MILLS CORP, 424B2, 1997-03-14

MILLS CORP
424B2, 1997-03-14
REAL ESTATE INVESTMENT TRUSTS

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<PAGE>
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED FEBRUARY 21, 1997)

4,500,000 SHARES

[LOGO]
THE MILLS CORPORATION
COMMON STOCK
------------------

The Mills Corporation (the "Company") is a fully-integrated, self-managed
real estate investment trust (a "REIT") which owns, develops, redevelops, leases
and manages a portfolio currently consisting of five super-regional, value and
entertainment oriented malls (the "Mills") and 11 community shopping centers
(the "Community Centers," and together with the Mills, the "Properties")
containing an aggregate of approximately 10.1 million square feet of gross
leasable area ("GLA"). The Mills comprise the primary focus of the Company's
operations, with approximately 7.9 million square feet of GLA, of which
approximately 900,000 square feet is owned by certain anchor store tenants.

All of the shares of common stock, par value $.01 per share ("Common
Stock"), offered hereby (the "Offering") are being sold by the Company. The
Common Stock is listed on the New York Stock Exchange ("NYSE") under the symbol
"MLS." The last reported sale price of the Common Stock on the NYSE on March 12,
1997 was $24 3/4 per share. As of January 31, 1997, the executive officers and
directors of the Company beneficially owned 8.93% of the Company's outstanding
Common Stock (assuming conversion of all of the outstanding Units (as defined
herein) into Common Stock).

Subject to certain limited exceptions, ownership of more than 5% of the
Common Stock is restricted in order to preserve the Company's status as a REIT
for federal income tax purposes. See "Description of Common Stock--Restrictions
on Transfer; Excess Stock" in the accompanying Prospectus.

SEE "RISK FACTORS" BEGINNING ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A
DISCUSSION OF CERTAIN FACTORS RELEVANT TO AN INVESTMENT IN THE COMMON STOCK.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS
SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------

<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
<S> <C> <C> <C>
Per Share....................................... $24.375 $1.28 $23.095
Total(3)........................................ $109,687,500 $5,760,000 $103,927,500
</TABLE>

(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."

(2) Before deducting expenses payable by the Company estimated at approximately
$950,000.

(3) The Company has granted the several Underwriters an option to purchase up to
an additional 675,000 shares of Common Stock, solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to Public, Underwriting Discount and Proceeds to Company will be
$126,140,625, $6,624,000 and $119,516,625, respectively. See "Underwriting."
------------------------

The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by the Underwriters,
subject to approval of certain legal matters by counsel for the Underwriters and
certain other conditions. The Underwriters reserve the right to withdraw, cancel
or modify such offer and to reject orders in whole or in part. It is expected
that delivery of the shares of Common Stock will be made in New York, New York
on or about March 18, 1997.
------------------------

MERRILL LYNCH & CO.

DEAN WITTER REYNOLDS INC.

LEGG MASON WOOD WALKER INCORPORATED

SALOMON BROTHERS INC
------------------------

THE DATE OF THIS PROSPECTUS SUPPLEMENT IS MARCH 12, 1997.
<PAGE>
[FOUR COLOR ARTWORK SUPPLIES]

IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SHARES OF
COMMON STOCK AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.

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<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS,
INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS OR INCORPORATED HEREIN AND THEREIN BY REFERENCE.
UNLESS INDICATED OTHERWISE, THE INFORMATION CONTAINED IN THIS PROSPECTUS
SUPPLEMENT (I) IS PRESENTED AS OF DECEMBER 31, 1996, (II) WITH RESPECT TO
AGGREGATE INFORMATION CONCERNING THE EXISTING MILLS, EXCLUDES INFORMATION ON
ONTARIO MILLS WHICH OPENED ON NOVEMBER 14, 1996 AND HAS NOT COMPLETED ITS
INITIAL LEASE-UP AND (III) ASSUMES THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION
IS NOT EXERCISED. AS USED HEREIN, THE TERM "COMPANY" INCLUDES THE MILLS
CORPORATION AND ITS DIRECT AND INDIRECT SUBSIDIARIES, INCLUDING THE MILLS
LIMITED PARTNERSHIP (THE "OPERATING PARTNERSHIP"), MANAGEMENT ASSOCIATES LIMITED
PARTNERSHIP (THE "MANAGEMENT PARTNERSHIP") AND MILLSSERVICES CORP. (THE
"THIRD-PARTY SERVICES CORPORATION"), UNLESS THE CONTEXT INDICATES OTHERWISE.
STATISTICAL DATA AND OTHER INFORMATION WITH RESPECT TO SUPER-REGIONAL MALLS ARE
DERIVED FROM THE STUDY PUBLISHED BY THE URBAN LAND INSTITUTE "DOLLARS AND CENTS
OF SHOPPING CENTERS: 1995." THE DEMOGRAPHIC DATA CONTAINED HEREIN ARE FROM URBAN
DECISION SYSTEMS, INC. 1996 ESTIMATES.

THE COMPANY

The Company is a fully-integrated, self-managed real estate investment trust
(a "REIT") which owns, develops, redevelops, leases and manages a portfolio
currently consisting of five super-regional, value and entertainment oriented
malls (the "Mills") and 11 community shopping centers (the "Community Centers,"
and together with the Mills, the "Properties") containing an aggregate of
approximately 10.1 million square feet of gross leasable area ("GLA"). The Mills
comprise the primary focus of the Company's operations, containing approximately
7.9 million square feet of GLA (of which approximately 900,000 square feet is
owned by certain anchor store tenants) and accounting for approximately 83% of
the Company's total rental revenues for the year ended December 31, 1996. The
five existing Mills serve the following metropolitan markets: Washington,
D.C./Baltimore, Philadelphia/Wilmington, Ft. Lauderdale/ Miami/Palm Beach,
Chicago/Milwaukee and Los Angeles. As of December 31, 1996, the Mills were 95%
leased with an average annualized base rent per square foot of leased GLA for
specialty stores of $21.43. Ontario Mills, which opened in November 1996 and has
not completed its initial lease-up, was 90% leased at December 31, 1996, with an
average annualized base rent per square foot of leased GLA for specialty stores
of $22.69. As of December 31, 1996, the Community Centers were 88% leased with
an average annualized base rent per square foot of leased GLA for specialty
stores of $12.95. The Company provides all development, redevelopment, leasing,
financing, management and marketing services with respect to all Properties
currently in operation.

THE LEGEND ON THE FACING PAGE APPLIES PRIOR TO MARCH 4, 1997. ON OR AFTER MARCH
4, 1997, THE FOLLOWING APPLIES:

Certain persons participating in this Offering may engage in transactions
that stabilize, maintain or otherwise affect the price of the Common Stock. Such
transactions may include the purchase of shares of Common Stock prior to the
pricing of the Offering for the purpose of maintaining the price of the Common
Stock, the purchase of shares of Common Stock following the pricing of the
Offering to cover a syndicate short position in the Common Stock or for the
purpose of maintaining the price of the Common Stock, and the imposition of
penalty bids. For a description of these activities, see "Underwriting."

S-3
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centers, while retaining the value orientation that the Company believes is
important to today's retail customer. The Company believes the size, broad
retail selection and entertainment features of a Mills result in a product that
is attractive to, and meets the needs of, today's consumers, as evidenced by the
Mills' superior drawing power. The Company believes a Mills primary trade area
extends for approximately 40 miles, compared to up to 25 miles for the average
super-regional mall, and that the average length of each shopping trip to a
Mills is approximately twice that of a shopping trip to an average super-
regional mall. Further, each Mills attracts an average of approximately 18 to 24
million visitors annually and is one of the top-rated tourist attractions in its
respective metropolitan area.

