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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-K

X 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, 2002

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.
- --------------------------------------------------------------------------------
(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:
None
(Title of class)

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 X 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 $5,665,129 on March 25, 2003 (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
28, 2003 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 2003 annual meeting of Part III of Form10-K
shareholders



PRIME RETAIL, INC.
Form 10-K
December 31, 2002

TABLE OF CONTENTS
-----------------

Part I Page
- ------ -----

Item 1. Business........................................................1
Item 2. Properties......................................................5
Item 3. Legal Proceedings...............................................8
Item 4. Submission of Matters to a Vote of
Security Holders................................................9

Part II
- -------
Item 5. Market for Registrant's Common Equity and
Related Shareholder Matters.....................................10
Item 6. Selected Financial Data.........................................11
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations...................13
Item 7A. Quantitative and Qualitative Disclosures About
Material Risk...................................................34
Item 8. Financial Statements and Supplementary Data.....................34
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure..........................34

Part III
- --------
Item 10. Directors and Executive Officers of the Registrant..............35
Item 11. Executive Compensation..........................................35
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters......................35
Item 13. Certain Relationships and Related Transactions..................35

Part IV
- -------
Item 14. Controls and Procedures.........................................36
Item 15. Exhibits, Financial Statement Schedules and Reports
on Form 8-K.....................................................36

Other
- -----
Signatures......................................................42
Certifications..................................................43


Page - (1)

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, 2002, our outlet center portfolio, including nine properties owned
through unconsolidated joint ventures, consists of 38 properties (the
"Properties") in 24 states, which total 10,269,000 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.
Additionally, our website can be accessed at www.primeretail.com. A copy of our
Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports
on Form 8-K, as filed with the Securities and Exchange Commission, can be
obtained free of charge on our website. 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,
2002, our outlet center portfolio consisted of 38 properties in 24 states
totaling 10,269,000 square feet of GLA. The average outlet center in our
portfolio contained approximately 270,327 square feet of GLA at December 31,
2002.

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 have, and will
continue to pursue, on a selective basis, the disposition (e.g., sales, joint
venture arrangements and/or potential givebacks to lenders) of certain
properties in order to reduce our overall leverage and generate additional
liquidity. See Item 7 - "Management's Discussion of Financial Condition and
Results of Operations" contained herein for recent developments.


Page - (2)

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.

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. We often augment
marketing dollars received from tenants with our own contributions. 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 generally 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.

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

We believe that each of the Properties is adequately insured, including
coverage for liability, fire, flood, earthquake, terrorism and property
insurance. Such insurance policies are provided by reputable companies and have
commercially reasonable deductibles and limits.


Page - (3)

Employees

As of December 31, 2002, we had 656 employees. We believe that our
relations with employees are satisfactory.

Liquidity

Our liquidity depends on cash provided by operations and potential capital
raising activities such as funds obtained through borrowings, particularly
refinancing 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 and
other 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 2003, our first mortgage and expansion loan (the "Mega Deal Loan")
matures on November 11, 2003. The Mega Deal Loan, which is secured by a 13
property collateral pool, had an outstanding principal balance of approximately
$263.8 million as of December 31, 2002 and will require a balloon payment of
approximately $260.7 million at maturity. Based on our initial discussions with
various prospective lenders, we are currently projecting a potential shortfall
with respect to refinancing the Mega Deal Loan. However, we believe this
shortfall may be alleviated through potential asset sales and/or other capital
raising activities, including the placement of mezzanine level debt. We caution
that our assumptions are based on current market conditions and, therefore, are
subject to various risks and uncertainties, including changes in economic
conditions which may adversely impact our ability to refinance the Mega Deal
Loan at favorable rates or in a timely and orderly fashion, or which may
adversely impact our ability to consummate various asset sales or other capital
raising activities.

In connection with the completion of the sale of six outlet centers (the
"Bridge Properties") in July 2002, we guaranteed to FRIT PRT Bridge Acquisition
LLC ("FRIT") (i) a 13% return on its approximately $17.2 million of invested
capital, and (ii) the full return of its invested capital (the "Mandatory
Redemption Obligation") in FP Investment, LLC by December 31, 2003. As of
December 31, 2002, the Mandatory Redemption Obligation (included in accounts
payable and other liabilities in the accompanying Consolidated Balance Sheet)
was approximately $16.2 million. See Note 3 - "Property Dispositions" of the
Notes to Consolidated Financial Statements contained herein for additional
information. Although we are in the process of seeking to generate additional
liquidity to repay the Mandatory Redemption Obligation through (i) the sale of
FRIT's ownership interest in the Bridge Properties and/or (ii) the placement of
additional indebtedness on the Bridge Properties, there can be no assurance that
we will be able to complete such capital raising activities by December 31, 2003
or that such capital raising activities, if they should occur, will generate
sufficient proceeds to repay the Mandatory Redemption Obligation in full.
Failure to repay the Mandatory Redemption Obligation by December 31, 2003 would
constitute a default, which would enable FRIT to exercise its rights with
respect to the collateral pledged as security to the guarantee, including some
of our partnership interests in the 13 property collateral pool under the
aforementioned Mega Deal Loan.

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, 2002:



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Name Position Age
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Glenn D. Reschke Chief Executive Officer and Chairman of the Board 51
Robert A. Brvenik President, Chief Financial Officer and Treasurer 47
R. Kelvin Antill Executive Vice President - General Counsel 43
and Secretary
David G. Phillips Executive Vice President - Leasing, International 41
and New Business Development
Frederick J. Meno, IV Senior Vice President - Operations & Marketing 45

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



Page - (4)

Glenn D. Reschke. Glenn D. Reschke is Chief Executive Officer and Chairman
of the Board of Directors of Prime Retail, Inc. Reporting to the Board of
Directors, Mr. G. Reschke is responsible for all aspects of the Company, its
outlet centers and other properties and all of its employees, including the
leasing, operations, marketing, development, finance and administrative
functions. In addition, Mr. G. 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. G. Reschke has been a member of the
Board of Directors since 1997. Mr. G. Reschke became President and Chief
Operating Officer of the Company on October 6, 1999; acting Chief Executive
Officer of the Company on February 25, 2000; and Chief Executive Officer and
Chairman of the Board of Directors of the Company on July 19, 2000. Mr. G.
Reschke relinquished his duties as President to Mr. Brvenik effective August 15,
2002. From the inception of the Company in 1994 through October 6, 1999, Mr. G.
Reschke served as Executive Vice President--Development and Acquisitions. Prior
to his employment by the Company, Mr. G. Reschke worked for PGI, which he joined
in 1983 and served as Vice President, Senior Vice President and Executive Vice
President. Mr. G. Reschke was responsible for PGI's multi-family, senior
housing, single family and land development divisions. Mr. G. 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. Mr. G. Reschke is the brother of Michael W. Reschke, a member of
the Board of Directors of the Company.

Robert A. Brvenik. Robert A. Brvenik is President, Chief Financial Officer
and Treasurer of the Company. Mr. Brvenik joined the Company on June 15, 2000 as
Executive Vice President, Chief Financial Officer and Treasurer. Mr. Brvenik
assumed the duties of President of the Company effective August 15, 2002. In his
role as President, Mr. Brvenik is responsible for many of the Company's
day-to-day operations including oversight of its finance, accounting and leasing
departments. As Chief Financial Officer and Treasurer, Mr. Brvenik's
responsibilities include capital market activities, 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.

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. Since joining the Company in 1995, Mr. Antill served as Vice
President--Assistant General Counsel and Assistant Secretary from 1995 until
July 2000 and Senior Vice President--Assistant General Counsel and Assistant
Secretary from July 2000 until January 2002. 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.

David G. Phillips. David G. Phillips is Executive Vice President - Leasing,
International and New Business Development of the Company. From July 1999 to
January 2002, Mr. Phillips was Executive Vice President of the Company and
President of Prime Retail Europe pursuant to which he oversaw the Company's
development, marketing, leasing and operations efforts in Europe. Prior to
becoming President of Prime Retail Europe, Mr. Phillips was Executive Vice
President--Leasing of the Company from 1994 to 1996 and then Executive Vice
President--Operations, Marketing and Leasing of the Company from 1996 until
1999. From 1989 to 1994, Mr. Phillips was Vice President--Director of Leasing of
PGI. 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
degree in Real Estate Development from Johns Hopkins University and 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.

Frederick J. Meno, IV. Frederick J. Meno, IV is Senior Vice President -
Operations & Marketing. Mr. Meno joined the Company in January of 1999 and he is
responsible for supervising the management, operations, construction management,
marketing and specialty leasing programs for the Company's 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/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 Center 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 was the 2001 Dean for
ICSC's University of Shopping Centers School of Outlet Retailing, Value Oriented
and Community Centers.


Page - (5)


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 unconsolidated joint
ventures. At December 31, 2002, our portfolio of Properties consisted of (i) 38
outlet centers aggregating 10,269,000 square feet of GLA (including 2,789,000
square feet of GLA at outlet centers owned through unconsolidated joint
ventures) and (ii) 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, 2002 (see Note 6 - "Debt" of the Notes to
the Consolidated Financial Statements contained herein for information with
respect to mortgage indebtedness on our Properties).



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Grand GLA Occupancy
Outlet Centers Opening Date (Sq. Ft.) Percentage (1)
- ------------------------------------------------------------------------------------------------------------------------------------

Prime Outlets at Fremont-- Fremont, Indiana October 1985 229,000 90%

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

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

Prime Outlets at Williamsburg (2)-- Williamsburg, Virginia April 1988 274,000 99

Prime Outlets at Pleasant Prairie-- Kenosha, Wisconsin September 1988 269,000 98

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

Prime Outlets at Queenstown-- Queenstown, Maryland June 1989 221,000 99

Prime Outlets at Hillsboro-- Hillsboro, Texas October 1989 359,000 96

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

Prime Outlets at Warehouse Row (4)-- Chattanooga, Tennessee November 1989 95,000 85

Prime Outlets at Perryville-- Perryville, Maryland June 1990 148,000 96

Prime Outlets at Sedona-- (5) Sedona, Arizona August 1990 82,000 95

Prime Outlets at San Marcos-- San Marcos, Texas August 1990 549,000 97

Prime Outlets at Anderson-- (3) Anderson, California August 1990 165,000 95

Prime Outlets at Post Falls-- (5) Post Falls, Idaho July 1991 179,000 68

Prime Outlets at Ellenton-- Ellenton, Florida October 1991 481,000 98

Prime Outlets at Morrisville-- Raleigh - Durham, North Carolina October 1991 187,000 75

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

Prime Outlets at Niagara Falls USA-- Niagara Falls, New York July 1992 534,000 92

Prime Outlets at Woodbury-- (6) Woodbury, Minnesota July 1992 250,000 75

Prime Outlets at Calhoun-- (3) Calhoun, Georgia October 1992 254,000 91

Prime Outlets at Bend-- (5) Bend, Oregon December 1992 132,000 100

Prime Outlets at Jeffersonville I-- Jeffersonville, Ohio July 1993 407,000 97

Prime Outlets at Gainesville-- Gainesville, Texas August 1993 316,000 74



Page - (6)




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Grand GLA Occupancy
Outlet Centers Opening Date (Sq. Ft.) Percentage (1)
- ------------------------------------------------------------------------------------------------------------------------------------

Prime Outlets at Grove City-- Grove City, Pennsylvania August 1994 533,000 100%

Prime Outlets at Huntley-- Huntley, Illinois August 1994 282,000 71

Prime Outlets at Florida City-- Florida City, Florida September 1994 208,000 70

Prime Outlets at Pismo Beach-- Pismo Beach, California November 1994 148,000 100

Prime Outlets at Tracy-- Tracy, California November 1994 153,000 97

Prime Outlets at Odessa-- Odessa, Missouri July 1995 296,000 76

Prime Outlets at Darien (7)-- Darien, Georgia July 1995 307,000 65

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

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

Prime Outlets at Gaffney (3) (7)-- Gaffney, South Carolina November 1996 305,000 99

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

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

Prime Outlets at Hagerstown (2)-- Hagerstown, Maryland August 1998 487,000 100
---------- ---

Total Outlet Centers (9) 10,269,000 90%
========== ===
====================================================================================================================================

Notes:
(1) Percentage reflects occupied space as of December 31, 2002 as a percent of
available square feet of GLA.
(2) Through affiliates, we have a 30% ownership interest in the joint venture
partnership that owns this outlet center.
(3) Through affiliates, we have an 18.2% ownership interest in the joint
venture partnership that owns this outlet center.
(4) We own a 2% partnership interest as the sole general partner in 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 also
includes approximately 154,000 square feet of office space, not included in
this table, which was 95% occupied as of December 31, 2002.
(5) Non-recourse mortgage loans cross-collateralized by Prime Outlets at Bend,
Prime Outlets at Post Falls and Prime Outlets at Sedona are currently in
default and we are in the process of negotiating a transfer of our
ownership interests in these outlet centers to the lender. See Note 6 -
"Debt" of the Notes to Consolidated Financial Statements for additional
information.
(6) Non-recourse mortgage loans on Prime Outlets at Vero Beach and Prime
Outlets at Woodbury were cross-collateralized. The lender foreclosed on
Prime Outlets at Vero Beach on September 9, 2002. We are currently
negotiating the transfer of our ownership interest in Prime Outlets at
Woodbury with the lender. See Note 6 - "Debt" of the Notes to Consolidated
Financial Statements for additional information.
(7) We operate this outlet center pursuant to a long-term ground lease under
which we receive the economic benefit of a 100% ownership interest.
(8) The real property on which this outlet center is located is subject to a
long-term ground lease.
(9) Excludes Oxnard Factory Outlet. Through an affiliate, we have a 50% legal
ownership interest in the joint venture partnership that owns this outlet
center. However, we are currently receiving no economic benefit from the
Oxnard Factory Outlet.

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, lease
agreements generally provide 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 monitor our
lease provisions in light of current and expected economic conditions and other
factors. In this regard, we may consider alternative lease provisions (e.g.,
fixed CAM) where appropriate.


Page - (7)

The following table sets forth, as of December 31, 2002, tenant lease
expirations, assuming that none of the tenants exercises any renewal option,
over the next 10 years for our outlet center portfolio, including 9 outlet
centers we own through unconsolidated joint ventures, but excluding four outlet
centers secured by non-recourse mortgage indebtedness that is currently in
default (see "Defaults on Certain Non-recourse Mortgage Indebtedness" in Note 6
- - "Debt" of the Notes to Consolidated Financial Statements contained herein for
additional information):



- ------------------------------------------------------------------------------------------------------------------------------------
Lease Expirations - Outlet Centers
----------------------------------

% of Total
Number of Annualized Annualized
Leases Approximate Minimum Rent Minimum Rent of
Year Expiring GLA (Sq. Ft.) of Expiring Leases Expiring Leases
- ------- ----------------- ------------------ --------------------- -----------------------------

2003 560 2,224,432 $ 23,045,116 21.25%
2004 457 1,787,527 21,164,320 19.52%
2005 335 1,385,992 19,500,907 17.98%
2006 225 904,911 13,718,451 12.65%
2007 200 852,756 13,345,631 12.31%
2008 115 514,380 6,743,522 6.22%
2009 22 108,351 1,583,008 1.46%
2010 37 231,567 3,149,311 2.90%
2011 32 183,338 2,709,736 2.50%
2012 25 105,445 1,692,392 1.56%
====================================================================================================================================


Tenants

In our 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 spaces within each center in an effort to improve
sales per square foot.

Effective January 1, 2002, we adopted Statement of Financial Accounting
Standards ("FAS No. 144"), "Accounting for the Impairment or Disposal of
Long-Lived Assets." In accordance with the requirements of FAS No. 144, we have
reclassified the operating results, including gains or losses from disposition,
of certain property either disposed of or classified as assets held for sale
during 2002 as discontinued operations in the accompanying Consolidated
Statements of Operations for all periods presented. The following discussion is
reflective of the reclassifications made pursuant to the requirements of FAS No.
144 and relates to our operating results from continuing operations. During the
year ended December 31, 2002, no group of tenants under common control accounted
for more than 4.6% of our gross revenues or leased more than 5.6% of our total
GLA. During the years ended December 31, 2002 and 2001, our total provision for
uncollectible accounts receivable ("bad debt expense"), which is included in
other charges in the accompanying Consolidated Statements of Operations, was
approximately $1.9 million, or 1.2%, and $9.0 million, or 4.9%, of total
revenues, respectively. Bad debt expense is mainly attributable to tenant
bankruptcies, disputes, abandonments and store closings.


Page - (8)

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 an adverse effect on our consolidated financial statements.

The Company and its affiliates were defendants in a lawsuit filed by
Accrued Financial Services ("AFS") on August 10, 1999 in the Circuit Court for
Baltimore City. The lawsuit was removed to United States District Court for the
District of Maryland (the "U.S. District Court") on August 20, 1999. AFS claimed
that certain tenants had assigned to AFS their rights to make claims under
leases such tenants had with affiliates of the Company and alleged that the
Company and its affiliates overcharged such tenants for common area maintenance
charges and promotion fund charges. The U.S. District Court dismissed the
lawsuit on June 19, 2000. AFS appealed the U.S. District Court's decision to the
United States Court of Appeals for the Fourth Circuit. Briefs were submitted and
oral argument before a panel of judges of the United States Court of Appeals for
the Fourth Circuit was held on October 30, 2001, during which the panel of
judges requested further briefing of certain issues. On July 29, 2002, the
Fourth Circuit affirmed the dismissal. AFS filed a request for further review by
the Fourth Circuit which request was denied. In January 2003, AFS filed a
petition for a writ of certiorari by the United States Supreme Court and the
Company filed its opposition on February 24, 2003. The Company believes it has
acted properly and will continue to defend the suit vigorously if AFS's petition
is granted. Nevertheless, if the AFS writ of certiorari is successful, the
outcome of this lawsuit and the ultimate liability of the defendants, if any,
cannot be predicted at this time.

In addition, certain tenants in the Company's and its affiliates' outlet
centers have made or may make allegations concerning overcharging for CAM and
promotion fund charges because of varying clauses in their leases pursuant to
which they claim under various circumstances that they were not required to pay
some or all of the pass-through charges. Such claims if asserted and found
meritorious, could have a material affect on the Company's financial condition.
Determination of whether liability would exist to the Company would depend on
interpretation of various lease clauses within a tenant's lease and all of the
other leases at each center collectively. To date such issues have been raised
and resolved with Dinnerware Plus Holdings, Inc. ("Mikasa"), Melru Corporation,
Designs, Inc. and Brown Group Retail, Inc., all of which at one time or another
were in litigation, or threatened litigation with the Company. During the second
quarter of 2002, the Company recorded a non-recurring charge to establish a
reserve in the amount of $3.0 million for resolution of these matters, in
addition to the Mikasa matter referred to above. This reserve which is included
in the accounts payable and other liabilities in the accompanying Consolidated
Balance Sheet as of December 31, was estimated in accordance with our
established policies and procedures concerning loss contingencies (see "Critical
Accounting Policies and Estimates" of Item 2 - "Management Discussion and
Analysis of Financial Condition and Results of Operations" for additional
information). The balance of the unused reserve is approximately $2.4 million as
of December 31, 2002. Based on presently available information, the Company
believes it is probable this reserve will be utilized over the next several
years in resolving claims relating to the pass-through and promotional fund
provisions contained in its leases. The Company cautions, however, that given
the inherent uncertainties of litigation and the complexities associated with a
large number of leases and other factual questions at issue, actual costs may
vary from this estimate. No other such tenant, however, has filed a suit or
indicated to the Company that it intends to file as suit. Nevertheless, it is
too early to make any predictions as to whether the Company or its affiliates
may be found liable with respect to other tenants, or to predict damages should
liability be found.

Affiliates of the Company routinely file lawsuits to collect past rent due
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, made misrepresentations during the
leasing process, or has failed to maintain or market the outlet center in
question as required by the lease. One such case involves a collections and
eviction action in Puerto Rico captioned Outlet Village of Puerto Rico Limited
Partnership, S.E. v. WEPA, Inc., and another, for instance, involves a
collection case in San Marcos, Texas, captioned, San Marcos Factory Stores, Ltd.
v. SM Collectibles, Inc. d/b/a Country Clutter. 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 - (9)

Several entities (the "eOutlets Plaintiffs") filed or stated an intention
to file lawsuits (collectively, the "eOutlets Lawsuits") against the Company and
its affiliates arising out of the Company's on-line venture, primeoutlets.com.
inc., also known as eOutlets, an affiliate of the Company. The eOutlets
Plaintiffs seek to hold the Company and its affiliates responsible under various
legal theories for liabilities incurred by primeoutlets.com, inc., including the
theories that the Company guaranteed the obligations of eOutlets and that the
Company was the "alter-ego" of eOutlets. The Company believes that it is not
liable to eOutlets Plaintiffs as there was no privity of contract between it and
the various eOutlets Plaintiffs. 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. In another matter, J. Walter Thompson, USA, Inc. v. Prime
Retail, L.P. and Prime Retail, Inc. the Company succeeded in having the
corporate veil piercing and alter ego claims dismissed and settled the remaining
claims in February 2003. primeoutelts.com, inc. filed for protection under
Chapter 7 of the United States Bankruptcy Code in November of 2000 under the
name E-Outlets Resolution Corp. (the "Debtor"). On November 5, 2002, the
bankruptcy trustee for the Debtor brought suit against Prime Retail, L.P. ,
Prime Retail, Inc., and Prime Retail E-Commerce, Inc. (the "Entity Defendants")
and certain former directors of the Debtor (the "Individual Defendants"). The
Trustee has asserted claims of alter ego, promissory estoppel, breach of
contract, breach of fiduciary duty, tortious interference with prospective
business advantage, unjust enrichment and quantum meruit against the Entity
Defendants and breach of fiduciary duty and gross negligence against the
individual defendants. The Company has tendered the suit, both as to the Entity
Defendants and Individual Defendants, to its Directors' and Officers' ("D&O")
insurance carrier. Motions to dismiss the suit have been filed by all
Defendants. All Defendants believe the suit is without merit and plan on
defending it vigorously. Nevertheless, the outcome of this lawsuit, and the
ultimate liability of the Company, 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
because of FCC's failure to dispose of the collateral in a commercially
reasonable manner and as a result of a violation of federal trademark laws. 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 property 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. Nevertheless, the ultimate outcome of the suit, including
the liability, if any, of the Company and its affiliates, cannot be predicted at
this time.

ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

Pursuant to our Amended and Restated Articles of Incorporation, if and
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 (the "Preferred Directors") to our 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 payment
thereof set aside for payment.

In December 2001, the holders of the Preferred Stock elected Howard Amster
and Robert H. Kanner as the Preferred Directors with terms expiring at our
Annual Meeting of Shareholders in 2003 or until their successors are duly
elected and qualified, or, if earlier, the date on which the full dividends
accumulated on all outstanding shares of Preferred Stock have been paid in full
or declared and a sum of money sufficient for their payment set aside for
payment. On July 12, 2002, Mr. Kanner resigned as a Preferred Director for
reasons unrelated to the company or management.

At a special meeting of the holders of the Preferred Stock held on December
5, 2002, Gary J. Skoien was elected to replace Mr. Kanner as a Preferred
Director. Mr. Skoien will serve out the balance of Mr. Kanner's term.


Page - (10)

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 during the years ended December 31, 2002 and 2001,
respectively. We did not pay any distributions during 2002 or 2001.



- ------------------------------------------------------------------------------------------------------------------------------------
2002 2001
- ---------------------------------------------------------------------------------- ----------------------------------------------

Fourth Third Second First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
Market price per common share:
High $ 0.17 $ 0.15 $ 0.17 $ 0.24 $ 0.20 $ 0.30 $ 0.42 $ 0.70
Low 0.04 0.06 0.08 0.09 0.09 0.16 0.26 0.36
End of period close 0.12 0.06 0.12 0.18 0.10 0.17 0.27 0.39
====================================================================================================================================


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 distributions, if necessary, 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 policy remains to pay distributions only to the extent necessary to
maintain our status as a REIT for federal income tax purposes. During 2002, we
were not required to pay any distributions in order to maintain our status as a
REIT and based on our current federal income tax projections, we do not expect
to pay any distributions during 2003. We are currently in arrears on thirteen
quarters of preferred stock distributions due February 15, 2000 through February
15, 2003, respectively.

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, 2002, unpaid dividends for the period beginning
on November 16, 1999 through December 31, 2002 on our Series A Senior Preferred
Stock and Series B Convertible Preferred Stock aggregated $18.9 million and
$52.0 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, 2002 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 561,
including participants in security position listings, as of March 11, 2003.


Page - (11)

ITEM 6 - SELECTED FINANCIAL DATA

(Amounts in thousands, except per share amounts)



- ------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 2002 2001 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------

Statements of Operations Data (1):
Revenues
Base rents $ 86,184 $ 113,546 $ 151,605 $ 166,828 $ 126,319
Percentage rents 3,756 3,469 5,566 7,334 5,679
Tenant reimbursements 48,730 54,178 70,749 77,350 57,364
Interest and other 13,361 12,126 13,728 12,743 8,948
---------- ----------- ----------- ----------- ------------
Total revenues 152,031 183,319 241,648 264,255 198,310

Expenses
Property operating 42,446 44,472 58,494 61,581 45,742
Real estate taxes 12,931 15,054 17,655 18,587 13,499
Depreciation and amortization 34,301 45,863 57,930 63,470 45,380
Corporate general and administrative 14,562 14,290 21,581 12,687 7,980
Interest 61,826 79,864 91,161 86,055 52,060
Other charges 8,684 19,632 22,907 13,204 5,218
Provision for asset impairment 84,093 63,026 77,115 18,309 -
---------- ----------- ----------- ----------- ------------
Total expenses 258,843 282,201 346,843 273,893 169,879
---------- ----------- ----------- ----------- ------------
Income (loss) before gain (loss) on sale of
real estate and minority interests (106,812) (98,882) (105,195) (9,638) 28,431
Gain (loss) on sale of real estate, net 5,802 (1,063) (42,648) (15,153) (15,461)
---------- ----------- ----------- ----------- ------------
Income (loss) from continuing operations
before minority interests (101,010) (99,945) (147,843) (24,791) 12,970
Loss allocated to minority interests - 408 738 (3,226) (2,456)
---------- ----------- ----------- ----------- ------------
Income (loss) from continuing operations (101,010) (99,537) (147,105) (28,017) 10,514
Discontinued operations, including provision for
asset impairment of $27,757 and net gain of
$26,152 on dispositions in 2002 1,942 1,489 4,653 (6,812) 7,016
---------- ----------- ----------- ----------- ------------
Net income (loss) (99,068) (98,048) (142,452) (34,829) 17,530
Allocations to preferred shareholders (22,672) (22,672) (22,672) (9,962) (24,604)
---------- ----------- ----------- ----------- ------------
Net loss applicable to common shares $ (121,740) $ (120,720) $ (165,124) $ (44,791) $ (7,074)
========== =========== =========== =========== ===========

Basic loss per common share $ (2.79) $ (2.77) $ (3.79) $ (1.04) $ (0.20)
========== =========== =========== =========== ===========

Diluted loss per common share $ (2.79) $ (2.77) $ (3.79) $ (1.30) $ (0.20)
========== =========== =========== =========== ===========

Other Data:
Funds from operations (2) $ 22,882 $ 25,256 $ 57,967 $ 84,163 $ 90,020
Net cash provided by operating activities 30,124 32,911 32,450 97,815 59,182
Net cash provided by investing activities 41,451 5,595 1,095 (56,666) (145,596)
Net cash used in financing activities (72,204) (39,875) (31,982) (39,571) 85,806
Distributions declared per common share (3) - - - 0.885 1.680
Reported merchant sales 2,047,114 2,473,830 2,745,923 3,286,917 3,169,268

- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 2002 2001 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data:
Rental property before accumulated depreciation $ 854,862 $ 1,375,608 $ 1,493,107 $ 1,826,551 $ 2,015,722
Net investment in rental property 641,258 1,117,484 1,275,538 1,642,597 1,887,975
Assets held for sale - 54,628 43,230 - -
Investment in unconsolidated joint ventures 49,889 24,539 21,610 18,941 8,386
Total assets 818,088 1,262,508 1,462,021 1,856,058 1,976,464
Bonds payable 22,495 31,975 32,455 32,900 32,900
Notes payable 511,443 925,492 997,698 1,227,770 1,184,607
Defeased notes payable 74,764 - - - -
Total liabilities and minority interests 660,716 1,006,068 1,107,533 1,359,371 1,332,730
Shareholders' equity 157,372 256,440 354,488 496,687 643,734
Other Data:
Total outlet center GLA (4) 10,269 12,670 13,497 14,699 14,348
Total outlet centers (4) 38 45 48 51 50
====================================================================================================================================



Page - (12)

Notes:
(1) Effective January 1, 2002, we adopted FAS No. 144. In accordance with the
requirements of FAS No. 144, we have classified the operating results,
including gains and losses related to disposition, for certain properties
either disposed of or classified as assets held for sale during 2002 as
discontinued operations in the statements of operations for all periods
presented.

