 
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
ý  Quarterly Report
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act
of 1934
 
For the quarterly period ended September 30, 2003
 
OR
 
o  Transition Report
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act
of 1934
 
Commission file number: 
0-24123
 
HORIZON GROUP PROPERTIES, INC.
(Exact
name of Registrant as specified in its Charter)
 
  Maryland

  38-3407933

  (State
  or other jurisdiction

  of incorporation or organization)

  (I.R.S.
  employer identification no.)

  77
  West Wacker Drive, Suite 4200, Chicago , IL

  60601

  (Address
  of principal executive offices)

  (Zip
  Code)

  (312)
  917-8870

  (Registrant’s
  telephone number, including area code)

  Not Applicable

  Former
  name, former address and former fiscal year, if changed since last report.

Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days.
 
Yes   ý    No  
o
 
Indicate by check mark
whether the registrant is an accelerated filer (as defined in Rule12b-2 of the
Exchange Act)
 
Yes   o    No  
ý
 
Number
of common shares outstanding at 
November 10, 2003  2,870,194
 
HORIZON
GROUP PROPERTIES, INC.
Index
to Form 10-Q
September
30, 2003
 
  Part I.   Financial Information:

  Item 1.  Financial Statements (unaudited)

  Condensed
  Consolidated Statements of Operations of the Company for the Three Months
  Ended September 30, 2003 and September 30, 2002

  Condensed
  Consolidated Statements of Operations of the Company for the Nine Months
  Ended September 30, 2003 and September 30, 2002

  Condensed
  Consolidated Balance Sheets of the Company at September 30, 2003 and December
  31, 2002

  Condensed
  Consolidated Statements of Cash Flows of the Company for the Nine Months
  Ended September 30, 2003 and September 30, 2002

  Notes
  to Condensed Consolidated Financial Statements

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

  Item 3. 
  Quantitative and Qualitative Disclosure of Market Risk

  Item 4.  Controls and Procedures

  Part II.  Other Information:

  Item 1. 
  Legal Proceedings

  Item 2. 
  Changes in Securities

  Item 3. 
  Defaults Upon Senior Securities

  Item 4. 
  Submission of Matters to a Vote of Security Holders

  Item 5. 
  Other Information

  Item 6. 
  Exhibits or Reports on Form 8-K

  Signatures

2

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

  September 30, 2003

  Three months ended

  September 30, 2002

  (thousands, except per share data)

  REVENUE

  Base
  rent

  $

  3,312

  $

  3,392

  Percentage
  rent

  34

  30

  Expense
  recoveries

  681

  692

  Other

  279

  64

  Total
  revenue

  4,306

  4,178

  EXPENSES

  Property
  operating

  1,203

  1,217

  Real
  estate taxes

  387

  327

  Land
  lease and other

  161

  149

  Depreciation
  and amortization

  860

  986

  General
  and administrative

  1,010

  778

  Interest

  2,692

  2,122

  Total
  expenses

  6,313

  5,579

  Loss
  from continuing operations before minority interests

  (2,007

  )

  (1,401

  )

  Minority
  interests

  572

  202

  Loss
  from continuing operations

  (1,435

  )

  (1,199

  )

  Gain
  on sale of real estate, net of minority interests

  —

  22

  Income/(loss)
  from discontinued operations, net of minority interests

  8,116

  (686

  )

  Net
  income/(loss)

  $

  6,681

  $

  (1,863

  )

  Per
  common share – basic and diluted:

  Loss
  from continuing operations

  $

  (0.50

  )

  $

  (0.42

  )

  Net
  income/(loss)

  $

  2.33

  $

  (0.65

  )

  Weighted
  average common shares outstanding

  Basic

  2,870

  2,870

  Diluted

  3,664

  3,386

See
accompanying notes to condensed consolidated financial statements.
 
3

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

  September 30, 2003

  Nine months ended

  September 30, 2002

  (thousands, except per share data)

  REVENUE

  Base
  rent

  $

  9,875

  $

  9,855

  Percentage
  rent

  138

  120

  Expense
  recoveries

  2,147

  2,092

  Other

  685

  408

  Total
  revenue

  12,845

  12,475

  EXPENSES

  Property
  operating

  3,670

  3,468

  Real
  estate taxes

  1,217

  1,135

  Land
  lease and other

  581

  487

  Depreciation
  and amortization

  2,722

  2,943

  General
  and administrative

  2,434

  2,066

  Interest

  6,696

  6,370

  Total
  expenses

  17,320

  16,469

  Loss
  from continuing operations before minority interests

  (4,475

  )

  (3,994

  )

  Minority
  interests

  1,258

  585

  Loss
  from continuing operations

  (3,217

  )

  (3,409

  )

  Gain
  on sale of real estate, net of minority interests

  —

  153

  Income/(loss)
  from discontinued operations, net of minority interests

  19,292

  (2,045

  )

  Net
  income/(loss)

  $

  16,075

  $

  (5,301

  )

  Per
  common share – basic and diluted:

  Loss
  from continuing operations

  $

  (1.12

  )

  $

  (1.19

  )

  Net
  income/(loss)

  $

  5.60

  $

  (1.85

  )

  Weighted
  average common shares outstanding

  Basic

  2,870

  2,870

  Diluted

  3,627

  3,382

See
accompanying notes to condensed consolidated financial statements.
 
4

HORIZON
GROUP PROPERTIES, INC.
Condensed
Consolidated Balance Sheets
(unaudited)
 
  September 30, 2003

  December 31, 2002

  (thousands)

  ASSETS

  Real
  estate – at cost:

  Land

  $

  7,673

  $

  7,673

  Buildings
  and improvements

  82,604

  80,366

  Less
  accumulated depreciation

  (14,561

  )

  (12,818

  )

  75,716

  75,221

  Land
  held for investment

  30,600

  —

  Total
  net real estate

  106,316

  75,221

  Cash
  and cash equivalents

  1,845

  1,237

  Restricted
  cash

  7,011

  2,707

  Tenant
  accounts receivable

  1,144

  1,072

  Real
  estate – discontinued operations

  7,926

  21,055

  Deferred
  costs (net of accumulated amortization of $1,234 and $793, respectively)

  2,038

  2,146

  Other
  assets

  1,903

  1,239

  Total
  assets

  $

  128,183

  $

  104,677

  LIABILITIES
  AND SHAREHOLDERS’ EQUITY

  Liabilities:

  Mortgages
  and other debt – continuing operations

  $

  91,282

  $

  71,560

  Mortgages
  and other debt – discontinued operations

  3,134

  32,192

  Accrued
  interest

  4,971

  6,741

  Accounts
  payable and other accrued expenses

  4,523

  3,292

  Prepaid
  rents and other tenant liabilities

  958

  1,170

  Participation
  interests and other liabilities

  10,470

  716

  Total
  liabilities

  115,338

  115,671

  Minority
  interests

  1,778

  (1,966

  )

  Shareholders’
  equity (deficit):

  Common
  shares ($.01 par value, 50,000 shares authorized, 2,870 issued and outstanding)

  29

  29

  Additional
  paid-in capital

  39,469

  35,451

  Accumulated
  deficit

  (28,431

  )

  (44,508

  )

  Total
  shareholders’ equity (deficit)

  11,067

  (9,028

  )

  Total
  liabilities and shareholders’ equity (deficit)

  $

  128,183

  $

  104,677

See
accompanying notes to condensed consolidated financial statements.
 
5

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

  September 30, 2003

  Nine months ended

  September 30, 2002

  (thousands)

  Cash
  flows from operating activities:

  Net
  income/(loss)

  $

  16,075

  $

  (5,301

  )

  Net
  gain on sale of real estate

  (12,889

  )

  (153

  )

  Net
  gain on debt restructure

  (14,406

  )

  —

  Adjustments
  to reconcile net income/(loss) to net cash provided by operating activities:

  Minority
  interests in net loss

  (1,258

  )

  (585

  )

  Minority
  interests in discontinued operations and gain on sale of real estate

  7,441

  (361

  )

  Depreciation

  2,447

  3,456

  Amortization,
  including deferred financing costs

  557

  1,104

  HGP
  partnership unit grants

  225

  120

  Changes
  in assets and liabilities:

  Restricted
  cash

  (2,031

  )

  (535

  )

  Tenant
  accounts receivable

  (72

  )

  224

  Deferred
  costs and other assets

  (3,377

  )

  (138

  )

  Accounts
  payable and accrued expenses and accrued interest

  (18

  )

  4,333

  Participation
  interests and other liabilities

  (472

  )

  (39

  )

  Prepaid
  rents and other tenant liabilities

  (226

  )

  (122

  )

  Net
  cash provided by /(used in) operating activities

  (8,004

  )

  2,003

  Cash
  flows from investing activities:

  Acquisition
  of land

  —

  (2,500

  )

  Acquisition
  of land held for investment

  (9,300

  )

  —

  Expenditures
  for buildings and improvements

  (3,743

  )

  (180

  )

  Net
  proceeds from sale of real estate

  13,594

  635

  Net
  cash provided by/(used in) investing activities

  551

  (2,045

  )

  Cash
  flows from financing activities:

  Sale
  of HGP LP partnership units

  1,350

  —

  Principal
  payments on mortgages and other debt

  (9,783

  )

  (33,120

  )

  Proceeds
  from borrowings

  16,700

  34,500

  Debt
  issue costs

  (206

  )

  (1,474

  )

  Net
  cash provided by /(used in) financing activities

  8,061

  (94

  )

  Net
  increase/(decrease) in cash and cash equivalents

  608

  (136

  )

  Cash
  and cash equivalents:

  Beginning
  of period

  1,237

  1,096

  End
  of period

  $

  1,845

  $

  960

See
accompanying notes to condensed consolidated financial statements.
 
6

HORIZON GROUP PROPERTIES, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
 
Note 1 - Formation of
the Company
 
Horizon Group
Properties, Inc. (“HGPI” or, together with its subsidiaries “HGP” or the
“Company”) is a self-administered and self-managed Maryland corporation that
was established in connection with the merger of Horizon Group, Inc., a
Michigan corporation (“Horizon”) with and into Prime Retail, Inc., a Maryland
corporation (“Prime Retail”) which was consummated on June 15, 1998 (“the
Merger”).
 
As of September 30,
2003, HGP’s operating portfolio consisted of nine factory outlet centers
located in seven states comprising an aggregate of approximately 1.8 million
square feet of gross leasable area (“GLA”). 
Eight of the nine factory outlet centers were contributed to the Company
by Horizon pursuant to a Contribution Agreement entered into in connection with
the Merger (the “Contribution Agreement”) and one factory outlet center was
purchased by the Company from Prime immediately subsequent to the consummation
of the Merger.  At September 30, 2003,
the Company owned and managed a total of 2.2 million square feet of GLA.
 
The operations of the
Company are primarily conducted through a subsidiary limited partnership,
Horizon Group Properties, L.P. (“HGP LP”) of which the Company is the sole
general partner.  As of September 30,
2003, HGPI owned approximately 70.3% of the partnership interests (the “Common
Units”) of HGP LP. In general, Common Units are exchangeable for shares of Common
Stock on a one-for-one basis (or for an equivalent cash amount at the Company’s
election).
 
On May 31, 2003 the
Company sold the partnership that owns two outlet centers located in Daleville,
Indiana and Somerset, Pennsylvania.  The
investment group that acquired the centers includes Gary J. Skoien, Chairman,
Chief Executive Officer and President of the Company and an affiliate of Howard
Amster, a director and significant shareholder of the Company (see Note
8).  The investment group has hired the
Company to manage and lease the two properties.  The leasing and management agreement provides that the company
will receive 50% of the net profit from the subsequent sale of the centers
after the owners receive a 12% annual return on their investment.  The independent directors of the Company
approved this transaction and the Company believes the transaction reflects
market terms.
 
On June 13, 2003, the
Company purchased controlling interest in two partnerships, which own
approximately 655 acres of land in Huntley, Illinois (“Huntley”) from affiliates
of The Prime Group, Inc. (“Prime Group”) Gary J. Skoien, Chairman, Chief
Executive Officer and President of the Company is also the Executive Vice
President and Chief Operating Officer of Prime Group.  The independent directors of the Company approved this
transaction and the Company believes the transaction reflects market
terms.  This purchase was accounted for
under the purchase method of accounting under which assets acquired and
liabilities assumed were recorded at their relative fair values as of the date
of the purchase.  The initial purchase
price allocation estimates are preliminary and will be finalized upon obtaining
additional information regarding the liabilities assumed at acquisition.  Direct costs incurred for development
activities at Huntley are capitalized to Land Held for Investment on the
Company’s balance sheets, while indirect costs and holding costs are expensed
in general and administrative expense on the Company’s statements of
operations.  The Company had previously
acquired a 3.25% net profits interest in Huntley in connection with a loan made
to Retail Partners (as defined herein) in March 2003.  The value of this interest is included in Land Held for
Investment on the balance sheets (see Note 5).
 
The following summarizes
the preliminary estimate of the assets acquired and liabilities assumed by the
Company on June 13, 2003 pursuant to the purchase of Huntley:
 
  (In thousands)

  Land
  held for investment

  $

  30,250

  Restricted
  cash

  2,060

  $

  32,310

  Mortgages
  and other debt

  $

  10,706

  Accounts
  payable and accrued expenses

  2,174

  Other
  liabilities

  10,130

  Contributed
  capital (cash paid)

  9,300

  $

  32,310

7

On August 19, 2003, the
Company sold the power center located in Norton Shores, Michigan and adjacent
land parcels for $22.7 million.  The
mortgage loan secured by the power center and made by Greenwich Capital
Financial Products, Inc. was assumed by the purchaser (see Note 8).  Pursuant to the requirements of SFAS 144,
the net real estate assets of this property and its results of operations have
been classified as discontinued operations. 
A gain of $10.9 million was recognized and is included in Income from Discontinued
Operations on the Company’s statements of operations.
 
Note 2 - Summary of
Significant Accounting Policies
 
Interim Period Financial
Presentation
 
The accompanying
unaudited condensed consolidated financial statements are prepared in
accordance with accounting principles generally accepted in the United States
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. 
Accordingly, they do not include all of the information and footnotes
required by accounting principles generally accepted in the United States for
complete financial statements, and, therefore, should be read in conjunction
with the Company’s Annual Report on Form 10-K as updated on Form 8-K dated
September 26, 2003 for the year ended December 31, 2002.
 
The financial statements
have been prepared in conformity with accounting principles generally accepted
in the United States, which require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
(including disclosure of contingent assets and liabilities) at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period.  Actual results
could differ from those estimates.
 
In the opinion of
management, all adjustments necessary for a fair statement of the financial
position and results of operations for the interim periods presented have been
included in these financial statements and are of a normal and recurring
nature.  Certain amounts in prior
periods have been reclassified to conform to the current presentation.
 
Operating results for
the three and nine months ended September 30, 2003 are not necessarily
indicative of the results that may be achieved in future periods.
 
Principles of
Consolidation
 
The condensed
consolidated financial statements include the accounts of the Company and all
subsidiaries that the Company controls, including HGP LP.  The company considers itself to control an
entity if it is the majority owner of and has voting control over such
entity.  All significant intercompany
balances and transactions have been eliminated in consolidation.
 
Impact of Recently
Issued Accounting Standards
 
In April 2002, the
Financial Accounting Standards Board (“FASB”) issued Statement 145, “Rescission
of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 1 and
Technical Correction” (“SFAS No. 145”). 
Statement 4, “Reporting Gains and Losses from Extinguishment of Debt”
(“SFAS No. 4”), required that gains and losses from the extinguishment of debt
that were included in the determination of net income be aggregated and, if
material, classified as an extraordinary item. 
The provisions of SFAS No. 145 related to the rescission of SFAS No. 4
require the Company to reclassify prior period items into continuing operations,
including those recorded in the current period, that do not meet the
extraordinary classification. 
Additionally, future gains and losses related to debt extinguishment may
be required to be classified in income from continuing operations.  The provisions of SFAS No. 145 related to
the rescission of SFAS No. 4 became effective in fiscal years beginning after
May 15, 2002.  The Company recorded a
gain on the extinguishment of debt in the nine months ended September 30, 2003
which is included in Income from Discontinued Operations on the Company’s
statements of operations.
 
8

Real Estate and
Depreciation
 
Costs incurred for the
acquisition, development, construction and improvement of properties, as well as
significant renovations and betterments to the properties, are capitalized.
Maintenance and repairs are charged to expense as incurred. Interest costs
incurred with respect to qualified expenditures relating to the construction of
assets are capitalized during the construction period.  During the three and nine months ended
September 30, 2003, $23,000 and $25,000, respectively, of interest was
capitalized related to the construction of Phase II of the outlet center in
Tulare, California.
 
Amounts included under
buildings and improvements on the condensed consolidated balance sheets include
the following types of assets and are depreciated on the straight-line method
over estimated useful lives, which are:
 
  Buildings and
  improvements

  31.5 years

  Tenant improvements

  10 years or lease
  term, if less

  Furniture, fixtures or
  equipment

  3 - 7 years

In accordance with
Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for
the Impairment or Disposal of Long-Lived Assets”, the Company records
impairment losses on long-lived assets used in operations when events and
circumstances indicate that the assets might be impaired and the undiscounted
cash flows estimated to be generated over their expected holding periods are
less than the carrying amounts of those assets.  For assets to be held in the portfolio, impairment losses are
measured as the difference between carrying value and fair value.  For assets to be sold, impairment is
measured as the difference between carrying value and fair value, less costs to
dispose.  Fair value may be based upon
estimated cash flows discounted at a risk-adjusted rate of interest, comparable
or anticipated sales in the marketplace, or estimated replacement cost, as
adjusted to consider the costs of retenanting and repositioning those
properties which have significant vacancy issues, depending on the facts and
circumstances of each property.
 
Depreciation and
amortization expense includes charges for unamortized capitalized costs related
to unscheduled tenant move-outs totaling $6,000 and $25,000 for the three
months ended September 30, 2003 and 2002, respectively, and $115,000 and
$92,000 for the nine months ended September 30, 2003 and 2002, respectively,
both excluding properties classified as discontinued operations.
 
Cash Equivalents
 
The Company considers
all liquid investments with a maturity of three months or less when purchased
to be cash equivalents.
 
Restricted Cash
 
Restricted cash consists
of amounts deposited in accounts with (1) the Company’s primary lenders in
connection with certain loans (see Note 5), (2) in escrow accounts for
infrastructure requirements related to land sales in Huntley and future
infrastructure expenses and interest payments related to Huntley and (3) with
the trustee for the TIF Bonds (as hereinafter defined) until certificates of
occupancy are received for previously sold Huntley land parcels which secure
the US Bank Mortgage (see Note 5).  At
September 30, 2003, the escrow accounts related to the Company’s primary
lenders include approximately $1.0 million in capital improvement and tenant
allowance reserves, $707,000 in real estate tax and insurance escrows, and
approximately $839,000 for debt service and operating expenses, including
$114,000 of cash flow remitted as debt service which has not yet been applied
to the loans on the three JP Morgan Loans which remain in default (see Note
5).  The Huntley infrastructure escrow
accounts total $3.0 million and the US Bank Mortgage account has a balance of
approximately $1.5 million at September 30, 2003.
 
Tenant Accounts
Receivable
 
Management regularly
reviews accounts receivable and estimates the necessary amounts to be recorded
as an allowance for uncollectibility. 
These reserves are established on a tenant-specific basis and are based
upon, among other factors, the period of time an amount is past due and the
financial condition of the obligor.
 
9

Total tenant accounts
receivable are reflected net of reserves of $157,000 and $314,000 as of
September 30, 2003 and December 31, 2002, respectively.  The provision for doubtful accounts was
$24,000 and $43,000 for the three months ended September 30, 2003 and 2002,
respectively, and $105,000 and $87,000 for the nine months ended September 30,
2003 and 2002, respectively.  This
charge is included in the line item entitled “Land lease and other” on the
statement of operations.
 
Discontinued Operations
 
Periodically, in the
course of reviewing the performance of its portfolio, management may determine
that it is appropriate for the Company to offer certain properties for sale,
and accordingly, such properties will be classified as discontinued operations
on the Company’s balance sheets.  In
accordance with SFAS 144, assets held for sale are valued at the lower of
carrying value or fair value less costs to dispose.  For fiscal years beginning after December 15, 2001, SFAS 144
requires that the results of operations and gain/(loss) on real estate
properties sold or held for sale subsequent to December 31, 2001 be reflected
in the consolidated statements of operations as “Income from Discontinued
Operations” for all periods presented. 
As of September 30, 2003, the Company is actively marketing the
following assets for sale: the single tenant building in Roseville, Michigan
leased to Petsmart, Inc., the 103,000 square foot strip building at the outlet
center in Monroe, Michigan, and 8 parcels of vacant land totaling approximately
88 acres. Pursuant to the requirements of SFAS 144, the Company has reclassified
the real estate assets for these properties to Real Estate-Discontinued
Operations on the balance sheets and reports the revenue and expenses from the
properties as Income from Discontinued Operations on the statements of
operations.  The Company ceased
depreciating the building in Monroe, Michigan at September 30, 2003.  In addition, operations from the outlet
centers located in Daleville, Indiana and Somerset, Pennsylvania, which were
sold in May 2003 and the power center located in Norton Shores, Michigan which
was sold in August 2003 are also included in the discontinued operations line
items on the balance sheets and statements of operations.  SFAS 144 also requires that prior period
financial statements presented are also reclassified for comparability.  This reclassification has no effect on the
Company’s previously reported net income or loss.
 
Deferred Costs 
 
Deferred leasing costs
consist of fees and direct internal costs incurred to initiate and renew
operating leases and are amortized on the straight-line method over the initial
lease term or renewal period.  Deferred
financing costs are amortized as interest expense over the life of the related
debt.
 
Income Taxes 
 
The Company has elected
to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue
Code of 1986, as amended (the “Code”). 
A REIT is a legal entity that holds real estate interests and receives a
deduction for dividends paid to its shareholders for federal income tax
purposes.  HGP intends to distribute its
REIT taxable income to its shareholders and satisfy certain other requirements
as defined in the Code so as to reduce or eliminate federal income tax
liability.  Based on its taxable loss in
the current period and past fiscal years, the Company is not and has not been
obligated to make any dividend distributions to qualify as a REIT.  Accordingly, the condensed consolidated
financial statements do not include any federal income tax expense.
 
Minority Interests
 
Minority interests
represent the interests of unitholders of HGP LP, other than HGPI in the net
earnings and net equity of HGP LP.  The
unitholder minority interest in HGP LP was approximately 29.7% at September 30,
2003.  On March 13, 2003, HGPI sold
261,268 units in HGP LP to Howard Amster, a director and principal shareholder
of HGPI, for aggregate consideration of $1.35 million or $5.16 per unit.  These units cannot be converted into shares
of Common Stock of HGPI.  Proceeds in
excess of HGPI’s carrying value of these units was recognized as an increase in
additional paid in capital.  HGPI may
consider additional sale of units in HGP LP to Mr. Amster or others in the
future.  There were no unit conversions
or repurchases in the three or nine months ended September 30, 2003 or 2002.
 
10

Revenue Recognition
 
Leases with tenants are
accounted for as operating leases. Minimum annual rentals are recognized on a
straight-line basis over the terms of the respective leases.  As a result of recording rental revenue on a
straight-line basis, tenant accounts receivable include $390,000 and $402,000
as of September 30, 2003 and December 31, 2002, respectively, which is expected
to be collected over the remaining lives of the leases.  Rents which represent basic occupancy costs,
including fixed amounts and amounts computed as a function of sales, are
classified as base rent.  Amounts which
may become payable in addition to base rent and which are computed as a
function of sales in excess of certain thresholds are classified as percentage
rents and are accrued after the reported tenant sales only after the sales
exceed the applicable thresholds. 
Expense recoveries based on common area maintenance expenses and certain
other expenses are accrued in the period in which the related expense is
incurred.
 
