Contract

by Prime Retail
January 30th, 1997






FOR IMMEDIATE RELEASE                           FOR MORE INFORMATION
JANUARY 30, 1997                                CONTACT: ROBERT P. MULREANEY
                                                         CHIEF FINANCIAL OFFICER

                                                          ANYA T. HARRIS
                                                          PUBLIC RELATIONS
                                                          (410) 234-0782


          PRIME RETAIL, INC. REPORTS REVISED FULL YEAR GAAP EARNINGS

    BALTIMORE -- Prime  Retail, Inc.  (NASDAQ:  PRME,  PRMEP) today  announced
revised GAAP earnings for the year ended December 31, 1996. Such GAAP earnings
are revised  from those  reported by the  Company on January  28,  1997.  This
revision had no effect on  previously  reported  fourth  quarter and full year
funds  from  operations  information.  The  revised  earnings  result  from  a
reallocation of the second quarter 1996  extraordinary  loss between  minority
interests and common shareholders. The effect of the reallocation is to reduce
the net loss applicable to common shareholders for the year ended December 31,
1996 to  $(6,175) or $(0.75) per common  share from the  previously  announced
$(9,437) or $(1.15) per common share.
    The following presents the Company's January 28, 1997 release with revised
earnings information.










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FOR IMMEDIATE RELEASE                           FOR MORE INFORMATION
JANUARY 30, 1997                                CONTACT: ROBERT P. MULREANEY
                                                         CHIEF FINANCIAL OFFICER

                                                         ANYA T. HARRIS
                                                         PUBLIC RELATIONS
                                                         (410) 234-0782


           PRIME RETAIL, INC. REPORTS 29.3% INCREASE IN FOURTH QUARTER
                              FUNDS FROM OPERATIONS

     BALTIMORE -- Prime Retail, Inc. (NASDAQ:  PRME,  PRMEP) today announced its
operating  results for the fourth quarter and year ended December 31, 1996.
     In  accordance  with the new  definition of funds from  operations  ("FFO")
established  by the National  Association  of Real Estate  Investment  Trusts in
1995, FFO before  allocations to preferred  shareholders and minority  interests
increased  29.3% to $9.7 million for the three  months ended  December 31, 1996,
compared to $7.5  million for the three months  ended  December  31, 1995.  On a
primary basis, FFO per common share equivalent  increased 66.7% to $0.30 for the
three  months ended  December  31, 1996,  compared to $0.18 for the three months
ended  December  31,  1995.  On a fully  diluted  basis,  FFO per  common  share
equivalent  increased  10.3% to $0.32 the three months ended  December 31, 1996,
compared to $0.29 for the three months ended December 31, 1995.
     Abraham Rosenthal,  chief executive officer of the Company, stated: "We are
very pleased with the 29.3%  increase in FFO in the fourth  quarter of 1996 when
compared  to the same period in 1995.  Our fourth  quarter  results  include the
financial benefits associated with the recently completed  acquisitions of Rocky
Mountain  Factory  Stores,  Kansas City  Factory  Outlets and our joint  venture
partner's 50.0% interest in Grove City Factory Shops and the openings of Buckeye
Factory Shops and Carolina  Factory Shops.  1996 was a very  productive year for
the Company,  considering  we completed a $43.2 million  common stock  secondary
offering,  exchanged  60% of our  Series B  preferred  stock for  common  stock,
completed a significant  debt  refinancing,  opened  930,000  square feet of new
outlet  space  and  completed  several  strategic  property  acquisitions.   The
fundamentals  of our  business  are sound  and,  therefore,  we look  forward to
continued growth in future years."