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

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



- ------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 2002 2001 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------

Income (loss) from continuing operations
before minority interests $ (101,010) $ (99,945) $ (147,843) $ (24,791) $ 12,970
Adjustments:
Loss (gain) on sale of real estate (5,802) 1,063 42,648 15,153 15,461
Provision for asset impairment - operating properties 84,093 63,026 68,663 2,270 -
Depreciation and amortization 34,301 45,863 57,930 63,470 45,380
Non-real estate depreciation and amortization (2,166) (2,251) (1,703) (587) (432)
Unconsolidated joint venutres' adjustments 3,957 3,074 3,269 1,639 1,211
Non-cash joint venture interest subsidy - 1,882 - - -
Discontinued operations 1,942 1,489 4,653 (6,812) 7,016
Discontinued operations - net gain on disposition (26,152) - - - -
Discontinued operations - provision for impairment 27,757 - - 13,572 -
Discontinued operations - depreciation and amortization 5,437 11,055 9,626 10,170 7,347
---------- --------- ---------- --------- --------
FFO before adjustments for non-recurring losses 22,357 25,256 37,243 74,084 88,953
Non-recurring loss on early extinguishment of debt(1) 525 - 4,206 3,518 -
Loss on eOutlets(2) - - 14,703 - -
Loss on Designer Connection(3) - - 1,815 6,561 1,067
---------- --------- ---------- --------- --------
FFO before allocations to minority interests
and preferred shareholders $ 22,882 $ 25,256 $ 57,967 $ 84,163 $ 90,020
========== ========= ========== ========= ========
====================================================================================================================================


Notes:
(1) Represents non-recurring charges incurred in connection with the early
extinguishment of debt. We adopted FAS No. 145 effective December 31, 2002
and accordingly, classified such costs as a component of interest expense.
The costs are attributable to financing activities ancillary to our core
real estate operations.
(2) Represents the results of business activities ancillary to our core real
estate operations. Due to financial constraints, we decided to discontinue
the Designer Connection and eOutlets.com businesses in December 1999 and
April 2000, respectively. See Note 12 - "Special Charges" of the Notes to
Consolidated Financial Statements for additional information.

(3) Includes special cash distribution during 1998 of $0.50 per common share
relating to our merger with Horizon Group, Inc. completed in June 1998.
(4) Includes outlet centers we operate under unconsolidated joint ventures with
unrelated third parties as follows:



- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 2002 2001 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------

Aggregate GLA 2,789 1,195 1,764 1,494 595
Number of outlet centers 9 3 5 4 3
====================================================================================================================================



Page - (13)

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)

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. In
addition, we may make forward-looking statements in future filings with the
Securities and Exchange Commission and in written material, press releases and
oral statements issued by us or on our behalf. Forward-looking statements
include statements regarding the intent, belief, or current expectations of us
or our officers, including statements preceded by, followed by, or including
forward-looking terminology such as "may," "will," "should," believe," "expect,"
"anticipate," "estimate," "continue," "predict," or similar expressions with
respect to various matters.

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 affects of future events, including tenant bankruptcies, abandonments
and the non-payment by tenants of contractual rents and additional rents, 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 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.

All forward-looking statements in this report are based on information
available to us on the date of this report. We do not undertake to update any
forward-looking statements that may be made by us or on our behalf in this
report or otherwise.

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.

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.


Page - (14)

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.

Bad Debt Expense

We regularly review our accounts receivable to determine an appropriate
amount 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 uncollectible accounts receivable ("bad debt expense") 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.

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
Properties might have experienced a decline in value that is other than
temporary 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 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
estimated 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.

Capitalization and Depreciation of Significant Renovations and Improvements

Depreciation is calculated on the straight-line basis over the estimated
useful lives of the assets, based upon management's estimates. Significant
renovations and improvements, which improve and/or extend the useful life of
assets are capitalized and depreciated over their estimated useful lives, based
upon management's estimates.

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 - "Debt" of the Notes
to Consolidated Financial Statements 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 because of (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 size reflects (i) our past development (both
new outlet centers and expansions to outlet centers) and acquisition activities
and (ii) our more recent disposition activities. Our outlet portfolio consisted
of 38 properties totaling 10,269,000 square feet of gross leasable area ("GLA")
at December 31, 2002 compared to 45 properties totaling 12,670,000 square feet
of GLA at December 31, 2001 and 48 properties totaling 13,497,000 square feet of
GLA at December 31, 2000. The changes in our outlet center GLA are because of
certain property dispositions during 2002, 2001 and 2000. Such changes are
discussed below. Our outlet center portfolio was 90.5%, 91.2% and 92.7% occupied
as of December 31, 2002, 2001 and 2000, respectively. The weighted-average
occupancy of our outlet center portfolio (excluding properties disposed of
during 2002 whose results are included in discontinued operations) during the
years ended December 31, 2002, 2001 and 2000 was 88.0%, 90.9% and 92.3%,
respectively.

We have disposed of certain properties through various transactions
(including sale, joint venture arrangements, foreclosure and transfer of
ownership to the applicable lender) during the years ended December 31, 2002,
2001 and 2000 (see Note 3 - "Property Dispositions" of the Notes to Consolidated
Financial Statements for additional information). These transactions have had a
significant impact on the size of our portfolio for the periods presented and
are summarized below.


Page - (15)

During 2002, we completed transactions involving 17 properties aggregating
4,431,000 square feet of GLA. These transactions included (i) the sale of seven
outlet centers aggregating 1,791,000 square feet of GLA into joint venture
arrangements, (ii) the sale of five (including one consisting of 197,000 square
feet of GLA that we owned 51% through an unconsolidated joint venture) outlet
centers aggregating 1,486,000 square feet of GLA to unrelated third parties,
(iii) the foreclosure sale and/or transfer of three outlet centers aggregating
922,000 square feet of GLA to the applicable lender and (iv) the sale of two
community centers aggregating 232,000 square feet of GLA to unrelated third
parties.

The seven centers sold into joint venture arrangements consisted of two
separate transactions involving (i) Prime Outlets at Hagerstown (the "Hagerstown
Center"), which was sold to an existing joint venture partnership (the
"Prime/Estein Venture"), and (ii) six outlet centers (collectively, the Bridge
Properties"). Such properties are collectively referred to as the "2002 Joint
Venture Properties". Commencing on the date of disposition, we account for our
ownership interest in the 2002 Joint Venture Properties in accordance with the
equity method of accounting. The operating results of the 2002 Joint Venture
Properties are reflected in our results from continuing operations for all
periods presented through their respective dates of disposition. Their operating
results have not been classified to discontinued operations because we have a
significant continuing involvement in these properties. Additionally, we sold
Phases II and III of the Bellport Outlet Center. We accounted for our ownership
interest in the Bellport Outlet Center in accordance with the equity method of
accounting through its date of disposition.

The operating results of the remaining disposed properties have been
classified as discontinued operations in the accompanying Consolidated
Statements of Operations for all periods presented.

During 2001, we completed transactions involving three properties
aggregating 723,000 square feet of GLA. These transactions included (i) the sale
of one outlet center consisting of 257,000 square feet of GLA to an unrelated
third party, (ii) the foreclosure sale of one outlet center (that we owned 50%
through an unconsolidated joint venture) consisting of 326,000 square feet of
GLA and (iii) the sale of one community center consisting of 140,000 square feet
of GLA to an unrelated third party. The operating results for properties
disposed of during 2001 are not classified as discontinued operations in the
accompanying Consolidated Statements of Operations. Such properties are
collectively referred to as the "2001 Property Dispositions".

During 2000, we completed transactions involving five properties
aggregating 1,866,000 square feet of GLA. These transactions included (i) the
sale of one outlet center consisting of 274,000 square feet of GLA to the
Prime/Estein Venture and (ii) the sale of four outlet centers aggregating
1,592,000 square feet of GLA to unrelated third parties. The operating results
for properties disposed of during 2000 are not classified as discontinued
operations in the accompanying Consolidated Statements of Operations. Such
properties are collectively referred to as the "2000 Property Dispositions".

Effective January 1, 2002, we adopted Statement of Financial Accounting
Standards ("FAS") No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets." In accordance with the requirements of FAS No. 144, we have
classified the operating results, including gains and losses related to
disposition, for certain properties either disposed of or classified as assets
held for sale during 2002 as discontinued operations in the accompanying
Consolidated Statements of Operations for all periods presented. The operating
results for properties that were sold into joint venture partnerships during
2002 have not been classified to discontinued operations in the accompanying
Consolidated Statements of Operations because we still retain a significant
continuing involvement in their operations. Such properties and/or their
operating results through the dates of their respective disposition are
collectively referred to as the "2002 Joint Venture Properties". The operating
results for properties disposed of before January 1, 2002 are not classified as
discontinued operations. Such properties and/or their operating results through
the dates of their respective disposition are collectively referred to as the
"2001 Property Dispositions" or "2000 Property Dispositions". The following
discussion and tables regarding operating results for the comparable periods are
reflective of the classification requirements under FAS No. 144 and relate to
operating results from continuing operations unless otherwise indicated.


Page - (16)

Results of Operations

Table 1 - Consolidated Statements of Operations



- ------------------------------------------------------------------------------------------------------------------------------------
2002 vs. 2001 2001 vs. 2000
-------------------------- ----------------------
% %
Years Ended December 31, 2002 2001 Change Change 2000 Change Change
- ------------------------------------------------------------------------------------------------------------------------------------

Revenues
Base rents $ 86,184 $ 113,546 $(27,362) -24.1% $ 151,605 $(38,059) -25.1%
Percentage rents 3,756 3,469 287 8.3% 5,566 (2,097) -37.7%
Tenant reimbursements 48,730 54,178 (5,448) -10.1% 70,749 (16,571) -23.4%
Interest and other 13,361 12,126 1,235 10.2% 13,728 (1,602) -11.7%
--------- --------- -------- ----- --------- -------- ------
Total revenues 152,031 183,319 (31,288) -17.1% 241,648 (58,329) -24.1%

Expenses
Property operating 42,446 44,472 (2,026) -4.6% 58,494 (14,022) -24.0%
Real estate taxes 12,931 15,054 (2,123) -14.1% 17,655 (2,601) -14.7%
Depreciation and amortization 34,301 45,863 (11,562) -25.2% 57,930 (12,067) -20.8%
Corporate general and administrative 14,562 14,290 272 1.9% 21,581 (7,291) -33.8%
Interest 61,826 79,864 (18,038) -22.6% 91,161 (11,297) -12.4%
Other charges 8,684 19,632 (10,948) -55.8% 22,907 (3,275) -14.3%
Provision for asset impairment 84,093 63,026 21,067 n/m 77,115 (14,089) n/m
--------- --------- -------- ----- --------- -------- ------
Total expenses 258,843 282,201 (23,358) -8.3% 346,843 (64,642) -18.6%
--------- --------- -------- ----- --------- -------- ------
Loss before gain (loss) on sale of real
estate and minority interests (106,812) (98,882) (7,930) 8.0% (105,195) 6,313 -6.0%
Gain (loss) on sale of real estate, net 5,802 (1,063) 6,865 n/m (42,648) 41,585 n/m
--------- --------- -------- ----- --------- -------- ------
Loss from continuing operations
before minority interests (101,010) (99,945) (1,065) 1.1% (147,843) 47,898 -32.4%
Loss allocated to minority interests - 408 (408) n/m 738 (330) n/m
--------- --------- -------- ----- --------- -------- ------
Loss from continuing operations (101,010) (99,537) (1,473) 1.5% (147,105) 47,568 -32.3%
Discontinued operations, including provision for
asset impairment of $27,757 and net gain of
$26,152 on dispositions in 2002 1,942 1,489 453 n/m 4,653 (3,164) n/m
--------- --------- -------- ----- --------- -------- ------
Net loss (99,068) (98,048) (1,020) 1.0% (142,452) 44,404 -31.2%
Allocations to preferred shareholders (22,672) (22,672) - 0.0% (22,672) - 0.0%
--------- --------- -------- ----- --------- -------- ------
Net loss applicable to common shares $(121,740) $(120,720) $ (1,020) 0.8% $(165,124) $ 44,404 -26.9%
========= ========= ======== ===== ========= ======== ======

Basic and diluted earnings per common share:
Loss from continuing operations $ (2.83) $ (2.80) $ (3.90)
Discontinued operations 0.04 0.03 0.11
--------- --------- ---------
Net loss $ (2.79) $ (2.77) $ (3.79)
========= ========= =========

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



Page - (17)

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, 2002,
2001 and 2000 is presented in the following table, expressed in amounts
calculated on a weighted-average occupied GLA basis.



- ------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------------

GLA at end of period (1) 7,458 11,864 12,322
Portfolio weighted-average occupied GLA (1) 7,216 8,606 10,360
Outlet center weighted-average occupied GLA (1) 7,070 8,453 10,051
Number of outlet centers at end of period (2) 38 45 48
New outlet centers opened (2) - - 1
Outlet centers expanded (2) - - 2
Community centers at end of period - 2 3
Number of states and territories at end of period 24 26 26

Portfolio Weighted-Average per Square Foot (3):
Revenues
Rental revenues (4) $ 19.21 $ 19.89 $ 22.00
Interest and other 1.85 1.41 1.09
------- ------- -------
Total revenues 21.06 21.30 23.09

Expenses (5)
Recoverable expenses 7.67 6.92 7.35
Depreciation and amortization 4.75 5.33 5.59
Corporate general and administrative 2.02 1.66 1.64
Interest 8.50 9.28 8.39
Other charges 0.79 1.71 1.40
------- ------- -------
Total expenses 23.73 24.90 24.37
------- ------- -------
Loss $ (2.67) $ (3.60) $ (1.28)
======= ======= =======

Outlet Center Weighted-Average per Square Foot (3):
Revenues
Rental revenues $ 19.33 $ 20.02 $ 22.39
Interest and other 0.89 0.97 0.68
------- ------- -------
Total revenues 20.22 20.99 23.07

Expenses (5)
Recoverable expenses (6) 7.68 6.97 7.42
Depreciation and amortization 4.54 5.16 5.57
Interest 7.40 7.42 7.52
Other charges 0.75 1.56 0.81
------- ------- -------
Total expenses 20.37 21.11 21.32
------- ------- -------
Income (loss) $ (0.15) $ (0.12) $ 1.75
======= ======= =======
====================================================================================================================================


Notes:
(1) Includes total GLA in which we receive substantially all of the economic
benefit. Does not include GLA in which we have an ownership interest
through unconsolidated joint ventures. The portfolio weighted-average
occupied GLA and the factory outlet weighted-average occupied GLA amounts
only include those properties whose operating results are reflected in
continuing operations for all periods presented (See Note 3 - "Property
Dispositions" of the Notes to Consolidated Financial Statements for
additional.)
(2) Includes outlet centers operated under unconsolidated joint ventures.
(3) Based on occupied GLA weighted by months of operation for properties
included in continuing operations. The occupied GLA on a weighted-average
basis for the 2002 Joint Venture Properties, the 2001 Property Dispositions
and the 2000 Property Dispositions are included in the weighted-average GLA
through the dates of their respective dispositions. (See Note 3 - "Property
Dispositions" of the Notes to Consolidated Financial Statements for
additional information.
(4) Rental revenues is comprised of base rent, percentage rents and
tenant reimbursable income.
(5) Excludes the following non-recurring items:



- ------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------------

Gain on sale of outparcel land (excluded from interest income) $ - $ - $ 2,472
Provision for asset impairment 84,093 63,026 77,115
Loss on early extinguishment of debt (excluded from interest expense) 525 - 4,206
Corporate general and administrative(i) - - 4,610
Other charges(ii) 3,000 4,918 6,617
- ------------------------------------------------------------------------------------------------------------------------------------


Notes:
(i.) Excludes non-recurring costs incurred during 2000 aggregating $4,610
consisting of (i) severance and other compensation costs of $2,421, (ii)
professional fees of $1,455 relating to refinancing activities and (iii)
$734 of general and administrative costs related to eOutlets.com.
(ii.)Excludes non-recurring other charges aggregating $3,000, $4,918 and $6,617
in 2002, 2001 and 2000, respectively. The 2002 non-recurring charge of
$3,000 related to pending and potential tenant claims with respect to
certain lease provisions. The 2001 non-recurring other charges aggregating
$4,918 includes (i) a charge of $2,000 related to pending and potential
tenant claims with respect to certain lease provisions, (ii) a loss of
$1,882 related to an interest rate subsidy agreement and (iii) a loss of
$1,036 related to the refinancing of first mortgage loans on Prime Outlets
at Birch Run. The 2000 non-recurring costs aggregating $6.617 include (i)
$5,517 of costs related to eOutlets.com, (ii) a loss on operations of our
Designer Connection outlet stores of $1,815 and (iii) $1,100 of costs
related to the termination of a sale agreement.
(6) Recoverable expenses is comprised of property operating expenses and real
estate taxes.


Page - (18)

Comparison of the Year Ended December 31, 2002 to the Year Ended December 31,
2001

Summary

We reported losses from continuing operations of $101,010 and $99,537 for
the years ended December 31, 2002 and 2001, respectively. For the year ended
December 31, 2002, the net loss applicable to our common shareholders was
$121,740, or $2.79 per common share. For the year ended December 31, 2001, the
net loss applicable to our common shareholders was $120,720, or $2.77 per common
share.

During the year ended December 31, 2002, we reported a loss from
discontinued operations of $1,942, or $0.04 per common share. This loss from
discontinued operations includes (i) a net gain related to dispositions of
$26,152 and (ii) a provision for asset impairment of $27,557. During the year
ended December 31, 2001, we reported a gain on discontinued operations of
$1,489, or $0.03 per common share.

The 2002 results from continuing operations include (i) an aggregate
provision for asset impairment of $84,093, or $1.93 per common share, (ii) a net
gain on the sale of real estate of $5,802, or $1.33 per common share, (iii) a
second quarter non-recurring charge (included in other charges) of $3,000, or
$0.07 per common share, related to pending and potential tenant claims with
respect to certain lease provisions and (iv) a fourth quarter non-recurring loss
(included in interest expense) of $525, or $0.01 per common share, related to
the early extinguishment of debt.

The 2001 results from continuing operations include (i) a provision for
asset impairment of $63,026, or $1.45 per common share, (ii) a fourth quarter
non-recurring charge (included in other charges) of $2,000, or $0.05 per common
share, related to pending and potential tenant claims with respect to certain
lease provisions, (iii) a third quarter non-recurring loss (included in other
charges) of $1,882, or $0.04 per common share, related to an interest rate
subsidy agreement, (iv) a third quarter non-recurring loss (included in other
charges) of $1,036, or $0.02 per common share, related to the refinancing of
first mortgage loans on Prime Outlets at Birch Run (the "Birch Run Center") and
(v) a net loss on the sale of real estate of $1,036, or $0.02 per common share.

Revenues

Total revenues were $152,031 for the year ended December 31, 2002 compared
to $183,319 for the year ended December 31, 2001, a decrease of $31,288, or
17.1%. Base rents decreased $27,362, or 24.1%, to $86,184 in 2002 compared to
$113,546 in 2001. These decreases are primarily due to (i) transactions
involving the 2002 Joint Venture Properties, (ii) the 2001 Property
Dispositions, (iii) changes in economic rental rates and (iv) the reduction in
outlet center occupancy during the 2002 period. Straight-line rent expense,
included in base rent was $497 and $439 for the years ended December 31, 2002
and 2001, respectively.

Percentage rents, which represent rents based on a percentage of sales
volume above a specified threshold, increased $287, or 8.3%, to $3,756 during
the year ended December 31, 2002 compared to $3,469 for the same period in 2001.
This increase was primarily attributable to changes in economic rental rates.

As summarized in TABLE 3, merchant sales reported for centers remaining in
our outlet center portfolio at period-end were $2,047 million and $2,474 million
for the years ended December 31, 2002 and 2001, respectively. The
weighted-average reported merchant sales per square foot increased to $245 per
square foot in 2002 from $241 per square foot in 2001. Total merchant occupancy
cost per square foot increased to $20.75 in 2002 from $20.68 in 2001 and as a
percentage of reported sales decreased from 8.65% in 2001 to 8.43% in 2002.
Total merchant occupancy costs, excluding marketing contributions, as a
percentage of reported sales decreased to 7.85% in 2002 from 7.99% in 2001.


Page - (19)

Table 3 - Summary of Reported Merchant Sales

A summary of reported outlet merchant sales and related data for 2002, 2001
and 2000 follows:



- ------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------------

Total reported merchant sales (in millions) (1) $ 2,047 $ 2,474 $ 2,746
Weighted-average reported merchant sales per square foot (2)
All stores sales $ 245 $ 241 $ 245
Change in same store sales versus prior year -3.6%
Total merchant occcupancy costs per square foot (3) $ 20.75 $ 20.68 $ 22.03
Total merchant occcupancy costs, excluding marketing
contributions, per square foot (3)
Merchant occupancy costs as a percentage of reported sales (4) 8.47% 8.65% 8.99%
Merchant occupancy costs, excluding marketing contributions,
as a percentage of reported sales (5) 7.85% 7.99% 8.26%
====================================================================================================================================

Notes:
(1) Total reported merchant sales summarizes gross sales generated
by merchants and includes changes in merchant mix.
(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-store sales is defined as the weighted-average
reported merchant sales per square foot for stores open since the beginning
of the prior year.
(3) Total merchant occupancy cost per square foot consists of base rent,
percentage rent and tenant reimbursement income 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 $5,448, or 10.1%, to $48,730
in 2002 compared to $54,178 in 2001. This decline is primarily due to (i)
transactions involving the 2002 Joint Venture Properties, (ii) the 2001 Property
Dispositions, (iii) changes in economic rental rates and (iv) reduced aggregate
outlet center weighted-average occupancy during the 2002.

As shown in TABLE 4, tenant reimbursements as a percentage of recoverable
property operating expenses and real estate taxes was 88.0% in 2002 compared to
91.0% in 2001. The decline in tenant reimbursements as a percentage of
recoverable property operating expenses and real estate taxes was primarily
attributable to the aforementioned changes in economic rental rates and
weighted-average occupancy.

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



- ------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------------

Tenant reimbursements $ 48,730 $ 54,178 $ 70,749

Recoverable Expenses:
Property operating $ 42,446 $ 44,472 $ 58,494
Real estate taxes 12,931 15,054 17,655
-------- -------- --------
Total recoverable expenses $ 55,377 $ 59,526 $ 76,149
======== ======== ========

Tenant reimbursements as a percentage
of total recoverable expenses 88.0% 91.0% 92.9%
======== ======== ========
====================================================================================================================================


Interest and other income increased by $1,235, or 10.2%, to $13,361 during
the year ended December 31, 2002 compared to $12,126 for the year ended December
31, 2001. The increase was primarily attributable to (i) higher equity earnings
in unconsolidated joint ventures of $2,560, (ii) increased other ancillary
income of $577 and (iii) higher property management and leasing commission
income of $351. These items were partially offset by (i) reduced lease
termination income of $1,159 and (ii) decreased municipal assistance income of
$1,094.

Expenses

Property operating expenses decreased by $2,026, or 4.6%, to $42,466 in
2002 compared to $44,472 in 2001. Real estate taxes expense decreased by $2,123,
or 14.1%, to $12,931 in 2002 from $15,054 in 2001. These decreases are primarily
because of the transactions involving the 2002 Joint Venture Properties and the
2001 Property Dispositions.

As shown in TABLE 5, depreciation and amortization expense decreased by
$11,562, or 25.2%, to $34,301 in 2002 compared to $45,863 in 2001. This decrease
was primarily attributable to the depreciation and amortization of assets
associated with the transactions involving the 2002 Joint Venture Properties and
the 2001 Property Dispositions.


Page - (20)

Table 5 - Components of Depreciation and Amortization Expense

The components of depreciation and amortization expense for 2002, 2001 and
2000 are summarized as follows:



- ------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------------

Building and improvements $ 16,899 $ 22,761 $ 31,171
Land improvements 4,080 4,866 5,250
Tenant improvements 10,641 15,106 18,524
Furniture and fixtures 2,467 2,733 2,372
Leasing commissions 214 397 613
-------- -------- --------
Total $ 34,301 $ 45,863 $ 57,930
======== ======== ========
====================================================================================================================================


As shown in TABLE 6, interest expense decreased by $17,953, or 22.5%, to
$61,911 in 2002 compared to $79,864 in 2001. This decrease reflects (i) lower
interest incurred of $16,877, (ii) a decrease in amortization of deferred
financing costs of $1,509 and (iii) higher amortization of debt premiums of $92.
Partially offsetting these items was a non-recurring loss of $525 related to the
write-off of unamortized deferred financing costs because of the early repayment
of a mezzanine loan (the "Mezzanine Loan") in December 2002. The Mezzanine Loan
was scheduled to mature in September 2003.

