were $510. On March
16, 2001, we sold Prime  Outlets at  Silverthorne,  an outlet center  located in
Silverthorne, Colorado consisting of 257,000 square feet of GLA, to Silverthorne
Factory  Stores,  LLC for  aggregate  consideration  of  $29,000.  The net  cash
proceeds from the sale of Prime Outlets at Silverthorne  were $8,993,  after the
repayment  of certain  mortgage  indebtedness  of  $18,078  on Prime  Outlets at
Lebanon  (see below) and closing  costs and fees.  The net  proceeds  from these
sales of were used to prepay an aggregate $9,137 of principal  outstanding under
our mezzanine loan (the  "Mezzanine  Loan") in accordance with the terms of such
loan agreement. In connection with these sales, we recorded an aggregate gain on
the sale of real estate of $732 during the first quarter of 2001.  The operating
results of these  properties  are included in our results of operations  through
the respective dates of disposition. At December 31, 2000, these properties were
classified  as assets held for sale in the  Consolidated  Balance  Sheet with an
aggregate carrying value of $34,770.

     On November 27, 2001, we sold certain land located in Camarillo, California
for  aggregate  consideration  of $7,150.  The net cash  proceeds from the sale,
including  the release of certain funds held in escrow,  were $1,859,  after the
repayment of certain mortgage indebtedness of $6,227 and closing costs and fees.
The net  proceeds  from this sale  were used to prepay  $1,787 of the  Mezzanine
Loan.  In  connection  with this  sale,  we  recorded a loss on the sale of real
estate of $1,615 during the fourth  quarter of 2001.  At December 31, 2000,  the
land was  classified as assets held for sale in the  Consolidated  Balance Sheet
with a carrying value of $8,460.

     Prior to the sale of Prime Outlets at  Silverthorne,  it was one of fifteen
properties  securing our first mortgage and expansion loan (the "First  Mortgage
and Expansion Loan"), which had an outstanding  principal balance of $342,629 at
December  31,  2001.  In   conjunction   with  the  sale  of  Prime  Outlets  at
Silverthorne,  we  substituted  Prime  Outlets at Lebanon  for Prime  Outlets at
Silverthorne in the cross-collateralized  asset pool securing the First Mortgage
and Expansion Loan pursuant to the collateral  substitution provisions contained
in the loan  agreement.  In conjunction  with adding Prime Outlets at Lebanon as
security for the First  Mortgage and  Expansion  Loan,  we repaid,  as discussed
above, certain mortgage indebtedness on Prime Outlets at Lebanon of $18,078.
<PAGE>
2001 Foreclosure Sale

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

2000 Sales Transactions

     On February  23, 2000,  we sold Prime  Outlets at  Williamsburg,  an outlet
center located in  Williamsburg,  Virginia which contains 274,000 square feet of
GLA, to a joint venture partnership (the "Prime/Estein Venture"). We, indirectly
through affiliates,  have a 30% ownership interest in the Prime/Estein  Venture.
Commencing  on the date of  disposition,  we have  accounted  for the  operating
results  of  this  outlet  center  in  accordance  with  the  equity  method  of
accounting.

     On  December  22,  2000,  we  completed  the  sale of four  outlet  centers
aggregating  1,592,000  square  feet  of  GLA  to a  joint  venture  partnership
comprised of Chelsea Property Group, Inc. and Fortress  Investment Group, L.L.C.
The four  outlet  centers  that were sold are  located  in  Gilroy,  California;
Michigan City, Indiana;  Waterloo,  New York; and Kittery,  Maine. In connection
with this sale, we recorded a loss on the sale of real estate of $42,648  during
the fourth  quarter of 2000.  The  operating  results  of these  properties  are
included in our results of operations through the date of disposition.

Development Activities

     During 2000 we engaged in development  activities related to 390,000 square
feet of GLA  consisting of the opening of (i) Prime Outlets of Puerto Rico,  the
first outlet center in Puerto Rico,  which contains  176,000 square feet of GLA,
and (ii) four expansions to outlet centers  totaling 214,000 square feet of GLA.
During 2001, we did not engage in any further development  activities other than
post-opening  work  related  to the  2000  development  activities  and  certain
consulting activities in Europe.
<PAGE>
Results of Operations

Table 1--Consolidated Statements of Operations

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,                                                          2001                 2000                  1999
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>                  <C>                    <C>
Revenues
Base rents                                                                    $  141,116           $  178,830             $ 193,979
Percentage rents                                                                   4,220                6,369                 8,085
Tenant reimbursements                                                             67,323               83,350                90,063
Interest and other                                                                13,421               14,801                13,829
                                                                              ----------           ----------             ---------
  Total revenues                                                                 226,080              283,350               305,956
Expenses
Property operating                                                                54,451               68,537                70,862
Real estate taxes                                                                 19,283               21,776                22,405
Depreciation and amortization                                                     56,918               67,556                73,640
Corporate general and administrative                                              14,290               20,847                12,687
Interest                                                                          92,859               98,234                93,934
Other charges                                                                     22,646               17,555                 6,918
Provision for asset impairment                                                    63,026               68,663                15,842
Provision for abandoned projects                                                       -                    -                16,039
Loss on eOutlets.com                                                                   -               14,703                     -
Loss on Designer Connection                                                            -                1,815                 6,561
                                                                              ----------           ----------             ---------
  Total expenses                                                                 323,473              379,686               318,888
                                                                              ----------           ----------             ---------
Loss before loss on sale of real estate,
  minority interests and extraordinary loss                                      (97,393)             (96,336)              (12,932)
Loss on sale of real estate                                                       (1,063)             (42,648)              (15,153)
                                                                              ----------           ----------             ---------
Loss before minority interests and
  extraordinary loss                                                             (98,456)            (138,984)              (28,085)
Loss (Income) allocated to minority interests                                        408                  738                (3,226)
                                                                              ----------           ----------             ---------
Loss before extraordinary loss                                                   (98,048)            (138,246)              (31,311)
Extraordinary loss on early extinguishment of debt                                     -               (4,206)               (3,518)
                                                                              ----------           ----------             ---------
Net loss                                                                         (98,048)            (142,452)              (34,829)
Income allocated to preferred shareholders                                       (22,672)             (22,672)               (9,962)
                                                                              ----------           ----------             ---------
Net loss applicable to common shares                                          $ (120,720)          $ (165,124)            $ (44,791)
                                                                              ==========           ==========             =========
Basic loss per common share:
Loss before extraordinary loss                                                $    (2.77)          $    (3.69)            $   (0.96)
Extraordinary loss                                                                     -                (0.10)                (0.08)
                                                                              ----------           ----------             ---------
Net loss                                                                      $    (2.77)          $    (3.79)            $   (1.04)
                                                                              ==========           ==========             =========
Diluted loss per common share:
Loss before extraordinary loss                                                $    (2.77)          $    (3.69)            $   (1.22)
Extraordinary loss                                                                     -                (0.10)                (0.08)
                                                                              ----------           ----------             ---------
Net loss                                                                      $    (2.77)          $    (3.79)            $   (1.30)
                                                                              ==========           ==========             =========
Weighted-average common shares
  outstanding - basic                                                             43,578               43,517                43,196
                                                                              ==========           ==========             =========
Weighted-average common shares
  outstanding - diluted                                                           43,578               43,517                44,260
                                                                              ==========           ==========             =========
====================================================================================================================================
</TABLE>
<PAGE>
Table 2--Statements of Operations on a Weighted Average per Square Foot Basis

     A summary of the operating  results for the years ended  December 31, 2001,
2000  and  1999 is  presented  in the  following  table,  expressed  in  amounts
calculated on a weighted average occupied GLA basis.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,                                                          2001                  2000                  1999
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>                   <C>                   <C>
GLA at end of period (1)                                                         11,864                12,322                13,787
Portfolio weighted average occupied GLA (1)                                      10,741                12,483                13,599
Factory outlet weighted average occupied GLA (1)                                 10,401                11,992                13,099
Outlet centers in operation at end of period (2)                                     45                    48                    51
New outlet centers opened (2)                                                         -                     1                     1
Outlet centers expanded (2)                                                           -                     2                     2
Community centers in operation at end of period                                       2                     3                     3
States (including Puerto Rico) operated in at end of period                          26                    26                    26

Portfolio weighted average per square foot (3):
Revenues
Base rents                                                                      $ 13.14               $ 14.33               $ 14.26
Percentage rents                                                                   0.39                  0.51                  0.59
Tenant reimbursements                                                              6.27                  6.68                  6.62
Interest and other                                                                 1.25                  1.19                  1.02
                                                                                -------               -------               -------
  Total revenues                                                                  21.05                 22.71                 22.49

Expenses (4)
Property operating                                                                 5.07                  5.49                  5.21
Real estate taxes                                                                  1.80                  1.74                  1.65
Depreciation and amortization                                                      5.30                  5.41                  5.42
Corporate general and administrative (5)                                           1.33                  1.36                  0.93
Interest                                                                           8.65                  7.87                  6.91
Other charges (6)                                                                  2.11                  1.32                  0.51
                                                                                -------               -------               -------
  Total expenses                                                                  24.26                 23.19                 20.63
                                                                                -------               -------               -------
Income (Loss) from continuing operations                                        $ (3.21)              $ (0.48)              $  1.86
                                                                                =======               =======               =======

Outlet center weighted average per square foot (3):
Revenues
Base rents                                                                      $ 13.27               $ 14.61               $ 14.51
Percentage rents                                                                   0.40                  0.53                  0.62
Tenant reimbursements                                                              6.41                  6.85                  6.76
Interest and other                                                                 1.14                  1.07                  0.85
                                                                                -------               -------               -------
  Total revenues                                                                  21.22                 23.06                 22.74

Expenses (4)
Property operating                                                                 5.16                  5.60                  5.31
Real estate taxes                                                                  1.90                  1.75                  1.65
Depreciation and amortization                                                      5.22                  5.45                  5.53
Interest                                                                           7.19                  6.92                  6.42
Other charges                                                                      1.72                  1.13                  0.26
                                                                                -------               -------               -------
  Total expenses                                                                  21.19                 20.85                 19.17
                                                                                -------               -------               -------
Income from continuing operations                                               $  0.03               $  2.21               $  3.57
                                                                                =======               =======               =======
====================================================================================================================================
</TABLE>

Notes:
(1)  Includes  total GLA  in  which we receive substantially all of the economic
     benefit.
(2)  Includes   outlet  centers  operated  under  unconsolidated  joint  venture
     partnerships.
(3)  Based on occupied GLA  weighted by months of operation. The occupied GLA on
     a weighted average basis for  the Portfolio  Activity have been included in
     the weighted average GLA through the date of disposition.

<PAGE>
(4)  Excludes the following non-recurring items:

     ---------------------------------------------------------------------------
     Years ended December 31,                   2001          2000         1999
     ---------------------------------------------------------------------------
     Provision for asset impairment           $63,026       $68,663      $15,842
     Provision for abandoned projects               -             -       16,039
     Loss on eOutlets.com                           -        14,703            -
     Loss on Designer Connection                    -         1,815        6,561
     ---------------------------------------------------------------------------

(5)  2000 excludes  non-recurring  corporate  general and  administrative  costs
     aggregating  $3,876,  including (i) severance and other  compensation costs
     totaling  $2,421  and  (ii)   professional   fees  of  $1,455  relating  to
     refinancing activities.
(6)  Excludes  non-recurring other charges aggregating $2,918 and $1,100 in 2001
     and 2000,  respectively.  The 2001 non-recurring costs include (i) a charge
     of $1,882 related to an interest rate subsidy  agreement and (ii) a loss of
     $1,036  incurred in connection with the refinancing of first mortgage loans
     on Prime  Outlets at Birch Run. The 2000  non-recurring  resulted  from the
     termination  of the sale of a joint  venture  interest in Prime  Outlets at
     Hagerstown and an expansion to Prime Outlets at Williamsburg, which was not
     constructed.

Comparison  of  the  Year Ended December 31, 2001 to the Year Ended December 31,
2000

Summary

     We reported net losses of $98,048 and $142,452 for the years ended December
31, 2001 and 2000,  respectively.  For the year ended December 31, 2001, the net
loss  applicable to our common  shareholders  was $120,720,  or $2.77 per common
share on a basic and diluted  basis.  For the year ended  December 31, 2000, the
net loss applicable to our common shareholders was $165,124, or $3.79 per common
share on a basic and diluted basis.

     The 2001 results  include (i) a provision for asset  impairment of $63,026,
(ii) a  non-recurring  charge of $1,882  related  to an  interest  rate  subsidy
agreement,  (iii) a  non-recurring  loss of $1,036 related to the refinancing of
first  mortgage  loans on Prime  Outlets at Birch Run and (iv) a net loss on the
sale of real estate of $1,063.  The 2000 results reflect  certain  non-recurring
items,  including  (i) a loss on the  sale of real  estate  of  $42,648,  (ii) a
provision  for asset  impairment  of $68,663,  (iii) a loss on  eOutlets.com  of
$14,703,  (iv) general and administrative  expenses  consisting of severance and
other  compensation  costs  aggregating  $2,421 and professional  fees of $1,455
related to refinancing  activities,  (v) a gain on the sale of outparcel land of
$2,472 included in interest and other income, (vi) a loss on Designer Connection
of  $1,815,  (vii)  other  charges of $1,100  incurred  in  connection  with the
termination  of the sale of joint venture  interests in certain  properties  and
(viii)  an   extraordinary   loss  of  $4,206  related  to  the  prepayment  and
modification to the terms of certain long-term debt.

Revenues

     Total revenues were $226,080 for the year ended December 31, 2001, compared
to $283,350 for the year ended  December  31,  2000,  a decrease of $57,270,  or
20.2%. Base rents decreased  $37,714,  or 21.1%, in 2001 compared to 2000. These
decreases  are  primarily due to the Portfolio GLA Activity and the reduction in
outlet  center  occupancy  during the 2001 period.  Straight-line  rent expense,
included in base rent was $434 and $94 for the years ended December 31, 2001 and
2000, respectively.

     Percentage  rents,  which  represent  rents based on a percentage  of sales
volume above a specified threshold, decreased $2,149, or 33.7%, to $4,220 during
the year ended December 31, 2001 compared to $6,369 for the same period in 2000.
This decline was primarily attributable to the Portfolio GLA Activity.

     As summarized in TABLE 3, merchant sales reported for centers  remaining in
our outlet center portfolio at period-end were $2,474 million and $2,746 million
for the years ended  December  31,  2001 and 2000,  respectively.  The  weighted
average  reported  merchant  sales per square foot  decreased to $241 per square
foot in 2001 from $245 per square foot in 2000.  Total  merchant  occupancy cost
per  square  foot  decreased  from  $22.03  in 2000 to  $20.68  in 2001 and as a
percentage of reported sales from 8.99% to 8.65% respectively.
<PAGE>
Table 3 - Summary of Reported Merchant Sales

     A summary of reported outlet merchant sales and related data for 2001, 2000
and 1999 follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,                                                            2001                 2000                1999
------------------------------------------------------------------------------------------------------------------------------------
<S>                                         <C>                                    <C>                  <C>                 <C>
Total reported merchant sales (in millions) (1)                                    $ 2,474              $ 2,746             $  3,287
                                                                                   =======              =======             ========
Weighted average reported merchant sale per square foot (2):
  All store sales                                                                  $   241              $   245             $    257
                                                                                   =======              =======             ========
  Same-space sales                                                                 $   247              $   251             $    249
                                                                                   =======              =======             ========
  Change in same-store sales versus prior year                                        2.2%
                                                                                   =======
  Change in same-space sales versus prior year                                       -2.0%
                                                                                   =======
Total merchant occupancy costs per square foot (3)                                 $ 20.68              $ 22.03             $  21.90
                                                                                   =======              =======             ========
Cost of merchant occupancy to reported sales (4)                                     8.65%                8.99%                8.54%
                                                                                   =======              =======             ========
Cost of merchant occupancy, excluding marketing
  contributions, to reported sales (5)                                               7.99%                8.26%                7.84%
                                                                                   =======              =======             ========
====================================================================================================================================
</TABLE>
Notes:
(1)  Total reported merchant sales summarizes gross sales generated by merchants
     and includes  changes in merchant  mix and the effect of new space  created
     from the  acquisition  and  opening  of new and  expanded  outlet  centers.
     Several of our outlet centers were  constructed or expanded during the time
     periods  presented and therefore,  reported sales are included only for the
     partial period and were not annualized.
(2)  Weighted  average reported sales per square foot is based on reported sales
     divided by the weighted  average square  footage  occupied by the merchants
     reporting those sales.  Same-space sales is defined as the weighted average
     reported  merchant sales per square foot for space open since the beginning
     of the prior year.
(3)  Total  merchant  occupancy  cost  per  square  foot  includes  base  rents,
     percentage rents and tenant  reimbursements which includes tenant marketing
     contributions.
(4)  Computed as follows:  total merchant occupancy cost per square foot divided
     by total weighted average reported merchant sales per square foot.
(5)  Computed  as  follows:  total  merchant  occupancy  cost  per  square  foot
     (excluding  marketing  contributions  paid by  merchants)  divided by total
     weighted average reported merchant sales per square foot.

     Tenant  reimbursements,  which  represent  the  contractual  recovery  from
tenants of certain  operating  expenses,  decreased  by  $16,027,  or 19.2%,  to
$67,323 in 2001  compared to $83,350 in 2000.  This decline is primarily  due to
the Portfolio GLA Activity and the reduction in outlet center  occupancy  during
the 2001 period.  As shown in TABLE 4, tenant  reimbursements as a percentage of
recoverable  property operating expenses and real estate taxes was 91.3% in 2001
compared to 92.3% in 2000.

Table 4--Tenant Recoveries as a Percentage of Total Recoverable Expenses

--------------------------------------------------------------------------------
                                                             Expenses Recovered
Year                                                          from Tenants (1)
--------------------------------------------------------------------------------
2001                                                                91.3%
2000                                                                92.3%
1999                                                                96.6%
================================================================================
Note:
(1)  Total  recoverable  expenses include property  operating  expenses and real
     estate taxes.

     Interest and other income  decreased by $1,380,  or 9.3%, to $13,421 during
the year ended  December  31,  2001 as  compared  to $14,801  for the year ended
December  31,  2000.   The  decrease  was  primarily   attributable   to  (i)  a
non-recurring  gain on the sale of  outparcel  land of  $2,472  during  the 2000
period,  (ii) a reduction in  amortization  of deferred income of $782 and (iii)
lower  miscellaneous  income of $24. Partially  offsetting these items was (i) a
reduction in equity  losses from  investment  in  partnerships  of $957 and (ii)
increased leasing commission income of $941.

Expenses

     Property operating  expenses decreased by $14,086,  or 20.6%, to $54,451 in
2001 compared to $68,537 in 2000. Real estate taxes expense decreased by $2,493,
or 11.4%, to $19,283 in 2001 from $21,776 in 2000. These decreases are primarily
due to the Portfolio GLA Activity.

     As shown in TABLE 5,  depreciation  and amortization  expense  decreased by
$10,638,  or 15.7%,  to $56,918  in 2001,  compared  to  $67,556  in 2000.  This
decrease was primarily  attributable  to the  depreciation  and  amortization of
assets associated with the Portfolio GLA Activity.
<PAGE>
Table 5--Components of Depreciation and Amortization Expense

     The components of depreciation and amortization  expense for 2001, 2000 and
1999 are summarized as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,                                                            2001                 2000                1999
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>                  <C>                 <C>
Building and improvements                                                         $ 28,201             $ 35,536            $ 40,184
Land improvements                                                                    6,119                6,197               5,779
Tenant improvements                                                                 18,789               22,134              25,374
Furniture and fixtures                                                               3,275                2,988               1,540
Leasing commissions                                                                    534                  701                 763
                                                                                  --------             --------            --------
  Total                                                                           $ 56,918             $ 67,556            $ 73,640
                                                                                  ========             ========            ========
====================================================================================================================================
</TABLE>

     As shown in TABLE 6,  interest  expense  decreased by $5,375,  or 5.5%,  to
$92,859 in 2001  compared  to  $98,234 in 2000.  This  decrease  reflects  lower
interest incurred of $12,622 partially offset by (i) an increase in amortization
of deferred financing costs of $3,769, (ii) a decrease in the amount of interest
capitalized  in  connection  with  development  activities of $3,412 and (iii) a
reduction in amortization of debt premiums of $66.

     The decrease in interest incurred is primarily  attributable to a reduction
of $221,976 in our weighted average debt  outstanding,  excluding debt premiums,
during the year ended December 31, 2001 compared to the same period in 2000. The
effect of the  reduction in weighted  average  debt  outstanding  was  partially
offset by an increase  in the  weighted  average  contractual  interest  rate on
long-term  debt for the year ended December 31, 2001 compared to the same period
in 2000. The weighted average contractual  interest rates for 2001 and 2000 were
9.09% and 8.46%, respectively.

Table 6--Components of Interest Expense

     The components of interest  expense for 2001,  2000 and 1999 are summarized
as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,                                                      2001                 2000                 1999
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>                 <C>                   <C>
Interest incurred                                                           $ 88,927            $ 101,549             $ 98,607
Amortization of deferred financing costs                                       7,025                3,256                4,379
Amortization of debt premiums                                                 (3,093)              (3,159)              (4,406)
Interest capitalized to development projects                                       -               (3,412)              (4,646)
                                                                            --------            ---------             --------
  Total                                                                     $ 92,859            $  98,234             $ 93,934
                                                                            ========            =========             ========
==============================================================================================================================
</TABLE>

     Other charges  increased by $5,091, or 29.0%, to $22,646 for the year ended
December 31, 2001 compared to $17,555 for the same period in 2000.  The increase
was primarily  attributable to (i) a higher provision for uncollectible accounts
receivable  of  $5,925  in part  from  certain  tenant  bankruptcies,  disputes,
abandonments  and store closings  during the 2001 period,  (ii) a  non-recurring
charge of $1,882  related to an  interest  rate  subsidy  agreement  and (iii) a
non-recurring  loss of $1,036 related to the refinancing of first mortgage loans
on Prime Outlets at Birch Run.  Partially  offsetting these items were (i) costs
of  $1,100  incurred  in the  third  quarter  of 2000  in  connection  with  the
discontinuance  of the proposed  sale of a 70% joint  venture  interest in Prime
Outlets at Hagerstown and a proposed  expansion to Prime Outlets at Williamsburg
which was not  constructed,  (ii) a decrease in ground lease  expense of $1,172,
(iii)  lower  marketing  expenses  of  $1,256  and (v) a  decrease  in all other
expenses of $224.

Special Charges

     During the third  quarter of 2001, we  determined  that certain  events and
circumstances  had occurred,  including  reduced  occupancy and limited  leasing
success,   that  indicated  that  four  of  our  wholly  owned  properties  were
permanently  impaired.  As a result,  we recorded a third quarter  provision for
asset  impairment  aggregating  $63,026,  representing  the  write-down  of  the
carrying value of these  properties to their  estimated fair value in accordance
with the requirements of Statement of Financial  Accounting  Standards  ("SFAS")
No. 121,  "Accounting  for the  Impairment of Long-Lived  Assets and  Long-Lived
Assets to be Disposed of".

     During 2000, we established a formal plan to sell three of our wholly owned
properties and,  accordingly,  reclassified their respective  carrying values to
assets held for sale. In accordance  with the  requirements  of SFAS No. 121, we
incurred a  provision  for asset  impairment  of $28,047 to reduce the  carrying
value of these  properties  classified as held for sale to their estimated sales
value, less cost to dispose. The aggregate carrying value of these properties as
of December 31, 2000 was $43,230.  Total revenues and expenses for the operating
properties classified as held for sale were $6,354 and $6,697, respectively, for
the year ended December 31, 2000.  See  "Liquidity and Capital  Resources - 2001
Sales Transactions"  within  Management's  Discussion of Financial Condition and
Results of Operations for additional information.

     Additionally,  we also determined that certain events and circumstances had
occurred during 2000,  including  reduced occupancy and limited leasing success,
which  indicated  that  four  wholly  owned  properties  and two  joint  venture
properties were permanently impaired. Furthermore, our results of operations for
2000 include a provision for asset impairment  aggregating $40,616  representing
the write-down of the carrying values of these permanently  impaired  properties
to their estimated fair value in accordance with SFAS No. 121.
<PAGE>
    On April 12,  2000,  we  announced  that we had been  unable to conclude an
agreement  to transfer  ownership  of our  wholly-owned  e-commerce  subsidiary,
primeoutlets.com inc., also known as eOutlets.com,  to a management-led investor
group  comprised of  eOutlets.com  management and outside  investors.  Effective
April 12, 2000, eOutlets.com ceased all operations and on November 6, 2000 filed
for  bankruptcy  under  Chapter  7. In  connection  with the  discontinuance  of
eOutlets.com, we incurred a non-recurring loss of $14,703 which includes (i) the
write-off of $3,497 of costs  capitalized  during 1999 and (ii) $11,206 of costs
incurred  during the year ended  December 31, 2000. In addition,  during 1999 we
incurred expenses of $3,500 related to organizational and start-up  expenditures
of  eOutlets.com  which are  reflected in corporate  general and  administrative
expenses in the Consolidated Statements of Operations.

     The  operating  results  for our  Designer  Connection  outlet  stores  are
reflected  in loss on Desinger  Connection  in the  Consolidated  Statements  of
Operations.  We ceased  operations of our Designer  Connection  outlet stores in
2000.

Table 7--Capital Expenditures

     The  components  of  capital  expenditures  for  2001,  2000  and  1999 are
summarized as follows:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,                                                               2001               2000               1999
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>                <C>                <C>
New development                                                                      $ 3,336            $ 17,715           $ 37,553
Expansions and renovations                                                             4,404              26,068             49,934
Re-leasing tenant allowances                                                           8,273               8,050              2,482
                                                                                     -------            --------           ---------
  Total                                                                              $16,013            $ 51,833           $ 89,969
                                                                                     =======            ========           =========
====================================================================================================================================
</TABLE>
Table 8--Consolidated Quarterly Summary of Operations
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                        2001                                              2000
                                  ------------------------------------------------  ------------------------------------------------
                                    Fourth      Third       Second       First        Fourth       Third      Second       First
                                   Quarter     Quarter      Quarter     Quarter      Quarter      Quarter     Quarter     Quarter
------------------------------------------------------------------------------------------------------------------------------------
<S>                                <C>          <C>          <C>         <C>        <C>           <C>         <C>         <C>
Total revenues (1)                 $  56,099    $ 54,760     $ 57,104    $ 58,117   $  70,517     $ 71,408    $  68,584   $  72,841
Total expenses (2)(3)(4)(5)(6)        66,814     128,012       64,167      64,480     135,056       75,759       84,343      84,528
                                   ---------    --------     --------    --------   ---------     --------    ---------   ---------
Loss before gain (loss)
  on sale of real estate,
  minority interests and
  extraordinary loss                 (10,715)    (73,252)      (7,063)     (6,363)    (64,539)      (4,351)     (15,759)    (11,687)
Gain (Loss) on sale
  of real estate                      (1,615)          -         (180)        732     (42,648)           -            -           -
                                   ---------    --------     --------    --------   ---------     --------    ---------   ---------
Loss before minority
  interests and
  extraordinary loss                 (12,330)    (73,252)      (7,243)     (5,631)   (107,187)      (4,351)     (15,759)    (11,687)
(Income) Loss allocated
  to minority interests                    7           -          400           1           3          767            -         (32)
                                   ---------    --------     --------    --------   ---------     --------    ---------   ---------
Loss before extraordinary
  loss                               (12,323)    (73,252)      (6,843)     (5,630)   (107,184)      (3,584)     (15,759)    (11,719)
Extraordinary loss                         -          -            -           -       (4,206)           -            -           -
                                   ---------    --------     --------    --------   ---------     --------    ---------   ---------
Net loss                             (12,323)    (73,252)      (6,843)     (5,630)   (111,390)      (3,584)     (15,759)    (11,719)
Income allocated to
  preferred shareholders              (5,668)     (5,668)      (5,668)     (5,668)     (5,668)      (5,668)      (5,668)     (5,668)
                                   ---------    --------     --------    --------   ---------     --------    ---------   ---------
Net loss applicable to
  common shares                    $ (17,991)   $(78,920)    $(12,511)   $(11,298)  $(117,058)    $ (9,252)   $ (21,427)  $ (17,387)
                                   =========    ========     ========    ========   =========     ========    =========   =========

Basic and diluted loss
  per common share:
Loss before extraordinary
  loss                             $   (0.41)   $  (1.81)    $  (0.29)   $  (0.26)  $   (2.59)    $  (0.21)   $   (0.49)  $   (0.40)
Extraordinary loss                         -           -            -           -       (0.10)           -            -           -
                                   ---------    --------     --------    --------   ---------     --------    ---------    --------
Net loss                           $   (0.41)   $  (1.81)    $  (0.29)   $  (0.26)  $   (2.69)    $  (0.21)   $   (0.49)  $   (0.40)
                                   =========    ========     ========    ========   =========     ========    =========   =========
Weighted-average
  common shares
  outstanding -
  basic and diluted                   43,578      43,578       43,578      43,578      43,578       43,578       43,532      43,357
                                   =========    ========     ========    ========   =========     ========    =========   =========
====================================================================================================================================
</TABLE>

Notes:
(1)  The first quarter of 2000 revenues reflect a non-recurring gain on the sale
     of outparcel land of $2,472.
(2)  The third  quarter  of 2001  expenses  reflect  non-recurring  charges  and
     expenses aggregating $65,944 including (i) a provision for asset impairment
     of $63,026, (ii) a charge of $1,882 related to an interest rate subsidy and
     (iii) a loss of $1,036 incurred in connection with the refinancing of first
     mortgage loans on Prime Outlets at Birch Run.
(3)  The first  quarter  of 2000  expenses  reflect  non-recurring  charges  and
     expenses  aggregating  $14,714  including (i) a loss of $12,964  associated
     with the  discontinuance of our eOutlets.com  subsidiary and (ii) severance
     and other compensation costs totaling $1,750.
(4)  The second  quarter of 2000  expenses  reflect  non-recurring  charges  and
     expenses aggregating $11,979 including (i) a provision for asset impairment
     of $8,538,  (ii) a loss of $1,315 associated with the discontinuance of our
     eOutlets.com  subsidiary,  (iii)  professional  fees related to refinancing
     activities  of  $1,455  and (iv)  severance  and other  compensation  costs
     totaling $671.
<PAGE>
(5)  The third  quarter  of 2000  expenses  reflect  non-recurring  charges  and
     expenses  aggregating  $1,524  including (i) costs of $1,100 related to the
     termination  of the sale of a joint  venture  interest in Prime  Outlets at
     Hagerstown and an expansion to Prime Outlets at Williamsburg, which was not
     constructed,  and (ii) a loss of $424 related to the  discontinuance of our
     eOutlets.com subsidiary.
(6)  The fourth quarter of 2000 expenses  reflect a non-recurring  provision for
     asset  impairment of $60,125.  Included is $20,547 related to the Company's
     decision to reclassify three properties to assets held for sale and $39,578
     related to five properties where  significant  tenants filed for bankruptcy
     in late 2000 and early 2001 and we have limited releasing opportunities.