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PRIME RETAIL REPORTS FOURTH QUARTER RESULTS                               PAGE 2


     FFO before allocations to preferred shareholders and minority interests was
$27.6  million  for  the  year  ended   December  31,  1996,   after   deducting
non-recurring  charges of $6.1 million in the second quarter related to the debt
refinancing,  compared to $28.0 million for the year ended December 31, 1995. On
a primary basis,  FFO per common share  equivalent  increased 37.5% to $0.77 for
the year ended December 31, 1996,  compared to $0.56 for the year ended December
31, 1995. On a fully diluted basis,  FFO per common share  equivalent  decreased
12.3% to $0.93 for the year ended  December 31, 1996,  compared to $1.06 for the
year ended December 31, 1995. The  non-recurring  charge of $6.1 million related
primarily to the write down of  nonrefundable  deferred  financing  fees and the
unamortized   cost  of  certain   interest  rate   protection   contracts.   The
non-recurring  charge  had no  effect  on  distributable  net  cash  flow of the
Company.
     Income before allocations to preferred shareholders, minority interests and
extraordinary loss (GAAP basis) was $7.0 million and $12.8 million for the years
ended  December  31,  1996 and 1995,  respectively,  and $3.7  million  and $3.4
million for the three months ended December 31, 1996 and 1995, respectively.
     As previously  announced,  on November 1, 1996, the Company  acquired Rocky
Mountain  Factory  Stores and  Kansas  City  Factory  Outlets  for an  aggregate
purchase  price of $71.3 million.  Rocky  Mountain  Factory Stores is located in
Loveland, Colorado, which is approximately 35 miles north of Denver and contains
approximately 328,000 square feet of GLA. Kansas City Factory Outlets is located
in Odessa,  Missouri,  which is  approximately  20 miles east of Kansas City and
contains  approximately  191,000  square feet of GLA.  On November 8, 1996,  the
Company  opened  Phase  II  of  Kansas  City  Factory   Shops,   which  contains
approximately  105,000 square feet of GLA. On November 1, 1996, the Company also
finalized  its  previously  announced  agreement to purchase  its joint  venture
partner's  first mortgage and 50.0%  partnership  interest in Grove City Factory
Shops. Grove City Factory Shops is located in Grove City, Pennsylvania, which is
approximately 40 miles north of Pittsburgh and consists of approximately 415,000
square feet of GLA. On November 15, 1996,  the Company  opened Phase IV of Grove
City Factory Shops containing  approximately 118,000 square feet of GLA bringing
the total project to 533,000 square feet of GLA. Grove City Factory Shops is the
number one project in the  Company's  portfolio  in terms of total GLA and sales
per square foot which exceed  $340.00 for the year ended  December 31, 1996. The
operating  results of the Company for the three months  ended  December 31, 1996
include  the  results of these three  acquisitions  which  closed on November 1,
1996. Prior to November 1, 1996, the Company  accounted for its 50.0% investment
in Grove City Factory Shops using the equity method of  accounting.  As a result
of the Company's acquisition of its joint venture partner's 50.0% interest,  the
operating results of Grove City Factory Shops are now consolidated.  Finally, on
November 1, 1996, the Company completed a previously  announced debt refinancing
that provided  $428.3 million of loan proceeds.  Proceeds from this  transaction
were primarily used (i) to refinance debt under various credit facilities,  (ii)
to purchase Rocky Mountain Factory Stores, Kansas City Factory Outlets and Grove
City Factory Shops, and (iii) loan costs, fees and working capital.


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PRIME RETAIL REPORTS FOURTH QUARTER RESULTS                               PAGE 3


     During the year ended  December 31, 1996, the Company opened 930,000 square
feet of GLA as summarized in the following table:

- ----------------------------------------------------------------------------------------------------------------------------- CENTER GLA OPENING DATE LOCATION - ------------------------------------- ------------ ------------------------- ------------------------------ THIRD QUARTER OPENINGS Arizona Factory Shops 109,000 September 26 Phoenix, Arizona Ohio Factory Shops 35,000 August 29 Jeffersonville, Ohio Magnolia Bluff Factory Shops 21,000 July 28 Darien, Georgia Triangle Factory Shops 6,000 July 19 Raleigh-Durham, North Carolina ------- Total third quarter 171,000 FOURTH QUARTER OPENINGS Carolina Factory Shops 235,000 November 8 Gaffney, South Carolina Buckeye Factory Shops 205,000 November 22 Medina County, Ohio Grove City Factory Shops 118,000 November 15 Grove City, Pennsylvania Kansas City Factory Outlets 105,000 November 8 Odessa, Missouri Gulfport Factory Shops 40,000 November 1 Gulfport, Mississippi Gulf Coast Factory Shops 30,000 October 18 Ellenton, Florida Indiana Factory Shops 26,000 November 14 Daleville, Indiana ------- Total fourth quarter 759,000 TOTAL - 1996 930,000 =============================================================================================================================
For the year ended December 31, 1996, same-space sales in centers owned by the Company increased 0.4% to $233.00 per square foot compared to $232.00 per square foot for the year ended December 31, 1995. Same-space sales is defined as weighted average sales per square foot reported by merchants for space open since January 1, 1995. On January 16, 1997, the board of directors approved a dividend of $0.295 per common share payable on February 15, 1997 to common shareholders of record on February 3, 1997. The dividend covers the period from October 1, 1996 through December 31, 1996. The dividend is the pro rata equivalent of an annual dividend of $1.18 per share. In addition, the board approved a dividend of $0.53125 per share on the 8.5% Series B Preferred Stock. This dividend is payable on February 15, 1997 to Series B Preferred shareholders of record on February 3, 1997. The dividend covers the period from November 16, 1996 through February 15, 1997. The dividend is the pro rata equivalent of an annual dividend of $2.125 per share. The board further approved a dividend of $0.65625 per share on the 10.5% Series A Senior Cumulative Preferred Stock. This dividend is payable on February 15, 1997 to Series A Preferred shareholders of record on February 3, 1997. The dividend covers the period from November 16, 1996 through February 15, 1997. The dividend is the pro rata equivalent of an annual dividend of $2.625 per share. Based on the old definition of funds from operations ("old FFO"), old FFO before allocations to preferred shareholders and minority interests increased 17.6% to $10.5 million for the three months ended December 31, 1996, compared to $8.9 million for the three months ended December 31, 1995. On a primary basis, old FFO per common share equivalent increased 13.3% to $0.34 for the three months ended December 31, 1996, compared to $0.30 for the three months ended December 31, 1995. On a fully diluted basis, old FFO per common share equivalent --MORE-- PRIME RETAIL REPORTS FOURTH QUARTER RESULTS PAGE 4 decreased 2.8% to $0.35 for the three months ended December 31, 1996, compared to $0.36 for the three months ended December 31, 1995. The fourth quarter 1996 old FFO results represent the second consecutive quarter that parity was achieved in the amount of dividends and distributions that will be paid to both common shareholders and unit holders at $0.295 per share. For the year ended December 31, 1996, the dividends and distributions paid to shareholders are taxable as summarized in the following table:
- --------------------------------------------------------------------------------------------------------------------------------- SECURITY RETURN OF CAPITAL ORDINARY INCOME - ---------------------------------------------- ------------------------------- ------------------------------------- Common Stock 100.0% - 10.5% Series A Cumulative Preferred Stock - 100.0% 8.5% Series B Cumulative Participating Convertible Preferred Stock 61.98% 38.02% =================================================================================================================================