The decrease in interest incurred is primarily attributable to (i) a
reduction of $159,064 in our weighted-average debt outstanding, excluding debt
premiums, during the year ended December 31, 2002 compared to the same period in
2001 and (ii) a decrease in the weighted-average contractual interest rate on
our debt for the year ended December 31, 2002 compared to the same period in
2001. The decrease in weighted-average debt outstanding was primarily
attributable to asset dispositions. The weighted-average contractual interest
rates for 2002 and 2001 were 8.95% and 9.27%, respectively.

Table 6 - Components of Interest Expense

The components of interest expense for 2002, 2001 and 2000 are summarized
as follows:



- ------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------------

Interest incurred $ 58,574 $ 75,451 $ 89,286
Amortization of deferred financing costs 4,747 6,341 2,922
Non-recurring loss on early extinguishment of debt 525 - 4,206
Amortization of debt premiums (2,020) (1,928) (1,841)
Interest capitalized to development projects - - (3,412)
-------- -------- --------
Total $ 61,826 $ 79,864 $ 91,161
======== ======== ========
====================================================================================================================================


Other charges were $8,684 and $19,632 for the years ended December 31, 2002
and 2001, respectively, which includes non-recurring charges aggregating $3,000
and $4,918 in 2002 and 2001, respectively. Excluding the effect of these
non-recurring items, which are discussed below, other charges decreased by
$9,030, or 61.4%, to $5,684 for the year ended December 31, 2002 compared to
$14,714 for the same period in 2001. This decrease was primarily attributable to
(i) lower bad debt expense of $7,150 and (ii) reduced corporate marketing costs
of $2,186. These items were partially offset by an increase in all other
expenses of $306. The decrease in bad debt expense was primarily attributable to
(i) resolution of certain disputes with tenants and (ii) reduced tenant
bankruptcies, abandonments and store closings during the 2002 period.

During the second quarter of 2002, we recorded a non-recurring charge in
the amount of $3,000 to establish a reserve for pending and potential tenant
claims with respect to lease provisions related to their pass-through charges
and promotional fund charges. We had previously recorded a non-recurring charge
in the amount of $2,000 to establish a reserve for similar matters during the
fourth quarter of 2001. To date, we have entered into settlement agreements
providing for payments aggregating $2,760, of which $2,607 was paid as of
December 31, 2002. The remaining reserve of $2,393 is included in accounts
payable and other liabilities in the accompanying Consolidated Balance Sheet as
of December 31, 2002. See Note 13 - "Legal Proceedings" of the Notes to
Consolidated Financial Statements for additional information.

These reserves were estimated in accordance with our established policies
and procedures with respect to loss contingencies (see "Critical Accounting
Policies and Estimates" for additional information) and is based on our current
assessment of the likelihood of any adverse judgments or outcomes to these
matters. Based on presently available information, we believe it is probable the
remaining reserve will be utilized over the next several years in connection
with the resolution of further claims relating to the pass-through and
promotional fund provisions contained in our leases. We caution, however, that
given the inherent uncertainties of litigation and the complexities associated
with a large number of leases and other factual questions at issue, actual costs
may vary from our estimate.

During the third quarter of 2001, we recorded a non-recurring charge of
$1,882 related to an interest rate subsidy agreement and a non-recurring loss of
$1,036 related to the refinancing of first mortgage loans on the Birch Run
Center.


Page - (21)

During the third quarter of 2002, certain events and circumstances
occurred, including (i) changes to the anticipated holding periods of certain of
our long-lived assets and (ii) reduced occupancy and limited leasing success,
that indicated that certain of our properties were impaired on an other than
temporary basis. As a result, we recorded a provision for asset impairment
aggregating $81,619 representing the write-down of these properties to their
estimated fair values in accordance with the requirements of FAS No. 144.
Additionally, during the fourth quarter of 2002, we recognized a provision for
asset impairment of $2,474 to fully write-off the carrying value of certain
costs previously capitalized in connection with former development activities
based on our current assessment as to our ability to recover their carrying
value. During the third quarter of 2001, we had also determined that certain
events and circumstances had occurred, including reduced occupancy and limited
leasing success, that indicated that certain of our properties were impaired on
an other than temporary basis. As a result, we recorded a provision for asset
impairment aggregating $63,026, representing the write-down of the carrying
value of these properties to their estimated fair values in accordance with the
requirements of FAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and Long-Lived Assets to be Disposed of".

Table 7 - Capital Expenditures

The components of capital expenditures for 2002, 2001 and 2000 are
summarized as follows:



- ------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------------

Expansions and renovations $ 2,353 $ 4,404 $ 26,068
Re-leasing tenant allowances 5,360 8,273 8,050
New development - 3,336 17,715
------- -------- --------
Total $ 7,713 $ 12,677 $ 34,118
======= ======== ========
====================================================================================================================================


Table 8 - Consolidated Quarterly Summary of Operations (1)



- ------------------------------------------------------------------------------------------------------------------------------------
2002 2001
- -------------------------------------------------------------------------------------- -------------------------------------------
Fourth Third Second First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------------------------------------------

Total revenues (2) $36,163 $ 36,246 $ 38,299 $ 41,323 $ 45,143 $ 44,554 $ 46,194 $ 47,428
Total expenses (3) 40,933 122,268 47,937 47,705 55,985 118,483 53,455 54,278
------- -------- -------- -------- -------- -------- -------- --------
Loss before gain (loss) on sale of
real estate and minority interests (4,770) (86,022) (9,638) (6,382) (10,842) (73,929) (7,261) (6,850)
Gain (loss) on sale of real estate - - (10,991) 16,793 (1,615) - (180) 732
------- -------- -------- -------- -------- -------- -------- --------
Loss from continuing operations
before minority interests (4,770) (86,022) (20,629) 10,411 (12,457) (73,929) (7,441) (6,118)
Allocations to minority interests - - - - 7 - 400 1
------- -------- -------- -------- -------- -------- -------- --------
Loss from continuing operations (4,770) (86,022) (20,629) 10,411 (12,450) (73,929) (7,041) (6,117)
Discontinued operations 17,712 2,517 (9,557) (8,730) 127 677 198 487
------- -------- -------- -------- -------- -------- -------- --------
Net income (loss) 12,942 (83,505) (30,186) 1,681 (12,323) (73,252) (6,843) (5,630)
Allocations to preferred shareholders (5,668) (5,668) (5,668) (5,668) (5,668) (5,668) (5,668) (5,668)
------- -------- -------- -------- -------- -------- -------- --------
Net income (loss) applicable
common shares 7,274 (89,173) (35,854) (3,987) (17,991) (78,920) (12,511) (11,298)
======= ======== ======== ======== ======== ======== ======== ========

Basic and diluted earnings per
common share:
Loss from continuing operations $ (0.24) $ (2.11) $ (0.60) $ 0.11 $ (0.41) $ (1.83) $ (0.29) $ (0.27)
Discontinued operations 0.41 0.06 (0.22) (0.20) - 0.02 - 0.01
------- -------- -------- -------- -------- -------- -------- --------
Net income (loss) $ 0.17 $ (2.05) $ (0.82) $ (0.09) $ (0.41) $ (1.81) $ (0.29) $ (0.26)
======= ======== ======== ======== ======== ======== ======== ========

Weighted-average common shares
outstanding - basic and diluted 43,578 43,578 43,578 43,578 43,578 43,578 43,578 43,578
======= ======== ======== ======== ======== ======== ======== ========
====================================================================================================================================


Notes:
(1) Certain prior quarterly financial information has been reclassified
pursuant to the requirements of FAS No. 144.
(2) The first quarter of 2001 total revenues includes a non-recurring gain on
the sale of outparcel land of $2,472.
(3) The following non-recurring charges and costs are reflected in total
expenses for the period indicated:



- ------------------------------------------------------------------------------------------------------------------------------------
2002 2001
- ----------------------------------------------------------------------------------- ----------------------------------------------
Fourth Third Second First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------------------------------------------

Provision for asset impairment $2,474 $81,619 $ - $ - $ - $63,026 $ - $ -
Interest expense(i) 525 - - - - - - -
Other charges(ii) - - 3,000 - 2,000 2,918 - -
- ------------------------------------------------------------------------------------------------------------------------------------


Notes:
(i.) During the fourth quarter of 2002, we incurred a non-recurring loss on the
early extinguishment of debt of $525 in connection with the repayment of
the Mezzanine Loan.
(ii.)The 2002 non-recurring second quarter charge of $3,000 related to pending
and potential tenant claims with respect to certain lease provisions. The
2001 non-recurring other charges include (i) a fourth quarter charge of
$2,000 related to pending and potential tenant claims with respect to
certain lease provisions and third quarter non-recurring charges and costs
aggregating $2,918 (loss of $1,882 related to an interest rate subsidy
agreement and a loss of $1,036 related to the refinancing of first mortgage
loans on the Birch Run Center).


Page - (22)

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

Summary

We reported losses from continuing operations of $99,537 and $147,105 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. For the year ended December 31, 2000, the
net loss applicable to our common shareholders was $165,124, or $3.79 per common
share.

During the years ended December 31, 2001 and 2000, we reported gains on
discontinued operations of $1,489, or $0.03 per common share, and $4,653, or
$0.11 per common share, respectively.

The 2001 results from continuing operations include (i) a provision for
asset impairment of $63,026, or $1.45 per common share, (ii) a fourth quarter
non-recurring charge (included in other charges) of $2,000, or $0.05 per common
share, related to pending and potential tenant claims with respect to certain
lease provisions, (iii) a third quarter non-recurring loss (included in other
charges) of $1,882, or $0.04 per common share, related to an interest rate
subsidy agreement, (iv) a third quarter non-recurring loss (included in other
charges) of $1,036, or $0.02 per common share, related to the refinancing of
first mortgage loans on the Birch Run Center and (v) a net loss on the sale of
real estate of $1,036, or $0.02 per common share.

The 2000 results from continuing operations include (i) a third quarter
provision for asset impairment of $68,663, or $1.58 per common share, (ii) a net
loss on the sale of real estate of $42,648, or $0.98 per common share, (iii) a
loss on eOutlets.com aggregating $14,703 ($8,452, $5,517 and $734 included in
provision for asset impairment, other charges and corporate general and
administrative expense, respectively), or $0.34 per common share, (iv)
non-recurring costs (included in interest expense) of $4,206, or $0.10 per
common share, related to the prepayment and modification to the terms of certain
indebtedness, (v) a first quarter gain on the sale of outparcel land (included
in interest and other income) of $2,472, or $0.06 per common share, (vi ) a loss
on Designer Connection (included in other charges) of $1,815 and (vii)
non-recurring third quarter costs (included in other charges) of $1,100, or
$0.03 per common share, related to the termination of a sale agreement.

Revenues

Total revenues were $183,319 for the year ended December 31, 2001 compared
to $241,648 for the year ended December 31, 2000, a decrease of $58,329, or
24.1%. Base rents decreased $38,059, or 25.1%, to $113,546 in 2001 compared to
$151,605 in 2000. These decreases are primarily due to (i) the 2001 Property
Dispositions, (ii) the 2000 Property Dispositions, (iii) changes in economic
rental rates and (iv) the reduction in outlet center occupancy during the 2001
period. Straight-line rent expense, included in base rent was $439 and $51 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 $2,097, or 37.3%, to $3,469 during
the year ended December 31, 2001 compared to $5,566 for the same period in 2000.
This decrease was primarily attributable to the 2001 Property Dispositions and
the 2000 Property Dispositions.

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.

Tenant reimbursements, which represent the contractual recovery from
tenants of certain operating expenses, decreased by $16,571, or 23.4%, to
$54,178 in 2001 compared to $70,749 in 2000. This decline is primarily because
of (i) the 2001 Property Dispositions, (ii) the 2000 Property Dispositions,
(iii) changes in economic rental rates and (iv) reduced aggregate
weighted-average outlet center occupancy during 2001. As shown in TABLE 4,
tenant reimbursements as a percentage of recoverable property operating expenses
and real estate taxes was 91.0% in 2001 compared to 92.9% in 2000. The decline
in tenant reimbursements as a percentage of recoverable property operating
expenses and real estate taxes was primarily attributable to the aforementioned
changes in economic rental rates and weighted average occupancy.

Interest and other income was $12,126 and $13,728 for the years ended
December 31, 2001 and 2000, respectively, which includes a non-recurring gain on
the sale of outparcel land of $2,472 during the 2000 period. Excluding the
effect of this non-recurring item, interest and other income increased by $870,
or 7.7%, to $12,126 for year ended December 31, 2001 compared to $11,256 for the
same period in 2000. This increase was primarily attributable to (i) higher
equity earnings in unconsolidated joint ventures of $958, (ii) increased
property management and leasing commission income of $830, (iii) higher
municipal assistance income of $401 and (iv) increased other ancillary income of
$380. Partially offsetting these items were (i) less amortization of deferred
income of $782, (ii) lower lease termination income of $572 and (iii) decreased
temporary tenant income of $345.


Page - (23)

Expenses

Property operating expenses decreased by $14,022, or 24.0%, to $44,472 in
2001 compared to $58,494 in 2000. Real estate taxes expense decreased by $2,601,
or 14.7%, to $15,054 in 2001 from $17,655 in 2000. These decreases are primarily
because of the (i) the 2001 Property Dispositions and (ii) the 2000 Property
Dispositions.

As shown in TABLE 5, depreciation and amortization expense decreased by
$12,067, or 20.8%, to $45,863 in 2001 compared to $57,930 in 2000. This decrease
was primarily attributable to the depreciation and amortization of assets
associated with the 2001 Property Dispositions and the 2000 Property
Dispositions.

As shown in TABLE 6, interest expense decreased by $11,297, or 12.4%, to
$79,864 in 2001 compared to $91,161 in 2000. This decrease reflects (i) lower
interest incurred of $13,835, (ii) non-recurring costs in 2000 of $4,206 related
to the prepayment and modification to the terms of certain indebtedness and
(iii) increased amortization of debt premiums of $87. Partially offsetting these
items were (i) higher amortization of deferred financing costs of $3,419
primarily related to the Mezzanine Loan originated in December 2000 and (ii) a
decrease in the amount of interest capitalized in connection with development
activities of $3,412.

The decrease in interest incurred is primarily attributable to a reduction
of $239,243 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 our
debt for the year ended December 31, 2001 compared to the same period in 2000.
The decrease in weighted-average debt was primarily attributable to asset
dispositions. The weighted-average contractual interest rates for 2001 and 2000
were 9.27% and 8.48%, respectively.

Other charges were $19,632 and $22,907 for the years ended December 31,
2001 and 2000, respectively, which includes non-recurring charges aggregating
$4,918 and $8,432, respectively. Excluding the effect of these non-recurring
items, which are discussed below, other charges increased by $239, or 1.7%, to
$14,714 for the year ended December 31, 2001 compared to $14,475 for the same
period in 2000. This increase was primarily attributable to higher bad debt
expense of $2,742 (resulting in part from certain tenant bankruptcies, disputes,
abandonments and store closings during the 2001 period) partially offset by (i)
lower ground lease expense of $1,172 (resulting from the 2000 Property
Dispositions), (ii) lower marketing expenses of $1,020 and (iii) a decrease in
all other expenses of $313.

During the fourth quarter of 2001, we recorded a non-recurring charge in
the amount of $2,000 to establish a reserve for pending and potential tenant
claims with respect to lease provisions related to their pass-through charges
and promotional fund charges. Additionally, the 2001 results include (i) a third
quarter non-recurring loss of $1,882 related to an interest rate subsidy
agreement and (ii) a third quarter non-recurring loss of $1,036 related to the
refinancing of first mortgage loans on the Birch Run Center. The 2000 results
include (i) non-recurring costs of $5,517 related to eOutlets.com (as discussed
below), (ii) a loss on operations of our Designer Connection outlet stores of
$1,815 and (iii) non-recurring third quarter costs of $1,100 related to the
termination of a sale agreement. We ceased the operations of our Designer
Connection outlet stores during 2000.

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 certain of our properties were impaired on an other
than temporary basis. As a result, we recorded a provision for asset impairment
aggregating $63,026, representing the write-down of the carrying value of these
properties to their estimated fair values. During 2000, we recorded a provision
for asset impairment aggregating $77,115. This provision for asset impairment
consisted of (i) a $28,047 write-down of the carrying value of certain
properties resulting from their classification to assets held for sale, (ii) a
$40,616 write-down of the carrying values of certain properties resulting from
other than temporary declines in their values and (iii) a $8,452 write-down
associated with our discontinuance of eOutlets.com.

In April 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. eOutlets.com was a new, development-stage,
internet-based business. During 2000, we incurred a non-recurring loss
aggregating $14,703 related to eOutlets.com. This loss consisted of (i) the
write-off of $8,452 of capitalized costs (included in provision for asset
impairment), (ii) $5,517 of costs included in other charges and (iii) $734 of
costs included in corporate general and administrative expense.


Page - (24)

Liquidity and Capital Resources

Sources and Uses of Cash

For the year ended December 31, 2002, net cash provided by operating
activities was $29,827, net cash provided by investing activities was $41,748
and net cash used in financing activities was $72,204.

The net cash provided by investing activities during the year ended
December 31, 2002 consisted of $49,461 of aggregate net proceeds from the
disposition of properties, partially offset by $7,713 of additions to rental
property. These additions to rental property included (i) costs incurred in
connection with re-leasing space to new merchants of $5,360 and (ii) costs
associated with renovations of $2,353. During the year ended December 31, 2002,
we did not engage in any development activities other than certain consulting
activities in Europe, which did not have a significant impact on our liquidity
or financial condition.

The gross uses of cash for financing activities of $72,204 during year
ended December 31, 2002 consisted of (i) scheduled principal amortization on
debt of $14,129 and (ii) principal repayments on the Mezzanine Loan aggregating
$63,029 including $10,341 of mandatory prepayments, with net proceeds from the
sales of properties.

The following tables summarize our contractual obligations and other
commitments as of December 31, 2002:



- ------------------------------------------------------------------------------------------------------------------------------------
Payments Due by Period
---------------------------------------------------------------------------------
Less than After
Contractual Obligations (1) Total 1 year 1 to 3 years 4 to 5 years 5 years
- ------------------------------------------------------------------------------------------------------------------------------------

Bonds payable $ 22,495 $ 680 $ 1,499 $ 1,698 $ 18,618
Notes payable, excluding debt premiums 462,238 266,659 14,649 121,439 59,491
Defeased notes payable 74,764 74,764
Mandatory Redemption Obligation 16,667 16,667
Interest rate guarantee obligation 1,477 177 1368 377 555
Operating lease payments 8,713 1,519 1,547 469 5,178
--------- ---------- -------- --------- --------
Total $ 586,354 $ 360,466 $ 18,063 $ 123,983 $ 83,842
========= ========== ======== ========= ========
====================================================================================================================================




- ------------------------------------------------------------------------------------------------------------------------------------
Annualized
In Arrears as Dividend
Preferred Stock Dividends (2) of 12/31/02 Requirement
- ------------------------------------------------------------------------------------------------------------------------------------

Series A Senior Preferred Stock $ 18,867 $ 6,037
Series B Convertible Preferred Stock 51,984 16,635
-------- --------
Total $ 70,851 $ 22,672
======== ========
====================================================================================================================================




- ------------------------------------------------------------------------------------------------------------------------------------
Amount of
Guarantee as Maturity
Guarantees of Indebtedness of Others(3) of 12/31/02 Date
- ------------------------------------------------------------------------------------------------------------------------------------

HGP mortgage loan facility $ 4,000 July 2005
HGP office and equipment debt 2,240 April 2003
First Mortgage Loan - Prime Outlets at Hagerstown 46,862 June 2004
--------
Total $ 53,102
========
====================================================================================================================================


Notes:
(1) Notes payable, excluding debt premiums also excludes contractual
obligations related to four outlet centers secured by non-recourse mortgage
indebtedness that is currently in default (see "Defaults on Certain
Non-recourse Mortgage Indebtedness" for additional information). For
additional information with respect to our indebtedness, see Note 6 -
"Debt" of the Notes to Consolidated Financial Statements. For information
regarding the "Mandatory Redemption Obligation" and the "Interest Rate
Subsidy Obligation" see "Guarantees and Guarantees of Indebtedness of
Others". For information regarding future operating lease payments, see
Note 11 - "Lease Agreements" of the Notes to Consolidated Financial
Statements.
(2) See "Dividends and Distributions" for additional information.
(3) See "Guarantees and Guarantees of Indebtedness of Others" for additional
information.


Page - (25)

Guarantees and Guarantees of Indebtedness of Others

HGP Guarantees

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

Additionally, we are a guarantor with respect to certain mortgage
indebtedness (the "HGP Office Building Mortgage") in the amount of $2,240 on
HGP's corporate office building and related equipment located in Norton Shores,
Michigan. The HGP Office Building Mortgage matures in April 2003, bears interest
at LIBOR plus 5.50%, and requires monthly debt service payments.

On October 11, 2001, HGP announced that it was in default under two loans
with an aggregate principal balance of approximately $45.5 million secured by
six of its other outlet centers. Such defaults do not constitute defaults under
the HGP Monroe Mortgage Loan or the HGP Office Building Mortgage nor did they
constitute a default under the HGP Secured Credit Facility. We have not recorded
any liabilities related to these guarantees and no claims have been made under
our guarantees with respect to the HGP Monroe Mortgage Loan or the HGP Office
Building Mortgage. HGP is a publicly traded company that was formed in
connection with our merger with Horizon Group, Inc. ("Horizon") in June 1998.

Prime/Estein Venture Guarantees

We own three outlet centers through the Prime/Estein Venture. The
Prime/Estein Venture is an unconsolidated joint venture partnership between one
of our affiliates and an affiliate of Estein & Associates USA, Ltd. ("Estein"),
a real estate investment company. 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% (the "Interest Rate Subsidy Agreement") for the Birch Run Center,
the Prime Outlets at Williamsburg (the "Williamsburg Center") and the Hagerstown
Center.

In August 2001, we, through affiliates, completed a refinancing of $63,000
of first mortgage loans secured by the Birch Run Center. The refinanced loan
(the "Birch Run First Mortgage") (i) has a term of 10-years, (ii) bears interest
at an effective rate of 8.12% and (iii) requires monthly payments of principal
and interest pursuant to a 25-year amortization schedule. Pursuant to the
Interest Rate Subsidy Agreement, we are required to pay to the Prime/Estein
Venture the difference between the cost of the financing at an assumed rate of
7.75% and the actual cost of such financing at the annual rate of 8.12% (the
"Interest Rate Subsidy Obligation"). The total payments to the Prime/Estein
Venture by us over the term of the Birch Run First Mortgage Loan will be
approximately $2,723. In connection with the refinancing, we recorded a
non-recurring loss of $1,882 (included in other charges in the accompanying
Consolidated Statements of Operations) during the third quarter of 2001
representing the net present value of the Interest Rate Subsidy Obligation.
Additionally, we also incurred $1,036 of non-recurring refinancing costs
(included in other charges) in the third quarter of 2001. As of December 31,
2002, the Interest Rate Subsidy Obligation (included in accounts payable and
other liabilities in the accompanying Consolidated Balance Sheet) was $1,477.

In October 2001, we, through affiliates, completed the refinancing of a
$32,500 first mortgage loan secured by the Williamsburg Center. The new first
mortgage loan (the "Williamsburg First Mortgage") (i) has a term of 10-years,
(ii) bears interest at a fixed-rate of 7.69% and (iii) requires monthly payments
of principal and interest pursuant to a 25-year amortization schedule. Pursuant
to the Interest Rate Subsidy Agreement, the Prime/Estein Venture is required to
pay to us the difference between the cost of the financing at an assumed rate of
7.75% and the actual cost of such financing at the annual rate of 7.69%.


Page - (26)

On January 11, 2002, we sold the Hagerstown Center to the Prime/Estein
Venture. In connection with the sale, the Prime/Estein Venture assumed the
Hagerstown First Mortgage in the amount of $46,862; however, our guarantee of
such indebtedness remains in place. Additionally, we are obligated to refinance
the Hagerstown First Mortgage on behalf of the Prime/Estein Venture on or before
June 1, 2004, the date on which such indebtedness matures. Additionally, the
Prime/Estein Venture's cost of the Hagerstown First Mortgage 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
10-year period, we will be obligated to pay the difference to the Prime/Estein
Venture. If the actual cost of such indebtedness is less than 7.75% at any time
during the 10-year period, however, the Prime/Estein Venture will be obligated
to pay the difference to us. The actual cost of the Hagerstown First Mortgage is
30-day LIBOR plus 1.50%, or 2.88% as of December 31, 2002. Because the
Hagerstown First Mortgage bears interest at a variable rate, we are exposed to
the impact of interest rate changes. We have not recorded any liability related
to our guarantee of the Hagerstown First Mortgage; however, in connection with
the sale of the Hagerstown Center, we established a reserve for estimated
refinancing costs in the amount of $937, which is included in accounts payable
and other liabilities in the accompanying Consolidated Balance Sheet as of
December 31, 2002. See Note 3 - "Property Dispositions" of the Notes to
Consolidated Financial Statements for additional information.

Mandatory Redemption Obligation

In connection with our sale of the Bridge Properties in July 2002, we
guaranteed FRIT PRT Bridge Acquisition LLC ("FRIT") (i) a 13% return on its
$17,236 of invested capital and (ii) the full return of its invested capital
(the "Mandatory Redemption Obligation") in FPI by December 31, 2003. As of
December 31, 2002, our Mandatory Redemption Obligation with respect to the full
return of FRIT's invested capital was $16,667 (included in accounts payable and
other liabilities in the accompanying Consolidated Balance Sheet). See Note 3 -
"Property Dispositions" of the Notes to Consolidated Financial Statements for
additional information.

Defaults on Certain Non-recourse Mortgage Indebtedness

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

The foreclosure of the Conroe Center did not have a material impact on our
results of operations or financial condition because during 2001 all excess cash
flow from the operations of the Conroe Center was utilized for debt service on
its non-recourse mortgage loan. Additionally, the transfer of our ownership
interest in the Jeffersonville II Center did not have a material impact on our
results of operations or financial condition because during 2001 and through the
transfer date in 2002, all excess cash flow from the operations of the
Jeffersonville II Center was utilized for debt service on the non-recourse
mortgage loan.