The Company believes that its appeal to consumers makes the Mills attractive
to tenants as well. At December 31, 1996, approximately 57% of the aggregate
leased GLA of the Mills was comprised of anchor store tenants (defined as any
tenant with over 20,000 square feet of GLA) and approximately 43% was comprised
of specialty store tenants. For the year ended December 31, 1996, the four Mills
that were open the entire year generated $1.5 billion in gross tenant sales and
$307 per square foot in specialty store tenant sales. Specialty store tenants at
the Mills average 3,000 square feet of GLA, and sales for such specialty stores
for the year ended December 31, 1995 were $291 per square foot. This compares to
average specialty store tenant sales of $203 per square foot at super-regional
malls for the year ended December 31, 1995. Occupancy costs for the year ended
December 31, 1995, were 8.0% for the entire Mills portfolio and 12.3% for
specialty stores, compared to the super-regional mall specialty stores average
of 13.5%. The Company believes that its substantial level of multiple tenancy
(including Ontario Mills, 183 tenants are located in more than one Mills)
evidences a high level of tenant satisfaction. See "The Properties."

The Company intends to pursue the development of Mills-type projects in
selected major metropolitan markets and has identified approximately 20
additional markets in the U.S. that could currently support a Mills project. The
most recent Mills development, Ontario Mills in Ontario, California (Los
Angeles) opened in November 1996 on time, under budget and 90% leased. The
Company is presently developing, on a joint venture basis, five other sites to
serve the Dallas/Fort Worth, Phoenix, Los Angeles/ Orange County, Houston and
New York City/Northern New Jersey metropolitan markets. Two of these sites
(Grapevine Mills serving the Dallas/Fort Worth metropolitan market and Arizona
Mills serving the Phoenix metropolitan market) are under construction and
scheduled to open in the fourth quarter of 1997. The Company believes that the
success of the existing Mills has led to an ability to generate significant
tenant commitments for space under development. At February 11, 1997, Grapevine
Mills was approximately 55% pre-leased including anchor store tenant commitments
and Arizona Mills was approximately 62% pre-leased including anchor store tenant
commitments. The remaining three sites are in the early stages of the
development process. In addition, the Company is exploring the feasibility of
developing additional Mills-type projects in selected international major
metropolitan markets as a long-term growth strategy. The Company is also
planning on expanding Potomac Mills (Washington D.C./Baltimore), Sawgrass Mills
(Ft. Lauderdale/Miami/Palm Beach) and Gurnee Mills (Chicago/Milwaukee) and
remerchandising Gurnee Mills and Franklin Mills (Philadelphia/Wilmington) in
order to create new entertainment zones and, where appropriate, to upgrade the
tenant mix. The low cost, flexible design structure of the Mills allows the
Company to modify physical attributes in order to respond to changing retail
trends at a relatively low cost. See "The Company's Strategies."

Over the last two years, the Company formed joint ventures to finance the
development of certain Mills projects. The Company has established certain joint
ventures with Kan Am U.S., Inc. ("Kan Am"), an affiliate of the Company which
beneficially owns approximately 39.9% of the outstanding Units (as defined
herein) in the Operating Partnership, Simon-DeBartolo Group, Inc. ("Simon") and
Taubman Realty Group Limited Partnership ("Taubman") and has reached an
agreement in principle to form one or more such joint ventures with Cambridge
Shopping Centres Ltd. of Canada ("Cambridge"). While the Company has utilized
such joint ventures in the past, the Company may or may not continue to use
joint ventures in the future as a financing vehicle except when required under
the terms of the Simon Agreement (as defined herein). See "The Company's
Strategies--Simon Agreement." In addition, the

S-4
<PAGE>
Company is negotiating an agreement, subject to shareholder approval, with Kan
Am to provide the Company with approximately $50 million in preferred equity
capital on terms the Company believes would be attractive. There can be no
assurance that any such agreement will be entered into or that shareholder
approval will be obtained.

The Company is the sole general partner of, and holds 50.9% of the
partnership interests ("Units") in, the Operating Partnership. Units (other than
those owned by the Company) are exchangeable under certain circumstances for
Common Stock or cash, at the option of the Company. As the sole general partner
of the Operating Partnership, the Company has the exclusive power to manage and
conduct the business of the Operating Partnership, subject to certain limited
exceptions. The Operating Partnership either holds title to the Properties or
directly or indirectly holds 100% of the general and limited partnership
interests in the property partnerships that own each of the Properties (the
"Property Partnerships"), except for the Property Partnerships that own Franklin
Mills and Ontario Mills, in which the Operating Partnership holds 77.6% (which
represents 100% of the current income and cash-flow from Franklin Mills) and
50%, respectively, either directly or indirectly, of the partnership interests.
See "The Properties--Franklin Mills and --Ontario Mills."

The Company conducts all of its business through the Operating Partnership
and the Operating Partnership's two service subsidiaries: (i) the Management
Partnership, which provides leasing and management services for the Properties
and (ii) the Third-Party Services Corporation, which provides management
services to properties in which the Operating Partnership does not own an
interest and provides development services for the Properties. The Operating
Partnership owns 100% of the interests in the Management Partnership and 99% of
the non-voting preferred stock, representing a 99% economic interest, and 5% of
the voting common stock of the Third-Party Services Corporation.

The Company maintains its executive offices at 1300 Wilson Boulevard, Suite
400, Arlington, Virginia 22209, and its telephone number is (703) 526-5000. At
December 31, 1996, the Company had approximately 900 employees nationwide.

SUMMARY OF THE PROPERTIES

The following table sets forth certain information with respect to the
Properties and the Mills under development as of December 31, 1996:

EXISTING PROPERTIES

<TABLE>
<CAPTION>
1996
SPECIALTY
NO. STORE
APPROX. OF NO. OF SALES
METROPOLITAN YEAR GLA PERCENT ANCHOR SPECIALTY PER SQ.
NAME/LOCATION AREA SERVICED OPENED (SQ. FT.)(1) LEASED(2) STORES(3) STORES FT.
- ------------------------------- ------------------ ------ -------------- -------- ----- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
MILLS
Potomac Mills................ Washington, D.C./ 1985 1,638,863 97% 17 212 $289
Woodbridge, VA Baltimore
Franklin Mills............... Philadelphia/ 1989 1,762,226 93% 18 207 254
Philadelphia, PA Wilmington
Sawgrass Mills............... Fort Lauderdale/ 1990 1,878,409 97% 21 235 407
Sunrise, FL Miami/Palm Beach
Gurnee Mills................. Chicago/Milwaukee 1991 1,467,614 93% 14 204 252
Gurnee, IL
Ontario Mills(4)............. Los Angeles 1996 1,196,721(5) 90% 14 160 N/A
Ontario, CA
-------------- ----- -------
MILLS TOTALS/WEIGHTED AVERAGES............... 7,943,833 95%(6) 84 1,018 $307
-------------- ----- -------
-------------- ----- -------
COMMUNITY CENTERS (11 CENTERS)..................... 2,203,787 88% 30 233 $184
</TABLE>

S-5
<PAGE>
MILLS UNDER DEVELOPMENT

<TABLE>
<CAPTION>
ACTUAL/ ESTIMATED ANCHOR
ANTICIPATED ANTICIPATED APPROX. AGGREGATE STORE
METROPOLITAN CONSTRUCTION START OPENING GLA COMPANY PROJECT TENANT
NAME/LOCATION AREA SERVED DATE(7) DATE(7) (SQ. FT.)(1) OWNERSHIP COST(8) COMMITMENTS
- ----------------------- --------------- ------------------ ----------- ---------------- --------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN MILLIONS)
Grapevine Mills........ Dallas/Fort 3rd Q '96 4th Q '97 1,500,000 37.5% $203 15
Grapevine, TX Worth
Arizona Mills.......... Phoenix 3rd Q '96 4th Q '97 1,200,000 36.8% $183 12
Tempe, AZ
Mills City at Orange... Los Angeles/ 2nd Q '97 4th Q '98 800,000 50.0% $167 3
Orange, CA Orange County
Houston Mills.......... Houston 1998 1999 1,600,000 (9) (9) N/A(10)
Houston, TX
Meadowlands Mills...... New York City/ (9) (9) 10
Carlstadt, NJ Northern 1998 1999 2,100,000
New Jersey
</TABLE>

- ------------------------

(1) Includes space owned by certain anchor store tenants as follows: Potomac
Mills--80,000 square feet of GLA; Franklin Mills-- 208,602 square feet of
GLA; Sawgrass Mills--281,774 square feet of GLA; Gurnee Mills--219,571
square feet of GLA and Ontario Mills--125,000 square feet of GLA. For the
Mills under development, approximate GLA includes space that may be owned by
certain anchor store tenants.