Other Revenue
 
Other revenue consists
primarily of interest income, income related to marketing services that is
recovered from tenants pursuant to lease agreements and income from tenants
with lease terms of less than one year.
 
Share Options
 
The Company has elected
to follow Accounting Principles Board Opinion No. 25 “Accounting for Stock
Issued to Employees” (“APB 25”), in accounting for its options on common
shares.  Under APB 25, no compensation
expense is recognized because the exercise price of the Company’s employee
share options equals or exceeds the market price of the underlying shares at
the date of grant.
 
Legal Proceedings
 
In the ordinary course
of business the Company is subject to certain legal actions.  While any litigation contains an element of
uncertainty, management believes the losses, if any, resulting from such
matters will not have a material adverse effect on the consolidated financial
statements of the Company.
 
11

Note 3 - Earnings Per
Share
 
The following table sets
forth the computation of basic and diluted earnings per share:
 
  Three months ended

  September 30, 2003

  Three months ended

  September 30, 2002

  Nine months ended

  September 30, 2003

  Nine months ended

  September 30, 2002

  (in thousands, except per share
  information)

  Numerator:

  Net
  income/(loss) – basic

  $

  6,681

  $

  (1,863

  )

  $

  16,075

  $

  (5,301

  )

  Minority
  interests of unitholders (in loss from continuing operations, discontinued
  operations and gain on sale of real estate)

  1,840

  (324

  )

  4,919

  (923

  )

  Net
  income/(loss) – diluted

  $

  8,521

  $

  (2,187

  )

  $

  20,994

  $

  (6,224

  )

  Denominator:

  Weighted
  average shares outstanding – basic

  2,870

  2,870

  2,870

  2,870

  Effect
  of dilutive securities:

  Converting
  units to shares

  781

  516

  754

  512

  Employee
  stock options

  13

  —

  3

  —

  Weighted
  average shares outstanding - diluted

  3,664

  3,386

  3,627

  3,382

  Net
  income/(loss) per share – basic and diluted

  $

  2.33

  $

  (0.65

  )

  $

  5.60

  $

  (1.85

  )

  Loss
  from continuing operations

  $

  (1,435

  )

  $

  (1,199

  )

  $

  (3,217

  )

  $

  (3,409

  )

  Loss
  from continuing operations per share – basic and diluted

  $

  (0.50

  )

  $

  (0.42

  )

  $

  (1.12

  )

  $

  (1.19

  )

Outstanding stock
options and the potential conversion of units to shares were excluded in
computing diluted earnings per share because the effect was anti-dilutive.
 
Minority interests of
unitholders excludes the minority interests for the non-convertible units
purchased by Howard Amster.
 
Note 4 - Long Term Stock
Incentive Plan
 
The Company has adopted
the HGP 1998 Long Term Stock Incentive Plan (the “HGP Stock Plan”) to advance
the interests of the Company by encouraging and enabling the acquisition of a
financial interest in the Company by key employees and directors of the Company
and its subsidiaries through equity awards. 
The Company reserved 338,900 common shares for issuance pursuant to the
HGP Stock Plan and options covering 326,000 shares were outstanding at
September 30, 2003.  The Company uses
the intrinsic value method of accounting for it stock – based compensation.
 
12

The following table sets
forth net loss and net loss per share computed on a proforma basis under the
requirements of SFAS 123.
 
  Three
  months

  ended

  September 30,

  2003

  Three
  months

  ended

  September 30,

  2002

  Nine
  months

  ended

  September 30,

  2003

  Nine
  months

  ended

  September 30,

  2002

  Net income/(loss) - basic

  $

  6,681

  $

  (1,863

  )

  $

  16,075

  $

  (5,301

  )

  Add stock-based compensation expense included in net income/(loss)

  —

  —

  —

  —

  Deduct stock-based compensation expense determined under fair value
  based method, net of minority interests

  23

  6

  45

  27

  Proforma net income/(loss) - basic and diluted

  $

  6,658

  $

  (1,869

  )

  $

  16,030

  $

  (5,328

  )

  Income/(loss) per share:

  Basic and diluted - as reported

  $

  2.33

  $

  (0.65

  )

  $

  5.60

  $

  (1.85

  )

  Basic and diluted - proforma

  $

  2.32

  $

  (0.65

  )

  $

  5.59

  $

  (1.86

  )

Note 5 - Mortgage Debt
and Other Liabilities
 
HGP Credit Facility
 
On June 15, 1998,
certain wholly owned affiliates of the Company entered into a credit facility
(the “HGP Credit Facility”) with Nomura Asset Capital Corporation (“Nomura”),
which initially matured on July 11, 2001 (the “Initial Maturity Date”).  The HGP Credit Facility was acquired from
Nomura by CDC Mortgage Capital, Inc. (“CDC”). 
On July 30, 2001, certain of the terms of the HGP Credit Facility were
modified, including the maturity date, which was extended to July 11, 2002 (the
“Extended Maturity Date”).  On July 11,
2002, the Company repaid in full the HGP Credit Facility with the proceeds of
loans originated by UBS Warburg Real Estate Investments Inc. (“UBS”) and Beal
Bank, S.S.B. (“Beal Bank”).
 
The UBS loans consist of
senior loans with a total initial principal balance of $22.0 million (the “UBS
Senior Loans”) and mezzanine loans with a total initial principal balance of
$3.5 million (the “UBS Mezzanine Loans”, or collectively, the “UBS
Loans”).  The UBS Senior Loans and UBS
Mezzanine Loans each consist of three loans, each secured by an outlet center.  The centers which secure the UBS Loans are
in Laughlin, Nevada, Medford, Minnesota and Warrenton, Missouri, each of which
was transferred to a new wholly owned subsidiary of the Company.  These new entities are restricted from
owning any assets other than the outlet centers and may not incur additional
liabilities, other than normal trade payables. 
The UBS Loans are cross-collateralized and non-recourse to the Company,
subject to certain customary exceptions. 
The UBS Loans require that the Company maintain a Leverage Ratio (as
defined in the loan documents) that is no more than 5% greater than the Initial
Leverage Ratio (as defined in the loan documents) calculated as of July 11,
2002.
 
The UBS Senior Loans mature
July 11, 2009, require monthly principal payments based on a 25-year
amortization schedule and bear interest at a fixed rate of 8.15%.  The outstanding balances of these loans
totaled $21.7 million and $21.9 million at September 30, 2003 and December 31,
2002, respectively.  These loans also
require the monthly funding of escrow accounts for the payment of future debt
service, real estate taxes, insurance, capital and tenant improvements and
leasing commissions (see Note 2).  Funds
in excess of those specified in the loan agreements are disbursed to the new
entities at least monthly.
 
13

The UBS Mezzanine Loans mature
July 11, 2005 and may be prepaid without penalty after July 11, 2004.  These loans require monthly payments based
on a three-year amortization schedule and bear interest at a fixed rate of 17.0%.  The outstanding balances of these loans
totaled $2.4 million and $3.1 million at September 30, 2003 and December 31,
2002, respectively.
 
Beal Bank provided two loans
initially totaling $7.0 million (the “Beal Bank Loans”) and consisted of (i) a
$3.0 million loan secured by vacant land located in Norton Shores, Michigan and
Fruitport Township, Michigan (the “Beal Bank Loan I”), and (ii) a $4.0 million
loan secured by the outlet center in Monroe, Michigan (the “Beal Bank Loan
II”).  These loans are cross-collateralized
and are recourse to the Company.  The
Beal Bank Loans mature July 10, 2005. 
Principal payments of up to $2.0 million are permitted without penalty
at any time and the loans may be prepaid in whole or in part without penalty
after July 10, 2004.  In connection with
the Company’s sale of the vacant land in Norton Shores, Michigan in August
2003, $1.0 million was repaid on each of the Beal Bank Loans and the Beal Bank
Loans were cross defaulted with the Huntley Beal Loan.  The Company also granted a second mortgage
on Huntley to Beal Bank as security for the Beal Bank Loans.  In addition, the Company granted Beal Bank a
first priority pledge and security interest in the net proceeds resulting from
the sale of the partnerships that own the outlet center located in Laughlin,
Nevada.  The balance of the Beal Bank
Loan I was $2.0 million and Beal Bank Loan II was $3.0 million at September 30,
2003.
 
The Beal Bank Loans require
monthly payments of interest only at rates of (i) the greater of the Wall
Street Journal Prime Rate plus 4.5% or 12.0% for the Beal Bank Loan I and (ii)
the greater of the Wall Street Journal Prime Rate plus 2.5% or 9.9% for the
Beal Bank Loan II, each of which adjusts monthly.
 
The Beal Bank Loan II is
guaranteed by Prime Retail up to a maximum amount of $4.0 million (the
“Prime-Beal Guaranty”).  Mr. Skoien and
Mr. Amster, Directors of the Company, are members of the board of Directors of
Prime Retail.  The Prime-Beal Guaranty
was released on August 19, 2003, pursuant to the agreement, when the total
outstanding balance of the Beal Bank Loans was reduced to $5.0 million.  The Company was obligated to make quarterly
payments of $15,000 to Prime Retail as long as this guaranty was in effect.  Prime had guaranteed $10.0 million of
obligations under the HGP Credit Facility, (the “Prime Retail Guarantee”).  In connection with the Prime Retail
Guarantee, HGP paid Prime Retail a fee of $400,000 per annum from June 15, 1998
through June 15, 2001.  In connection
with the extension of the maturity date of the HGP Credit Facility, Prime
Retail reaffirmed its obligations with respect to the Prime Retail
Guarantee.  From June 15, 2001 through
June 15, 2002, the Company paid Prime Retail an annual fee of $150,000.  Pursuant to the Prime Retail Guarantee,
Prime Retail was also the guarantor of the indebtedness related to the
Company’s corporate office building with National City Bank, which was repaid
on August 19, 2003 (see Other Borrowings below).
 
On June 29, 2001, the
Company completed a $3.5 million refinancing of its outlet center in Holland,
Michigan, with Republic Bank.  The
outstanding balance of this loan was $3.3 million and $3.4 million at September
30, 2003 and December 31, 2002, respectively. 
The loan is for a term of five years, requires monthly debt service
payments of $30,000 based on a twenty-year amortization schedule, and bears
interest at a fixed rate of 8.21%.  The
net proceeds from the loan were used to reduce the balance of the HGP Credit
Facility.
 
On August 19, 2003, the
Company sold its power center and several acres of adjacent vacant land located
in Norton Shores, Michigan.  The power
center had been security for a $16.0 million loan provided by Greenwich Capital
Financial Products, Inc. (“Greenwich”) in July 2001.  This loan was assumed by the purchaser.  The non-recourse loan was for a term of ten years, required
monthly payments based on a 30-year amortization schedule and bore interest at
a fixed rate of 7.647%.  The outstanding
balance of this loan was $15.7 million at August 19, 2003 and $15.8 million at
December 31, 2002.  In connection with
the Greenwich loan, title to Lakeshore Marketplace was transferred to a new
entity, Lakeshore Marketplace, LLC, a wholly owned subsidiary of the
Company.  Lakeshore Marketplace, LLC,
and its managing member, Lakeshore Marketplace Finance Company, Inc., were
restricted from owning any assets other than Lakeshore Marketplace and could
not incur additional liabilities, other than normal trade payables.  All of the assets of Lakeshore Marketplace,
LLC were pledged as security for the Greenwich loan.
 
JP Morgan Loans
 
On July 9, 1999 the
Company completed a debt financing totaling $46.7 million with Morgan Guaranty
Trust Company of New York (the “JP Morgan Loans”).  The JP Morgan Loans initially consisted of (i) loans totaling
$22.9
 
14

million secured by three
factory outlet centers located in Daleville, Indiana, Somerset, Pennsylvania
and Tulare, California (the “DST Loans”) and (ii) loans totaling $23.8 million
secured by three factory outlet centers located in Gretna, Nebraska, Sealy,
Texas and Traverse City, Michigan (the “GST Loans”).  In the absence of a default, each loan bears interest at a fixed
rate of 8.46%, matures on August 1, 2009 and requires the monthly payment of
interest and principal based on a 25-year amortization schedule.  Both pools of loans are non-recourse to
HGPI, subject to certain customary exceptions.
 
On October 10, 2001, the
Company notified the servicers of the JP Morgan Loans that the net cash flow
from the properties securing the loans was insufficient to fully pay the
required monthly debt service.  The
Company remits monthly all available cash flow, after a reserve for monthly
operating expenses, as partial payment of the debt service.  The failure to pay the full amount due
constitutes a default under the loan agreements which would allow the
respective lenders to exercise their various remedies contained in the loan
agreements, including application of escrow balances to delinquent payments and
foreclosure on the properties which collateralize the loans.  The interest rate applicable during the
occurrence and continuance of an Event of Default (as defined in the loan
agreements) is 13.46%.  In addition, a
penalty of 5.0% of each monthly installment is imposed in the event that such
monthly installment is not timely made in full.  The default interest and monthly penalty have been accrued in the
consolidated financial statements since October 2001.  Interest expense for the three months ended September 30, 2003
and 2002 includes $315,000 and $453,000, respectively, and for the nine months
ended September 30, 2003 and 2002 includes $1.4 million and $1.3 million,
respectively, for these charges, excluding properties classified as
discontinued operations.
 
On May 22, 2003, the
Company restructured the DST Loans.  The
restructuring involved (1) the acquisition of the loans secured by outlet
centers located in Daleville, Indiana and Somerset, Pennsylvania (the “Daleville
and Somerset Loans”) which had an aggregate principal balance of $13.2 million,
excluding accrued interest and penalties, and (2) the reinstatement of the loan
secured by an outlet center in Tulare, California (the “Tulare Loan”) for a
total payment by the Company of $1.98 million. 
The funds for this transaction were provided by a $2.0 million loan made
on May 20, 2003 from an affiliate of Howard Amster, a director and significant
shareholder of the Company.  On May 30,
2003 this loan was repaid in full in connection with the sale of the centers in
Daleville, Indiana and Somerset, Pennsylvania to an investment group including
Gary J. Skoien, Chairman, Chief Executive Officer and President of the Company
and Howard Amster.  The independent
directors of the Company approved this transaction and the Company believes
this transaction reflects market terms. 
The restructuring of the Tulare Loan resulted in the immediate
foregiveness of $798,000 of accrued penalties and default interest.  Additional accrued interest of $448,000 was
forgiven when the Company made the scheduled debt service payments through
September 2003.  Pursuant to FASB
Statement No. 15 “Accounting by Debtors and Creditors for Troubled Debt Restructurings”,
the carrying amount and prospective effective interest rate on the Tulare Loan
was adjusted for the forgiven interest and penalties applicable to this
property.  At September 30, 2003, the
Tulare Loan had an outstanding principal balance of $8.9 million and an
unamortized restructuring adjustment of $1.2 million which will be amortized as
a reduction of future interest expense under the restructured loan.  The Tulare Loan is no longer in
default.  The gain on debt restructuring
related to the Daleville and Somerset Loans of $14.4 million is included in
Income from Discontinued Operations on the statement of operations because the
two properties were sold on May 30, 2003 (see Note 8).  The Company remains in default on the GST
Loans.  The Company and the special
servicer of the GST Loans are currently negotiating a restructuring of the GST
Loans.  There can be no assurance that
such negotiations will result in any settlement of the loans or any
modification of the terms of the loans (see Note 10 — Subsequent Events)
 
The JP Morgan Loans require
the monthly funding of escrow accounts for the payment of real estate taxes,
insurance and capital improvements. 
Such escrow accounts totaled $269,000 at September 30, 2003.  These escrow accounts are classified on the
balance sheet as restricted cash (see Note 2). 
The Company continues to manage the properties which secure the JP
Morgan Loans pursuant to management agreements which are subject to
cancellation by the servicers of the loans with respect to the loans which
remain in default.  The Company receives
fees of approximately $12,000 per month for such services.
 
The declining results of
operations resulting in the inability to service the JP Morgan Loans was judged
to represent an indicator of possible impairment in the value of the collateral
properties.  The Company estimated the
value of the six centers that collateralize the loans and concluded that the
carrying value of four of the centers exceeded the fair values of those
centers.  Accordingly, the results of
operations for the third quarter of 2001 include a provision for asset
impairment of $18.0 million, including $9.2 million related to properties which
are included in Income from
 
15

Discontinued Operations,
representing a write-down of the carrying values of the assets to their
estimated fair values.  Based on
continuing negotiations with the lender and additional declines in occupancy
and revenues, the Company recorded an additional provision for asset impairment
of $17.0 million in the fourth quarter of 2002, including $8.9 million related
to properties which are included in Income from Discontinued Operations, to
further reduce the carrying values of the same four properties.  The aggregate carrying value of the real
estate of properties collateralizing the GST Loans was approximately $9.9
million at September 30, 2003.  The
current outstanding loan balances of the GST Loans totaled $22.9 million, plus
accrued interest and penalties of approximately $4.7 million.  If the lender were to foreclose on the GST
Properties, the Company would record a gain for the difference between the
carrying value of the properties and related net assets and the outstanding
loan balances and related liabilities. 
The estimation of the fair value of the centers which secure the GST
Loans involved estimates by management with respect to future cash flows,
market conditions and valuations applicable to such properties.  Future events could occur which would cause
the Company to conclude that the carrying values of the Company’s properties
may need to be further adjusted.
 
Huntley Debt
 
On June 12, 2003 the
Company borrowed $9.1 million from Amster Trading Company, an affiliate of
Howard Amster, a director and significant shareholder of the Company (the “Huntley
Amster Loan”) which funded the purchase of Huntley from Prime Group and its
affiliates.  The Huntley Amster Loan
bears interest at a rate of 11.0% per annum, payable monthly, and matures on
June 12, 2004, with the option for a one-year extension.  A one percent (1.0%) origination fee was
paid to Amster Trading Company.  The
Huntley Amster Loan may not be prepaid in whole or in part prior to September
1, 2003 and thereafter requires a prepayment fee according to the following
schedule:
 
  Payment made during the
  period:

  Prepayment Fee

  October
  1, 2003 to October 31, 2003

  2.0

  %

  November
  1, 2003 to January 31, 2004

  1.0

  %

  After
  January 31, 2004

  None

The Huntley Amster Loan
is guaranteed by HGPI and HGP LP and is secured by a pledge of the partnership
interests in the partnerships which own Huntley, subject to any required lender
consents.  The independent directors of
the Company approved this transaction and the Company believes this transaction
reflects market terms.
 
In connection with the
Company’s acquisition of Huntley, the Company assumed a $10.7 million loan
secured by Huntley provided by Beal Bank with a principal balance of $10.7
million at September 30, 2003 (the “Huntley Beal Loan”).  This loan requires monthly payments of
interest at a rate equal to the greater of (i) the Wall Street Journal Prime
Rate plus four percent (4%) or (ii) twelve percent (12%) per annum.  The Huntley Beal Loan may only be prepaid,
prior to maturity, from the net proceeds from the sale of all or any portion of
the collateral land.  Beal Bank must
approve any collateral land sales in writing and may grant or withhold such
consent in their sole discretion.  The
loan matures on October 31, 2004, and allows for a one-year extension upon the
satisfaction of certain customary conditions. 
The Huntley Beal Loan is guaranteed by HGPI.  In connection with the sale of the power center in Norton Shores,
Michigan, Beal Bank granted the Company an option to extend the maturity of the
Huntley Beal Loan until October 31, 2005. 
The Company agreed to cross default the Beal Bank Loans and the Huntley
Beal Loan.  The Company also granted a
second mortgage on Huntley to Beal Bank as security for the Beal Bank Loans.  In addition, the Company granted Beal Bank a
first priority pledge and security interest in the net proceeds resulting from
the sale of the partnerships that own the outlet center located in Laughlin,
Nevada.
 
Pursuant to the terms of
the Amended and Restated Agreement and Assignment of Net Profits Interest dated
October 27, 1999, as later amended (the “Beal Net Profits Agreement”), Beal
Bank has a 35% interest in the Net Profits of the partnerships which own
Huntley, subject to certain preferences in their distribution.  The Beal Net Profits Agreement was granted
in connection with a prior loan made by Beal Bank to Huntley.  Net cash generated by Huntley is to be
distributed in the following order: 
first to the owners of Huntley in the amount of the Approved
Contributions (which total approximately $12.1 million at September 30, 2003
and from which the Huntley Beal Loan is required to be repaid), second to Beal
Bank for the Beal Account (which had a balance of approximately $6.6 million at
September 30, 2003), third to Huntley for its account (which had a balance of
approximately $12.3 million at September 30, 2003) and thereafter, 35% to Beal
Bank and 65% to Huntley.  The Approved
Contributions include operating and development expenditures funded for Huntley
(excluding interest on the Huntley Beal Loan). 
For purposes of determining distribution preferences under the Beal Net
Profits Agreement, the Approved Contributions, the Huntley
 
16

account and the Beal
Account accrue interest per the terms of the Beal Net Profits Agreement.  On the maturity date of the Huntley Beal
Loan, Huntley is required to pay Beal Bank the fair market value of Beal Bank’s
Net Profits interest.  Pursuant to
purchase accounting requirements, the Company has recorded an estimated
liability for the Beal Net Profits Agreement in the amount of $9.1 million,
reflecting the estimated value of the Beal Bank Net Profits interest
liability.  Such estimate is subject to
change.  Some of the factors that could
cause a significant revision to the estimate include changes in zoning and
changes in the market demand for real estate in the area.  The Beal Bank net profits interest has been
included in Participation Interests and Other Liabilities on the Company’s
balance sheets.  Certain affiliates of
Prime Group have continuing guarantees related to the Beal Net Profits
Agreement.  The Company has idemnified
such guarantors against any liability in connection with their guarantees.  Capitalized terms in this paragraph which
are not defined herein shall have the meanings given such terms in the Beal Net
Profits Agreement, as amended.
 
Gary J. Skoien,
Chairman, Chief Executive Officer and President of the Company, is also the
Executive Vice President and Chief Operating Officer of Prime Group.  In connection with his employment with Prime
Group, Mr. Skoien was previously granted an interest (the “Skoien Net Profits
Interest”) in the net proceeds generated by Huntley, which he retained after
the Company’s purchase of Huntley.  The
Skoien Net Profits Interest consists of a 9.675% participation in the Net Cash
Flow (as defined in Mr. Skoien’s Net Profits Agreement) distributed to the
Company (excluding distributions of all amounts contributed or advanced by the
Company to Huntley plus interest per the terms of the agreement).  Pursuant to purchase accounting
requirements, the Company has recorded a liability for the Skoien Net Profits
Interest in the amount of $1.0 million, which represents its estimated fair
value and which amount has been included in Participation Interests and Other
Liabilities on the Company’s balance sheets.
 
As additional
consideration for the partnership interests, Huntley granted to Prime Group,
and certain of its affiliates, a participation interest of 26% of the net cash
flow distributed by Huntley (the “Prime Group Participation Interest”) with
respect to the interests acquired by the Company.  No amount is payable to Prime Group until the Company has
received distributions from Huntley in excess of the purchase price plus
advances made by the Company to Huntley plus a 40% return on such amounts
compounded quarterly.  Aggregate amounts
payable pursuant to the Prime Group Participation Interest shall not exceed
$5.0 million.  No liability has been
recorded by the Company for the Prime Group Participation Interest as its
current fair value is estimated to be zero. 
Gary J. Skoien, Chairman, Chief Executive Officer and President of the
Company is also the Executive Vice President and Chief Operating Officer of
Prime Group.
 
In 1993, the Village of
Huntley (the “Village”) created a Tax Increment Financing District (the “TIF
District”) which is authorized to issue up to $108.0 million of tax-exempt,
tax-increment bonds (the “TIF Bonds”) to reimburse Huntley for a portion of the
land cost and the cost of infrastructure improvements.  In 1995, the Village sold $7.0 million of
Series A bonds and $14.0 million of Series B bonds.  Huntley owns the Series C bonds with a total principal amount of
$25.0 million plus accrued interest. 
The Series C bonds are subordinate to the Series A and Series B
bonds.  Currently there is no portion of
the tax increment available to the Series C bonds and no value has been
ascribed to them by the Company.
 