During August of 2002, certain of our subsidiaries suspended regularly
scheduled monthly debt service payments on two non-recourse mortgage loans which
were cross-collateralized by Prime Outlets at Vero Beach (the "Vero Beach
Center"), located in Vero Beach, Florida, and Prime Outlets at Woodbury (the
"Woodbury Center"), located in Woodbury, Minnesota (collectively, the "John
Hancock Properties"). These non-recourse mortgage loans were held by John
Hancock Life Insurance Company ("John Hancock"). Effective September 9, 2002,
John Hancock foreclosed on the Vero Beach Center. Additionally, we are currently
negotiating a transfer of our ownership interest in the Woodbury Center to John
Hancock. Foreclosure on the Vero Beach Center did not, and the expected transfer
of our ownership interest in the Woodbury Center is not, expected to have a
material impact on our results of operations or financial condition because
during 2002, all excess cash flow from the operations of the John Hancock
Properties was utilized for debt service on their non-recourse mortgage loans.


Page - (27)

In December 2002, we notified the servicer of certain non-recourse mortgage
loans (cross-collateralized by Prime Outlets at Bend, Prime Outlets at Post
Falls and Prime Outlets at Sedona) totaling $24,919 as of December 31, 2002 that
the net cash flow from the properties securing the loans was insufficient to
fully pay the required monthly debt service. At that time, certain of our
subsidiaries suspended the regularly scheduled monthly debt service payments.
Subsequent to our notification to the servicer, we have been remitting on a
monthly basis all available cash flow from the properties, after a reserve for
monthly operating expenses, as partial payment of the debt service. The failure
to pay the full amount due constitutes a default under the loan agreements which
allows the lenders to accelerate the loan and to exercise various remedies
contained in the loan agreements, including application of escrow balances to
delinquent payments and, ultimately, foreclosure on the properties which
collateralize the loans. The lender has notified us that it has accelerated the
loan. Since that time we have initiated discussions with the servicer of the
loans regarding restructuring of the loans. There can be no assurance that such
discussions will result in any modification to the terms of the loans. However,
any action by the lender with respect to these properties is not expected to
have a material impact on our results of operations or financial condition
because we are currently only remitting available cash flow.

Defeasance of Mega Deal Loan

On December 6, 2002, we completed the sale of two outlet centers (together,
the "Colorado Properties"), which were part of the 15 properties contained in
the collateral pool securing a first mortgage and expansion loan (the "Mega Deal
Loan"), which had a then outstanding balance of $338,940. In connection with the
release of the Colorado Properties from the collateral pool, we were required to
partially defease the Mega Deal Loan. Therefore, the Mega Deal Loan was
bifurcated into (i) a defeased portion in the amount of $74,849 (the "Defeased
Notes Payable") and (ii) an undefeased portion in the amount of $264,091, which
is still referred to as the Mega Deal Loan. Both the Defeased Notes Payable and
the Mega Deal Loan (i) bear interest at a fixed-rate of 7.782%, (ii) require
monthly payments of principal and interest pursuant to a 30-year amortization
schedule and (iii) mature on November 11, 2003. The Mega Deal Loan is now
secured by the remaining 13 properties contained in the collateral pool. We used
$79,257 of the gross proceeds from the sale of the Colorado Properties to
purchase US Treasury Securities, which were placed into a trustee escrow (the
"Trustee Escrow"). The Trustee Escrow is used to make the scheduled monthly debt
service payments, including the payment of the then outstanding principal
amount, together with all accrued and unpaid interest on the maturity date of
November 11, 2003, under the Defeased Notes Payable. As of December 31, 2002,
the outstanding balance of the Defeased Notes Payable was $74,764 and the
balance of the Trustee Escrow was $79,042 (included in restricted cash in the
accompanying Consolidated Balance Sheet). See Note 3 - "Property Dispositions"
of the Notes to Consolidated Financial Statements for additional information.
Furthermore, in connection with the partial defeasance of the Mega Deal Loan we
amended the Mega Deal Loan so that (i) we are required to fund 10 monthly
payments of $500 into a lender escrow to be used as additional cash collateral
and (ii) release prices for the remaining 13 properties in the collateral pool
were amended to provide for a more orderly refinancing of the Mega Deal Loan.

Debt Service Obligations

The scheduled principal maturities of our debt, excluding (i) unamortized
debt premiums of $7,955 and (ii) $41,250 of aggregate non-recourse mortgage
indebtedness in default (see "Defaults on Certain Non-recourse Mortgage
Indebtedness" above), and related average contractual interest rates by year of
maturity as of December 31, 2002 are as follows:



- ------------------------------------------------------------------------------------------------------------------------------------
Bonds Payable
(including sinking Defeased
fund payments) Notes Payable Notes Payable Total Debt
--------------------- ------------------------ ---------------------- -----------------------
Average Average Average Average
Interest Principal Interest Principal Interest Principal Interest Principal
Years Ended December 31, Rates Maturities Rates Maturities Rates Maturities Rates Maturities
- ------------------------------------------------------------------------------------------------------------------------------------

2003 6.33% $ 680 7.79% $ 266,659 7.78% $ 74,764 7.78% $ 342,103
2004 6.34% 726 8.44% 3,075 8.04% 3,801
2005 6.34% 773 8.58% 11,574 8.44% 12,347
2006 6.34% 820 8.83% 120,437 8.81% 121,257
2007 6.34% 878 7.60% 1,002 7.02% 1,880
Thereafter 6.52% 18,618 7.57% 59,491 7.32% 78,109
---- -------- ---- --------- ---- -------- ---- ----------
6.49% $ 22,495 8.06% $ 462,238 7.78% $ 74,764 7.96% $ 559,497
==== ======== ==== ========= ==== ======== ==== ==========
====================================================================================================================================


Such indebtedness in the amount of $559,497 had a weighted-average maturity
of 2.6 years and bore contractual interest at a weighted-average rate of 7.96%
per annum. At December 31, 2002, all of such indebtedness bore interest at fixed
rates. Our scheduled principal payments during 2003 for such indebtedness
aggregated $342,103. In addition to regularly scheduled principal payments, the
2003 scheduled principal payments also reflect balloon payments of (i) $260,681
for the Mega Deal Loan and (ii) $73,882 due for the Defeased Notes Payable. Both
the Mega Deal Loan and the Defeased Notes Payable are scheduled to mature on
November 11, 2003. All debt service due under the Defeased Notes Payable,
including the balloon payment due at maturity, will be made from the Trustee
Escrow. See "Going Concern" for additional information.


Page - (28)

Going Concern

Our liquidity depends on cash provided by operations and potential capital
raising activities such as funds obtained through borrowings, particularly
refinancing 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 and
other 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 2003, our Mega Deal Loan matures on November 11, 2003. The Mega Deal
Loan, which is secured by a 13 property collateral pool, had an outstanding
principal balance of $263,793 as of December 31, 2002 and will require a balloon
payment of $260,681 at maturity. Based on our initial discussions with various
prospective lenders, we are currently projecting a potential shortfall with
respect to refinancing the Mega Deal Loan. However, we believe this shortfall
may be alleviated through potential asset sales and/or other capital raising
activities, including the placement of mezzanine level debt. We caution that our
assumptions are based on current market conditions and, therefore, are subject
to various risks and uncertainties, including changes in economic conditions
which may adversely impact our ability to refinance the Mega Deal Loan at
favorable rates or in a timely and orderly fashion, or which may adversely
impact our ability to consummate various asset sales or other capital raising
activities.

In connection with the completion of the sale of the Bridge Properties in
July 2002, we guaranteed to FRIT (i) a 13% return on its $17,236 of invested
capital, and (ii) the full return the Mandatory Redemption Obligation by
December 31, 2003. Although we are in the process of seeking to generate
additional liquidity to repay the Mandatory Redemption Obligation through (i)
the sale of FRIT's ownership interest in the Bridge Properties and/or (ii) the
placement of additional indebtedness on the Bridge Properties, there can be no
assurance that we will be able to complete such capital raising activities by
December 31, 2003 or that such capital raising activities, if they should occur,
will generate sufficient proceeds to repay the Mandatory Redemption Obligation
in full. Failure to repay the Mandatory Redemption Obligation by December 31,
2003 would constitute a default, which would enable FRIT to exercise its rights
with respect to the collateral pledged as security to the guarantee, including
some of our partnership interests in the 13 property collateral pool under the
aforementioned Mega Deal Loan.

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.

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. A judgment for
foreclosure was entered on January 25, 2003 in the amount of $12,711. The
foreclosure occurred on March 17, 2003 with Union Labor acquiring the property
for $5,100. 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, 2002, the carrying value of our investment in
these properties was $0.


Page - (29)

2002 Debt Transactions

We disposed of certain properties through various transactions, including
sale, joint venture arrangements, foreclosure and transfer to lender, during the
year ended December 31, 2002. In connection with these dispositions, we reduced
our indebtedness by $349,378, including the partial defeasance of $74,849 of the
Mega Deal Loan. This reduction also includes (i) the repayment of associated
mortgage indebtedness aggregating $168,982, (ii) debt assumed by the purchaser
of $46,862 and (iii) debt associated with foreclosure or transfer of properties
aggregating $58,685. See Note 3 - "Property Dispositions" of the Notes to
Consolidated Financial Statements for additional information.

At the beginning of 2002, our Mezzanine Loan had an outstanding balance of
$62,079. During 2002 we repaid the Mezzanine Loan in full through (i) regularly
scheduled monthly principal payments aggregating $9,295, (ii) additional
principal payments aggregating $45,467 made with excess proceeds from our asset
sales (see Note 3 - "Property Dispositions" for additional information) and
(iii) a payoff of $7,317 with cash from escrows and operating cash. In
connection with the early extinguishment of the Mezzanine Loan, we incurred a
non-recurring loss of $525 (included in interest expense in the accompanying
Consolidated Statements of Operations) in the fourth quarter of 2002
representing the write-off of remaining unamortized deferred financing costs.
The Mezzanine Loan was obtained in December 2000 in the original amount of
$90,000 and was scheduled to mature on September 30, 2003. Through a series of
amendments and modifications to its terms, the Mezzanine Loan bore interest at a
fixed-rate of 19.75% at the time of retirement.

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 distributions, if necessary, 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 policy remains to pay distributions only to the extent necessary to
maintain our status as a REIT for federal income tax purposes. During 2002, we
were not required to pay any distributions in order to maintain our status as a
REIT and based on our current federal income tax projections, we do not expect
to pay any distributions during 2003. We are currently in arrears on thirteen
quarters of preferred stock distributions due February 15, 2000 through February
15, 2003, respectively.

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, 2002, unpaid dividends for the period beginning
on November 16, 1999 through December 31, 2002 on our Series A Senior Preferred
Stock and Series B Convertible Preferred Stock aggregated $18,867 and $51,984,
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, 2002 are $6,037 ($2.625 per share) and
$16,635 ($2.125 per share), respectively.

Strategic Alternatives

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

Settlement of Tenant Matters

To date, we have entered into settlement agreements with respect to certain
tenant matters providing for aggregate payments of $2,760. Through December 31,
2002, we made approximately $2,607 of such required payments. These payments
were principally made from certain funds escrowed under our Mezzanine Loan,
which was repaid in full in December 2002. The remaining payment of $153 was
made in January 2003 with cash from operations.

These settlement agreements did not have a material impact on our financial
condition or our results from operations. We had previously established reserves
aggregating $5,000 for the settlement of such matters. See Note 12 - "Special
Charges" and Note 13- "Legal Proceedings" of the Notes to Consolidated Financial
Statements for additional information.


Page - (30)

Development Activities and Capital Expenditures

During 2003, we will continue to explore potential international
opportunities and will selectively consider expansion and/or redevelopment of
certain of our existing outlet centers. We do not currently expect such
activities to have a significant impact on our liquidity or financial condition.

Additionally, we expect to incur costs during 2003 (i) in connection with
releasing space to new tenants and (ii) for repairs and maintenance of our
properties. However, we do not expect such expenditures to have a significant
impact on our liquidity or financial condition because reserves for such costs
are paid monthly into escrow accounts under many of our loans. See Note 4 -
"Restricted Cash" of the Notes to Consolidated Financial Statements for
additional information.

Recent Accounting Pronouncements

In October, 2001, the Financial Accounting Standards Board ("FASB") issued
FAS No. 144, "Accounting for Impairment of Disposal of Long-lived Assets." FAS
No. 144 supercedes FAS No. 121, however it retains the fundamental provisions of
that statement as related to the recognition and measurement of the impairment
of long-lived assets to be "held and used." In addition, FAS No. 144 (i)
provides further guidance regarding the estimation of cash flows in the
performance of a recoverability test, (ii) 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 (iii) established more restrictive criteria
to classify an asset as "held for sale." As previously mentioned, effective
January 1, 2002, we adopted FAS No. 144. Our adoption of FAS No. 144 effective
January 1, 2002 did not have a material impact on our results of operations or
financial position.

In May 2002, the FASB issued FAS No. 145, "Reporting Gains and Losses from
Extinguishment of Debt", which rescinded FAS No. 4, FAS No. 44 and FAS No. 64
and amended FAS No. 13. FAS No. 145 addresses the income statement
classification of gains or losses from the extinguishment of debt and criteria
for classification as extraordinary items. FAS No. 145 is effective for fiscal
years beginning after May 15, 2002. We early adopted FAS No. 145 on December 31,
2002. As a result of our adoption of FAS No. 145, any non-recurring costs
incurred in connection with the early extinguishment of debt are classified as a
component of interest expense in the accompanying Consolidated Statements of
Operations for all periods presented. Nevertheless, the adoption of FAS No. 145
did not have a material impact on our results of operations or financial
position.

In December 2002, the FASB issued Interpretation ("FIN") No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN No. 45 elaborates on the
disclosures to be made by a guarantor in interim and annual financial statements
about the obligations under certain guarantees. FIN No. 45 also clarifies that a
guarantor is required to recognize, at the inception of the guarantee, an
initial liability for the fair value of the obligation undertaken in issuing the
guarantee. The disclosure requirements of FIN No. 45 are effective for financial
statements of interim or annual periods ending after December 15, 2002. We
adopted the disclosure provisions of FIN No. 45 effective December 31, 2002. The
initial recognition and initial measurement provisions of FIN No. 45 are
applicable on a prospective basis to guarantees issued or modified after
December 31, 2002. We are in the process of determining the impact, if any, on
our results of operations or financial condition from the adoption of FIN No.
45. See "Guarantees and Guarantees of Indebtedness of Others" contained in Note
6 - "Debt" of the Notes to Consolidated Financial Statements for additional
information.

In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable
Interest Entities." FIN No. 46 clarifies the application of existing accounting
pronouncements to certain entities in which equity investors do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. The provisions of FIN No. 46
will be immediately effective for all variable interests in variable interest
entities created after January 31, 2003, and we will need to apply the
provisions of FIN No. 46 to any existing variable interests in variable interest
entities by no later than December 31, 2004. We do not believe that FIN No. 46
will have a significant impact on our financial statements.

Risk Management Activities

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


Page - (31)

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. Historically, we have used 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 cases, we have used derivative financial instruments such as
interest rate protection agreements to manage interest rate risk associated with
variable-rate indebtedness. Nevertheless, as of December 31, 2002, all of our
outstanding indebtedness bore interest at fixed rates. See Item 7 Item 7A -
"Quantitative and Qualitative Disclosures About Material Risk" for additional
information.

Economic Conditions

In general, the leases relating to our outlet centers have terms of three
to five years and most 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 rents for annual sales in excess
of certain thresholds based on merchants' gross sales. In addition, lease
agreements generally provide 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 monitor our
lease provisions in light of current and expected economic conditions and other
factors. In this regard, we may consider alternative lease provisions (e.g.,
fixed CAM) where appropriate.

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

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

TABLE 10 provides a reconciliation of loss from continuing operations
before allocations to minority interests and preferred shareholders to FFO for
the years ended December 31, 2002, 2001 and 2000. FFO decreased $2,374, or 9.4%,
to $22,882 for the year ended December 31, 2002 from $25,256 for the same period
in 2001. 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 2002 FFO results include a second quarter non-recurring charge
(included in other charges) of $3,000 related to pending and potential tenant
claims with respect to certain lease provisions. The 2001 FFO results include
non-recurring charges and losses aggregating $3,036 (included in other charges)
consisting of (i) a fourth quarter non-recurring of $2,000 related to pending
and potential tenant claims with respect to certain lease provisions and (ii) a
third quarter non-recurring loss of $1,036 related to the refinancing of first
mortgage loans on the Birch Run Center. The 2000 FFO results include net
non-recurring items totaling ($2,504). Such non-recurring items include
non-recurring costs aggregating $4,876 consisting of (i) general and
administrative costs aggregating $3,876 and (ii) $1,100 of costs (included in
other charges) related to the termination of a sale agreement; partially offset
by (iii) a gain on the sale of outparcel land of $2,472 (included in interest
and other income). Excluding the net impact of these non-recurring items, FFO
was $25,882, $28,292 and $60,471 for the years ended December 31, 2002, 2001 and
2000, respectively.


Page - (32)

Table 10 - Funds from Operations



- ------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------------

Loss from continuing operations
before minority interests $ (101,010) $ (99,945) $ (147,843)
Adjustments:
Loss (gain) on sale of real estate (5,802) 1,063 42,648
Provision for asset impairment 84,093 63,026 68,663
Depreciation and amortization 34,301 45,863 57,930
Non-real estate depreciation and amortization (2,166) (2,251) (1,703)
Unconsolidated joint ventures' adjustments 3,957 3,074 3,269
Non-cash partnership interest subsidy - 1,882 -
Discontinued operations 1,942 1,489 4,653
Discontinued operations - net gain on dispositions (26,152) - -
Discontinued operations - provision for impairment 27,757 - -
Discontinued operations - depreciation and amortization 5,437 11,055 9,626
---------- --------- ----------
FFO before adjustments for non-recurring losses 22,357 25,256 37,243
Non-recurring loss on early extinguishment of debt(1) 525 - 4,206
Loss on eOutlets(2) - - 14,703
Loss on Designer Connection(2) - - 1,815
---------- --------- ----------
FFO before allocations to minority interests
and preferred shareholders $ 22,882 $ 25,256 $ 57,967
========== ========= ==========

Other Data:
Net cash provided by operating activities $ 29,827 $ 32,911 $ 32,450
Net cash provided by investing activities 41,748 5,595 1,095
Net cash used in financing activities (72,204) (39,875) (31,982)
====================================================================================================================================


Notes:
(1) Represents non-recurring charges incurred in connection with the early
extinguishment of debt. We adopted FAS No. 145 effective December 31, 2002
and, accordingly, classified such costs as a component of interest expense.
These costs are attributable to financing activities ancillary to our core
real operations.
(2) Represents the results of business activities ancillary to our core real
estate operations. Due to financial constraints, we decided to discontinue
the Designer Connection and eOutlets.com businesses in December 1999 and
April 2000, respectively. See Note 12 - "Special Charges" of the Notes to
Consolidated Financial Statements for additional information.


Page - (33)

TABLE 11 provides a reconciliation of income (loss) from continuing
operations before allocations to minority interests and preferred shareholders
to FFO for each of the quarterly periods in 2002 and 2001.

Table 11 - Consolidated Quarterly Summary of Funds from Operations (1)



- ------------------------------------------------------------------------------------------------------------------------------------
2002 2001
- ---------------------------------------------------------------------------------------- -----------------------------------------
Fourth Third Second First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------------------------------------------

Income (loss) from continuing operations
before minority interests $(4,770) $(86,022) $(20,629) $ 10,411 $(12,457) $(73,929) $(7,441) $ (6,118)
Adjustments:
Loss (gain) on sale of real estate - - 10,991 (16,793) 1,615 - 180 (732)
Provision for asset impairment 2,474 81,619 - - - 63,026 - -
Depreciation and amortization 6,537 8,342 9,214 10,208 12,301 11,241 11,114 11,207
Non-real estate depreciation and
amortization (473) (601) (538) (554) (558) (563) (562) (568)
Unconsolidated joint ventures'
adjustments 1,060 1,151 963 783 866 620 1,033 555
Non-cash joint venture interest subsidy - - - - - 1,882 - -
Discontinued operations 17,712 2,517 (9,557) (8,730) 127 677 198 487
Discontinued operations - net (gain)
loss on disposition (16,533) (17,121) (2,121) 9,623 - - - -
Discontinued operations - provision
for impairment - 15,557 12,200 - - - - -
Discontinued operations - depreciation
and amortization 241 1,448 1,733 2,015 3,453 2,525 2,609 2,468
------- -------- -------- -------- -------- -------- ------- --------
FFO before adjustments for non-recurring
losses 6,248 6,890 2,256 6,963 5,347 5,479 7,131 7,299
Non-recurring loss on early
extinguishment of debt(2) 525 - - - - - - -
------- -------- -------- -------- -------- -------- ------- --------
FFO before allocations to minority
interests and preferred shareholders $ 6,773 $ 6,890 $ 2,256 $ 6,963 $ 5,347 $ 5,479 $ 7,131 $ 7,299
======= ======== ======== ======== ======== ======== ======= ========

Other Data:
Net cash provided by operating activities $13,401 $ 6,490 $ 5,268 4,668 12,588 2,163 10,200 7,960
Net cash provided by (used in) investing
activities 23,555 (1,478) 9,095 10,576 5,529 4,586 (7,022) 2,502
Net cash used in financing activities (36,087) (4,174) (15,252) $(16,691) $(15,402) $ (6,000) $(4,795) $(13,678)
====================================================================================================================================


Notes:
(1) Certain prior quarterly financial information has been reclassified
pursuant to the requirements of FAS No. 144.
(2) Represents non-recurring charges incurred in connection with the early
extinguishment of debt. We adopted FAS No. 145 effective December 31, 2002
and, accordingly, classified such costs as a component of interest expense.
These costs are attributable to financing activities ancillary to our core
real estate operations.


Page - (34)

ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MATERIAL RISK

Market Risk Sensitivity

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

Interest Rate Risk

In the ordinary course of business, we are exposed to the impact of
interest rate changes. We employ established policies and procedures to manage
our exposure to interest rate changes. Historically, we have used 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. Nevertheless, as of December 31, 2002, all of our outstanding
indebtedness bore interest at fixed rates. The following table provides a
summary of principal cash flows, excluding (i) unamortized debt premiums of
$7,955 and (ii) non-recourse mortgage indebtedness aggregating $41,250 on
certain properties which is in default (see "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. See Note 6 - "Debt" of the Notes to Consolidated
Financial Statements contained herein for additional information with respect to
the terms of our debt instruments.



- ------------------------------------------------------------------------------------------------------------------------------------
Year of Maturity
- ------------------------------------------------------------------------------------------------------------------------------------
2003 2004 2005 2006 2007 Thereafter Total
- ------------------------------------------------------------------------------------------------------------------------------------

Bonds Payable
Principal $ 680 $ 726 $ 773 $ 820 $ 878 $ 18,618 $ 22,495
Average interest rate 6.33% 6.34% 6.34% 6.34% 6.34% 6.52% 6.49%

Notes Payable
Principal $266,659 $ 3,075 $ 11,574 $ 120,437 $ 1,002 $ 59,491 $ 462,238
Average interest rate 7.79% 8.44% 8.58% 8.83% 7.60% 7.57% 8.06%

Defeased Notes Payable
Principal $ 74,764 $ 74,764
Average interest rate 7.78% 7.78%
====================================================================================================================================


Additionally, we sold Prime Outlets at Hagerstown (the "Hagerstown Center")
on January 11, 2002 to an existing joint venture partnership (the "Prime/Estein
Venture"). In connection with the sale, the Prime/Estein Venture assumed the
first mortgage loan on the Hagerstown Center (the "Hagerstown First Mortgage")
in the amount of $46,862; however, our guarantee of such indebtedness remains in
place. Additionally, we are obligated to refinance the Hagerstown First Mortgage
on behalf of the Prime/Estein Venture on or before June 1, 2004, the date on
which such indebtedness matures. Additionally, the Prime/Estein Venture's cost
of the Hagerstown First Mortgage 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 10-year period, we will
be obligated to pay the difference to the Prime/Estein Venture. If the actual
cost of such indebtedness is less than 7.75% at any time during the 10-year
period, however, the Prime/Estein Venture will be obligated to pay the
difference to us. The actual cost of the Hagerstown First Mortgage is 30-day
LIBOR plus 1.50%, or 2.88% as of December 31, 2002. Because the Hagerstown First
Mortgage bears interest at a variable rate, we are exposed to the impact of
interest rate changes. At December 31, 2002, a hypothetical 100 basis point move
in the LIBOR rate would impact our guarantee by $469. See Note 3 - "Property
Dispositions" of the Notes to Consolidated Financial Statements for additional
information.

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 - (35)

PART III

ITEMS 10, 11 and 13

The information required by Items 10, 11, 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 (the
"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,
2003.

ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Except as set forth herein, the information required by Item 12 is
incorporated by reference from the Proxy Statement entitled "Security Ownership
of Certain Beneficial Owners and Management."

Equity Compensation Plans

The following table summarizes information, as of December 31, 2002,
relating to our equity compensation plans pursuant to which grants of options,
restricted stock, restricted stock units or other rights to acquire shares may
be granted from time to time.



EQUITY COMPENSATION PLAN INFORMATION



Number of securities
remaining available for
Number of securities to Weighted-average future issuance under
be issued upon exercise exercise price equity compensation
of outstanding options, of outstanding options, plans (excluding securities
warrants and rights warrants and rights reflected in column (a))
---------------------------- -------------------------- ---------------------------


Plan Category (a) (b) (c)
Equity compensation plans approved
by stockholders(1) 4,060,313 (3) $4.83 (4) 1,225,224
Equity compensation plans not approved
by stockholders(2) - - -

Total(2) 4,060,313 $4.83 (4) 1,225,224


Notes:
(1) Includes the 1994 Stock Incentive Plan, the 1995 Stock Incentive Plan, the
1998 Long-Term Incentive Plan, the Nonemployee Director Plan and plans
assumed in connection with acquisition transactions.
(2) Excludes the Prime Retail, Inc. 2002 Long-term Incentive Plan, which is
attached as Exhibit 10.9 hereto. Awards under such plan may be paid in
stock at the Company's discretion.
(3) Includes 3,377,617 outstanding options (including 682,696 outstanding
options granted under plans assumed in connection with acquisition
transactions).
(4) Reflects outstanding options at a weighted-average exercise price of $2.24
under the 1994 Stock Incentive Plan, $4.48 under the 1995 Stock Incentive
Plan, $3.06 under the 1998 Long-Term Incentive Plan, $8.50 under the
Nonemployee Director Plan and $12.75 under plans assumed in connection with
acquisition transactions.


Page - (36)

PART IV

ITEM 14 - CONTROLS AND PROCEDURES

The Company, under the supervision and with the participation of our
management, including our principal executive officer and principal financial
officer, has evaluated the effectiveness of the design and operation of our
disclosure controls and procedures within 90 days of the filing date of this
annual report. Based on inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within the Company have been detected. However,
based on their evaluation, our principal executive officer and our principal
financial officer have concluded that these controls and procedures are
effective. In addition, they concluded that there were no significant
deficiencies in the design or operation of internal controls, which could
significantly affect our ability to record, process, summarize and report
financial data. There have been no significant changes in our internal controls
or in other factors which could significantly affect these controls subsequent
to the date of their evaluation.