Comparison  of the Year Ended  December 31, 2000 to the Year Ended  December 31,
1999

Summary

     We reported net losses of $142,452 and $34,829 for the years ended December
31, 2000 and 1999,  respectively.  For the year ended December 31, 2000, the net
loss  applicable to our common  shareholders  was $165,124,  or $3.79 per common
share on a basic and diluted  basis.  For the year ended  December 31, 1999, the
net loss applicable to our common  shareholders was $44,791,  or $1.04 and $1.30
per common share on a basic and diluted basis, respectively.

     The 2000 results reflect certain non-recurring items,  including (i) a loss
on the sale of real estate of $42,648,  (ii) a provision for asset impairment of
$68,663,   (iii)  a  loss  on   eOutlets.com   of  $14,703,   (iv)  general  and
administrative  expenses  consisting of severance and other  compensation  costs
aggregating  $2,421  and  professional  fees of $1,455  related  to  refinancing
activities,  (v) a gain on the sale of  outparcel  land of  $2,472  included  in
interest and other income, (vi) a loss on Designer  Connection of $1,815,  (vii)
other charges of $1,100  incurred in connection with the termination of the sale
of joint venture  interests in certain  properties  and (viii) an  extraordinary
loss of  $4,206  related  to the  prepayment  and  modification  to the terms of
certain long-term debt.

     The 1999 results  reflect  certain  non-recurring  items,  including  (i) a
provision  for  abandoned  projects  of  $16,039,  (ii) a  provision  for  asset
impairment of $15,842,  (iii) a loss on the sale of real estate of $15,153, (iv)
a loss on Designer  Connection of $6,561 and (v) an extraordinary loss of $3,518
(net of minority  interests  of $887)  relating to the early  extinguishment  of
certain long-term debt.

Revenues

     Total revenues were $283,350 for the year ended December 31, 2000, compared
to $305,956 for the year ended  December  31,  1999,  a decrease of $22,606,  or
7.4%. Base rents  decreased  $15,149,  or 7.8%, in 2000 compared to 1999.  These
decreases  are  primarily  due  to  the  Prime/Estein  Transaction  and  reduced
portfolio occupancy, partially offset by the Portfolio Expansion.  Straight-line
rent income (expense), included in base rent were $(94) and $1,181 for the years
ended December 31, 2000 and 1999, respectively.

     Percentage  rents,  which  represent  rents based on a percentage  of sales
volume above a specified threshold, decreased $1,716, or 21.2%, to $6,369 during
the year ended December 31, 2000 compared to $8,085 for the same period in 1999.
This decline was primarily attributable to the Prime/Estein Transaction.

     As summarized in TABLE 3, merchant sales reported for centers  remaining in
our outlet center portfolio at period-end were $2,746 million and $3,287 million
for the years ended  December 31, 2000 and 1999,  respectively.  The decrease in
total reported merchant sales is primarily due to the sale of the Permanent Loan
Properties  on December  22,  2000.  The  reported  merchant  sales data for the
Permanent  Loan  Properties  are excluded from the 2000 sales data  presented in
TABLE 3. The weighted average reported  merchant sales per square foot decreased
to $245 per  square  foot in 2000  from  $257  per  square  foot in 1999.  Total
merchant  occupancy cost per square foot increased  slightly from $21.90 in 1999
to $22.03 in 2000 and as a  percentage  of  reported  sales from 8.54% to 8.99%,
respectively.

     Tenant  reimbursements,  which  represent  the  contractual  recovery  from
tenants of certain operating expenses,  decreased by $6,713, or 7.5%, to $83,350
in 2000  compared  to $90,063 in 1999.  This  decrease is  primarily  due to the
Prime/Estein  Transaction and reduced occupancy in 2000, partially offset by the
Portfolio Expansion.

     Interest and other income increased by $972, or 7.0%, to $14,801 during the
year ended  December 31, 2000 as compared to $13,829 for the year ended December
31, 1999. This increase  reflects (i) a nonrecurring  first quarter 2000 gain on
sale of outparcel land of $2,472,  (ii) an increase in  amortization of deferred
income of $809,  (iii)  higher  lease  termination  income of $721,  (iv) higher
property  management fee income of $694 and (v) higher  interest income of $434.
These  were  partially  offset  by  (i) a  reduction  in  equity  earnings  from
investment in  partnerships  of $2,036,  (ii) lower  temporary  tenant income of
$1,269,  (iii) reduced municipal assistance income of $313 and (iv) decreases in
all other miscellaneous income of $540.

Expenses

     Property  operating  expenses  decreased by $2,325,  or 3.3%, to $68,537 in
2000 compared to $70,862 in 1999.  Real estate taxes expense  decreased by $629,
or 2.8%,  to $21,776 in 2000 from  $22,405 in 1999.  The  decrease  in  property
operating expenses is primarily due to the Prime/Estein  Transaction,  partially
offset  by the  Portfolio  Expansion.  As shown in  TABLE  5,  depreciation  and
amortization  expense decreased by $6,084, or 8.3%, to $67,556 in 2000, compared
to $73,640 in 1999.  This decrease  results from the  Prime/Estein  Transaction,
partially offset by the depreciation and amortization of assets  associated with
the Portfolio Expansion.
<PAGE>
     As shown in TABLE 6,  interest  expense  increased by $4,300,  or 4.6%,  to
$98,234 in 2000 compared to $93,934 in 1999.  This increase  reflects (i) higher
interest  incurred of $2,942,  (ii) a reduction in amortization of debt premiums
of  $1,247  and  (iii) a  decrease  in the  amount of  interest  capitalized  in
connection with development projects of $1,234. Partially offsetting these items
was a decrease in amortization of deferred financing costs of $1,123.

     The increase in interest incurred is primarily  attributable to an increase
in our weighted average contractual interest rate on long-term debt for the year
ended  December  31,  2000  compared to the same  period in 1999.  The  weighted
average  contractual  interest  rates  for 2000 and 1999 were  8.46% and  7.90%,
respectively.  Partially offsetting the impact of the interest rate increase was
a reduction of $48,209 in our weighted average debt outstanding,  excluding debt
premiums, during 2000 compared to 1999.

     Other  charges  increased  by $10,637,  or 153.8%,  to $17,555 for the year
ended December 31, 2000 compared to $6,918 for the same period in 1999. The 2000
results reflect costs of $1,100 incurred in the third quarter in connection with
the discontinuance of the proposed sale of a 70% joint venture interest in Prime
Outlets at Hagerstown and a future  expansion to Prime Outlets at  Williamsburg.
The 1999 results reflect the write-off of $3,100 of capitalized costs associated
with our expired option to purchase our joint venture  partner's 50.0% ownership
interest in Prime  Outlets at New River.  Excluding  these items,  other charges
increased  $12,637  due to (i) a higher  provision  for  uncollectible  accounts
receivable  of $6,664  resulting in part from certain  tenant  bankruptcies  and
abandonments,   (ii)  higher  marketing  expenses  of  $4,263,  (iii)  increased
non-capitalized  pre-development  costs of $791,  (iv) an  increase in all other
miscellaneous  charges of $596 and (v) an  increase in ground  lease  expense of
$323.

Special Charges

     During 2000, we established a formal plan to sell three of our wholly owned
properties and,  accordingly,  reclassified their respective  carrying values to
assets held for sale.  Total revenues and expenses for the operating  properties
classified as held for sale were $6,354 and $6,697,  respectively,  for the year
ended December 31, 2000. In accordance with the requirements of SFAS No. 121, we
incurred a  provision  for asset  impairment  of $28,047 to reduce the  carrying
value of these  properties  classified as held for sale to their estimated sales
value, less cost to dispose. The aggregate carrying value of these properties as
of December 31, 2000 was $43,230.

     Additionally,  we also determined that certain events and circumstances had
occurred during 2000,  including  reduced occupancy and limited leasing success,
which  indicated  that  four  wholly  owned  properties  and two  joint  venture
properties were permanently impaired. Furthermore, our results of operations for
2000 include a provision for asset impairment  aggregating $40,616  representing
the write-down of the carrying values of these permanently  impaired  properties
to their estimated fair value in accordance with SFAS No. 121.

     On April 12,  2000,  we  announced  that we had been  unable to conclude an
agreement  to transfer  ownership  of our  wholly-owned  e-commerce  subsidiary,
primeoutlets.com inc., also known as eOutlets.com,  to a management-led investor
group  comprised of  eOutlets.com  management and outside  investors.  Effective
April 12, 2000, eOutlets.com ceased all operations and on November 6, 2000 filed
for  bankruptcy  under  Chapter  7. In  connection  with the  discontinuance  of
eOutlets.com, we incurred a non-recurring loss of $14,703 which includes (i) the
write-off of $3,497 of costs  capitalized  during 1999 and (ii) $11,206 of costs
incurred  during the year ended  December 31, 2000. In addition,  during 1999 we
incurred expenses of $3,500 related to organizational and start-up  expenditures
of  eOutlets.com  which are  reflected in corporate  general and  administrative
expenses in the Consolidated Statements of Operations.

     When   accounting   for  1999,  we  determined   that  certain  events  and
circumstances had occurred during 1999,  including,  limited leasing success and
revised occupancy estimates,  which indicated one wholly-owned  property and one
joint venture property were permanently  impaired.  Accordingly,  the results of
operations  for 1999  include  a  provision  for  asset  impairment  of  $15,842
representing  the  write-down  of the  carrying  values of these assets to their
estimated  fair  value in  accordance  with  SFAS No.  121.  Additionally,  when
accounting  for 1999, we recorded a provision for abandoned  projects of $16,039
based on our  determination  that as of December 31, 1999,  our  pre-development
efforts associated with certain projects were no longer viable.

     The  operating  results  for our  Designer  Connection  outlet  stores  are
reflected  in loss on Designer  Connection  in the  Consolidated  Statements  of
Operations.  When  accounting for 1999,  because we decided to  discontinue  the
operations of its Designer  Connection outlet stores, we recorded  non-recurring
charges  aggregating  $3,659,  including (i) $1,659  related to the write-off of
costs  associated  with a web-site  for Designer  Connection  and (ii) $2,000 of
costs to cover the expected cash and non-cash costs of the closure. The cash and
non-cash costs of the closure  primarily  consisted of (i) employee  termination
costs, (ii) lease  obligations,  and (iii) the write-down of assets to their net
realizable value. We ceased operations of our Designer  Connection outlet stores
in 2000.

Liquidity and Capital Resources

Sources and Uses of Cash

     For the year ended  December  31,  2001,  net cash  provided  by  operating
activities was $32,911, net cash provided by investing activities was $5,595 and
net cash used in financing activities was $39,875.
<PAGE>
     The gross  cash  provided  by  investing  activities  during the year ended
December 31, 2001 was $25,885 which consisted of (i) $8,993 of net proceeds from
the sale of Prime Outlets at  Silverthorne  on March 16, 2001,  (ii) $510 of net
proceeds from the February 2, 2001 sale of Northgate Plaza,  (iii) $8,286 of net
proceeds  from  the  August  21,  2001  Birch  Run  Outlet  Center   refinancing
transaction  and  (iv)  $6,237  of  net  proceeds  from  the  October  19,  2001
Williamsburg Outlet Center refinancing transaction.  Partially offsetting theses
sources  were gross uses of cash  totaling  $20,290  comprised of (i) $15,170 of
additions  to  rental   property,   (ii)  $2,950  of  equity   contributions  to
unconsolidated   partnerships   and  (iii)   $2,170  of   payments   related  to
eOutlets.com. The additions to rental property are primarily attributable to (i)
the payment of  remaining  construction  costs for Prime  Outlets of Puerto Rico
which opened on July 27, 2000, (ii) costs incurred in connection with re-leasing
space to new  merchants  and  (iii)  capital  expenditures  associated  with the
renovation and rehabilitation of existing outlet centers.

     The gross uses of cash for financing  activities of $57,174 during the year
ended December 31, 2001  consisted of (i) scheduled  principal  amortization  on
notes  payable  of  $22,971,   (ii)  repayment  in  full  of  certain   mortgage
indebtedness  on  Prime  Outlets  at  Edinburgh  of  $16,330,   (iii)  principal
prepayments  totaling  $16,921 on our Mezzanine  Loan and (iv) deferred costs of
$952.  Partially  offsetting  these items were  proceeds  from (i) the Edinburgh
First  Mortgage  Loan of $16,700,  (ii) other new  borrowings  of $199 and (iii)
contributions from minority interests of $400.

     The  following  tables  summarize  our  contractual  obligations  and other
commitments as of December 31, 2001:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                Payments Due by Period
                                                     -------------------------------------------------------------------------------
                                                                           Less than                                        After
Contractual Obligations (1)                               Total              1 year      1 to 3 years     4 to 5 years     5 years
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>                 <C>            <C>             <C>             <C>
Bonds and notes payable, excluding debt premiums        $ 855,102           $ 48,479       $ 523,667       $ 173,078       $ 109,878
Operating lease payments                                    9,188              1,668           1,642             502           5,376
                                                        ---------           --------       ---------       ---------       ---------
  Total                                                 $ 864,290           $ 50,147       $ 525,309       $ 173,580       $ 115,254
                                                        =========           ========       =========       =========       =========
====================================================================================================================================
</TABLE>


--------------------------------------------------------------------------------
                                                                      Annualized
                                                     In Arrears as      Dividend
Preferred Stock Dividend (2)                         of 12/31/01     Requirement
--------------------------------------------------------------------------------

Series A Senior Preferred Stock                      $ 12,830           $  6,037
Series B Convertible Preferred Stock                   35,349             16,635
                                                     --------           --------
  Total                                              $ 48,179           $ 22,672
                                                     ========           ========
================================================================================


--------------------------------------------------------------------------------
                                                   Amount of          Debt
                                                  Guarantee as       Maturity
Guarantees of Indebtedness of Others (3)           of 12/31/01        Date
--------------------------------------------------------------------------------

HGP Secured Credit Facility                        $ 10,000       July, 2002
HGP office and equipment debt                         2,435       December, 2002
                                                   --------
  Total                                            $ 12,435
                                                   ========
================================================================================

Notes:
(1)  Amounts excludes  contractual  obligations  related to (i) Prime Outlets at
     Hagerstown (see "2002 Sales  Transaction") and (ii) Prime Outlets at Conroe
     and  Prime  Outlets  at   Jeffersonville   II  (see  "Defaults  on  Certain
     Non-recourse Mortgage Indebtedness.  We sold Prime Outlets at Hagerstown to
     the Prime/Estein  Venture") on January 11, 2002 and commencing on that date
     we account for our remaining 30% ownership  interest in accordance with the
     equity method of accounting.  Additionally,  non-recourse mortgage loans on
     Prime  Outlets  at  Conroe  and  Prime  Outlets  at  Jeffersonville  II are
     cross-collateralized.  Effective  January 1, 2002, the lender foreclosed on
     Prime Outlets at Conroe. The lender and we remain in discussions  regarding
     the transfer of our ownership  interest in Prime Outlets at  Jeffersonville
     II.
(2)  See "Dividends and Distributions" for additional information.
(3)  See "Guarantees of Indebtedness of Others" for additional information.
<PAGE>
Going Concern

     Our liquidity  depends on cash provided by operations and potential capital
raising  activities  such as funds  obtained  through  borrowings,  particularly
refinancings of existing debt, and cash generated through asset sales.  Although
we believe that  estimated  cash flows from  operations  and  potential  capital
raising  activities  will be sufficient  to satisfy our  scheduled  debt service
obligations  and  sustain  our  operations  for the next  year,  there can be no
assurance  that we will be successful in obtaining the required  amount of funds
for these items or that the terms of the potential  capital raising  activities,
if they should  occur,  will be as  favorable  as we have  experienced  in prior
periods.

     During 2002, we are required to make certain additional mandatory principal
pay-downs to our Mezzanine Loan aggregating $25,367 from net proceeds from asset
dispositions or other capital  transactions within specified periods pursuant to
the terms of a  modification  to the original  terms of the Mezzanine  Loan (see
"Mezzanine Loan  Modification" for additional  information).  Although we are in
the process of seeking to generate  additional  liquidity  though new financings
and the  sale  of  assets,  there  can be no  assurance  that we will be able to
complete asset dispositions or other capital  transactions  within the specified
periods or that such asset dispositions or other capital  transactions,  if they
should occur, will generate sufficient proceeds to make the additional mandatory
pay-downs  of the  Mezzanine  Loan.  Any  failure  to  satisfy  these  mandatory
principal   prepayments   within  the  specified  time  periods  indicated  will
constitute a default under the Mezzanine Loan.

     As of December 31, 2001,  we were in  compliance  with all  financial  debt
covenants under our recourse loan agreements. However, there can be no assurance
that we will be in  compliance  with our  financial  debt  covenants  in  future
periods since our future  financial  performance is subject to various risks and
uncertainties, including, but not limited to, the effects of increases in market
interest rates from current levels,  the risk of potential  increases in vacancy
rates  and the  resulting  impact on our  revenue,  and  risks  associated  with
refinancing our current debt  obligations or obtaining new financing under terms
less  favorable  than we have  experienced  in prior  periods.  See "Defaults on
Certain   Non-recourse   Mortgage   Indebtedness"   and   "Defaults  on  Certain
Non-recourse   Mortgage   Indebtedness  of   Unconsolidated   Partnerships"  for
additional information.

     Based on our current  financial  projections,  we believe we will not be in
compliance  with respect to debt  service  coverage  ratios  under  certain debt
facilities  during 2002. The debt facilities are fixed rate  tax-exempt  revenue
bonds (the "Affected  Fixed Rate Bonds") in the amount of $18,390 and a recourse
bridge  loan (the  "Bridge  Loan") in the  amount of  $111,375.  In the event of
non-compliance,  the holders of the  Affected  Fixed Rate Bonds may elect to put
such  obligations  to us at a price equal to par plus  accrued  interest and the
Bridge  Loan  lender  may  elect  to  accelerate  its  maturity.   Additionally,
noncompliance  or defaults  with respect to debt service  coverage  ratios under
these debt facilities may trigger certain cross-default  provisions with respect
to other debt facilities, including our Mezzanine Loan.

     We  intend  to  meet  with  the  affected  lenders  to  discuss   potential
resolutions  including  waiver or amendment with respect to such  non-compliance
provisions.  If we are unable to reach satisfactory resolution with the affected
lenders,  we will look to (i) obtain alternative  financing from other financial
institutions,  (ii) sell the project or projects where  non-compliance is likely
to  occur or (iii)  explore  other  possible  capital  transactions  in order to
generate cash to repay the amounts outstanding under such debt facilities. There
can be no  assurance  that we will  obtain a  satisfactory  resolution  with our
affected  lenders  or that we will be able to  complete  asset  sales  or  other
capital raising  activities  sufficient to repay the amounts  outstanding  under
such debt facilities.

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

2001 Debt Transactions

     In  connection  with  the  sales  of  Northgate  Plaza,  Prime  Outlets  at
Silverthorne  and certain land located in  Camarillo,  CA during 2001, we repaid
mortgage indebtedness of $5,966, $18,078 and $6,227, respectively.  In addition,
net cash proceeds from these  property sales were used to prepay an aggregate of
$10,124 of  principal  outstanding  under our  Mezzanine  Loan.  See "2001 Sales
Transactions" for additional information.

     On June 8, 2001, we,  through  affiliates,  obtained a two-month  extension
through  August  10,  2001 to the terms  and  maturity  date of a $16,330  first
mortgage  loan secured by Prime  Outlets at  Edinburgh  (the  "Edinburgh  Outlet
Center")  located  in  Edinburgh,   Indiana.  On  June  29,  2001,  we,  through
affiliates,  completed a refinancing  of this first mortgage loan. The new first
mortgage loan (the  "Edinburgh  First Mortgage  Loan") provides for an aggregate
commitment up to $18,000 and is non-recourse to us. The Edinburgh First Mortgage
Loan,  which is  secured by the  Edinburgh  Outlet  Center,  has a term of three
years,  requires monthly  principal  payments based upon a 15-year  amortization
schedule and is pre-payable  at any time subject to certain  prepayment and exit
fees. The Edinburgh  First Mortgage Loan bears interest at a floating rate based
on six-month LIBOR plus 350 basis points,  subject to an 8.00% minimum,  and may
be  adjusted  semi-annually  with  a  maximum  1.0%  increase  or  decrease  per
adjustment.  As of December 31, 2001,  the  Edinburgh  First  Mortgage Loan bore
interest  at the  minimum  rate.  At  closing,  $16,700 of the  Edinburgh  First
Mortgage  Loan was funded,  resulting in net proceeds of $88 after  repayment of
the old first  mortgage  loan and closing  costs.  As of December 31, 2001,  the
remaining  commitment provides for the funding of up to an additional $1,300 for
leasing related capital expenditures at the Edinburgh Outlet Center.
<PAGE>
Prime/Estein Venture Refinancing Transactions

     On August 7, 2001, we, through affiliates, obtained an additional one-month
extension  to  September  10, 2001 to the terms and  maturity  date of a $10,003
first mortgage loan secured by Prime Outlets at Birch Run (the "Birch Run Outlet
Center")  located in Birch Run,  Michigan.  The terms and  maturity  date of the
$10,003 first mortgage loan had previously  been extended to August 10, 2001. We
and  Estein,   through  affiliates,   have  30%  and  70%  ownership  interests,
respectively,  in the  Prime/Estein  Venture that  indirectly owns the Birch Run
Outlet Center.  We completed a refinancing  of first mortgage loans  aggregating
$63,000 on the Birch Run Outlet  Center on August 21,  2001.  These  loans which
were  refinanced  were  included in a  "wrap-around"  loan provided by us to the
Prime/Estein  Venture in connection with the November 19, 1999 sale of the Birch
Run Project.

     The new first mortgage loan (the "Birch Run First Mortgage Loan") is in the
amount of $63,000,  is secured by the Birch Run Outlet Center, has a term of ten
years,  and  requires  monthly  principal  amortization  based  upon  a  25-year
schedule.  The Birch Run First  Mortgage  Loan bears  interest  at an  effective
fixed-rate of 8.12%.  Greenwich  Capital Financial  Products,  Inc. provided the
financing.  The  Prime/Estein  Venture used the net proceeds  from the Birch Run
First Mortgage Loan to repay in full first mortgage loans and the  "wrap-around"
loan of $10,731  due to us,  aggregating  $63,000.  Net  proceeds  to us,  after
payment of closing and other  transaction costs, were $8,286. In connection with
the refinancing  transaction,  we recorded a non-recurring loss of $1,036 during
the third quarter of 2001.

     Pursuant to Prime/Estein  Venture-related  documents to which affiliates of
ours  are  parties,  we  are  obligated  to  provide  to,  or  obtain  for,  the
Prime/Estein  Venture  fixed rate  financing  at an annual  rate of 7.75%.  As a
result, each month during the term of the Birch Run First Mortgage Loan, we will
be obligated to pay to the Prime/Estein  Venture the difference between the cost
of the  financing  at an  annual  effective  rate of  8.12%  and the cost of the
financing at an annual rate of 7.75% (the "Interest Rate Subsidy"). The total of
the payments to be made by us to the  Prime/Estein  Venture over the term of the
Birch Run First Mortgage Loan will be $2,723.  During the third quarter of 2001,
we recorded a non-recurring loss of $1,882 in other charges representing the net
present value of the Interest Rate Subsidy.

     On October 19, 2001, we, through affiliates, completed the refinancing of a
$32,500  first  mortgage  loan  secured by Prime  Outlets at  Williamsburg  (the
"Williamsburg  Outlet  Center"),  an  outlet  center  located  in  Williamsburg,
Virginia.  The new first mortgage loan (the "Williamsburg  Mortgage Loan") has a
principal amount of $32,500,  is secured by the Williamsburg  Outlet Center, and
has a term  of  ten years.  The  Williamsburg  Mortgage  Loan  requires  monthly
principal  amortization  based upon a 25-year  schedule and bears  interest at a
fixed rate of 7.69%.  Prudential  Mortgage  Capital  Company,  LLC  provided the
financing.

     We and Estein, through affiliates, own 30% and 70% interests, respectively,
in the Prime/Estein Venture that indirectly owns the Williamsburg Outlet Center.
In connection with the refinancing transaction, the Prime/Estein Venture paid in
full a $10,000 promissory note (of which Estein's obligation was $7,000 and ours
was $3,000) to us. Our proceeds  after payment of closing and other  transaction
costs were $6,237. The net proceeds from this refinancing  transaction were used
to prepay $5,997 of the Mezzanine Loan.

     Pursuant to Prime/Estein  Venture-related agreements to which affiliates of
ours  are  parties,  we  are  obligated  to  provide  to,  or  obtain  for,  the
Prime/Estein  Venture  fixed rate  financing  at an annual  rate of 7.75%.  As a
result,  each  month  during the term of the  Williamsburg  Mortgage  Loan,  the
Prime/Estein  Venture will be obligated to pay to us the difference  between the
cost of such financing at an assumed annual rate of 7.75% and the actual cost of
such financing at an annual rate of 7.69%.

Mezzanine Loan Modification

     Effective  January 31, 2002, we entered into a modification to the original
terms of our Mezzanine Loan (see Note 6 - "Bonds and Notes Payable" of the Notes
to  Consolidated  Financial  Statements for additional  information)  previously
obtained  from Fortress  Investment  Fund LLC and  Greenwich  Capital  Financial
Products, Inc. (collectively, the "Lender") in December 2000.