(2) Percent leased is defined as all space leased and for which rent was being
paid as of December 31, 1996 excluding tenants with leases having a term of
less than one year.

(3) Includes the tenant-owned anchor stores described in footnote (1) above.

(4) Ontario Mills is owned by a joint venture among the Operating Partnership
(50%), Kan Am (25%) and Simon (25%).

(5) Ontario Mills, upon completion of space for eight anchor store tenants
containing approximately 500,000 square feet of GLA, will contain
approximately 1.7 million square feet of GLA, including GLA owned by anchor
store tenants.

(6) Excludes Ontario Mills which opened on November 14, 1996 and has not yet
completed its initial lease-up.

(7) Anticipated Construction Start Dates and Opening Dates may be subject to
adjustment as a result of factors inherent in the development process, some
of which may not be under the direct control of the Company.

(8) Estimated Aggregate Project Costs as of December 31, 1996 are based on the
Company's best estimate of the underlying components, many of which may not
be under the direct control of the Company.

(9) The ownership structure and budgets for these properties have not yet been
determined. See "The Company's Strategies-- Development Strategies."

(10) Leasing activity has not yet commenced for Houston Mills.

S-6
<PAGE>
THE COMPANY'S STRATEGIES

The Company intends to increase its cash flow and the value of its portfolio
through active management of its existing Properties, expansion and
remerchandising of existing Mills and the development of new Mills.

OPERATING STRATEGIES. The Company's operating strategies are to:

- modify and expand existing Mills (including completion of the proposed
expansions of Potomac Mills, Sawgrass Mills and Gurnee Mills and the
remerchandising of Gurnee Mills and Franklin Mills);

- create entertainment zones within existing Mills to attract a greater
volume of consumers seeking a destination shopping and entertainment
experience;

- continue to work with existing and potential tenants to develop new and
innovative retail concepts;

- continue to build brand name recognition for the Mills;

- continue to maintain strong tenant relationships and high occupancy
rates;

- continue to actively market its Properties to consumers; and

- continue to provide active property management services.

DEVELOPMENT STRATEGIES. The Company's development strategies are to:

- develop and open an additional five Mills, with an aggregate of
approximately 7.2 million square feet of GLA, over the next three
years;

- pursue the development of Mills-type projects in selected major
metropolitan markets. The Company has identified approximately 20
additional markets in the U.S. that could currently support a Mills
project; and

- develop Mills-type projects in selected international major
metropolitan markets as a long-term growth strategy.

FINANCING STRATEGIES. The Company's financing strategies are to:

- refinance outstanding mortgage indebtedness on Franklin Mills as part
of the Company's ongoing efforts to reduce its exposure to refinancing
risk and interest rate fluctuations;

- increase the Company's liquidity by negotiating an increase in the Line
of Credit (as defined herein); and

- continue to evaluate joint venture arrangements as a financing
alternative.

RECENT DEVELOPMENTS

- CHARLOTTE PROJECT. On February 21, 1997, the Company and Simon, pursuant
to the Simon Agreement, announced their intention to form a partnership to
acquire and develop an approximately 1.5 million square foot super-regional,
value and entertainment oriented mall on a 135-acre site in Charlotte, North
Carolina.

- FRANKLIN MILLS REFINANCING. The Company has received a proposal from an
affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch") for the refinancing of $165 million of existing mortgage indebtedness
encumbering Franklin Mills. As part of such refinancing, the Company would use
up to $75 million of the proceeds from this Offering to pay off a portion of the
existing mortgage

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<PAGE>
indebtedness. The Company currently anticipates that, if the refinancing is
consummated, it will repay $65 million of the existing indebtedness. See "Use of
Proceeds." The remaining balance of such indebtedness would bear interest at a
fixed rate over seven- or ten-year treasuries, at the option of the Company.
Under certain circumstances, the Company would be able to borrow from Merrill
Lynch some or all of the amount of principal repaid in connection with the
refinancing. However, there can be no assurance that the refinancing will be
consummated or, if consummated, what the terms of such transaction will be.

- POTOMAC MILLS-GURNEE MILLS SECURITIZATION. In December 1996, the Company
completed a $289.9 million refinancing of the existing mortgage indebtness on
Potomac Mills and Gurnee Mills. This refinancing was achieved through a $284
million all-investment grade securitization with a weighted average fixed rate
coupon of 7.02% and an anticipated balloon repayment date in seven years. The
all-in cost (which consists of interest expense and the amortization of all
costs and expenses associated with the related debt over the term of such debt)
of the new debt is 7.22% compared to an all-in cost of 8.21% for the refinanced
debt. The refinanced debt had a variable interest rate which was 6.97% on
December 1, 1996. Under interest rate cap agreements, the maximum variable
interest rate on the refinanced debt was 8.12%. Approximately $151 million of
the refinanced debt was scheduled to have matured in November 1997.

- OPENING OF ONTARIO MILLS--ONTARIO, CALIFORNIA. On November 14, 1996, the
Company opened its most recent project, Ontario Mills, in Ontario, California.
This approximately 1.7 million square foot project (upon completion of space for
eight anchor store tenants containing approximately 500,000 square feet of GLA)
opened on time, under budget and 90% leased. The entertainment zone at Ontario
Mills, which is the prototype for future Mills entertainment zones, currently
includes a 30-screen AMC Theatres, a Virgin Megastore and will include, among
others, American Wilderness Experience and IWERKS, a 3D theater.

THE OFFERING

<TABLE>
<S> <C>
Shares of Common Stock Offered Hereby............. 4,500,000 shares

Shares of Common Stock Outstanding After the
Offering(1)..................................... 21,423,236 shares

Shares of Common Stock and Units Outstanding After
the Offering(2)................................. 37,752,120 shares and Units

Use of Proceeds................................... To repay outstanding indebtedness, including the
Company's Line of Credit and, in connection with a
proposed refinancing, a portion of its mortgage
indebtedness on Franklin Mills and for the
development of additional Mills and expansions and
remerchandising of existing Mills. See "Use of
Proceeds."

New York Stock Exchange Symbol.................... "MLS"
</TABLE>

- ------------------------
(1) Excludes 16,328,884 shares of Common Stock issuable upon the exchange of
outstanding Units, 1,460,504 shares of Common Stock issuable upon the
exercise of outstanding options granted under the Company's 1994 Executive
Equity Incentive Plan, as amended (the "Plan"), and 63,247 shares of
restricted stock that have been granted but not yet issued pursuant to the
Plan.
(2) Includes 16,328,884 shares of Common Stock issuable upon the exchange of
outstanding Units and excludes 1,460,504 shares of Common Stock issuable
upon the exercise of outstanding options granted under the Plan, and 63,247
shares of restricted stock that have been granted but not yet issued
pursuant to the Plan.

S-8
<PAGE>
SUMMARY SELECTED FINANCIAL INFORMATION

The following table sets forth selected consolidated financial data for the
Company for the periods after the Company's initial public offering (the "IPO")
and combined historical financial data of the entities which owned the
Properties and conducted the operations now performed by the Operating
Partnership and its subsidiaries (the "Mills Entities") for the periods prior to
the IPO. The historical financial data should be read in conjunction with the
financial statements and notes thereto included or incorporated by reference
herein and in the accompanying Prospectus and the discussion set forth in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
THE MILLS CORPORATION THE MILLS ENTITIES
---------------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE
FOR THE PERIOD
YEAR ENDED PERIOD JANUARY 1 YEAR ENDED
DECEMBER 31, APRIL 22 TO TO APRIL DECEMBER 31,
-------------------------- DECEMBER 31, 21, ----------------------
1996 1995 1994 1994 1993 1992
------------ ------------ ------------ ----------- ---------- ----------

<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:

Revenues:
Minimum rent........................... $ 94,678 $ 89,839 $ 62,174 $ 25,970 $ 78,134 $ 72,846
Percentage rents....................... 4,216 4,460 2,575 1,366 5,143 4,313
Recoveries from tenants................ 45,761 44,267 28,283 12,611 37,952 33,753
Other revenues......................... 7,616 6,537 3,966 976 2,863 5,091
Fee income............................. 3,639 3,975 2,118 914 3,103 1,843
Interest income........................ 2,850 2,431 1,556 402 1,361 1,609
------------ ------------ ------------ ----------- ---------- ----------
158,760 151,509 100,672 42,239 128,556 119,455
Expenses:
Recoverable from tenants............... 41,308 39,299 26,002 11,578 35,184 34,388
Other operating........................ 6,170 5,231 3,069 3,629 4,460 5,782
General and administrative............. 8,725 7,808 5,272 3,031 6,125 6,083
Interest expense....................... 45,885 43,947 28,349 17,992 60,245 61,561
Depreciation and amortization.......... 39,020 40,815 28,805 10,686 34,670 34,506
------------ ------------ ------------ ----------- ---------- ----------
141,108 137,100 91,497 46,916 140,684 142,320

Other income (expense)................... 1,073 859 (1,881) 478 565 2,589
Equity in earnings of unconsolidated
joint ventures......................... 2,661 -- -- -- -- --
------------ ------------ ------------ ----------- ---------- ----------
Income (loss) before extraordinary items
and minority interest.................. 21,386 15,268 7,294 (4,199) (11,563) (20,276)
Extraordinary gain (loss) on debt
extinguishment......................... (5,301) (419) (5,414) 46 3,225 3,547
Minority interest........................ (7,904) (7,231) (915) -- -- --
------------ ------------ ------------ ----------- ---------- ----------
Net income (loss)........................ $ 8,181 $ 7,618 $ 965 $ (4,153) $ (8,338) $ (16,729)
------------ ------------ ------------ ----------- ---------- ----------
------------ ------------ ------------ ----------- ---------- ----------
Earnings Per Common and Common Equivalent
Share:(1)
Income before extraordinary items........ $ 0.64 $ 0.46 $ 0.22 N/A N/A N/A
Extraordinary loss on debt
extinguishments........................ (0.16) (0.01) (0.16) N/A N/A N/A
------------ ------------ ------------ ----------- ---------- ----------
Net income per common and common
equivalent share....................... $ 0.48 $ 0.45 $ 0.06 N/A N/A N/A
------------ ------------ ------------ ----------- ---------- ----------
------------ ------------ ------------ ----------- ---------- ----------
</TABLE>

S-9
<PAGE>
<TABLE>
<CAPTION>
THE MILLS CORPORATION THE MILLS ENTITIES
------------------------------------ -----------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE
FOR THE PERIOD
YEAR ENDED PERIOD JANUARY 1 YEAR ENDED
DECEMBER 31, APRIL 22 TO TO APRIL DECEMBER 31,
---------------------- DECEMBER 31, 21, ----------------------
1996 1995 1994 1994 1993 1992
---------- ---------- ------------ ----------- ---------- ----------

<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
OTHER DATA:

Cash flow provided by (used in):
Operating activities........................ $ 63,262 $ 61,823 $ 34,095 $ 10,975 $ 16,347 $ (3,519)
Investing activities........................ (67,468) (58,474) (146,613) (3,635) (43,299) 6,791
Financing activities........................ (4,017) (8,856) 116,301 (2,622) 31,712 (5,233)
Funds From Operations(2)...................... 56,250 50,030
Distributions paid per share.................. 1.89 1.89 1.31 N/A N/A N/A
Weighted average common and common equivalent
shares outstanding.......................... 17,009 16,906 16,906 N/A N/A N/A
Weighted average common and common equivalent
shares and Units outstanding................ 33,341 32,964 32,964 N/A N/A N/A

PORTFOLIO DATA:
Total owned GLA at end of period.............. 9,233(3) 8,172 8,116 7,736 7,233
Number of Properties at end of period......... 16 15 15 14 14
<CAPTION>

THE MILLS CORPORATION
------------------------------------
THE MILLS ENTITIES
AS OF DECEMBER 31, AS OF DECEMBER 31,
------------------------------------ -----------------------
1996 1995 1994 1993 1992
---------- ---------- ------------ ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Investment in real estate assets (before
accumulated depreciation)................... $ 947,621 $ 894,265 $ 855,049 $ 760,757 $ 724,823
Total assets.................................. 862,624 853,057 853,889 749,472 731,320
Total mortgages, notes and loans payable...... 730,113 676,435 631,976 780,523 753,756
Minority interest............................. 43,975 66,839 90,466 N/A N/A
Total stockholders' equity/owners'
(deficit)................................... $ 45,525 $ 70,408 $ 95,295 $ (74,540) $ (68,805)
</TABLE>

- ------------------------
(1) Per share data is reflected only for the Company. Per share data is not
relevant for the historical combined financial statements of the Mills
Entities since such financial statements are a combined presentation of
partnerships and corporations. Historical operating results, including net
income, may not be comparable to future operating results because of the
historically greater leverage of the Mills Entities.
(2) The Company generally considers Funds From Operations ("FFO") a widely used
and appropriate measure of performance for an equity REIT which provides a
relevant basis for comparison among REITs. FFO as defined by the National
Association of Real Estate Investment Trusts ("NAREIT") means income (loss)
before minority interest (determined in accordance with generally accepted
accounting principles ("GAAP")), excluding gains (losses) from debt
restructuring and sales of property, plus real estate related depreciation
and amortization and after adjustments for unconsolidated partnerships and
joint ventures. FFO is presented to assist investors in analyzing the
performance of the Company. The Company's method of calculating FFO may be
different from methods used by other REITs and, accordingly, may not be
comparable to such other REITs. FFO (i) does not represent cash flows from
operations as defined by GAAP, (ii) is not indicative of cash available to
fund all cash flow needs and liquidity, including its ability to make
distributions and (iii) should not be considered as an alternative to net
income (as determined in accordance with GAAP) for purposes of evaluating
the Company's operating performance. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Funds From
Operations."

(3) Excludes 125,000 square feet of GLA owned by one anchor store tenant.
Includes Ontario Mills at 1.1 million square feet which, upon completion of
space for eight anchor store tenants, will contain approximately 1.6 million
square feet of owned GLA.

S-10
<PAGE>
CAUTIONARY STATEMENT

Certain matters discussed in this Prospectus Supplement, the accompanying
Prospectus and the information incorporated by reference herein and therein
contain "forward-looking statements" for purposes of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") relating to,
without limitation, future economic performance, plans and objectives of
management for future operations and projections of revenue and other financial
items, demographic projections and federal income tax considerations, which can
be identified by the use of forward-looking terminology such as "may," "will,"
"should," "expect," "anticipate," "estimate" or "continue" or the negative
thereof or other variations thereon or comparable terminology. The cautionary
statements set forth under the caption "Risk Factors" in the accompanying
Prospectus and elsewhere in this Prospectus Supplement, the accompanying
Prospectus and the information incorporated by reference herein and therein
identify important factors with respect to such forward-looking statements
including certain risks and uncertainties, that could cause actual results to
differ materially from those in such forward-looking statements.

S-11
<PAGE>
THE COMPANY

The Company is a fully-integrated, self-managed REIT which owns, develops,
redevelops, leases and manages a portfolio currently consisting of five
super-regional, value and entertainment oriented malls and 11 community shopping
centers, containing an aggregate of approximately 10.1 million square feet of
GLA. The Mills comprise the primary focus of the Company's operations,
containing approximately 7.9 million square feet of GLA (of which approximately
900,000 square feet is owned by certain anchor store tenants) and accounting for
approximately 83% of the Company's total rental revenues for the year ended
December 31, 1996. The five existing Mills serve the following metropolitan
markets: Washington, D.C./ Baltimore, Philadelphia/Wilmington, Ft.
Lauderdale/Miami/Palm Beach, Chicago/Milwaukee and Los Angeles. As of December
31, 1996, the Mills were 95% leased with an average annualized base rent per
square foot of leased GLA for specialty stores of $21.43. Ontario Mills, which
opened in November 1996 and has not completed its initial lease-up, was 90%
leased at December 31, 1996, with an average annualized base rent per square
foot of leased GLA for specialty stores of $22.69. The Community Centers were
88% leased with an average annualized base rent per square foot of leased GLA
for specialty stores of $12.95. The Company provides all development,
redevelopment, leasing, financing, management and marketing services with
respect to all Properties currently in operation.