Our disclosure controls and other procedures are designed to ensure that
information required to be disclosed by us in the reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported, within
the time periods specified in the Securities and Exchange Commission's rules and
forms. Disclosure controls and procedures include, without limitation, controls
and procedures designed to ensure that information required to be disclosed in
the reports that we file under the Exchange Act is accumulated and communicated
to our management, including our principal executive officer and principal
financial officer, as appropriate to allow timely decisions regarding required
disclosure.

ITEM 15 - 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, 2002 and 2001 F-2

Consolidated Statements of Operations for the years ended December 31, 2002, 2001 and 2000 F-3

Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000 F-4

Consolidated Statements of Shareholders' Equity for the years ended December 31, 2002, F-6
2001 and 2000

Notes to Consolidated Financial Statements F-7

2. Financial Statement Schedules

The following financial statement schedule is included in Item 15 (d):

Schedule III--Real Estate and Accumulated Depreciation F-32

Notes to Schedule III F-33


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).]


Page - (37)

Exhibit
Number Description

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).]

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 Certificate 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 Certificate 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).]

10.2 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).]

10.3 Amendment No. 2 to Third Amended and Restated Agreement of
Limited Partnership of Prime Retail, L.P., dated as of April
15, 2002. [Incorporated by reference to the same titled
exhibit in the Company's Quarterly Report on Form 10-Q for
the quarterly period ended March 31, 2002 (File No.
001-13301).]

10.4 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).]

10.5 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).]

10.6 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).]

10.7 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).]

10.8 Description of the 1999 Long-Term Incentive Plan
[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).]

** 10.9 Prime Retail, Inc. 2002 Long-Term Incentive Plan

10.10 Employment agreement dated July 24, 2000 between Prime
Retail, Inc. and Glenn D. Reschke. [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,
2001 (File No. 01-13301).]

** 10.11 Second Amendment to Employment Agreement, dated August 12,
2002, by and between Prime Retail, Inc. and Glenn D. Reschke.

10.12 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. 01-13301).]

Page - (38)

Exhibit
Number Description

10.13 Amendment to Employment Agreement dated April 2, 2001 between
Prime Retail, Inc. and Robert A. Brvenik. [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, 2001 (File No. 01-13301).]

** 10.14 Third Amendment to Employment Agreement, dated August 12,
2002, by and between Prime Retail, Inc. and Robert A.
Brvenik.

10.15 Employment Agreement dated March 21, 2002 between Prime
Retail, Inc. and R. Kelvin Antill. [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, 2001 (File No. 01-13301).]

** 10.16 Second Amendment to Employment Agreement, dated August 12,
2002, by and between Prime Retail, Inc. and R. Kelvin Antill.

10.17 Employment Agreement dated January 10, 2002 between Prime
Retail, Inc. and David G. Phillips. [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, 2001 (File No. 01-13301).]

** 10.18 Second Amendment to Employment Agreement, dated August 12,
2002, by and between Prime Retail, Inc. and David G.
Phillips.

10.19 Employment Agreement, dated June 6, 2002, by and between
Prime Retail, Inc. and Frederick J. Meno IV. [Incorporated
by reference to the same titled exhibit in the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 2002 (File No. 01-13301).]

** 10.20 Amendment to Employment Agreement, dated August 12, 2002, by
and between Prime Retail, Inc. and Frederick J. Meno IV.

10.21 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).]

10.22 Separation Agreement dated August 24, 2000 by and between
Prime Retail, Inc. and 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).]

10.23 Letter Agreement dated April 24, 2001 between Prime Retail,
Inc., and Prime Retail, L.P. and Abraham Rosenthal amending
Separation Agreement dated February 23, 2000. [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, 2001 (File No. 01-13301).]

10.24 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.
[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, 2001 (File No. 01-13301).]

10.25 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).]

10.26 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).]

10.27 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).]

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

Page - (39)

Exhibit
Number Description

10.29 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, 1996 (File No. 0-23616).]

** 10.30 Release Agreement dated January 22, 2001 by and between Prime
Retail, Inc., Prime Retail, L.P. and Michael W. Reschke.

10.31 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).]

10.32 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).]

10.33 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).]

10.34 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. 0-23616).]

10.35 Form of Deed of Trust, Security Agreement, Assignment of
Tents 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).]

10.36 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).]

10.37 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).]

10.38 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).]

10.39 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 the same
titled exhibit in the Company's Quarterly Report on Form 10-Q
dated September 30, 2001 (File No. 0-23616).]


Page - (40)

Exhibit
Number Description

10.42 Second Amended and Restated Guaranty and Indemnity Agreement
dated as of July 10, 2002 by and among Horizon Group
Properties, Inc., Horizon Group Properties, L.P., Prime
Retail, Inc. and Prime Retail, L.P. [Incorporated by
reference to the same titled exhibit in the Company's
Quarterly Report on Form 10-Q dated June 30, 2002 (File No.
001-13301).]

10.43 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 the same titled exhibit in the Company's Current
Report on Form 8-k dated June 15, 1998 (File No. 001-13301).]

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 the same titled exhibit in the
Company's Current Report on Form 8-K dated August 11, 1999
(File No. 001-13301).]

10.45 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. [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).]

10.46 Guaranty Agreement dated July 10, 2002 by Horizon Group
Properties, Inc., Horizon Group Properties, L.P. and
Prime Retail, L.P., collectively, as guarantors, in favor
of Beal Bank, S.S.B. [Incorporated by reference to the same
titled exhibit in the Company's Quarterly Report on Form
10-Q dated September 30, 2002 (File No. 001-13301).]

10.47 Real Estate Sale Agreement, dated January 9, 2002, by and
between (i) Shasta Outlet Center Limited Partnership, The
Prime Outlets at Calhoun Limited Partnership, Carolina
Factory Shops Limited Partnership, Latham Factory Stores
Limited Partnership, The Prime Outlets at Lee Limited
partnership, Prime Lee Development Limited Partnership and
Buckeye Factory Shops Limited Partnership, collectively,
as sellers and (ii) PWG Capital, LLC, as purchaser
[Incorporated by reference to the same titled exhibit in
the Company's Current Report on Form 8-K dated August 8,
2002).]

10.48 First Amendment to Real Estate Sale Agreement dated March
27, 2002 [Incorporated by reference to the same titled
exhibit in the Company's Current Report on Form 8-K dated
August 8, 2002).]

10.49 Second Amendment to Real Estate Sale Agreement dated April
5, 2002 [Incorporated by reference to the same titled
exhibit in the Company's Report on Form 8-K dated August
8, 2002).]

** 10.50 Amended and Restated Promissory Note dated December 6,
2002 between Coral Isle Factory Shops Limited Partnership,
Gulf Coast Factory Shops Limited Partnership, Coral Isle
Factory Shop Limited Partnership, Kansas City Factory Shops
Limited Partnership, Ohio Factory Shops Limited Partnership,
San Marcos Factory Store, LTD, Triangle Factory Store Limited
Partnership, Gainesville Factory Shops Limited Partnership,
Florida Keys Factory Shops Limited Partnership, The Prime
Outlets at Lebanon Limited Partnership, Magnolia Bluff
Factory Shops Limited Partnership, Huntley Factory Shops
Limited Partnership, Gulfport Factory Shops Limited
Partnership and Defeasance Borrowers (solely for purposes
joining into Section 4.12), collectively as borrowers, and
LaSalle Bank National Association, as Trustee for the Holders
of Asset Securitization Corporation Commercial Mortgage
Pass-Through Certificates, Series 1996-MD VI.

** 10.51 Defeasance Promissory Note dated December 6, 2002 between
Castle Rock Factory Shops Partnership and Loveland Factory
Shops Limited Partnership, collectively as Defeasance
Borrowers, and LaSalle Bank National Association, as Trustee
for the Holders of Asset Securitization Corporation
Commercial Mortgage Pass-Through Certificates, Series
1996-MD VI.

** 10.52 Form of Modification Agreement dated December 6, 2002 between
Prime Retail, L.P. and LaSalle Bank National Association, as
Trustee for the Holders of Asset Securitization Corporation
Commercial Mortgage Pass-Through Certificates, Series
1996-MD VI.


Page - (41)

Exhibit
Number Description

** 12.1 Statements Re: Computation of Ratios

** 21.1 Subsidiaries of Prime Retail, Inc.

** 23.1 Consent of Ernst & Young LLP

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

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

** Filed herewith.

(b) Reports on Form 8-K

On December 19, 2002, we filed a Current Report on Form 8-K relating to the
completion of two separate transactions involving the sale of three outlet
centers for aggregate cash consideration of $132.5 million on December 6, 2002.
The first transaction involved the sale of two outlet centers (together, the
"Colorado Properties" and the second transaction involved the sale of Prime
Outlets of Puerto Rico and certain adjacent parcels of land (the "Puerto Rico
Center"). In connection with the sale of Colorado Properties we partially
defeased a first mortgage and expansion loan. The filing included unaudited pro
forma financial information pursuant to Article 11 of Regulation S-X and certain
exhibits, including (i) the Press Release issued December 6, 2002 regarding
completion of the transactions and (ii) the Press Release issued December 16,
2002 announcing we had repaid a mezzanine loan in full.

On March 5, 2003 we filed a Current Report on Form 8-K relating to
information furnished under Regulation FD disclosure. The filing included as an
exhibit, the Press Release issued March 4, 2003 regarding our disclosure of
limited discussions among certain of our restricted preferred shareholders.

(c) Exhibits

The list of exhibits filed with this report is set forth in response to
Item 15(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 - (42)

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, 2003.

PRIME RETAIL, INC.
/s/ Robert A. Brvenik
Robert A. Brvenik
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, 2003
--------------------------------------
Glenn D. Reschke
Chairman of the Board and Chief Executive Officer

/s/ Howard Amster March 28, 2003
--------------------------------------
Howard Amster
Director

/s/ Kenneth A. Randall March 28, 2003
--------------------------------------
Kenneth A. Randall
Director

/s/ Michael W. Reschke March 28, 2003
--------------------------------------
Michael W. Reschke
Director

/s/ Sharon Sharp March 28, 2003
--------------------------------------
Sharon Sharp
Director

/s/ Gary J. Skoien March 28, 2003
--------------------------------------
Gary J. Skoien
Director

/s/ James R. Thompson March 28, 2003
--------------------------------------
James R. Thompson
Director

/s/ Marvin S. Traub March 28, 2003
--------------------------------------
Marvin S. Traub
Director

Page - (43)

CERTIFICATIONS

I, Glenn D. Reschke, certify that:

1. I have reviewed this annual report on Form 10-K of Prime Retail, Inc;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officer and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.





Date: March 28, 2003 /s/ Glenn D. Reschke
--------------------
Glenn D. Reschke, Chairman and
Chief Executive Officer


Page - (44)

CERTIFICATIONS

I, Robert A. Brvenik, certify that:

1. I have reviewed this annual report on Form 10-K of Prime
Retail, Inc;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

d) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;

e) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

f) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

c) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

d) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officer and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.





Date: March 28, 2003 /s/ Robert A. Brvenik
---------------------
Robert A. Brvenik, President,
Chief Financial Officer and Treasurer


Page - (F-1)

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, 2002 and 2001, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 2002. We have also
audited the related financial statement schedule listed in the Index at Item 15
(a). These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule 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, 2002 and 2001, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
2002, in conformity with accounting principles generally accepted in the United
States. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements, taken as
a whole, present fairly, in all material respects, the information set forth
therein.

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 refinance maturing debt and repay a guaranteed obligation
is dependent upon completing certain capital raising activities by specific
dates. If the Company is unable to complete certain capital raising activities
by the specified dates, it may not be able to refinance maturing debt and repay
a guaranteed obligation. 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.

As discussed in Note 2 to the consolidated financial statements, in 2002 the
Company adopted the provisions of Statement of Financial Accounting Standards
No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets." In
addition, as discussed in Note 2 to the consolidated financial statements, in
2002 the Company changed its method of accounting for losses on the early
extinguishment of debt.







/s/ Ernst & Young LLP


Baltimore, Maryland
March 21, 2003


Page - (F-2)

PRIME RETAIL, INC.

Consolidated Balance Sheets

(Amounts in thousands, except share information)



- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 2002 2001
- ------------------------------------------------------------------------------------------------------------------------------------

Assets
Investment in rental property:
Land $ 101,546 $ 148,463
Buildings and improvements 740,024 1,208,568
Property under development - 3,352
Furniture and equipment 13,292 15,225
--------- -----------
854,862 1,375,608
Accumulated depreciation (213,604) (258,124)
--------- -----------
641,258 1,117,484
Cash and cash equivalents 6,908 7,537
Restricted cash 107,037 37,885
Accounts receivable, net 3,049 5,017
Deferred charges, net 3,766 11,789
Assets held for sale - 54,628
Investment in unconsolidated joint ventures 49,889 24,539
Other assets 6,181 3,629
--------- -----------
Total assets $ 818,088 $ 1,262,508
========= ===========

Liabilities and Shareholders' Equity
Bonds payable, including $17,920 in default in 2002 $ 22,495 $ 31,975
Notes payable, including $41,632 in default in 2002 511,443 925,492
Defeased notes payable 74,764 -
Accrued interest 3,984 7,643
Real estate taxes payable 3,484 8,091
Accounts payable and other liabilities 43,059 31,380
--------- -----------
Total liabilities 659,229 1,004,581

Minority interests 1,487 1,487

Shareholders' equity:
Shares of preferred stock, 24,315,000 shares authorized:
10.5% Series A Senior Cumulative Preferred Stock,
$0.01 par value (liquidation preference of $76,367),
2,300,000 shares issued and outstanding 23 23
8.5% Series B Cumulative Participating Convertible
Preferred Stock, $0.01 par value (liquidation preference
of $247,687), 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 (552,538) (453,470)
--------- -----------
Total shareholders' equity 157,372 256,440
--------- -----------
Total liabilities and shareholders' equity $ 818,088 $ 1,262,508
========= ===========
====================================================================================================================================


See accompanying notes to consolidated financial statements.


Page - (F-3)

PRIME RETAIL, INC.

Consolidated Statements of Operations

(Amounts in thousands, except per share information)



- ------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------------

Revenues
Base rents $ 86,184 $ 113,546 $ 151,605
Percentage rents 3,756 3,469 5,566
Tenant reimbursements 48,730 54,178 70,749
Interest and other 13,361 12,126 13,728
---------- ---------- ----------
Total revenues 152,031 183,319 241,648

Expenses
Property operating 42,446 44,472 58,494
Real estate taxes 12,931 15,054 17,655
Depreciation and amortization 34,301 45,863 57,930
Corporate general and administrative 14,562 14,290 21,581
Interest 61,826 79,864 91,161
Other charges 8,684 19,632 22,907
Provision for asset impairment 84,093 63,026 77,115
---------- ---------- ----------
Total expenses 258,843 282,201 346,843
---------- ---------- ----------
Loss before gain (loss) on sale of real
estate and minority interests (106,812) (98,882) (105,195)
Gain (loss) on sale of real estate, net 5,802 (1,063) (42,648)
---------- ---------- ----------
Loss from continuing operations
before minority interests (101,010) (99,945) (147,843)
Loss allocated to minority interests - 408 738
---------- ---------- ----------
Loss from continuing operations (101,010) (99,537) (147,105)
Discontinued operations, including provision for
asset impairment of $27,757 and net gain of
$26,152 on dispositions in 2002 1,942 1,489 4,653
---------- ---------- ----------
Net loss (99,068) (98,048) (142,452)
Allocations to preferred shareholders (22,672) (22,672) (22,672)
---------- ---------- ----------
Net loss applicable to common shares $ (121,740) $ (120,720) $ (165,124)
========== ========== ==========

Basic and diluted earnings per common share:
Loss from continuing operations $ (2.83) $ (2.80) $ (3.90)
Discontinued operations 0.04 0.03 0.11
---------- ---------- ----------
Net loss $ (2.79) $ (2.77) $ (3.79)
========== ========== ==========

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


See accompanying notes to consolidated financial statements.


Page - (F-4)

PRIME RETAIL, INC.

Consolidated Statements of Cash Flows

(Amounts in thousands)



- ------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------------

Operating Activities
Loss from continuing operations $ (101,010) $ (99,537) $ (147,105)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Loss allocated to minority interests - (408) (738)
(Gain) loss on sale of real estate, net (5,802) 1,063 42,648
Loss on early extringuishment of debt 525 - 4,206
Gain on sale of outparcel land - - (2,472)
Depreciation and amortization 34,301 45,863 57,930
Amortization of deferred financing costs 4,747 6,341 2,922
Amortization of debt premiums (2,020) (1,928) (1,841)
Provision for uncollectible accounts receivable 1,881 9,031 6,288
Provision for asset impairment 84,093 63,026 68,663
Discontinued operations 10,186 14,401 14,450
Loss on eOutlets - - 14,703
Loss on Designer Connection - - 1,815
Changes in operating assets and liabilities:
Increase in accounts receivable (1,179) (3,092) (4,903)
(Increase) decrease in restricted cash 7,635 15,477 (28,151)
(Increase) decrease in other assets (1,410) 3,307 3,285
Increase (decrease) in accounts payable and other liabilities (1,793) (23,151) 4,272
Increase (decrease) in real estate taxes payable (150) 142 (2,145)
Increase (decrease) in accrued interest (177) 2,376 (1,377)
---------- --------- ----------
Net cash provided by operating activities 29,827 32,911 32,450
---------- --------- ----------

Investing Activities
Additions to investment in rental property (7,713) (15,170) (51,833)
Payments made for eOutlets.com - (2,170) (11,161)
Proceeds from repayment of notes receivable, net - 14,523 -
Contributions to investments in partnerships - (2,950) (3,000)
Proceeds from sales of operating properties and land 49,461 11,362 67,089
---------- --------- ----------
Net cash provided by investing activities 41,748 5,595 1,095
---------- --------- ----------

Financing Activities
Proceeds from notes payable - 16,899 134,497
Principal repayments on notes payable (72,092) (56,222) (155,120)
Contributions from minority interests - 400 -
Deferred costs (112) (952) (11,359)
---------- --------- ----------
Net cash used in financing activities (72,204) (39,875) (31,982)
---------- --------- ----------

Increase (decrease) in cash and cash equivalents (629) (1,369) 1,563
Cash and cash equivalents at beginning of period 7,537 8,906 7,343
---------- --------- ----------
Cash and cash equivalents at end of period $ 6,908 $ 7,537 $ 8,906
========== ========= ==========
====================================================================================================================================


See accompanying notes to consolidated financial statements.


Page - (F-5)

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
disposition of properties during the periods indicated:



- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------------

Book value of net assets disposed $ 380,086 $ 42,696 $ 333,906
Notes payable paid (168,982) (30,271) -
Notes payable assumed by buyer (46,862) - (206,735)
Notes payable transferred to lender (58,685) - -
Deposits to restricted cash (79,257) - -
Investment in unconsolidated joint ventures (26,327) (3,000) (4,962)
Accounts payable and other liabilities 17,237
Promissory note received from buyer - 3,000 (10,000)
Gain on sale of outparcel land (included in other income) - - (2,472)
Discontinued operations - net gain on disposals 26,152 - -
Gain (loss) on sale of real estate 5,802 (1,063) (42,648)
--------- -------- ---------
Cash received, net $ 49,164 $ 11,362 $ 67,089
========= ======== =========
====================================================================================================================================


See accompanying notes to consolidated financial statements


Page - (F-6)

PRIME RETAIL, INC.

Consolidated Statements of Shareholders' Equity

(Amounts in thousands, except share information)



- ------------------------------------------------------------------------------------------------------------------------------------
Series A Series B
Senior Convertible Additional Distributions Total
Preferred Preferred Common Paid-in in Excess of Shareholders'
Stock Stock Stock Capital Earnings Equity
- ------------------------------------------------------------------------------------------------------------------------------------

Balance, January 1, 2000 $ 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
Net loss - - - - (99,068) (99,068)
---- ---- ----- --------- ---------- ---------
Balance, December 31, 2002 $ 23 $ 78 $ 436 $ 709,373 $ (552,538) $ 157,372
==== ==== ===== ========= ========== =========
====================================================================================================================================


See accompanying notes to consolidated financial statements.


Page - (F-7)

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, 2002, the Company's outlet center portfolio,
including nine properties owned through unconsolidated joint ventures, consists
of 38 properties (the "Properties") in 24 states, which total 10,269,000 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.

At December 31, 2002, the Company owned 2,300,000 Series A Senior Preferred
Units of the Operating Partnership (the "Series A 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, 2002 is as follows:



- ------------------------------------------------------------------------------------------------------------------------------------
Number of Units
----------------------------------------------------
Holder Series A Series B Common
- ------------------------------------------------------------------------------------------------------------------------------------

Prime Retail, Inc. 2,300,000 7,828,125 43,577,916
Affiliates of the Prime Group and others - - 10,810,912
--------- --------- ----------
2,300,000 7,828,125 54,388,828
========= ========= ==========
====================================================================================================================================


As of December 31, 2002, 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 accompanying consolidated financial statements include the accounts of
the Company, the Operating Partnership and the partnerships in which it has a
controlling financial interest. 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. See Note 2 -
"Significant Accounting Policies" for additional information.


Page - (F-8)

Investments in unconsolidated joint ventures are accounted for in
accordance with 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 inter-company accounts and transactions have been eliminated in
consolidation. Certain amounts in prior years have been reclassified to the
current year presentation, which did not have an impact on our results of
operations or financial position.

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 Principally term of related lease
Furniture and equipment 5 years

Rental property is generally carried at historical cost, net of accumulated
depreciation. Our prior development costs, which included fees and costs
incurred in the development of new properties or the expansion to existing
properties, were capitalized as incurred. We commence amortization of
capitalized development costs upon completion of construction over the useful
lives of the respective properties on a straight-line basis. Expenditures for
ordinary maintenance and repairs are expensed to operations (included in
property operating expenses in the Consolidated Statements of 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.

We monitor our Properties for indicators of impairment on a periodic basis.
We record a provision for impairment when we believe certain events and
circumstances have occurred which indicate that the carrying value of our
Properties might have experienced a decline in value that is other than
temporary 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 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
estimated 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.

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 these 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,
2002, 2001 and 2000, we earned interest income of $482, $1,846 and $1,899,
respectively (included in interest and other income in the Consolidated
Statements of Operations). See Note 4 - "Restricted Cash" for additional
information.

Accounts Receivable and Bad Debt Expense

We regularly review our accounts receivable to determine an appropriate
amount 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 uncollectible accounts receivable ("bad debt expense") 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 - (F-9)

Our allowances for doubtful accounts at December 31, 2002 and 2001 were
$3,093 and $12,515, respectively. During the years ended December 31, 2002, 2001
and 2000, we recorded bad debt expense of $1,881, $9,031 and $6,288,
respectively (included in other charges in the Consolidated Statements of
Operations).

Net accounts receivable representing straight-line rents was $2,652 and
$4,524 at December 31, 2002 and 2001, respectively.

Deferred Charges

Deferred charges generally 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 amortized as a component of interest expense over the terms of
the respective loans on a basis that approximates the effective interest method.

Contingencies

We are subject to proceedings, lawsuits, and other claims related to
various matters (see Note 13 - "Legal Proceedings"). Additionally, we have
guaranteed certain indebtedness of others (see Note 6 - "Debt"). 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 because of (i) new developments or changes to the
approach in which we deal with each matter or (ii) if unasserted claims arise.

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 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.

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 and (iii) shares of Series B Convertible Preferred Stock were converted
into shares of Common Stock. For the years ended December 31, 2002, 2001 and
2000, respectively, the effect of all exercises and conversions was
anti-dilutive and, therefore, dilutive EPS is equivalent to basic EPS.

Stock Based Compensation

Stock based compensation is accounted for by using the intrinsic-value
method in accordance with Accounting Principles Board Opinion ("APB") No. 25,
"Accounting for Stock Issued to Employees". Under APB No. 25, because the
exercise price of our stock options equals the market price of the underlying
stock on the date of the grant, no compensation expense is recognized. As
permitted, we have elected to adopt only the disclosure provisions of FAS No.
123, "Accounting for Stock-Based Compensation." Additional compensation expense
under FAS No. 123 would have been $53, $161 and $1,664 for the years ended
December 31, 2002, 2001 and 2000, respectively. See Note 10 - "Stock Incentive
Plans" for pro forma information on the impact of the fair-value method of
accounting for stock options.

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 $180, $201 and $197 of state
and local taxes for the years ended December 31, 2002, 2001 and 2000,
respectively. We paid $88, $417 and $235 of state and local taxes during the
years ended December 31, 2002, 2001 and 2000, respectively. See Note 9 -
"Shareholders' Equity" for additional information with respect to our policy on
distributions to shareholders.


Page - (F-10)

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 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.

Investment in Unconsolidated Joint Ventures

We account for our investment in unconsolidated joint ventures in
accordance with the equity method of accounting as we exercise significant
influence, but do not control these entities. In all of our joint venture
arrangements, the rights of the investors are both protective as well as
participating. Therefore, these participating rights preclude us from
consolidating our investments. Our investments are recorded initially at our
cost and subsequently adjusted for equity in earnings (losses) and cash
contributions and distributions. See Note 7 - "Investment in Unconsolidated
Joint Ventures" for additional information.

Recent Accounting Pronouncements

In October, 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("FAS") No. 144, "Accounting for
Impairment of Disposal of Long-lived Assets." FAS No. 144 supercedes FAS No.
121, however it retains the fundamental provisions of that statement as related
to the recognition and measurement of the impairment of long-lived assets to be
"held and used." In addition, FAS No. 144 (i) provides further guidance
regarding the estimation of cash flows in the performance of a recoverability
test, (ii) 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
(iii) established more restrictive criteria to classify an asset as "held for
sale." Effective January 1, 2002, we adopted FAS No. 144. Our adoption of FAS
No. 144 effective January 1, 2002 did not have a material impact on our results
of operations or financial position.

In accordance with the requirements of FAS No. 144, we have classified the
operating results, including gains and losses related to disposition, for
certain properties either disposed of or classified as assets held for sale
during 2002 as discontinued operations in the Consolidated Statements of
Operations for all periods presented. The operating results for properties
disposed of before January 1, 2002 are not classified as discontinued
operations. See Note 3 - "Property Dispositions" for additional information.

In May 2002, the FASB issued FAS No. 145, "Reporting Gains and Losses from
Extinguishment of Debt", which rescinded FAS No. 4, FAS No. 44 and FAS No. 64
and amended FAS No. 13. FAS No. 145 addresses the income statement
classification of gains or losses from the extinguishment of debt and criteria
for classification as extraordinary items. FAS No. 145 is effective for fiscal
years beginning after May 15, 2002. We early adopted FAS No. 145 on December 31,
2002. As a result of our adoption of FAS No. 145, any non-recurring costs
incurred in connection with the early extinguishment of debt are classified as a
component of interest expense in the Consolidated Statements of Operations for
all periods presented. Nevertheless, the adoption of FAS No. 145 did not have a
material impact on our results of operations or financial position.