     The Mezzanine  Loan amendment (the  "Amendment"),  among other things,  (i)
reduces required monthly principal  amortization for the period February 1, 2002
through  January 1, 2003  ("Year 2") from  $1,667 to $800,  which may be further
reduced  to a minimum of $500 per month  under  certain  limited  circumstances,
provided no defaults exist under the Mezzanine Loan and certain other conditions
have been  satisfied at the Lender's  sole  discretion,  (ii)  requires  certain
mandatory  principal  prepayments  from net proceeds from asset  dispositions or
other  capital  transactions  pursuant to the schedule set forth below and (iii)
reduces the threshold  level at which excess cash flow from  operations  must be
applied to  principal  pay-downs,  primarily  resulting  from a reduction in the
available  working capital reserves.  Additionally,  the Amendment (i) increased
the  interest  rate from LIBOR plus  9.50% to LIBOR  plus 9.75%  (rounded  up to
nearest  0.125% with a minimum rate of 14.75%),  (ii) changed the Mezzanine Loan
maturity date from December 31, 2003 to September 30, 2003 and (iii)  required a
0.25% fee, which was paid at the time of the  modification,  on the  outstanding
principal balance.
<PAGE>
     The Amendment also requires additional Year 2 monthly payments of $250 (the
"Escrowed  Funds") into an escrow  account  controlled  by the Lender.  Provided
certain  conditions are satisfied in the Lender's sole discretion,  the Escrowed
Funds may be available to us for certain  limited  purposes.  The Escrowed Funds
not used at the end of each  quarter,  subject  to certain  exceptions,  will be
applied by the Lender to amortize  the  Mezzanine  Loan.  The  required  monthly
principal amortization of $2,333 commencing on February 1, 2003, through the new
maturity date of September 30, 2003, remains unchanged.

     The  Amendment  also  requires,  in  lieu  of  the  original  requirements,
additional  mandatory  principal   prepayments  with  net  proceeds  from  asset
dispositions, excluding the January 2002 sale of a 70% interest in Prime Outlets
at Hagerstown (see "2002 Sales  Transactions"  for additional  information),  or
other  capital  transactions  of not less than (i) $8,906 by May 1,  2002,  (ii)
$24,406,  inclusive  of the $8,906,  by July 1, 2002  (subject to  extension  to
October  31,  2002  provided   certain   conditions  are  met  to  the  Lender's
satisfaction) and (iii) $25,367, inclusive of the $24,406,  by November 1, 2002.
In  addition  to each  principal  prepayment,  we must  also  pay any  interest,
including  deferred  interest,  accrued thereon and the additional fees provided
for in the  Mezzanine  Loan.  Any failure to satisfy these  mandatory  principal
prepayments or other payments  within the specified time periods  indicated will
constitute a default under the Mezzanine Loan.

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

Debt Service Obligations

     Our aggregate indebtedness,  as adjusted for the Amendment to the Mezzanine
Loan and  excluding  (i)  unamortized  debt  premiums of $11,051,  (ii) mortgage
indebtedness  aggregating  $58,079  on Prime  Outlets  at  Hagerstown  and (iii)
non-recourse  mortgage  indebtedness  aggregating  $33,235  on Prime  Outlets at
Conroe and Prime  Outlets  at  Jeffersonville  II was  $855,102  (the  "Adjusted
Indebtedness") at December 31, 2001. See "2002 Sales Transactions" and "Defaults
on Certain Non-recourse Mortgage Indebtedness" for additional information.

     At December 31,  2001,  the Adjusted  Indebtedness  had a  weighted-average
maturity of 3.3 years and bore contractual  interest at a weighted-average  rate
of 9.05% per annum.  At December 31, 2001,  $756,751,  or 88.5%, of the Adjusted
Indebtedness  bore interest at fixed rates and $98,351 or 11.5%, of the Adjusted
Indebtedness  bore interest at variable rates. We utilize  derivative  financial
instruments to manage our interest rate risk associated with variable rate debt.

     As of December 31, 2001, our scheduled  principal  payments during 2002 for
the Adjusted  Indebtedness  aggregated  $48,479.  The 2002  scheduled  principal
payments  include (i) a recourse  first mortgage loan of $2,972 on Western Plaza
(the  "Western  Plaza  First  Mortgage  Loan"),  a community  center  located in
Knoxville,  Tennessee,  which  currently  matures  on April 30,  2002 but may be
extended, subject to an additional principal pay-down of $350, an additional six
months to October 31, 2002 and (ii) additional  mandatory principal pay-downs on
the Mezzanine Loan aggregating  $25,367 (see "Mezzanine Loan  Modification"  for
additional  information).   Certain  of  our  debt  obligations,  including  the
Mezzanine  Loan and  fixed-rate  bonds  aggregating  $7,000  secured by a second
mortgage  on  Western  Plaza,  contain  cross-default  provisions  that would be
triggered in the event of a default under the Western Plaza First Mortgage Loan.
In the event such  cross-default  provisions were triggered,  the holders of the
Mezzanine Loan could elect to accelerate  such debt and the holders of the bonds
could elect to put such  obligations  to us at a price equal to par plus accrued
interest.

Guarantees of Indebtedness of Others

     We are a guarantor or otherwise  obligated  with respect to an aggregate of
$12,435 of the indebtedness of Horizon Group Properties, Inc. and its affiliates
("HGP"),  including  $10,000 of obligations under a secured credit facility (the
"HGP Secured Credit Facility"). HGP is a publicly traded company that was formed
in connection with our merger with Horizon Group, Inc. in June, 1998.

     The HGP Secured  Credit  Facility  bore  interest at a rate of 30-day LIBOR
plus 1.90%, was  collateralized by five properties located throughout the United
States and matured on July 11,  2001.  On August 2, 2001,  HGP  announced it had
refinanced one of the properties in the HGP Secured Credit Facility and used the
proceeds from the new first mortgage loan to reduce the principal balance of the
HGP Secured Credit  Facility.  Simultaneously,  HGP obtained an extension to the
remaining principal balance of approximately  $33,500,  including a 2% extension
fee, on the HGP Secured Credit Facility through July 11, 2002. Commencing on the
extension  date,  the HGP Secured  Credit  Facility  bears interest at a rate of
30-day LIBOR (but not less than 4.10%) plus 3.95%,  requires  monthly  principal
amortization  of  $225,  and  is  collateralized  by  four  properties   located
throughout  the United  States.  We confirmed our  obligations as guarantor with
respect to the HGP Secured Credit  Facility in connection with the extension and
partial pay-down. No claims have been made against the Company's guaranty by the
HGP Secured Credit Facility  lender.  On October 11, 2001, HGP announced that it
was in default  under two loans with an aggregate  principal  balance of $45,500
secured by six of its other outlet centers. Such defaults are not defaults under
the HGP Secured Credit Facility or any other facility guaranteed by us.
<PAGE>
     We, through  affiliates,  hold a 51% interest in the owner of Phases II and
III of an outlet  center  located in Bellport,  New York (the  "Bellport  Outlet
Center").  We  account  for our  interest  in Phases II and III of the  Bellport
Outlet Center in  accordance  with the equity  method of  accounting.  On May 1,
2001,  the  recourse  first  mortgage  loan on Phases II and III of the Bellport
Outlet Center of $7,795  matured.  On May 21, 2001,  we, on behalf of the owner,
made a principal  payment of $2,295 to the lender in exchange for a modification
to  the  terms  and a  one-year  extension  of the  maturity  of  this  mortgage
indebtedness.  The outstanding  balance of the first mortgage loan was $5,500 as
of December 31,  2001.  We plan to sell this  property to repay the  outstanding
balance in full. If we are unable to consummate a sale of the property,  we will
attempt to either refinance or extend the maturity of such indebtedness on terms
acceptable  to us.  There  can be no  assurance  that we will be  successful  in
obtaining the required amount of funds for the maturing indebtedness or that the
terms of any potential sale, refinancing or extension of the maturity will be as
favorable as we have experienced in prior periods or otherwise acceptable to us.
As of December 31, 2001,  the carrying  value of our investment in Phases II and
III of the Bellport  Outlet Center was $1,689,  which is included in investments
in unconsolidated partnerships in the Consolidated Balance Sheet.

Defaults on Certain Non-recourse Mortgage Indebtedness

     During 2001,  certain of our  subsidiaries  suspended  regularly  scheduled
monthly debt service  payments on two  non-recourse  mortgage loans  aggregating
$33,235 as of December 31, 2001.  These  non-recourse  mortgage  loans which are
held by New York Life Investment LLC ("New York Life") are  cross-collateralized
by Prime Outlets at  Jeffersonville  II,  located in  Jeffersonville,  Ohio, and
Prime Outlets at Conroe, located in Conroe, Texas.

     Effective  January 1, 2002,  New York Life  foreclosed  on Prime Outlets at
Conroe.  We remain in  discussions  with New York Life regarding the transfer of
our ownership  interest in Prime Outlets at Jeffersonville  II. During 2001, all
excess cash flow from the  operations  of these  centers was  utilized  for debt
service on the two  non-recourse  mortgage  loans.  Accordingly,  we believe the
foreclosure  sale of Prime Outlets at Conroe and the  potential  transfer of our
ownership  interest  in  Prime  Outlets  at  Jeffersonville  II will  not have a
material impact on our results of operations or financial condition.

Defaults on Certain Non-recourse Mortgage Indebtedness of Unconsolidated
Partnerships

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

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

     We  believe  neither  of these  mortgage  loans is  recourse  to us.  It is
possible,  however,  that either or both of the respective  lenders will,  after
completing its foreclosure action, file a lawsuit seeking to collect from us the
difference  between the value of the mortgaged property and the amount due under
the loan. If such an action is brought,  the outcome and ultimate liability,  if
any,  cannot be  predicted  at this time.  In  addition,  we are  currently  not
receiving  any cash flow from  Oxnard  Factory  Outlet  and were not  receiving,
directly or indirectly any cash flow from Phase I of the Bellport  Outlet Center
prior to the loss of control of such  project.  We account for our  interests in
(i) Phases I of the Bellport Outlet Center and (ii) the Oxnard Factory Outlet in
accordance  with the equity method of  accounting.  As of December 31, 2001, the
carrying value of our investment in these  properties was $0.  Therefore,  we do
not believe the existing defaults under these loans or any related  foreclosures
on the  mortgaged  properties  will have a  material  impact on our  results  of
operations or financial condition.

2002 Sales Transaction

     On January 11, 2002,  we completed  the sale of Prime Outlets at Hagerstown
(the  "Hagerstown  Center")  to  an  existing  joint  venture  partnership  (the
"Prime/Estein Venture") between one of our affiliates and an affiliate of Estein
&  Associates  USA,  Ltd.  ("Estein"),  a real estate  investment  company,  for
$80,500.  Our  affiliate  and the Estein  affiliate  have 30% and 70%  ownership
interests,  respectively,  in the Prime/Estein  Venture.  In connection with the
sale transaction,  the Prime/Estein Venture assumed first mortgage  indebtedness
of $46,862 on the Hagerstown  Center (the "Assumed Mortgage  Indebtedness").  In
connection with the lender's  consent to the  Prime/Estein  Venture assuming the
Assumed   Mortgage   Indebtedness,   our  guarantee  of  the  Assumed   Mortgage
Indebtedness remained in place.

     The net cash proceeds from the sale, including the release of certain funds
held in escrow,  were $12,113  after a pay-down of $11,066 of existing  mortgage
indebtedness on the Hagerstown  Center and closing costs.  The net proceeds from
this sale  were  used to  prepay  $11,647  of  principal  outstanding  under our
Mezzanine  Loan.  At December 31, 2001,  the  carrying  value of the  Hagerstown
Outlet  Center  of  $54,628  was  classified  as  assets  held  for  sale in the
Consolidated Balance Sheet.
<PAGE>
     We are obligated to refinance the Assumed  Mortgage  Indebtedness on behalf
of the  Prime/Estein  Venture on or before  June 1,  2004,  its  maturity  date.
Additionally,  pursuant to certain  Prime/Estein  Venture-related  documents  to
which  affiliates of ours are parties,  the  Prime/Estein  Venture's cost of the
Assumed  Mortgage  Indebtedness and any refinancing of it are fixed at an annual
rate of 7.75% for a period of 10 years. If the actual cost of such  indebtedness
should exceed 7.75% at any time during the ten-year period, we will be obligated
to pay the difference to the Prime/Estein  Venture.  However, if the actual cost
of such  indebtedness is less than 7.75% at any time during the ten-year period,
the  Prime/Estein  Venture will be obligated  to pay the  difference  to us. The
actual cost of the Assumed Mortgage  Indebtedness is currently 30-day LIBOR plus
1.50%.

2001 Sales Transactions

     On February 2, 2001, we sold Northgate Plaza, a community center located in
Lombard,  Illinois to Arbor  Northgate,  Inc.  for  aggregate  consideration  of
$7,050.  After the  repayment  of  mortgage  indebtedness  of $5,966 and closing
costs,  the net cash proceeds from the Northgate  Plaza sale were $510. On March
16, 2001, we sold Prime  Outlets at  Silverthorne,  an outlet center  located in
Silverthorne, Colorado consisting of 257,000 square feet of GLA, to Silverthorne
Factory  Stores,  LLC for  aggregate  consideration  of  $29,000.  The net  cash
proceeds from the sale of Prime Outlets at Silverthorne  were $8,993,  after the
repayment  of certain  mortgage  indebtedness  of  $18,078  on Prime  Outlets at
Lebanon  (see below) and closing  costs and fees.  The net  proceeds  from these
sales were used to prepay an aggregate $9,137 of principal outstanding under our
Mezzanine  Loan in  accordance  with  the  terms  of  such  loan  agreement.  In
connection  with these sales,  we recorded an aggregate gain on the sale of real
estate of $732 during the first quarter of 2001. The operating  results of these
properties  are  included in our results of  operations  through the  respective
dates of disposition.  At December 31, 2000, these properties were classified as
assets  held  for  sale in the  Consolidated  Balance  Sheet  with an  aggregate
carrying value of $34,770.

     On November 27, 2001, we sold certain land located in Camarillo, California
for  aggregate  consideration  of $7,150.  The net cash  proceeds from the sale,
including  the release of certain funds held in escrow,  were $1,859,  after the
repayment of certain mortgage indebtedness of $6,227 and closing costs and fees.
The net  proceeds  from this sale  were used to prepay  $1,787 of the  Mezzanine
Loan.  In  connection  with this  sale,  we  recorded a loss on the sale of real
estate of $1,615 during the fourth  quarter of 2001.  At December 31, 2000,  the
land was  classified as assets held for sale in the  Consolidated  Balance Sheet
with a carrying value of $8,460.

     Prior to the sale of Prime Outlets at  Silverthorne,  it was one of fifteen
properties  securing  our  First  Mortgage  and  Expansion  Loan,  which  had an
outstanding  principal  balance of $342,629 at December 31, 2001. In conjunction
with the sale of Prime Outlets at Silverthorne,  we substituted Prime Outlets at
Lebanon for Prime Outlets at Silverthorne in the cross-collateralized asset pool
securing  the First  Mortgage  and  Expansion  Loan  pursuant to the  collateral
substitution  provisions  contained in the loan agreement.  In conjunction  with
adding Prime Outlets at Lebanon as security for the First Mortgage and Expansion
Loan, we repaid,  as discussed  above,  certain  mortgage  indebtedness on Prime
Outlets at Lebanon of $18,078.

2001 Foreclosure Sale

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

Development Activities

     During 2000 we engaged in development  activities related to 390,000 square
feet of GLA  consisting of the opening of (i) Prime Outlets of Puerto Rico,  the
first outlet center in Puerto Rico,  which contains  176,000 square feet of GLA,
and (ii) four expansions to outlet centers  totaling 214,000 square feet of GLA.
During 2001, we did not engage in any further development  activities other than
post-opening  work  related  to the  2000  development  activities  and  certain
consulting activities in Europe.

     As of December  31, 2001,  we had $825 held in a lender  escrow to fund the
remaining  expected  development  costs for Prime Outlets of Puerto Rico,  which
opened on July 27, 2000.

Interest Rate Risk

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

     In certain circumstances, we use derivative financial instruments to manage
interest rate risk  associated  with our variable  rate debt. In such cases,  we
purchase interest rate protection agreements, such as caps, which are designated
as  hedges  for  underlying  variable  rate  debt  obligations.  We do not  hold
derivative financial instruments for trading purposes.
<PAGE>
     The interest rate caps specifically  limit our interest costs with an upper
limit on the  underlying  interest  rate index.  The cost of such  contracts are
included in deferred  charges and are being amortized as a component of interest
expense  over the life of the  contracts.  Amounts  earned  from  interest  rate
protection  contracts,  if any, are recorded as a reduction of interest expense.
We are exposed to credit losses in the event of counterparty nonperformance, but
do  not  anticipate  any  such  losses  based  on  the  creditworthiness  of the
counterparties.

     On December  22, 2000,  we  purchased an interest  rate cap with a notional
amount of $90,000 to hedge our Mezzanine  Loan that was funded on the same date.
The interest  rate cap has a three-year  term with a strike price of 8.00% based
on 30-day LIBOR. The notional amount of this interest rate cap amortizes monthly
based on estimated principal repayments on the Mezzanine Loan. Additionally,  on
December 22, 200 0we also purchased an interest rate cap with a notional  amount
of $20,000 to hedge our $20,000  Puerto Rico First Mortgage Loan that was funded
on the same date.  The  interest  rate cap has a  three-year  term with a strike
price of 8.00% based on 30-day  LIBOR.  See Note 2 --  "Summary  of  Significant
Accounting  Policies"  and Note 6 -- "Bonds and Notes  Payable"  of the Notes to
Consolidated Financial Statements for additional information.

     Although derivative financial instruments are an important component of our
interest rate management  program,  their incremental effect on interest expense
for the years ended December 31, 2001, 2000 and 1999 was not material.

Dividends and Distributions

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

     Our current policy is to pay distributions  only to the extent necessary to
maintain  our status as a REIT for  federal  income tax  purposes.  Based on our
current  federal  income tax  projections  for 2002, we do not expect to pay any
distributions  on our  Series A Senior  Preferred  Stock,  Series B  Convertible
Preferred Stock, common stock or common units of limited partnership interest in
the  Operating  Partnership  during  2002.  We are  currently in arrears on nine
quarters of preferred stock distributions due February 15, 2000 through February
15, 2002, respectively.

     We are  prohibited  from paying  dividends or  distributions  except to the
extent  necessary to maintain  our REIT status under the terms of the  Mezzanine
Loan. In addition,  we may not make distributions to our common  shareholders or
our holders of common  units of limited  partnership  interest in the  Operating
Partnership unless we are current with respect to distributions to our preferred
shareholders.  As  of  December  31,  2001,  unpaid  dividends  for  the  period
commencing  November 16, 1999  through  December 31, 2001 on the Series A Senior
Preferred Stock and Series B Convertible  Preferred Stock aggregated $12,829 and
$35,349,  respectively.  The  annualized  dividends on our  2,300,000  shares of
Series A Senior  Preferred  Stock and  7,828,125  shares of Series B Convertible
Preferred  Stock  outstanding  as of December  31,  2001 are $6,037  ($2.625 per
share) and $16,635 ($2.125 per share), respectively.

Economic Conditions

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

New Accounting Pronouncements

     In June 1998, the Financial  Accounting  Standards Board (FASB) issued SFAS
No. 133,  "Accounting  for Derivative  Instruments  and Hedging  Activities," as
amended by SFAS No. 137 and SFAS No. 138, which  established  new accounting and
reporting  standards for  derivative  instruments.  These rules require that all
derivative  instruments be reported in the consolidated  financial statements at
fair value.  The fair value for all  derivative  contracts  is included in other
assets or other  liabilities  and  changes in fair value will be  recorded  each
period in  earnings  or other  comprehensive  income,  depending  on whether the
derivative is designated and effective as part of a hedged  transaction,  and on
the type of  hedge  transaction.  Gains  or  losses  on  derivative  instruments
reported in other comprehensive income must be reclassified into earnings in the
period in which  earnings are affected by the  underlying  hedged item,  and the
ineffective portion of all hedges is recognized in other income (expense) in the
statements of operations in the current  period.  These new standards may result
in additional volatility in reported earnings, other comprehensive income (loss)
and accumulated other comprehensive  income (loss). These rules became effective
for us on  January  1,  2001  and  did  not  have a  significant  effect  on our
consolidated results of operations or financial position upon adoption.

     We are exposed to market risk from changes in interest rates. We manage our
exposure to these market risks  through our  operating,  financing and investing
activities  and,  when deemed  appropriate,  through  the use of  interest  rate
protection agreements.
<PAGE>
     We report changes in fair value of our interest rate protection  agreements
in other  income  or  expense.  Our  interest  rate  protection  agreements  are
marked-to-market  and unrealized gains and losses are included in current period
net income  (loss) as a component of other income  (expense).  When the terms of
the related financing are modified,  or in the event of early  extinguishment of
the  related  financing,  all  changes in the fair value of the  instrument  are
marked-to-market  with changes in fair value  included in net income each period
until the instrument matures.

     We believe we have limited exposure to the extent of non-performance by the
counterparties  of each agreement  since each  counterparty is a major financial
institution and we do not anticipate their non-performance.

     In October,  2001, the FASB issued SFAS No. 144, "Accounting for Impairment
of Disposal of Long-lived Assets." SFAS No. 144 supercedes SFAS No. 121, however
it  retains  the  fundamental  provisions  of  that  statement  related  to  the
recognition and  measurement of the impairment of long-lived  assets to be "held
and used." In addition,  SFAS No. 144 provides more guidance on estimating  cash
flows when performing a recoverability test, requires that a long-lived asset to
be disposed of other than by sale (e.g.,  abandoned)  be classified as "held and
used" until it is disposed  of, and  established  more  restrictive  criteria to
classify an asset as "held for sale." SFAS No. 144 is effective for fiscal years
beginning after December 15, 2001. We will adopt SFAS No. 144 effective  January
1, 2002 and do not expect the adoption to have a material  impact on our results
of operations or financial position.

Taxability of Distributions

     We did not make any distributions  during the years ended December 31, 2001
and 2000.  TABLE 9 summarizes  the taxability of  distributions  paid during the
year ended December 31, 1999.

Table 9--Taxability of Distributions

--------------------------------------------------------------------------------
                                                    Amount
Year Ended December 31, 1999                       per Share          Percentage
--------------------------------------------------------------------------------
Series A Senior Preferred Stock
  Ordinary income                                  $ 2.625              100.0%
                                                   =======              ======
Series B Convertible Preferred Stock
  Ordinary income                                  $ 2.125              100.0%
                                                   =======              ======
Series C Preferred Stock
  Ordinary income                                  $ 0.885              100.0%
                                                   =======              ======
Common Stock
  Ordinary income                                  $ 0.271               23.0%
  Return of capital                                  0.909               77.0%
                                                   -------              ------
                                                   $ 1.180              100.0%
                                                   =======              ======
================================================================================

Funds from Operations

     Industry  analysts  generally  consider funds from operations  ("FFO"),  as
defined by the National Association of Real Estate Investment Trusts ("NAREIT"),
an alternative measure of performance of an equity REIT. In October 1999, NAREIT
issued  a new  white  paper  statement  and  redefined  how  FFO is  calculated,
effective  January 1, 2000.  FFO is now  defined by NAREIT as net income  (loss)
determined in accordance  with GAAP,  excluding  gains or losses from provisions
for impairment and sales of depreciable  operating  property,  plus depreciation
and  amortization  (other  than  amortization  of deferred  financing  costs and
depreciation of non-real estate assets) and after adjustment for  unconsolidated
partnership and joint ventures.

     We  believe  that  FFO  is an  important  and  widely-used  measure  of the
operating  performance of REITs,  which provides a relevant basis for comparison
to other REITs. Therefore, FFO is presented to assist investors in analyzing our
performance.  Our FFO is not  comparable  to FFO reported by other REITs that do
not define the term using the current  NAREIT  definition or that  interpret the
current NAREIT definition differently than we do. Therefore, we caution that the
calculation  of FFO may vary from entity to entity and as such the  presentation
of FFO by us may not be comparable to other  similarly  titled measures of other
reporting   companies.   We  believe  that  in  order  to   facilitate  a  clear
understanding  of our operating  results,  FFO should be examined in conjunction
with net income  determined in accordance with GAAP. FFO does not represent cash
generated  from operating  activities in accordance  with GAAP and should not be
considered as an alternative  to net income as an indication of our  performance
or to cash flows as a measure of liquidity or ability to make distributions.
<PAGE>
     TABLE 10 provides a reconciliation of income before allocations to minority
interests and  preferred  shareholders  to FFO for the years ended  December 31,
2001,  2000 and 1999. FFO decreased  $32,711,  or 56.4%, to $25,256 for the year
ended  December 31, 2001 from $57,967 for the year ended  December 31, 2000. The
FFO results for the year ended December 31, 2001 include a non-recurring loss of
$1,036  related to the  refinancing  of first mortgage loans on Prime Outlets at
Birch Run.  The FFO results for the year ended  December  31, 2000  included net
non-recurring  items totaling ($2,504).  Such  non-recurring  items included (i)
severance and other  compensation  costs aggregating  $2,421,  (ii) professional
fees  of  $1,455  related  to  refinancing  activities,   and  (iii)  $1,100  of
transaction and construction  termination  costs;  partially offset by a gain on
the  sale of  outparcel  land of  $2,472.  Excluding  the net  impact  of  these
non-recurring  items,  FFO was $26,292 and $60,471 for the years ended  December
31, 2001 and 2000, respectively.

     The decrease in FFO and FFO per diluted  share for the year ended  December
31, 2001  compared to the same period in 2000 is primarily  due to (i) a loss in
net operating  income,  partially offset by interest expense savings,  resulting
from sales of certain  properties  during the  comparable  periods;  (ii) higher
interest  expense  resulting  from an  increase in  borrowing  costs and reduced
capitalization  of interest on  development  projects;  (iii) an increase in the
provision for uncollectible accounts receivable of $5,925 resulting in part from
certain tenant bankruptcies,  disputes, abandonments and store-closings and (iv)
a reduction in average  occupancy in the our outlet center  portfolio during the
comparable periods (90.3% and 91.6% during 2001 and 2000 respectively).  We sold
four outlet centers on December 22, 2000 and two additional properties were sold
during the first quarter of 2001. In addition to these property  sales,  we also
sold a 70% joint  venture  interest  in Prime  Outlets  at  Williamsburg  during
February, 2000.