The Company believes that the Mills concept represents an innovative retail
environment in contrast to more conventional retail formats. At an average of
1.7 million square feet of GLA, a typical Mills project is approximately 70%
larger than the average super-regional mall. In addition, the diverse tenant mix
of a typical Mills, comprised of manufacturer's outlets, department store and
specialty retail store outlets, off-price retailers, catalog outlets, category
killers and entertainment venues, allows for a much broader product offering
than that which is available at either average super-regional malls or outlet
centers, while retaining the value orientation that the Company believes is
important to today's retail customers. The Company believes the size, broad
retail selection and entertainment features of a Mills result in a product that
is attractive to, and meets the needs of, today's consumers, as evidenced by the
Mills' superior drawing power. The Company believes a Mills primary trade area
extends for approximately 40 miles, compared to up to 25 miles for the average
super-regional mall, and that the average length of each shopping trip to a
Mills is approximately twice that of a shopping trip to an average super-
regional mall. Further, each Mills attracts an average of approximately 18 to 24
million visitors annually and is one of the top-rated tourist attractions in its
respective metropolitan area.

The Company believes that its appeal to consumers makes the Mills attractive
to tenants as well. At December 31, 1996, approximately 57% of the aggregate
leased GLA of the Mills was occupied by anchor store tenants (defined as any
tenant with over 20,000 square feet of GLA) and approximately 43% was occupied
by specialty store tenants. For the year ended December 31, 1996, the four Mills
that were open the entire year generated $1.5 billion in gross tenant sales and
$307 per square foot in specialty store tenant sales. Specialty store tenants at
the Mills average 3,000 square feet of GLA and sales for such specialty stores
for the year ended December 31, 1995 were $291 per square foot. This compares to
average specialty store tenant sales of $203 per square foot at super-regional
malls for the year ended December 31, 1995. Occupancy costs for the year ended
December 31, 1995, were 8.0% for the entire Mills portfolio and 12.3% for
specialty stores, compared to the super-regional mall specialty stores average
of 13.5%. The Company believes that its substantial level of multiple tenancy
(including Ontario Mills, 183 tenants are located in more than one Mills)
evidences a high level of tenant satisfaction. See "The Properties."

The Company intends to pursue the development of Mills-type projects in
selected major metropolitan areas and has identified approximately 20 additional
markets in the U.S. that could currently support a Mills project. The most
recent Mills development, Ontario Mills in Ontario, California (Los Angeles)
opened in November 1996 on time, under budget and 90% leased. The Company is
presently developing, on a joint venture basis, five other sites to serve the
Dallas/Fort Worth, Phoenix, Los Angeles/Orange County, Houston and New York
City/Northern New Jersey metropolitan markets. Two of these sites

S-12
<PAGE>
(Grapevine Mills serving the Dallas-Fort Worth metropolitan market and Arizona
Mills serving the Phoenix metropolitan market) are under construction and
scheduled to open in the fourth quarter of 1997. The Company believes that the
success of the existing Mills has led to an ability to generate significant
tenant commitments for space under development. At February 11, 1997, Grapevine
Mills was approximately 55% pre-leased including anchor store tenant commitments
and Arizona Mills was approximately 62% pre-leased including anchor store tenant
commitments. The remaining three sites are in the early stages of the
development process. In addition, the Company is exploring the feasibility of
developing additional Mills-type projects in selected international major
metropolitan markets as a long-term growth strategy. The Company is also
planning on expanding Potomac Mills (Washington D.C./Baltimore), Sawgrass Mills
(Ft. Lauderdale/Miami/Palm Beach) and Gurnee Mills (Chicago/Milwaukee) and
remerchandising Gurnee Mills and Franklin Mills (Philadelphia/Wilmington) in
order to create new entertainment zones and, where appropriate, to upgrade the
tenant mix. The low cost, flexible design structure of the Mills allows the
Company to modify physical attributes in order to respond to changing retail
trends at a relatively low cost. See "The Company's Strategies."

THE MILLS CONCEPT

In the early 1980's, the Company, through its predecessors, created a retail
format that it believed would meet the needs of both consumers and retailers for
the next generation. Though shopping is considered one of America's favorite
pastimes, the Company believes many consumers desire new shopping experiences
and need to be drawn to shopping venues. The Company developed the Mills to meet
the consumer's need for such shopping experiences. By combining elements from
super-regional malls (size and number of tenants), factory outlet centers
(grouping manufacturers together), power centers (combining large-scale
category-dominant and off-price retailers) and entertainment venues (themed
restaurants and food courts, movie theaters and such features as themed
entrances and colorful interiors), the Company has created a distinctive
character for the Mills product. By offering value (i.e., quality merchandise at
affordable prices), selection, convenience and entertainment on a scale
unmatched by traditional retail concepts, the Company believes the Mills
provides all of the critical elements demanded by today's consumers.

The following table highlights certain characteristics of the average Mills
and the average super-regional mall, as of December 31, 1995:

<TABLE>
<CAPTION>
AVERAGE AVERAGE
MILLS SUPER-REGIONAL MALL
----------- -------------------
<S> <C> <C>
Square feet of GLA......................................... 1,700,000 1,000,000
Primary trade area......................................... 40 miles Up to 25 miles
Number of anchors.......................................... 14-21 3-5
Square feet of GLA of specialty stores..................... 641,000 342,000
Sales per square foot of specialty stores.................. $291 $203
Specialty store occupancy costs............................ 12.3% 13.5%
Percent leased............................................. 95% 93%
</TABLE>

- ------------------------

Because the Mills projects integrate several shopping formats, the Company
believes that each of the Mills projects serves as:

- a super-regional mall for the 25 mile area surrounding each Mills. These
customers are the repeat customers characteristic of a traditional
shopping mall. Many of the traditional retailers found in shopping malls
(e.g., Gap, Talbots, Lechters, etc.) are also in the Mills, but in an
off-price outlet format.

S-13
<PAGE>
- a manufacturer outlet mall for the 75 mile area surrounding each Mills. In
a typical Mills, there are over 300,000 square feet of manufacturer's
outlet stores, as compared to the average manufacturer outlet center which
contains approximately 145,000 square feet.

- a destination shopping experience. Many of the Company's tenants represent
destination shopping opportunities in themselves, such as IKEA, Off
5th--Saks Fifth Avenue and The Sports Authority.

- a destination entertainment venue that competes for the leisure time of
the Company's customers. The Company believes entertainment venues such as
AMC Theatres, IWERKS, IMAX 3D Theatres, Sega Gameworks, American
Wilderness Experience and Rainforest Cafe will generate significant
incremental customer traffic.

MILLS PROJECTS ARE VALUE AND ENTERTAINMENT ORIENTED. Each Mills contains
over 200 value oriented retailers offering a broad selection of brand name and
other quality merchandise at significant discounts from prices charged by
traditional department and specialty stores. Unlike most outlet centers, the
significantly greater number of stores operating in Mills projects gives the
consumer the ability to compare prices of similar merchandise, keeping
retailers' prices down. There are seven principal types of tenants which operate
in Mills projects:

- MANUFACTURER'S OUTLETS are owned and operated by manufacturers. These
outlets sell merchandise directly to the consumer, eliminating the
mark-ups of traditional distribution channels. These outlets feature the
same name as the manufacturer and a major selection from each line.
Tenants in this category include Baby Guess-Guess Kids, Bernini's
Off-Rodeo Drive, Calvin Klein, Carter's, The First Choice by Escada,
Jockey, Laura Ashley, Maidenform, Mikasa, Van Heusen and Vanity Fair
Outlet.

- DEPARTMENT STORE OUTLETS are operated by national or regional department
store chains traditionally found in regional malls. They stock excess
inventory and out-of-season merchandise and buy excess merchandise
directly from manufacturers, passing the savings on to consumers in their
outlet stores. Tenants in this category include Off 5th--Saks Fifth
Avenue, Last Call from Neiman Marcus and Nordstrom Rack.

- SPECIALTY RETAIL STORE OUTLETS are operated by nationally and regionally
known specialty retail chains found traditionally in regional malls. These
stores serve as outlets for excess inventory and out-of-season merchandise
of specialty retailers. Tenants in this category include Ann Taylor Loft,
The Gap, J. Crew, Warner Bros., FootLocker, Casual Corner and Cachet.