The source of repayment
for the TIF Bonds is (a) 100% of the increase in real estate taxes on the land
in the TIF District above the taxes in place when the TIF District was created,
and (b) one-half of the Village’s one percent (1%) sales tax collected on
retail sales occurring within the TIF District.  The TIF District contains approximately 900 acres of land owned
or previously owned by Huntley.  Debt
service reserve funds were initially established with $700,000 for the Series A
bonds and $3.09 million for the Series B bonds as security for the payment of
principal and interest on the TIF Bonds. 
To the extent the reserve funds are not needed to service the bonds,
they will be returned to Huntley.  These
funds are held in interest bearing accounts under the control of the trustee
and totaled approximately $3.6 million at September 30, 2003.  There can be no assurance that these funds
will be returned to Huntley and, therefore, they are not reflected on the
balance sheets of the Company.  The TIF
Bonds are not obligations of the Company and are not reflected on the Company’s
balance sheet and no value has been ascribed to them by the Company.
 
As additional security
for the Series B bonds, Huntley granted a mortgage to U.S. Bank Trust National
Association (“US Bank”), as trustee for the holders of the Series B bonds,
covering approximately 131 acres of land (the “US Bank Mortgage”).  Upon the sale of any parcel of land subject
to the US Bank Mortgage, such parcel will be released from the US Bank Mortgage
provided that Huntley deposits into a collateral account (the “US Bank
Collateral Account”) an amount equal to the greater of (i) 50% of the July 1997
appraised value of such parcel or (ii) an amount per square
 
17

foot of the parcel sold
as set forth in Exhibit B to the Amended and Restated Intercreditor
Agreement.  Amounts deposited into the
US Bank Collateral Account are released to Huntley upon the issuance of a
certificate of occupancy for the subject land parcel.  The balance in the US Bank Collateral Account was approximately
$1.5 million at September 30, 2003 and is included in Restricted Cash on the
Company’s balance sheets (see Note 2). 
Based on a third-party review of the current incremental real estate and
sales tax revenue and the available debt service reserve funds, the Company
believes that there are sufficient funds to make the scheduled debt service
payments on the Series A and B bonds. 
Further, Huntley has no continuing legal obligation related to the
proceeds received from the TIF Bonds and thus, no liability has been recognized
related to this mortgage. The independent directors of the Company approved the
acquisition of Huntley and the assumption of the related net profits interest
liabilities.  The Company believes this
transaction reflects market terms.
 
Tulare Construction Loan
 
On April 24, 2003, the
Company closed on a $3.1 million loan for the construction of Phase II of its
outlet center in Tulare, California (the “Tulare II Loan”).  Upon the completion of the retail expansion
construction, the loan will convert into a permanent loan maturing in August
2009.  The loan is secured by a first
mortgage on the land and improvements and will bear interest at the greater of
LIBOR plus 300 basis points or 5.5%. 
The outstanding principal balance on the Tulare II Loan was $2.1 million
at September 30, 2003.  The loan was
made by Amster Trading Company Charitable Remainder Unitrust dated March 10,
2003, an affiliate of Howard Amster, a Director and principal shareholder of
HGPI.
 
Other Borrowings
 
On July 20, 2001, the Company
acquired the ownership of a triple net leased property in Roseville, Michigan,
which is leased to Petsmart, Inc., as a replacement property for its center in
Dry Ridge, Kentucky in a transaction structured as a tax deferred exchange
under the provisions of Section 1031 of the Code.  The purchase price of $3.35 million included the assumption of a
$3.2 million mortgage.  The rent payable
under the lease is equal to the debt service due under the loan secured by the
property (the “Petsmart Loan”).  The Petsmart
Loan matures on January 8, 2008, bears interest at a fixed rate of 8.77% and
requires the monthly payment of principal computed on a 25 year schedule.  The loan is non-recourse to HGPI.  The balance of the Petsmart Loan was $3.1
million and $3.2 million at September 30, 2003 and December 31, 2002,
respectively.  The Company is marketing
this property for sale and thus, pursuant to SFAS 144, its real estate assets
are listed as Real Estate-Discontinued Operations on the balance sheets and its
revenue and expenses are included in Income from Discontinued Operations on the
statements of operations.
 
On August 19, 2003, the
Company refinanced its corporate office building in Norton Shores, Michigan
with a $2.25 million loan from UBS Real Estate Investments Inc. (“UBS” and the
“UBS Office Loan”).  The UBS Office Loan
requires an officer of the Company to be personally liable for losses suffered
by UBS for environmental damages and the results of certain actions prohibited
under the UBS Office Loan documents. 
Gary J. Skoien personally indemnified UBS for such losses and
damages.  The Company agreed to
indemnify Mr. Skoien for any amounts paid under the UBS indemnification and to
pay Mr. Skoien an annual fee of $30,000 related to such indemnification until the
loan is repaid (or Mr. Skoien is otherwise released from the UBS
indemnification obligations).  The
outstanding balance of this loan was $2.2 million at September 30, 2003.  The loan is for a term of ten years,
requires monthly principal payments based on a 30-year amortization schedule
and bears interest at a fixed rate of 6.89%.
 
On June 4, 2002, the
Company purchased the land underlying its center in Laughlin, Nevada for $2.5
million pursuant to a purchase option contained in the ground lease.  The ground rent was prorated to February 25,
2002.  The Company paid approximately
$500,000 at closing and a $2.0 million unsecured promissory note was provided
by the seller.  This note matures in
June 2012, bears interest at a rate of 2.0% above the weighted average cost of
funds index for the Eleventh District Savings Institutions, adjusted annually
and requires amortization based on a ten year schedule.  The initial interest rate payable on the
loan was 5.074% through February 28, 2003 and is 4.375% through February 29,
2004.  The outstanding principal balance
on this note was $1.7 million and $1.9 million at September 30, 2003 and
December 31, 2002, respectively.
 
18

Debt maturities and
principal payments, including debt secured by the assets classified as
discontinued operations, due subsequent to September 30, 2003 are as follows
(in thousands):
 
  Due by:

  Operating

  Portfolio

  Discontinued

  Operations

  September
  30, 2004

  $

  33,876

  $

  39

  September
  30, 2005

  17,637

  42

  September
  30, 2006

  3,869

  46

  September
  30, 2007

  766

  50

  September
  30, 2008

  817

  2,957

  Thereafter

  31,046

  —

  88,011

  $

  3,134

  Tulare
  Loan restructuring adjustment

  1,157

  Tulare
  II Loan (construction loan)

  2,114

  $

  91,282

The GST Loans, on which
the Company is in default, are reflected as current year maturities (see “JP
Morgan Loans” above).  The Huntley
Amster Loan is reflected as a current year maturity, but the loan contains a provision
for extension, upon the satisfaction of certain customary conditions (see
“Huntley Debt” above).
 
The Company’s ability to
secure new loans is limited by the fact that virtually all of the Company’s
real estate assets are currently pledged as collateral for its current loans.
 
Note 6 - Related Party
Transactions
 
The Company utilizes
Thilman & Filippini as its agent for insurance and risk management
programs.  E. Thomas Thilman is a
Director of the Company and a partner in Thilman & Filippini.  The Company paid premiums totaling
approximately $678,000 and $688,000 during the three months ended September 30,
2003 and 2002, respectively and $917,000 and $929,000 during the nine months
ended September 30, 2003 and 2002, respectively, on insurance policies placed
by Thilman & Filippini.  This
includes insurance premiums for the properties classified as discontinued
operations.
 
The Company sub-leases
office space on a month to month basis for its senior executives at 77 W.
Wacker, Chicago, Illinois from Prime Group. 
The Company incurred rent expense of $13,000 and $12,000 during the
three months ended September 30, 2003 and 2002, respectively and $39,000 and
$36,000 during the nine months ended September 30, 2003 and 2002, respectively.
 
On March 13, 2003, HGPI
sold 261,628 limited partnership units in HGP LP to Pleasant Lake Apts. Ltd.,
an affiliate of Howard Amster, for aggregate consideration of $1.35 million, or
$5.16 per unit.  Proceeds in excess of
HGPI’s carrying value of these units was recognized as an increase in
additional paid-in capital.  On March
14, 2003, the Company used $1.3 million of the proceeds from the sale to fund a
secured loan to Retail Partners Limited Partnership and Retail Partners, Inc.
(collectively “Retail Partners”) which entities are owned by Prime Group.  The loan is for a term of 14 months and
bears interest at the rate of 5.0%, payable at maturity.  Approximately $340,000 of this loan was
repaid in connection with the Company’s purchase of Huntley on June 13,
2003.  The principal balance on the loan
was $500,000 at September 30, 2003.  The
Company received a 3.25% net profits interest in a real estate development
owned by Huntley Development LP and Huntley Meadow Residential Venture
(collectively “Huntley”) subject to the current lender’s interest in
distributions from Huntley.  The fair
value of the profits interest has been preliminarily estimated at
$350,000.  The value of this interest is
included in Land Held for Investment. 
Such value will be recognized over the term of the loan as an adjustment
to the yield. HGPI may consider additional sales of units in HGP LP to Mr.
Amster or others in the future.
 
The Company obtained a
$2.0 million loan on May 20, 2003 from an affiliate of Howard Amster.  The loan bears interest at a rate of 5.0%
and was due upon demand (see Note 5). 
This loan was repaid in connection with the sale of two outlet centers
discussed below.
 
19

On May 31, 2003, the
Company sold the partnership that owns two outlet centers located in Daleville,
Indiana and Somerset, Pennsylvania to an investment group which includes Gary
J. Skoien and Howard Amster.  The
investment group has hired the Company to manage and lease the two properties.  The leasing and management agreement
provides that the Company receive 50% of the net profit from the subsequent
sale of the centers after the owners receive a 12% annual return on their
investment (see Note 8).
 
On
June 12, 2003, the Company borrowed $9.1 million from Amster Trading Company,
an affiliate of Howard Amster (the “Huntley Amster Loan”) which funded the
purchase of Huntley from Prime Group and its affiliates on June 13, 2003.  The Huntley Amster Loan is guaranteed by
HGPI and HGP LP and is secured by a pledge of the partnership interests in the
partnerships which own Huntley, subject to any required lender consents.  The Huntley Amster Loan bears interest at a
rate of 11.0% per annum, payable monthly and matures on June 12, 2004, with the
option for a one-year extension.  In
connection with the purchase of Huntley, the Company assumed the liabilities
for the Beal Net Profits Agreement, the Skoien Net Profits Interest and the
Prime Group Participation Interest (see Note 5).
 
On August 19, 2003, the
Company refinanced its corporate office building in Norton Shores, Michigan
with a $2.25 million loan from UBS Real Estate Investments Inc. (“UBS” and the
“UBS Office Loan”).  The UBS Office Loan
requires an officer of the Company to be personally liable for losses suffered
by UBS for environmental damages and the results of certain actions prohibited
under the UBS Office Loan documents. 
Gary J. Skoien personally indemnified UBS for such losses and
damages.  The Company agreed to
indemnify Mr. Skoien for any amounts paid under the UBS indemnification and to
pay Mr. Skoien an annual fee of $30,000 related to such indemnification until
the loan is repaid (or Mr. Skoien is otherwise released from the UBS
indemnification obligations).  The
outstanding balance of this loan was $2.2 million at September 30, 2003.  The loan is for a term of ten years,
requires monthly principal payments based on a 30-year amortization schedule
and bears interest at a fixed rate of 6.89%.
 
Gary J. Skoien,
Chairman, Chief Executive Officer and President of the Company is also
Executive Vice President and Chief Operating Officer of Prime Group.  Howard Amster is a director and significant
shareholder of the Company.
 
Note 7 -
Segment Information
 
During the nine months ended September 30, 2003 and September 30, 2002,
the Company operated twelve shopping centers located in nine states including
two shopping centers which were sold in May 2003 and a power center which was
sold in August 2003, all of which were accounted for as discontinued operations
on the statements of operations.  The
Company separately evaluates the performance of each of its centers.  However, because each of the centers has
similar economic characteristics, facilities and/or tenants, the shopping
centers have been aggregated into a single dominant shopping center
segment.  In addition, the Company has a
corporate segment and an investment land segment.  The Company evaluates performance and allocates resources
primarily based on the Funds From Operations (“FFO”) expected to be generated
by an investment in each individual shopping center. FFO is a widely used
measure of the operating performance of REITs, but may not be comparable to
other REITs if they do not define similarly entitled items exactly as the
Company defines them.  FFO, as defined
by the National Association of Real Estate Investment Trusts (“NAREIT”), means
net income excluding extraordinary items (as defined by accounting principles
generally accepted in the United States (“GAAP”)) and gains and losses from
sales of depreciable operating property, plus depreciation and amortization,
and after adjustments for unconsolidated partnerships and joint ventures.  Gains and losses on non-depreciable real
estate assets, including land parcels, are included in FFO.  FFO should not be considered as an
alternative to either net income or cash flows from operating activities
computed under accounting principles generally accepted in the United States.
 
20

A reconciliation of loss before minority interests to FFO, computed
assuming full dilution from all outstanding shares and units, is as follows:
 
  Nine

  months ended

  September 30, 2003

  Nine

  months ended

  September 30, 2002

  (in thousands)

  Net income/(loss)

  $

  16,075

  $

  (5,301

  )

  Minority interests of unitholders (in loss from
  continuing operations, discontinued operations and gain on sale of real
  estate)

  6,183

  (923

  )

  Income/(loss) before minority interests

  22,258

  (6,224

  )

  Adjustments for depreciation and amortization

  2,187

  3,863

  FFO

  $

  24,445

  $

  (2,361

  )

The line item entitled general
and administrative expenses on the Company’s statements of operations
represents corporate level general and administrative expenses.
 
The above schedule
includes the operating results of the Company’s investment land segment, which
had a net loss of $854,000 for the period ended September 30, 2003.  This investment land was acquired by the
Company on June 13, 2003 (see Note 5). 
The acquisition of this land was recorded as a purchase under generally
accepted accounting principles in the United States and the total assets
related to this segment approximate $31.0 million at September 30, 2003.
 
The remaining amounts in the
table above comprise the results of the shopping center segment.
 
Note 8 – Property
Dispositions 
On January 25, 2002, the Company sold 7.1 acres of land ancillary to
its center in Warrenton, Missouri.  The
proceeds from this sale were $235,000 and a loss on sale of $1,000 was
recognized.
 
On February 15, 2002, a
tenant exercised its option to purchase the land subject to its ground lease at
Lakeshore Marketplace in Norton Shores, Michigan.  The proceeds from this sale were $373,000 and a gain on sale of
$156,000 was recognized.
 
In September 2002, the
Company sold excess office furniture to a tenant at the Michigan corporate
office for $37,000 resulting in a gain of $22,000.
 
In March 2003, the
Company received a condemnation award for land adjacent to the Company’s center
in Gretna, Nebraska.  The land was
condemned by Sarpy County in Nebraska in order to widen Highway No. I-80 that
runs along the center.  The Company
recognized a gain of $29,000 as a result of the condemnation, which is
reflected in Income from Discontinued Operations on the Company’s statements of
operations.
 
On May 30, 2003 the Company
sold a parcel of land adjacent to its center located in Tulare,
California.  The proceeds from the sale
were $650,000 and a gain of $548,000 was recognized, which is included in
Income from Discontinued Operations on the Company’s statements of operations.
 
On May 31, 2003, the Company
sold the partnership that owns two outlet centers located in Daleville, Indiana
and Somerset, Pennsylvania for $1.98 million. A net gain on sale of $1.3
million was recognized, which is included in Income from Discontinued
Operations on the Company’s statements of operations.  The investment group that acquired the partnership includes Gary
J. Skoien, Chairman, Chief Executive Officer and President of the Company and
an affiliate of Howard M. Amster, a director and significant shareholder of the
Company.  The independent directors of
the Company approved this transaction and the Company believes this transaction
reflects market terms.  The investment
group has hired the Company to manage and lease the two properties.  The leasing and management agreement
provides that the Company will receive 50% of the net profit from the
subsequent sale of the centers after
 
21

the owners receive a 12% annual
return on their investment.  There can
be no assurance that the Company will receive any funds from such sales.
 
On August 19, 2003, the Company
sold the power center and adjacent land parcels located in Norton Shores,
Michigan for $22.7 million, including the assumption of the mortgage with
Greenwich Capital Financial Products, Inc. by the purchaser.  A gain of $10.9 million was recognized and
is included in Income from Discontinued Operations on the Company’s statements
of operations.  The Company used $2.0
million of the proceeds from the sale to pay $1.0 million each on the Beal Bank
Loans.  The vacant land parcels were a
portion of the security for the Beal Bank Loan I.  The reduction of the principal balance on the Beal Bank Loans to
$5.0 million released the Prime-Beal Guaranty. 
In addition, Beal Bank required that $3.0 million be deposited into an
escrow account to fund infrastructure and interest payments for Huntley, since
the mortgage it provided on that property is cross-collateralized with the Beal
Bank Loans.
 
On September 16, 2003, the
Company sold 10 acres of vacant land in Fruitport Township, Michigan.  The proceeds from this sale were $226,000
and a gain on sale of $116,000 was recognized, which is included in Income from
Discontinued Operations on the Company’s statements of operations.
 
Note
9 – Discontinued Operations 
In accordance with SFAS 144
effective for financial statements issued for fiscal years beginning after
December 15, 2001, the results of operations and gain/(loss) on real estate
properties sold or held for sale subsequent to December 31, 2001 are reflected
in the consolidated statements of operations as “Income from Discontinued
Operations” for all periods presented.
 
The following table is a
summary of the results of operations of the properties classified as
discontinued operations (in thousands):
 
  Three
  months

  ended

  September 30,

  2003

  Three
  months

  ended

  September 30,

  2002

  Nine
  months

  ended

  September 30,

  2003

  Nine
  months

  ended

  September 30,

  2002

  Total revenue

  $

  634

  $

  1,151

  $

  2,891

  $

  3,354

  Total expenses

  567

  1,959

  3,453

  5,760

  Gain on debt restructuring

  —

  —

  14,406

  —

  Income/(loss) before minority interests

  67

  (808

  )

  13,844

  (2,406

  )

  Minority interests

  —

  122

  (3,934

  )

  361

  Net gain on sale of real estate, net of
  minority interests of $3.0 million and $3.5 million, respectively

  8,049

  —

  9,382

  —

  Income/(loss) from discontinued operations

  $

  8,116

  $

  (686

  )

  $

  19,292

  $

  (2,045

  )

Note 10 – Subsequent
Events 
 
On October 3, 2003, the
Company commenced an offer for the purchase of all shares of its common stock
held by persons owning 20 or fewer shares as of the close of business on
September 26, 2003.  The Company will
pay $5.00 for each share properly tendered by an eligible stockholder.  The offer is not conditioned on the receipt
of any minimum number of tenders and will expire at 5:00 p.m., New York City
time, on Wednesday, December 3, 2003, unless extended prior to that date.  If, after completion of the offer, the
Company has fewer than 300 stockholders of record, the Company intends to
terminate the registration of its common stock under the Securities Exchange
Act of 1934 and become a non-reporting company and the common stock will no
longer be eligible for trading on the Nasdaq market.
 
22

On November 4, 2003, the
Company began restructuring the three GST Loans on which it had been in default
(see Note 5).  The planned restructuring
includes the payoff at a discount of the loans secured by the outlet centers in
Sealy, Texas and Gretna, Nebraska and the reinstatement to current status of
the loan secured by the outlet center in Traverse City, Michigan.  The loan secured by the outlet center in
Sealy was repaid on November 4, 2003 and the loan secured by the outlet center
in Gretna was repaid on November 6, 2003. 
The reinstatement of the loan secured by the outlet center in Traverse
City is expected to be completed by November 20, 2003.The restructuring of the
GST Loans requires the payment of all current interest and principal on the
Traverse City loan as of the date of its reinstatement together with additional
payments totaling $4.0 million.
 
The repaid loans had an
aggregate principal balance of approximately $18.0 million, excluding accrued
interest and penalties, as of the dates of repayment.  The reinstatement to current status of the loan secured by the
outlet center in Traverse City will result in the forgiveness of approximately
$600,000 of accrued penalties and default interest.  The carrying amount and prospective effective interest rate on
the loan secured by the center in Traverse City will be adjusted for the
forgiven interest and penalties applicable to this property.
 
The funds to accomplish
this restructuring were provided to the Company by an affiliate of Howard M.
Amster, a director and principle shareholder of the Company.  The Company sold a 49% interest in Gretna,
Sealy, Traverse City Outlet Centers, L.L.C. (“GST”), the entity that owned the
three outlet centers subject to the GST Loans, to an affiliate of Mr. Amster
for $1.96 million.  An affiliate of Mr.
Amster also made a $2.04 million loan to the Company.  The proceeds from this loan and the sale of the interests in GST
are required to be used to complete the planned debt restructuring.  The loan bears interest at 8.0% and matures
on August 3, 2004.
 
23

HORIZON
GROUP PROPERTIES, INC.
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
For
the three and nine months ended September 30, 2003
(unaudited)
 
Introduction
 
The following discussion
and analysis of the condensed consolidated financial condition and results of
operations of Horizon Group Properties, Inc. (“HGPI”, or together with its
subsidiaries “HGP” or the “Company”) should be read in conjunction with the
Condensed Consolidated Financial Statements and Notes thereto. The Company’s
operations are conducted primarily through a subsidiary limited partnership,
Horizon Group Properties, L.P. (“HGP LP”). 
HGPI is the sole general partner of HGP LP and, as of September 30,
2003, owned approximately 70.3% of the HGP LP partnership interests (“Common
Units”).  In general, Common Units of
HGP LP are exchangeable for shares of Common Stock of HGPI on a one-for-one
basis at any time (or for an equivalent cash amount at the Company’s
election).  HGPI controls HGP LP and is
dependent on distributions or other payments from HGP LP to meet its financial
obligations.
 
Cautionary Statements
 
The following discussion
in “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” contains certain forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 which reflect management’s
current views with respect to future events and financial performance.  Such forward-looking statements are subject
to certain risks and uncertainties; including, but not limited to, the effects
of future events on the Company’s financial performance; the risk that the
Company may be unable to finance its current debt as it matures; risks related
to the retail industry in which the Company’s outlet centers compete, including
the potential adverse impact of external factors, such as competition from
existing or newly constructed shopping centers, inflation, consumer confidence,
unemployment rates and consumer tastes and preferences; risks associated with
the Company’s property acquisitions, such as the lack of predictability with
respect to financial returns; risks associated with the Company’s property
development activities, such as the potential for cost overruns, delays and the
lack of predictability with respect to the financial returns associated with
these development activities; the risk of potential increase in market interest
rates from current levels; and risks associated with real estate
ownership,  such as the potential
adverse impact of changes in local economic climate on the revenues and the
value of the Company’s properties.  For further
information on factors which could affect the Company and the statements
contained herein, reference is made to the Company’s other filings with the
Securities and Exchange Commission, including the Company’s Registration
Statement on Form 10, as amended, dated as of June 4, 1998, with respect to the
Company’s initial registration of its common stock under the Securities
Exchange Act of 1934, as amended and the Sky Merger Corp. Registration
Statement on Form S-4, as filed with the Securities and Exchange Commission on
May 12, 1998 (Registration No. 333-51285).
 
The statements of
financial condition and results of operations of the Company reflect the
application of the Company’s accounting policies, the most significant of which
are outlined in Note 2 to the Condensed Consolidated Financial Statements.  These policies are applied in accordance
with accounting principles generally accepted in the United States and reflect
significant assumptions and estimates of the management of the Company.
 