Table 10--Funds from Operations

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,                                                               2001               2000               1999
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>               <C>                 <C>
Loss before minority interests and
  extraordinary loss                                                                $ (98,456)        $ (138,984)         $ (28,085)
FFO adjustments:
  Loss on sale of real estate                                                           1,063             42,648             15,153
  Depreciation and amortization                                                        56,918             67,556             73,640
  Non-real estate depreciation and amortization                                        (2,251)            (1,703)              (587)
  Joint venture adjustments                                                             3,074              3,269              1,639
  Non-cash joint venture interest subsidy                                               1,882                  -                  -
  Discontinued operations - eOutlets.com                                                    -             14,703                  -
  Discontinued operations - Designer Connection                                             -              1,815              6,561
                                                                                    ---------         ----------          ---------
FFO before adjustment for asset impairment                                            (37,770)           (10,696)            68,321
Provision for asset impairment                                                         63,026             68,663             15,842
                                                                                    ---------         ----------          ---------
FFO before allocations to minority interests
  and preferred shareholders                                                        $  25,256         $   57,967          $  84,163
                                                                                    =========         ==========          =========

Other Data:
Net cash provided by operating activities                                           $  32,911         $   32,450          $  97,815
Net cash provided by (used in)
  investing activities                                                                  5,595              1,095            (56,666)
Net cash used in financing activities                                                 (39,875)           (31,982)           (39,571)
====================================================================================================================================
</TABLE>

     The pay-out ratio based on distributions made by us divided by FFO for 1999
was 97.4%.
<PAGE>
Table 11--Consolidated Quarterly Summary of Funds from Operations

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                  2001                                                2000
                                   --------------------------------------------------   --------------------------------------------
                                      Fourth       Third       Second        First      Fourth      Third       Second      First
                                      Quarter      Quarter     Quarter      Quarter     Quarter     Quarter     Quarter    Quarter
------------------------------------------------------------------------------------------------------------------------------------
<S>                                   <C>        <C>         <C>          <C>         <C>          <C>        <C>          <C>
Loss before minority
  interests and extraordinary loss    $(12,330)  $ (73,252)  $ (7,243)    $ (5,631)   $(107,187)   $ (4,351)  $ (15,759)   $(11,687)
FFO adjustments:
  (Gain) Loss on sale of real estate     1,615           -        180         (732)      42,648           -           -           -
  Depreciation and amortization         15,754      13,766     13,723       13,675       17,857      17,679      15,783      16,237
  Non-real estate depreciation
    and amortization                      (558)       (563)      (562)        (568)        (635)       (500)       (383)       (185)
  Joint venture adjustments                866         620      1,033          555          640         915       1,128         586
  Non-cash joint venture interest
    subsidy                                  -       1,882          -            -            -           -           -           -
  Discontinued operations -
    eOutlets.com                             -           -          -            -            -         424       1,315      12,964
  Discontinued operations -
    Designer Connection                      -           -          -            -            4        (274)      1,006       1,079
                                      --------   ---------   --------     --------    ---------    --------   ---------    ---------
FFO before adjustment for
  asset impairment                       5,347     (57,547)     7,131        7,299      (46,673)     13,893       3,090      18,994
Provision for asset impairment               -      63,026          -            -       60,125           -       8,538           -
                                      --------   ---------   --------     --------    ---------    --------   ---------    ---------
FFO before allocations to
  minority interests and
  preferred shareholders              $  5,347   $   5,479   $  7,131     $  7,299    $  13,452    $ 13,893   $  11,628    $ 18,994
                                      ========   =========   ========     ========    =========    ========   =========    =========

Other Data:
Net cash provided by (used in)
  operating activities                $ 12,588   $   2,163   $ 10,200     $  7,960    $ (15,708)   $ 16,184   $  22,990    $  8,984
Net cash provided by (used in)
  investing activities                   5,529       4,586     (7,022)       2,502       38,465     (11,070)    (13,265)    (13,035)
Net cash used in
  financing activities                 (15,402)     (6,000)    (4,795)     (13,678)     (19,838)     (5,732)     (3,896)     (2,516)
====================================================================================================================================
</TABLE>
<PAGE>
     ITEM 7A -- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MATERIAL RISK

Market Risk Sensitivity

Interest Rate Risk

     In the  ordinary  course  of  business,  we are  exposed  to the  impact of
interest rate changes.  We employ established  policies and procedures to manage
our  exposure  to  interest  rate  changes.  See  "Interest  Rate Risk" and "New
Accounting  Pronouncements" of Item 7 - Management's  Discussion and Analysis of
Financial Condition and Results of Operations for additional information. We use
a mix of fixed and variable  rate debt to (i) limit the impact of interest  rate
changes  on our  results  from  operations  and cash flows and (ii) to lower our
overall  borrowing  costs.  The following  table provides a summary of principal
cash flows,  adjusted for the Amendment to the Mezzanine Loan  and excluding (i)
unamortized  debt premiums of $11,051,  (ii) mortgage  indebtedness  aggregating
$58,079  on  Prime  Outlets  at  Hagerstown  and  (iii)  non-recourse   mortgage
indebtedness aggregating $33,235 on Prime Outlets at Conroe and Prime Outlets at
Jeffersonville II (see "Mezzanine Loan  Modification",  "2002 Sales Transaction"
and "Defaults on Certain Non-recourse  Mortgage  Indebtedness" within "Liquidity
and Capital  Resources"  of Item 7 -  Management's  Discussion  and  Analysis of
Financial Condition and Results of Operations for additional  information),  and
related contractual interest rates by fiscal year of maturity. Variable interest
rates are based on the weighted  average  rates of the portfolio at December 31,
2001.  See Note 6 - "Bonds  and  Notes  Payable"  of the  Notes to  Consolidated
Financial Statements contained herein for additional information with respect to
the terms of our fixed and variable rate debt instruments.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                             Year of Maturity
------------------------------------------------------------------------------------------------------------------------------------
                               2002           2003            2004           2005           2006        Thereafter         Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                         <C>             <C>             <C>           <C>            <C>              <C>              <C>
Fixed Rate:
Principal                   $ 12,296        $454,478       $  7,022       $ 51,147       $ 121,931        $ 109,877        $ 756,751
Average interest rate          7.79%           9.05%          7.20%          7.92%           8.76%            7.50%            8.69%

Variable Rate:
Principal                   $ 36,183        $ 46,966       $ 15,202                                                        $  98,351
Average interest rate         14.48%          10.93%          8.00%                                                           11.79%
====================================================================================================================================
</TABLE>

              ITEM 8-- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Information  required by this Item is set forth at the pages  indicated  in
Item 14(a) below.

             ITEM 9 -- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
                     ON ACCOUNTING AND FINANCIAL DISCLOSURE

     None.
<PAGE>
                                    PART III

     The  information  required  by  Items  10,  11,  12  and  13  (except  that
information regarding executive officers called for by Item 10 that is contained
in Part I) is  incorporated  herein  by  reference  from  the  definitive  proxy
statement that the Company  intends to file pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended, on or before April 30, 2001.

                                     PART IV

   ITEM 14 -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)   1. Financial Statements

         Report of Independent Auditors                                     F-1

         Consolidated Balance Sheets as of December 31,
           2001 and 2000                                                    F-2

         Consolidated  Statements of Operations for the
           years ended December 31, 2001, 2000 and 1999                     F-3

         Consolidated  Statements of Cash Flows for the
           years ended December 31, 2001, 2000 and 1999                     F-4

         Consolidated Statements of Shareholders' Equity
           for the years ended December 31, 2001, 2000
           and 1999                                                         F-6

         Notes to Consolidated Financial Statements                         F-7

      2. Financial Statement Schedules

         The following financial statement schedule is
           included in Item 14 (d):

         Report of Independent Auditors on Schedule (included
           with consent filed as Exhibit 23)

         Schedule III--Real Estate and Accumulated Depreciation             F-29

         Notes to Schedule III                                              F-31

     All  other  schedules  for  which  provision  is  made  in  the  applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related  instructions  or are  inapplicable,  and therefore  have been
omitted.

      3. Exhibits

         Exhibit
         Number    Description

        3.1        Amended  and  Restated  Articles  of  Incorporation  of Prime
                    Retail, Inc. [Incorporated  by reference  to the same titled
                    exhibit in the  Company's Annual Report on Form 10-K for the
                    fiscal year ended  December 31, 1998, as amended (File No.
                    0-23616).]

        3.2        Articles Supplementary of Prime Retail, Inc. relating to
                    Series B Preferred Stock.  [Incorporated by reference to the
                    same  titled  exhibit in the Company's Annual Report on Form
                    10-K for the fiscal year ended December 31, 1998, as amended
                    (File No. 0-23616).]

        3.3        Second  Amended  and  Restated  By-Laws of Prime Retail, Inc.
                    [Incorporated by reference to the same titled exhibit in the
                    Company's  Annual  Report on  Form 10-K  for the fiscal year
                    ended December 31, 1999 (File No. 0-23616).]

        4.1        Form of Series A Preferred Stock Certificate [Incorporated by
                    reference to the same titled exhibit in the Company's Annual
                    Report on  Form  10-K for the fiscal year ended December 31,
                    1996 (File No. 0-23616).]

        4.2        Form of Series B Preferred Stock Certificate [Incorporated by
                    reference to the same titled exhibit in the Company's Annual
                    Report  on Form  10-K for the fiscal year ended December 31,
                    1996 (File No. 0-23616).]
<PAGE>
        4.3        Form of Common  Stock Certificate [Incorporated  by reference
                    to the same titled exhibit in the Company's Annual Report on
                    Form 10-K for the fiscal year  ended December 31, 1996 (File
                    No. 0-23616).]

        4.4        Warrant  to  Purchase  Common  Stock  of  the  Company  dated
                    December 22, 2000   issued   to   FRIT   PRT   Lending   LLC
                    [Incorporated  by  reference  to the same titled  exhibit in
                    the Company's Annual Report on Form 10-K for the fiscal year
                    ended December 31, 2000 (File No. 0-23616).]

        4.5        Warrant  to  Purchase  Common  Stock  of  the  Company  dated
                    December 22, 2000  issued  to  Greenwich  Capital  Financial
                    Products,  Inc.  [Incorporated  by  reference  to  the  same
                    titled exhibit in the  Company's Annual  Report on Form 10-K
                    for   the  fiscal  year  ended  December 31, 2000  (File No.
                    0-23616).]

       10.1        Third  Amended and Restated Agreement of Limited  Partnership
                    of  Prime Retail,  L.P.  dated  as  of October  15, 1998 and
                    effective  as of June 15, 1998.  [Incorporated  by reference
                    to  the same  titled  exhibit in the Company's Annual Report
                    on Form 10-K for the fiscal year ended December 31, 1998, as
                    amended (File No. 0-23616).]

       10.1A       Amendment No. 1 to Third Amended and  Restated  Agreement  of
                    Limited Partnership  of  Prime  Retail,  L.P.  dated  as  of
                    September  28, 1999. [Incorporated  by reference to the same
                    titled exhibit  in the Company's Annual  Report on Form 10-K
                    for  the  fiscal  year  ended  December  31,  1999 (File No.
                    0-23616).]

       10.2        1994 Stock Incentive Plan [Incorporated by  reference  to the
                    same titled exhibit in the Company's  registration statement
                    on Form S-11 (Registration No. 33-68536).]

     # 10.3        1995 Stock Incentive Plan  [Incorporated  by reference to the
                    same titled exhibit in the Company's  registration statement
                    on Form S-11 (Registration No. 333-1666).]

     # 10.5        Separation  Agreement dated February  23, 2000 by and between
                    Prime Retail, Inc. and Abraham Rosenthal.  [Incorporated  by
                    reference to the same titled exhibit in the Company's Annual
                    Report  on  Form 10-K for the fiscal year ended December 31,
                    1999 (File No. 0-23616).]

     # 10.6        Employment  Agreement  dated  October 6, 1999  by  and  among
                    primeoutlets.com inc, Prime Retail, L.P., Prime Retail, Inc.
                    and William H. Carpenter, Jr.  [Incorporated by reference to
                    the  same  titled  exhibit in the Company's Annual Report on
                    Form 10-K  for the fiscal year ended December 31, 1999 (File
                    No. 0-23616).]

     # 10.7        Form of Executive  Employment  Agreement (David G.  Phillips)
                    [Incorporated by reference to the same titled exhibit in the
                    Company's  registration statement on Form S-11 (Registration
                    No. 33-68536).]

     # 10.8        Employment   Agreement   dated  June 11, 2000  between  Prime
                    Retail,  Inc.  and  Robert  A.  Brvenik.   [Incorporated  by
                    reference  to  the  same  titled   exhibit  in the Company's
                    Quarterly  Report  on  Form  10-Q/A for the quarterly period
                    ended September 30, 2000 (File No. 001-13301).]

     # 10.9        Employment Agreement dated  May 3, 2000 between Prime Retail,
                    Inc. and C. Alan Schroeder.   [Incorporated  by reference to
                    the same titled exhibit in the Company's Quarterly Report on
                    Form 10-Q/A for  the  quarterly  period ended  September 30,
                    2000 (File No. 001-13301).]

     # 10.10       Employment Agreement dated May 3, 2000 between Prime  Retail,
                    Inc. and Steven S. Gothelf [Incorporated by reference to the
                    same  titled exhibit in the Company's  Annual Report on Form
                    10-K for the fiscal  year  ended December 31, 2000 (File No.
                    0-23616).]

     # 10.11       Employment Agreement dated May 3, 2000 between Prime  Retail,
                    Inc. and John S. Mastin.  [Incorporated  by reference to the
                    same  titled exhibit in the Company's  Annual Report on Form
                    10-K  for  the fiscal year ended December 31, 2000 (File No.
                    0-23616).]

     # 10.12       Separation  Agreement  dated  August 24, 2000  by and between
                    Prime  Retail,  Inc.,  Prime  Retail, L.P.  and  William  H.
                    Carpenter,  Jr.  [Incorporated  by  reference  to  the  same
                    titled  exhibit in the Company's  Annual Report on Form 10-K
                    for the fiscal year ended  December  31, 2000 (File No.
                    0-23616).]
<PAGE>
       10.15       Registration   Rights   Agreement  dated June 15, 1998 by and
                    between Prime  Retail, Inc. and Prime Retail,  L.P.  for the
                    benefit of holders of common  units  of Prime  Retail,  L.P.
                    and certain stockholders of Prime Retail, Inc. [Incorporated
                    by  reference  to  the same titled exhibit in the  Company's
                    Annual  Report  on  Form  10-K  for  the  fiscal  year ended
                    December 31, 1998, as amended (File No. 0-23616).]

       10.16       Form   of   Property   Level  General  Partnership  Agreement
                    [Incorporated by reference to the same titled exhibit in the
                    Company's registration  statement on Form S-11 (Registration
                    No. 33-68536).]

       10.17       Form   of   Property   Level  Limited  Partnership  Agreement
                    [Incorporated by reference to the same titled exhibit in the
                    Company's registration statement on Form S-11  (Registration
                    No. 33-68536).]

       10.18       Noncompetition  and  Restriction  Agreement  with  Michael W.
                    Reschke of PGI [Incorporated by reference to the same titled
                    exhibit in the Company's Annual Report  on Form 10-K for the
                    fiscal  year ended  December 31, 1994, as  amended (File No.
                    0-23616).]

     # 10.21       Consulting  Agreement  between the Company  and Marvin  Traub
                    Associates,  Inc.  [Incorporated  by  reference  to the same
                    titled  exhibit  in  the  Company's  Annual  Report  on Form
                    10-K for the fiscal  year  ended December 31, 1996 (File No.
                    0-23616).]

       10.28       Waiver,   Recontribution   and  Indemnity  Agreement  by  the
                    Limited  Partners  [Incorporated  by  reference  to the same
                    titled  exhibit  in the Company's Annual Report on Form 10-K
                    for  the  fiscal  year  ended  December 31, 1994, as amended
                    (File No. 0-23616).]

       10.29       Indemnity Agreement made by the Company in favor of The Prime
                    Group,  Inc.   and    Prime   Group    Limited   Partnership
                    [Incorporated by reference to the same titled exhibit in the
                    Company's  registration statement on Form S-11 (Registration
                    No. 333-1666).]

       10.30       Promissory  Note dated October 31, 1996 by and  between Prime
                    Retail,   L.P.   and   Nomura   Asset  Capital   Corporation
                    [Incorporated by reference to the same titled exhibit in the
                    Company's  Annual Report  on  Form  10-K for the fiscal year
                    ended December 31, 1996 (File No. 0-233616).]

       10.30A      Form  of  Deed  of  Trust,  Security Agreement, Assignment of
                    Rents  and   Fixture  Filings   with  Nomura  Asset  Capital
                    Corporation  [Incorporated  by reference  to the same titled
                    exhibit  in the Company's Annual Report on Form 10-K for the
                    fiscal year ended December 31, 1996 (File No. 0-23616).]

       10.32       Consulting  Agreement  between the Company and Financo,  Inc.
                    [Incorporated by reference to the same titled exhibit in the
                    Company's  Annual  Report  on  Form 10-K for the fiscal year
                    ended December 31, 1996 (File No. 0-23616).]

       10.33       Amended and Restated Agreement and Plan of Merger among Prime
                    Retail,  Inc.,  Prime Retail,  L.P.,  Horizon  Group,  Inc.,
                    Sky Merger Corp., Horizon  Group  Properties, Inc.,  Horizon
                    Group  Properties,  L.P., and  Horizon/Glen  Outlet  Centers
                    Limited   Partnership    dated   as  of    February  1, 1998
                    [Incorporated by reference to the same titled exhibit in the
                    Company's Current Report on  Form 8-K dated February 1, 1998
                    (File No. 0-23616).]

       10.34       Agreement  among  Prime Retail,  Inc.,  Horizon Group,  Inc.,
                    Mr. David H. Murdock, Castle & Cooke  Properties,  Inc., and
                    Pacific  Holding   Company  dated  as  of  February  1, 1998
                    [Incorporated  by  reference  to the same titled  exhibit in
                    the  Company's Current  Report on Form 8-K dated February 1,
                    1998 (File No. 0-23616).]

     # 10.35       Letter   Agreement   with   David G. Phillips  regarding  the
                    purchase  of  units  in  Prime Retail,  L.P. dated August 6,
                    1996.  [Incorporated by reference to the same titled exhibit
                    in the  Company's  Annual Report on Form 10-K for the fiscal
                    year ended December 31, 1997 (File No. 0-23616).]

     # 10.36       Non-employee  Director Stock Plan  [Incorporated by reference
                    to  Appendix I  in  the  Company's registration statement on
                    Form S-4 (File No. 333-51285).]
<PAGE>
     # 10.37       1998   Long-Term   Stock   Incentive  Plan  [Incorporated  by
                    reference  to  Appendix  J  in  the  Company's  registration
                    statement on Form S-4 (File No. 333-51285).]

     # 10.38       Description   of   the   1999  Long-Term  Incentive  Program.
                    [Incorporated by reference to the same titled exhibit in the
                    Company's Annual Report  on  Form  10-K for  the fiscal year
                    ended December 31, 1998, as amended (File No. 0-23616).]

     # 10.39       Master Modification Agreement dated as of  December  22, 2000
                    between  Buckeye  Factory  Shops Limited Partnership, Latham
                    Factory Stores Limited Partnership, Carolina  Factory  Shops
                    Limited    Partnership,   Shasta   Outlet   Center   Limited
                    Partnership,   The   Prime   Outlets   at   Calhoun  Limited
                    Partnership   and   The   Prime   Outlets   at  Lee  Limited
                    Partnership, Nomura Asset Capital Corporation, Prime Retail,
                    Inc. and Prime  Retail, L.P.   [Incorporated by reference to
                    the same  titled  exhibit in the Company's  Annual Report on
                    Form 10-K  for the fiscal year ended December 31, 2000 (File
                    No. 0-23616).]

     # 10.40       The Agreement for Purchase and Sale, dated December 22, 2000,
                    by  and  between  Finger  Lakes Outlet Center,  L.L.C.,  The
                    Prime  Outlets  at  Michigan City Limited  Partnership,  The
                    Prime  Outlets  at  Gilroy  Limited  Partnership  and Outlet
                    Village  of   Kittery  Limited  Partnership  as  seller  and
                    F/C Waterloo Development LLC, F/C Michigan City  Development
                    LLC, F/C Gilroy Development LLC, F/C Kittery Development LLC
                    and  F/C Michigan  Parking LLC  as buyer.   [Incorporated by
                    reference  to  the  same  titled  exhibit  in the  Company's
                    Amended Current Report on Form 8-K/A dated December 22, 2000
                    (File No. 001-13301).]

     # 10.41       Amended  and  Restated Guaranty and Indemnity Agreement dated
                    as of July 31, 2001  by  and among Horizon Group Properties,
                    Inc.,  Horizon  Group Properties,  L.P.,  Prime Retail, Inc.
                    and   Prime  Retail, L.P.   [Incorporated  by  reference  to
                    Exhibit  10.44  in  the  Company's  Quarterly Report on Form
                    10-Q dated September 30, 2001 (File No. 0-23616).]

     # 10.42       Contribution Agreement dated as of June 15, 1998 by and among
                    Horizon Group, Inc.,  Sky Merger Corp.,  Horizon/Glen Outlet
                    Centers Limited Partnership, Horizon Group Properties, Inc.,
                    and   Horizon   Group   Properties, L.P.   [Incorporated  by
                    reference to Exhibit 10.7 in the Company's Current Report on
                    Form 8-K dated June 15, 1998 (File No. 001-13301).]

       10.43       Series C  Preferred  Share  Repurchase  Agreement dated as of
                    March 31, 1999   among   Security  Capital  Preferred Growth
                    Incorporated,  Prime  Retail,  Inc.,  and Prime Retail, L.P.
                    [Incorporated by reference to Exhibit  10.1 in the Company's
                    Current  Report  on Form  8-K dated March 31, 1999 (File No.
                    0-23616).]

     # 10.44       Purchase  and  Sale  Agreement,  dated as of  August 6, 1999,
                    among  The  Prime  Outlets  at Birch Run, L.L.C.,  The Prime
                    Outlets  at  Williamsburg,  L.L.C.,  and  Outlet  Village of
                    Hagerstown Limited Partnership  and Welp Triple Outlet, L.C.
                    [Incorporated  by reference to Exhibit 10.1 in the Company's
                    Current  Report  on Form 8-K dated August 11, 1999 (File No.
                    001-13301)].

     # 10.45       Loan Agreement dated as of December 22, 2000 between FRIT PRT
                    Lending  LLC   and   Prime Retail,  L.P.   [Incorporated  by
                    reference to Exhibit 10.48 in the Company's Annual Report on
                    Form  10-K  for  the  fiscal  year  ended  December 31, 2000
                    (File No. 0-23616).]

     # 10.46       First   Amendment  dated  as  of  January  11, 2002  to  Loan
                    Agreement  between  FRIT  PRT  Lending LLC and Prime Retail,
                    L.P.

     # 10.47       Second   Amendment  dated  as  of  January 31, 2002  to  Loan
                    Agreement  between  FRIT  PRT  Lending LLC and Prime Retail,
                    L.P.

     # 10.48       Employment  Agreement  dated  March  21, 2002  between  Prime
                    Retail, Inc. and R. Kelvin Antill.

     # 10.49       Employment   Agreement   dated  July 24, 2000  between  Prime
                    Retail, Inc. and Glenn D. Reschke.

     # 10.50       Amendment to Employment Agreement dated April 2, 2001 between
                    Prime Retail, Inc. and Robert A. Brvenik.

     # 10.51       Employment  Agreement  dated  January 10, 2002  between Prime
                    Retail, Inc. and David G. Phillips.

     # 10.52       Employment  Letter  dated  December  7,  1998  between  Prime
                    Retail, Inc. and Frederick J. Meno IV.
<PAGE>
     # 10.53       Seventh Amendment dated December 4, 2001 to Purchase and Sale
                    Agreement,  dated  as  of  August 6, 1999,  among  The Prime
                    Outlets   at   Birch  Run, L.L.C.,   The  Prime  Outlets  at
                    Williamsburg, L.L.C.,  and   Outlet  Village  of  Hagerstown
                    Limited Partnership and Welp Triple Outlet L.C.

     # 10.54       Letter  Agreement  dated April 24, 2001 between Prime Retail,
                    Inc.,  Prime  Retail, L.P.  and   Abraham Rosenthal amending
                    Separation Agreement dated February 23, 2000.

     # 10.55       Letter Agreement  dated  April 24, 2001 between Prime Retail,
                    Inc.,   Prime  Retail, L.P.   and  William H. Carpenter, Jr.
                    amending Separation Agreement dated August 24, 2000.

       12          Ratio of Earnings to Fixed Charges

       21          Subsidiaries of Prime Retail, Inc.

       23          Consent of Ernst & Young LLP

     Note:
     # Management  contract or compensatory  plan or arrangement  required to be
filed pursuant to Item 14(c).

(b)     Reports on Form 8-K

        None

(c)     Exhibits

     The list of  exhibits  filed with this  report is set forth in  response to
Item 14  (a)(3).  The  required  exhibits  have been filed as  indicated  in the
Exhibit  Index.  The  Company  agrees to  furnish a copy of any  long-term  debt
instrument  wherein the  securities  authorized  do not exceed 10 percent of the
registrant's  total  assets on a  consolidated  basis  upon the  request  of the
Securities and Exchange Commission.

(d)     Financial Statements and Schedules

     Schedule III -- Real Estate and Accumulated Depreciation attached hereto is
hereby incorporated by reference to this Item.
<PAGE>
                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) 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 on March 28, 2002.

                 PRIME RETAIL, INC.
                 /s/ Robert A. Brvenik
                 ---------------------------
                 Robert A. Brvenik
                 Executive Vice President, Chief Financial Officer and Treasurer

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the date indicated.

/s/ Glenn D. Reschke                                              March 28, 2002
--------------------------------------
Glenn D. Reschke
Chairman of the Board
President and Chief Executive Officer

/s/ Howard Amster                                                March 28, 2002
--------------------------------------
Howard Amster
Director

/s/ Robert H. Kanner                                             March 28, 2002
--------------------------------------
Robert H. Kanner
Director

/s/ Kenneth A. Randall                                           March 28, 2002
--------------------------------------
Kenneth A. Randall
Director

/s/ Michael W. Reschke                                           March 28, 2002
--------------------------------------
Michael W. Reschke
Director

/s/ Sharon Sharp                                                 March 28, 2002
--------------------------------------
Sharon Sharp
Director

/s/ James R. Thompson                                            March 28, 2002
--------------------------------------
James R. Thompson
Director

/s/ Marvin S. Traub                                              March 28, 2002
--------------------------------------
Marvin S. Traub
Director
<PAGE>

                         Report of Independent Auditors


To the Board of Directors and Shareholders
Prime Retail, Inc.


We have audited the  accompanying  consolidated  balance sheets of Prime Retail,
Inc.  (the  "Company")  as of  December  31,  2001  and  2000,  and the  related
consolidated  statements of operations,  shareholders' equity and cash flows for
each of the three years in the period ended December 31, 2001.  These  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable  assurance about whether the financial  statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We believe  that our audits  provide a  reasonable  basis for our
opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the consolidated  financial  position of the Company at
December 31, 2001 and 2000, and the  consolidated  results of its operations and
its cash flows for each of the three  years in the  period  ended  December  31,
2001, in conformity with accounting  principles generally accepted in the United
States.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company will continue as a going concern. As more fully described in Note 6, the
Company's ability to meet debt service requirements is dependent upon completing
future asset sales by specific dates and  maintaining  its results of operations
at current  levels.  If the Company is unable to complete  future asset sales by
the specified dates and or maintain its results of operations at current levels,
it may not be able to maintain compliance with the performance provisions and or
financial  covenants  contained  in  certain  of  its  debt  facilities.   These
conditions raise  substantial doubt about the Company's ability to continue as a
going concern.  Management's plans in regard to these matters are also described
in Note 6. The financial  statements do not include any  adjustments  to reflect
the possible future effects on the  recoverability  and classification of assets
or the  amounts  and  classification  of  liabilities  that may result  from the
outcome of this uncertainty.





                                              /s/ Ernst & Young LLP


Baltimore, Maryland
March 13, 2002
<PAGE>
                               PRIME RETAIL, INC.

                           Consolidated Balance Sheets

                (Amounts in thousands, except share information)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
December 31,                                                                                     2001                   2000
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                               <C>                   <C>
Assets
Investment in rental property:
     Land                                                                                         $   148,463           $   151,941
     Buildings and improvements                                                                     1,208,568             1,322,368
     Property under development                                                                         3,352                 3,573
     Furniture and equipment                                                                           15,225                15,225
                                                                                                  -----------           -----------
                                                                                                    1,375,608             1,493,107
     Accumulated depreciation                                                                        (258,124)             (217,569)
                                                                                                  -----------           -----------
                                                                                                    1,117,484             1,275,538
Cash and cash equivalents                                                                               7,537                 8,906
Restricted cash                                                                                        37,885                54,920
Accounts receivable, net                                                                                5,017                13,480
Deferred charges, net                                                                                  11,789                19,533
Assets held for sale                                                                                   54,628                43,230
Investment in partnerships                                                                             24,539                21,610
Other assets                                                                                            3,629                24,804
                                                                                                  -----------           -----------
          Total assets                                                                            $ 1,262,508           $ 1,462,021
                                                                                                  ===========           ===========

Liabilities and Shareholders' Equity
Bonds payable                                                                                     $    31,975           $    32,455
Notes payable                                                                                         925,492               997,698
Accrued interest                                                                                        7,643                 5,267
Real estate taxes payable                                                                               8,091                 8,555
Accounts payable and other liabilities                                                                 31,380                62,063
                                                                                                  -----------           -----------
     Total liabilities                                                                              1,004,581             1,106,038

Minority interests                                                                                      1,487                 1,495

Shareholders' equity:
  Shares of preferred stock, 24,315,000 shares authorized:
     10.5% Series A Senior Cumulative Preferred Stock,
          $0.01 par value (liquidation preference of $70,330),
          2,300,000 shares issued and outstanding                                                          23                    23
     8.5% Series B Cumulative Participating Convertible Preferred
          Preferred Stock, $0.01 par value (liquidation preference
          of $231,052), 7,828,125 shares issued and outstanding                                            78                    78
  Shares of common stock, 150,000,000 shares authorized:
     Common stock, $0.01 par value, 43,577,916 shares
          issued and outstanding                                                                          436                   436
  Additional paid-in capital                                                                          709,373               709,373
  Distributions in excess of earnings                                                                (453,470)             (355,422)
                                                                                                  -----------           -----------
      Total shareholders' equity                                                                      256,440               354,488
                                                                                                  -----------           -----------
          Total liabilities and shareholders' equity                                              $ 1,262,508           $ 1,462,021
                                                                                                  ===========           ===========
====================================================================================================================================
</TABLE>

See accompanying notes to financial statements.
<PAGE>
                               PRIME RETAIL, INC.