Page - (F-11)

In December 2002, the FASB issued Interpretation ("FIN") No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN No. 45 elaborates on the
disclosures to be made by a guarantor in interim and annual financial statements
about the obligations under certain guarantees. FIN No. 45 also clarifies that a
guarantor is required to recognize, at the inception of the guarantee, an
initial liability for the fair value of the obligation undertaken in issuing the
guarantee. The disclosure requirements of FIN No. 45 are effective for financial
statements of interim or annual periods ending after December 15, 2002. We
adopted the disclosure provisions of FIN No. 45 effective December 31, 2002. The
initial recognition and initial measurement provisions of FIN No. 45 are
applicable on a prospective basis to guarantees issued or modified after
December 31, 2002. We are in the process of determining the impact, if any, on
our results of operations or financial condition from the adoption of FIN No.
45. See "Guarantees and Guarantees of Indebtedness of Others" contained in Note
6 - "Debt" for additional information.

In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable
Interest Entities." FIN No. 46 clarifies the application of existing accounting
pronouncements to certain entities in which equity investors do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. The provisions of FIN No. 46
will be immediately effective for all variable interests in variable interest
entities created after January 31, 2003, and we will need to apply the
provisions of FIN No. 46 to any existing variable interests in variable interest
entities by no later than December 31, 2004. We do not believe that FIN No. 46
will have a significant impact on our financial statements.

Note 3 - Property Dispositions

We have disposed of certain properties through various transactions
(including sale, joint venture arrangements, foreclosure and transfer of
ownership to the respective lender) during the years ended December 31, 2002,
2001 and 2000. The following table summarizes these dispositions by year:



- ------------------------------------------------------------------------------------------------------------------------------------
Provision
Reduction Gain/Loss for
Date of Sales of Net on Sales/ Asset
Disposition Property Type GLA Price Debt Proceeds Disposition Impairment
- ------------------------------------------------------------------------------------------------------------------------------------

Year 2002
Continuing Operations:
Hagerstown Center January 2002 Outlet Center 487,000 $ 80,500 $ (57,914) $12,113 $ 16,793 $ -
Bellport Outlet Center
- Phases II/III April 2002 Outlet Center 197,000 6,500 - 522 (703) -
Bridge Properties July 2002 Outlet Centers 1,304,000 118,650 (111,009) - (10,288) -
--------- -------- --------- ------- -------- -------
Subtotal 1,988,000 205,650 (168,923) 12,635 5,802 -
--------- -------- --------- ------- -------- -------

Discontinued Operations:
Conroe Center January 2002 Outlet Center 282,000 - (15,621) (554) - -
Edinburgh Center January 2002 Outlet Center 305,000 27,000 (16,317) 9,551 (9,623) -
Western Plaza June 2002 Community Center 205,000 9,500 (9,467) 688 2,121 -
Jeffersonville II August 2002 Outlet Center 314,000 - (17,938) - 17,121 -
Vero Beach September 2002 Outlet Center 326,000 - (25,126) - - 12,200
Melrose Place October 2002 Community Center 27,000 2,500 (1,935) 555 990 -
Puerto Rico Center December 2002 Outlet Center 176,000 36,500 (19,202) 13,958 - 15,557
Colorado Properties December 2002 Outlet Center 808,000 96,000 (74,849) 12,628 15,543 -
--------- -------- --------- ------- -------- -------
Subtotal 2,443,000 171,500 (180,455) 36,826 26,152 27,757
--------- -------- --------- ------- -------- -------

Total 4,431,000 $377,150 $(349,378) $49,461 $ 31,954 $27,757
========= ======== ========= ======= ======== =======

- ------------------------------------------------------------------------------------------------------------------------------------
Year 2001
Northgate Plaza February 2001 Community Center 140,000 $ 7,050 $ (5,966) $ 510 $ 732 $ -
Silverthorne Center March 2001 Outlet Center 257,000 29,000 (18,078) 8,993 - -
New River Center May 2001 Outlet Center 326,000 - - - (180) -
Camarillo land November 2001 Land N/A 7,150 (6,227) 1,859 (1,615) -
--------- -------- --------- ------- -------- -------
Total 723,000 $ 43,200 $ (30,271) $11,362 $ (1,063) $ -
========= ======== ========= ======= ======== =======

- ------------------------------------------------------------------------------------------------------------------------------------
Year 2000
Williamsburg Center February 2000 Outlet Center 274,000 $ 59,000 $ (32,500) $11,063 $ - $ -
Camarillo outparcel land March 2000 Outparcel land N/A 4,563 - 4,623 2,472 -
Permanent Loan Properties December 2000 Outlet Centers 1,592,000 239,500 (174,235) 51,403 (42,648) -
--------- -------- --------- ------- -------- -------
Total 1,866,000 $303,063 $(206,735) $67,089 $(40,176) $ -
========= ======== ========= ======= ======== =======
====================================================================================================================================



Page - (F-12)

2002 Dispositions - Continuing Operations

The operating results for certain properties that were sold to joint
venture partnerships during 2002 and in which we still have a significant
continuing involvement are not classified as discontinued operations in the
Consolidated Statements of Operations. Such properties and/or their operating
results through the dates of their respective disposition are collectively
referred to as the "2002 Joint Venture Properties". The 2002 Joint Venture
Properties consist of our sales of (i) Prime Outlets at Hagerstown (the
"Hagerstown Center") and six outlet centers (collectively, the Bridge
Properties"). The following discussion summarizes the terms of such
dispositions.

Hagerstown Center

On January 11, 2002, we completed the sale of the Hagerstown Center, an
outlet center located in Hagerstown, Maryland, for aggregate consideration of
$80,500 to an existing joint venture partnership (the "Prime/Estein Venture")
between one of our affiliates and an affiliate of Estein & Associates USA, Ltd.
("Estein"), a real estate investment company. Our affiliate and Estein 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 "Hagerstown First
Mortgage"); however, our guarantee of the Hagerstown First Mortgage remains in
place.

The net proceeds from the sale, including the release of certain funds held
in escrow, were $12,113 after (i) a pay-down of $11,052 of mortgage indebtedness
on the Hagerstown Center and (ii) prorations, closing costs and fees. The net
proceeds from this sale were used to make a principal payment of $11,647 on a
mezzanine loan (the "Mezzanine Loan") obtained in December 2000 from FRIT PRT
Lending LLC and Greenwich Capital Financial Products, Inc. (collectively, the
"Mezzanine Lender") in the original amount of $90,000. See Note 6 - "Debt" for
additional information. Under the terms of the transaction, we will continue to
manage, market and lease the Hagerstown Center for a fee on behalf of the
Prime/Estein Venture.

The operating results of the Hagerstown Center are reflected in our results
from continuing operations through the date of disposition. In connection with
the sale of the Hagerstown Center, we recorded a gain on the sale of real estate
of $16,793 during the first quarter of 2002. At December 31, 2001, the carrying
value of the Hagerstown Center of $54,628 was classified as assets held for sale
in the Consolidated Balance Sheet. Effective on the date of disposition, we have
accounted for our 30% ownership interest in the Hagerstown Center in accordance
with the equity method of accounting.

We are obligated to refinance the Hagerstown First Mortgage on behalf of
the Prime/Estein Venture on or before June 1, 2004, the date on which such
indebtedness matures. Additionally, the Prime/Estein Venture's cost of the
Hagerstown First Mortgage 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. If the actual cost of such
indebtedness is less than 7.75% at any time during the ten-year period, however,
the Prime/Estein Venture will be obligated to pay the difference to us. The
actual cost of the Hagerstown First Mortgage is 30-day LIBOR plus 1.50%, or
2.88% as of December 31, 2002.

Bellport Center II/III

On April 19, 2002, we completed the sale of Phases II and III of the
Bellport Outlet Center (the "Bellport Outlet Center"), an outlet center located
in Bellport, New York. We had a 51% ownership interest in the joint venture
partnership that owned the Bellport Outlet Center and accounted for our
ownership interest in accordance with the equity method of accounting. The
Bellport Outlet Center was sold to Sunrise Station, L.L.C., an affiliate of one
of our joint venture partners, for cash consideration of $6,500. At closing,
recourse first mortgage indebtedness of $5,500, which was scheduled to mature on
May 1, 2002, was repaid in full. We received $522 of cash proceeds from the
sale, which were used to make a principal payment of $502 on the Mezzanine Loan.
In connection with the sale of the Bellport Outlet Center, we recorded a loss on
the sale of real estate of $703 during the second quarter of 2002.

Bridge Properties

On July 26, 2002, we completed the sale of the Bridge Properties for
aggregate consideration of $118,650 to affiliates of PFP Venture LLC, a new
joint venture (the "PFP Venture") (i) 30.4% owned by PWG Prime Holdings LLC
("PWG"), a third party, and (ii) 69.6% owned by FP Investment LLC ("FPI"). FPI
is a new joint venture between (i) FRIT PRT Bridge Acquisition LLC ("FRIT"), a
third party, and (ii) an affiliate of ours. Through FPI, FRIT and we indirectly
had initial ownership interests of 51.4% and 18.2%, respectively, in the PFP
Venture. PWG is the managing member of the PFP Venture. FPI and PWG have certain
protective rights over the operations of the Bridge Properties, which are pari
passu. The Bridge Properties are located in Anderson, California; Calhoun,
Georgia; Gaffney, South Carolina; Latham, New York; Lee, Massachusetts and Lodi,
Ohio.


Page - (F-13)

In connection with the sale, $111,009 of recourse mortgage indebtedness
(the "Bridge Loan") on the Bridge Properties was deemed repaid in full. Our net
proceeds of $6,112 from the sale were contributed to FPI. FPI used these
proceeds along with a $17,236 capital contribution from FRIT to purchase a 69.6%
ownership interest in the PFP Venture. Financing for the PFP Venture's purchase
of the Bridge Properties was provided by GMAC Commercial Mortgage Corporation in
the form of a $90,000, four-year, non-recourse mortgage loan, of which $74,000
bears interest at LIBOR plus 4.25% (minimum of 7.00% for the first three years
and 7.25% thereafter) and $16,000 bears interest at LIBOR plus 4.50% (minimum of
7.75%). Furthermore, subject to satisfaction of certain conditions, the PFP
Venture may extend the maturity of the $74,000 portion of the loan for one
additional year at LIBOR plus 4.75% with the minimum interest rate continuing at
7.25%. Under the terms of the transaction, we will continue to manage, market
and lease the Bridge Properties for a fee on behalf of the PFP Venture.

FRIT, indirectly through affiliates, was the owner of the Bridge Loan that
was deemed repaid in full in connection with the sale of the Bridge Properties
and was also a 50% participant in the Mezzanine Loan, which was repaid in full
in December 2002. Pursuant to certain venture-related documents, we have
guaranteed FRIT (i) a 13% return on its initial $17,236 of invested capital, and
(ii) the full return of its invested capital (the "Mandatory Redemption
Obligation") in FPI by December 31, 2003. Our guarantee is secured by junior
security interests in collateral similar to that previously pledged to the
Mezzanine Lender.

Distributions from the PFP Venture and FPI are both made on a monthly
basis. FPI is entitled to receive a 15% preferred return on its invested capital
of $23,348 (approximately $3,502 on an annual basis) in the PFP Venture. Then
PWG is entitled to receive a 15% preferred return on its invested capital of
$10,200. From FPI's preferred return, FRIT first receives its 13% return on its
invested capital with the remainder (2% return on FRIT's invested capital and
15% on our invested capital) applied towards the payment of the Mandatory
Redemption Obligation. Upon satisfaction of the Mandatory Redemption Obligation,
we will be entitled to FPI's preferred return until such time as we have been
repaid in full our invested capital, together with a 13% return on our invested
capital. Thereafter, FRIT and we will share any cash flow due to FPI on an
approximate equal basis.

Because we have guaranteed the Mandatory Redemption Obligation to FRIT and
FRIT has no risk of loss with respect to the Bridge Properties, we have included
FRIT's initial investment in FPI as part of our total investment in PFP of
$23,348 ($17,236 initial Mandatory Redemption Obligation plus $6,112 contributed
capital). We have also recorded the initial Mandatory Redemption Obligation as a
corresponding liability. Although we have not received any cash from the PFP
Venture, our Mandatory Redemption Obligation has been reduced monthly for the
excess between FPI's 15% per annum preferred return from PFP Venture and FRIT's
13% per annum guaranteed return. As of December 31, 2002, the remaining
Mandatory Redemption Obligation was $16,667 (included in accounts payable and
other liabilities in the Consolidated Balance Sheet).

The operating results of the Bridge Properties are reflected in our results
from continuing operations through the date of disposition. In connection with
the sale of the Bridge Properties, we recorded a loss on the sale of real estate
of $10,288 during the second quarter of 2002. This loss represented the
write-down of our carrying value of the Bridge Properties to their fair value
less estimated costs to dispose, based on the terms of the sale agreement.
Because PWG is the managing member of the PFP Venture and because of the pari
passu nature of the protective rights of FPI and PWG, we are not deemed in
control of the PFP Venture. Accordingly, we commenced accounting for our
indirect ownership interest in the PFP Venture in accordance with the equity
method of accounting effective on the date of disposition. We record our share
of the operations of the Bridge Properties using an assumed book value
liquidation model because both FPI and the PFP Venture have specific allocations
for distribution.

For the years ended December 31, 2002, 2001 and 2000, respectively,
combined revenues were $14,414, $37,466 and $37,200, respectively, and combined
expenses were $17,003, $42,456 and $36,925, respectively, for the Hagerstown
Center and the Bridge Properties as reflected in our results from continuing
operations through their respective dates of disposition. For the years ended
December 31, 2002, 2001 and 2000, our equity in losses (included in interest and
other income in the Consolidated Statements of Operations) for the Bellport
Outlet Center were $378, $661 and $398, respectively.

2002 Dispositions - Discontinued Operations

We have classified the operating results, including gains and losses
related to disposition, for certain properties either disposed of or classified
as assets held for sale during 2002 as discontinued operations in the
Consolidated Statements of Operations for all periods presented. The following
discussion summarizes the terms of such dispositions.

Conroe Center

During 2001, certain of our subsidiaries suspended regularly scheduled
monthly debt service payments on two non-recourse mortgage loans held by New
York Life Insurance Company ("New York Life") at the time of the suspension.
These non-recourse mortgage loans were cross-defaulted and cross-collateralized
by Prime Outlets at Conroe (the "Conroe Center"), located in Conroe, Texas, and
Prime Outlets at Jeffersonville II (the "Jeffersonville II Center"), located in
Jeffersonville, Ohio.


Page - (F-14)

Effective January 1, 2002, New York Life foreclosed on the Conroe Center
and its related assets and liabilities, including $554 of cash and our carrying
value of the indebtedness of $15,621 (principal outstanding of $15,467 and
unamortized debt premium of $154), were transferred from our subsidiary that
owned the Conroe Center to New York Life. The foreclosure of the Conroe Center
did not have a material impact on our results of operations or financial
condition because during 2001 all excess cash flow from the operations of the
Conroe Center was utilized for debt service on the non-recourse mortgage loan.
See "Jeffersonville II Center" below for additional information.

The operating results of the Conroe Center are classified as discontinued
operations in the Consolidated Statements of Operations through the date of
disposition for all periods presented. No gain or loss was recorded in
connection with the foreclosure of the Conroe Center.

Edinburgh Center

On April 1, 2002, we completed the sale of Prime Outlets at Edinburgh (the
"Edinburgh Center"), an outlet center located in Edinburgh, Indiana and
additional undeveloped land. The Edinburgh Center was sold to CPG Partners, L.P.
for cash consideration of $27,000. The net cash proceeds from the sale were
$9,551, after (i) repayment in full of $16,317 of existing first mortgage
indebtedness on the Edinburgh Center and (ii) prorations, closing costs and
fees. We used these net proceeds to make a principal payment of $9,178 on the
Mezzanine Loan.

The operating results of the Edinburgh Center through the date of
disposition are classified as discontinued operations in the Consolidated
Statements of Operations for all periods. During the first quarter of 2002, we
recorded a loss on the sale of real estate of $9,623 (also included in
discontinued operations) representing the write-down of our carrying value of
the Edinburgh Center to its estimated fair value less estimated costs to
dispose, based on the terms of the sale agreement.

Western Plaza

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

The operating results of Western Plaza through the date of disposition are
classified as discontinued operations in the Consolidated Statements of
Operations for all periods. In connection with the sale of Western Plaza, we
recorded a gain on the sale of real estate of $2,121 (also included in
discontinued operations) during the second quarter of 2002.

Jeffersonville II Center

Effective July 18, 2002, New York Life sold its interest in the
Jeffersonville II Center loan. On August 13, 2002, we transferred our ownership
interest in the Jeffersonville II Center to New York Life's successor. As a
result of the transfer of our ownership interest in the Jeffersonville II
Center, we recorded a non-recurring gain of $17,121 (included in discontinued
operations) during the third quarter of 2002, representing the difference
between our carrying value of the Jeffersonville II Center and its related
assets and liabilities, including our carrying value of the indebtedness of
$17,938 (principal outstanding of $17,768 and unamortized debt premium of $170),
as of the date of transfer. The transfer of our ownership interest in the
Jeffersonville II Center did not have a material impact on our results of
operations or financial condition because during 2001 and through the transfer
date in 2002, all excess cash flow from the operations of the Jeffersonville II
Center was utilized for debt service on the non-recourse mortgage loan.

The operating results of the Jeffersonville II Center are classified as
discontinued operations in the Consolidated Statements of Operations through the
date of disposition for all periods presented. See "Conroe Center" above for
additional information.

Vero Beach Center

During August of 2002, certain of our subsidiaries suspended regularly
scheduled monthly debt service payments on two non-recourse mortgage loans which
were cross-collateralized by Prime Outlets at Vero Beach (the "Vero Beach
Center"), located in Vero Beach, Florida, and Prime Outlets at Woodbury (the
"Woodbury Center"), located in Woodbury, Minnesota (collectively, the "John
Hancock Properties"). These non-recourse mortgage loans were held by John
Hancock Life Insurance Company ("John Hancock").


Page - (F-15)

During the second quarter of 2002, we incurred a provision for asset
impairment of $12,200 to adjust our carrying value of the Vero Beach Center to
its estimated fair value in accordance with the provisions of FAS No. 144.
Effective September 9, 2002, John Hancock foreclosed on the Vero Beach Center
and its related assets and liabilities, including our carrying value of the
indebtedness of $25,126 (principal outstanding of $24,497 and unamortized debt
premium of $629), were transferred to John Hancock. Additionally, we are
currently negotiating a transfer of our ownership interest in the Woodbury
Center to John Hancock. Foreclosure on the Vero Beach Center did not, and the
expected transfer of our ownership interest in the Woodbury Center is not,
expected to have a material impact on our results of operations or financial
condition because during 2002, all excess cash flow from the operations of the
John Hancock Properties was utilized for debt service on their non-recourse
mortgage loans. The carrying value of the Woodbury Center was $15,736 as of
December 31, 2002. Such value is exceeded by our carrying value of the
associated indebtedness of $16,713 (principal outstanding of $16,331 and
unamortized debt premium of $382) as of December 31, 2002. If we were to
transfer our ownership interest in the Woodbury Center to John Hancock, we would
record a non-recurring gain for the difference between the carrying value of the
Woodbury Center and its related net assets and the carrying value of the
indebtedness as of the date of transfer.

The operating results of the Vero Beach Center are classified as
discontinued operations in the Consolidated Statements of Operations through the
date of disposition for all periods. No gain or loss was recorded in connection
with the foreclosure of the Vero Beach Center. See Note 6 - "Debt" for
additional information.

Melrose Place

On October 30, 2002, we completed the sale of Melrose Place, a community
center located in Knoxville, Tennessee. Melrose Place was sold to Melrose Place
Tennessee General Partnership for cash consideration of $2,500. The net proceeds
from the sale were $555, after (i) repayment of $1,935 of existing recourse
mortgage indebtedness on Melrose Place, (ii) prorations, closing costs and fees
and (iii) release of certain escrowed funds. We used these net proceeds to make
a principal payment of $533 on the Mezzanine Loan.

The operating results of Melrose Place are classified as discontinued
operations in the Consolidated Statements of Operations for all periods
presented. In connection with the sale of Melrose, we recorded a gain on the
sale of real estate of $990 (also included in discontinued operations) during
the fourth quarter of 2002.

Puerto Rico Center

On December 6, 2002, we completed the sale of (i) Prime Outlets of Puerto
Rico, an outlet center located in Barceloneta, Puerto Rico and (ii) certain
adjacent parcels of land being developed for non-outlet retail use
(collectively, the "Puerto Rico Center"). The Puerto Rico Center was sold to PR
Barceloneta, LLC for cash consideration of $36,500. The net proceeds from the
sale were $13,958, after (i) repayment of $19,202 of existing first mortgage
indebtedness on the Puerto Rico Center, (ii) pro-rations, closing costs and
fees, (iii) establishment of certain escrows at closing and (iv) release of
certain escrowed funds. We used these net proceeds to make a principal payment
of $12,637 on the Mezzanine Loan. At the closing of the sale of the Puerto Rico
Center, we were required to fund $2,800 into an escrow account which will be
returned to us only upon satisfaction of certain conditions no later than
December 31, 2004. The escrow account is included in restricted cash (see Note 4
- - "Restricted Cash") and an offsetting deferred liability is included in
accounts payable and other liabilities in the Consolidated Balance Sheet as of
December 31, 2002. Under the terms of the transaction, we will continue to
manage, market and lease the Puerto Rico Center for a fee on behalf of PR
Barceloneta, LLC.

The operating results of the Puerto Rico Center through the date of
disposition are classified as discontinued operations in the Consolidated
Statements of Operations for all periods. During the third quarter of 2002, we
recorded an impairment loss of $15,557 (also included in discontinued
operations) representing the write-down of our carrying value of the Puerto Rico
Center to its fair value less estimated costs to sell, based on the terms of the
sale agreement.

Colorado Properties

On December 6, 2002, we completed the sale of two outlet centers (together,
the "Colorado Properties") to TGS (U.S.) Realty, Inc. for aggregate cash
consideration of $96,000. The Colorado Properties are located in Castle Rock,
Colorado and Loveland, Colorado. The net proceeds from the sale of the Colorado
Properties were $12,628, after (i) required defeasance of $74,849 of mortgage
indebtedness and the costs related to such defeasance (see Note 6 - "Debt for
additional information), (ii) prorations, closing costs and fees and (iii) the
release of certain escrowed funds. We used these net proceeds to make a
principal payment of $10,309 on the Mezzanine Loan.

The operating results of the Colorado Properties through the date of
disposition are classified as discontinued operations in the Consolidated
Statements of Operations for all periods presented. In connection with the sale
of the Colorado Properties, we recorded a gain on the sale of real estate of
$15,543 (also included in discontinued operations) during the fourth quarter of
2002.


Page - (F-16)

The following summary presents the operating results of those properties
disposed of during 2002 whose results are classified as discontinued operations
in the Consolidated Statements of Operations for all periods:




- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------------

Revenues
Base rents $ 17,695 $ 27,570 $ 27,225
Percentage rents 639 751 803
Tenant reimbursements 9,574 13,145 12,601
Interest and other 991 1,295 1,073
-------- -------- --------
Total revenues 28,899 42,761 41,702

Expenses
Property operating 7,277 9,979 10,043
Real estate taxes 3,131 4,229 4,121
Depreciation and amortization 5,437 11,055 9,626
Interest 8,954 12,995 11,279
Provision for asset impairment 27,757 - -
Other charges 553 3,014 1,980
-------- -------- --------
Total expenses 53,109 41,272 37,049
-------- -------- --------
Income (loss) before gain (24,210) 1,489 4,653
on sale of real estate
Gain on sale of real estate, net 26,152 - -
-------- -------- --------
Discontinued operations $ 1,942 $ 1,489 $ 4,653
======== ======== ========
====================================================================================================================================


2001 Sales Transactions

The operating results for properties disposed of during 2001 are not
classified as discontinued operations in the Consolidated Statements of
Operations. Such properties and/or their operating results through the dates of
their respective disposition are collectively referred to as the "2001 Property
Dispositions". The following discussion summarizes the terms of such
dispositions.

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 prorations,
closing costs and fees, the net proceeds from the Northgate Plaza sale were
$510. On March 16, 2001, we sold Prime Outlets at Silverthorne (the
"Silverthorne Center"), an outlet center located in Silverthorne, Colorado, to
Silverthorne Factory Stores, LLC for aggregate consideration of $29,000. The net
proceeds from the sale of the Silverthorne Center were $8,993, after the
repayment of certain mortgage indebtedness (see below) of $18,078 on Prime
Outlets at Lebanon (the "Lebanon Center") and prorations, closing costs and
fees. The net proceeds from these sales were used to prepay an aggregate $9,137
of principal outstanding under the Mezzanine Loan. In connection with these
sales, we recorded an aggregate gain on the sale of real estate of $732 during
the first quarter of 2001. The operating results of these properties are
included in our results of operations through the respective dates of
disposition.

Prior to the sale of the Silverthorne Center, it was one of the properties
securing our Mega Deal Loan. In conjunction with the closing of the Silverthorne
Center, we substituted the Lebanon Center for the Silverthorne Center in the
cross-collateralized asset pool securing the Mega Deal Loan pursuant to the
collateral substitution provisions contained in the loan agreement. In
conjunction with adding the Lebanon Center as security for the Mega Deal Loan,
we repaid certain mortgage indebtedness on the Lebanon Center of $18,078 (see
above).

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

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


Page - (F-17)

For the years ended December 31, 2001 and 2000, respectively, combined
revenues were $1,551 and $6,354, respectively, and combined expenses were $982
and $27,303 (including provision for asset impairment of $20,606), respectively
for Northgate Plaza and the Silverthorne Center as reflected in our results from
continuing operations through their respective dates of disposition. For the
years ended December 31, 2001 and 2000, our equity in losses (included in
interest and other income in the Consolidated Statements of Operations) for the
New River Center were $181 and $446, respectively.

2000 Sales Transactions

The operating results for properties disposed of during 2000 are not
classified as discontinued operations in the Consolidated Statements of
Operations. The following discussion summarizes the terms of such dispositions.