General Overview
 
The Company is a
self-administered and self-managed corporation that was established in
connection with the merger of Horizon Group, Inc., a Michigan corporation
(“Horizon”) with and into Prime Retail, Inc., a Maryland corporation (“Prime
Retail”) which was consummated on June 15, 1998 (“the Merger”).  As of September 30, 2003, the Company’s
operating portfolio consisted of nine factory outlet centers located in seven
states comprising an aggregate of approximately 1.8 million square feet of
gross leasable area (“GLA”).  Eight of
the nine factory outlet centers were contributed to the Company by Horizon
pursuant to a Contribution Agreement entered into in connection with the Merger
(the “Contribution Agreement”) and one factory outlet center was purchased by
the Company from Prime Retail immediately subsequent to the consummation of the
Merger.  At September 30, 2003, the
Company owned and managed a total of 2.2 million square feet of GLA.
 
Prior to May 22, 2003,
the Company was in default with respect to the obligations of two pools of
loans originated by JP Morgan in July 1999 (the “JP Morgan Loans”).  The defaults were the result of the
Company’s failure to pay in full the amounts due under the loans commencing
with the payment due October 1, 2001. 
Each pool of loans was secured by a group of three properties.  The first group consisted of three factory
outlet centers located in Daleville, Indiana,
 
24

Somerset, Pennsylvania
and Tulare, California (the “DST Loans”); the second group consisted of three
factory outlet centers located in Gretna, Nebraska, Sealy, Texas and Traverse
City, Michigan (the “GST Loans” and “GST Properties”).  The loans are non-recourse to HGPI, subject
to certain customary exceptions.  The
Company continues to manage the centers and remit the net cash flow each month
as partial payment on the loans. 
Interest expense on the JP Morgan Loans since October 2001 has been
accrued at the default rate of interest (an annual rate of 13.46%) together
with a penalty equal to 5.0% of each monthly amount due under the related
notes.  The results of operations of the
Company reflect the revenues and expenses, including accrued interest and
penalties, of the properties subject to the JP Morgan Loans together with the
revenues and expenses of the other properties owned by the Company.  The defaults under the loan agreements allow
the respective lenders to exercise their various remedies contained in the loan
agreements, including termination of the Company as manager of the centers,
application of escrow balances to delinquent payments and foreclosure on the
properties which collateralize the loans.
 
The Company remains in
default on the GST Loans at September 30, 2003.  The Company and the special servicer of the GST Loans are
currently negotiating a restructuring of the GST Loans.  There can be assurance that such
negotiations will result in any settlement of the loans or any modification of
the terms of the loans.
 
On May 22, 2003, the
Company restructured the DST Loans.  The
restructuring involved (1) the acquisition of the loans secured by outlet
centers located in Daleville, Indiana and Somerset, Pennsylvania (the
“Daleville and Somerset Loans”) which had an aggregate principal balance of $13.2
million, excluding accrued interest and penalties, and (2) the reinstatement of
the loan secured by an outlet center in Tulare, California (the “Tulare Loan”)
for a total payment by the Company of $1.98 million.  The funds for this transaction were provided by a $2.0 million
loan made on May 20, 2003 from an affiliate of Howard Amster, a director and
significant shareholder of the Company. 
On May 30, 2003 this loan was repaid in full in connection with the sale
of the centers in Daleville, Indiana and Somerset, Pennsylvania for $1.98
million to an investment group including Gary J. Skoien, Chairman, Chief
Executive Officer and President of the Company and Howard Amster. The
independent directors of the Company approved this transaction and the Company believes
this transaction reflects market terms. 
The investment group has hired the Company to manage and lease the two
properties.  The leasing and management
agreement provides that the Company receive 50% of the net profit from the
subsequent sale of the centers after the owners receive a 12% annual return on
their investment.  There can be no
assurance that the Company will receive any funds from this type of
transaction.  The operating results and
gain on debt restructuring on the Daleville and Somerset Loans are included in
Income from Discontinued Operations on the Company’s statements of
operations.  The restructuring of the
Tulare Loan resulted in the immediate foregiveness of $798,000 of accrued
penalties and default interest. 
Additional accrued interest of $448,000 was forgiven when the Company
made the scheduled debt service payments through September 2003.
 
The Company is marketing
for sale its property in Roseville, Michigan, which is net-leased to Petsmart,
Inc. the 103,000 square foot strip building at the outlet center in Monroe,
Michigan, and eight parcels of vacant. 
Pursuant to the requirements of Statement of Financial Accounting
Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived
Assets” (“SFAS 144”), the Company has reclassified the real estate assets for
these properties to Real Estate-Discontinued Operations on the balance sheet
and reports the revenue and expenses from the properties as Income from
Discontinued Operations on the statements of operations. SFAS 144 also requires
that any prior period financial statements presented are also reclassified for
comparability.  This reclassification
has no effect on the Company’s previously reported net income or loss.
 
On June 13, 2003 the
Company purchased controlling interest in two partnerships which own
approximately 655 acres of land in Huntley, Illinois (“Huntley”) from
affiliates of The Prime Group, Inc. (“Prime Group”).  This purchase was accounted for under the purchase method of
accounting under which assets acquired and liabilities assumed were recorded at
their relative fair values as of the date of the purchase.  The initial purchase price allocation
estimates are preliminary and will be finalized upon obtaining additional
information regarding the liabilities assumed at acquisition. Direct costs
incurred for development activities at Huntley are capitalized to Land Held for
Investment on the Company’s balance sheets, while indirect costs and holding
costs are expensed in general and administrative expense on the statements of
operations.  The Company had previously
acquired a 3.25% net profits interest in Huntley in connection with a loan made
to Retail Partners (as defined herein) in March 2003.  The value of this interest is included in Land Held for Investment
on the balance sheets (see Note 5 to the Condensed Consolidated Financial
Statements).  The independent directors
of the Company approved this transaction and the Company believes this
transaction reflects market terms.
 
25

On October 3, 2003, the
Company commenced an offer for the purchase of all shares of its common stock
held by persons owning 20 or fewer shares as of the close of business on
September 26, 2003.  The Company will pay
$5.00 for each share properly tendered by an eligible stockholder.  The offer is not conditioned on the receipt
of any minimum number of tenders and will expire at 5:00 p.m., New York City
time, on Wednesday, December 3, 2003, unless extended prior to that date.  If, after completion of the offer, the
Company has fewer than 300 stockholders of record, the Company intends to
terminate the registration of its common stock under the Securities Exchange
Act of 1934 and become a non-reporting company and the common stock will no
longer be eligible for trading on the Nasdaq market.
 
On November 4, 2003, the
Company began restructuring the three GST Loans on which it had been in default
(See Note 5).  The planned restructuring
includes the payoff at a discount of the loans secured by the outlet centers in
Sealy, Texas and Gretna, Nebraska and the reinstatement to current status of
the loan secured by the outlet center in Traverse City, Michigan.  The loan secured by the outlet center in Sealy
was repaid on November 4, 2003 and the loan secured by the outlet center in
Gretna was repaid on November 6, 2003. 
The reinstatement of the loan secured by the outlet center in Traverse
City is expected to be completed by November 20, 2003. The restructuring of the
GST Loans requires the payment of all current interest and principal on the
Traverse City loan as of the date of its reinstatement together with additional
payments totaling $4.0 million.
 
The repaid loans had an
aggregate principal balance of approximately $18.0 million, excluding accrued
interest and penalties, as of the dates of repayment.  The reinstatement to current status of the loan secured by the
outlet center in Traverse City will result in the forgiveness of approximately
$600,000 of accrued penalties and default interest.  The carrying amount and prospective effective interest rate on
the loan secured by the center in Traverse City will be adjusted for the
forgiven interest and penalties applicable to this property.
 
The funds to accomplish
this restructuring were provided to the Company by an affiliate of Howard M.
Amster, a Director and principle shareholder of the Company.  The Company sold a 49% interest in Gretna,
Sealy, Traverse City Outlet Centers, L.L.C. (“GST”), the entity that owned the
three outlet centers subject to the GST Loans, to an affiliate of Mr. Amster
for $1.96 million.  An affiliate of Mr.
Amster also made a $2.04 million loan to the Company.  The proceeds from this loan and the sale of the interests in GST
are required to be used to complete the planned debt restructuring.  The loan bears interest at 8.0% and matures
on August 3, 2004.
 
Comparison of the Three
Months Ended September 30, 2003 to the Three Months Ended September 30, 2002
 
The net loss from
continuing operations before minority interests increased $606,000 for the
three months ended September 30, 2003 compared to the same period in the prior
year.  The main components of this
change were an increase in general and administrative expenses from the operation
of Huntley and the additional indebtedness assumed in connection with the
acquisition of Huntley in May 2003.
 
Total revenues increased
$128,000 in the three months ended September 30, 2003, compared to the same
period in the prior year.  The primary
factors were increases in temporary tenant revenues, leasing services provided
to managed properties and interest income.
 
Average occupancy for
the three properties remaining in default on the JP Morgan Loans (the “GST
Properties”) was 66.7% and 72.7% for the three month periods ended September
30, 2003 and 2002, respectively.  Total
revenue for those properties was $690,000 and $803,000 for the three month
periods ended September 30, 2003 and 2002, respectively.  Average occupancy for the Company’s six
other outlet centers was 81.0% and 83.5% for the three month periods ended
September 30, 2003 and 2002, respectively. 
Total revenue for those properties was $3.5 million for both the three
month periods ended September 30, 2003 and 2002.
 
Real estate tax expense
increased $60,000 in the three months ended September 30, 2003 compared to the
same period in the prior year mainly due to a refund received in 2002 of a
portion of the 2000 and 2001 taxes at the outlet center located in Gretna,
Nebraska.
 
Depreciation and
amortization expense decreased $126,000 for the three months ended September
30, 2003 compared to the same period in the prior year, primarily due to
reductions in the carrying values by impairment recorded in December 2002 to
two of the GST Properties.
 
26

General and
administrative expense increased $232,000 in the three months ended September
30, 2003 compared to the same period in the prior year mainly due to the
additional indirect and holding costs incurred by Huntley, which was acquired
in June 2003.
 
Interest expense increased
$570,000 for the three months ended September 30, 2003 compared to the same
period in the prior year.  The primary
factor was the additional indebtedness assumed in connection with the acquisition
of Huntley in May 2003 (see Note 5 to the Condensed Consolidated Financial
Statements).
 
Income from discontinued
operations increased $8.8 million for the three months ended September 30, 2003
compared to the same period in the prior year. 
This line item on the Company’s statement of operations contains the
revenue and expenses from the properties classified as discontinued operations
on the Company’s balance sheets, or sold during the period, pursuant to SFAS
144 (see Note 2 to the Condensed Consolidated Financial Statements).  The increase is primarily related to a gain
resulting from the sale of the power center and adjacent land located in Norton
Shores, Michigan in August 2003 (see Note 8 to the Condensed Consolidated Financial
Statements).
 
The weighted average minority
interest percentage for the three months ended September 30, 2003 was 29.7% as
compared to 15.2% in the three months ended September 30, 2002 due to the
Company’s sale of 261,628 units in HGP LP, on March 13, 2003, to Howard Amster,
a director and principal shareholder of HGPI. 
These units can not be converted into shares of Common Stock of HGPI.
 
Net income for the three
months ended September 30, 2003 was $6.7 million and $2.33 per share on a basic
and diluted basis, respectively, and net loss for the three months ended
September 30, 2002 was $1.9 million and $0.65 per share on a basic and diluted
basis.
 
Average occupancy for
the Company’s total operating portfolio for the three months ended September
30, 2003 was 76.5% compared to 80.0% for the three months ended September 30,
2002.  Occupancy of the Company’s total
operating portfolio at September 30, 2003 and 2002 was 74.5% and 80.0%,
respectively.
 
Comparison of the Nine
Months ended September 30, 2003 to the Nine Months Ended September 30, 2002
 
The net loss from
continuing operations before minority interests increased $481,000 for the nine
months ended September 30, 2003 compared to the same period in the prior
year.  The main components of the change
were an increase in general and administrative expenses from the operation of
Huntley and the additional indebtedness assumed in connection with the
acquisition of Huntley in May 2003.
 
Total revenue increased
$370,000 in the nine months ended September 30, 2003 compared to the same
period in the prior year.  The primary
factors were an increase in interest income from the loan made to Retail
Partners and the Company’s 3.25% net profits interest received in Huntley and a
lease termination fee received from a tenant.
 
Average occupancy for
the GST Properties was 67.2% and 72.9% for the nine month periods ended
September 30, 2003 and 2002, respectively. 
Total revenue for those properties was $2.1 million and $2.4 million for
the nine month periods ended September 30, 2003 and 2002, respectively.  Average occupancy for the Company’s other
six outlet centers was 81.8% and 83.5% for the nine month periods ended
September 30, 2003 and 2002, respectively. 
Total revenue for those properties was $10.4 million and $10.2 million
for the nine month periods ended September 30, 2003 and 2002, respectively
 
Land lease and other
expense increased $94,000 for the nine months ended September 30, 2003 compared
to the same period in the prior year. 
This decrease was primarily the result of an increase in the Company’s
contribution to marketing expense for the properties offset by a decrease in
land lease expense as a result of the Company’s acquisition of land under its
center in Laughlin Nevada.
 
Depreciation and
amortization expense decreased $221,000 in the nine months ended September 30,
2003, compared to the same period in the prior year.  This decrease primarily resulted from reductions in the carrying
values from impairment recorded in December 2002 to two of the GST Properties.
 
27

General and
administrative expense increased $368,000 in the nine months ended September
30, 2003 compared to the same period in the prior year mainly as a result of
additional indirect and holding costs incurred by Huntley, which was acquired
in June 2003.
 
In January 2002, the
Company sold 7.1 acres of land ancillary to its center in Warrenton, Missouri
and recognized a loss of $1,000.  In
February 2002, the Company sold a parcel of land adjacent to its center in Norton
Shores, Michigan and recognized a gain of $156,000.  In September 2002, the Company sold excess office furniture to a
tenant at the Michigan corporate office and recognized a gain of $22,000.  The gains and losses from these transactions
are reflected in the Condensed Consolidated Statements of Operations of the
Company.
 
Income from discontinued
operations increased $21.3 million for the nine months ended September 30, 2003
compared to the same period in the prior year. 
This line item on the Company’s statement of operations contains the
revenue and expenses from the properties classified as discontinued operations
on the Company’s balance sheets, or sold during the period, pursuant to SFAS
144 (see Note 2 to the Condensed Consolidated Financial Statements).  The increase is primarily related to a gain
resulting from the restructuring of the Daleville and Somerset Loans, the sale
of the partnership that owns the outlet centers in Daleville, Indiana and
Somerset, Pennsylvania and the gain resulting from the sale of the center and
adjacent land located in Norton Shores, Michigan (see Notes 5 and 8 to the
Condensed Consolidated Financial Statements).
 
The weighted average
minority interest percentage for the nine months ended September 30, 2003 was
27.2% as compared to 15.1% in the nine months ended September 30, 2002 due to
the Company’s sale of 261,628 units in HGP LP, on March 13, 2003, to Howard
Amster, a director and principal shareholder of HGPI.  These units can not be converted into shares of Common Stock of
HGPI.
 
Net income for the nine
months ended September 30, 2003 was $16.1 million and $5.60 per share on a
basic and diluted basis, respectively, and net loss for the nine months ended
September 30, 2002 was $5.3 million and $1.85 per share on a basic and diluted basis.
 
Average occupancy for
the Company’s total operating portfolio for the nine months ended September 30,
2003 was 77.2% compared to 80.1% for the nine months ended September 30, 2002.
 
Liquidity and Capital
Resources
 
On July 11, 2002, the
Company repaid in full the HGP Credit Facility (see Note 5 to the Condensed
Consolidated Financial Statements) with the proceeds of loans originated by UBS
Warburg Real Estate Investments Inc. (“UBS”) and Beal Bank, S.S.B. (“Beal
Bank”).
 
The UBS loans consist of
senior loans with a total initial principal balance of $22.0 million (the “UBS
Senior Loans”) and mezzanine loans with a total initial principal balance of
$3.5 million (the “UBS Mezzanine Loans”, or collectively, the “UBS Loans”).  The UBS Senior Loans and UBS Mezzanine Loans
each consist of three loans, each secured by an outlet center.  The centers which secure the UBS Loans are
in Laughlin, Nevada, Medford, Minnesota and Warrenton, Missouri, each of which
was transferred to a new wholly owned subsidiary of the Company.  These new entities are restricted from
owning any assets other than the outlet centers and may not incur additional
liabilities, other than normal trade payables. 
The UBS Loans are cross-collateralized and non-recourse to the Company,
subject to certain customary exceptions. 
The UBS Loans require that the Company maintain a Leverage Ratio (as
defined in the loan documents) that is no more than 5% greater than the Initial
Leverage Ratio (as defined in the loan documents) calculated as of July 11,
2002.
 
The UBS Senior Loans mature
July 11, 2009, require monthly principal payments based on a 25-year
amortization schedule and bear interest at a fixed rate of 8.15%.  At September 30, 2003 and December 31, 2002,
the balances totaled $21.7 million and $21.9 million, respectively.  These loans also require the monthly funding
of escrow accounts for the payment of future debt service, real estate taxes,
insurance, capital and tenant improvements and leasing commissions (See Note 2
to the Condensed Consolidated Financial Statements).  Funds in excess of those specified in the loan agreements are
disbursed to the new entities at least monthly.
 
28

The UBS Mezzanine Loans mature
July 11, 2005 and may be prepaid without penalty after July 11, 2004.  These loans require monthly payments based
on a three-year amortization schedule and bear interest at a fixed rate of
17.0%.  At September 30, 2003 and
December 31, 2002, the balances totaled $2.4 million and $3.1 million,
respectively.
 
Beal Bank provided two loans
initially totaling $7.0 million (the “Beal Bank Loans”) and consisted of (i) a
$3.0 million loan secured by vacant land located in Norton Shores, Michigan and
Fruitport Township, Michigan (the “Beal Bank Loan I”), and (ii) a $4.0 million
loan secured by the outlet center in Monroe, Michigan (the “Beal Bank Loan
II”).  These loans are
cross-collateralized and are recourse to the Company.  The Beal Bank Loans mature July 10, 2005.  Principal payments of up to $2.0 million are
permitted without penalty at any time and the loans may be prepaid in whole or
in part without penalty after July 10, 2004. 
In connection with the Company’s sale of the vacant land in Norton Shores,
Michigan in August 2003, $1.0 million was repaid on each of the Beal Bank Loans
and the Beal Bank Loans were cross defaulted with the Huntley Beal Loan.  The Company also granted a second mortgage
on Huntley to Beal Bank as security for the Beal Bank Loans.  In addition, the Company granted Beal Bank a
first priority pledge and security interest in the net proceeds resulting from
the sale of the partnerships that own the outlet center located in Laughlin,
Nevada. The balance of the Beal Bank Loan I was $2.0 million and Beal Bank Loan
II was $3.0 million at September 30, 2003.
 
The Beal Bank Loans require
monthly payments of interest only at rates of (i) the greater of the Wall
Street Journal Prime Rate plus 4.5% or 12.0% for the Beal Bank Loan I and (ii)
the greater of the Wall Street Journal Prime Rate plus 2.5% or 9.9% for the
Beal Bank Loan II, each of which adjusts monthly.
 
The Beal Bank Loan II is
guaranteed by Prime Retail, Inc. up to a maximum amount of $4.0 million (the
“Prime-Beal Guaranty”).  Mr. Skoien and
Mr. Amster, Directors of the company, are members of the Board of Directors of
Prime Retail.  The Prime-Beal Guaranty
was released on August 19, 2003, pursuant to the agreement, when the total
outstanding balance of the Beal Bank Loans was reduced to $5.0 million.  The Company was obligated to make quarterly
payments of $15,000 to Prime Retail, Inc. as long as this guaranty was in
effect.
 
As of September 30,
2003, the Company was in default with respect to the obligations of one pool of
loans originated by JP Morgan in July 1999 which is collateralized by three
properties in Gretna, Nebraska, Sealy, Texas and Traverse City, Michigan (the
“GST Properties” and the “GST Loans”) with an aggregate principal balance of
$22.9 million and $23.0 million at September 30, 2003 and December 31, 2002,
respectively (excluding accrued interest and penalties).  The defaults are the result of the Company’s
failure to pay in full the amounts due under the loans commencing with the
payment due October 1, 2001.  Each loan
is secured by a group of three properties. 
The loans are non-recourse to HGPI, subject to limited customary
exceptions (see Note 5 to the Condensed Consolidated Financial Statements).
 
On November 4, 2003, the
Company began restructuring the three GST Loans on which it had been in default
(See Note 5).  The planned restructuring
includes the payoff at a discount of the loans secured by the outlet centers in
Sealy, Texas and Gretna, Nebraska and the reinstatement to current status of
the loan secured by the outlet center in Traverse City, Michigan.  The loan secured by the outlet center in
Sealy was repaid on November 4, 2003 and the loan secured by the outlet center
in Gretna was repaid on November 6, 2003. 
The reinstatement of the loan secured by the outlet center in Traverse
City is expected to be completed by November 20, 2003. The restructuring of the
GST Loans requires the payment of all current interest and principal on the
Traverse City loan as of the date of its reinstatement together with additional
payments totaling $4.0 million.
 
The repaid loans had an
aggregate principal balance of approximately $18.0 million, excluding accrued
interest and penalties, as of the dates of repayment.  The reinstatement to current status of the loan secured by the
outlet center in Traverse City will result in the forgiveness of approximately
$600,000 of accrued penalties and default interest.  The carrying amount and prospective effective interest rate on
the loan secured by the center in Traverse City will be adjusted for the
forgiven interest and penalties applicable to this property.
 
The funds to accomplish
this restructuring were provided to the Company by an affiliate of Howard M.
Amster, a Director and principle shareholder of the Company.  The Company sold a 49% interest in Gretna,
Sealy, Traverse City Outlet Centers, L.L.C. (“GST”), the entity that owned the
three outlet centers subject to the GST Loans, to an affiliate of Mr. Amster
for $1.96 million.  An affiliate of Mr.
Amster also made a $2.04 million loan to the Company.  The
 
29

proceeds from this loan
and the sale of the interests in GST are required to be used to complete the
planned debt restructuring.  The loan
bears interest at 8.0% and matures on August 3, 2004.
 
The Company had previously been in default on a second
pool of loans originated by JP Morgan which was secured by properties in
Daleville, Indiana, Somerset, Pennsylvania and Tulare, California (the “DST
Loans”).  On May 22, 2003, the Company
restructured the DST Loans.  The
restructuring involved (1) the acquisition of the two loans secured by outlet
centers in Daleville, Indiana and Somerset, Pennsylvania (the “Daleville and
Somerset Loans”) which had an aggregate principal balance of $13.2 million,
excluding accrued interest and penalties, and (2) the reinstatement of the loan
secured by an outlet center in Tulare, California (the “Tulare Loan”) for a
total payment by the Company of $1.98 million. 
The funds for this transaction were provided by a $2.0 million loan made
on May 20, 2003, from an affiliate of Howard Amster, a director and significant
shareholder of the Company.  On May 30,
2003, this loan was repaid in full in connection with the sale of the centers
in Daleville, Indiana and Somerset, Pennsylvania to an investment group which
includes Gary J. Skoien, Chairman, Chief Executive Officer and President of the
Company and Howard Amster.  The
independent directors of the Company approved this transaction and the Company
believes this transaction reflects market terms.  The restructuring of the Tulare Loan resulted in the immediate
foregiveness of $798,000 of accrued penalties and default interest.  Additional accrued interest of $448,000 was
forgiven when the Company made the scheduled debt service payments through
September 2003.  Pursuant to FASB
Statement No. 15 “Accounting by Debtors and Creditors for Troubled Debt
Restructurings”, the carrying amount and prospective effective interest rate on
the Tulare Loan was adjusted for the $1.2 million of forgiven interest and
penalties applicable to this property. 
At September 30, 2003, the Tulare Loan had an outstanding principal
balance of $8.9 million and an unamortized restructuring adjustment of $1.2
million which will be amortized as a reduction of future interest expense under
the restructured loan.  The gain on debt
restructuring related to the Daleville and Somerset Loans of $14.4 million is
included in Income from Discontinued Operations on the statement of operations
because these two properties were sold on May 30, 2003 (see Note 8 to the
Condensed Consolidated Financial Statements).
 