                      Consolidated Statements of Operations

              (Amounts in thousands, except per share information)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,                                                           2001                 2000                  1999
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>                  <C>                    <C>
Revenues
Base rents                                                                    $  141,116           $ 178,830              $ 193,979
Percentage rents                                                                   4,220               6,369                  8,085
Tenant reimbursements                                                             67,323              83,350                 90,063
Interest and other                                                                13,421              14,801                 13,829
                                                                              ----------           ---------              ---------
  Total revenues                                                                 226,080             283,350                305,956

Expenses
Property operating                                                                54,451              68,537                 70,862
Real estate taxes                                                                 19,283              21,776                 22,405
Depreciation and amortization                                                     56,918              67,556                 73,640
Corporate general and administrative                                              14,290              20,847                 12,687
Interest                                                                          92,859              98,234                 93,934
Other charges                                                                     22,646              17,555                  6,918
Provision for asset impairment                                                    63,026              68,663                 15,842
Provision for abandoned projects                                                       -                   -                 16,039
Loss on eOutlets.com                                                                   -              14,703                      -
Loss on Designer Connection                                                            -               1,815                  6,561
                                                                              ----------           ---------               --------
  Total expenses                                                                 323,473             379,686                318,888
                                                                              ----------           ---------              ---------

Loss before loss on sale of real estate,
  minority interests and extraordinary loss                                      (97,393)            (96,336)               (12,932)
Loss on sale of real estate                                                       (1,063)            (42,648)               (15,153)
                                                                              ----------           ---------               --------
Loss before minority interests and
  extraordinary loss                                                             (98,456)           (138,984)               (28,085)
Loss (Income) allocated to minority interests                                        408                 738                 (3,226)
                                                                              ----------           ---------              ---------
Loss before extraordinary loss                                                   (98,048)           (138,246)               (31,311)
Extraordinary loss on early extinguishment of debt                                     -              (4,206)                (3,518)
                                                                              ----------           ---------              ---------
Net loss                                                                         (98,048)           (142,452)               (34,829)
Income allocated to preferred shareholders                                       (22,672)            (22,672)                (9,962)
                                                                              ----------           ---------              ---------
Net loss applicable to common shares                                          $ (120,720)          $(165,124)             $ (44,791)
                                                                              ==========           =========              =========

Basic loss per common share:
Loss before extraordinary loss                                                $    (2.77)          $   (3.69)             $   (0.96)
Extraordinary loss                                                                     -               (0.10)                 (0.08)
                                                                              ----------           ---------              ---------
Net loss                                                                      $    (2.77)          $   (3.79)             $   (1.04)
                                                                              ==========           =========              =========

Diluted loss per common share:
Loss before extraordinary loss                                                $    (2.77)          $   (3.69)             $   (1.22)
Extraordinary loss                                                                     -               (0.10)                 (0.08)
                                                                              ----------           ---------               --------
Net loss                                                                      $    (2.77)          $   (3.79)             $   (1.30)
                                                                              ==========           =========              =========

Weighted-average common shares
  outstanding - basic                                                             43,578              43,517                43,196
                                                                              ==========           =========              =========

Weighted-average common shares
  outstanding - diluted                                                           43,578              43,517                44,260
                                                                              ==========           =========              =========
====================================================================================================================================
</TABLE>

See accompanying notes to financial statements.
<PAGE>
                               PRIME RETAIL, INC.

                      Consolidated Statements of Cash Flows

                             (Amounts in thousands)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,                                                              2001                2000                1999
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>                <C>                  <C>
Operating Activities
Net loss                                                                          $ (98,048)         $ (142,452)          $ (34,829)
Adjustments to reconcile net loss to net cash
  provided by operating activities:
     Loss (Income) allocated to minority interests                                     (408)               (738)              3,226
     Loss on sale of real estate                                                      1,063              42,648              15,153
     Extraordinary loss on early extinguishment of debt                                   -               4,206               3,518
     Depreciation and amortization                                                   56,918              67,556              73,640
     Amortization of deferred financing costs                                         7,025               3,256               4,379
     Amortization of debt premiums                                                   (3,092)             (3,159)             (4,406)
     Provision for uncollectible accounts receivable                                 13,368               7,443                 779
     Provision for asset impairment                                                  63,026              68,663              15,842
     Provision for abandoned projects                                                     -                   -              16,039
     Loss on eOutlets.com                                                                 -              14,703                   -
     Loss on Designer Connection                                                          -               1,815               3,659
     Gain on sale of land                                                                 -              (2,472)                (72)
Changes in operating assets and liabilities:
     (Increase) Decrease in accounts receivable                                      (5,092)             (4,903)              2,155
     (Increase) Decrease in restricted cash                                          15,477             (28,151)              7,044
     (Increase) Decrease in other assets                                              3,307               3,285                (669)
     Increase (Decrease) in accounts payable and
       other liabilities                                                            (23,151)              4,272              (7,285)
     Increase (Decrease) in real estate taxes payable                                   142              (2,145)               (513)
     Increase (Decrease) in accrued interest                                          2,376              (1,377)                155
                                                                                  ---------          ----------           ---------
       Net cash provided by operating activities                                     32,911              32,450              97,815
                                                                                  ---------          ----------           ---------

Investing Activities
Additions to investment in rental property                                          (15,170)            (51,833)            (85,977)
Payments made for eOutlets.com                                                       (2,170)            (11,161)             (3,992)
Proceeds from repayment of notes receivable, net                                     14,523                   -                   -
Contributions to joint venture partnerships                                          (2,950)             (3,000)                  -
Proceeds from sales of operating properties and land                                 11,362              67,089              33,303
                                                                                  ---------          ----------           ---------
       Net cash provided by (used in)
         investing activities                                                         5,595               1,095             (56,666)
                                                                                  ---------          ----------           ---------

Financing Activities
Proceeds from notes payable                                                          16,899             134,497             304,342
Principal repayments on notes payable                                               (56,222)           (155,120)           (200,026)
Redemption of Series C preferred stock                                                    -                   -             (45,054)
Dividends and distributions paid                                                          -                   -             (75,536)
Minority interests contributions (distributions)                                        400                   -             (12,976)
Deferred costs                                                                         (952)            (11,359)            (10,321)
                                                                                  ---------          ----------           ---------
       Net cash used in financing activities                                        (39,875)            (31,982)            (39,571)
                                                                                  ---------          ----------           ---------

Increase (Decrease) in cash and cash equivalents                                     (1,369)              1,563               1,578
Cash and cash equivalents at beginning of period                                      8,906               7,343               5,765
                                                                                  ---------          ----------           ----------
Cash and cash equivalents at end of period                                        $   7,537          $    8,906           $   7,343
                                                                                  =========          ==========           ==========
====================================================================================================================================
</TABLE>

See accompanying notes to financial statements.
<PAGE>
                               PRIME RETAIL, INC.

                Consolidated Statements of Cash Flows (continued)

                             (Amounts in thousands)


Supplemental Disclosure of Non-cash Investing and Financing Activities

     The following  assets and liabilities  were disposed in connection with the
sale of properties during the periods indicated:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,                                                             2001                 2000                 1999
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>                 <C>                 <C>
  Book value of net assets disposed                                               $ 42,696            $ 321,849           $  96,384
  Notes payable assumed by buyer                                                         -             (206,735)            (53,755)
  Notes payable paid                                                               (30,271)                   -                   -
  Promissory note received from buyer                                                    -              (10,000)                  -
  Loss on sale of real estate                                                       (1,063)             (42,648)             (9,326)
                                                                                  --------            ---------           ----------
      Cash received                                                               $ 11,362            $  62,466           $  33,303
                                                                                  ========            =========           ==========
====================================================================================================================================
</TABLE>

See accompanying notes to financial statements
<PAGE>
                               PRIME RETAIL, INC.

                 Consolidated Statements of Shareholders' Equity

                (Amounts in thousands, except share information)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                      Series A     Series B
                                       Senior     Convertible   Series C                 Additional     Distributions      Total
                                     Preferred    Preferred    Preferred    Common        Paid-in       in Excess of   Shareholders'
                                       Stock        Stock        Stock       Stock        Capital         Earnings         Equity
------------------------------------------------------------------------------------------------------------------------------------
<S>              <C>                  <C>          <C>          <C>         <C>         <C>             <C>               <C>
Balance, January 1, 1999              $ 23         $ 78         $ 44        $ 427       $ 759,105       $ (115,943)       $ 643,734
Issuance of 160,585 restricted
  shares of common stock                 -            -            -            2           1,380                -            1,382
Exchange of 471,293 common
  units for common stock                 -            -            -            5           6,985                -            6,990
Redemption of 4,363,636 shares
  of Series C preferred stock            -            -          (44)           -         (58,348)          13,338          (45,054)
Net loss                                 -            -            -            -               -          (34,829)         (34,829)
Common dividends/distributions
  ($1.180 per share)                     -            -            -            -               -          (50,948)         (50,948)
Preferred dividends/distributions:
  Series A preferred stock
     ($2.625 per share)                  -            -            -            -               -           (6,038)          (6,038)
  Series B preferred stock
     ($2.125 per share)                  -            -            -            -               -          (16,635)         (16,635)
  Series C preferred stock
     ($0.885 per share)                  -                                                      -           (1,915)          (1,915)
                                      ----         ----         ----        -----       ---------       ----------        ---------
Balance, December 31, 1999              23           78            -          434         709,122         (212,970)         496,687
Issuance of 180,000 restricted
  shares of common stock                 -            -            -            2             251                -              253
Exchange of 29,296 common
  units for common stock                 -            -            -            -               -                -                -
Net loss                                 -            -            -            -               -         (142,452)        (142,452)
                                      ----         ----         ----        -----       ---------       ----------        ---------
Balance, December 31, 2000              23           78            -          436         709,373         (355,422)         354,488
Net loss                                 -            -            -            -               -          (98,048)         (98,048)
                                      ----         ----         ----        -----       ---------       ----------        ---------
Balance, December 31, 2001            $ 23         $ 78         $  -        $ 436       $ 709,373       $ (453,470)       $ 256,440
                                      ====         ====         ====        =====       =========       ==========        =========
====================================================================================================================================
</TABLE>

See accompanying notes to financial statements.
<PAGE>
                               PRIME RETAIL, INC.

                   Notes to Consolidated Financial Statements

            (Amounts in thousands, except share and unit information)



Note 1 -- Organization and Basis of Presentation

Organization

     Prime Retail, Inc. (the "Company") was organized as a Maryland  corporation
on July 16,  1993.  We are a  self-administered  and  self-managed  real  estate
investment trust ("REIT") that primarily develops,  acquires,  owns and operates
outlet centers.  As of December 31, 2001, the Company's outlet center portfolio,
including three properties owned through joint venture partnerships, consists of
45 properties (the  "Properties") in 26 states  (including  Puerto Rico),  which
total  12,670,000  square  feet  of  gross  leasable  area  ("GLA").  As a fully
integrated real estate firm, we provide development,  construction,  accounting,
finance, leasing,  marketing, and management services for the Properties.  Prime
Retail, L.P. (the "Operating Partnership"),  a Delaware limited partnership,  is
the  entity  through  which we conduct  substantially  all of our  business  and
operations and own (either directly or through  subsidiaries)  substantially all
of assets including the Properties.  We control the Operating Partnership as its
sole general partner and are dependent upon the  distributions or other payments
from the Operating Partnership to meet our financial obligations.

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

     At December 31, 2001, the Company owned 2,300,000 Series A Senior Preferred
Units of the Operating  Partnership (the "Senior  Preferred  Units"),  7,828,125
Series B Convertible Preferred Units of the Operating Partnership (the "Series B
Convertible  Preferred  Units"),  and  43,577,916  Common  Units of  partnership
interest  in  the  Operating  Partnership  (the  "Common  Units").  Each  Senior
Preferred  Unit, and Series B Convertible  Preferred  Unit,  (collectively,  the
"Preferred  Units")  entitles  us to receive  distributions  from the  Operating
Partnership in an amount equal to the dividend  declared or paid with respect to
a share of our  Series A Senior  Cumulative  Preferred  Stock  ("Series A Senior
Preferred Stock") and Series B Cumulative  Convertible  Participating  Preferred
Stock  ("Series B  Convertible  Preferred  Stock"),  respectively,  prior to the
payment by the Operating Partnership of distributions with respect to the Common
Units. Series B Convertible Preferred Units will be automatically converted into
Common Units to the extent of any  conversion of Series B Convertible  Preferred
Stock into Common Stock.  The Preferred  Units will be redeemed by the Operating
Partnership to the extent of any redemption of Senior  Preferred Stock or Series
B Convertible Preferred Stock.

     A  summary  of the  holders  of units in the  Operating  Partnership  as of
December 31, 2001 is as follows:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                Number of Units
                                                                              ------------------------------------------------------
Holder                                                                              Series A            Series B          Common
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>                <C>              <C>
Prime Retail, Inc.                                                                   2,300,000          7,828,125        43,577,916
Affiliates of the Prime Group, management and others (1)                                     -                  -        10,810,912
                                                                                     ---------          ---------        ----------
                                                                                     2,300,000          7,828,125        54,388,828
                                                                                     =========          =========        ==========
====================================================================================================================================
</TABLE>

Note:
(1)  Includes 251,300 units beneficially owned directly by an executive officer.

     As of December 31, 2001, we had an 80% general partnership  interest in the
Operating  Partnership with full and complete control over the management of the
Operating  Partnership as the sole general partner not subject to removal by the
limited partners.

Basis of Presentation

     The  consolidated  financial  statements  include  the  accounts of us, the
Operating Partnership and the partnerships in which we have operational control.
Profits and losses are allocated in  accordance  with the terms of the Operating
Partnership  agreement.  The  preparation of financial  statements in conformity
with  accounting  principles  generally  accepted in the United States  ("GAAP")
requires us to make estimates and assumptions  that affect the reported  amounts
of assets and liabilities and 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.
<PAGE>
     Investments in partnerships in which we do not have operational control are
accounted for on the equity method of  accounting.  Income (loss)  applicable to
minority  interests of the Operating  Partnership and common shares as presented
in the consolidated statements of operations is allocated based on income (loss)
before minority interests after income allocated to preferred shareholders.

     Significant  intercompany accounts and transactions have been eliminated in
consolidation.  Certain  amounts in prior  years have been  reclassified  to the
current year presentation.

Note 2 -- Summary of Significant Accounting Policies

Rental Property

        Depreciation is calculated on the straight-line basis over the estimated
useful lives of the assets, which are as follows:

    Land improvements                                 20 years
    Buildings and improvements                        Principally 40 years
    Tenant improvements                               Term of related lease
    Furniture and equipment                           5 years

     Rental property is generally  carried at historical cost net of accumulated
depreciation.  Development  costs,  which  include  fees and costs  incurred  in
developing  new  properties,  are  capitalized as incurred.  Upon  completion of
construction,  development  costs are  amortized  over the  useful  lives of the
respective  properties  on a  straight-line  basis.  Expenditures  for  ordinary
maintenance  and repairs are expensed to  operations  as  incurred.  Significant
renovations  and  improvements,  which improve  and/or extend the useful life of
assets are capitalized and depreciated over their estimated useful lives.

     In accordance with Statement of Financial Accounting Standards ("SFAS") No.
121,  "Accounting  for the  Impairment of Long-Lived  Assets and for  Long-Lived
Assets to Be Disposed Of," we record impairment losses on long-lived assets used
in operations  when events and  circumstances  indicate that the assets might be
impaired  and the  undiscounted  cash flows  estimated  to be generated by those
assets 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  portfolio.  For assets to be sold,  impairment  is  measured  as the
difference  between carrying value and fair value,  less costs to dispose.  Fair
value is based on estimated  cash flows  discounted at a  risk-adjusted  rate of
interest.

Cash and Cash Equivalents and Restricted Cash

     We consider  highly liquid  investments  with a maturity of three months or
less when purchased to be cash equivalents.  The carrying value of cash and cash
equivalents and restricted cash as reported in the  Consolidated  Balance Sheets
approximates their fair value.

     We maintain our cash and cash  equivalents  and restricted cash in accounts
at various  financial  institutions.  The majority of such accounts are interest
bearing.   Although,   the  combined   account   balances  at  each  institution
periodically  may exceed FDIC insurance  coverage,  and as a result,  there is a
concentration  of credit  risk  related  to amounts on deposit in excess of FDIC
insurance  coverage,  we believe  that the risk is not  significant.  During the
years ended  December  31, 2001,  2000 and 1999,  we earned  interest  income of
$1,980, $2,027 and $1,592,  respectively  (included in interest and other income
in the Consolidated Statements of Operations).

Accounts Receivable

     We regularly review accounts  receivable and determine an appropriate range
for the  allowance  for  doubtful  accounts  based upon the  impact of  economic
conditions on the tenants'  ability to pay, past collection  experience and such
other factors which, in our judgment,  deserve current  recognition.  In turn, a
provision is charged  against  earnings in order to maintain the allowance level
within this range. The allowances for doubtful accounts at December 31, 2001 and
2000 were $12,515 and $7,383, respectively.  During the years ended December 31,
2001,  2000  and  1999,  we  recorded  provisions  for  uncollectible   accounts
receivable, of $13,368, $7,443 and $772, respectively (included in other charges
in the Consolidated Statements of Operations).

     Accounts  receivable, net  due  after  one  year representing straight-line
rents were $4,524 and $6,837 at December 31, 2001 and 2000, respectively.

Deferred Charges

     Deferred  charges  consist  of leasing  commissions  and  financing  costs.
Deferred leasing commissions  representing costs incurred to originate and renew
operating  leases are deferred and amortized on a  straight-line  basis over the
term of the  related  lease.  Fees and costs  incurred to obtain  financing  are
deferred and are being  amortized  as a component  of interest  expense over the
terms  of the  respective  loans  on a basis  that  approximates  the  effective
interest method.
<PAGE>
Revenue Recognition

     Leases with tenants are accounted for as operating  leases.  Minimum rental
income is  recognized  on a  straight-line  basis over the term of the lease and
unpaid  rents are  included  in  accounts  receivable,  net in the  accompanying
Consolidated Balance Sheets. Certain lease agreements contain provisions,  which
provide for rents based on a  percentage  of sales or based on a  percentage  of
sales  volume  above a  specified  threshold.  These  contingent  rents  are not
recognized until the required  thresholds are exceeded.  In addition,  the lease
agreements  generally  provide  for  the  reimbursement  of real  estate  taxes,
insurance,   advertising  and  certain  common  area  maintenance  costs.  These
additional  rents and tenant  reimbursements  are  accounted  for on the accrual
basis.

Interest Rate Protection Contracts

     We use interest rate  protection  contracts,  such as interest rate caps to
manage interest rate risk  associated  with floating rate debt.  These contracts
generally  involve  limiting our interest costs with an upper limit or specified
range on the  underlying  interest  rate index.  The cost of such  contracts are
included in deferred charges and are being amortized on a straight-line basis as
a component of interest  expense over the life of the contracts.  Amounts earned
from interest rate protection  contracts are recorded as a reduction of interest
expense.  We  are  exposed  to  credit  losses  in  the  event  of  counterparty
nonperformance,   but  do  not   anticipate   any  such  losses   based  on  the
creditworthiness of the counterparties.

Earnings per Share

     Basic  earnings  per share  ("EPS") is  calculated  by dividing  net income
available  to  common  shareholders  by the  weighted  average  number of shares
outstanding  during the period.  Diluted EPS includes the  potentially  dilutive
effect,  if any, which would occur if outstanding (i) options to purchase Common
Stock were  exercised,  (ii) Common Units were  converted  into shares of Common
Stock,  (iii) shares of Series C Preferred  Stock were  converted into shares of
Common  Stock,  and (iv)  shares of Series B  Convertible  Preferred  Stock were
converted into shares of Common Stock. For the years ended December 31, 2001 and
2000,   respectively,   the  effect  of  all  exercises  and   conversions   was
anti-dilutive and,  therefore,  dilutive EPS is equivalent to basic EPS. For the
year  ended  December  31,  1999,  (i)  a  redemption   discount  and  dividends
aggregating  $12,710  related to our repurchase of our Series C Preferred  Stock
were excluded from the numerator and (ii) incremental  shares of 1,064,  related
to the assumed  conversion  of Series C Preferred  Stock,  were  included in the
denominator  of the  computation of diluted EPS. For the year ended December 31,
1999, the effect of all other exercises and conversions was  anti-dilutive  and,
therefore, was excluded from the computation of diluted EPS.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,                                                                    2001            2000            1999
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                       <C>            <C>              <C>
Numerator:
Loss before minority interests and extraordinary loss                                     $ (98,456)     $ (138,984)      $ (28,085)
Loss (Income) allocated to minority interests                                                   408             738          (3,226)
                                                                                          ---------      ----------       ---------
Net loss before extraordinary loss                                                          (98,048)       (138,246)        (31,311)
Income allocated to preferred shareholders                                                  (22,672)        (22,672)         (9,962)
                                                                                          ---------      ----------       ---------
Numerator for basic earnings per share before extraordinary loss                           (120,720)       (160,918)        (41,273)

Effect of Dilutive Securities:
  Series C preferred stock dividends                                                              -               -             628
  Series C preferred stock redemption discount                                                    -               -         (13,338)
                                                                                          ---------      ----------       ---------
Numerator for diluted earnings per share before extraordinary loss                        $(120,720)     $ (160,918)      $ (53,983)
                                                                                          =========      ==========       =========

Denominator:
Denominator for basic earnings per share -
   weighted-average common shares outstanding                                                43,578          43,517          43,196
  Effect of Dilutive Securities:
  Series C preferred shares                                                                       -               -           1,064
                                                                                          ---------      ----------       ---------
Denominator for diluted earnings per share -
     weighted-average common shares outstanding                                              43,578          43,517          44,260
                                                                                          =========      ==========       =========
Basic earnings before extraordinay loss per common share                                  $   (2.77)     $    (3.69)      $   (0.96)
                                                                                          =========      ==========       =========
Diluted earnings before extraordinay loss per common share                                $   (2.77)     $    (3.69)      $   (1.22)
                                                                                          =========      ==========       =========
====================================================================================================================================
</TABLE>
<PAGE>
Stock Based Compensation

     We account for stock option grants in accordance with Accounting Principles
Board Opinion  ("APB") No. 25,  "Accounting  for Stock Issued to Employees" and,
accordingly,  recognizes  no  compensation  expense for  employee  stock  option
grants. We have elected to adopt only the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation."

Income Taxes

     We have elected to be taxed as a REIT under Sections 856 through 860 of the
Internal  Revenue Code of 1986,  as amended.  As a REIT,  we  generally  are not
subject to federal income tax at the corporate  level on income we distribute to
our  shareholders  so long as we distribute  at least 90% of our taxable  income
(excluding  any net capital  gain) each year. If we fail to qualify as a REIT in
any  taxable  year,  we will be  subject to federal  income tax  (including  any
applicable  alternative  minimum tax) on our taxable income at regular corporate
rates.  Even if we  qualify as a REIT,  we may be  subject to certain  state and
local taxes on our income and  property.  We incurred  $201,  $197,  and $234 of
state and local  taxes for the years ended  December  31,  2001,  2000 and 1999,
respectively.  We paid $417,  $235,  and $68 of state and local taxes during the
years ended December 31, 2001, 2000, and 1999, respectively.

     We did not make any distributions  during the years ended December 31, 2001
and 2000,  respectively.  The  following  table  summarizes  the  taxability  of
dividends and distributions paid during the year ended December 31, 1999:

--------------------------------------------------------------------------------
                                                  Amount
Year Ended December 31, 1999                      per Share           Percentage
--------------------------------------------------------------------------------
Series A Senior Preferred Stock
  Ordinary income                                  $ 2.625              100.0%
                                                   =======              =====
Series B Convertible Preferred Stock
  Ordinary income                                  $ 2.125              100.0%
                                                   =======              =====
Series C Preferred Stock
  Ordinary income                                  $ 0.885              100.0%
                                                   =======              =====
Common Stock
  Ordinary income                                  $ 0.271               23.0%
  Return of capital                                  0.909               77.0%
                                                   -------              -----
                                                   $ 1.180              100.0%
                                                   =======              =====
================================================================================

Risks and Uncertainties

     Our results of operations are dependent on the overall health of the retail
industry.  Our tenant base is comprised  almost  exclusively of merchants in the
retail  industry.  The retail  industry is subject to external  factors  such as
inflation,  consumer  confidence,  unemployment  rates and  consumer  tastes and
preferences. A decline in the retail industry could reduce merchant sales, which
could adversely affect our operating results.

     Our  outlet  centers  compete  for  customers  primarily  with  traditional
shopping malls,  "off-price"  retailers and other outlet centers. The tenants of
outlet centers usually attempt to avoid direct  competition with major retailers
and their own full-price stores.  They accomplish this by locating outlet stores
only in outlet  centers at least 20 miles from the nearest  regional  mall.  For
this reason,  our outlet  centers are often  located in  relatively  undeveloped
areas and therefore  compete only to a limited  extent with  traditional  retail
malls in or near metropolitan  areas. In addition to the traditional  sources of
competition  faced by our outlet  centers,  our outlet centers also compete with
web-based and catalogue retailers for customers.

     Because  a  number  of  our  outlet   centers  are  located  in  relatively
undeveloped   areas,   there  are  often  other   potential   sites  for  retail
opportunities near our outlet centers that may be developed by competitors.  The
existence of development of other retail venues with a more convenient  location
or the offer of lower rent may  attract  our  tenants or cause them to seek more
favorable  lease  terms at or  prior to  renewal  of their  leases  with us and,
accordingly, may affect adversely the business, revenues and sales volume of our
outlet centers.

     In addition, the success of tenants in our outlet centers which are located
in relatively  undeveloped  areas,  and thus the success of such outlet  centers
themselves,  depends on shoppers  traveling  significant  distances to shop.  If
shoppers should become less willing to travel the distances necessary to shop at
our remote outlet  centers,  the business of our tenants  would likely  decline.
Such a decline would likely cause the value, business,  revenue and sales volume
of such outlet centers to decline.

     Our community  shopping centers compete with similar  properties located in
the same geographic trade areas.
<PAGE>
New Accounting Pronouncements

     In June 1998, the Financial  Accounting  Standards Board (FASB) issued SFAS
No. 133,  "Accounting  for Derivative  Instruments  and Hedging  Activities," as
amended by SFAS No. 137 and SFAS No. 138, which  established  new accounting and
reporting  standards for  derivative  instruments.  These rules require that all
derivative  instruments be reported in the consolidated  financial statements at
fair value.  The fair value for all  derivative  contracts  is included in other
assets or other  liabilities  and  changes in fair value will be  recorded  each
period in  earnings  or other  comprehensive  income,  depending  on whether the
derivative is designated and effective as part of a hedged  transaction,  and on
the type of  hedge  transaction.  Gains  or  losses  on  derivative  instruments
reported in other comprehensive income must be reclassified into earnings in the
period in which  earnings are affected by the  underlying  hedged item,  and the
ineffective portion of all hedges is recognized in other income (expense) in the
statements of operations in the current  period.  These new standards may result
in additional volatility in reported earnings, other comprehensive income (loss)
and accumulated other comprehensive  income (loss). These rules became effective
for us on  January  1,  2001  and  did  not  have a  significant  effect  on our
consolidated results of operations or financial position upon adoption.

     We are exposed to market risk from changes in interest rates. We manage our
exposure to these market risks  through our  operating,  financing and investing
activities  and,  when deemed  appropriate,  through  the use of  interest  rate
protection agreements.

     We report changes in fair value of our interest rate protection  agreements
in other  income  or  expense.  Our  interest  rate  protection  agreements  are
marked-to-market  and unrealized gains and losses are included in current period
net income  (loss) as a component of other income  (expense).  When the terms of
the related financing are modified,  or in the event of early  extinguishment of
the  related  financing,  all  changes in the fair value of the  instrument  are
marked-to-market  with changes in fair value  included in net income each period
until the instrument matures.

     We believe we have limited exposure to the extent of non-performance by the
counterparties  of each agreement  since each  counterparty is a major financial
institution and we do not anticipate their non-performance.

     In October,  2001, the FASB issued SFAS No. 144, "Accounting for Impairment
of Disposal of Long-lived Assets." SFAS No. 144 supercedes SFAS No. 121, however
it  retains  the  fundamental  provisions  of  that  statement  related  to  the
recognition and  measurement of the impairment of long-lived  assets to be "held
and used." In addition,  SFAS No. 144 provides more guidance on estimating  cash
flows when performing a recoverability test, requires that a long-lived asset to
be disposed of other than by sale (e.g.,  abandoned)  be classified as "held and
used" until it is disposed  of, and  established  more  restrictive  criteria to
classify an asset as "held for sale." SFAS No. 144 is effective for fiscal years
beginning after December 15, 2001. We will adopt SFAS No. 144 effective  January
1, 2002 and do not expect the adoption to have a material  impact on our results
of operations or financial position.