- OFF-PRICE RETAILERS buy excess inventory from manufacturers of brand-name
goods and sell them at discount prices. Tenants in this category include
Burlington Coat Factory, Marshalls, TJ Maxx, Famous Footwear, Dress Barn
and Payless Shoesource.

- CATALOG OUTLETS are operated by national and regional catalogers and offer
substantial discounts from full-retail prices. The merchandise sold
consists primarily of end-of-season or last season's warehouse goods.
Tenants in this category include J.C. Penney Outlet, Eddie Bauer, Disney
Catalog Outlet, Lillian Vernon and Spiegel Outlet.

- CATEGORY KILLERS typically offer an extensive selection of products in one
defined merchandise category. Tenants in this category include Bed, Bath
and Beyond, IKEA, The Sports Authority and Waccamaw Pottery.

- ENTERTAINMENT VENUES include multiplex theaters (IWERKS, IMAX 3D Theatres
and AMC Theatres), virtual reality game rooms (Sega Gameworks), elaborate
themed-restaurants (Rainforest Cafe, Dave & Busters and American
Wilderness Experience) and participatory retailers which allows consumers
to test the products in a realistic setting (Bass Pro Shops Outdoor
World). Ontario Mills is the prototype for future Mills entertainment
venues and currently includes a 30-screen AMC Theatres and a Virgin
Megastore. Other entertainment concepts scheduled to open at Ontario Mills
in 1997 include Sega Gameworks, Dave & Busters and American Wilderness
Experience.

S-14
<PAGE>
MILLS PROJECTS FOSTER NEW RETAIL CONCEPTS. Mills projects often serve as an
"incubator" for new retail concepts. The Company has worked with retailers that
have done well in traditional retail formats by helping them develop outlet
formats. Saks Fifth Avenue, Neiman Marcus, Ann Taylor and Calvin Klein are
examples of retailers that opened their first outlet stores in the Mills and
have expanded by opening additional outlets in other Mills. Recently, the
Company opened Bernini's first Off Rodeo Drive outlet store at Ontario Mills.
The Mills also serves as a growth vehicle for many traditionally urban retailers
who desire to expand into non-urban markets. As an example, Virgin Megastore
recently opened their first non-urban location at Ontario Mills and Planet
Hollywood has committed to open at Gurnee Mills in 1997.

MILLS PROJECTS ARE FLEXIBLE. Another component of the Mills concept is its
flexibility in store configuration, enabling tenants to change or expand their
stores with minimal capital improvement costs. This approach also gives the
Company the ability to change its tenant mix to adapt to the ever-changing
retail market in a relatively quick and inexpensive manner.

COMPETITIVE ADVANTAGES

The Company continues to develop and refine its approach to retailing in
order to meet the ever changing demands of the retail consumer. As originators
of the concept of super-regional value and entertainment oriented malls, the
Company has what it believes to be significant competitive advantages resulting
from twelve years of developing and redefining the Mills concept. Such
competitive advantages include brand name recognition, advanced product
knowledge of the Mills format, strong tenant relationships and the proven
ability to locate and acquire sites, understand and manage the complexities of
the entitlement process and obtain the substantial financing necessary to
develop such large projects.

THE COMMUNITY CENTERS

The 11 Community Centers contain a total of approximately 2.2 million square
feet of GLA and are located in Florida, Georgia, Illinois, Maryland, New Jersey,
Ohio, Pennsylvania, South Carolina and Virginia. The Community Centers are
open-air shopping centers containing traditional shopping center tenants, such
as grocery, drug, video and greeting card stores, as well as a strong
concentration of national value retailers. Anchor tenants of the Community
Centers include Giant Food, Krogers, Marshalls, Safeway, TJ Maxx and Walgreens.
As of December 31, 1996, the Community Centers were 88% leased with an average
annualized base rent per square foot of leased GLA for specialty stores of
$12.95. The location of the Community Centers near existing Mills allows for
efficiencies in the management of these centers.

GENERAL

On April 21, 1994, the Company consummated an initial public offering (the
"IPO") of 14,380,000 shares of Common Stock. Upon completion of the IPO, the
Company became the sole general partner of the Operating Partnership and
currently owns 50.9% of the outstanding Units in the Operating Partnership. As
the sole general partner of the Operating Partnership, the Company has the
exclusive power to manage and conduct the business of the Operating Partnership,
subject to certain limited exceptions.

The Company conducts all of its business through the Operating Partnership
and the Operating Partnership's various subsidiaries, which include: (i) the
Management Partnership, which provides leasing and management services for the
Properties, and (ii) the Third-Party Services Corporation, which provides
management services to properties in which the Operating Partnership does not
own an interest and provides development services for existing Properties. The
Operating Partnership owns 100% of the interests in the Management Partnership
and 99% of the non-voting preferred stock (representing a 99% economic interest)
and 5% of the voting common stock of the Third-Party Services Corporation.

S-15
<PAGE>
THE COMPANY'S STRATEGIES

OPERATING STRATEGIES

The Company intends to pursue the following operating strategies:

MODIFY AND EXPAND EXISTING MILLS. The Company leases vacant and newly
developed space with a view towards creating the most effective tenant mix and
maximizing rental income. The Company is planning expansions of Potomac Mills,
Sawgrass Mills and Gurnee Mills and is presently in the process of
remerchandising Gurnee Mills and Franklin Mills, at an aggregate cost of
approximately $115 million over the next three years. These expansion and
remerchandising programs will result in new entertainment zones and, where
appropriate, an upgrade of the tenant mix. The Company believes that the new
entertainment zones will complement the Mills and will enhance productivity by
attracting more shoppers and extending the shopping day. The most recent
expansion of Potomac Mills generated an unleveraged return on total cost in
excess of 10% based on net operating income produced by this expansion for the
first calendar year after its opening. The most recent expansion of Sawgrass
Mills generated an unleveraged return on total cost in excess of 10% based on
minimum rent and percentage rents produced by the expansion for the first
calendar year after its opening. For Sawgrass Mills, all operating costs are
fully recoverable from tenants.

POTOMAC MILLS: The Company is planning to add an entertainment zone to
Potomac Mills. The Company anticipates that construction will begin in late 1997
for a late 1998 or early 1999 opening. In anticipation of the expansion, the
Company is upgrading the tenant mix in the corridor near the expansion and is
negotiating to lease expansion space to AMC Theatres and a variety of themed
restaurants and other entertainment oriented tenants.

SAWGRASS MILLS: In November 1995, the Company completed the Phase II
expansion of Sawgrass Mills. This expansion added approximately 136,000 square
feet of GLA, which opened at 100% occupancy. The expansion cost approximately
$24 million and generated an unleveraged return on total cost in excess of 10%
based on minimum rent and percentage rents produced by the expansion for the
first calendar year after its opening. For Sawgrass Mills, all operating costs
are fully recoverable from tenants. In the third quarter of 1998, the Company
expects to open Phase III of Sawgrass Mills to coincide with the opening of the
new Florida Panthers Sports Arena located across the ring road from Sawgrass
Mills. The Phase III expansion will consist of an approximately 270,000 square
foot entertainment zone expected to be anchored by a 30-screen Cobb Theatre. The
Phase III expansion, which is presently in the pre-development stage, will be
owned by a partnership formed by the Operating Partnership (50%) and Kan Am
(50%) in which Kan Am has agreed to fund 100% of the project's initial required
equity, for which Kan Am will receive a 9% annual preferred return. Under the
terms of the partnership agreement, the Company has the right to buy out Kan
Am's interest in this partnership prior to December 30, 1999, at 120% of Kan
Am's capital contributions and accumulated preferred returns under certain terms
and conditions set forth in the partnership agreement. The Company would provide
all development, management and leasing services for the expansion, subject to
the approval of Kan Am of certain major decisions, including a sale or
refinancing of the project and the approval of the development and annual
budgets. The Company would guarantee completion of the expansion within the
parameters of the approved development budget.