The Company remits
monthly all available cash flow, after a reserve for monthly operating
expenses, as partial payment of the debt service on the GST Loans.  The failure to pay the full amount due
constitutes a default under the loan agreements which allows the respective
lenders to exercise their various remedies contained in the loan agreements,
including application of escrow balances to delinquent payments and foreclosure
on the properties which collateralize the loans. The Company and the special
servicer of the GST Loans are negotiating a restructuring of the GST
Loans.  There can be no assurance that
such negotiations will result in any settlement of the loans or in any modification
of the terms of the loans.
 
The JP Morgan Loans
require the monthly funding of escrow accounts for the payment of real estate
taxes, insurance and capital improvements which totaled $269,000 at September
30, 2003.  The Company continues to manage
the properties pursuant to management agreements which are subject to
cancellation by the servicers of the loans with respect to the loans which
remain in default.  Company receives
fees of approximately $12,000 per month for such services.
 
The declining results of
operations resulting in the inability to service the JP Morgan Loans was judged
to represent an indicator of possible impairment in the value of the collateral
properties.  The Company estimated the
current value of the six centers that collateralized the loans and concluded
that the carrying value of four of the centers exceeded the fair values of
those centers.  Accordingly, the results
of operations for 2001 include a provision for asset impairment of $18.0
million, including $9.2 million related to properties, which are included in
Income from Discontinued Operations, representing a write-down of the carrying
values of the assets to their estimated fair value.  Based on continuing negotiations with the lender and additional
declines in occupancy and revenues, the Company recorded an additional
provision for asset impairment of $17.0 million in the fourth quarter of 2002,
including $8.9 million related to properties which are included in Income from
Discontinued Operations, to further reduce the carrying value of the same four
properties.  The aggregate carrying
value of the real estate of the properties collateralizing the GST Loans was
approximately $9.9 million at September 30, 2003.  The current outstanding loan balances totaled $22.9 million, plus
accrued interest and penalties totaling $4.7 million.  If the lender were to foreclose on the GST Properties in full
satisfaction of the loans, the Company would record a gain for the difference
between the carrying value of the properties and related net assets and the
outstanding loan balances and related liabilities.  The estimation of the fair value of the centers which secured the
GST Loans involved estimates by management with respect to future cash
 
30

flows, market conditions
and valuations applicable to such properties. 
Future events could occur which would cause the Company to conclude that
the carrying values of the Company’s properties may need to be further
adjusted.
 
The mortgage loan secured
by the Company’s outlet center in Holland, Michigan was made by Republic
Bank.  The $3.5 million loan matures in
July 2006, requires monthly debt service payments of $30,000 based on a 20-year
amortization schedule, and bears interest at a fixed rate of 8.21%.  The principal balance on this loan was $3.3
million and $3.4 million at September 30, 2003 and December 31, 2002,
respectively. This loan requires the monthly funding of an escrow account for
the payment of real estate taxes which had a balance of $57,000 at September
30, 2003.  Beginning in July 2004, the
loan requires that the cash flow from the property be at least 130 percent of
the debt service on the loan.  In the
event that the cash flow is less than that amount, the Company may make principal
payments to reduce the outstanding balance of the loan to an amount which
reduces debt service to a level which is in compliance with this requirement.
 
On August 19, 2003, the
Company sold its power center and several acres of adjacent vacant land located
in Norton Shores, Michigan.  The power
center had been security for a $16.0 million loan provided by Greenwich Capital
Financial Products, Inc. (“Greenwich”), in July 2001.  This loan was assumed by the purchaser.  The non-recourse loan was for a term of ten years, required
monthly payments based on a 30-year amortization schedule and bore interest at
a fixed rate of 7.647%.  The outstanding
balance of this loan was $15.7 million at August 19, 2003 and $15.8 million at
December 31, 2002 (See Note 8 to the Condensed Consolidated Financial
Statements).
 
On August 19, 2003, the
Company refinanced its corporate office building in Norton Shores, Michigan
with a $2.25 million loan from UBS Real Estate Investments Inc. (“UBS” and the
“UBS Office Loan”).  The UBS Office Loan
requires an officer of the Company to be personally liable for losses suffered
by UBS for environmental damages and the results of certain actions prohibited
under the UBS Office Loan documents.  Gary
J. Skoien personally indemnified UBS for such losses and damages.  The Company agreed to indemnify Mr. Skoien
for any amounts paid under the UBS indemnification and to pay Mr. Skoien an
annual fee of $30,000 related to such indemnification until the loan is repaid
(or Mr. Skoien is otherwise released from the UBS indemnification
obligations).  The outstanding balance
of this loan was $2.2 million at September 30, 2003.  The loan is for a term of ten years, requires monthly principal
payments based on a 30-year amortization schedule and bears interest at a fixed
rate of 6.89%.
 
The Company owns a
property in Roseville, Michigan, which is net-leased to Petsmart, Inc. and is
subject to a mortgage with a principal balance of $3.1 million and $3.2 million
at September 30, 2003 and December 31, 2002, respectively.  The rent payable under the lease is equal to
the debt service due under the loan secured by the property (the “Petsmart
Loan”).  The Petsmart Loan matures on
January 8, 2008, bears interest at a fixed rate of 8.77% and requires the
monthly payment of principal computed on a 25-year schedule.  The loan is non-recourse to HGPI.  The Company is marketing this property for
sale and thus, pursuant to SFAS 144, its real estate assets are listed as Real
Estate-Discontinued Operations on the Company’s balance sheets and its revenues
and expenses are included in Income from Discontinued Operations on the
Company’s statements of operations.
 
The Company is the
obligor on a $2.0 million unsecured promissory note incurred in connection with
the acquisition of the land underlying its center in Laughlin, Nevada.  The note matures in June 2012, bears
interest at a rate of 2.0% above the weighted average cost of funds index for
the Eleventh District Savings Institutions, adjusted annually and requires
monthly amortization based on a 10 year schedule.  The interest rate payable on the loan was 5.074% through February
28, 2003 and 4.375% through February 29, 2004. 
The outstanding principal balance on this note was $1.7 million and $1.9
million at September 30, 2003 and December 31, 2002, respectively.
 
Pursuant to the terms of
the UBS Loans and the JP Morgan Loans, the Company is required to keep the
properties in good general repair and to make capital improvements and repairs
to certain of its outlet centers.  At
September 30, 2003, there was approximately $1.0 million deposited in escrows
with the loan servicers, which the Company believes is sufficient to fund its
ongoing capital requirements.  Any
additional capital improvements are expected to be funded with additional
borrowings, existing cash balances or cash flow from operations.
 
On April 24, 2003, the
Company closed on a $3.1 million loan for the construction of Phase II of its
outlet center in Tulare, California (the “Tulare II Loan”).  The loan will convert into a permanent loan
maturing in August 2009 upon completion of the retail expansion.  The loan is secured by a first mortgage on
the land and improvements and will
 
31

bear interest at the
greater of LIBOR plus 300 basis points or 5.5%.  The outstanding principal balance on the Tulare II Loan was $2.1
million at September 30, 2003.  The loan
was made by Amster Trading Company Charitable Remainder Unitrust dated March
10, 2003, an affiliate of Howard Amster, a Director and principal shareholder
of HGPI.  The independent directors of
the Company approved this transaction and the Company believes this transaction
reflects market terms.
 
On June 12, 2003 the
Company borrowed $9.1 million from Amster Trading Company, an affiliate of
Howard Amster, a director and significant shareholder of the Company (the
“Huntley Amster Loan”) which funded the purchase of Huntley from Prime Group
and its affiliates.  The Huntley Amster
Loan bears interest at a rate of 11.0% per annum, payable monthly, and matures
on June 12, 2004, with the option for a one-year extension.  A one percent (1.0%) origination fee was
paid to Amster Trading Company.  The
Huntley Amster Loan may not be prepaid in whole or in part prior to September
1, 2003 and thereafter requires a prepayment fee according to the following
schedule:
 
  Payment made during the
  period:

  Prepayment Fee

  October
  1, 2003 to October 31, 2003

  2.0

  %

  November
  1, 2003 to January 31, 2004

  1.0

  %

  After
  January 31, 2004

  None

The Huntley Amster Loan
is guaranteed by HGPI and HGP LP and is secured by a pledge of the partnership
interests in the partnerships which own Huntley, subject to any required lender
consents.
 
In connection with the
Company’s acquisition of Huntley, the Company assumed a $10.7 million loan
secured by Huntley provided by Beal Bank with a principal balance of $10.7
million at September 30, 2003 (the “Huntley Beal Loan”).  This loan requires monthly payments of interest
at a rate equal to the greater of (i) the Wall Street Journal Prime Rate plus
four percent (4%) or (ii) twelve percent (12%) per annum.  The Huntley Beal Loan may only be prepaid,
prior to maturity, from the net proceeds from the sale of all or any portion of
the collateral land.  Beal Bank must
approve any collateral land sales in writing and may grant or withhold such
consent in their sole discretion.  The
loan matures on October 31, 2004, and allows for a one-year extension upon the
satisfaction of certain customary conditions. 
The Huntley Beal Loan is guaranteed by HGPI.  In connection with the sale of the power center in Norton Shores,
Michigan, Beal Bank granted the Company an option to extend the maturity of the
Huntley Beal Loan until October 31, 2005. 
The Company agreed to cross default the Beal Bank Loans and the Huntley
Beal Loan.  The Company also granted a
second mortgage on Huntley to Beal Bank as security for the Beal Bank
Loans.  In addition, the Company granted
Beal Bank a first priority pledge and security interest in the net proceeds
resulting from the sale of the partnerships that own the outlet center located
in Laughlin, Nevada.  The Company
deposited $3.0 million of the net proceeds from the sale of the power center in
Norton Shores, Michigan in a cash collateral account for the benefit of Beal
Bank of which $750,000 may be used to pay interest on the Huntley Beal Loan and
the balance of which may be used to pay costs incurred by the Company in
designing and constructing improvements at Huntley.
 
Pursuant to the terms of
the Amended and Restated Agreement and Assignment of Net Profits Interest dated
October 27, 1999, as later amended (the “Beal Net Profits Agreement”), Beal
Bank has a 35% interest in the Net Profits of the partnerships which own
Huntley, subject to certain preferences in their distribution.  The Beal Net Profits Agreement was granted
in connection with a prior loan made by Beal Bank to Huntley.  Net cash generated by Huntley is to be
distributed in the following order: 
first to the owners of Huntley in the amount of the Approved
Contributions (which total approximately $12.1 million at September 30, 2003
and from which the Huntley Beal Loan is required to be repaid), second to Beal
Bank for the Beal Account (which had a balance of approximately $6.6 million at
September 30, 2003), third to Huntley for its account (which had a balance of
approximately $12.3 million at September 30, 2003) and thereafter, 35% to Beal
Bank and 65% to Huntley.  The Approved
Contributions include operating and development expenditures funded for Huntley
(excluding interest on the Huntley Beal Loan). 
For purposes of determining distribution preferences under the Beal Net
Profits Agreement, the Approved Contributions, the Huntley account and the Beal
Account accrue interest per the terms of the Beal Net Profits Agreement.  On the maturity date of the Huntley Beal
Loan, Huntley is required to pay Beal Bank the fair market value of Beal Bank’s
Net Profits interest.  Pursuant to
purchase accounting requirements, the Company has recorded an estimated
liability for the Beal Net Profits Agreement in the amount of $9.1 million,
reflecting the estimated value of the Beal Bank Net Profits interest
liability.  Such estimate is subject to
change.  Some of the factors that could
cause a significant revision to the estimate include changes in zoning and
changes in the market demand for real estate in the area.  The Beal Bank net profits
 
32

interest has been
included in Participation Interests and Other Liabilities on the Company’s
balance sheets.  Certain affiliates of
Prime have continuing guarantees related to the Beal Net Profits
Agreement.  The Company has idemnified
such guarantors against any liability in connection with their guarantees.  Capitalized terms in this paragraph which
are not defined herein shall have the meanings given such terms in the Beal Net
Profits Agreement, as amended.
 
Gary J. Skoien,
Chairman, Chief Executive Officer and President of the Company, is also the
Executive Vice President and Chief Operating Officer of Prime Group.  In connection with his employment with Prime
Group, Mr. Skoien was previously granted an interest (the “Skoien Net Profits
Interest”) in the net proceeds generated by Huntley, which he retained after
the Company’s purchase of Huntley.  The
Skoien Net Profits Interest consists of a 9.675% participation in the Net Cash
Flow (as defined in Mr. Skoien’s Net Profits Agreement) distributed to the
Company (excluding distributions of all amounts contributed or advanced by the
Company to Huntley plus interest per the terms of the agreement).  Pursuant to purchase accounting
requirements, the Company has recorded a liability for the Skoien Net Profits
Interest in the amount of $1.0 million, which represents its estimated fair
value and which amount has been included in Participation Interests and Other
Liabilities on the Company’s balance sheets.
 
As additional
consideration for the partnership interests, Huntley granted to Prime Group,
and certain of its affiliates, a participation interest of 26% of the net cash
flow distributed by Huntley (the “Prime Group Participation Interest”) with
respect to the interests acquired by the Company.  No amount is payable to Prime Group until the Company has
received distributions from Huntley in excess of the purchase price plus
advances made by the Company to Huntley plus a 40% return on such amounts
compounded quarterly.  Aggregate amounts
payable pursuant to the Prime Group Participation Interest shall not exceed
$5.0 million.  No liability has been
recorded by the Company for the Prime Group Participation Interest as its
current fair value is estimated to be zero. 
Gary J. Skoien, Chairman, Chief Executive Officer and President of the
Company is also the Executive Vice President and Chief Operating Officer of
Prime Group.
 
In 1993, the Village of
Huntley (the “Village”) created a Tax Increment Financing District (the “TIF
District”) which is authorized to issue up to $108.0 million of tax-exempt,
tax-increment bonds (the “TIF Bonds”) to reimburse Huntley for a portion of the
land cost and the cost of infrastructure improvements.  In 1995, the Village sold $7.0 million of
Series A bonds and $14.0 million of Series B bonds.  Huntley owns the Series C bonds with a total principal amount of
$25.0 million plus accrued interest. 
The Series C bonds are subordinate to the Series A and Series B
bonds.  Currently there is no portion of
the tax increment available to the Series C bonds and no value has been
ascribed to them by the Company.
 
The source of repayment
for the TIF Bonds is (a) 100% of the increase in real estate taxes on the land
in the TIF District above the taxes in place when the TIF District was created,
and (b) one-half of the Village’s one percent (1%) sales tax collected on
retail sales occurring within the TIF District.  The TIF District contains approximately 900 acres of land owned
or previously owned by Huntley.  Debt
service reserve funds were initially established with $700,000 for the Series A
bonds and $3.09 million for the Series B bonds as security for the payment of
principal and interest on the TIF Bonds. 
To the extent the reserve funds are not needed to service the bonds,
they will be returned to Huntley.  These
funds are held in interest bearing accounts under the control of the trustee
and totaled approximately $3.6 million at September 30, 2003.  There can be no assurance that these funds
will be returned to Huntley and, therefore, they are not reflected on the balance
sheets of the Company.  The TIF Bonds
are not obligations of the Company and are not reflected on the Company’s
balance sheet.
 
As additional security
for the Series B bonds, Huntley granted a mortgage to U.S. Bank Trust National
Association (“US Bank”), as trustee for the holders of the Series B bonds,
covering approximately 131 acres of land (the “US Bank Mortgage”).  Upon the sale of any parcel of land subject
to the US Bank Mortgage, such parcel will be released from the US Bank Mortgage
provided that Huntley deposits into a collateral account (the “US Bank
Collateral Account”) an amount equal to the greater of (i) 50% of the July 1997
appraised value of such parcel or (ii) an amount per square foot of the parcel
sold as set forth in Exhibit B to the Amended and Restated Intercreditor Agreement.  Amounts deposited into the US Bank
Collateral Account are released to Huntley upon the issuance of a certificate
of occupancy for the subject land parcel. 
The balance in the US Bank Collateral Account was approximately $1.5
million at September 30, 2003 and is included in Restricted Cash on the
Company’s balance sheets (see Note 2 to the Condensed Consolidated Financial
Statements).  Based on a third-party
review of the current incremental real estate and sales tax
 
33

revenue and the
available debt service reserve funds, the Company believes that there are
sufficient funds to make the scheduled debt service payments on the Series A
and B bonds.  Further, Huntley has
continuing legal obligation related to the proceeds received from the TIF Bonds
and thus, no liability has been recognized related to this mortgage.
 
The independent
directors of the Company approved the acquisition of Huntley and the assumption
of the related net profits interest liabilities and the Company believes that
the transaction reflects market terms.
 
On March 14, 2003, the
Company made a secured loan to Retail Partners Limited Partnership and Retail
Partners, Inc. (collectively “Retail Partners”).  The loan is for a term of 14 months and bears interest at the
rate of 5.0%, payable at maturity.  The
principal balance on the loan was $500,000 at September 30, 2003.  The Company received a 3.25% net profits
interest in a real estate development owned by Huntley Development LP and
Huntley Meadow Residential Venture (collectively “Huntley”) subject to the
current lender’s interest in distributions from Huntley.  The fair value of the profits interest has
been preliminarily estimated at $350,000. 
The value of this interest is included in Land Held for Investment.  Such value will be recognized over the term
of the loan as an adjustment to the yield. 
Prime Group owns Retail Partners and Gary J. Skoien, Chairman, Chief
Executive Officer and President of the Company, is Executive Vice President and
Chief Operating Officer of Prime Group and has a net profits interest in
Huntley.  The independent directors of
the Company approved this transaction as being at fair market conditions.
 
The Company expects to
meet its short-term liquidity requirements generally through additional
borrowings, working capital, cash flows from operations and the sale of real
estate classified as Real Estate-Discontinued Operations on the Company’s
balance sheets.  The Company expects to
meet its long-term requirements, such as tenant allowances for new leases and
capital improvements and expansions currently being considered at its center in
Tulare, California, and on some of its vacant land, through the use of working
capital and cash flows from operations and, if necessary and available,
additional borrowings of long-term debt and the potential offering of equity
securities in the private markets.  The
Company’s ability to secure new loans is limited by the fact that virtually all
of the Company’s real estate assets are currently pledged as collateral for its
current loans.
 
Discontinued Operations
 
The Company is actively
marketing the following assets for sale: 
the single tenant building in Roseville, Michigan leased to Petsmart,
Inc., the 103,000 square foot strip building at its outlet center in Monroe,
Michigan and 8 parcels of vacant land totaling approximately 88 acres.  The net proceeds from the sale of these
assets would be available for general corporate purposes, subject to certain
restrictions and repayment obligations contained in the mortgage loans to which
they are subject.  Pursuant to the
requirements of SFAS 144, the Company has reclassified the real estate assets
for these properties to Real Estate-Discontinued Operations on the balance
sheets and reports the revenue and expenses from the properties as Income from
Discontinued Operations on the statements of operations.  In addition, the outlet centers located in
Daleville, Indiana and Somerset, Pennsylvania, which were sold in May 2003 and
the power center located in Norton Shores, Michigan which was sold in August
2003, are also classified as discontinued operations.  SFAS 144 also requires that any prior period financial statements
presented are also reclassified for comparability.  This reclassification has no effect on the Company’s reported net
income or loss.
 
Sale of Partnership
Units
 
On December 27, 2002,
HGPI sold 145,349 units of HGP LP to Howard M. Amster, a Director and principal
shareholder of HGPI, for aggregate consideration of $750,000, or $5.16 per
unit.  On March 13, 2003, HGPI sold
261,628 units of HGP LP to Mr. Amster for aggregate consideration of $1.35
million, or $5.16 per unit.  Proceeds in
excess of HGPI’s carrying value of these units was recognized as an increase in
additional paid in capital.  The 261,628
units sold on March 13, 2003 are not convertible into Common Shares of HGPI.
 
34

Legal
Proceedings
 
In the ordinary course of
business the Company is subject to certain legal actions.  While any litigation contains an element of
uncertainty, management believes the losses, if any, resulting from such
matters will not have a material adverse effect on the consolidated financial
statements of the Company.
 
35

HORIZON GROUP PROPERTIES,
INC.
Quantitative and
Qualitative Disclosure of Market Risk
(unaudited)
 
Item
3.  Quantitative
and Qualitative Disclosure of Market Risk
 
Market risk is the risk
of loss from adverse changes in market prices and interest rates.  The Company’s future earnings and cash flows
may be affected by changes in market interest rates.  The fair value of the Company’s debt obligations may also be
affected by future changes in market interest rates.  The primary market risk facing the Company is related to its
long-term indebtedness, which bears interest at fixed and variable rates.  The Company seeks fixed rate non-recourse
debt to manage market risk.  At
September 30, 2003, fixed rate debt represented approximately 79.3% or $74.9
million of the Company’s debt.  Loans
with a fixed rate of interest and level amortization schedules minimize
interest rate risk related to cash flows and interest expense until the
maturity of such loans.
 
At September 30, 2003, variable
rate debt represented 20.7% or $19.5 million of the Company’s total debt.  At September 30, 2003, the average interest
rate on variable rate debt was approximately 10.3%.  Certain of the Company’s variable rate loans are subject to
minimum interest rates that, as of September 30, 2003, were in excess of the
contractual variable rates.  The $2.0
million Beal Bank Loan I bears interest at the greater of the Wall Street
Journal Prime Rate (the “Prime Rate”) plus 4.5% or 12.0%.  At September 30, 2003, the Prime Rate was
4.0%.  Thus, a 3.5% increase in the
Prime Rate would not affect the interest payable on the Beal Bank I Loan.  The $3.0 million Beal Bank Loan II bears
interest at the greater of the Prime Rate plus 2.5% or 9.9%.  Thus, a 3.4% increase in the Prime Rate
would not affect the interest payable by the Company on the Beal Bank II
Loan.  The $2.1 million Tulare
Construction Loan bears interest at the greater of LIBOR plus 3.0% or 5.5%.  At September 30, 2003, LIBOR was 1.28%.  Thus, a 1.22% increase in LIBOR would not
affect the interest payable by the Company on the Tulare Construction
Loan.  The $10.7 million Huntley Beal
Loan bears interest at the greater of the Prime Rate plus 4.0% or 12.0%.  Thus, a 4.0% increase in the Prime Rate
would not affect the interest payable by the Company on this loan.
 
If market interest rates
applicable to the Company’s variable rate debt were to increase by 100 basis
points, interest expense on the variable rate debt (taking into account the
minimum interest rates applicable to certain of the Company’s variable rate
loans) would increase $17,000 annually. 
The cash flows of the Company would decrease by $17,000 annually due to
such increase in interest rates (taking into account the minimum interest rates
applicable to certain of the Company’s variable rate loans).  The fair value of total debt outstanding
(excluding the JP Morgan Loans, on which the Company is currently in default)
would decrease by $1.8 million based on a 100 basis point increase in interest
rates.
 
If market interest rates
applicable to the Company’s variable rate debt were to decrease by 100 basis
points, interest expense on the variable rate debt (taking into account the
minimum interest rates applicable to certain of the Company’s variable rate
loans) would decrease $17,000 annually. 
The cash flows of the Company would increase by $17,000 annually due to
such decrease in interest rates (taking into account the minimum interest rates
applicable to certain of the Company’s variable rate loans).  The fair value of total debt outstanding
(excluding the JP Morgan Loans on which the Company is currently in default)
would increase by $1.9 million based on a 100 basis point decrease in interest
rates.
 