Prime Retail is a self-administered, self-managed real estate investment trust engaged in the ownership, development, and management of factory outlet centers. Prime Retail's outlet center portfolio consists of 21 outlet centers in 16 states, which total approximately 5.8 million square feet of GLA as of December 31, 1996. As of December 31, 1996, Prime Retail's factory outlet center portfolio was approximately 91% leased. Prime Retail has been a developer of factory outlet centers since 1988. For additional information, visit Prime Retail's web site at: http://www.primeretail.com. --TABLES FOLLOW--
PRIME RETAIL, INC. PAGE 5 SELECTED FINANCIAL DATA (UNAUDITED) Amounts in thousands except per share and unit information GAAP BASIS Three Months Ended Year Ended December 31 December 31 ----------------------------------- --------------------------------- 1996 1995 1996 1995 ---------------- ------------------ ---------------- ---------------- STATEMENTS OF OPERATIONS REVENUES Base rents $ 16,293 $ 12,659 $ 54,710 $ 46,368 Percentage rents 710 399 1,987 1,520 Tenant reimbursements 7,181 6,151 25,254 22,283 Income from investment partnerships 380 537 1,239 1,729 Interest and other 1,364 1,583 5,850 5,498 --------- -------- -------- -------- TOTAL REVENUES 25,928 21,329 89,040 77,398 EXPENSES Property operating 5,885 4,962 20,421 17,389 Real estate taxes 1,434 911 5,288 4,977 Depreciation and amortization 5,678 4,177 19,256 15,438 Corporate general and administrative 1,186 1,438 4,018 3,878 Interest 7,142 5,842 24,485 20,821 Other charges 899 630 8,586 2,089 --------- -------- -------- -------- TOTAL EXPENSES 22,224 17,960 82,054 64,592 --------- -------- -------- -------- INCOME BEFORE MINORITY INTERESTS AND EXTRAORDINARY ITEM 3,704 3,369 6,986 12,806 (Income) loss allocated to minority interests (2,568) 1,213 2,092 5,364 --------- -------- -------- -------- INCOME BEFORE EXTRAORDINARY ITEM 1,136 4,582 9,078 18,170 Extraordinary item - loss on early extinguishment of debt, net of minority interests in the amount of $3,263 - - (1,017) - --------- -------- -------- -------- NET INCOME 1,136 4,582 8,061 18,170 Income allocated to preferred shareholders 3,000 5,236 14,236 20,944 --------- -------- -------- -------- LOSS ALLOCATED TO COMMON SHAREHOLDERS $ (1,864) $ (654) $ (6,175) $ (2,774) ========== ======== ======== ======== PER COMMON SHARE (1): Loss before extraordinary item $ (0.14) $ (0.23) $ (0.63) $ (0.96) Extraordinary item - - (0.12) - --------- -------- -------- -------- Net loss $ (0.14) $ (0.23) $ (0.75) $ (0.96) ========= ======== ======== ======== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 13,405 2,875 8,221 2,875 ========= ======== ======== ======== SELECTED BALANCE SHEET DATA December 31 ----------------------------------- 1996 1995 ---------------- ------------------ Rental properties before accumulated depreciation $643,873 $454,480 Cash and cash equivalents 3,924 14,927 Total assets 666,803 462,405 Mortgage and other debt 499,523 305,954 Total liabilities 527,596 326,465 Shareholders' equity 139,207 121,484
--TABLES CONTINUE--
PRIME RETAIL, INC. PAGE 6 SELECTED FINANCIAL DATA (UNAUDITED) -- CONTINUED Amounts in thousands except per share and unit information FUNDS FROM OPERATIONS (FFO) AND DIVIDEND DISTRIBUTION SUMMARY Three Months Ended Year Ended December 31 December 31 ----------------------------------- --------------------------------- 1996 1995 1996 1995 ---------------- ------------------ --------------- ----------------- RECONCILIATION OF GAAP INCOME TO FFO (NEW AND OLD DEFINITION) Income before minority interests and extraordinary item (GAAP basis) $ 3,704 $ 3,369 $ 6,986 $ 12,806 Adjustments: Depreciation and amortization 5,678 4,177 19,256 15,438 Amortization of deferred financing costs and interest rate protection contracts 696 1,213 3,723 4,524 Non-cash charges - 6,131 - - Unconsolidated joint venture adjustments 388 144 2,052 365 --------- -------- -------- -------- Distributable net cash flow(2) 10,466 8,903 38,148 33,133 Non-cash charges - - (6,131) - --------- -------- -------- -------- FFO - Old Definition(3) 10,466 8,903 32,017 33,133 Non-real estate depreciation and amortization (773) (1,407) (4,380) (5,137) --------- -------- -------- -------- FFO - New Definition(3) $ 9,693 $ 7,496 $ 27,637 $ 27,996 ========= ======== ======== ======== DIVIDEND DISTRIBUTION SUMMARY Distributable net cash flow $ 10,466 $ 8,903 $ 38,148 $ 33,133 Preferred stock dividend - Series A (1,509) (1,509) (6,038) (6,038) --------- -------- -------- -------- 8,957 7,394 32,110 27,095 Payout reserves (4) (1,003) (739) (3,347) (2,710) --------- -------- -------- -------- 7,954 6,655 28,763 24,385 Preferred stock dividend - Series B (1,491) (3,727) (8,199) (14,907) --------- -------- -------- -------- 6,463 2,928 20,564 9,478 Common stock dividend (3,954) (848) (12,711) (3,392) --------- -------- -------- -------- 2,509 2,080 7,853 6,086 Distribution adjustment(5) - - 1,117 - --------- -------- -------- -------- Total distribution to limited partners $ 2,509 $ 2,080 $ 8,970 $ 6,086 ========= ======== ======== ======== Per share/unit amounts: Preferred stock Series A $ 0.656 $ 0.656 $ 2.625 $ 2.625 ========= ======== ======== ======== Series B $ 0.531 $ 0.531 $ 2.125 $ 2.125 ========= ======== ======== ======== Common stock(6) $ 0.295 $ 0.295 $ 1.180 $ 1.180 ========= ======== ======== ======== Limited partner units(6) $ 0.295 $ 0.226 $ 1.036 $ 0.660 ========= ======== ======== ========
--TABLES CONTINUE--
PRIME RETAIL, INC. PAGE 7 SELECTED FINANCIAL DATA (UNAUDITED) -- CONTINUED Amounts in thousands except per share and unit information FUNDS FROM OPERATIONS (FFO) AND DIVIDEND DISTRIBUTION SUMMARY--(CONTINUED) FUNDS FROM OPERATIONS SUMMARY - NEW DEFINITION Three Months Ended Year Ended December 31 December 31 ----------------------------------- --------------------------------- 1996 1995 1996 1995 ---------------- ------------------ --------------- ----------------- FFO - New Definition $ 9,693 $ 7,496 $ 27,637 $ 27,996 Minority interests (60) (45) (248) (276) --------- -------- -------- -------- 9,633 7,451 27,389 27,720 Preferred stock dividends Series A (1,509) (1,509) (6,038) (6,038) Series B (1,491) (3,727) (8,199) (14,907) --------- -------- -------- -------- 6,633 2,215 13,152 6,775 Allocation to limited partners (2,509) (2,080) (7,853) (6,086) --------- -------- -------- -------- Allocation to common shares outstanding $ 4,124 $ 135 $ 5,299 $ 689 ========= ======== ======== ======== FFO per common share outstanding(6)(7) $ 0.31 $ 0.05 $ 0.64 $ 0.24 ========= ======== ======== ======== FFO per common share equivalent - primary(6)(8) $ 0.30 $ 0.18 $ 0.77 $ 0.56 ========= ======== ======== ======== FFO per common share equivalent - fully diluted(6)(9) $ 0.32 $ 0.29 $ 0.93 $ 1.06 ========= ======== ======== ======== Weighted Average Shares and Units Outstanding Common Shares 13,405 2,875 8,221 2,875 Limited partner common units 8,505 9,221 8,855 9,221 --------- -------- -------- -------- Total primary shares 21,910 12,096 17,076 12,096 Series B convertible preferred shares 3,356 8,391 5,805 8,391 --------- -------- -------- -------- Total fully diluted shares 25,266 20,487 22,881 20,487 ========= ======== ======== ========
--TABLES CONTINUE--
PRIME RETAIL, INC. PAGE 8 SELECTED FINANCIAL DATA (UNAUDITED) -- CONTINUED Amounts in thousands except per share and unit information FUNDS FROM OPERATIONS (FFO) AND DIVIDEND DISTRIBUTION SUMMARY--(CONTINUED) FUNDS FROM OPERATIONS SUMMARY - OLD DEFINITION Three Months Ended Year Ended December 31 December 31 ----------------------------------- --------------------------------- 1996 1995 1996 1995 ---------------- ------------------ --------------- ----------------- FFO - Old Definition $ 10,466 $ 8,903 $ 32,017 $ 33,133 Minority interests (62) (70) (253) (280) --------- -------- -------- -------- 10,404 8,833 31,764 32,853 Preferred stock dividends Series A (1,509) (1,509) (6,038) (6,038) Series B (1,491) (3,727) (8,199) (14,907) --------- -------- -------- -------- 7,404 3,597 17,527 11,908 Allocation to limited partners (2,509) (2,080) (7,853) (6,086) --------- -------- -------- -------- Allocation to common shares outstanding $ 4,895 $ 1,517 $ 9,674 $ 5,822 ========= ======== ======== ======== FFO per common share outstanding(6)(7) $ 0.37 $ 0.53 $ 1.18 $ 2.03 ========= ======== ======== ======== FFO per common share equivalent - primary(6)(8) $ 0.34 $ 0.30 $ 1.03 $ 0.98 ========= ======== ======== ======== FFO per common share equivalent - fully diluted(6)(9) $ 0.35 $ 0.36 $ 1.12 $ 1.31 ========= ======== ======== ======== Weighted Average Shares and Units Outstanding Common Shares 13,405 2,875 8,221 2,875 Limited partner common units 8,505 9,221 8,855 9,221 --------- -------- -------- -------- Total primary shares 21,910 12,096 17,076 12,096 Series B convertible preferred shares 3,356 8,391 5,805 8,391 --------- -------- -------- -------- Total fully diluted shares 25,266 20,487 22,881 20,487 ========= ======== ======== ========