On February 23, 2000, we completed the sale of Prime Outlets at
Williamsburg (the "Williamsburg Center") to the Prime/Estein Venture for
aggregate consideration of $59,000, including the assumption of mortgage
indebtedness of $32,500. In connection with the sale of the Williamsburg Center,
we received (i) cash proceeds of $11,063, net of prorations, closing costs and
fees, and (ii) a promissory note in the amount of $10,000 from the Prime/Estein
Venture (of which Estein's obligation was $7,000). In connection with our
refinancing of the mortgage indebtedness on the Williamsburg Center in October
2001, the promissory note was deemed repaid in full (we received $7,000 from
Estein and our equity in the Prime/Estein Venture was increased by $3,000).
Effective on the date of disposition, we have accounted for our ownership
interest in the Williamsburg Center in accordance with the equity method of
accounting. See Note 6 - "Debt" for additional information. Under the terms of
the transaction, we will continue to manage, market and lease the Williamsburg
Center for a fee on behalf of the Prime/Estein Venture.

During March 2000, we completed the sale of an outparcel land located in
Camarillo, California for aggregate consideration of $4,563. The net cash
proceeds from the sale, including the release of certain funds held in escrow,
were $4,623, after closing costs and fees. In connection with this sale, we
recorded a gain on the sale of outparcel land (included in interest and other
income in the Consolidated Statements of Operations) of $2,472 during the first
quarter of 2000.

On December 22, 2000, we completed the sale of four outlet centers 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.

For the year ended December 31, 2000, combined revenues were $40,813 and
combined expenses were $34,609, respectively for the Williamsburg Center and the
Permanent Loan Properties as reflected in our results from continuing operations
through their respective dates of disposition.

Note 4 - Restricted Cash

As of December 31, 2002 and 2001, $107,037 and $37,885, respectively, of
cash and cash equivalents were placed in various escrows and, therefore,
classified as restricted cash in the Consolidated Balance Sheet. Restricted cash
as of December 31, 2002 includes $79,042 of US Treasury Securities held in
escrow for debt service associated with our defeased notes payable (see
"Defeased Notes Payable" contained in Note 6 - "Debt" for additional
information). The remainder of 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 (i) includes a cash collateral
account of $1,925 and $2,825 (10% of the original issuance amount) as of
December 31, 2002 and 2001, respectively, for certain fixed rate tax-exempt
revenue bonds (see Note 6 - "Debt" for additional information) and (ii) a $2,800
escrow as of December 31, 2002 related to our sale of the Puerto Rico Center
(see "Note 3 - "Property Dispositions" for additional information).


Page - (F-18)

Note 5 - Deferred Charges

Deferred charges were as follows:



- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 2002 2001
- ------------------------------------------------------------------------------------------------------------------------------------

Leasing commissions $ 7,031 $ 9,590
Financing costs 11,526 27,489
-------- --------
18,557 37,079
Accumulated amortization (14,791) (25,290)
-------- --------
$ 3,766 $ 11,789
======== ========
====================================================================================================================================


Note 6 - Debt

Bonds Payable

Bonds payable, consisting of tax-exempt revenue bonds and Urban Development
Action Grant ("UDAG") loans, were as follows:



- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 2002 2001
- ------------------------------------------------------------------------------------------------------------------------------------

Chattanooga Bonds, 7%, monthly interest and sinking fund payments, due December 15, 2012,
collateralized by properties in Chattanooga, TN (In Default) $ 17,920 $ 18,390

UDAG loans, 6%, monthly principal and interest payments, due August 2016 to September 2019,
collateralized by properties in Chattanooga, TN 4,575 4,650

Knoxville Bonds, 6.88%, monthly interest and sinking fund payments, due December 1, 2014,
collateralized by properties in Knoxville, TN - 8,935
-------- --------
$ 22,495 $ 31,975
======== ========
====================================================================================================================================


In 1999, we refinanced $28,250 of variable-rate, tax-exempt revenue bonds
by issuing an aggregate of $28,250 of fixed rate tax-exempt revenue bonds (the
"Fixed Rate Bonds"). The Fixed Rate Bonds consisted of (i) $19,250 of bonds
collateralized by properties located in Chattanooga, Tennessee (the "Chattanooga
Bonds") and $9,000 of bonds collateralized by properties located in Knoxville,
Tennessee (the "Knoxville Bonds"). The Chattanooga Bonds (i) bear interest at
7%, (ii) require semi-annual interest payments, (iii) require monthly sinking
fund payments and (iv) mature on December 15, 2012. The Knoxville Bonds were
repaid in full during 2002 in connection with the sales of the Shops at Western
Plaza and Melrose Place in June and October, respectively (see Note 3 -
"Property Dispositions" for additional information. The Chattanooga Bonds are
redeemable by us commencing in December 2006 at 102% of the then 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 then outstanding principal balance. Additionally, we are required to
maintain an amount equal to 10% of the original issuance amounts of the
Chattanooga Bonds in escrow (see Note 4 - "Restricted Cash" for additional
information). Fixed Rate Bonds of $470 and $480 were redeemed from the sinking
fund during the years ended December 31, 2002 and 2001, respectively.

The Chattanooga Bonds contain (i) certain covenants, including a minimum
debt-service coverage ratio financial covenant (the "Financial Covenant") and
(ii) cross-default provisions with respect to certain of our other credit
agreements. Based on the operations of the collateral properties, we were not in
compliance with the Financial Covenant for the quarters ended June 30, September
30 and December 31, 2002. In the event of non-compliance with the Financial
Covenant or default, the holders of the Chattanooga Bonds (the "Bondholders")
have the ability to put such obligations to us at a price equal to par plus
accrued interest. On January 31, 2003, we entered into an agreement (the
"Forbearance Agreement") with the Bondholders. The Forbearance Agreement
provides amendments to the underlying loan and other agreements that allow us to
be in compliance with various financial covenants, including the Financial
Covenant. So long as we continue to comply with the provisions of the
Forbearance Agreement and are not otherwise in default of the underlying loan
and other documents through December 31, 2004, the revised financial covenants
will govern. Additionally, certain quarterly tested financial covenants and
other covenants become effective June 30, 2004. Pursuant to the terms of the
Forbearance Agreement, we were required to fund $1,000 into an escrow account to
be used for conversion of certain of the retail space in the collateral
properties to office space and agreed that an event of default with respect to
the other debt obligations related to the property would also constitute a
default under the Chattanooga Bonds. We funded this required escrow in February
2003.


Page - (F-19)

Notes Payable

Notes payable consisted of the following:



- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 2002 2001
- ------------------------------------------------------------------------------------------------------------------------------------

Mega Deal Loan, 7.782%, monthly principal and interest of $2010, due
November 11, 2003, collateralized by 13 properties located throughout the United States $ 263,793 $ 342,629

Mortgage, 6.927% effective rate, monthly principal and interest of $565, due October 11, 2006,
collateralized by four properties located throughout the United States 71,326 72,954

Mortgage, 6.927% effective rate, monthly principal and interest of $527, due March 11, 2006,
collateralized by four properties located throughout the United States 61,621 63,521

Mortgage, 7.60%, monthly principal and interest of $450, due May 10, 2009, collateralized by
property located in Niagara Falls, NY 60,805 61,488

Mortgage, 8.35%, monthly principal and interest of $215, due June 11, 2007, collateralized by
three properties located throughout the United States (In Default) 24,919 25,327

Mortgage, 6.95% effective rate, monthly principal and interest of $140, due November 1, 2005,
collateralized by properties located in Vero Beach, FL (Foreclosed in September 2002) and
Woodbury, MN (In Default) 16,713 42,652

Mortgage, 6.95% effective rate, monthly principal and interest of $81, due November 1, 2005,
collateralized by property located in Perryville, MD 9,274 9,593

Other Notes Payable 2,992 2,992

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

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

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

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

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

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

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

Mortgage, 7.50%, monthly principal and interest of $29, due April 30, 2002, collateralized by
property located in Knoxville, TN - 2,972
--------- ---------
$ 511,443 $ 925,492
========= =========
====================================================================================================================================


Notes payable included unamortized debt premiums of $7,955 and $11,051 in
the aggregate at December 31, 2002 and 2001, respectively. Our debt premiums are
being amortized over the terms of the related debt instruments in accordance
with the effective interest method. Amortization of debt premiums (included in
interest expense in the Statements of Operations) was $2,020, $1,928 and $1,841
for the years ended December 31, 2002, 2001 and 2000, respectively.

Defaults on Certain Non-recourse Mortgage Indebtedness

During 2001, certain of our subsidiaries suspended regularly scheduled
monthly debt service payments on non-recourse mortgage loans which were
cross-collateralized by the Jeffersonville II Center and the Conroe Center. At
the time of suspension, these non-recourse mortgage loans were held by New York
Life. Effective January 1, 2002, New York Life foreclosed on the Conroe Center.
Effective July 18, 2002, New York Life sold its interest in the Jeffersonville
II Center loan. On August 13, 2002, we transferred our ownership interest in the
Jeffersonville II Center to New York Life's successor. See Note 3 - "Property
Dispositions" for additional information.


Page - (F-20)

During August 2002, certain of our subsidiaries suspended regularly
scheduled monthly debt service payments on non-recourse mortgage loans which
were cross-collateralized by the Vero Beach Center and the Woodbury Center.
These non-recourse mortgage loans were held by John Hancock. Effective September
9, 2002, John Hancock foreclosed on the Vero Beach Center. Additionally, we are
currently negotiating a transfer of our ownership interest in the Woodbury
Center to John Hancock. The aggregate carrying value of the Woodbury Center was
$15,736 as of December 31, 2002. Such amount is exceeded by the aggregate
carrying value of the non-recourse mortgage loan of $16,713, including an
unamortized debt premium of $382, as of December 31, 2002. Upon the transfer of
the Woodbury Center to John Hancock, we expect to record a non-recurring gain
for the difference between the carrying value of the property and its related
net assets and the outstanding loan balance and related liabilities. See Note 3
- - "Property Dispositions" for additional information.

In December 2002, we notified the servicer of certain non-recourse mortgage
loans (cross-collateralized by Prime Outlets at Bend, Prime Outlets at Post
Falls and Prime Outlets at Sedona) totaling $24,919 as of December 31, 2002 that
the net cash flow from the properties securing the loans was insufficient to
fully pay the required monthly debt service. At that time, certain of our
subsidiaries suspended the regularly scheduled monthly debt service payments.
Subsequent to our notification to the servicer, we have been remitting on a
monthly basis all available cash flow from the properties, after a reserve for
monthly operating expenses, as partial payment of the debt service. The failure
to pay the full amount due constitutes a default under the loan agreements which
allows the lender to accelerate the loan and to exercise various remedies
contained in the loan agreements, including application of escrow balances to
delinquent payments and, ultimately, foreclosure on the properties which
collateralize the loans. The lender has notified us that it has accelerated the
loan. Since that time we have initiated discussions with the servicer of the
loans regarding restructuring of the loans. There can be no assurance that such
discussions will result in any modification to the terms of the loans. However,
any action by the lender with respect to these properties is not expected to
have a material impact on our results of operations or financial condition
because we are currently only remitting available cash flow. These non-recourse
mortgage loans require the monthly funding of escrow accounts for the payment of
real estate taxes, insurance and capital improvements. Such escrow accounts
totaled $314 as of December 31, 2002, which is included in restricted cash in
the Consolidated Balance Sheet (see Note 3 - "Restricted Cash" for additional
information). The aggregate carrying value of these properties was $21,891 as of
December 31, 2002. Such amount is exceeded by the aggregate outstanding balance
of the non-recourse mortgage loans of $24,919 as of December 31, 2002. If the
lender were to foreclose on the collateral properties or we were to transfer our
ownership interest in the collateral properties to the lender, we would record a
non-recurring gain for the difference between the carrying value of the
properties and their related net assets and the outstanding loan balances and
related liabilities.

Defeased Notes Payable

On December 6, 2002, we completed the sale of our Colorado Properties,
which were part of the 15 properties contained in the collateral pool securing
the Mega Deal Loan, which had a then outstanding balance of $338,940. In
connection with the release of the Colorado Properties from the collateral pool,
we were required to partially defease the Mega Deal Loan. Therefore, the Mega
Deal Loan was bifurcated into (i) a defeased portion in the amount of $74,849
(the "Defeased Notes Payable") and (ii) an undefeased portion in the amount of
$264,091, which is still referred to as the Mega Deal Loan. Both the Defeased
Notes Payable and the Mega Deal Loan (i) bear interest at a fixed-rate of
7.782%, (ii) require monthly payments of principal and interest pursuant to a
30-year amortization schedule and (iii) mature on November 11, 2003. The Mega
Deal Loan is now secured by the remaining 13 properties contained in the
collateral pool. We used $79,257 of the gross proceeds from the sale of the
Colorado Properties to purchase US Treasury Securities, which were placed into a
trustee escrow (the "Trustee Escrow"). The Trustee Escrow is used to make the
scheduled monthly debt service payments, including the payment of the then
outstanding principal amount, together with all accrued and unpaid interest on
the maturity date of November 11, 2003, under the Defeased Notes Payable. As of
December 31, 2002, the outstanding balance of the Defeased Notes Payable was
$74,764 and the balance of the Trustee Escrow was $79,042 (included in
restricted cash in the Consolidated Balance Sheet). See Note 3 - "Property
Dispositions" for additional information. Furthermore, in connection with the
partial defeasance of the Mega Deal Loan we amended the Mega Deal Loan so that
(i) we are required to fund 10 monthly payments of $500 into a lender escrow to
be used as additional cash collateral and (ii) release prices for the remaining
13 properties in the collateral pool were amended to provide for a more orderly
refinancing of the Mega Deal Loan.


Page - (F-21)

Debt Service Obligations

The scheduled principal maturities of our debt, excluding (i) unamortized
debt premiums of $7,955 and (ii) $41,250 of aggregate non-recourse mortgage
indebtedness in default (see "Defaults on Certain Non-recourse Mortgage
Indebtedness" above), and related average contractual interest rates by year of
maturity as of December 31, 2002 are as follows:



- ------------------------------------------------------------------------------------------------------------------------------------
Bonds Payable
(including sinking Defeased
fund payments) Notes Payable Notes Payable Total Debt
--------------------- ------------------------ ---------------------- -----------------------
Average Average Average Average
Interest Principal Interest Principal Interest Principal Interest Principal
Years Ended December 31, Rates Maturities Rates Maturities Rates Maturities Rates Maturities
- ------------------------------------------------------------------------------------------------------------------------------------

2003 6.33% $ 680 7.79% $ 266,659 7.78% $ 74,764 7.78% $ 342,103
2004 6.34% 726 8.44% 3,075 8.04% 3,801
2005 6.34% 773 8.58% 11,574 8.44% 12,347
2006 6.34% 820 8.83% 120,437 8.81% 121,257
2007 6.34% 878 7.60% 1,002 7.02% 1,880
Thereafter 6.52% 18,618 7.57% 59,491 7.32% 78,109
---- -------- ---- --------- ---- -------- ---- ----------
6.49% $ 22,495 8.06% $ 462,238 7.78% $ 74,764 7.96% $ 559,497
==== ======== ==== ========= ==== ======== ==== ==========
====================================================================================================================================


Such indebtedness in the amount of $559,497 had a weighted-average maturity
of 2.6 years and bore contractual interest at a weighted-average rate of 7.96%
per annum. At December 31, 2002, all of such indebtedness bore interest at fixed
rates. Our scheduled principal payments during 2003 for such indebtedness
aggregated $342,103. In addition to regularly scheduled principal payments, the
2003 scheduled principal payments also reflect balloon payments of (i) $260,681
for the Mega Deal Loan and (ii) $73,882 due for the Defeased Notes Payable. Both
the Mega Deal Loan and the Defeased Notes Payable are scheduled to mature on
November 11, 2003. All debt service due under the Defeased Notes Payable,
including the balloon payment due at maturity, will be made from the Trustee
Escrow. See "Going Concern" for additional information.

Interest Expense

Interest costs are summarized as follows:



- ------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------------

Interest incurred $ 58,574 $ 75,451 $ 89,286
Amortization of deferred financing costs 4,747 6,341 2,922
Non-recurring loss on early extinguishment of debt 525 - 4,206
Amortization of debt premiums (2,020) (1,928) (1,841)
Interest capitalized to development projects - - (3,412)
-------- -------- --------
Total $ 61,826 $ 79,864 $ 91,161
======== ======== ========

Interest paid $ 64,757 $ 86,551 $ 99,611
======== ======== ========
====================================================================================================================================


The aggregate carrying amount of our debt at December 31, 2002 approximated
its fair value. Additionally, as of December 31, 2002, substantially all of our
assets were pledged as collateral for our debt.

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. A judgment for
foreclosure was entered on January 25, 2003 in the amount of $12,711. The
foreclosure occurred on March 17, 2003 with Union Labor acquiring the property
for $5,100. 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.


Page - (F-22)

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, 2002, we had no carrying value for our
investment in these properties.


2002 Debt Transactions

We disposed of certain properties through various transactions, including
sale, joint venture arrangements, foreclosure and transfer to lender, during the
year ended December 31, 2002. In connection with these dispositions, we reduced
our indebtedness by $349,378, including the partial defeasance of $74,849 of the
Mega Deal Loan. This reduction also includes (i) the repayment of associated
mortgage indebtedness aggregating $168,982, (ii) debt assumed by the purchaser
of $46,862 and (iii) debt associated with foreclosure or transfer of properties
aggregating $58,685. See Note 3 - "Property Dispositions" for additional
information.

At the beginning of 2002, our Mezzanine Loan had an outstanding balance of
$62,079. During 2002 we repaid the Mezzanine Loan in full through (i) regularly
scheduled monthly principal payments aggregating $9,295, (ii) additional
principal payments aggregating $45,467 made with excess proceeds from our asset
sales (see Note 3 - "Property Dispositions" for additional information) and
(iii) a payoff of $7,317 with cash from escrows and operating cash. In
connection with the early extinguishment of the Mezzanine Loan, we incurred a
non-recurring loss of $525 (included in interest expense in the Consolidated
Statements of Operations) in the fourth quarter of 2002 representing the
write-off of remaining unamortized deferred financing costs. The Mezzanine Loan
was obtained in December 2000 in the original amount of $90,000 and was
scheduled to mature on September 30, 2003. Through a series of amendments and
modifications to its terms, the Mezzanine Loan bore interest at a fixed-rate of
19.75% at the time of the retirement.

Guarantees and Guarantees of Indebtedness of Others

HGP Guarantees

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

Additionally, we are a guarantor with respect to certain mortgage
indebtedness (the "HGP Office Building Mortgage") in the amount of $2,240 on
HGP's corporate office building and related equipment located in Norton Shores,
Michigan. The HGP Office Building Mortgage matures in April 2003, bears interest
at LIBOR plus 5.50%, and requires monthly debt service payments.

On October 11, 2001, HGP announced that it was in default under two loans
with an aggregate principal balance of approximately $45.5 million secured by
six of its other outlet centers. Such defaults do not constitute defaults under
the HGP Monroe Mortgage Loan or the HGP Office Building Mortgage nor did they
constitute a default under the HGP Secured Credit Facility. We have not recorded
any liability related to these guarantees and no claims have been made under our
guarantees with respect to the HGP Monroe Mortgage Loan or the HGP Office
Building Mortgage. HGP is a publicly traded company that was formed in
connection with our merger with Horizon Group, Inc. ("Horizon") in June 1998.

Prime/Estein Venture Guarantees

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% (the
"Interest Rate Subsidy Agreement") for the Birch Run Center, the Williamsburg
Center and the Hagerstown Center.


Page - (F-23)

In August 2001, we, through affiliates, completed a refinancing of $63,000
of first mortgage loans secured by the Birch Run Center. The refinanced loan
(the "Birch Run First Mortgage") (i) has a term of 10-years, (ii) bears interest
at an effective rate of 8.12% and (iii) requires monthly payments of principal
and interest pursuant to a 25-year amortization schedule. Pursuant to the
Interest Rate Subsidy Agreement, we are required to pay to the Prime/Estein
Venture the difference between the cost of the financing at an assumed rate of
7.75% and the actual cost of such financing at the annual rate of 8.12% (the
"Interest Rate Subsidy Obligation"). The total payments to the Prime/Estein
Venture by us over the term of the Birch Run First Mortgage Loan will be
approximately $2,723. In connection with the refinancing, we recorded a
non-recurring loss of $1,882 (included in other charges in the Consolidated
Statements of Operations) during the third quarter of 2001 representing the net
present value of the Interest Rate Subsidy Obligation. Additionally, we also
incurred $1,036 of non-recurring refinancing costs (included in other charges)
in the third quarter of 2001. As of December 31, 2002, the Interest Rate Subsidy
Obligation (included in accounts payable and other liabilities in the
Consolidated Balance Sheet) was $1,477.

In October 2001, we, through affiliates, completed the refinancing of a
$32,500 first mortgage loan secured by the Williamsburg Center. The new first
mortgage loan (the "Williamsburg First Mortgage") (i) has a term of 10-years,
(ii) bears interest at a fixed-rate of 7.69% and (iii) requires monthly payments
of principal and interest pursuant to a 25-year amortization schedule. Pursuant
to the Interest Rate Subsidy Agreement, the Prime/Estein Venture is required to
pay to us the difference between the cost of the financing at an assumed rate of
7.75% and the actual cost of such financing at the annual rate of 7.69%.

On January 11, 2002, we sold the Hagerstown Center to the Prime/Estein
Venture. In connection with the sale, the Prime/Estein Venture assumed the
Hagerstown First Mortgage in the amount of $46,862; however, our guarantee of
such indebtedness remains in place. Additionally, we are obligated to refinance
the Hagerstown First Mortgage on behalf of the Prime/Estein Venture on or before
June 1, 2004, the date on which such indebtedness matures. Additionally, the
Prime/Estein Venture's cost of the Hagerstown First Mortgage 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
10-year period, we will be obligated to pay the difference to the Prime/Estein
Venture. If the actual cost of such indebtedness is less than 7.75% at any time
during the 10-year period, however, the Prime/Estein Venture will be obligated
to pay the difference to us. The actual cost of the Hagerstown First Mortgage is
30-day LIBOR plus 1.50%, or 2.88% as of December 31, 2002. Because the
Hagerstown First Mortgage bears interest at a variable rate, we are exposed to
the impact of interest rate changes. We have not recorded any liability related
to our guarantee of the Hagerstown First Mortgage; however, in connection with
the sale of the Hagerstown Center, we established a reserve for estimated
refinancing costs in the amount of $937, which is included in accounts payable
and other liabilities in the Consolidated Balance Sheet as of December 31, 2002.
See Note 3 - "Property Dispositions" of the Notes to Consolidated Financial
Statements for additional information.

Mandatory Redemption Obligation

On July 26, 2002, we sold the Bridge Properties to the PFP Venture. In
connection with the sale, we guaranteed FRIT (i) a 13% return on its $17,236 of
invested capital and (ii) the full return of its invested capital by December
31, 2003. As of December 31, 2002, our Mandatory Redemption Obligation with
respect to the full return of FRIT's invested capital was $16,667 (included in
accounts payable and other liabilities in the Consolidated Balance Sheet). See
Note 3 - "Property Dispositions" for additional information.

Going Concern

Our liquidity depends on cash provided by operations and potential capital
raising activities such as funds obtained through borrowings, particularly
refinancing 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 and
other 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 2003, our Mega Deal Loan matures on November 11, 2003. The Mega Deal
Loan, which is secured by a 13 property collateral pool, had an outstanding
principal balance of $263,793 as of December 31, 2002 and will require a balloon
payment of $260,681 at maturity. Based on our initial discussions with various
prospective lenders, we are currently projecting a potential shortfall with
respect to refinancing the Mega Deal Loan. Nevertheless, we believe this
shortfall may be alleviated through potential asset sales and/or other capital
raising activities, including the placement of mezzanine level debt. We caution
that our assumptions are based on current market conditions and, therefore, are
subject to various risks and uncertainties, including changes in economic
conditions which may adversely impact our ability to refinance the Mega Deal
Loan at favorable rates or in a timely and orderly fashion and which may
adversely impact our ability to consummate various asset sales or other capital
raising activities.


Page - (F-24)

In connection with the completion of the sale of the Bridge Properties in
July 2002, we guaranteed to FRIT (i) a 13% return on its $17,236 of invested
capital, and (ii) the full return of the Mandatory Redemption Obligation by
December 31, 2003. As of December 31, 2002, the Mandatory Redemption Obligation
(included in accounts payable and other liabilities in the Consolidated Balance
Sheet) was $16,237. See Note 3 - "Property Dispositions" for additional
information. Although we are in the process of seeking to generate additional
liquidity to repay the Mandatory Redemption Obligation through (i) the sale of
FRIT's ownership interest in the Bridge Properties and/or (ii) the placement of
additional indebtedness on the Bridge Properties, there can be no assurance that
we will be able to complete such capital raising activities by December 31, 2003
or that such capital raising activities, if they should occur, will generate
sufficient proceeds to repay the Mandatory Redemption Obligation in full.
Failure to repay the Mandatory Redemption Obligation by December 31, 2003 would
constitute a default, which would enable FRIT to exercise its rights with
respect to the collateral pledged as security to the guarantee, including some
of our partnership interests in the 13 property collateral pool under the
aforementioned Mega Deal Loan.

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.

Note 7 - Investment in Unconsolidated Joint Ventures

We account for our investment in unconsolidated joint ventures in
accordance with the equity method of accounting as we exercise significant
influence, but do not control these entities. In all of our joint venture
arrangements, the rights of the investors are both protective as well as
participating. Therefore, these participating rights preclude us from
consolidating our investments. Our investments are recorded initially at our
cost and subsequently adjusted for equity in earnings (losses) and cash
contributions and distributions.

As of December 31, 2002 our interests in joint venture partnerships
included (i) three outlet centers owned by the Prime/Estein Venture and (ii) six
properties owned by the PFP Venture. The Prime/Estein Venture owns the Birch Run
Center, the Williamsburg Center and the Hagerstown Center which contain an
aggregate 1,485,000 square feet of GLA. The PFP Venture owns the Bridge
Properties (Prime Outlets at Anderson, Prime Outlets at Calhoun, Prime Outlets
at Gaffney, Prime Outlets at Latham, Prime Outlets at Lee and Prime Outlets at
Lodi) which contain an aggregate 1,304,000 square feet of GLA. On April 19,
2002, we completed the sale of the Bellport Outlet Center. We had a 51%
ownership interest in the joint venture partnership that owned the Bellport
Outlet Center and accounted for our ownership interest in accordance with the
equity method of accounting through the date of disposition. See Note 3 -
"Property Dispositions" and Note 6 - "Debt" for additional information.