These amounts were determined
solely by considering the effect on the current debt of the Company of a
hypothetical change in interest rates and assumes that there is no change in
the current structure of interest rates, the underwriting standards of lenders
or the overall capital structure or financial situation of the Company.
 
Inflation 
HGP’s leases with some
of its tenants require the tenants to reimburse HGP for most operating expenses
and increases in common area maintenance expense, which reduces HGP’s exposure
to increases in costs and operating expenses resulting from inflation.
 
36

HORIZON
GROUP PROPERTIES, INC.
Controls
and Procedures
(unaudited)
 
Item 4.  Controls and Procedures
 
Effective as of
September 30, 2003, the Company carried out an evaluation, under the
supervision and with the participation of management, including the Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Company’s disclosure controls and procedures (as
defined in Rules 13a-15(e) under the Exchange Act).  Based upon that evaluation, the Company’s Chief Executive Officer
and Chief Financial Officer concluded that the disclosure controls and
procedures are effective to timely alert them to material information relating
to the Company (including its consolidated subsidiaries) required to be
included in the Company’s Exchange Act filings.  There have been no significant changes in the Company’s internal
controls or in other factors that could significantly affect these controls
subsequent to the date of their evaluation.
 
37

HORIZON GROUP PROPERTIES, INC.
Part II –
Other Information
 
Item
1.  Legal Proceedings - None
 
Item
2.  Changes in
Securities
 
On October 3, 2003, the
Company commenced an offer for the purchase of all shares of its common stock
held by persons owning 20 or fewer shares as of the close of business on
September 26, 2003.  The Company will
pay $5.00 for each share properly tendered by an eligible stockholder.  The offer is not conditioned on the receipt
of any minimum number of tenders and will expire at 5:00 p.m., New York City
time, on Wednesday, December 3, 2003, unless extended prior to that date.  If, after completion of the offer, the
Company has fewer than 300 stockholders of record, the Company intends to
terminate the registration of its common stock under the Securities Exchange
Act of 1934 and become a non-reporting company and the common stock will no
longer be eligible for trading on the Nasdaq market.
 
Item
3.  Defaults Upon
Senior Securities
 
On October 10, 2001, the
Company notified the servicers of the JP Morgan Loans that the net cash flow
from the properties securing the loans was insufficient to fully pay the
required monthly debt service.  The
Company remitted available cash flow, after a reserve for monthly operating
expenses, as partial payment of debt service. 
The failure to pay in full the amounts due constitutes a default under
the loan agreements, which would allow the respective lenders to exercise their
various remedies contained in the loan agreements, including foreclosure on the
properties which secure the loans.
 
On May 22, 2003, the
Company restructured the DST Loans.  The
restructuring included the acquisition of the Daleville and Somerset Loans and
the reinstatement of the Tulare Loan. 
The Company and the special servicer of the JP Morgan Loans are
currently attempting to negotiate a restructuring of the GST Loans.  There can be no assurance that such
discussions will result in any modification of the terms of the loans.  The GST Loans are non-recourse to HGPI,
subject to certain customary exceptions. 
See Note 5 to the Condensed Consolidated Financial Statements for
further details.
 
On November 4, 2003, the
Company began restructuring the three GST Loans on which it had been in default
(See Note 5).  The planned restructuring
includes the payoff at a discount of the loans secured by the outlet centers in
Sealy, Texas and Gretna, Nebraska and the reinstatement to current status of
the loan secured by the outlet center in Traverse City, Michigan.  The loan secured by the outlet center in
Sealy was repaid on November 4, 2003 and the loan secured by the outlet center
in Gretna was repaid on November 6, 2003. 
The reinstatement of the loan secured by the outlet center in Traverse
City is expected to be completed by November 20, 2003.The restructuring of the
GST Loans requires the payment of all current interest and principal on the
Traverse City loan as of the date of its reinstatement together with additional
payments totaling $4.0 million.
 
The repaid loans had an
aggregate principal balance of approximately $18.0 million, excluding accrued
interest and penalties, as of the dates of repayment.  The reinstatement to current status of the loan secured by the
outlet center in Traverse City will result in the forgiveness of approximately
$600,000 of accrued penalties and default interest.  The carrying amount and prospective effective interest rate on
the loan secured by the center in Traverse City will be adjusted for the
forgiven interest and penalties applicable to this property.
 
Item
4.  Submission of
Matters to a Vote of Security Holders - None
 
Item
5.  Other Information - None
 
38

Item
6.  Exhibits or
Reports on Form 8-K
 
(a)
       Exhibits
 
  Exhibit 3(i)

  Articles of Amendment
  and Restatement of Horizon Group Properties, Inc. (the “Company”) (8)

  Exhibit 3(ii)

  By-laws of the Company
  (1)

  Exhibit 3(iii)

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

  Exhibit 3(iv)

  Amendment to By-laws
  of the Company dated June 8, 2000 (12)

  Exhibit 3(v)

  Amendment to By-laws
  of the Company dated May 4, 2001 (12)

  Exhibit 3(vi)

  Amendment to By-laws
  of the Company dated May 29, 2001 (13)

  Exhibit 3 (vii)

  Articles Supplementary
  of the Company dated June 7, 2001 (17)

  Exhibit 3 (viii)

  Excepted Holders
  Certificate dated July 30, 2002 (17)

  Exhibit 4.1

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

  Exhibit 10.1

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

  Exhibit 10.2

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

  Exhibit 10.3

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

  Exhibit 10.4

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

  Exhibit 10.5

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

  Exhibit 10.6

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

  Exhibit 10.7

  Form of Registration
  Rights Agreement (1)

  Exhibit 10.8

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

  Exhibit 10.9

  Employment Agreement
  between Richard Berman and the Company (3)

  Exhibit 10.10

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

  Exhibit 10.11

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

  Exhibit 10.12

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

  Exhibit 10.13

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

  Exhibit 10.14

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

  Exhibit 10.15

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

  Exhibit 10.16

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

  Exhibit 10.17

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

  Exhibit 10.18

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

  Exhibit 10.19

  Form of Option
  Agreement (3)

  Exhibit 10.20

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

39

  Exhibit 10.21

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

  Exhibit 10.22

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

  Exhibit 10.23

  Agreement between
  Andrew F. Pelmoter and the Company (6)

  Exhibit 10.24

  Agreement of Purchase
  and Sale and Escrow Instructions dated March 24, 2000 between Third Horizon
  Group Limited Partnership and Triple Net Properties, LLC. (7)

  Exhibit 10.25

  First Amendment to
  Agreement of Purchase and Sale and Escrow Instructions between Third Horizon
  Group Limited Partnership and Triple Net Properties, LLC, dated as of April
  21, 2000 (7)

  Exhibit 10.26

  Second Amendment to
  Agreement of Purchase and Sale and Escrow Instructions between Third Horizon
  Group Limited Partnership and Triple Net Properties, LLC, dated as of April
  25, 2000 (7)

  Exhibit 10.27

  Promissory Note dated
  April 18, 2000, between Horizon Group Properties, LP as Lender and Prime
  Outdoor Group, LLC as Borrower (7)

  Exhibit 10.28

  Security Agreement
  dated April 18, 2000, between Horizon Group Properties, LP and Prime Outdoor
  Group, LLC (7)

  Exhibit 10.29

  Pledge Agreement by
  and among Horizon Group Properties, LP; Prime Group Limited Partnership;
  Prime Group II, LP; Prime Group III, LP; Prime Group IV, LP; Prime Group V,
  LP and Prime Financing Limited Partnership (7)

  Exhibit 10.30

  Collateral Assignment
  of Membership Interests dated April 18, 2000, between Horizon Group
  Properties, LP and The Prime Group, Inc. (7)

  Exhibit 10.31

  Guarantee dated April
  18, 2000, between Horizon Group Properties, LP; Prime Group Limited
  Partnership; Prime Group II, LP; Prime Group III, LP; Prime Group IV, LP;
  Prime Group V, LP and Prime Financing Limited Partnership (7)

  Exhibit 10.32

  Letter Agreement dated
  April 18, 2000, between Horizon Group Properties, Inc., Prime Group, Inc. and
  Prime Outdoor Group, LLC (7)

  Exhibit 10.33

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

  Exhibit 10.34

  Amendment to
  Employment Agreement between Gary J. Skoien and the Company dated as of
  August 29, 2000 (9)

  Exhibit 10.35

  Amendment to
  Employment Agreement between David R. Tinkham and the Company dated as of
  August 29, 2000 (9)

  Exhibit 10.36

  Amendment to
  Employment Agreement between Andrew F. Pelmoter and the Company dated October
  9, 2000 (10)

  Exhibit 10.37

  Amendment to
  Employment Agreement between Thomas R. Rumptz and the Company dated November
  11, 2000 (10)

  Exhibit 10.38

  Additional Amendment
  to Employment Agreement between Andrew F. Pelmoter and the Company dated
  April 26, 2001 (12)

  Exhibit 10.39

  Additional Amendment
  to Employment Agreement between Thomas R. Rumptz and the Company dated April
  3, 2001 (12)

  Exhibit 10.40

  Settlement Agreement,
  dated as of May 4, 2001, by and among the Company, Howard M. Amster, John C.
  Loring and Robert M. Schwartzberg (11)

  Exhibit 10.41

  Promissory Note, dated
  as of July 30, 2001, between Lakeshore Marketplace, LLC and Greenwich Capital
  Financial Products, Inc. (14)

  Exhibit 10.42

  Mortgage, dated as of
  July 30, 2001, between Lakeshore Marketplace, LLC and Greenwich Capital
  Financial Products, Inc. (14)

  Exhibit 10.43

  Collection and Deposit
  Account Agreement, dated as of July 30, 2001, by and among LaSalle Bank
  National Association, Lakeshore Marketplace, LLC and Greenwich Capital
  Financial Products, Inc. (14)

  Exhibit 10.44

  Second Amended and
  Restated Note dated as of July 31, 2001 between Third Horizon Group Limited
  Partnership and CDC Mortgage Capital, Inc. (14)

40

  Exhibit 10.45

  Second Amendment to
  Loan Agreement and Settlement Agreement dated as of July 31, 2001 by and
  among Third Horizon Group Limited Partnership, Horizon Group Properties,
  Inc., Horizon Group Properties, LP and CDC Mortgage Capital, Inc. (14)

  Exhibit 10.46

  Reaffirmation of
  Guaranty dated as of July 31, 2001 by Horizon Group Properties, Inc. and
  Horizon Group Properties, LP (14)

  Exhibit 10.47

  Reaffirmation of
  Guaranty dated as of July 31, 2001 by Prime Retail, LP (14)

  Exhibit 10.48

  Pledge and Security
  Agreement dated as of July 31, 2001 by and among Horizon Group Properties,
  LP, Third HGI, LLC and CDC Mortgage Capital, Inc. (14)

  Exhibit 10.49

  Amended and Restated
  Guaranty and Indemnity Agreement dated as of July 31, 2001 by and among
  Horizon Group Properties, Inc., Horizon Group Properties, LP, Prime Retail,
  Inc., and Prime Retail, LP (14)

  Exhibit 10.50

  Amendment to Retention
  Letter between Thomas R. Rumptz and the Company dated August 29, 2001. (15)

  Exhibit 10.51

  Amendment to Retention
  Letter between Thomas R. Rumptz and the Company dated November 28, 2001. (15)

  Exhibit 10.52

  Amendment to Retention
  Letter between Thomas R. Rumptz and the Company dated February 25, 2002. (15)

  Exhibit 10.53

  Amendment to Retention
  Letter between Andrew Pelmoter and the Company dated May 30, 2001. (15)

  Exhibit 10.54

  Promissory Note I
  dated as of July 10, 2002 between Monroe Outlet Center LLC and Beal Bank,
  S.S.B. related to the financing of vacant land in Norton Shores, Michigan and
  Fruitport Township, Michigan.  (16)

  Exhibit 10.55

  Promissory Note II
  dated as of July 10, 2002 between Monroe Outlet Center LLC and Beal Bank,
  S.S.B. related to the financing of the outlet center in Monroe,
  Michigan.  (16)

  Exhibit 10.56

  Commercial Mortgage
  dated July 10, 2002 between Monroe Outlet Center LLC and Beal Bank, S.S.B.
  related to the financing of the outlet center in Monroe, Michigan.  (16)

  Exhibit 10.57

  Guaranty Agreement
  dated July 10, 2002 in favor of Beal Bank, S.S.B. related to the Monroe
  Outlet Center LLC loans.  (16)

  Exhibit 10.58

  Second Amended and
  Restated Guaranty and Indemnity Agreement dated July 11, 2002 by and among
  Horizon Group Properties, Inc., Horizon Group Properties, L.P., Prime Retail,
  Inc. and Prime Retail, L.P. related to the financing of the outlet center in
  Monroe, Michigan.  (16)

  Exhibit 10.59

  Loan Agreement dated
  as of July 11, 2002 by and among UBS Warburg Real Estate Investments, Inc.,
  Laughlin Outlet Center LLC, Warrenton Outlet Center LLC and Medford Outlet
  Center LLC related to the financing of the Laughlin, Nevada, Medford,
  Minnesota and Warrenton, Missouri outlet centers.  (16)

  Exhibit 10.60

  Promissory Note dated
  July 11, 2002 between UBS Warburg Real Estate Investments, Inc. and Laughlin
  Outlet Center LLC related to the financing of the outlet center in Laughlin,
  Nevada.  (16)

  Exhibit 10.61

  Deed of Trust,
  Assignment of Leases and Rents and Security Agreement dated as of July 11,
  2002 between Laughlin Outlet Center LLC and Fidelity National Title Insurance
  Company for the benefit of UBS Warburg Real Estate Investments Inc. related
  to the financing of the outlet center in Laughlin, Nevada.  (16)

  Exhibit 10.62

  Guarantor Deed of
  Trust, Assignment of Leases and Rents, Security Agreement and Guaranty dated
  as of July 11, 2002 between Laughlin Outlet Center LLC and Fidelity National
  Title Insurance Company for the benefit of UBS Warburg Real Estate
  Investments Inc. related to the financing of the Laughlin, Nevada, Medford,
  Minnesota and Warrenton Missouri outlet centers.  (16)

  Exhibit 10.63

  Guaranty of Recourse
  Obligations dated as of July 11, 2002 by Horizon Group Properties, Inc. and
  Horizon Group Properties, L.P. for the benefit of UBS Warburg Real Estate
  Investments Inc. related to the financing of the Laughlin, Nevada, Medford,
  Minnesota and Warrenton, Missouri outlet centers.  (16)

  Exhibit 10.64

  Cash Management
  Agreement dated as of July 11, 2002 among Laughlin Outlet Center LLC, Medford
  Outlet Center LLC, Warrenton Outlet Center LLC, Wachovia Bank, National 

41

  Association, UBS
  Warburg Real Estate Investments Inc., and Horizon Group Properties, L.P.
  related to the financing of the Laughlin, Nevada, Medford, Minnesota and
  Warrenton, Missouri outlet centers. 
  (16)

  Exhibit 10.65

  Environmental
  Indemnity Agreement dated as of July 11, 2002 by Laughlin Outlet Center LLC,
  Medford Outlet Center LLC, Warrenton Outlet Center LLC, Horizon Group
  Properties, Inc. and Horizon Group Properties, L.P. in favor of UBS Warburg
  Real Estate Investments Inc. related to the financing of the Laughlin,
  Nevada, Medford, Minnesota and Warrenton, Missouri outlet centers.  (16)

  Exhibit 10.66

  Mezzanine Loan
  Document dated as of July 11, 2002 by and among Laughlin Holdings LLC,
  Medford Holdings LLC and Warrenton Holdings LLC and UBS Warburg Real Estate
  Investments Inc. related to the mezzanine financing of the Laughlin, Nevada,
  Medford, Minnesota and Warrenton, Missouri outlet centers.  (16)

  Exhibit 10.67

  Promissory Note dated
  July 11, 2002 between Laughlin Holdings LLC and UBS Warburg Real Estate
  Investments Inc. related to the mezzanine financing of the Laughlin, Nevada
  outlet center.  (16)

  Exhibit 10.68

  Guaranty of Recourse
  Obligations dated as of July 11, 2002 by Horizon Group Properties, Inc. and
  Horizon Group Properties, L.P. for the benefit of UBS Warburg Real Estate
  Investments Inc. related to the mezzanine financing of the Laughlin, Nevada,
  Medford, Minnesota and Warrenton, Missouri outlet centers.  (16)

  Exhibit 10.69

  Pledge and Security
  Agreement dated as of July 11, 2002 between Laughlin Holdings LLC and UBS
  Warburg Real Estate Investments Inc. related to the mezzanine financing of
  the Laughlin, Nevada outlet center. 
  (16)

  Exhibit 10.70

  Guarantor Pledge and
  Security Agreement dated as of July 11, 2002 between Laughlin Holdings LLC
  and UBS Warburg Real Estate Investments Inc. related to the mezzanine
  financing of the Laughlin, Nevada, Medford, Minnesota and Warrenton, Missouri
  outlet centers.  (16)

  Exhibit 10.71

  Subordinate Cash
  Management Agreement dated as of July 11, 2002 among Laughlin Holdings LLC,
  Medford Holdings LLC, Warrenton Holdings LLC, Wachovia Bank, National
  Association and UBS Warburg Real Estate Investments Inc. related to the
  mezzanine financing of the Laughlin, Nevada, Medford, Minnesota and
  Warrenton, Missouri outlet centers. 
  (16)

  Exhibit 10.72

  Environmental
  Indemnity Agreement dated as of July 11, 2002 by Laughlin Holdings LLC,
  Medford Holdings LLC, Warrenton Holdings LLC, Horizon Group Properties, Inc.
  and Horizon Group Properties, L.P. in favor of UBS Warburg Real Estate
  Investments Inc. related to the mezzanine financings of the Laughlin, Nevada,
  Medford, Minnesota and Warrenton, Missouri outlet centers.  (16)

  Exhibit 10.73

  Form of Horizon Group
  Properties, L.P. Common Unit Award Agreement. (18)

  Exhibit 10.74

  Amendment to Retention
  Letter between Thomas R. Rumptz and the Company dated August 21, 2002 (18)

  Exhibit 10.75

  Letter Agreement
  between Pleasant Lake Apts., Ltd. and Horizon Group Properties, Inc. dated
  December 23, 2002, regarding the sale of partnership units in Horizon Group
  Properties, L.P. (19)

  Exhibit 10.76

  Amendment No.1 to
  Amended and Restated Agreement of Limited Partnership of Horizon Group
  Properties, L.P. (20)

  Exhibit 10.77

  Amendment to Retention
  Letter between Thomas R. Rumptz and the Company dated December 19, 2002 (21)

  Exhibit 10.78

  Letter Agreement
  between Pleasant Lake Apts., Ltd. and Horizon Group Properties, Inc. dated
  March 13, 2003, regarding the sale of partnership interests in Horizon Group
  Properties, L.P. (22)

  Exhibit 10.79

  Promissory Note dated
  as of March 14, 2003 between Retail Partners, Inc. and Retail Partners
  Limited Partnership as borrowers and Horizon Group Properties, Inc. as lender
  dated March 13, 2003, regarding the sale of partnership interests in Horizon
  Group Properties, L.P. (22)

  Exhibit 10.80

  Guaranty dated as of
  March 14, 2003 by The Prime Group, Inc., Prime Group Limited Partnership,
  Prime Group II, L.P., PFLP, Inc., and Prime International, Inc. as guarantors
  in favor of Horizon Group Properties, Inc. as lender (22)

42

  Exhibit 10.81

  Pledge and Security
  Agreement dated as of March 14, 2003 by and between Retail Partners Limited
  Partnership, Retail Partners, Inc. and Horizon Group Properties, Inc. (22)

  Exhibit 10.82

  Letter Agreement dated
  as of March 14, 2003 between Huntley Development Limited Partnership, Huntley
  Meadow Residential Venture, The Prime Group, Inc. and Horizon Group
  Properties, Inc. regarding the assignment of the profits interest (22)

  Exhibit 10.83

  Construction and Term
  Loan Agreement dated as of April 24, 2003 by and between Horizon Group
  Properties, L.P. and Amster Trading Company Charitable Remainder Unitrust
  dated March 10, 2003 (24)

  Exhibit 10.84

  Promissory Note dated
  April 24, 2003 between Horizon Group Properties, L.P. and Amster Trading
  Company Charitable Remainder Unitrust dated March 10, 2003 (24)

  Exhibit 10.85

  Construction Deed of
  Trust, Security Agreement, Financing Statement and Fixture Filing (with
  Assignment of Rents) dated as of April 24, 2003 by and among Horizon Group
  Properties, L.P., First American Title and Amster Trading Company Charitable
  Remainder Unitrust dated March 10, 2003 (24)

  Exhibit 10.86

  Guaranty of Payment
  and Completion dated as of April 24, 2003 by Horizon Group Properties, Inc.
  to and for the benefit of Amster Trading Company Charitable Remainder
  Unitrust dated March 10, 2003 (24)

  Exhibit 10.87

  Environmental
  Indemnity Agreement dated as of April 24, 2003 by Horizon Group Properties,
  L.P. and Horizon Group Properties, Inc. to and for the benefit of Amster
  Trading Company Charitable Remainder Unitrust dated March 10, 2003 (24)

  Exhibit 10.88

  Demand Promissory Note
  dated as of May 20, 2003 between Horizon Group Properties, Inc., Pleasant
  Lake Apts. Limited Partnership and Pleasant Lake Apts. Corp. (25)

  Exhibit 10.89

  Consent and Assumption
  Agreement dated as of May 22, 2003 between and among Wells Fargo Bank
  Minnesota, N.A., as successor in interest to Norwest Bank Minnesota, National
  Association, as trustee for J.P. Morgan Commercial Mortgage Finance Corp.,
  Mortgage Pass-Through Certificates, Series 2000-C9, Tulare Outlet Center,
  L.P., Daleville, Sommerset, Tulare Outlet Centers, L.P. and Horizon Group
  Properties, Inc. (25)

  Exhibit 10.90

  Letter Agreement dated
  May 20, 2003 between Pleasant Lake Apts. Limited Partnership and Horizon
  Group Properties, Inc. (25)

  Exhibit 10.91

  Purchase Agreement
  dated as of May 31, 2003 by and among Horizon Group Properties, Inc.,
  Daleville, Sommerset, Tulare Finance Company, Inc., Horizon Group Properties,
  L.P., Pleasant Lake Apts. Corp., Pleasant Lake Apts. Limited Partnership,
  Richard Bongorno, Gary Skoien and David Zlatin (26)

  Exhibit 10.92

  Partnership Interests
  Purchase Agreement dated as of June 13, 2003 among The Prime Group, Inc.,
  Huntley Development Company, Prime/Huntley Meadows Residential, Inc., PGLP
  Holdings, L.L.C., Horizon Group Properties, Inc., Horizon Huntley Finance LLC
  and Horizon Huntley LLC (27)

  Exhibit 10.93

  Assignment and
  Assumption Agreement — Huntley Development Limited Partnership dated as of
  June 13, 2003 by and among The Prime Group, Inc., Huntley Development
  Company, Horizon Huntley LLC and Horizon Huntley Finance LLC (27)

  Exhibit 10.94

  Assignment and
  Assumption Agreement — Huntley Meadows Residential Venture dated as of June
  13, 2003 by and among PGLP Holdings, L.L.C., Prime/Huntley Meadows
  Residential, Inc., Horizon Huntley LLC and Horizon Huntley Finance LLC (27)

  Exhibit 10.95

  Indemnification and
  Guaranty Agreement dated as of June 13, 2003 by Horizon Huntley Finance LLC,
  Horizon Huntley LLC, and Horizon Group Properties, Inc. in favor of The Prime
  Group, Inc., Prime Group Limited Partnership, Prime Group II, L.P., Prime
  Group III, L.P., and Michael W. Reschke (27)