GURNEE MILLS: As part of the Gurnee Mills expansion and remerchandising
initiative, the Company expects to expand Gurnee Mills by over 150,000 square
feet of GLA in addition to upgrading the tenant mix. The expansion will feature
a 125,000 square foot Bass Pro Shops Outdoor World upon which

S-16
<PAGE>
construction began in early 1997. In addition, the Company expects to open two
other anchor stores by the end of 1998. In 1996, Rainforest Cafe opened at
Gurnee Mills with annualized sales of approximately $475 per square foot. The
Company has signed a lease with another themed restaurant, Planet Hollywood, to
open in 1997. In addition to these tenants, the Company expects to add
additional entertainment type uses within the existing mall over the next two
years.

FRANKLIN MILLS: The Company began its efforts to remerchandise Franklin
Mills in 1996 by upgrading its tenant mix with such tenants as Tommy Hilfiger,
Brooks Brothers and Nautica. Sales for these tenants have averaged over $600 per
square foot since their openings in April, June and August 1996, respectively.
In addition, the Company has signed leases with DKNY, Talbots, The Gap Outlet
and Polo and has obtained a commitment from General Cinema for an 18-screen
theatre on which the Company expects to begin construction by the second quarter
of 1997. The theatre will be the cornerstone for an entertainment zone that will
include at least two other entertainment concepts, such as themed restaurants
and interactive entertainment venues.

CREATE ENTERTAINMENT ZONES. The Company intends to expand and reconfigure
its first four Mills projects to include new entertainment zones. The
entertainment zone at Ontario Mills, the Company's newest Mills, is the
prototype for future Mills entertainment zones. Such entertainment zones will
include multiplex theaters, virtual reality game rooms, educational
environmental habitats, themed restaurants and participatory retailers in which
the consumer is given the opportunity to test the products in a real-life
setting. Ontario Mills currently includes a 30-screen AMC Theatres and a Virgin
Megastore. Scheduled to open in 1997 are a Sega Gameworks, Dave & Busters and
American Wilderness Experience. Phase III of Sawgrass Mills will include a Cobb
Theatre expanded from 18 to 30 screens. Franklin Mills has a commitment from
General Cinema for an 18-screen theater. Gurnee Mills opened a Rainforest Cafe
in 1996 and plans to open a Planet Hollywood and a Bass Pro Shops Outdoor World
in 1997. The Company believes these entertainment zones will lead to significant
incremental customer traffic at the Mills, extend consumers' shopping day and
lead to the creation of additional destination sites.

WORK WITH TENANTS TO DEVELOP NEW RETAIL CONCEPTS. The Company intends to
continue to work with existing tenants and potential tenants to develop new
retail concepts. This strategy has worked for retailers who have performed well
in traditional retail formats but wanted to develop and expand into the outlet
format. Ann Taylor, Calvin Klein, Neiman Marcus and Saks Fifth Avenue are
examples of retailers that opened their first outlet stores in a Mills and that
later expanded their outlet format in other Mills. Ontario Mills is the site for
Bernini's first Off Rodeo Drive outlet. In addition, the Mills also provide
traditional urban retailers a growth vehicle for expanding into non-urban
markets. Examples include Virgin Megastore, which opened its first non-urban
location in Ontario Mills and Planet Hollywood, which has committed to open at
Gurnee Mills in 1997.

BUILD BRAND NAME RECOGNITION FOR THE MILLS. The Company intends to continue
to build brand name recognition for the Mills. The Company has created brand
name recognition by developing a distinctive retail environment which offers
innovative retail formats, value shopping and entertainment concepts that
attract a wide variety of tenants and consumers. The Company coordinates its
advertising programs to increase brand name recognition in its primary markets
and to attract a high volume of consumers. The Company believes that its brand
name recognition has not been duplicated within the shopping center industry in
any U.S. market.

MAINTAIN STRONG TENANT RELATIONSHIPS. The Company intends to continue to
maintain strong relationships with its existing tenants and high occupancy
rates. The success of this strategy is evidenced by both its high tenant
retention rate, with approximately 77% of expiring specialty store GLA being
renewed upon lease expiration during 1996 and by the existing Mills being 95%
leased as of December 31, 1996. One hundred and eighty-three of the Mills'
tenants have stores located in more than one Mills, including Ontario Mills. Of
the total GLA of each of the five existing Mills (excluding GLA owned by anchor
store tenants), 77% of Gurnee Mills, 67% of Potomac Mills, 67% of Sawgrass
Mills, 62% of Ontario Mills and

S-17
<PAGE>
53% of Franklin Mills consist of tenants common to at least one other Mills. The
Company has generated goodwill among many retailers who commit to future Mills
projects years in advance of their completion. As of February 11, 1997,
Grapevine Mills was approximately 55% pre-leased including nine executed leases
and six lease commitments from anchor store tenants and Arizona Mills was
approximately 62% pre-leased including nine executed leases and three lease
commitments from anchor store tenants.

ACTIVELY MARKET PROPERTIES TO CONSUMERS. The Company intends to continue to
actively market its Properties by formulating marketing plans based on research
and tailored to each specific Property. Such plans include print, radio and
television advertising, public relations, special events and the development of
tour and travel programs. The Company believes that an aggressive marketing
effort allows the Properties to maintain a loyal shopper base and attract new
consumers.

PROVIDE ACTIVE PROPERTY MANAGEMENT SERVICES. The Company intends to
continue to provide pro-active site management. The on-site property management
team controls every aspect of the day-to-day needs of the Mills including
operations, maintenance, security and merchant relations in order to enhance
productivity and profitability. Further, where desirable and possible, such
management team attempts to terminate the leases of under-performing tenants and
renegotiate existing leases to expand, relocate or assemble space for more
productive tenants.

DEVELOPMENT STRATEGIES

The Company's strategic business plan primarily consists of developing and
opening an additional five Mills over the next three years with an aggregate of
approximately 7.2 million square feet of GLA, including finishing construction
on Grapevine Mills and Arizona Mills and developing three additional Mills,
Mills City at Orange, Houston Mills and Meadowlands Mills. The Company also
intends to pursue the development of Mills-type projects in selected
metropolitan markets and has identified approximately 20 additional markets in
the U.S. that could currently support a Mills project. The Company is also
exploring the feasibility of developing additional Mills-type projects in
selected international major metropolitan markets as a long-term growth
strategy. The Company is focused on selected markets, where management believes
population growth exceeds national rates, land is relatively abundant and
development and entitlement processes are comparatively streamlined. Two
projects are currently under construction and scheduled to open in the fourth
quarter of 1997, Grapevine Mills, which will serve the Dallas/Fort Worth
metropolitan market and Arizona Mills, which will serve the Phoenix metropolitan
market. The remaining three sites under development, Mills City at Orange,
Houston Mills and Meadowlands Mills, are in the early stages of development and
are scheduled to open in 1998, 1999 and 1999, respectively.

To finance this rapid growth strategy, the Company has aligned itself with
certain joint venture partners, including Simon and Taubman, and has reached an
agreement in principle for a joint venture with Cambridge. Additionally, the
Company, subject to shareholder approval, is negotiating the terms of an
agreement with Kan Am whereby Kan Am will provide approximately $50 million in
preferred equity capital on what the Company believes would be attractive terms.
There can be no assurance, however, that any such agreement will be entered into
or that shareholder approval will be obtained. The Company believes that these
alliances are very beneficial to the Company for the following reasons: (1) such
joint ventures represent a clear endorsement by the Company's joint venture
partners of the Mills concept and the Company's management, and its development,
leasing and property management capabilities and (2) the joint venture partners
provide the Company with additional sources of equity and additional financial
strength and, as a result, facilitate construction and permanent financing.
Although the Company believes it is now well-positioned to develop future
projects on its own, it will continue to evaluate joint venture arrangements as
a financing alternative. In addition, the Company will develop projects with
Simon when required under the terms of the Simon Agreement. See "--Simon
Agreement." In connection with these joint ventures, the Company receives fees
or reimbursements for its leasing, management, development and financing
services.

S-18
<PAGE>
In addition to the five projects currently under development, the Company or
its joint venture partners control and are conducting due diligence on sites in
Charlotte, North Carolina, Monee, Illinois, Columbus, Ohio and San Francisco,
California, and is exploring many other locations, including Atlanta, Georgia,
Cleveland, Ohio, Baltimore, Maryland, Tampa Bay, Florida, St. Louis, Missouri
and San Diego, California. Furthermore, through its proposed alliance with
Cambridge, the Company plans on beginning development of Mills projects in
Canada. The Company is exploring Toronto, Ontario as the first site to be
developed by this future venture.