Note 3 --Property Dispositions

2002 Sales Transaction

     On January 11, 2002,  we completed  the sale of Prime Outlets at Hagerstown
(the  "Hagerstown  Center")  to  an  existing  joint  venture  partnership  (the
"Prime/Estein Venture") between one of our affiliates and an affiliate of Estein
&  Associates  USA,  Ltd.  ("Estein"),  a real estate  investment  company,  for
$80,500.  Our  affiliate  and the Estein  affiliate  have 30% and 70%  ownership
interests,  respectively,  in the Prime/Estein  Venture.  In connection with the
sale transaction,  the Prime/Estein Venture assumed first mortgage  indebtedness
of $46,862 on the Hagerstown  Center (the "Assumed Mortgage  Indebtedness").  In
connection with the lender's  consent to the  Prime/Estein  Venture assuming the
Assumed   Mortgage   Indebtedness,   our  guarantee  of  the  Assumed   Mortgage
Indebtedness remained in place.

     The net cash proceeds from the sale, including the release of certain funds
held in escrow,  were $12,113  after a pay-down of $11,066 of existing  mortgage
indebtedness on the Hagerstown  Center and closing costs.  The net proceeds from
this sale were used to prepay $11,647 of principal outstanding under a mezzanine
loan (the  "Mezzanine  Loan").  At December 31, 2001,  the carrying value of the
Hagerstown  Outlet  Center of $54,628 was  classified as assets held for sale in
the  Consolidated  Balance  Sheet.  See Note 6 - "Bonds and Notes  Payable"  for
additional information.

     We are obligated to refinance the Assumed  Mortgage  Indebtedness on behalf
of the  Prime/Estein  Venture on or before  June 1,  2004,  its  maturity  date.
Additionally,  pursuant to certain  Prime/Estein  Venture-related  documents  to
which  affiliates of ours are parties,  the  Prime/Estein  Venture's cost of the
Assumed  Mortgage  Indebtedness and any refinancing of it are fixed at an annual
rate of 7.75% for a period of 10 years. If the actual cost of such  indebtedness
should exceed 7.75% at any time during the ten-year period, we will be obligated
to pay the difference to the Prime/Estein  Venture.  However, if the actual cost
of such  indebtedness is less than 7.75% at any time during the ten-year period,
the  Prime/Estein  Venture  will be  obligated  to pay the  differnce to us. The
actual cost of the Assumed Mortgage  Indebtedness is currently 30-day LIBOR plus
1.50%.
<PAGE>
2001 Sales Transactions

     On February 2, 2001, we sold Northgate Plaza, a community center located in
Lombard,  Illinois to Arbor  Northgate,  Inc.  for  aggregate  consideration  of
$7,050.  After the  repayment  of  mortgage  indebtedness  of $5,966 and closing
costs,  the net cash proceeds from the Northgate  Plaza sale were $510. On March
16, 2001, we sold Prime  Outlets at  Silverthorne,  an outlet center  located in
Silverthorne, Colorado consisting of 257,000 square feet of GLA, to Silverthorne
Factory  Stores,  LLC for  aggregate  consideration  of  $29,000.  The net  cash
proceeds from the sale of Prime Outlets at Silverthorne  were $8,993,  after the
repayment  of certain  mortgage  indebtedness  of  $18,078  on Prime  Outlets at
Lebanon  (see below) and closing  costs and fees.  The net  proceeds  from these
sales were used to prepay an aggregate of $9,137 of principal  outstanding under
our  Mezzanine  Loan in  accordance  with the terms of such loan  agreement.  In
connection  with these sales,  we recorded an aggregate gain on the sale of real
estate of $732 during the first quarter of 2001. The operating  results of these
properties  are  included in our results of  operations  through the  respective
dates of disposition.  At December 31, 2000, these properties were classified as
assets  held  for  sale in the  Consolidated  Balance  Sheet  with an  aggregate
carrying value of $34,770.

     On November 27, 2001, we sold certain land located in Camarillo, California
for  aggregate  consideration  of $7,150.  The net cash  proceeds from the sale,
including  the release of certain funds held in escrow,  were $1,859,  after the
repayment of certain mortgage indebtedness of $6,227 and closing costs and fees.
The net  proceeds  from  this sale  were  used to  prepay  $1,787  of  principal
outstanding  under our Mezzanine Loan. In connection with this sale, we recorded
a loss on the sale of real estate of $1,615  during the fourth  quarter of 2001.
At December 31,  2000,  the land was  classified  as assets held for sale in the
Consolidated Balance Sheet with a carrying value of $8,460.

     Prior to the sale of Prime Outlets at  Silverthorne,  it was one of fifteen
properties  securing our first mortgage and expansion loan (the "First  Mortgage
and Expansion Loan"), which had an outstanding  principal balance of $342,629 at
December  31,  2001.  In   conjunction   with  the  sale  of  Prime  Outlets  at
Silverthorne,  we  substituted  Prime  Outlets at Lebanon  for Prime  Outlets at
Silverthorne in the cross-collateralized  asset pool securing the First Mortgage
and Expansion Loan pursuant to the collateral  substitution provisions contained
in the loan  agreement.  In conjunction  with adding Prime Outlets at Lebanon as
security for the First  Mortgage and  Expansion  Loan,  we repaid,  as discussed
above, certain mortgage indebtedness on Prime Outlets at Lebanon of $18,078.

Sale of Permanent Loan Properties

     On  December  22,  2000,  we  completed  the  sale of four  outlet  centers
aggregating  1,592,000  square  feet  of  GLA  to a  joint  venture  partnership
comprised of Fortress  Investment Fund LLC  ("Fortress") and Chelsea GCA Realty,
Inc.  ("Chelsea")  for  aggregate  consideration  of  $239,500,   including  the
assumption  of  first  mortgage  debt  of  $174,235.  The  four  outlet  centers
(collectively,  the "Permanent Loan  Properties")  that were sold are located in
Gilroy, California;  Michigan City,  Indiana;  Waterloo,  New York; and Kittery,
Maine. In connection with the sale of the Permanent Loan Properties, we incurred
a loss on sale of real estate of $42,648 in the fourth  quarter of 2000. The net
proceeds from the sale,  after closing costs and fees and the required  purchase
of land in the  amount  of  $7,325  related  to the  outlet  center  in  Gilroy,
California, was $51,403. Net proceeds from the sale were used for the prepayment
of  certain  long-term  debt.  The  operating  results  of  the  Permanent  Loan
Properties  are  included  in our  results  of  operations  through  the date of
disposition.

Prime/Estein Joint Venture Transaction

     On August 6, 1999, we entered into an agreement  (the  "Prime/Estein  Joint
Venture  Agreement") to sell three factory outlet centers,  including two future
expansions, to a joint venture (the "Prime/Estein Venture") between an affiliate
of Estein & Associates USA, Ltd.  ("Estein"),  a real estate investment company,
and us. The Prime/Estein  Joint Venture Agreement  provided for a total purchase
price of $274,000,  including (i) the  assumption of  approximately  $151,500 of
first  mortgage  indebtedness,  (ii)  an  $8,000  payment  to us for a  ten-year
covenant-not-to-compete  (the  "Covenant-not-to-Compete")  and  (iii)  a  $6,000
payment to us for a ten-year  licensing  agreement (the  "Licensing  Agreement")
with the  Venture to continue  the use of the "Prime  Outlets"  brand name.  The
Covenant-not-to-Compete and the Licensing Agreement are collectively referred to
as the "Deferred Income".

     On  November  19,  1999,  we  completed  the  initial  installment  of  the
Prime/Estein Joint Venture Agreement  consisting of the sale of Prime Outlets at
Birch Run to the Prime/Estein  Venture for aggregate  consideration of $117,000,
including a $64,500  "wrap-around"  first mortgage provided by us. In connection
with the sale of Prime  Outlets at Birch  Run,  we  received  cash  proceeds  of
$33,303,  net of  transaction  costs,  and  recorded  a loss on the sale of real
estate of $9,326.  Effective November 19, 1999, we commenced  accounting for our
30.0%  ownership  interest in Prime Outlets at Birch Run in accordance  with the
equity method of accounting.  The "wrap-around" first mortgage provided by us to
the  Prime/Estein  Venture had a ten-year term at a fixed interest rate of 7.75%
requiring  monthly  payments of  principal  and  interest  pursuant to a 25-year
amortization schedule. Our net investment in the "wrap-around" first mortgage as
of December  31,  2000 was  $10,731,  which is  included in other  assets in the
Consolidated  Balance  Sheet.  Additionally,  the  Venture  assumed  $53,755  of
outstanding mortgage indebtedness.  Included in the aggregate  consideration was
$8,500 of  Deferred  Income.  The  Deferred  Income was  initially  included  in
accounts payable and other liabilities in the Consolidated Balance Sheet and was
being amortized into other income over its ten-year life.  Effective on the date
of disposition,  we account for our ownership interest in Prime Outlets at Birch
Run in accordance with the equity method of accounting.  See Note 6 - "Bonds and
Notes Payable" for additional information.
<PAGE>
     During the fourth  quarter of 1999,  we recorded a loss on the sale of real
estate  of $5,827  related  to the  write-down  of the  carrying  value of Prime
Outlets at  Williamsburg  based on the terms of the  Prime/Estein  Joint Venture
Agreement.  On February 23, 2000,  we completed  the second  installment  of the
Prime/Estein Joint Venture Agreement  consisting of the sale of Prime Outlets at
Williamsburg to the Venture for aggregate  consideration  of $59,000,  including
(i) the  assumption  of  mortgage  indebtedness  of $32,500  and (ii)  $2,750 of
Deferred  Income.  In connection with the sale of Prime Outlets at Williamsburg,
we received (i) cash proceeds of $11,063,  net of transaction  costs, and (ii) a
promissory note in the amount of $10,000 from the Prime/Estein Venture (of which
Estein's  obligation  was  $7,000).  The  promissory  note  required the monthly
payment of interest  in arrears at an annual  rate of 7.75% and the  outstanding
principal  amount  was  payable  on or before  December  15,  2000,  subject  to
satisfaction of certain conditions. As a result of our inability to refinance or
convert  the  Prime/Estein  Venture's  mortgage  indebtedness  of  $32,500  to a
permanent  loan at a fixed rate of interest by December 15,  2000,  the maturity
date of the promissory note was extended until the refinancing was completed. In
addition,  since  the  refinancing  or  conversion  did not  occur on or  before
December 15, 2000, we were obligated to pay Estein $250 and we were not entitled
to receive operating  distributions arising out of Prime Outlets at Williamsburg
until the refinancing  occurred.  Effective on the date of disposition,  we have
accounted  for our  ownership  interest  in Prime  Outlets  at  Williamsburg  in
accordance  with the equity method of accounting.  See Note 6 - "Bonds and Notes
Payable" for additional information.

     Under the Prime/Estein  Joint Venture  Agreement,  as amended,  the outside
closing date for a  contemplated  sale of the  Hagerstown  Center,  including an
expansion which opened during 2000, was August 31, 2000.  Estein  terminated the
Prime/Estein  Joint Venture  Agreement as it applied to the contemplated sale of
the  Hagerstown  Center when the closing did not occur by the specified  closing
date.

     In connection with this discontinuance  of the sales of a 70% joint venture
interest in (i) the  Hagerstown  Center and (ii) a proposed  expansion  to Prime
Outlets at Williamsburg (the "Williamsburg Expansion"),  we reduced the carrying
value of the Deferred  Income by $9,550 and incurred  other charges  aggregating
$1,100  during the third quarter of 2000.  The reduction in the Deferred  Income
was attributable to the remaining proceeds that were not received as a result of
the termination of the Prime/Estein Joint Venture Agreement. The $1,100 of other
charges  included (i) a $600 fee payable to Estein  resulting  from inability to
close  the  sale of the  Hagerstown  Center  on or  before  August  31,  2000 in
accordance with the terms of the Prime/Estein Joint Venture Agreement and (ii) a
$500 fee payable to Estein for  non-completion of the Williamsburg  Expansion by
December 15, 2000.

     During 2000, we reclassified  $61,908  representing the aggregate  carrying
value of the Hagerstown Center from assets held for sale to investment in rental
property  in  the   Consolidated   Balance   Sheet.   In  connection   with  the
reclassification,  we recorded $1,967 of depreciation and  amortization  expense
related to the  Hagerstown  Center  comprising the period from January 1 through
September 30, 2000, the date of the reclassification.

     The following unaudited pro forma information presents a summary of the our
consolidated  results  of  operations  as if  the  sale  of the  Permanent  Loan
Properties  and the  Prime/Estein  Joint  Venture  Transaction  had  occurred on
January 1, 1999:

--------------------------------------------------------------------------------
Years Ended December 31,                              2000               1999
--------------------------------------------------------------------------------
Total revenues                                      $ 240,991         $ 244,693
                                                    =========         =========
Net loss from continuing operations                 $ (96,091)        $ (20,205)
                                                    =========         =========
Net loss applicable to common shareholders          $(118,763)        $ (30,167)
                                                    =========         =========
Basic and diluted loss per common share             $   (2.73)        $   (0.70)
                                                    =========         =========
Weighted-average common shares outstanding             43,517            43,196
                                                    =========         =========
================================================================================

     These  unaudited  pro forma  results  have been  prepared  for  comparative
purposes  only and do not purport to be  indicative of the results of operations
which actually would have resulted had the indicated transactions been in effect
on January 1, 1999 or of our future results of operations.

Note 4 -- Restricted Cash

     As of December  31, 2001 and 2000,  $37,885 and $54,920,  respectively,  of
cash was placed in various escrows and, therefore, classified as restricted cash
in the  Consolidated  Balance Sheet.  Restricted cash generally  consists of (i)
lender  escrows for the payment of debt service,  real estate taxes,  insurance,
capital  expenditures and certain operating expenses and (ii) escrows for tenant
marketing  contributions.  Restricted  cash also  includes  amounts  relating to
future development costs and a cash collateral account for fixed rate tax-exempt
bonds.  The cash  collateral  account was $2,825 (10% of the  original  issuance
amount) as of December 31, 2001 and 2000, respectively. At December 31, 2001 and
2000, $825 and $5,142,  respectively,  were held in escrow for the completion of
Prime Outlets of Puerto Rico.
<PAGE>
Note 5 -- Deferred Charges

        Deferred charges were as follows:

--------------------------------------------------------------------------------
December 31,                                               2001           2000
--------------------------------------------------------------------------------
Leasing commissions                                    $   9,590       $ 10,046
Financing costs                                           27,489         28,062
                                                       ---------       --------
                                                          37,079         38,108
Accumulated amortization                                 (25,290)       (18,575)
                                                       ---------       --------
                                                       $  11,789       $ 19,533
                                                       =========       ========
================================================================================

Note 6 -- Bonds and Notes Payable

        Bonds payable consisted of the following:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
December 31,                                                                                                  2001            2000
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                        <C>             <C>
Fixed rate tax-exempt revenue bonds (the "Fixed Rate Bonds"), interest rates
  ranging form 6.88% to 7.00%, monthly interest and sinking fund payments, due
  2012 to 2014, collateralized by properties in Chattanooga, TN and Knoxville, TN                          $ 27,325        $ 27,805

Urban development action grant loans,  6%,  monthly principal and interest payments,
  due 2016 to 2019, collateralized by properties in Chattanooga, TN                                           4,650           4,650
                                                                                                           --------        ---------
                                                                                                           $ 31,975        $ 32,455
                                                                                                           ========        =========
====================================================================================================================================
</TABLE>

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

     The Fixed Rate Bonds contain certain financial covenants, including minimum
debt  service  coverage  ratios and  cross-default  provisions  with  respect to
certain  of our  other  credit  agreements.  In the event of  non-compliance  or
default,  the holders of the Fixed Rate Bonds may elect to put such  obligations
to us at a price equal to par plus  accrued  interest.  See "Going  Concern" for
additional information.

     Certain of the Fixed Rate Bonds  require  mandatory  sinking fund  payments
follows:

--------------------------------------------------------------------------------
Years ended December 31,
--------------------------------------------------------------------------------

2002                                                               $    505
2003                                                                    540
2004                                                                    575
2005                                                                    615
2006                                                                    650
Thereafter                                                           17,440
                                                                   --------
                                                                   $ 20,325
                                                                   ========
================================================================================

     During  the  years  ended  December  31,  2001 and  2000,  $480  and  $445,
respectively, of the Fixed Rate Bonds were redeemed from the sinking fund.
<PAGE>
        Notes payable consisted of the following:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
December 31,                                                                                                  2001           2000
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                         <C>            <C>
First Mortgage and Expansion Loan, 7.782%, monthly principal and interest of $2,580, due
  November 11, 2003, collateralized by 15 properties located throughout the United States                   $ 342,629      $ 346,392

Bridge Loan, 13%, monthly interest plus principal of the greater of $50 or 50% of excess cash flow,
  due December 31, 2003, collateralized by six properties located throughout the United States                111,375        112,000

Mortgage, 6.927% effective rate, monthly principal and interest of $565, due October 11, 2006,
  collateralized by four properties located throughout the United States                                       72,954         74,481

Mortgage, 6.927% effective rate, monthly principal and interest of $527, due March 11, 2006,
  collateralized by four properties located throughout the United States                                       63,521         65,293

Mezzanine Loan, LIBOR plus 9.50% (minimum of 14.50%) through December 31, 2001
  (14.50% at December 31, 2001), LIBOR plus 9.75% (minimum of 14.75%) thereafter, monthly
  principal and interest payments, due September 30, 2003, collateralized by pledges of equity
  interests in certain properties                                                                              62,079         90,000

Mortgage, 7.60%, monthly principal and interest of $450, due May 10, 2009, collateralized by
  property located in Niagara Falls, NY                                                                        61,488         62,120

Construction Mortgage Loan, LIBOR plus 1.50% (3.62% at December 31, 2001), monthly
  interest-only payments through May 31, 2002, monthly principal and interest thereafter, due
  June 1, 2004, collateralized by property located in Hagerstown, MD                                           49,062         48,863

Mortgage, 6.95% effective rate, monthly principal and interest of $351, due November 1, 2005,
  collateralized by properties located in Vero Beach, FL and Woodbury, MN                                      42,652         43,859

Mortgage, 6.915% effective rate, monthly principal and interest of $357, due June 10, 2002,
  collateralized by properties located in Conroe, TX and Jeffersonville, OH                                    33,559         34,890

Mortgage, 8.35%, monthly principal and interest of $215, due June 11, 2007,  collateralized by
  three properties located throughout the United States                                                        25,327         25,740

Puerto Rico First Mortgage Loan, LIBOR plus 3.50% (5.64% at December 31, 2001), monthly
  interest plus (i) principal based on a 25-year amortization schedule at 9% through January 1, 2002
  and (ii) principal based on a 15-year amortization schedule at 9% thereafter, due December 31, 2003,
  collateralized by property located in Barceloneta, Puerto Rico                                               19,817         20,000

Edinburgh First Mortgage Loan, LIBOR plus 3.50% (minimum of 8.00%) (8.00% at December 31, 2001),
  monthly principal and interest of $159, due July 1, 2004, collateralized by property located in
  Edinburgh, IN                                                                                                16,456              -

Mortgage, 6.95% effective rate, monthly principal and interest of $81, due November 1, 2005,
  collateralized by property located in Perryville, MD                                                          9,593          9,893

Hagerstown Second Mortgage Loan, LIBOR plus 2.50% (4.62% at December 31, 2001), monthly
  interest-only payments through June 30, 2001, monthly principal of $164 plus interest thereafter,
  due June 1, 2004, collateralized by property located in Hagerstown, MD                                        9,016         10,000

Mortgage, 7.50%, monthly principal and interest of $29, due April 30, 2002, collateralized by
  property located in Knoxville, TN                                                                             2,972          3,521

Other Notes Payable                                                                                             2,992          3,070

Lebanon First Mortgage Loan, LIBOR plus 3.00% (8.56% at December 31, 2000), monthly principal
  of $100 plus interest, due June 30, 2001, collateralized by property located in Lebanon, TN                       -         18,378

Mortgage, 6.91% effective rate, monthly principal and interest of $154, due June 1, 2001,
  collateralized by property located in Edinburgh, IN                                                               -         16,681

Note Payable, 13.50%, monthly interest-only payments, due November 1, 2001, collateralized by
  land located in Camarillo, CA                                                                                     -          6,527

Mortgage, 9.375%, monthly principal and interest of $71, due March 1, 2004, collateralized by
  property located in Lombard, IL                                                                                   -          5,990
                                                                                                            ----------     ---------
                                                                                                            $ 925,492      $ 997,698
                                                                                                            ==========     =========
====================================================================================================================================
</TABLE>
<PAGE>
     Notes payable includes  unamortized debt premiums of $11,051 and $14,144 in
the  aggregate at December 31, 2001 and 2000,  respectively.  Debt  premiums are
being  amortized  over the terms of the related debt  instruments  in accordance
with the effective  interest method.  Additionally,  interest  incurred reflects
amortization  of debt premiums of $3,093,  $3,159 and $4,406 for the years ended
December 31, 2001, 2000 and 1999, respectively. The aggregate carrying amount of
bonds and notes  payable at December 31, 2001  approximated  its fair value.  At
December 31, 2001,  substantially  all of our assets were pledged as  collateral
for bonds and notes payable.

        Interest costs are summarized as follows:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,                                                                   2001             2000             1999
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                      <C>             <C>               <C>
Interest incurred                                                                        $ 88,927        $ 101,549         $ 98,607
Amortization of deferred financing costs                                                    7,025            3,256            4,379
Amortization of debt premiums                                                              (3,093)          (3,159)          (4,406)
Interest capitalized to development projects                                                    -           (3,412)          (4,646)
                                                                                         --------        ---------         --------
  Total                                                                                  $ 92,859        $  98,234         $ 93,934
                                                                                         ========        =========         ========
Interest paid                                                                            $ 86,551        $  99,611         $ 94,046
                                                                                         ========        =========         ========
====================================================================================================================================
</TABLE>

2000 Debt Transactions

     On December 22, 2000, we closed a major  refinancing  on our assets and the
sale  of  four  of  our  outlet  centers   through  a  series  of   transactions
(collectively,  the "December  22, 2000  Transactions").  The principal  lenders
involved in the  December 22, 2000  Transactions  were an affiliate of Fortress;
Greenwich Capital Financial Products,  Inc.  ("Greenwich");  and Mercantile-Safe
Deposit and Trust Company ("Mercantile").  The sale of the outlet centers was to
a joint  venture  partnership  comprised  of Fortress and Chelsea (see "Note 3 -
"Property  Dispositions"  for  additional  information).  Fortress and Greenwich
(collectively,  the "Lending  Group")  provided a mezzanine  loan in the initial
amount of $90,000  (the  "Mezzanine  Loan").  Greenwich  funded a $20,000  first
mortgage loan (the "Puerto Rico First Mortgage  Loan") on our outlet center that
opened in Puerto  Rico  during  July of 2000 and  Mercantile  provided a $10,000
second mortgage loan (the "Hagerstown Second Mortgage Loan") on an outlet center
in Hagerstown,  Maryland.  We executed agreements to extend the maturity date of
two of our existing  loans,  a $112,000  first mortgage loan (the "Bridge Loan")
from Nomura Asset Capital  Corporation  ("Nomura")  and a $19,378 first mortgage
loan (the "Lebanon First Mortgage Loan") from KeyBank National Association.

     The  Mezzanine  Loan is secured by pledges of equity  interests  in certain
outlet centers.  The Mezzanine Loan was originally for a term of three-years and
required fixed monthly principal amortization  commencing on February 1, 2001 of
$1,000  during the first year,  $1,667  during the second year and $2,333 during
the third year.  Additionally,  the  Mezzanine  Loan (i) requires the payment of
certain  exit  fees,  (ii) is  pre-payable  at any time after one year and (iii)
requires  that our  excess  cash flow from  operations  and assets  sales  above
certain  thresholds  be applied to principal  reductions.  The interest rate was
originally a floating  rate based on 30-day LIBOR plus 9.50%,  but not less than
14.50%. The Mezzanine Loan contains financial and other covenants that restrict,
among other things,  the ability of us to incur  additional  indebtedness or pay
dividends  (other than dividends to maintain our status as a REIT). In addition,
in connection with the financing we issued  warrants  (recorded at fair value at
the date of the transaction) to the Lending Group to purchase one million shares
of our common  stock at an exercise  price of $1.00 per share.  The terms of the
Mezzanine Loan were modified in January, 2002 (see "Mezzanine Loan Modification"
for additional information).

     The Puerto  Rico  First  Mortgage  Loan is secured by our outlet  center in
Puerto Rico. The Puerto Rico First  Mortgage Loan is for a term of  three-years,
requires monthly amortization of $15 based upon a 25-year schedule for the first
year and $51 based upon a 15-year  schedule  thereafter.  The Puerto  Rico First
Mortgage Loan is non-recourse  and is pre-payable at any time subject to certain
prepayment  and exit fees.  The interest rate is a floating rate based on 30-day
LIBOR plus 3.50%.

     The  Hagerstown  Second  Mortgage  Loan was secured by our outlet center in
Hagerstown,  Maryland  and had a term of  30-months  that was  co-terminus  with
Mercantile's  existing  first  mortgage  loan on the  same  center.  The  Second
Mortgage Loan  required  monthly  amortization  starting in the seventh month of
$164 per month and was  pre-payable  at any time  without  penalty  or fee.  The
interest  rate was a  floating  rate  based on  30-day  LIBOR  plus  2.50%.  The
Hagerstown  Second  Mortgage  was repaid in full in  January  2002 (see Note 3 -
"Property Dispositions" for additional information).
<PAGE>
     On December 22, 2000, the term of the Bridge Loan,  which was due to mature
on June 11, 2001, was extended until December 31, 2003. In consideration for the
extension,  the interest  rate was  converted  from 30-day LIBOR plus 1.35% to a
fixed-rate  of 13.00%;  the monthly  interest-only  payments  were  converted to
monthly interest and principal payments,  (principal amortization of the greater
of (i) 50% of excess cash flow from the  properties  collateralizing  the Bridge
Loan or (ii) $50) and a loan  extension  fee of $1,120 was paid.  In  connection
with  the  modification  of the  terms  of  the  Bridge  Loan,  we  incurred  an
extraordinary  loss of $1,345 during 2000. The  extraordinary  loss consisted of
(i) the $1,120  extension  fee and (ii) the  write-off of  unamortized  deferred
financing costs and expenses aggregating $225.

     On December 22, 2000, the term of the Lebanon First Mortgage Loan,  secured
by our outlet center in Lebanon,  Tennessee, which was due to mature on December
31, 2000,  was extended for a period of six months until June 30, 2001,  with an
additional  three-month  extension  available if certain conditions were met. In
consideration  for the  extension,  the interest  rate was increased by 1.25% to
30-day  LIBOR plus 3.00% and the loan  balance was reduced to $18,378  through a
$1,000 principal payment. The Lebanon First Mortgage Loan was pre-payable at any
time.  The  Lebanon  First  Mortgage  Loan was repaid in full in March 2001 (see
"2001 Sales Transactions" for additional information).

     The net proceeds from the December 22, 2000  Transactions  were used to (i)
pay off $125,000 of short-term  indebtedness as described  below;  (ii) pay-down
$3,500 of other  indebtedness  (the $1,000  principal  reduction  on the Lebanon
First Mortgage Loan and a $2,500 principal reduction on a first mortgage loan on
Phases II and III of the outlet center located in Bellport, New York), and (iii)
pay the $1,120  extension fee on the Bridge Loan.  The remainder of the proceeds
was used (i) for general  corporate  purposes,  including  marketing and capital
improvements  programs and (ii) to fund  development  costs for Prime Outlets of
Puerto Rico.

     We  used   $125,000  of  the  net  proceeds  from  the  December  22,  2000
Transactions  for  the  repayment  of  (i)  a  $20,000  subordinated  loan  (the
"Subordinated  Loan")  made by FBR Asset  Investment  Corporation  that  matured
August  14,  2000,  (ii) a  $25,000  unsecured  corporate  line of  credit  from
Mercantile  which  was due to  mature  on  December  31,  2000,  (iii) a $37,000
unsecured revolving loan (the "Unsecured  Revolving Loan") from Nomura which was
scheduled to mature on September  11, 2001 and (iv) the  prepayment of a $43,000
term loan (the "Term  Loan") from  Greenwich  which was  scheduled  to mature on
December 10, 2001. In connection with the prepayment of the Unsecured  Revolving
Loan  and the  Term  Loan,  we  incurred  an  extraordinary  loss  on the  early
extinguishment of debt aggregating  $2,861 during 2000. The  extraordinary  loss
consisted  of  (i) a  $1,700  prepayment  penalty  and  (ii)  the  write-off  of
unamortized deferred financing costs and expenses aggregating $1,161.