  Exhibit 10.96

  Amended, Restated and
  Increased Promissory Note dated January 30, 2002 between Huntley Development
  Limited Partnership and Beal Bank, S.S.B. (27)

  Exhibit 10.97

  Letter Agreement dated
  January 30, 2002 between Huntley Development Limited Partnership and Beal
  Bank, S.S.B. (27)

43

  Exhibit 10.98

  Third Modification and
  Extension Agreement dated January 30, 2002 by and among Huntley Development
  Limited Partnership, The Prime Group, Inc. and Beal Bank, S.S.B. (27)

  Exhibit 10.99

  Fourth Modification
  Agreement dated June 13, 2003 by and among Huntley Development Limited
  Partnership, The Prime Group, Inc., Horizon Group Properties, Inc. and Beal
  Bank S.S.B. (27)

  Exhibit 10.100

  Guaranty Agreement
  dated as of October 27, 1999 by The Prime Group, Inc. in favor of Beal Bank,
  S.S.B. (27)

  Exhibit 10.101

  Guaranty Agreement
  dated June 13, 2003 by Horizon Group Properties, Inc. in favor of Beal Bank,
  S.S.B. (27)

  Exhibit 10.102

  Mortgage, Security
  Agreement, and Assignment of Leases and Rents executed October 27, 1999 by
  Huntley Development Limited Partnership in favor of Beal Bank, S.S.B. (27)

  Exhibit 10.103

  First Amendment to
  Mortgage, Security Agreement and Assignment of Leases and Rents and Related
  Documents dated December 29, 1999 by and among Huntley Development Limited
  Partnership, The Prime Group, Inc. and Beal Bank, S.S.B. (27)

  Exhibit 10.104

  Amended and Restated
  Agreement and Assignment of Net Profits Interest dated October 27, 1999 by
  Huntley Development Limited Partnership and Huntley Meadows Residential
  Venture unto Beal Bank, S.S.B. (27)

  Exhibit 10.105

  First Amendment to
  Amended and Restated Agreement and Assignment of Net Profits Interest dated
  January 30, 2002 by Huntley Development Limited Partnership and Huntley
  Meadows Residential Venture and Beal Bank, S.S.B. (27)

  Exhibit 10.106

  Amended and Restated
  Mortgage and Security Agreement dated as of December 14, 1999 by Huntley
  Development Limited Partnership in favor of and for the benefit of U.S. Bank
  Trust National Association formerly known as First Trust National Association
  (27)

  Exhibit 10.107

  Amended and Restated
  Intercreditor Agreement dated as of December 14, 1999 by and among Huntley
  Development Limited Partnership, Beal Bank, S.S.B., and U.S. Bank Trust
  National Association formerly known as First Trust National Association (27)

  Exhibit 10.108

  Promissory Note dated
  June 12, 2003 between Horizon Huntley LLC and Amster Trading Company (27)

  Exhibit 10.109

  Horizon Group
  Properties, Inc. Unaudited Condensed Consolidated Balance Sheet as of May 31,
  2003 (28)

  Exhibit 10.110

  Letter Agreement dated
  June 11, 2003 between The Prime Group, Inc. and Gary J. Skoien regarding Mr.
  Skoien’s Net Profits Interest in Huntley (29)

  Exhibit 10.111

  Agreement of Purchase
  and Sale dated April 18, 2003 by and between Lakeshore Marketplace, LLC,
  Monroe Outlet Center, LLC and Ramco-Gershenson Properties, L.P. (30)

  Exhibit 10.112

  Amendment to Agreement
  of Purchase and Sale dated June 3, 2003 by and between Lakeshore Marketplace,
  LLC, Monroe Outlet Center, LLC and Ramco-Gershenson Properties, L.P. (30)

  Exhibit 10.113

  Consent and Assumption
  Agreement dated as of August 19, 2003 by and among Lakeshore Marketplace,
  LLC, Ramco Lakeshore LLC, Lakeshore Marketplace Finance Company, Inc.,
  Horizon Group Properties, L.P., Horizon Group Properties, Inc.,
  Ramco-Gershenson Properties, L.P. and Wells Fargo Bank Minnesota, N.A. (30)

  Exhibit 10.114

  First Modification
  Agreement dated August 19, 2003 by and among Monroe Outlet Center, LLC,
  Horizon Group Properties, Inc., Horizon Group Properties, L.P. and Beal Bank,
  S.S.B. (30)

  Exhibit 10.115

  Fifth Modification
  Agreement dated August 19, 2003 by and among Huntley Development Limited
  Partnership, Horizon Group Properties, Inc., and Beal Bank, S.S.B. (30)

  Exhibit 10.116

  Mortgage, Security
  Agreement, and Assignment of Leases and Rents dated August 19, 2003 by
  Huntley Development Limited Partnership to and in favor of Beal Bank, S.S.B.
  (30)

  Exhibit 10.117

  Assignment of Account
  and Security Agreement dated August 19, 2003 by and among Beal Bank, S.S.B.,
  Monroe Outlet Center, LLC and Huntley Development Limited Partnership (30)

  Exhibit 10.118

  Pledge of Proceeds and
  Security Agreement dated August 19, 2003 by and between Horizon Group
  Properties, L.P. and Beal Bank, S.S.B. (30)

  Exhibit 10.119

  Letter Agreement dated
  November 3, 2003 between Horizon Group Properties, L.P. and Pleasant Lake
  Apts. Limited Partnership (32)

44

  Exhibit 10.120

  Promissory Note dated
  as of November 3, 2003 by Horizon Group Properties, L.P. to the order of Pleasant
  Lake Apts. Limited Partnership (32)

  Exhibit 10.121

  Guaranty of Payment
  dated as of November 3, 2003 by Horizon Group Properties, Inc. to and for the
  benefit of Pleasant Lake Apts. Limited Partnership (32)

  Exhibit 10.122

  Second Amendment to
  Employment Agreement between Horizon Group Properties, Inc. and Gary J.
  Skoien dated as of August 19, 2003

  Exhibit 10.123

  Amendment to Retention
  Letter between Thomas R. Rumptz and the Company dated September 17, 2003

  Exhibit 10.124

  Indemnification and
  Fee Agreement (UBS Loan) dated as of September 3, 2003 between Horizon Group
  Properties, Inc. and Gary J. Skoien

  Exhibit 21

  Subsidiaries of the
  Company

  Exhibit 31.1

  Certification of Gary
  J. Skoien, Chairman, Chief Executive Officer and President of Horizon Group Properties,
  Inc., pursuant to 13a-14(a) under the Securities Exchange Act of 1934 as
  amended

  Exhibit 31.2

  Certification of David
  R. Tinkham, Chief Financial Officer of Horizon Group Properties, Inc.,
  pursuant to 13a-14(a) under the Securities Exchange Act of 1934 as amended

  Exhibit 32.1

  Certification of Gary
  J. Skoien, Chairman, Chief Executive Officer and President of Horizon Group
  Properties, Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
  Section 906 of the Sarbanes-Oxley Act of 2002

  Exhibit 32.2

  Certification of David
  R. Tinkham, Chief Financial Officer of Horizon Group Properties, Inc.,
  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
  Sarbanes-Oxley Act of 2002

  Exhibit 99.4

  Press release issued
  by the Company on August 20, 2003 announcing the sale of the power center and
  adjacent land in Norton Shores, Michigan (29)

  Exhibit 99.5

  Press release issued
  by the Company on November 4, 2003 announcing the restructuring of three
  loans which had been in default since October 2001 (31)

  Exhibit 99.10

  Updated financial
  information on the Company’s Annual Report on Form 10-K for the year ended
  December 31, 2002 (30)

(1)               Incorporated
by reference to the Company’s Registration Statement on Form 10, as amended,
dated as of June 4, 1998 (Commission file no. 0-24123).
(2)               Incorporated
by reference to the Company’s Current Report on Form 8-K dated as of June 30,
1998 (Commission file no. 0-24123).
(3)               Incorporated
by reference to the Company’s Form 10-Q dated as of August 14, 1998 (Commission
file no. 0-24123).
(4)               Incorporated
by reference to the Company’s Form 10-Q dated as of May 17, 1998 (Commission
file no. 0-24123).
(5)               Incorporated
by reference to the Company’s Current Report on Form 8-K dated as of August 3,
1999 (Commission file no. 0-24123).
(6)               Incorporated
by reference to the Company’s Form 10-K dated as of March 6, 2000 (Commission
file no. 0-24123).
(7)               Incorporated
by reference to the Company’s Form 10-Q dated as of May 15, 2000 (Commission
file no. 0-24123).
(8)               Incorporated
by reference to the Company’s Definitive Proxy Statement dated as of July 12,
2000 (Commission file no. 0-24123).
(9)               Incorporated
by reference to the Company’s Form 10-Q dated as of November 14, 2000
(Commission file no. 0-24123).
(10)         Incorporated
by reference to the Company’s Form 10-K dated as of March 23, 2001 (Commission
file no. 0-24123)
(11)         Incorporated
by reference to the Company’s Current Report on Form 8-K dated as of May 4,
2001 (Commission file no. 0-24123)
 
45

(12)         Incorporated
by reference to the Company’s Form 10-Q dated as of May 15, 2001 (Commission
file no. 0-24123)
(13)         Incorporated
by reference to the Company’s Current Report on Form 8-K dated as of May 29,
2001 (Commission file no. 0-24123)
(14)         Incorporated
by reference to the Company’s Current Report on Form 8-K dated as of August 13,
2001 (Commission file no. 0-24123)
(15)         Incorporated
by reference to the Company’s Form 10-K dated as of March 28, 2002 (Commission
file no. 0-24123)
(16)         Incorporated
by reference to the Company’s Current Report on Form 8-K dated as of August 9,
2002 (Commission file no. 0-24123)
(17)         Incorporated
by reference to the Company’s Form 10-Q dated as of August 14, 2002 (Commission
file no. 0-24123)
(18)         Incorporated
by reference to the Company’s Form 10-Q dated as of November 14, 2002
(Commission file no. 0-24123)
(19)         Incorporated
by reference to the Company’s Current Report on Form 8-K dated as of December
24, 2002 (Commission file no. 0-24123)
(20)         Incorporated
by reference to the Company’s Current Report on Form 8-K dated as of December
27, 2002 (Commission file no. 0-24123)
(21)         Incorporated
by reference to the Company’s Form 10-K dated as of March 31, 2003 (Commission
file no. 0-24123)
(22)         Incorporated
by reference to the Company’s Current Report on Form 8-K dated as of March 17,
2003 (Commission file no. 0-24123)
(23)         Incorporated
by reference to the Company’s Current Report on Form 8-K dated as of April 3,
2003 (Commission file no. 0-24123)
(24)         Incorporated
by reference to the Company’s Current Report on Form 8-K dated as of April 28,
2003 (Commission file no. 0-24123)
(25)         Incorporated
by reference to the Company’s Current Report on Form 8-K dated as of May 30,
2003 (Commission file no. 0-24123)
(26)         Incorporated
by reference to the Company’s Current Report on Form 8-K dated as of May 31,
2003 (Commission file no. 0-24123)
(27)         Incorporated
by reference to the Company’s Current Report on Form 8-K dated as of June 30,
2003 (Commission file no. 0-24123)
(28)         Incorporated
by reference to the Company’s Current Report on Form 8-K dated as of July 16,
2003 (Commission file no. 0-24123)
(29)   Incorporated by reference to the Company's
Form 10-Q dated as of August 14, 2003 (Commission file no. 0-24123)
(30)         Incorporated
by reference to the Company’s Current Report on Form 8-K dated as of August 29,
2003 (Commission file no. 0-24123)
(31)         Incorporated
by reference to the Company’s Current Report on Form 8-K dated as of September
26, 2003 (Commission file no. 0-24123)
(32)         Incorporated
by reference to the Company’s Current Report on Form 8-K dated as of November
3, 2003 (Commission file no. 0-24123)
 
46

(b)
      Reports on Form 8-K
 
A Form 8-K was filed on
July 16, 2003, regarding the Company’s publication of its unaudited condensed
consolidated balance sheet as of May 31, 2003 in response to a request from the
NASDAQ SmallCap Market.
 
A Form 8-K was filed on
August 29, 2003, announcing the Company’s sale of the power center and adjacent
vacant land located in Norton Shores, Michigan.
 
A Form 8-K was filed on
September 26, 2003, updating the Company’s Annual Report on Form 10-K for the
year ended December 31, 2002.
 
A Form 8-K was filed on
November 7, 2003, regarding the Company’s press release announcing the
restructuring of three loans which had been in default since October 2001.
 
47

SIGNATURES
 
Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
 
  HORIZON GROUP
  PROPERTIES, INC.

  Registrant

  Date:  November 14, 2003

  By: /s/ Gary J. Skoien

  Gary J. Skoien,
  President and

  Chief Executive
  Officer

  Date:  November 14, 2003

  By: /s/ David R.
  Tinkham

  David R. Tinkham,
  Chief Accounting

  and Chief Financial Officer

48

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

77 West Wacker Drive, Suite 4200, Chicago , IL		60601
(Address of principal executive offices)		(Zip Code)

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

Not Applicable
Former name, former address and former fiscal year, if changed since last report.

Part I. Financial Information:

Item 1. Financial Statements (unaudited)

Condensed Consolidated Statements of Operations of the Company for the Three Months Ended September 30, 2003 and September 30, 2002

Condensed Consolidated Statements of Operations of the Company for the Nine Months Ended September 30, 2003 and September 30, 2002

Condensed Consolidated Balance Sheets of the Company at September 30, 2003 and December 31, 2002

Condensed Consolidated Statements of Cash Flows of the Company for the Nine Months Ended September 30, 2003 and September 30, 2002

Notes to Condensed Consolidated Financial Statements

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

Item 3. Quantitative and Qualitative Disclosure of Market Risk

Item 4. Controls and Procedures

Part II. Other Information:

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

Signatures

	Three months ended September 30, 2003			Three months ended September 30, 2002
	(thousands, except per share data)
REVENUE
Base rent	$	3,312		$	3,392
Percentage rent	34			30
Expense recoveries	681			692
Other	279			64
Total revenue	4,306			4,178

EXPENSES
Property operating	1,203			1,217
Real estate taxes	387			327
Land lease and other	161			149
Depreciation and amortization	860			986
General and administrative	1,010			778
Interest	2,692			2,122
Total expenses	6,313			5,579

Loss from continuing operations before minority interests	(2,007		)	(1,401		)

Minority interests	572			202

Loss from continuing operations	(1,435		)	(1,199		)

Gain on sale of real estate, net of minority interests	—			22

Income/(loss) from discontinued operations, net of minority interests	8,116			(686		)

Net income/(loss)	$	6,681		$	(1,863	)

Per common share – basic and diluted:
Loss from continuing operations	$	(0.50	)	$	(0.42	)
Net income/(loss)	$	2.33		$	(0.65	)

Weighted average common shares outstanding
Basic	2,870			2,870
Diluted	3,664			3,386

	Nine months ended September 30, 2003			Nine months ended September 30, 2002
	(thousands, except per share data)
REVENUE
Base rent	$	9,875		$	9,855
Percentage rent	138			120
Expense recoveries	2,147			2,092
Other	685			408
Total revenue	12,845			12,475

EXPENSES
Property operating	3,670			3,468
Real estate taxes	1,217			1,135
Land lease and other	581			487
Depreciation and amortization	2,722			2,943
General and administrative	2,434			2,066
Interest	6,696			6,370
Total expenses	17,320			16,469

Loss from continuing operations before minority interests	(4,475		)	(3,994		)

Minority interests	1,258			585

Loss from continuing operations	(3,217		)	(3,409		)

Gain on sale of real estate, net of minority interests	—			153

Income/(loss) from discontinued operations, net of minority interests	19,292			(2,045		)

Net income/(loss)	$	16,075		$	(5,301	)

Per common share – basic and diluted:
Loss from continuing operations	$	(1.12	)	$	(1.19	)
Net income/(loss)	$	5.60		$	(1.85	)

Weighted average common shares outstanding
Basic	2,870			2,870
Diluted	3,627			3,382

	September 30, 2003			December 31, 2002
	(thousands)

ASSETS
Real estate – at cost:
Land	$	7,673		$	7,673
Buildings and improvements	82,604			80,366
Less accumulated depreciation	(14,561		)	(12,818		)
	75,716			75,221
Land held for investment	30,600			—
Total net real estate	106,316			75,221

Cash and cash equivalents	1,845			1,237
Restricted cash	7,011			2,707
Tenant accounts receivable	1,144			1,072
Real estate – discontinued operations	7,926			21,055
Deferred costs (net of accumulated amortization of $1,234 and $793, respectively)	2,038			2,146
Other assets	1,903			1,239
Total assets	$	128,183		$	104,677

LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:

Mortgages and other debt – continuing operations	$	91,282		$	71,560
Mortgages and other debt – discontinued operations	3,134			32,192
Accrued interest	4,971			6,741
Accounts payable and other accrued expenses	4,523			3,292
Prepaid rents and other tenant liabilities	958			1,170
Participation interests and other liabilities	10,470			716
Total liabilities	115,338			115,671

Minority interests	1,778			(1,966		)

Shareholders’ equity (deficit):
Common shares ($.01 par value, 50,000 shares authorized, 2,870 issued and outstanding)	29			29
Additional paid-in capital	39,469			35,451
Accumulated deficit	(28,431		)	(44,508		)
Total shareholders’ equity (deficit)	11,067			(9,028		)
Total liabilities and shareholders’ equity (deficit)	$	128,183		$	104,677

	(In thousands)
Land held for investment	$	30,250
Restricted cash	2,060
	$	32,310

Mortgages and other debt	$	10,706
Accounts payable and accrued expenses	2,174
Other liabilities	10,130
Contributed capital (cash paid)	9,300
	$	32,310

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

	Three months ended September 30, 2003		Three months ended September 30, 2002			Nine months ended September 30, 2003		Nine months ended September 30, 2002

Net income/(loss) - basic	$	6,681	$	(1,863	)	$	16,075	$	(5,301	)
Add stock-based compensation expense included in net income/(loss)	—		—			—		—
Deduct stock-based compensation expense determined under fair value based method, net of minority interests	23		6			45		27

Proforma net income/(loss) - basic and diluted	$	6,658	$	(1,869	)	$	16,030	$	(5,328	)

Income/(loss) per share:
Basic and diluted - as reported	$	2.33	$	(0.65	)	$	5.60	$	(1.85	)
Basic and diluted - proforma	$	2.32	$	(0.65	)	$	5.59	$	(1.86	)

Payment made during the period:	Prepayment Fee
October 1, 2003 to October 31, 2003	2.0	%
November 1, 2003 to January 31, 2004	1.0	%
After January 31, 2004	None

Due by:	Operating Portfolio		Discontinued Operations
September 30, 2004	$	33,876	$	39
September 30, 2005	17,637		42
September 30, 2006	3,869		46
September 30, 2007	766		50
September 30, 2008	817		2,957
Thereafter	31,046		—
	88,011		$	3,134
Tulare Loan restructuring adjustment	1,157
Tulare II Loan (construction loan)	2,114
	$	91,282

	Nine months ended September 30, 2003		Nine months ended September 30, 2002
	(in thousands)
Net income/(loss)	$	16,075	$	(5,301	)
Minority interests of unitholders (in loss from continuing operations, discontinued operations and gain on sale of real estate)	6,183		(923		)
Income/(loss) before minority interests	22,258		(6,224		)
Adjustments for depreciation and amortization	2,187		3,863
FFO	$	24,445	$	(2,361	)

Exhibit 3(i)	Articles of Amendment and Restatement of Horizon Group Properties, Inc. (the “Company”) (8)
Exhibit 3(ii)	By-laws of the Company (1)
Exhibit 3(iii)	Amendment to By-laws of the Company dated March 17, 1999 (4)
Exhibit 3(iv)	Amendment to By-laws of the Company dated June 8, 2000 (12)
Exhibit 3(v)	Amendment to By-laws of the Company dated May 4, 2001 (12)
Exhibit 3(vi)	Amendment to By-laws of the Company dated May 29, 2001 (13)
Exhibit 3 (vii)	Articles Supplementary of the Company dated June 7, 2001 (17)
Exhibit 3 (viii)	Excepted Holders Certificate dated July 30, 2002 (17)
Exhibit 4.1	Specimen certificate for common stock, $.01 par value per share, of the Company (1)
Exhibit 10.1	Sky Merger Corp. Registration Statement on Form S-4 (excluding exhibits thereto), as filed with the Securities and Exchange Commission on May 12, 1998 (Registration No. 333-51285) (1)
Exhibit 10.2	Amended and Restated Agreement and Plan of Merger by and among Prime Retail, Inc., Prime Retail, L.P., Horizon Group, Inc., Sky Merger Corp., the Company, Horizon Group Properties, L.P. and Horizon/Glen Outlet Centers Limited Partnership dated as of February 1, 1998 (Incorporated by reference to Exhibit 10(a) to Horizon Group, Inc.’s current report on Form 8-K dated February 1, 1998 (SEC File No. 1-12424) (1)
Exhibit 10.3	Form of 1998 Stock Option Plan of the Company (1)
Exhibit 10.4	Employment Agreement between Gary J. Skoien and the Company (1)
Exhibit 10.5	Employment Agreement between David R. Tinkham and the Company (1)
Exhibit 10.6	Form of Indemnification Agreement for the Board of Directors of the Company (1)
Exhibit 10.7	Form of Registration Rights Agreement (1)
Exhibit 10.8	Form of Contribution Agreement (incorporated by reference to Appendix E to Exhibit 10.1) (1)
Exhibit 10.9	Employment Agreement between Richard Berman and the Company (3)
Exhibit 10.10	Working Capital Agreement with Prime Retail, Inc. (3)
Exhibit 10.11	Loan Agreement dated as of June 15, 1998 by and among Third Horizon Group Limited Partnership, Nebraska Crossing Factory Shops, L.L.C., and Indiana Factory Shops, L.L.C. and Nomura Asset Capital Corporation (2)
Exhibit 10.12	Form of Deed of Trust, Assignment of Leases and Rents and Security Agreement with Nomura Asset Capital Corporation (2)
Exhibit 10.13	Form of Mortgage, Assignment of Leases and Rents and Security Agreement by and between Horizon Group Properties, Inc. and Nomura Asset Capital Corporation (2)
Exhibit 10.14	Form of Assignment of Leases and Rents by and between Horizon Group Properties, Inc. and Nomura Asset Capital Corporation (2)
Exhibit 10.15	Guaranty dated as of June 15, 1998 by the Company and Horizon Group Properties, L.P. to and for the benefit of Nomura Asset Capital Corporation (2)
Exhibit 10.16	Guaranty and Indemnity Agreement dated as of June 15, 1998 by and among the Company, Horizon Group Properties, L.P., Prime Retail, Inc., and Prime Retail, L.P. (2)
Exhibit 10.17	Assignment and Assumption Agreement, dated as of June 15, 1998 by and among Prime Retail, Inc., Prime Retail, L.P., Indianapolis Factory Shops Limited Partnership, and Indiana Factory Shops, L.L.C. (3)
Exhibit 10.18	Assignment and Assumption Agreement, dated as of June 15, 1998 by and among Prime Retail, Inc., Prime Retail, L.P., Nebraska Factory Shops Limited Partnership, and Nebraska Factory Shops L.L.C. (3)
Exhibit 10.19	Form of Option Agreement (3)
Exhibit 10.20	Fixed Rate Note dated as of July 9, 1999 between Gretna, Sealy, Traverse City Outlet Centers, L.L.C. and Morgan Guaranty Trust Company of New York related to the financing of the factory outlet center in Gretna, Nebraska (5)