--TABLES CONTINUE-- PRIME RETAIL, INC. PAGE 9 SELECTED FINANCIAL DATA (UNAUDITED) -- CONTINUED Amounts in thousands except per share and unit information FUNDS FROM OPERATIONS (FFO) AND DIVIDEND DISTRIBUTION SUMMARY --CONTINUED Notes: (1) Net loss per common share (GAAP basis) is net of applicable preferred dividends. Fully diluted per share amounts (GAAP basis) are not presented since the effect would be anti-dilutive. (2) In accordance with its Partnership Agreement, Prime Retail, L.P. excludes non-cash charges in determining its distributable net cash flow. (3) Funds from operations means net income (loss) (computed in accordance with GAAP), excluding gains or losses from debt restructuring and sales of real property, plus depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures. In March 1995, the National Association of Real Estate Investment Trusts established guidelines clarifying the definition of FFO (as modified, the "New Definition"). For the Company, the primary impact of reporting FFO under the New Definition is a reduction in FFO since the amortization of capitalized debt costs and depreciation of non-real estate assets are not added back to income before allocations to minority interests (GAAP basis). (4) Includes reserves for capital expenditures and working capital. (5) In accordance with the Partnership Agreement, dividends paid on newly issued shares of common stock are not subtracted in connection with calculating the amount to be distributed to the limited partners to the extent such newly issued shares were not issued and outstanding for the entire quarter. (6) In accordance with its Partnership Agreement, Prime Retail, L.P. will pay a preferential distribution of $0.295 in each quarter for each common unit held by Prime Retail, Inc. (the total of such units is equal to the number of outstanding common shares of the Company) before any distribution is paid for the common units held by the Limited Partners. After payment of the preferential distribution to Prime Retail, Inc., up to $0.295 will be distributed for each common unit held by the Limited Partners. Any additional distributions will be allocated pro rata among the common units held by the Company and by the Limited Partners. The preferential distribution for common units held by the Company will terminate after Prime Retail, L.P. has paid quarterly distributions of at least $0.295 on all common units (21,910 common units after giving effect to the exchange offer and the secondary common stock offering) during four successive quarters without distributing to the Convertible Preferred Units and common units more than 90% of FFO after the payment of distributions to the Senior Preferred Units in any such quarter. Once the preferential distribution is terminated, distributions with respect to the common units held by Prime Retail, Inc. and the Limited Partners will be pro rata to the holders thereof. Accordingly, FFO must equal at least $10,347 (or $0.335 per common share equivalent-primary) for four successive quarters to terminate the preferential distribution to the Company. For purposes of determining the amount of distributions to the Limited Partners and whether the Company's FFO is sufficient to terminate the preferential distribution, FFO is calculated based on the old definition of Funds from Operations. (7) "FFO per common share outstanding" is equal to FFO after minority interests less Series A and Series B preferred dividends and distributions to limited partners divided by the weighted average number of common shares outstanding. (8) "FFO per common share and common share equivalent-primary" is equal to FFO after minority interests less Series A and Series B preferred dividends divided by the total of (a) the weighted average number of common shares and (b) the weighted average number of limited partner common units. (9) "FFO per common share and common share equivalent-fully diluted" is equal to FFO after minority interests less Series A preferred dividends divided by the total of (a) the weighted average number of common shares, (b) the weighted average number of limited partner common units and (c) the weighted average number of common share equivalents assuming a full conversion of all Series B convertible preferred shares. # # #