     We had been in  default  of the  Subordinated  Loan and  such  default  had
triggered  certain  cross-default  provisions  with respect to other of our debt
facilities.  In addition,  we previously  were not in compliance  with financial
covenants  contained in certain of our debt facilities.  As a result of the debt
repayments and the various  restructuring and extension  agreements completed on
December 22, 2000, we had cured or eliminated  all financial  covenant  defaults
under our recourse loan  agreements as of December 31, 2000. See "Going Concern"
for additional information.

     During 1999, we incurred an extraordinary loss on the early  extinguishment
of debt of $3,518, net of minority interests of $887.

2001 Debt Transactions

     In  connection  with  the  sales  of  Northgate  Plaza,  Prime  Outlets  at
Silverthorne  and certain land located in  Camarillo,  CA during 2001, we repaid
mortgage indebtedness of $5,966, $18,078 and $6,227, respectively.  In addition,
net cash  proceeds  from these  property  sales were used to prepay an aggregate
$10,924  of  principal  outstanding  under  our  Mezzanine  Loan.  See  Note 3 -
"Property Dispositions" for additional information.

     On June 8, 2001, we,  through  affiliates,  obtained a two-month  extension
through  August  10,  2001 to the terms  and  maturity  date of a $16,330  first
mortgage  loan secured by Prime  Outlets at  Edinburgh  (the  "Edinburgh  Outlet
Center")  located  in  Edinburgh,   Indiana.  On  June  29,  2001,  we,  through
affiliates,  completed a refinancing  of this first mortgage loan. The new first
mortgage loan (the  "Edinburgh  First Mortgage  Loan") provides for an aggregate
commitment up to $18,000 and is non-recourse to us. The Edinburgh First Mortgage
Loan,  which is  secured by the  Edinburgh  Outlet  Center,  has a term of three
years,  requires monthly  principal  payments based upon a 15-year  amortization
schedule and is pre-payable  at any time subject to certain  prepayment and exit
fees. The Edinburgh  First Mortgage Loan bears interest at a floating rate based
on six-month LIBOR plus 350 basis points,  subject to an 8.00% minimum,  and may
be  adjusted  semi-annually  with  a  maximum  1.0%  increase  or  decrease  per
adjustment.  As of December 31, 2001,  the  Edinburgh  First  Mortgage Loan bore
interest  at the  minimum  rate.  At  closing,  $16,700 of the  Edinburgh  First
Mortgage  Loan was funded,  resulting in net proceeds of $88 after  repayment of
the old first  mortgage  loan and closing  costs.  As of December 31, 2001,  the
remaining  commitment provides for the funding of up to an additional $1,300 for
leasing related capital expenditures at the Edinburgh Outlet Center.
<PAGE>
Prime/Estein Venture Refinancing Transactions

     On August 7, 2001, we, through affiliates, obtained an additional one-month
extension  to  September  10, 2001 to the terms and  maturity  date of a $10,003
first mortgage loan secured by Prime Outlets at Birch Run (the "Birch Run Outlet
Center")  located in Birch Run,  Michigan.  The terms and  maturity  date of the
$10,003 first mortgage loan had previously  been extended to August 10, 2001. We
and  Estein,   through  affiliates,   have  30%  and  70%  ownership  interests,
respectively,  in the  Prime/Estein  Venture that  indirectly owns the Birch Run
Outlet Center.  We completed a refinancing of loans  aggregating  $63,000 on the
Birch Run Outlet  Center on August 21, 2001.  These loans which were  refinanced
were included in a "wrap-around" loan provided by us to the Prime/Estein Venture
in connection with the November 19, 1999 sale of the Birch Run Project.

     The new first mortgage loan (the "Birch Run First Mortgage Loan") is in the
amount of $63,000,  is secured by the Birch Run Outlet Center, has a term of ten
years,  and  requires  monthly  principal  amortization  based  upon  a  25-year
schedule.  The Birch Run First  Mortgage  Loan bears  interest  at an  effective
fixed-rate of 8.12%.  Greenwich  Capital Financial  Products,  Inc. provided the
financing.  The  Prime/Estein  Venture used the net proceeds  from the Birch Run
First Mortgage Loan to repay in full first mortgage loans and the  "wrap-around"
loan of $10,731  due to us,  aggregating  $63,000.  Net  proceeds  to us,  after
payment of closing and other  transaction costs, were $8,286. In connection with
the refinancing  transaction,  we recorded a nonrecurring  loss of $1,036 during
the third quarter of 2001.

     Pursuant to Prime/Estein  Venture-related  documents to which affiliates of
ours  are  parties,  we  are  obligated  to  provide  to,  or  obtain  for,  the
Prime/Estein  Venture  fixed rate  financing  at an annual  rate of 7.75%.  As a
result, each month during the term of the Birch Run First Mortgage Loan, we will
be obligated to pay to the Prime/Estein  Venture the difference between the cost
of the  financing  at an  annual  effective  rate of  8.12%  and the cost of the
financing at an annual rate of 7.75% (the "Interest Rate Subsidy"). The total of
the payments to be made by us to the  Prime/Estein  Venture over the term of the
Birch Run First Mortgage Loan will be $2,723.  During the third quarter of 2001,
we recorded a non-recurring loss of $1,882 in other charges representing the net
present value of the Interest Rate Subsidy.

     On October 19, 2001, we, through affiliates, completed the refinancing of a
$32,500  first  mortgage  loan  secured by Prime  Outlets at  Williamsburg  (the
"Williamsburg  Outlet  Center"),  an  outlet  center  located  in  Williamsburg,
Virginia.  The new first mortgage loan (the "Williamsburg  Mortgage Loan") has a
principal amount of $32,500,  is secured by the Williamsburg  Outlet Center, and
has a term  of  ten years.  The  Williamsburg  Mortgage  Loan  requires  monthly
principal  amortization  based upon a 25-year  schedule and bears  interest at a
fixed rate of 7.69%.  Prudential  Mortgage  Capital  Company,  LLC  provided the
financing.

     We and Estein, through affiliates, own 30% and 70% interests, respectively,
in the Prime/Estein Venture that indirectly owns the Williamsburg Outlet Center.
In connection with the refinancing transaction, the Prime/Estein Venture paid in
full a $10,000 promissory note (of which Estein's obligation was $7,000 and ours
was  $3,000)  to us. Net  proceeds  to us after  payment  of  closing  and other
transaction   costs  were  $6,237.   The  net  proceeds  from  this  refinancing
transaction were used to prepay $5,997 of the Mezzanine Loan.

     Pursuant to Prime/Estein  Venture-related agreements to which affiliates of
ours  are  parties,  we  are  obligated  to  provide  to,  or  obtain  for,  the
Prime/Estein  Venture  fixed rate  financing  at an annual  rate of 7.75%.  As a
result,  each  month  during the term of the  Williamsburg  Mortgage  Loan,  the
Prime/Estein  Venture will be obligated to pay to us the difference  between the
cost of such financing at an assumed annual rate of 7.75% and the actual cost of
such financing at an annual rate of 7.69%.

Going Concern

     Our liquidity  depends on cash provided by operations and potential capital
raising  activities  such as funds  obtained  through  borrowings,  particularly
refinancings of existing debt, and cash generated through asset sales.  Although
we believe that  estimated  cash flows from  operations  and  potential  capital
raising  activities  will be sufficient  to satisfy our  scheduled  debt service
obligations  and  sustain  our  operations  for the next  year,  there can be no
assurance  that we will be successful in obtaining the required  amount of funds
for these items or that the terms of the potential  capital raising  activities,
if they should  occur,  will be as  favorable  as we have  experienced  in prior
periods.

     During 2002, we are required to make certain additional mandatory principal
pay-downs to our Mezzanine Loan aggregating $25,367 from net proceeds from asset
dispositions or other capital  transactions within specified periods pursuant to
the terms of a  modification  to the original  terms of the Mezzanine  Loan (see
"Mezzanine Loan  Modification" for additional  information).  Although we are in
the process of seeking to generate  additional  liquidity  though new financings
and the  sale  of  assets,  there  can be no  assurance  that we will be able to
complete asset dispositions or other capital  transactions  within the specified
periods or that such asset dispositions or other capital  transactions,  if they
should occur, will generate sufficient proceeds to make the additional mandatory
pay-downs  of the  Mezzanine  Loan.  Any  failure  to  satisfy  these  mandatory
principal   prepayments   within  the  specified  time  periods  indicated  will
constitute a default under the Mezzanine Loan.
<PAGE>
     As of December 31, 2001,  we were in  compliance  with all  financial  debt
covenants under our recourse loan agreements. However, there can be no assurance
that we will be in  compliance  with our  financial  debt  covenants  in  future
periods since our future  financial  performance is subject to various risks and
uncertainties, including, but not limited to, the effects of increases in market
interest rates from current levels,  the risk of potential  increases in vacancy
rates  and the  resulting  impact on our  revenue,  and  risks  associated  with
refinancing our current debt  obligations or obtaining new financing under terms
less  favorable  than we have  experienced  in prior  periods.  See "Defaults on
Certain   Non-recourse   Mortgage   Indebtedness"   and   "Defaults  on  Certain
Non-recourse   Mortgage   Indebtedness  of   Unconsolidated   Partnerships"  for
additional information.

     Based on our current  financial  projections,  we believe we will not be in
compliance  with respect to debt  service  coverage  ratios  under  certain debt
facilities  during 2002. The debt facilities are fixed rate  tax-exempt  revenue
bonds (the "Affected  Fixed Rate Bonds") in the amount of $18,390 and a recourse
bridge  loan (the  "Bridge  Loan") in the  amount of  $111,375.  In the event of
non-compliance,  the holders of the  Affected  Fixed Rate Bonds may elect to put
such  obligations  to us at a price equal to par plus  accrued  interest and the
Bridge  Loan  lender  may  elect  to  accelerate  its  maturity.   Additionally,
noncompliance  or defaults  with respect to debt service  coverage  ratios under
these debt facilities may trigger certain cross-default  provisions with respect
to other debt facilities, including our Mezzanine Loan.

     We  intend  to  meet  with  the  affected  lenders  to  discuss   potential
resolutions  including  waiver or amendment with respect to such  non-compliance
provisions.  If we are unable to reach satisfactory resolution with the affected
lenders,  we will look to (i) obtain alternative  financing from other financial
institutions,  (ii) sell the project or projects where  non-compliance is likely
to  occur or (iii)  explore  other  possible  capital  transactions  in order to
generate cash to repay the amounts outstanding under such debt facilities. There
can be no  assurance  that we will  obtain a  satisfactory  resolution  with our
affected  lenders  or that we will be able to  complete  asset  sales  or  other
capital raising  activities  sufficient to repay the amounts  outstanding  under
such debt facilities.

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

Mezzanine Loan Modification

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

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

     The  Amendment  also  requires,  in  lieu  of  the  original  requirements,
additional  mandatory  principal   prepayments  with  net  proceeds  from  asset
dispositions, excluding the January 2002 sale of a 70% interest in Prime Outlets
at Hagerstown (see "2002 Sales  Transactions"  for additional  information),  or
other  capital  transactions  of not less than (i) $8,906 by May 1,  2002,  (ii)
$24,406,  inclusive  of the $8,906,  by July 1, 2002  (subject to  extension  to
October  31,  2002  provided   certain   conditions  are  met  to  the  Lender's
satisfaction) and (iii) $25,367, inclusive of the $24,406,  by November 1, 2002.
In  addition  to each  principal  prepayment,  we must  also  pay any  interest,
including  deferred  interest,  accrued thereon and the additional fees provided
for in the  Mezzanine  Loan.  Any failure to satisfy these  mandatory  principal
prepayments or other payments  within the specified time periods  indicated will
constitute a default under the Mezzanine Loan.

     The  Mezzanine  Loan was also  amended on January 11, 2002 to,  among other
things,  (i) release the  partnership  interests in Outlet Village of Hagerstown
Limited  Partnership  ("Hagerstown  LP") as collateral under the Mezzanine Loan,
(ii) release Hagerstown LP of all obligations under the Mezzanine Loan and (iii)
add  Hagerstown  Land,  L.L.C.,  a  Delaware  limited  liability  company,  as a
guarantor under the Mezzanine Loan.
<PAGE>
Debt Service Obligations

     Our aggregate indebtedness,  as adjusted for the Amendment to the Mezzanine
Loan and  excluding  (i)  unamortized  debt  premiums of $11,051,  (ii) mortgage
indebtedness  aggregating  $58,079  on Prime  Outlets  at  Hagerstown  and (iii)
non-recourse  mortgage  indebtedness  aggregating  $33,235  on Prime  Outlets at
Conroe and Prime  Outlets  at  Jeffersonville  II was  $855,102  (the  "Adjusted
Indebtedness")  at December 31, 2001. See Note 3 - "Property  Dispositions"  and
"Defaults  on  Certain  Non-recourse   Mortgage   Indebtedness"  for  additional
information.

     At December 31,  2001,  the Adjusted  Indebtedness  had a  weighted-average
maturity of 3.3 years and bore contractual  interest at a weighted-average  rate
of 9.05% per annum.  At December 31, 2001,  $756,751,  or 88.5%, of the Adjusted
Indebtedness  bore interest at fixed rates and $98,351 or 11.5%, of the Adjusted
Indebtedness  bore interest at variable rates. We utilize  derivative  financial
instruments to manage our interest rate risk associated with variable rate debt.

     As of December 31, 2001, our scheduled  principal  payments during 2002 for
the Adjusted  Indebtedness  aggregated  $48,479.  The 2002  scheduled  principal
payments  include (i) a recourse  first mortgage loan of $2,972 on Western Plaza
(the  "Western  Plaza  First  Mortgage  Loan"),  a community  center  located in
Knoxville,  Tennessee,  which  currently  matures  on April 30,  2002 but may be
extended, subject to an additional principal pay-down of $350, an additional six
months to October 31, 2002 and (ii) additional  mandatory principal pay-downs on
the Mezzanine Loan aggregating  $25,367 (see "Mezzanine Loan  Modification"  for
additional  information).   Certain  of  our  debt  obligations,  including  the
Mezzanine  Loan and  fixed-rate  bonds  aggregating  $7,000  secured by a second
mortgage  on  Western  Plaza,  contain  cross-default  provisions  that would be
triggered in the event of a default under the Western Plaza First Mortgage Loan.
In the event such  cross-default  provisions were triggered,  the holders of the
Mezzanine Loan could elect to accelerate  such debt and the holders of the bonds
could elect to put such  obligations  to us at a price equal to par plus accrued
interest. See "Going Concern" for additional information.

     The scheduled principal maturities of the Adjusted Indebtedness and related
average  interest  rates by year of  maturity  as of  December  31, 2001 were as
follows:

--------------------------------------------------------------------------------
                                               Average
                                               Interest              Principal
Years Ended December 31,                        Rate                 Maturities
--------------------------------------------------------------------------------
2002                                             12.78%              $  48,479
2003                                              9.22%                501,444
2004                                              7.75%                 22,223
2005                                              7.92%                 51,147
2006                                              8.76%                121,931
Thereafter                                        7.74%                109,878
                                                 -----               ---------
                                                  9.05%              $ 855,102
                                                 =====               =========

================================================================================

Guarantees of Indebtedness of Others

     We are a guarantor or otherwise  obligated  with respect to an aggregate of
$12,435 of the indebtedness of Horizon Group Properties, Inc. and its affiliates
("HGP"),  including  $10,000 of obligations under a secured credit facility (the
"HGP Secured Credit Facility"). HGP is a publicly traded company that was formed
in connection with our merger with Horizon Group, Inc. in June, 1998.

     The HGP Secured  Credit  Facility  bore  interest at a rate of 30-day LIBOR
plus 1.90%, was  collateralized by five properties located throughout the United
States and matured on July 11,  2001.  On August 2, 2001,  HGP  announced it had
refinanced one of the properties in the HGP Secured Credit Facility and used the
proceeds from the new first mortgage loan to reduce the principal balance of the
HGP Secured Credit  Facility.  Simultaneously,  HGP obtained an extension to the
remaining principal balance of approximately  $33,500,  including a 2% extension
fee, on the HGP Secured Credit Facility through July 11, 2002. Commencing on the
extension  date,  the HGP Secured  Credit  Facility  bears interest at a rate of
30-day LIBOR (but not less than 4.10%) plus 3.95%,  requires  monthly  principal
amortization  of  $225,  and  is  collateralized  by  four  properties   located
throughout  the United  States.  We confirmed our  obligations as guarantor with
respect to the HGP Secured Credit  Facility in connection with the extension and
partial  pay-down.  No claims  have been made  against  our  guaranty by the HGP
Secured Credit Facility  lender.  On October 11, 2001, HGP announced that it was
in  default  under two loans  with an  aggregate  principal  balance  of $45,500
secured by six of its other outlet centers. Such defaults are not defaults under
the HGP Secured Credit Facility or any other facility guaranteed by us.
<PAGE>
     We, through  affiliates,  hold a 51% interest in the owner of Phases II and
III of an outlet  center  located in Bellport,  New York (the  "Bellport  Outlet
Center").  We  account  for our  interest  in Phases II and III of the  Bellport
Outlet Center in  accordance  with the equity  method of  accounting.  On May 1,
2001,  the  recourse  first  mortgage  loan on Phases II and III of the Bellport
Outlet Center of $7,795  matured.  On May 21, 2001,  we, on behalf of the owner,
made a principal  payment of $2,295 to the lender in exchange for a modification
to  the  terms  and a  one-year  extension  of the  maturity  of  this  mortgage
indebtedness.  The outstanding  balance of the first mortgage loan was $5,500 as
of December 31,  2001.  We plan to sell this  property to repay the  outstanding
balance in full. If we are unable to consummate a sale of the property,  we will
attempt to either refinance or extend the maturity of such indebtedness on terms
acceptable  to us.  There  can be no  assurance  that we will be  successful  in
obtaining the required amount of funds for the maturing indebtedness or that the
terms of any potential sale, refinancing or extension of the maturity will be as
favorable as we have experienced in prior periods or otherwise acceptable to us.
As of December 31, 2001,  the carrying  value of our investment in Phases II and
III of the Bellport  Outlet Center was $1,689,  which is included in investments
in unconsolidated partnerships in the Consolidated Balance Sheet.

     On April 1, 1998,  Horizon  consummated  an  agreement  with Castle & Cooke
Properties,  Inc. which released Horizon from its future  obligations  under its
long-term  lease of the Dole  Cannery  outlet  center in  Honolulu,  Hawaii,  in
connection  with the  formation of a joint  venture with certain  affiliates  of
Castle & Cooke,  Inc.  ("Castle & Cooke") to operate  such  property.  Under the
terms of the  agreement,  Castle & Cooke  Properties,  Inc., the landlord of the
project and an affiliate of Castle & Cooke, released Horizon from any continuing
obligations  under the lease,  which  expires in 2045, in exchange for Horizon's
conveyance to the joint venture of its rights and obligations  under such lease.
The  agreement  also  provided  that  Horizon  transfer  to such  joint  venture
substantially  all of Horizon's  economic  interest in its outlet center in Lake
Elsinore,  California  together  with  legal  title to vacant  property  located
adjacent to the center.  We held a small minority  interest in the joint venture
but had no obligation or commitment with respect to the post-closing  operations
of the Dole Cannery  project.  On August 15, 2000, we exercised our option under
the operating agreement of the joint venture and transferred our entire interest
in the joint venture to a Castle & Cooke subsidiary.

Defaults on Certain Non-recourse Mortgage Indebtedness

     During 2001,  certain of our  subsidiaries  suspended  regularly  scheduled
monthly debt service  payments on two  non-recourse  mortgage loans  aggregating
$33,235 as of December 31, 2001.  These  non-recourse  mortgage  loans which are
held by New York Life Investment LLC ("New York Life") are  cross-collateralized
by Prime Outlets at  Jeffersonville  II,  located in  Jeffersonville,  Ohio, and
Prime Outlets at Conroe, located in Conroe, Texas.

     Effective  January 1, 2002,  New York Life  foreclosed  on Prime Outlets at
Conroe.  We remain in  discussions  with New York Life regarding the transfer of
our  ownership  interest in Prime  Outlets at  Jeffersonville  II.  During 2001,
excess cash flow from the  operations  of these  centers was  utilized  for debt
service on the two non-recourse loans.  Accordingly,  we believe the foreclosure
sale of Prime  Outlets at Conroe and the  potential  transfer  of our  ownership
interest in Prime Outlets at  Jeffersonville  II will not have a material impact
on our results of operations or financial condition.

Defaults  on  Certain  Non-recourse   Mortgage  Indebtedness  of  Unconsolidated
Partnerships

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

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

     We  believe  neither  of these  mortgage  loans is  recourse  to us.  It is
possible,  however,  that either or both of the respective  lenders will,  after
completing its foreclosure action, file a lawsuit seeking to collect from us the
difference  between the value of the mortgaged property and the amount due under
the loan. If such an action is brought, the outcome, and our ultimate liability,
if any,  cannot be predicted at this time.  In addition,  we are  currently  not
receiving,  directly or indirectly, any cash flow from Oxnard Factory Outlet and
were not  receiving  any cash flow from Phase I of the  Bellport  Outlet  Center
prior to the loss of control of such  project.  We account for our  interests in
(i) Phases I of the Bellport Outlet Center and (ii) the Oxnard Factory Outlet in
accordance  with the equity method of  accounting.  As of December 31, 2001, the
carrying value of our investment in these  properties was $0.  Therefore,  we do
not believe the existing defaults under these loans or any related  foreclosures
on the  mortgaged  prperties  will  have a  material  impact on our  results  of
operations or financial condition.
<PAGE>
Note 7 -- Minority Interests

     In conjunction with the formation of the Operating  Partnership and us, the
predecessor owners contributed  interests in certain properties to the Operating
Partnership and, in exchange,  received 8,505,472 limited partnership  interests
in the Operating  Partnership ("Common Units").  Additionally,  3,782,121 Common
Units were issued in June 1998 in connection with our merger with Horizon Group,
Inc.. Subject to certain conditions,  each Common Unit held by a Limited Partner
may be exchanged for one share of Common Stock or, at our option,  cash equal to
the fair market value of a share of Common Stock at the time of exchange.

     During 2001,  no Common Units were  exchanged  for shares of Common  Stock.
During  2000 and 1999,  29,296 and  471,923  Common  Units,  respectively,  were
exchanged for shares of Common Stock. As of December 31, 2001, 10,810,912 Common
Units were issued and outstanding. Minority interests also includes interests in
two property  partnerships that are not wholly owned by the Company.  During the
years ended December 31, 2001, 2000, and 1999, expenses totaling $1,981, $2,928,
and $11,752,  respectively,  related solely to our operation were allocated only
to the common  shareholders.  Such allocation is consistent with the federal and
state tax treatment of these expenses.

     During the years ended  December 31, 2001 and 2000,  the loss  allocated to
minority  interests totaled $408 and $738,  respectively.  During the year ended
December 31, 1999, income allocated to minority interests totaled $2,339, net of
an $887  allocation  of  extraordinary  losses.  In  addition,  during 1999 cash
distributions  and losses allocated to minority  interests  reduced the minority
interests'  balance related to Common Units to zero. After reducing the minority
interests' balance to zero, cash distributions,  if any, related to Common Units
are treated as income allocated to minority interests.

Note 8 -- Shareholders' Equity

     We are authorized to issue up to (i) 150,000,000 shares of common stock and
(ii) 24,315,000 shares of preferred stock in one or more series. At December 31,
2001,  43,577,916  shares of common stock,  2,300,000  shares of Series A Senior
Preferred  Stock and 7,828,125  shares of Series B Convertible  Preferred  Stock
were issued and outstanding.

     The  Series A Senior  Preferred  Stock and Series B  Convertible  Preferred
Stock  have a  liquidation  preference  equivalent  to $25.00 per share plus the
amount equal to any accrued and unpaid dividends thereon.

     Dividends,  if declared, on the Series A Senior Preferred Stock are payable
quarterly in the amount of $2.625 per share per annum.  Dividends,  if declared,
on the Series B Convertible Preferred Stock are payable quarterly at the greater
of (i) $2.125 per share per annum or (ii) the  dividends on the number of shares
of Common Stock into which a share of Series B Convertible  Preferred Stock will
be convertible at the conversion  price of $20.90 per share of Common Stock.  At
December  31, 2001,  there were  9,363,786  shares of Common Stock  reserved for
future issuance upon conversion of the Series B Convertible Preferred Stock.

     We have the right to redeem  the  Series A Senior  Preferred  Stock and the
Series B Convertible  Preferred  Stock  beginning on and after March 31, 1999 at
$26.75 and $27.125 per share, respectively, plus the amount equal to any accrued
and unpaid dividends thereon. The redemption price decreases  incrementally each
year  thereafter  through March 31, 2004, at which date the redemption  price is
fixed at $25.00  per share  plus the  amount  equal to any  accrued  and  unpaid
dividends thereon.

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

     During the year ended  December 31, 1999, a redemption  discount of $13,388
representing  the excess of the carrying  amount of the Series C Preferred Stock
over its  redemption  amount is  reflected  in the  Consolidated  Statements  of
Operations as a loss allocated to preferred shareholders.

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

     Our current policy is to pay distributions  only to the extent necessary to
maintain  our status as a REIT for  federal  income tax  purposes.  Based on our
current  federal  income tax  projections  for 2002, we do not expect to pay any
distributions  on our Senior  Preferred  Stock,  Series B Convertible  Preferred
Stock,  common  stock or common  units of limited  partnership  interest  in the
Operating  Partnership during 2002. We are currently in arrears on nine quarters
of preferred  stock  distributions  due  February 15, 2000 through  February 15,
2002, respectively.
<PAGE>
     We are  prohibited  from paying  dividends or  distributions  except to the
extent  necessary to maintain  our REIT status under the terms of our  Mezzanine
Loan (see Note 6 - "Bonds and Notes  Payable" for  additional  information).  In
addition,  we may not  make  distributions  to our  common  shareholders  or our
holders  of  common  units of  limited  partnership  interests in the  Operating
Partnership unless we are current with respect to distributions to our preferred
shareholders. As of December 31, 2001, unpaid dividends for the period beginning
on November 16, 1999 through  December 31, 2001 on the Series A Senior Preferred
Stock and Series B Convertible  Preferred Stock aggregated  $12,830 and $35,349,
respectively.  The  annualized  dividends  on our  2,300,000  shares of Series A
Senior  Preferred Stock and 7,828,125  shares of Series B Convertible  Preferred
Stock  outstanding  as of December  31,  2001 are $6,037  ($2.625 per share) and
$16,635 ($2.125 per share), respectively.

     Our  Amended  and  Restated  Articles  of  Incorporation  state,  "whenever
dividends  payable on the  Preferred  Stock  shall be in arrears for six or more
consecutive  quarterly  periods,  then the holders of  Preferred  Stock,  voting
together  as  a  single  class,  shall  be  entitled  at  the  next  meeting  of
stockholders  or at any special  meeting  called for such purpose,  to elect two
additional  directors  to the  Company's  Board  of  Directors  until  the  full
dividends accumulated on all outstanding shares of the Preferred Stock have been
paid  in full or  declared  and a sum of  money  sufficient  for the  prepayment
thereof set aside for payment."

     On December 6, 2001,  a meeting (the  "Special  Meeting") of the holders of
shares of our Series A Senior Preferred Stock and Series B Convertible Preferred
Stock,  (together,  the "Preferred  Stock") was held for the purpose of electing
two  additional  directors to our Board of  Directors.  The Special  Meeting was
adjourned to allow  sufficient time to tabulate the votes. On December 11, 2001,
the Special  Meeting was  reconvened and Howard Amster and Robert H. Kanner were
elected to serve as members of the Board of Directors.

Note 9 -- Stock Incentive Plans

     Under  various  plans,  we may grant  stock  options  and  other  awards to
executive officers, other key employees,  outside directors and consultants. The
exercise  price for stock options  granted is no less than the fair market value
of our common stock on the date of grant.  In general,  stock  options are fully
vested on the date of grant and have a term of 10 years.  In certain cases stock
options granted become exercisable over periods up to six years.

     During 2001, we granted options to an executive officer to purchase 300,000
shares of common stock at $2.00 per share.  These options,  which have a term of
10 years,  were  fully  vested on the date of grant.  During  2000,  we  granted
options to  executive  officers and other key  employees  to purchase  1,087,600
shares of common stock at $2.00 per share.  These options,  which have a term of
10 years,  were 50% vested as of December  31, 2000 and fully vested on June 30,
2001. Additionally,  during 2000, we awarded 180,000 shares of restricted common
stock and granted  options to outside  directors to purchase  420,0000 shares of
common stock at $1.69 per share. The restricted common stock was fully vested as
of  September  1,  2000.  The  options,  which  have a term of 10 years,  vested
pro-ratably on a monthly basis from May 1, 2000 through February 1, 2001.