The following summarizes unaudited condensed financial information for the
Bellport Outlet Center, the Prime/Estein Venture and the PFP Venture as of and
for the year ended December 31, 2002:



- ------------------------------------------------------------------------------------------------------------------------------------
Bellport Prime/Estein
Years Ended December 31, 2002 Outlet Center Venture PFP Venture Total
- ------------------------------------------------------------------------------------------------------------------------------------

Total revenues $ 622 $ 35,712 $ 10,571 $ 46,905
Total expenses 1,000 33,547 8,604 43,151
------ -------- -------- --------
Net income (loss) $ (378) $ 2,165 $ 1,967 $ 3,754
====== ======== ======== ========
====================================================================================================================================




- ------------------------------------------------------------------------------------------------------------------------------------
Prime/Estein
December 31, 2002 Venture PFP Venture Total
- ------------------------------------------------------------------------------------------------------------------------------------

Total assets $ 242,921 $ 127,933 $ 370,854
Total liabilities 144,063 92,779 236,842
Total partners' capital 98,858 35,154 134,012
====================================================================================================================================



Page - (F-25)

The following summarizes our investment in unconsolidated joint ventures as
of December 31, 2002, and 2001 and related activity during the year ended
December 31, 2002:



- ------------------------------------------------------------------------------------------------------------------------------------
Bellport Prime/Estein
Outlet Center Venture PFP Venture Total
- ------------------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 2001 $ 1,689 $ 22,850 $ - $ 24,539

Capital contributions - 2,974 23,349 26,323

Equity in earnings (losses) (1) (378) 673 671 966

Distributions (86) (62) (566) (714)

Proceeds from sale (522) - - (522)

Loss on sale (703) - - (703)
------- -------- -------- --------
Balance, December 31, 2002 $ - $ 26,435 $ 23,454 $ 49,889
======= ======== ======== ========
====================================================================================================================================


Note:
(1) Equity in earnings (losses) is included in interest and other income in the
Consolidated Statements of Operations. Additionally, our share of equity in
losses for the years ended December 31, 2001 and 2000 were $1,594 and
$2,552, respectively.

Note 8 - 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 2002 and 2001, no Common Units were exchanged for shares of Common
Stock. During 2000, 29,296 Common Units were exchanged for shares of Common
Stock. As of December 31, 2002, 10,810,912 Common Units were issued and
outstanding. Minority interests also include interests in two property
partnerships that are not wholly owned by the Company. During the years ended
December 31, 2002, 2001, and 2000, expenses totaling $1,687, $1,981 and $2,928,
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 year ended December 31, 2002, there was no allocation of losses
or income to minority interests. During the years ended December 31, 2001 and
2000, the loss allocated to minority interests totaled $408 and $738,
respectively. Previous cash distributions and losses allocated to minority
interests have reduced our 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 would be treated as income
allocated to minority interests.

Note 9 - 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,
2002, 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, 2002, 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 our Series A Senior Preferred Stock and 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.


Page - (F-26)

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 distributions, if necessary, 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 policy remains to pay distributions only to the extent necessary to
maintain our status as a REIT for federal income tax purposes. During 2002, we
were not required to pay any distributions in order to maintain our status as a
REIT and based on our current federal income tax projections, we do not expect
to pay any distributions during 2003. We are currently in arrears on thirteen
quarters of preferred stock distributions due February 15, 2000 through February
15, 2003, respectively.

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, 2002, unpaid dividends for the period beginning
on November 16, 1999 through December 31, 2002 on our Series A Senior Preferred
Stock and Series B Convertible Preferred Stock aggregated $18,867 and $51,984,
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, 2002 are $6,037 ($2.625 per share) and
$16,635 ($2.125 per share), respectively.

Note 10 - 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 2002 we granted options to executive officers and other key
employees to purchase 1,892,524 shares of common stock at $0.11 per share. These
options, which have a term of 10 years, vest pro-ratable on the anniversary date
of the grant over a three-year period. As of December 31, 2002, none of these
options were vested. 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.

We have adopted the disclosure-only provisions of FAS 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 FAS No. 123, our unaudited pro forma net loss per share would have
been as follows:


- ------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------------

Net loss $ (99,121) $ (98,209) $ (144,116)
========== ========== ==========
Net loss applicable to common shares $ (121,793) $ (120,881) $ (166,788)
========== ========== ==========
Basic and diluted loss per common share $ (2.79) $ (2.77) $ (3.83)
========== ========== ==========
- ------------------------------------------------------------------------------------------------------------------------------------


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:




- ------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------------

Risk-free interest rate 5.0% 5.0% 5.0%
Dividend yield 0.0% 0.0% 0.0%
Volatility factor 0.37 0.37 0.87
Weighted average life (in years) 10.0 10.0 10.0
====================================================================================================================================


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.


Page - (F-27)

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



- ------------------------------------------------------------------------------------------------------------------------------------
2002 2001 2000
--------------------------- -------------------------- --------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- ------------------------------------------------------------------------------------------------------------------------------------

Beginning of year 4,388,756 $ 9.49 4,131,056 $ 9.98 3,280,317 $ 14.12
Granted 1,892,524 0.11 300,000 2.00 1,507,600 1.91
Cancelled (2,220,967) 5.69 (42,300) 4.09 (656,861) 12.13
---------- ------ --------- ------- --------- -------
End of year 4,060,313 $ 4.83 4,388,756 $ 9.49 4,131,056 $ 9.98
========== ====== ========= ======= ========= =======
Exercisable - end of year 2,167,789 $ 8.96 3,998,756 $ 10.10 3,276,987 $ 11.84
========== ====== ========= ======= ========= =======
====================================================================================================================================




- ------------------------------------------------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
------------------------------------------------- ----------------------------
Weighted Weighted Weighted
Average Average Average
Remaining Exercise Exercise
Range of Exercise Price Shares Life in Years Price Shares Price
- ------------------------------------------------------------------------------------------------------------------------------------

$0.11 1,892,524 9.4 $ 0.11 - $ -
$1.69 to $2.00 753,230 6.0 1.83 753,230 1.83
$8.50 60,000 6.6 8.50 60,000 8.50
$11.15 to $13.09 1,140,705 4.5 12.25 1,140,705 12.25
$13.60 to $14.19 142,490 4.3 13.67 142,490 13.67
$19.00 30,000 1.2 19.00 30,000 19.00
$23.53 13,788 3.3 23.53 13,788 23.53
$24.55 to $26.57 27,576 2.2 26.13 27,576 26.13
--------- --- ------ --------- ------
Total 4,060,313 7.1 $ 4.83 2,167,789 $ 8.96
========= === ====== ========= ======
====================================================================================================================================


The weighted fair value of options granted during the years ended December
31, 2002, 2001 and 2000 was $0 per share. Under our various plans there were
1,225,224 and 1,170,986 shares reserved for future grants at December 31, 2002
and 2001, respectively.

Note 11 - Lease Agreements

Certain non-recourse mortgage loans on four outlet centers are currently in
default. We are currently negotiating the transfer of one of these outlet
centers, the Woodbury Center, to the lender. The other three properties (Prime
Outlets at Bend, Prime Outlets at Post Falls and Prime Outlets at Sedona) secure
first mortgage loans that are cross-collateralized. We are currently in
discussion with the loan servicer regarding restructuring the loans. See
"Defaults on Certain Non-recourse Indebtedness" contained in Note 6 - "Debt" for
additional information. The following disclosures exclude the lease agreements
related to these properties.

We are the lessors of retail and office space under operating leases with
lease terms that expire from 2003 to 2017. Many of these leases contain renewal
provisions at the lessee's option. Future minimum base rent to be received under
noncancelable operating leases as of December 31, 2002 were as follows:



- ------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------

2003 $ 67,929
2004 51,002
2005 36,160
2006 25,261
2007 16,870
Thereafter 31,327
---------
$ 228,549
=========
====================================================================================================================================



Page - (F-28)

We lease certain land, buildings, and equipment under various noncancelable
operating lease agreements. Rental expense for operating leases was $1,759,
$1,782, and $2,988 for the years ended December 31, 2002, 2001, and 2000,
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, 2002 consisted of the following:



- ------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------

2003 $ 1,519
2004 1,199
2005 348
2006 268
2007 201
Thereafter 5,178
-------
$ 8,713
=======
====================================================================================================================================


Note 12 - Special Charges

Non-recurring Other Charges

During the second quarter of 2002, we recorded a non-recurring charge in
the amount of $3,000 to establish a reserve for pending and potential tenant
claims with respect to lease provisions related to their pass-through charges
and promotional fund charges. We had previously recorded a non-recurring charge
in the amount of $2,000 to establish a reserve for similar matters during the
fourth quarter of 2001. To date, we have entered into settlement agreements
providing for payments aggregating $2,760, of which $2,607 was paid as of
December 31, 2002. The remaining reserve of $2,393 is included in accounts
payable and other liabilities in the Consolidated Balance Sheet as of December
31, 2002. See Note 13 - "Legal Proceedings" for additional information.

These reserves were estimated in accordance with our established policies
and procedures with respect to loss contingencies (see "Contingencies" contained
in Note 2 - "Significant Accounting Policies" for additional information) and is
based on our current assessment of the likelihood of any adverse judgments or
outcomes to these matters. Based on presently available information, we believe
it is probable the remaining reserve will be utilized over the next several
years in connection with the resolution of further claims relating to the
pass-through and promotional fund provisions contained in our leases. We
caution, however, that given the inherent uncertainties of litigation and the
complexities associated with a large number of leases and other factual
questions at issue, actual costs may vary from our estimate.

Additionally, the 2001 results include (i) a third quarter non-recurring
loss of $1,882 representing the net present value of our Interest Rate Subsidy
Obligation on the Birch Run Center and (ii) a third quarter non-recurring loss
of $1,036 related to the refinancing of first mortgage loans on the Birch Run
Center. See "Prime/Estein Venture Guarantees" contained in Note 6 - "Debt" for
additional information.

The 2000 results include (i) non-recurring costs of $5,517 related to
eOutlets.com (as discussed below), (ii) a loss on operations of our Designer
Connection outlet stores of $1,815 and (iii) non-recurring third quarter costs
of $1,100 related to the termination of a sale agreement. We ceased the
operations of our Designer Connection outlet stores during 2000.

Provision for Asset Impairment

During the third quarter of 2002, certain events and circumstances
occurred, including (i) changes to the anticipated holding periods of certain of
our long-lived assets and (ii) reduced occupancy and limited leasing success,
that indicated that certain of our properties were impaired on an other than
temporary basis. As a result, we recorded a provision for asset impairment
aggregating $81,619 representing the write-down of these properties to their
estimated fair values in accordance with the requirements of FAS No. 144.
Additionally, during the fourth quarter of 2002, we recognized a provision for
asset impairment of $2,474 to fully write-off the carrying value of certain
costs previously capitalized in connection with former development activities
based on our current assessment as to our ability to recover their carrying
value. During the third quarter of 2001, we had also determined that certain
events and circumstances had occurred, including reduced occupancy and limited
leasing success, that indicated that certain of our properties were impaired on
an other than temporary basis. As a result, we recorded a provision for asset
impairment aggregating $63,026, representing the write-down of the carrying
value of these properties to their estimated fair values in accordance with the
requirements of FAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and Long-Lived Assets to be Disposed of". During 2000, we recorded a provision
for asset impairment aggregating $77,115. This provision for asset impairment
consisted of (i) a $28,047 write-down of the carrying value of certain
properties resulting from their classification to assets held for sale, (ii) a
$40,616 write-down of the carrying values of certain properties resulting from
other than temporary declines in their values and (iii) a $8,452 write-down
associated with our discontinuance of eOutlets.com (as discussed below).


Page - (F-29)

eOutlets.com

In April 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. eOutlets.com was a new, development-stage,
internet-based business. During 2000, we incurred a non-recurring loss
aggregating $14,703 related to eOutlets.com. This loss consisted of (i) the
write-off of $8,452 of capitalized costs (included in provision for asset
impairment), (ii) $5,517 of costs included in other charges and (iii) $734 of
costs included in corporate general and administrative expense.

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 an adverse effect on our consolidated financial statements.

The Company and its affiliates were defendants in a lawsuit filed by
Accrued Financial Services ("AFS") on August 10, 1999 in the Circuit Court for
Baltimore City. The lawsuit was removed to United States District Court for the
District of Maryland (the "U.S. District Court") on August 20, 1999. AFS claimed
that certain tenants had assigned to AFS their rights to make claims under
leases such tenants had with affiliates of the Company and alleged that the
Company and its affiliates overcharged such tenants for common area maintenance
charges and promotion fund charges. The U.S. District Court dismissed the
lawsuit on June 19, 2000. AFS appealed the U.S. District Court's decision to the
United States Court of Appeals for the Fourth Circuit. Briefs were submitted and
oral argument before a panel of judges of the United States Court of Appeals for
the Fourth Circuit was held on October 30, 2001, during which the panel of
judges requested further briefing of certain issues. On July 29, 2002, the
Fourth Circuit affirmed the dismissal. AFS filed a request for further review by
the Fourth Circuit which request was denied. In January, 2003, AFS filed a
petition for a writ of certiorari by the United States Supreme Court and the
Company filed its opposition on February 24, 2003. The Company believes it has
acted properly and will continue to defend the suit vigorously if AFS's petition
is granted. Nevertheless, if the AFS writ of certiorari is successful, the
outcome of this lawsuit and the ultimate liability of the defendants, if any,
cannot be predicted at this time.

In addition, certain tenants in the Company's and its affiliates' outlet
centers have made or may make allegations concerning overcharging for CAM and
promotion fund charges because of varying clauses in their leases pursuant to
which they claim under various circumstances that they were not required to pay
some or all of the pass-through charges. Such claims if asserted and found
meritorious, could have a material affect on the Company's financial condition.
Determination of whether liability would exist to the Company would depend on
interpretation of various lease clauses within a tenant's lease and all of the
other leases at each center collectively. To date such issues have been raised
and resolved with Dinnerware Plus Holdings, Inc. ("Mikasa"), Melru Corporation,
Designs, Inc. and Brown Group Retail, Inc., all of which at one time or another
were in litigation, or threatened litigation with the Company. During the second
quarter of 2002, the Company recorded a non-recurring charge to establish a
reserve in the amount of $3,000 for resolution of these matters, in addition to
the Mikasa matter referred to above. This reserve which is included in the
accounts payable and other liabilities in the Consolidated Balance Sheet as of
December 31, was estimated in accordance with our established policies and
procedures concerning loss contingencies for additional information). The
balance of the unused reserve is $2,393 as of December 31, 2002. Based on
presently available information, the Company believes it is probable this
reserve will be utilized over the next several years in resolving claims
relating to the pass-through and promotional fund provisions contained in its
leases. The Company cautions, however, that given the inherent uncertainties of
litigation and the complexities associated with a large number of leases and
other factual questions at issue, actual costs may vary from this estimate. No
other such tenant, however, has filed a suit or indicated to the Company that it
intends to file a suit. Nevertheless, it is too early to make any predictions as
to whether the Company or its affiliates may be found liable with respect to
other tenants, or to predict damages should liability be found.


Page - (F-30)



Affiliates of the Company routinely file lawsuits to collect past rent due
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, made misrepresentations during the
leasing process, or has failed to maintain or market the outlet center in
question as required by the lease. One such case involves a collections and
eviction action in Puerto Rico captioned Outlet Village of Puerto Rico Limited
Partnership, S.E. v. WEPA, Inc., and another, for instance, involves a
collection case in San Marcos, Texas, captioned, San Marcos Factory Stores, Ltd.
v. SM Collectibles, Inc. d/b/a Country Clutter. 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.

Several entities (the "eOutlets Plaintiffs") filed or stated an intention
to file lawsuits (collectively, the "eOutlets Lawsuits") against the Company and
its affiliates arising out of the Company's on-line venture, primeoutlets.com.
inc., also known as eOutlets, an affiliate of the Company. The eOutlets
Plaintiffs seek to hold the Company and its affiliates responsible under various
legal theories for liabilities incurred by primeoutlets.com, inc., including the
theories that the Company guaranteed the obligations of eOutlets and that the
Company was the "alter-ego" of eOutlets. The Company believes that it is not
liable to eOutlets Plaintiffs as there was no privity of contract between it and
the various eOutlets Plaintiffs. 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. In another matter, J. Walter Thompson, USA, Inc. v. Prime
Retail, L.P. and Prime Retail, Inc. the Company succeeded in having the
corporate veil piercing and alter ego claims dismissed and settled the remaining
claims in February 2003. primeoutelts.com, inc. filed for protection under
Chapter 7 of the United States Bankruptcy Code in November of 2000 under the
name E-Outlets Resolution Corp. (the "Debtor"). On November 5, 2002, the
bankruptcy trustee for the Debtor brought suit against Prime Retail, L.P. ,
Prime Retail, Inc., and Prime Retail E-Commerce, Inc. (the "Entity Defendants")
and certain former directors of the Debtor (the "Individual Defendants"). The
Trustee has asserted claims of alter ego, promissory estoppel, breach of
contract, breach of fiduciary duty, tortious interference with prospective
business advantage, unjust enrichment and quantum meruit against the Entity
Defendants and breach of fiduciary duty and gross negligence against the
individual defendants. The Company has tendered the suit, both as to the Entity
Defendants and Individual Defendants, to its Directors' and Officers' ("D&O")
insurance carrier. Motions to dismiss the suit have been filed by all
Defendants. All Defendants believe the suit is without merit and plan on
defending it vigorously. Nevertheless, the outcome of this lawsuit, and the
ultimate liability of the Company, 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
because of FCC's failure to dispose of the collateral in a commercially
reasonable manner and as a result of a violation of federal trademark laws. 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 property 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. Nevertheless, the ultimate outcome of the suit, including
the liability, if any, of the Company and its affiliates, cannot be predicted at
this time.


Page - (F-31)

Note 14 - Risk Management Activities

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

Interest Rate Risk

In the ordinary course of business, we are exposed to the impact of
interest rate changes. We employ established policies and procedures to manage
our exposure to interest rate changes. Historically, we have used 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 cases, we have used derivative financial instruments such as
interest rate protection agreements to manage interest rate risk associated with
variable-rate indebtedness. Nevertheless, as of December 31, 2002, all of our
outstanding indebtedness bore interest at fixed rates. As discussed in
"Guarantees and Guarantees of Indebtedness of Others" of Note 6 - "Debt", we
sold the Hagerstown Center on January 11, 2002 to the Prime/Estein Venture. In
connection with the sale, the Prime/Estein Venture assumed the Hagerstown First
Mortgage in the amount of $46,862; however, our guarantee of such indebtedness
remains in place. Additionally, we are obligated to refinance the Hagerstown
First Mortgage on behalf of the Prime/Estein Venture on or before June 1, 2004,
the date on which such indebtedness matures. Additionally, the Prime/Estein
Venture's cost of the Hagerstown First Mortgage 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 10-year period, we
will be obligated to pay the difference to the Prime/Estein Venture. If the
actual cost of such indebtedness is less than 7.75% at any time during the
10-year period, however, the Prime/Estein Venture will be obligated to pay the
difference to us. The actual cost of the Hagerstown First Mortgage is 30-day
LIBOR plus 1.50%, or 2.88% as of December 31, 2002. Because the Hagerstown First
Mortgage bears interest at a variable rate, we are exposed to the impact of
interest rate changes. At December 31, 2002, a hypothetical 100 basis point move
in the LIBOR rate would impact our guarantee by $469. See Note 3 - "Property
Dispositions" for additional information.

Economic Conditions

In general, the leases relating to our outlet centers have terms of three
to five years and most 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 rents for annual sales in excess
of certain thresholds based on merchants' gross sales. In addition, lease
agreements generally provide 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 monitor our
lease provisions in light of current and expected economic conditions and other
factors. In this regard, we may consider alternative lease provisions (e.g.,
fixed CAM) where appropriate.


Page - (F-32)

PRIME RETAIL, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2002
(in thousands)


Costs Capitalized
Initial Cost to Subsequent to Gross Amount at Which
Company Acquisition Carried at Close of Period
--------------- ----------------- ----------------------------
Bldgs & Bldgs & Bldgs & Accumulated Constructed(C)
Description Encumbrance Land Improve Land Improve Land Improve Total Depreciation Acquired (A)
- ------------------------------------------------------------------------------------------------------------------------------------

First Mortgage and
Expansion Loan:
- ------------------
Prime Outlets at
Darien $ 24,090 $ - $ - $ 2,948 $ 12,022 $ 2,948 $ 12,022 $ 14,970 $ 7,826 1995 (C)
Prime Outlets at
Ellenton 27,997 - - 5,457 49,609 5,457 49,608 55,065 15,098 1991 (C)
Prime Outlets at
Florida City 14,867 - - 4,275 8,328 4,275 8,328 12,603 6,113 1994 (C)
Prime Outlets at
Gainesville 19,804 - - 1,100 15,363 1,100 15,363 16,463 9,860 1993 (C)
Prime Outlets at
Grove City 39,282 1,123 58,630 800 2,730 1,923 61,360 63,283 12,237 1996 (A)
Prime Outlets at
Gulfport 18,990 - - - 35,593 - 35,593 35,593 10,216 1995 (C)
Prime Outlets at
Huntley 16,928 - - 1,970 17,784 1,970 17,784 19,754 9,464 1994 (C)
Prime Outlets at
Jeffersonville I 25,229 843 31,084 196 15,362 1,039 46,446 47,485 13,265 1994 (A)
Prime Outlets at
Lebanon 24,741 - - 2,689 31,854 2,689 31,854 34,543 7,720 1998 (C)
Prime Outlets at
Morrisville 8,959 - - 2,502 12,977 2,502 12,977 15,479 6,866 1991 (C)
Prime Outlets at
Naples 10,309 2,753 15,602 5 (6,583) 2,758 9,019 11,777 4,175 1994 (A)
Prime Outlets at
Odessa 13,890 815 31,311 - (19,754) 815 11,557 12,372 6,609 1996 (A)
Prime Outlets at
San Marcos 37,600 - - 1,995 46,698 1,995 46,698 48,693 17,306 1990 (C)
Unallocated defeased
debt (18,893) - - - - - - - - Not applicable
-------- ------- -------- ------- -------- -------- -------- -------- --------
Total 263,793 5,534 136,627 23,937 221,983 29,471 358,609 388,080 126,755
-------- ------- -------- ------- -------- -------- -------- -------- --------

First Mortgage Loan:
- --------------------
Prime Outlets at
Bend 7,383 2,560 8,476 1,101 449 3,661 8,925 12,586 2,299 1997 (A)
Prime Outlets at
Post Falls 10,983 3,100 12,163 - (7,608) 3,100 4,555 7,655 1,880 1997 (A)
Prime Outlets at
Sedona 6,553 1,924 9,099 750 (4,464) 2,674 4,635 7,309 1,480 1997 (A)
-------- ------- -------- ------- -------- -------- -------- -------- --------
Total 24,919 7,584 29,738 1,851 (11,623) 9,435 18,115 27,550 5,659
-------- ------- -------- ------- -------- -------- -------- -------- --------

First Mortgage Loan:
- --------------------
Prime Outlets at
Burlington 12,331 3,694 21,370 (164) 300 3,530 21,670 25,200 3,572 1998 (A)
Prime Outlets at
Fremont 12,830 3,250 24,096 - 247 3,250 24,343 27,593 4,010 1998 (A)
Prime Outlets at
Kenosha 21,080 6,995 39,558 138 4,913 7,133 44,471 51,604 7,240 1998 (A)
Prime Outlets at
Oshkosh 12,694 2,160 26,895 - 445 2,160 27,340 29,500 5,066 1998 (A)
-------- ------- -------- ------- -------- -------- -------- -------- --------
Total 58,935 16,099 111,919 (26) 5,905 16,073 117,824 133,897 19,888
-------- ------- -------- ------- -------- -------- -------- -------- --------

First Mortgage Loan:
- --------------------
Prime Outlets at
Hillsboro 27,283 7,121 50,894 - 1,047 7,121 51,941 59,062 8,342 1998 (A)
Prime Outlets at
Pismo Beach 11,296 9,048 17,617 - 148 9,048 17,765 26,813 3,249 1998 (A)
Prime Outlets at
Queenstown 16,657 4,422 35,592 - 1,533 4,422 37,125 41,547 5,045 1998 (A)
Prime Outlets at
Tracy 11,584 6,170 16,715 - 385 6,170 17,100 23,270 3,456 1998 (A)
-------- ------- -------- ------- -------- -------- -------- -------- --------
Total 66,820 26,761 120,818 - 3,113 26,761 123,931 150,692 20,092
-------- ------- -------- ------- -------- -------- -------- -------- --------

Other:
- ------
Prime Outlets at
Niagara Falls USA 60,805 7,247 82,842 - (36,612) 7,247 46,230 53,477 11,119 1997 (A)
Prime Outlets at
Perryville 8,893 3,089 16,287 - 1,783 3,089 18,070 21,159 2,517 1998 (A)
Prime Outlets at
San Marcos II 2,992 - - 4,468 17,691 4,468 17,691 22,159 2,156 1999 (C)
Prime Outlets at
Warehouse Row 22,495 - - 1,174 26,672 1,174 26,672 27,846 15,283 1989 (C)
Prime Outlets at
Woodbury 16,331 2,528 27,645 - (11,039) 2,528 16,606 19,134 3,398 1998 (A)
Other Property - - - 1,300 9,568 1,300 9,568 10,868 6,737 1999 (A)
-------- ------- -------- ------- -------- -------- -------- -------- --------
Total 111,516 12,864 126,774 6,942 8,063 19,806 134,837 154,643 41,210
-------- ------- -------- ------- -------- -------- -------- -------- --------
TOTAL $525,983 $68,842 $525,876 $32,704 $227,441 $101,546 $753,316 $854,862 $213,604
======== ======= ======== ======= ======== ======== ======== ======== ========



Page - (F-33)

PRIME RETAIL, INC.
Notes to Schedule III - Real Estate and Accumulated Depreciation
December 31, 2002

(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 Principally term of related lease
Furniture and equipment 5 years

The aggregate cost for federal income tax purposes was $966,709 at December 31,
2002.



- ------------------------------------------------------------------------------------------------------------------------------------
Investment in Rental Property
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------------

Balance, beginning of year $ 1,375,608 $ 1,493,107 $ 1,826,551
Retirements (3,815) (7,406) (6,281)
Improvements 7,713 16,013 51,833
Dispositions (412,794) (416) (309,942)
Transfers to assets held for sale, net - (62,664) (4,513)
Provision for asset impairment - operating properties (84,093) (63,026) (64,541)
Provision for asset impairment - discontinued operations (27,757) - -
----------- ----------- -----------
Balance, end of year $ 854,862 $ 1,375,608 $ 1,493,107
=========== =========== ===========
====================================================================================================================================




- ------------------------------------------------------------------------------------------------------------------------------------
Accumulated Depreciation
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------------

Balance, beginning of year $ 258,124 $ 217,569 $ 183,954
Retirements (3,815) (7,406) (6,281)
Other (23) (387) (818)
Dispositions (80,156) - (23,469)
Transfers to assets held for sale, net - (8,036) (2,672)
Depreciation expense 34,087 45,466 57,317
Depreciation expense - discontinued operations 5,387 10,918 9,538
--------- --------- ----------
Balance, end of year $ 213,604 $ 258,124 $ 217,569
========= ========= =========
====================================================================================================================================