Exhibit 10.21	Deed of Trust and Security Agreement for the benefit of Morgan Guaranty Trust Company of New York, as lender, from Gretna, Sealy, Traverse City Outlet Centers, L.L.C., as borrower, related to the financing of the factory outlet center in Gretna, Nebraska (5)
Exhibit 10.22	Guaranty for the benefit of Morgan Guaranty Trust Company of New York by Horizon Group Properties, Inc. related to the Gretna, Sealy and Traverse City loans (5)
Exhibit 10.23	Agreement between Andrew F. Pelmoter and the Company (6)
Exhibit 10.24	Agreement of Purchase and Sale and Escrow Instructions dated March 24, 2000 between Third Horizon Group Limited Partnership and Triple Net Properties, LLC. (7)
Exhibit 10.25	First Amendment to Agreement of Purchase and Sale and Escrow Instructions between Third Horizon Group Limited Partnership and Triple Net Properties, LLC, dated as of April 21, 2000 (7)
Exhibit 10.26	Second Amendment to Agreement of Purchase and Sale and Escrow Instructions between Third Horizon Group Limited Partnership and Triple Net Properties, LLC, dated as of April 25, 2000 (7)
Exhibit 10.27	Promissory Note dated April 18, 2000, between Horizon Group Properties, LP as Lender and Prime Outdoor Group, LLC as Borrower (7)
Exhibit 10.28	Security Agreement dated April 18, 2000, between Horizon Group Properties, LP and Prime Outdoor Group, LLC (7)
Exhibit 10.29	Pledge Agreement by and among Horizon Group Properties, LP; Prime Group Limited Partnership; Prime Group II, LP; Prime Group III, LP; Prime Group IV, LP; Prime Group V, LP and Prime Financing Limited Partnership (7)
Exhibit 10.30	Collateral Assignment of Membership Interests dated April 18, 2000, between Horizon Group Properties, LP and The Prime Group, Inc. (7)
Exhibit 10.31	Guarantee dated April 18, 2000, between Horizon Group Properties, LP; Prime Group Limited Partnership; Prime Group II, LP; Prime Group III, LP; Prime Group IV, LP; Prime Group V, LP and Prime Financing Limited Partnership (7)
Exhibit 10.32	Letter Agreement dated April 18, 2000, between Horizon Group Properties, Inc., Prime Group, Inc. and Prime Outdoor Group, LLC (7)
Exhibit 10.33	Agreement between Andrew F. Pelmoter and the Company (7)
Exhibit 10.34	Amendment to Employment Agreement between Gary J. Skoien and the Company dated as of August 29, 2000 (9)
Exhibit 10.35	Amendment to Employment Agreement between David R. Tinkham and the Company dated as of August 29, 2000 (9)
Exhibit 10.36	Amendment to Employment Agreement between Andrew F. Pelmoter and the Company dated October 9, 2000 (10)
Exhibit 10.37	Amendment to Employment Agreement between Thomas R. Rumptz and the Company dated November 11, 2000 (10)
Exhibit 10.38	Additional Amendment to Employment Agreement between Andrew F. Pelmoter and the Company dated April 26, 2001 (12)
Exhibit 10.39	Additional Amendment to Employment Agreement between Thomas R. Rumptz and the Company dated April 3, 2001 (12)
Exhibit 10.40	Settlement Agreement, dated as of May 4, 2001, by and among the Company, Howard M. Amster, John C. Loring and Robert M. Schwartzberg (11)
Exhibit 10.41	Promissory Note, dated as of July 30, 2001, between Lakeshore Marketplace, LLC and Greenwich Capital Financial Products, Inc. (14)
Exhibit 10.42	Mortgage, dated as of July 30, 2001, between Lakeshore Marketplace, LLC and Greenwich Capital Financial Products, Inc. (14)
Exhibit 10.43	Collection and Deposit Account Agreement, dated as of July 30, 2001, by and among LaSalle Bank National Association, Lakeshore Marketplace, LLC and Greenwich Capital Financial Products, Inc. (14)
Exhibit 10.44	Second Amended and Restated Note dated as of July 31, 2001 between Third Horizon Group Limited Partnership and CDC Mortgage Capital, Inc. (14)

Exhibit 10.45	Second Amendment to Loan Agreement and Settlement Agreement dated as of July 31, 2001 by and among Third Horizon Group Limited Partnership, Horizon Group Properties, Inc., Horizon Group Properties, LP and CDC Mortgage Capital, Inc. (14)
Exhibit 10.46	Reaffirmation of Guaranty dated as of July 31, 2001 by Horizon Group Properties, Inc. and Horizon Group Properties, LP (14)
Exhibit 10.47	Reaffirmation of Guaranty dated as of July 31, 2001 by Prime Retail, LP (14)
Exhibit 10.48	Pledge and Security Agreement dated as of July 31, 2001 by and among Horizon Group Properties, LP, Third HGI, LLC and CDC Mortgage Capital, Inc. (14)
Exhibit 10.49	Amended and Restated Guaranty and Indemnity Agreement dated as of July 31, 2001 by and among Horizon Group Properties, Inc., Horizon Group Properties, LP, Prime Retail, Inc., and Prime Retail, LP (14)
Exhibit 10.50	Amendment to Retention Letter between Thomas R. Rumptz and the Company dated August 29, 2001. (15)
Exhibit 10.51	Amendment to Retention Letter between Thomas R. Rumptz and the Company dated November 28, 2001. (15)
Exhibit 10.52	Amendment to Retention Letter between Thomas R. Rumptz and the Company dated February 25, 2002. (15)
Exhibit 10.53	Amendment to Retention Letter between Andrew Pelmoter and the Company dated May 30, 2001. (15)
Exhibit 10.54	Promissory Note I dated as of July 10, 2002 between Monroe Outlet Center LLC and Beal Bank, S.S.B. related to the financing of vacant land in Norton Shores, Michigan and Fruitport Township, Michigan. (16)
Exhibit 10.55	Promissory Note II dated as of July 10, 2002 between Monroe Outlet Center LLC and Beal Bank, S.S.B. related to the financing of the outlet center in Monroe, Michigan. (16)
Exhibit 10.56	Commercial Mortgage dated July 10, 2002 between Monroe Outlet Center LLC and Beal Bank, S.S.B. related to the financing of the outlet center in Monroe, Michigan. (16)
Exhibit 10.57	Guaranty Agreement dated July 10, 2002 in favor of Beal Bank, S.S.B. related to the Monroe Outlet Center LLC loans. (16)
Exhibit 10.58	Second Amended and Restated Guaranty and Indemnity Agreement dated July 11, 2002 by and among Horizon Group Properties, Inc., Horizon Group Properties, L.P., Prime Retail, Inc. and Prime Retail, L.P. related to the financing of the outlet center in Monroe, Michigan. (16)
Exhibit 10.59	Loan Agreement dated as of July 11, 2002 by and among UBS Warburg Real Estate Investments, Inc., Laughlin Outlet Center LLC, Warrenton Outlet Center LLC and Medford Outlet Center LLC related to the financing of the Laughlin, Nevada, Medford, Minnesota and Warrenton, Missouri outlet centers. (16)
Exhibit 10.60	Promissory Note dated July 11, 2002 between UBS Warburg Real Estate Investments, Inc. and Laughlin Outlet Center LLC related to the financing of the outlet center in Laughlin, Nevada. (16)
Exhibit 10.61	Deed of Trust, Assignment of Leases and Rents and Security Agreement dated as of July 11, 2002 between Laughlin Outlet Center LLC and Fidelity National Title Insurance Company for the benefit of UBS Warburg Real Estate Investments Inc. related to the financing of the outlet center in Laughlin, Nevada. (16)
Exhibit 10.62	Guarantor Deed of Trust, Assignment of Leases and Rents, Security Agreement and Guaranty dated as of July 11, 2002 between Laughlin Outlet Center LLC and Fidelity National Title Insurance Company for the benefit of UBS Warburg Real Estate Investments Inc. related to the financing of the Laughlin, Nevada, Medford, Minnesota and Warrenton Missouri outlet centers. (16)
Exhibit 10.63	Guaranty of Recourse Obligations dated as of July 11, 2002 by Horizon Group Properties, Inc. and Horizon Group Properties, L.P. for the benefit of UBS Warburg Real Estate Investments Inc. related to the financing of the Laughlin, Nevada, Medford, Minnesota and Warrenton, Missouri outlet centers. (16)
Exhibit 10.64	Cash Management Agreement dated as of July 11, 2002 among Laughlin Outlet Center LLC, Medford Outlet Center LLC, Warrenton Outlet Center LLC, Wachovia Bank, National

	Association, UBS Warburg Real Estate Investments Inc., and Horizon Group Properties, L.P. related to the financing of the Laughlin, Nevada, Medford, Minnesota and Warrenton, Missouri outlet centers. (16)
Exhibit 10.65	Environmental Indemnity Agreement dated as of July 11, 2002 by Laughlin Outlet Center LLC, Medford Outlet Center LLC, Warrenton Outlet Center LLC, Horizon Group Properties, Inc. and Horizon Group Properties, L.P. in favor of UBS Warburg Real Estate Investments Inc. related to the financing of the Laughlin, Nevada, Medford, Minnesota and Warrenton, Missouri outlet centers. (16)
Exhibit 10.66	Mezzanine Loan Document dated as of July 11, 2002 by and among Laughlin Holdings LLC, Medford Holdings LLC and Warrenton Holdings LLC and UBS Warburg Real Estate Investments Inc. related to the mezzanine financing of the Laughlin, Nevada, Medford, Minnesota and Warrenton, Missouri outlet centers. (16)
Exhibit 10.67	Promissory Note dated July 11, 2002 between Laughlin Holdings LLC and UBS Warburg Real Estate Investments Inc. related to the mezzanine financing of the Laughlin, Nevada outlet center. (16)
Exhibit 10.68	Guaranty of Recourse Obligations dated as of July 11, 2002 by Horizon Group Properties, Inc. and Horizon Group Properties, L.P. for the benefit of UBS Warburg Real Estate Investments Inc. related to the mezzanine financing of the Laughlin, Nevada, Medford, Minnesota and Warrenton, Missouri outlet centers. (16)
Exhibit 10.69	Pledge and Security Agreement dated as of July 11, 2002 between Laughlin Holdings LLC and UBS Warburg Real Estate Investments Inc. related to the mezzanine financing of the Laughlin, Nevada outlet center. (16)
Exhibit 10.70	Guarantor Pledge and Security Agreement dated as of July 11, 2002 between Laughlin Holdings LLC and UBS Warburg Real Estate Investments Inc. related to the mezzanine financing of the Laughlin, Nevada, Medford, Minnesota and Warrenton, Missouri outlet centers. (16)
Exhibit 10.71	Subordinate Cash Management Agreement dated as of July 11, 2002 among Laughlin Holdings LLC, Medford Holdings LLC, Warrenton Holdings LLC, Wachovia Bank, National Association and UBS Warburg Real Estate Investments Inc. related to the mezzanine financing of the Laughlin, Nevada, Medford, Minnesota and Warrenton, Missouri outlet centers. (16)
Exhibit 10.72	Environmental Indemnity Agreement dated as of July 11, 2002 by Laughlin Holdings LLC, Medford Holdings LLC, Warrenton Holdings LLC, Horizon Group Properties, Inc. and Horizon Group Properties, L.P. in favor of UBS Warburg Real Estate Investments Inc. related to the mezzanine financings of the Laughlin, Nevada, Medford, Minnesota and Warrenton, Missouri outlet centers. (16)
Exhibit 10.73	Form of Horizon Group Properties, L.P. Common Unit Award Agreement. (18)
Exhibit 10.74	Amendment to Retention Letter between Thomas R. Rumptz and the Company dated August 21, 2002 (18)
Exhibit 10.75	Letter Agreement between Pleasant Lake Apts., Ltd. and Horizon Group Properties, Inc. dated December 23, 2002, regarding the sale of partnership units in Horizon Group Properties, L.P. (19)
Exhibit 10.76	Amendment No.1 to Amended and Restated Agreement of Limited Partnership of Horizon Group Properties, L.P. (20)
Exhibit 10.77	Amendment to Retention Letter between Thomas R. Rumptz and the Company dated December 19, 2002 (21)
Exhibit 10.78	Letter Agreement between Pleasant Lake Apts., Ltd. and Horizon Group Properties, Inc. dated March 13, 2003, regarding the sale of partnership interests in Horizon Group Properties, L.P. (22)
Exhibit 10.79	Promissory Note dated as of March 14, 2003 between Retail Partners, Inc. and Retail Partners Limited Partnership as borrowers and Horizon Group Properties, Inc. as lender dated March 13, 2003, regarding the sale of partnership interests in Horizon Group Properties, L.P. (22)
Exhibit 10.80	Guaranty dated as of March 14, 2003 by The Prime Group, Inc., Prime Group Limited Partnership, Prime Group II, L.P., PFLP, Inc., and Prime International, Inc. as guarantors in favor of Horizon Group Properties, Inc. as lender (22)

Exhibit 10.81	Pledge and Security Agreement dated as of March 14, 2003 by and between Retail Partners Limited Partnership, Retail Partners, Inc. and Horizon Group Properties, Inc. (22)
Exhibit 10.82	Letter Agreement dated as of March 14, 2003 between Huntley Development Limited Partnership, Huntley Meadow Residential Venture, The Prime Group, Inc. and Horizon Group Properties, Inc. regarding the assignment of the profits interest (22)
Exhibit 10.83	Construction and Term Loan Agreement dated as of April 24, 2003 by and between Horizon Group Properties, L.P. and Amster Trading Company Charitable Remainder Unitrust dated March 10, 2003 (24)
Exhibit 10.84	Promissory Note dated April 24, 2003 between Horizon Group Properties, L.P. and Amster Trading Company Charitable Remainder Unitrust dated March 10, 2003 (24)
Exhibit 10.85	Construction Deed of Trust, Security Agreement, Financing Statement and Fixture Filing (with Assignment of Rents) dated as of April 24, 2003 by and among Horizon Group Properties, L.P., First American Title and Amster Trading Company Charitable Remainder Unitrust dated March 10, 2003 (24)
Exhibit 10.86	Guaranty of Payment and Completion dated as of April 24, 2003 by Horizon Group Properties, Inc. to and for the benefit of Amster Trading Company Charitable Remainder Unitrust dated March 10, 2003 (24)
Exhibit 10.87	Environmental Indemnity Agreement dated as of April 24, 2003 by Horizon Group Properties, L.P. and Horizon Group Properties, Inc. to and for the benefit of Amster Trading Company Charitable Remainder Unitrust dated March 10, 2003 (24)
Exhibit 10.88	Demand Promissory Note dated as of May 20, 2003 between Horizon Group Properties, Inc., Pleasant Lake Apts. Limited Partnership and Pleasant Lake Apts. Corp. (25)
Exhibit 10.89	Consent and Assumption Agreement dated as of May 22, 2003 between and among Wells Fargo Bank Minnesota, N.A., as successor in interest to Norwest Bank Minnesota, National Association, as trustee for J.P. Morgan Commercial Mortgage Finance Corp., Mortgage Pass-Through Certificates, Series 2000-C9, Tulare Outlet Center, L.P., Daleville, Sommerset, Tulare Outlet Centers, L.P. and Horizon Group Properties, Inc. (25)
Exhibit 10.90	Letter Agreement dated May 20, 2003 between Pleasant Lake Apts. Limited Partnership and Horizon Group Properties, Inc. (25)
Exhibit 10.91	Purchase Agreement dated as of May 31, 2003 by and among Horizon Group Properties, Inc., Daleville, Sommerset, Tulare Finance Company, Inc., Horizon Group Properties, L.P., Pleasant Lake Apts. Corp., Pleasant Lake Apts. Limited Partnership, Richard Bongorno, Gary Skoien and David Zlatin (26)
Exhibit 10.92	Partnership Interests Purchase Agreement dated as of June 13, 2003 among The Prime Group, Inc., Huntley Development Company, Prime/Huntley Meadows Residential, Inc., PGLP Holdings, L.L.C., Horizon Group Properties, Inc., Horizon Huntley Finance LLC and Horizon Huntley LLC (27)
Exhibit 10.93	Assignment and Assumption Agreement — Huntley Development Limited Partnership dated as of June 13, 2003 by and among The Prime Group, Inc., Huntley Development Company, Horizon Huntley LLC and Horizon Huntley Finance LLC (27)
Exhibit 10.94	Assignment and Assumption Agreement — Huntley Meadows Residential Venture dated as of June 13, 2003 by and among PGLP Holdings, L.L.C., Prime/Huntley Meadows Residential, Inc., Horizon Huntley LLC and Horizon Huntley Finance LLC (27)
Exhibit 10.95	Indemnification and Guaranty Agreement dated as of June 13, 2003 by Horizon Huntley Finance LLC, Horizon Huntley LLC, and Horizon Group Properties, Inc. in favor of The Prime Group, Inc., Prime Group Limited Partnership, Prime Group II, L.P., Prime Group III, L.P., and Michael W. Reschke (27)
Exhibit 10.96	Amended, Restated and Increased Promissory Note dated January 30, 2002 between Huntley Development Limited Partnership and Beal Bank, S.S.B. (27)
Exhibit 10.97	Letter Agreement dated January 30, 2002 between Huntley Development Limited Partnership and Beal Bank, S.S.B. (27)

Exhibit 10.98	Third Modification and Extension Agreement dated January 30, 2002 by and among Huntley Development Limited Partnership, The Prime Group, Inc. and Beal Bank, S.S.B. (27)
Exhibit 10.99	Fourth Modification Agreement dated June 13, 2003 by and among Huntley Development Limited Partnership, The Prime Group, Inc., Horizon Group Properties, Inc. and Beal Bank S.S.B. (27)
Exhibit 10.100	Guaranty Agreement dated as of October 27, 1999 by The Prime Group, Inc. in favor of Beal Bank, S.S.B. (27)
Exhibit 10.101	Guaranty Agreement dated June 13, 2003 by Horizon Group Properties, Inc. in favor of Beal Bank, S.S.B. (27)
Exhibit 10.102	Mortgage, Security Agreement, and Assignment of Leases and Rents executed October 27, 1999 by Huntley Development Limited Partnership in favor of Beal Bank, S.S.B. (27)
Exhibit 10.103	First Amendment to Mortgage, Security Agreement and Assignment of Leases and Rents and Related Documents dated December 29, 1999 by and among Huntley Development Limited Partnership, The Prime Group, Inc. and Beal Bank, S.S.B. (27)
Exhibit 10.104	Amended and Restated Agreement and Assignment of Net Profits Interest dated October 27, 1999 by Huntley Development Limited Partnership and Huntley Meadows Residential Venture unto Beal Bank, S.S.B. (27)
Exhibit 10.105	First Amendment to Amended and Restated Agreement and Assignment of Net Profits Interest dated January 30, 2002 by Huntley Development Limited Partnership and Huntley Meadows Residential Venture and Beal Bank, S.S.B. (27)
Exhibit 10.106	Amended and Restated Mortgage and Security Agreement dated as of December 14, 1999 by Huntley Development Limited Partnership in favor of and for the benefit of U.S. Bank Trust National Association formerly known as First Trust National Association (27)
Exhibit 10.107	Amended and Restated Intercreditor Agreement dated as of December 14, 1999 by and among Huntley Development Limited Partnership, Beal Bank, S.S.B., and U.S. Bank Trust National Association formerly known as First Trust National Association (27)
Exhibit 10.108	Promissory Note dated June 12, 2003 between Horizon Huntley LLC and Amster Trading Company (27)
Exhibit 10.109	Horizon Group Properties, Inc. Unaudited Condensed Consolidated Balance Sheet as of May 31, 2003 (28)
Exhibit 10.110	Letter Agreement dated June 11, 2003 between The Prime Group, Inc. and Gary J. Skoien regarding Mr. Skoien’s Net Profits Interest in Huntley (29)
Exhibit 10.111	Agreement of Purchase and Sale dated April 18, 2003 by and between Lakeshore Marketplace, LLC, Monroe Outlet Center, LLC and Ramco-Gershenson Properties, L.P. (30)
Exhibit 10.112	Amendment to Agreement of Purchase and Sale dated June 3, 2003 by and between Lakeshore Marketplace, LLC, Monroe Outlet Center, LLC and Ramco-Gershenson Properties, L.P. (30)
Exhibit 10.113	Consent and Assumption Agreement dated as of August 19, 2003 by and among Lakeshore Marketplace, LLC, Ramco Lakeshore LLC, Lakeshore Marketplace Finance Company, Inc., Horizon Group Properties, L.P., Horizon Group Properties, Inc., Ramco-Gershenson Properties, L.P. and Wells Fargo Bank Minnesota, N.A. (30)
Exhibit 10.114	First Modification Agreement dated August 19, 2003 by and among Monroe Outlet Center, LLC, Horizon Group Properties, Inc., Horizon Group Properties, L.P. and Beal Bank, S.S.B. (30)
Exhibit 10.115	Fifth Modification Agreement dated August 19, 2003 by and among Huntley Development Limited Partnership, Horizon Group Properties, Inc., and Beal Bank, S.S.B. (30)
Exhibit 10.116	Mortgage, Security Agreement, and Assignment of Leases and Rents dated August 19, 2003 by Huntley Development Limited Partnership to and in favor of Beal Bank, S.S.B. (30)
Exhibit 10.117	Assignment of Account and Security Agreement dated August 19, 2003 by and among Beal Bank, S.S.B., Monroe Outlet Center, LLC and Huntley Development Limited Partnership (30)
Exhibit 10.118	Pledge of Proceeds and Security Agreement dated August 19, 2003 by and between Horizon Group Properties, L.P. and Beal Bank, S.S.B. (30)
Exhibit 10.119	Letter Agreement dated November 3, 2003 between Horizon Group Properties, L.P. and Pleasant Lake Apts. Limited Partnership (32)

Exhibit 10.120	Promissory Note dated as of November 3, 2003 by Horizon Group Properties, L.P. to the order of Pleasant Lake Apts. Limited Partnership (32)
Exhibit 10.121	Guaranty of Payment dated as of November 3, 2003 by Horizon Group Properties, Inc. to and for the benefit of Pleasant Lake Apts. Limited Partnership (32)
Exhibit 10.122	Second Amendment to Employment Agreement between Horizon Group Properties, Inc. and Gary J. Skoien dated as of August 19, 2003
Exhibit 10.123	Amendment to Retention Letter between Thomas R. Rumptz and the Company dated September 17, 2003
Exhibit 10.124	Indemnification and Fee Agreement (UBS Loan) dated as of September 3, 2003 between Horizon Group Properties, Inc. and Gary J. Skoien
Exhibit 21	Subsidiaries of the Company
Exhibit 31.1	Certification of Gary J. Skoien, Chairman, Chief Executive Officer and President of Horizon Group Properties, Inc., pursuant to 13a-14(a) under the Securities Exchange Act of 1934 as amended
Exhibit 31.2	Certification of David R. Tinkham, Chief Financial Officer of Horizon Group Properties, Inc., pursuant to 13a-14(a) under the Securities Exchange Act of 1934 as amended
Exhibit 32.1	Certification of Gary J. Skoien, Chairman, Chief Executive Officer and President of Horizon Group Properties, Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.2	Certification of David R. Tinkham, Chief Financial Officer of Horizon Group Properties, Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 99.4	Press release issued by the Company on August 20, 2003 announcing the sale of the power center and adjacent land in Norton Shores, Michigan (29)
Exhibit 99.5	Press release issued by the Company on November 4, 2003 announcing the restructuring of three loans which had been in default since October 2001 (31)
Exhibit 99.10	Updated financial information on the Company’s Annual Report on Form 10-K for the year ended December 31, 2002 (30)

		HORIZON GROUP PROPERTIES, INC.
		Registrant


Date: November 14, 2003		By: /s/ Gary J. Skoien
		Gary J. Skoien, President and
		Chief Executive Officer


Date: November 14, 2003		By: /s/ David R. Tinkham
		David R. Tinkham, Chief Accounting and Chief Financial Officer

Note 8 – Property Dispositions

Note 9 – Discontinued Operations

Inflation

HORIZON GROUP PROPERTIES INC 10-Q