     During  1999,  we awarded  135,955  shares of  restricted  common  stock to
certain executive  officers.  These awards were 25% vested on the date of grant.
The restricted  shares vest an additional  25% annually  until fully vested.  In
1999,  we also  awarded  24,000  shares of  restricted  common stock and granted
options to outside  directors to purchase 85,000 shares of common stock at $9.85
per share.  These awards were fully vested at the grant date. The options have a
term of 10 years.

     We have adopted the disclosure-only provisions of SFAS No. 123, "Accounting
for Stock Based  Compensation."  Accordingly,  no compensation  expense has been
recognized  for  employee  stock option  grants.  If we had elected to recognize
compensation  based on the fair  value of the  options  granted at grant date as
prescribed  by SFAS No. 123,  unaudited pro forma net income (loss) and earnings
per share would have been as follows:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,                                                              2001               2000                1999
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>                <C>                  <C>
Loss before extraordinary loss                                                    $  (98,209)        $ (139,910)          $ (31,376)
Extraordinary loss                                                                         -             (4,206)             (3,518)
                                                                                  ----------         ----------           ---------
Net loss                                                                          $  (98,209)        $ (144,116)          $ (34,894)
                                                                                  ==========         ==========           =========
Net loss applicable to common shares                                              $ (120,881)        $ (166,788)          $ (44,856)
                                                                                  ==========         ==========           =========
Basic loss per common share:
  Loss before extraordinary loss                                                  $    (2.77)        $    (3.73)          $   (0.96)
  Extraordinary loss                                                                       -              (0.10)              (0.08)
                                                                                  ----------         ----------           ---------
     Net loss                                                                     $    (2.77)        $    (3.83)          $   (1.04)
                                                                                  ==========         ==========           =========

Diluted loss per common share:
  Loss before extraordinary loss                                                  $    (2.77)        $    (3.73)          $   (1.22)
  Extraordinary loss                                                                       -              (0.10)              (0.08)
                                                                                  ----------         ----------           ---------
     Net loss                                                                     $    (2.77)        $    (3.83)          $   (1.30)
                                                                                  ==========         ==========           =========
====================================================================================================================================
</TABLE>
<PAGE>
     The fair value for these options was estimated at the date of grant using a
Black-Scholes   option-pricing   model  with  the  following   weighted  average
assumptions:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,                                                               2001               2000                1999
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>                <C>                 <C>
Risk-free interest rate                                                                 5.0%               5.0%                6.4%
Dividend yield                                                                          0.0%               0.0%               21.0%
Volatility factor                                                                       0.37               0.87                0.37
Weighted average life (in years)                                                       10.0               10.0                10.0
====================================================================================================================================
</TABLE>

     The  Black-Scholes   option  valuation  model  was  developed  for  use  in
estimating the fair value of traded options,  which have no vesting restrictions
and are fully  transferable.  In addition,  option  valuation models require the
input of highly  subjective  assumptions  including  the  expected  stock  price
volatility.   Because  our  stock  options  have  characteristics  significantly
different from those of traded  options,  and because  changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion,  the  existing  models do not  necessarily  provide a  reliable  single
measure of the fair value of its stock options.

     A summary of our stock option plans for the years ended  December 31 are as
follows:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                   2001                               2000                           1999
                                         ------------------------------    ------------------------------   ------------------------
                                                          Weighted                        Weighted                          Weighted
                                                          Average                         Average                           Average
                                                          Exercise                        Exercise                          Exercise
                                          Shares          Price            Shares         Price             Shares          Price
------------------------------------------------------------------------------------------------------------------------------------
<S>                                      <C>             <C>              <C>              <C>             <C>              <C>
Beginning of year                        4,131,056       $ 11.84          3,280,317        $ 14.12         3,811,067        $  14.90
Granted                                    300,000          2.00          1,507,600           1.91            85,000            9.85
Cancelled                                  (42,300)         4.09           (656,861)         12.13          (615,750)          18.37
                                         ---------       -------          ---------        -------         ---------        --------
End of year                              4,388,756       $  9.49          4,131,056        $  9.98         3,280,317        $  14.12
                                         =========       =======          =========        =======         =========        ========

Exercisable - end of year                3,998,756       $ 10.10          3,276,987        $ 11.84         2,900,314        $  14.22
                                         =========       =======          =========        =======         =========        ========
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                  Options Outstanding                      Options Exercisable
                                                      ------------------------------------------   ---------------------------------
                                                                   Weighted          Weighted                           Weighted
                                                                   Average           Average                            Average
                                                                   Remaining         Exercise                           Exercise
Range of Exercise Price                               Shares      Life in Years       Price           Shares            Price
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>               <C>           <C>           <C>                  <C>
$1.69 to $2.00                                        1,725,250         6.1           $ 1.92        1,375,250            $  1.90
$8.50                                                    60,000         7.6             8.50           60,000               8.50
$11.15 to $13.09                                      1,962,606         3.8            12.50        1,962,606              12.50
$13.60 to $14.19                                        262,490         5.8            13.91          222,490              13.85
$19.00                                                   30,000         2.2            19.00           30,000              19.00
$23.53                                                   13,788         4.3            23.53           13,788              23.53
$24.55 to $26.57                                        334,622         0.3            26.11          334,622              26.11
                                                      ---------         ---           ------        ---------            -------
  Total                                               4,388,756         4.6           $ 9.49        3,998,756            $ 10.10
                                                      =========         ===           ======        =========            =======
====================================================================================================================================
</TABLE>

     The weighted fair value of options  granted during the years ended December
31,  2001,  2000 and 1999 was $0 per  share,  $0 per share and $0.96 per  share,
respectively.  Under our various plans there were 1,170,986 and 1,428,686 shares
reserved for future grants at December 31, 2001 and 2000, respectively.

Note 10 -- Lease Agreements

     We sold Prime Outlets at Hagerstown to the Prime/Estein  Venture on January
11, 2002 and  commencing  on that date account for our  remaining  30% ownership
interest  in  accordance  with the equity  method of  accounting  (see "Note 3 -
"Property Dispositions" for additional information). Non-recourse mortgage loans
on  Prime  Outlets  at  Conroe  and  Prime  Outlets  at  Jeffersonville  II  are
cross-collateralized.  Effective January 1, 2002, the lender foreclosed on Prime
Outlets  at  Conroe.  The  lender  and we remain in  discussions  regarding  the
transfer of our ownership  interest in Prime Outlets at  Jeffersonville  II. See
Note 6 - "Bonds and Notes Payable" for additional information.  Accordingly, the
following disclosures exclude the lease agreements related to these properties.
<PAGE>
     We are the lessors of retail and office space under  operating  leases with
lease terms that expire from 2002 to 2026.  Most leases are  renewable  for five
years at the lessee's  option.  Future  minimum  base rent to be received  under
noncancelable  operating  leases as of December 31, 2001 were as follows:

--------------------------------------------------------------------------------
Years Ended December 31,
--------------------------------------------------------------------------------
2002                                                                   $ 117,910
2003                                                                      90,904
2004                                                                      66,624
2005                                                                      45,196
2006                                                                      28,445
Thereafter                                                                65,434
                                                                       ---------
                                                                       $ 414,513
                                                                       =========
================================================================================

     We lease certain land, buildings, and equipment under various noncancelable
operating  lease  agreements.  Rental  expense for operating  leases was $1,782,
$2,988,  and $3,699 for the years  ended  December  31,  2001,  2000,  and 1999,
respectively.  Future  minimum  rental  payments  by year and in the  aggregate,
payable  under these  noncancelable  operating  leases with initial or remaining
terms of one year or more as of December 31, 2001 consisted of the following:

--------------------------------------------------------------------------------
Years Ended December 31,
--------------------------------------------------------------------------------
2002                                                                    $  1,668
2003                                                                       1,250
2004                                                                         392
2005                                                                         286
2006                                                                         216
Thereafter                                                                 5,376
                                                                        --------
                                                                        $  9,188
                                                                        ========
================================================================================

Note 11-- Special Charges

     During the third  quarter of 2001, we  determined  that certain  events and
circumstances  had occurred,  including  reduced  occupancy and limited  leasing
success,   that  indicated  that  four  of  our  wholly  owned  properties  were
permanently  impaired.  As a result,  we recorded a third quarter  provision for
asset  impairment  aggregating  $63,026,  representing  the  write-down  of  the
carrying value of these  properties to their  estimated fair value in accordance
with the requirements of SFAS No. 121.

     During 2000, we established a formal plan to sell three of our wholly-owned
properties and,  accordingly,  reclassified their respective  carrying values to
assets held for sale. In accordance  with the  requirements  of SFAS No. 121, we
incurred a  provision  for asset  impairment  of $28,047 to reduce the  carrying
value of these  properties  classified as held for sale to their estimated sales
value, less cost to dispose. The aggregate carrying value of these properties as
of December 31, 2000 was $43,230.  Total revenues and expenses for the operating
properties classified as held for sale were $6,354 and $6,697, respectively, for
the year ended December 31, 2000.

     Additionally,  we also determined that certain events and circumstances had
occurred during 2000,  including  reduced occupancy and limited leasing success,
which  indicated  that  four  wholly  owned  properties  and two  joint  venture
properties were permanently impaired. Furthermore, our results of operations for
2000 include a provision for asset impairment  aggregating $40,616  representing
the write-down of the carrying values of these permanently  impaired  properties
to their estimated fair value in accordance with SFAS No. 121.

     The  operating  results  for our  Designer  Connection  outlet  stores  are
reflected  in loss on Designer  Connection  in the  Consolidated  Statements  of
Operations.  We ceased  operations of our Designer  Connection  outlet stores in
2000.

     On April 12,  2000,  we  announced  that we had been  unable to conclude an
agreement to transfer  ownership  of ours  wholly-owned  e-commerce  subsidiary,
primeoutlets.com inc., also known as eOutlets.com,  to a management-led investor
group  comprised of  eOutlets.com  management and outside  investors.  Effective
April 12, 2000, eOutlets.com ceased all operations and on November 6, 2000 filed
for  bankruptcy  under  Chapter  7. In  connection  with the  discontinuance  of
eOutlets.com, we incurred a non-recurring loss of $14,703 which includes (i) the
write-off of $3,497 of costs  capitalized  during 1999 and (ii) $11,206 of costs
incurred  during the year ended  December 31, 2000. In addition,  during 1999 we
incurred expenses of $3,500 related to organizational and start-up  expenditures
of  eOutlets.com  which are  reflected in corporate  general and  administrative
expenses in the Consolidated Statements of Operations.
<PAGE>
     When   accounting   for  1999,  we  determined   that  certain  events  and
circumstances  had occurred during 1999,  including  limited leasing success and
revised  occupancy  estimates,  which indicated two of our outlet centers (Prime
Outlets at  Jeffersonville  II and Prime  Outlets at  Oxnard)  were  permanently
impaired.  Accordingly,  the results of operations  for 1999 include a provision
for asset  impairment  of $15,842  representing  the  write-down of the carrying
values of these assets to their estimated fair value in accordance with SFAS No.
121.  Additionally,  when  accounting  for 1999,  we  recorded a  provision  for
abandoned  projects of $16,039 based on  management's  determination  that as of
December 31, 1999, our pre-development  efforts associated with certain projects
were no longer viable.

     The  operating  results  for our  Designer  Connection  outlet  stores  are
reflected  in loss on Designer  Connection  in the  Consolidated  Statements  of
Operations  for all periods  presented.  When  accounting  for 1999,  because we
decided to discontinue the operations of our Designer  Connection outlet stores,
we  recorded  non-recurring  charges  aggregating  $3,659  including  (i) $1,659
related  to the  write-off  of costs  associated  with a web-site  for  Designer
Connection  and (ii)  $2,000 of costs to cover the  expected  cash and  non-cash
costs of the  closure.  The cash and  non-cash  costs of the  closure  primarily
consisted of (i) employee  termination costs, (ii) lease obligations,  and (iii)
the  write-down  of assets to their net  realizable  value.  The  operations  of
Designer Connection outlet stores ceased in 2000.

Note 12 -- Risk Management Activities

Interest Rate Risk

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

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

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

     On December  22, 2000,  we  purchased an interest  rate cap with a notional
amount of $90,000 to hedge our Mezzanine  Loan that was funded on the same date.
The interest  rate cap has a three-year  term with a strike price of 8.00% based
on 30-day LIBOR. The notional amount of this interest rate cap amortizes monthly
based on estimated principal repayments on the Mezzanine Loan. Additionally,  on
December 22, 2000, we also purchased an interest rate cap with a notional amount
of $20,000 to hedge our $20,000  Puerto Rico First Mortgage Loan that was funded
on the same date.  The  interest  rate cap has a  three-year  term with a strike
price of 8.00% based on 30-day LIBOR. See Note 6 - "Bonds and Notes Payable" for
additional information.

     Although derivative financial instruments are an important component of our
interest rate management  program,  their incremental effect on interest expense
for the years ended December 31, 2001, 2000 and 1999 was not material.

Economic Conditions

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

Note 13 -- Legal Proceedings

     Except  as  described  below,  neither  we nor  any of our  properties  are
currently  subject to any  material  litigation  nor, to our  knowledge,  is any
material  or  other  litigation   threatened  against  us,  other  than  routine
litigation arising in the ordinary course of business, some of which is expected
to be  covered  by  liability  insurance  and all of which  collectively  is not
expected  to  have a  material  adverse  effect  on our  consolidated  financial
statements.
<PAGE>
     Dinnerware Plus Holdings, Inc., which operates under the trade name Mikasa,
and affiliates  (collectively,  the "Mikasa Plaintiffs") filed a lawsuit against
the Company and various  affiliates in Superior Court of New Jersey on March 29,
2001.  The Mikasa  Plaintiffs  assert a number of causes of action in which they
allege that the Company and its affiliates  breached  various  provisions in the
Mikasa  Plaintiffs'  leases and, as a result,  overcharged the Mikasa Plaintiffs
for common area  maintenance  and similar  charges  ("CAM") and  promotion  fund
charges at various centers where the Mikasa Plaintiffs are tenants.  The Company
filed a motion to dismiss the  complaint on behalf of the  Company's  affiliates
who  entered  into  leases  with  the  Mikasa  Plaintiffs,   based  on  lack  of
jurisdiction.  The motion was granted,  but the Mikasa Plaintiffs filed a motion
for  reconsideration,  upon  which  the  court  has  not  ruled.  The  remaining
defendants,  Prime  Retail,  Inc.  and Prime  Retail,  L.P.,  have  answered the
complaint.  The  outcome of this  lawsuit,  and the  ultimate  liability  of the
defendants, if any, cannot be predicted at this time.

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

     In addition to the Mikasa Plaintiffs and Melru Corporation,  other tenants,
including  Design's  Inc.  and  Brown  Group  Retail,  Inc.,  in  the  Company's
affiliates'  outlet  centers  have  made  or  may  make  allegations  concerning
overcharging  for CAM and  promotion  fund charges  similar to those made by the
Mikasa  Plaintiffs and Melru  Corporation.  No other such tenant,  however,  has
filed a suit. It is too early to make any  predictions as to whether the Company
or its affiliates may be found liable with respect to such other tenants,  or to
predict damages should liability be found.

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

     Affiliates of the Company  routinely file lawsuits to collect past due rent
from, and to evict,  tenants which have defaulted under their leases.  There are
currently dozens of such actions pending.  In addition to defending  against the
Company's   affiliates'   claims  and  eviction   actions,   some  tenants  file
counterclaims  against  the  Company's  affiliates.  A tenant  who files  such a
counterclaim typically claims that the Company's affiliate which owns the outlet
center in question has defaulted under the tenant's  lease,  has overcharged the
tenant for CAM and promotion  fund charges,  or has failed to maintain or market
the  outlet  center  in  question  as  required  by  the  lease.   Usually  such
counterclaims are without merit. In response to such counterclaims the Company's
affiliates  usually  continue to pursue their collection or eviction actions and
defend  against  the  counterclaims.  Despite  the fact that the Company and its
affiliates  believe such counterclaims are without merit and defend against them
vigorously,  the outcome of all such counterclaims,  and thus the liability,  if
any, of the Company and its affiliates, cannot be predicted at this time.
<PAGE>
     Since October 13, 2000 there have been eight complaints filed in the United
States District Court for the District of Maryland  against the Company and five
individual defendants.  The five individual defendants are Glenn D. Reschke, the
President, Chief Executive Officer and Chairman of the Board of Directors of the
Company;  William H.  Carpenter,  Jr., the former  President and Chief Operating
Officer and a former  director of the  Company;  Abraham  Rosenthal,  the former
Chief  Executive  Officer  and a former  director  of the  Company;  Michael  W.
Reschke, the former Chairman of the Board and a current director of the Company;
and Robert P. Mulreaney,  the former  Executive Vice President - Chief Financial
Officer and  Treasurer  of the  Company.  The  complaints  have been  brought by
alleged  stockholders  of the Company,  individually  and  purportedly  as class
actions  on behalf of all other  stockholders  of the  Company.  The  complaints
allege that the individual  defendants  made  statements  about the Company that
were  in  violation  of  the  federal   securities  laws.  The  complaints  seek
unspecified  damages and other  relief.  Lead  plaintiffs  and lead counsel were
subsequently  appointed.  A consolidated  amended complaint  captioned The Marsh
Group,  et al. v. Prime Retail,  Inc., et al. dated May 21, 2001 was filed.  The
Company and the individual  defendants  filed a motion to dismiss the complaint,
which was granted on November 8, 2001. The plaintiffs appealed the matter to the
Fourth Circuit.  The appeal is now pending. The Company believes that the claims
are without merit and will defend vigorously  against the appeal. The outcome of
this lawsuit,  and the ultimate  liability of the defendants,  if any, cannot be
predicted at this time.

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

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

     The New York  Stock  Exchange  ("NYSE")  and the  Securities  and  Exchange
Commission have notified the Company that they are reviewing transactions in the
stock of the Company  prior to the  Company's  January  18,  2000 press  release
concerning  financial matters. The initial notice of such review was received by
the Company on March 13, 2000.
<PAGE>
                               PRIME RETAIL, INC.
             SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
                                December 31, 2001
                                 (in thousands)

<TABLE>
<CAPTION>
                                                   Costs Capitalized
                                 Initial Cost        Subsequent to        Gross Amount at Which
                                 to Company           Acquisition         Carried at Close of Period
                                ----------------    ----------------     ----------------------------
                                        Bldgs &              Bldgs &               Bldgs &              Accumulated  Constructed (C)
Description        Encumbrances  Land   Improve     Land     Improve     Land     Improve      Total    Depreciation   Acquired  (A)
------------------------------------------------------------------------------------------------------------------------------------
<S>                <C>        <C>       <C>         <C>       <C>       <C>       <C>         <C>         <C>        <C>        <C>
Prime Outlets at
 Anderson          $  8,755   $  1,125  $ 11,036    $     -   $    468  $  1,125  $   11,504  $   12,629  $  1,272   Dec. 1997  (A)
Prime Outlets at
 Bend                 7,504      2,560     8,476      1,101      4,722     3,661      13,198      16,859     1,830   Feb. 1997  (A)
Prime Outlets at
 Burlington          13,828      3,694    21,370          -         61     3,694      21,431      25,125     2,888   Jun. 1998  (A)
Prime Outlets at
 Calhoun             17,816      3,839    24,551          -        245     3,839      24,796      28,635     3,832   Jun. 1998  (A)
Prime Outlets at
 Castle Rock         34,593      4,424    47,200      2,717     15,309     7,141      62,509      69,650    15,324   Mar. 1994  (A)
Prime Outlets at
 Conroe              15,621        405    18,714          -        197       405      18,911      19,316     2,999   Jun. 1998  (A)
Prime Outlets at
 Darien              24,380          -         -      3,015     13,319     3,015      13,319      16,334     7,917   Jul. 1995  (C)
Prime Outlets at
 Edinburgh           16,456      2,726    37,952          -      1,275     2,726      39,227      41,953     5,585   Jun. 1998  (A)
Prime Outlets at
 Ellenton            28,333          -         -      5,457     49,469     5,457      49,469      54,926    13,196   Oct. 1991  (C)
Prime Outlets at
 Florida City        15,045          -         -      4,275      8,460     4,275       8,460      12,735     6,058   Sept. 1994 (C)
Prime Outlets at
 Fremont             13,291      3,250    24,096          -        146     3,250      24,242      27,492     3,185   Jun. 1998  (A)
Prime Outlets at
 Gaffney             31,209          -         -      1,886     33,075     1,886      33,075      34,961     7,841   Nov. 1996  (C)
Prime Outlets at
 Gainesville         20,042          -         -      1,100     15,302     1,100      15,302      16,402     9,188   Aug. 1993  (C)
Prime Outlets at
 Grove City          39,754      1,123    58,630        791      2,539     1,914      61,169      63,083    10,488   Nov. 1996  (A)
Prime Outlets at
 Gulfport            19,218          -         -          -     35,460         -      35,460      35,460     8,746   Oct. 1995  (C)
Prime Outlets at
 Hillsboro           29,563      7,121    50,894          -        588     7,121      51,482      58,603     6,462   Jun. 1998  (A)
Prime Outlets at
 Huntley             17,132          -         -      1,970     17,826     1,970      17,826      19,796     8,845   Sept. 1994 (C)
Prime Outlets at
 Jeffersonville I    25,533        843    31,084        196     14,990     1,039      46,074      47,113    11,679   Mar. 1994  (A)
Prime Outlets at
 Jeffersonville II   17,938        174    21,058          -    (14,137)      174       6,921       7,095     3,007   Jun. 1998  (A)
Prime Outlets at
 Kenosha             22,721      6,995    39,558        106      4,646     7,101      44,204      51,305     5,772   Jun. 1998  (A)
Prime Outlets at
 Latham               1,453        507     1,476          -       (975)      507         501       1,008       117   Oct. 1997  (A)
Prime Outlets at
 Lebanon             25,039          -         -      2,689     31,820     2,689      31,820      34,509     5,979   Apr. 1998  (C)
Prime Outlets at
 Lee                 26,855      8,035    31,656          -      1,364     8,035      33,020      41,055     6,721   Jun. 1998  (A)
Prime Outlets at
 Lodi                25,287      1,013    21,455        706     14,022     1,719      35,477      37,196     7,242   Sept. 1997 (A)
Prime Outlets at
 Loveland            21,951      6,400    33,244          -        323     6,400      33,567      39,967     8,189   Nov. 1996  (A)
Melrose Place         1,935          -         -        499      1,828       499       1,828       2,327       846   Aug. 1987  (C)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                   Costs Capitalized
                                 Initial Cost        Subsequent to        Gross Amount at Which
                                 to Company           Acquisition         Carried at Close of Period
                                ----------------    ----------------     ----------------------------
                                        Bldgs &              Bldgs &               Bldgs &              Accumulated  Constructed (C)
Description        Encumbrances  Land   Improve     Land     Improve     Land     Improve      Total    Depreciation   Acquired  (A)
------------------------------------------------------------------------------------------------------------------------------------
<S>                <C>        <C>       <C>         <C>       <C>       <C>       <C>         <C>         <C>        <C>        <C>
Prime Outlets at
 Morrisville          9,067          -         -      2,502     21,181     2,502      21,181      23,683     6,400   Oct. 1991  (C)
Prime Outlets at
 Naples              10,433      2,753    15,602          5      2,919     2,758      18,521      21,279     3,683   Mar. 1994  (A)
Prime Outlets at
 Niagara Falls USA   61,488      7,247    82,842          -      1,736     7,247      84,578      91,825     9,100   Dec. 1997  (A)
Prime Outlets at
 Odessa              14,057        815    31,311          -    (12,488)      815      18,823      19,638     6,421   Nov. 1996  (A)
Prime Outlets at
 Oshkosh             13,681      2,160    26,895          -        364     2,160      27,259      29,419     4,081   Jun. 1998  (A)
Prime Outlets at
 Perryville           9,593      3,089    16,287          -      1,640     3,089      17,927      21,016     1,914   Jun. 1998  (A)
Prime Outlets at
 Pismo Beach         12,481      9,048    17,617          -         72     9,048      17,689      26,737     2,539   Jun. 1998  (A)
Prime Outlets at
 Post Falls          11,163      3,100    12,163          -     (7,637)    3,100       4,526       7,626     1,732   Feb. 1997  (A)
Prime Outlets at
 Puerto Rico         19,816          -         -      4,748     45,651     4,748      45,651      50,399     1,917   Jul. 2000  (C)
Prime Outlets at
 Queenstown          18,190      4,422    35,592          -        693     4,422      36,285      40,707     4,001   Jun. 1998  (A)
Prime Outlets at
 San Marcos          38,052          -         -      1,995     46,341     1,995      46,341      48,336    15,729   Aug. 1990  (C)
Prime Outlets at
 San Marcos           2,992          -         -      4,468     17,691     4,468      17,691      22,159     1,475   Nov. 1999  (C)
Prime Outlets at
 Sedona               6,660      1,924     9,099        750        481     2,674       9,580      12,254     1,250   Feb. 1997  (A)
Prime Outlets at
 Tracy               12,721      6,170    16,715          -        336     6,170      17,051      23,221     2,698   Jun. 1998  (A)
Prime Outlets at
 Vero Beach          25,591      4,530    41,878          -      1,678     4,530      43,556      48,086     5,952   Jun. 1998  (A)
Prime Outlets at
 Warehouse Row       23,040          -         -      1,174     33,317     1,174      33,317      34,491    14,274   Nov. 1989  (C)
Western Plaza         9,972          -         -      2,000      7,138     2,000       7,138       9,138     1,759   Jun. 1993  (A)
Prime Outlets at
 Woodbury            17,061      2,528    27,645          -    (14,477)    2,528      13,168      15,696     3,032   Jun. 1998  (A)
                                                                                                                       -   Under
Property Under
 Development              -          -         -      2,293      2,468     2,293       2,468       4,761         -   Construction
                                                                                                                       Mar. 1994-
Other Property       62,079          -     1,588          -      8,015         -       9,603       9,603     4,959   Dec. 1999  (A)
                   --------   --------  --------   --------   --------  --------  ----------  ----------  --------
                   $899,389   $102,020  $817,684   $ 46,443   $409,461  $148,463  $1,227,145  $1,375,608  $258,124
                   ========   ========  ========   ========   ========  ========  ==========  ==========  ========
</TABLE>

     At  December  31,  2001,  the  Company  had  transferred  Prime  Outlets at
Hagerstown  (encumbrance  of $58,078) to assets held for sale (carrying value of
$54,628).
<PAGE>
                               PRIME RETAIL, INC.
        Notes to Schedule III - Real Estate and Accumulated Depreciation
                                December 31, 2001

                                 (in thousands)

Depreciation is calculated on the straight-line  basis over the estimated useful
lives of the assets, which are as follows:

    Land improvements                                      20 years
    Buildings and improvements                             Principally 40 years
    Tenant improvements                                    Term of related lease
    Furniture and equipment                                5 years

The aggregate  cost for federal  income tax purposes was  $1,306,123 at December
31, 2001.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                         Investment in Rental Property
------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,                                                              2001                2000               1999
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>                 <C>                <C>
Balance, beginning of year                                                       $ 1,493,107         $ 1,826,551        $ 2,015,722
Retirements                                                                           (7,406)             (6,281)            (4,727)
Improvements                                                                          16,013              51,833             89,969
Dispositions                                                                            (416)           (309,942)          (138,321)
Transfer (to) from assets held for sale, net                                         (62,664)             (4,513)          (108,968)
Provision for asset impairment                                                       (63,026)            (64,541)           (13,572)
Provision for abandoned projects                                                           -                   -            (13,552)
                                                                                 -----------         -----------        -----------
Balance, end of year                                                             $ 1,375,608         $ 1,493,107        $ 1,826,551
                                                                                 ===========         ===========        ===========
====================================================================================================================================

------------------------------------------------------------------------------------------------------------------------------------
                                                                                                Accumulated Depreciation
------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,                                                              2001                2000               1999
------------------------------------------------------------------------------------------------------------------------------------
Balance, beginning of year                                                         $ 217,569           $ 183,954          $ 127,747
Retirements                                                                           (7,406)             (6,281)            (4,727)
Other                                                                                      -                (818)               346
Dispositions                                                                               -             (23,469)            (6,787)
Transfer (to) from assets held for sale, net                                          (8,036)             (2,672)            (5,502)
Depreciation expense                                                                  55,997              66,855             72,877
                                                                                   ---------           ---------          ---------
Balance, end of year                                                               $ 258,124           $ 217,569          $ 183,954
                                                                                   =========           =========          =========
====================================================================================================================================
</TABLE>