MILLS UNDER DEVELOPMENT

<TABLE>
<CAPTION>
ACTUAL/ ESTIMATED
ANTICIPATED AGGREGATE ANCHOR
CONSTRUCTION ANTICIPATED PROJECT STORE
METROPOLITAN START OPENING APPROXIMATE COMPANY COST(3) TENANT
NAME/LOCATION AREA SERVED DATE(1) DATE(1) GLA(2) OWNERSHIP --------------- COMMITMENTS
- ---------------------- ---------------- ------------ ----------- ------------ ------------- (IN MILLIONS) ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Grapevine Mills....... Dallas/Fort 3rd Q '96 4th Q '97 1,500,000 37.5% $203 15
Grapevine, TX Worth
Arizona Mills......... Phoenix 3rd Q '96 4th Q '97 1,200,000 36.8% $183 12
Tempe, AZ
Mills City............ Los Angeles/ 2nd Q '97 4th Q '98 800,000 50.0% $167 3
at Orange Orange County
Orange, CA
Houston Mills......... Houston 1998 1999 1,600,000 (4) (4) N/A(5)
Houston, TX
Meadowlands Mills..... New York City/ 1998 1999 2,100,000 (4) (4) 10
Carlstadt, NJ Northern New
Jersey
</TABLE>

- ------------------------------

(1) Anticipated Construction Start Dates and Opening Dates may be subject to
adjustment as a result of factors inherent in the development process, some
of which may not be under the direct control of the Company.

(2) Approximate GLA includes space that may be owned by certain anchor store
tenants.

(3) Estimated Aggregate Project Cost as of December 31, 1996 is based on the
Company's best estimate of the underlying components, many of which may not
be under the direct control of the Company.

(4) The ownership structure and budgets for these properties have not yet been
determined.

(5) Leasing activity has not yet commenced for Houston Mills.

Following is a description of the five projects currently under development
by the Company.

GRAPEVINE MILLS--GRAPEVINE, TEXAS. Development of Grapevine Mills commenced
in the third quarter of 1996 on a 175-acre site in the City of Grapevine, Texas,
two miles north of the Dallas/Fort Worth Airport. The project is expected to
include approximately 1.5 million square feet of GLA of both retail space and
large entertainment facilities. As of February 11, 1997, Grapevine Mills was
approximately 55% pre-leased, including nine executed leases with anchor store
tenants (Off 5th--Saks Fifth Avenue, Burlington Coat Factory, Bed, Bath and
Beyond, Group USA, Rainforest Cafe, Books-A-Million, Sega Gameworks, American
Wilderness Experience and AMC Theatres) and lease commitments from an additional
six anchor store tenants for a total of approximately 661,000 square feet of GLA
and has executed leases for approximately 157,000 square feet of specialty store
space. As of March 1996, the estimated residential population within a 40-mile
radius of the site was 4.2 million, which is projected to grow to 4.5 million by
the year 2001. Households within the 40-mile radius had a 1996 estimated average
annual household income of $49,234 (compared to a national average of $44,436).

Grapevine Mills is being developed by a limited partnership consisting of
the Operating Partnership (37.5%), Simon (37.5%) and Kan Am (25%). The Company
is providing development, management and leasing services for the project,
subject to the approval of Simon and Kan Am for certain major decisions,

S-19
<PAGE>
such as changes to the plan of development, the annual operating budget for the
project and any proposed sale or refinancing. Kan Am has agreed to contribute
50% of the initial required equity capital. The Operating Partnership and Simon
are responsible for the balance of the initial required equity capital on a pro
rata basis and have agreed to guarantee any project cost overruns not funded by
the initial equity capital and construction financing. The project is expected
to cost a total of $203 million. In July 1996, the venture obtained a commitment
from NationsBank to provide $140 million of construction financing, and expects
this commitment to be increased to $155 million. The loan will have a term of
four years, subject to a one-year extension at the Company's option, and will
bear interest at a rate equal to the 30-day LIBOR ("LIBOR") plus 165 basis
points (subject to reduction to 135 basis points if certain debt service ratios
are achieved). Development costs incurred through December 31, 1996 were
approximately $34 million (net of tax increment financing).

Under the terms of the limited partnership agreement, after the tenth
anniversary of the project's opening, any partner can exercise certain buy-sell
provisions by which the offering partner can require the other partners to sell
to the offering partner their respective interests in the partnership or
alternatively, purchase the interest of the offering partner in the partnership.

ARIZONA MILLS--TEMPE, ARIZONA. Development of Arizona Mills commenced in
the third quarter of 1996 on a 115-acre site located 20 minutes from downtown
Phoenix, at the intersection of Interstate 10 and Superstition Freeway (Highway
60). Anticipated to open in the fourth quarter of 1997, Arizona Mills is
expected to contain approximately 1.2 million square feet of GLA in a
super-regional, value and entertainment oriented mall containing 17 anchors and
over 200 specialty stores. As of February 11, 1997, Arizona Mills was
approximately 62% pre-leased, including anchor store tenant leases with
Burlington Coat Factory, Off 5th--Saks Fifth Avenue, Oshman's, Harkins Cinema,
J.C. Penney, Rainforest Cafe, Group USA, Hi-Health and Sega Gameworks, and
commitments had been obtained from an additional three anchor store tenants for
a total anchor store tenant committment of approximately 553,000 square feet.
The Company has executed leases for approximately 216,000 square feet of GLA for
specialty stores as of February 11, 1997. As of March 1996, the estimated
residential population within a 40-mile radius of the site was 2.6 million which
is projected to grow to 2.9 million by the year 2001. Households within the
40-mile radius had a 1996 estimated average annual household income of $44,735
(compared to a national average of $44,436).

Arizona Mills is being developed by a joint venture consisting of the
Operating Partnership (36.8%), Taubman (36.8%) and Simon (26.4%). The Company is
providing construction management, property management, marketing and leasing
services for the project. Major decisions such as a sale or refinancing of the
project and approval of annual budgets require approval of all joint venture
partners. All joint venture partners are obligated to contribute required equity
capital on a pro rata basis. The project is expected to cost approximately $183
million. In January 1997, the joint venture entered into a $145 million
construction financing loan with United Bank of Switzerland. The loan has a term
of five years and bears interest at a rate equal to LIBOR plus 130 basis points
(subject to reduction to 115 basis points upon obtaining a rating of A- or
better from a nationally recognized rating agency). Development costs through
December 31, 1996 were approximately $54.7 million (net of tax increment
financing).

Under the terms of the joint venture agreement, following the fifth
anniversary of the project's opening (or, if later, the date that 90% of the
project has been leased), if the joint venture partners are unable to agree upon
certain major decisions, any joint venture partner can cause the project to be
sold pursuant to certain required procedures. Upon such a sale, the proceeds
would be distributed to the joint venture partners on a pro rata basis.

MILLS CITY AT ORANGE--ORANGE, CALIFORNIA. Mills City at Orange is proposed
for development on an approximately 85-acre site located at the intersection of
the Santa Ana Freeway (I-10), the Garden Grove Freeway and Orange Freeway
(Highway 57) in the City of Orange, California, three miles from Disneyland.
This project would be developed on the site of an existing shopping center
located in what

S-20
<PAGE>
management believes to be one of the wealthiest areas and strongest retail
markets in the country. The redeveloped Mills-type project will consist of an
approximately 800,000 square foot open air shopping center that will feature a
30-screen AMC Theatres included in approximately 330,000 square feet of
entertainment and dining facilities in addition to upscale value-retail stores.
In addition to AMC Theatres, the Mills has obtained commitments from Off
5th--Saks Fifth Avenue and Borders Books. As of March 1996, the estimated
residential population within a 40-mile radius of the site was 11.7 million,
which is projected to grow to 12.0 million by the year 2001. Households within
the 40-mile radius had a 1996 estimated average annual household income of
$58,031 (as compared to a national average of $44,436).

The Company expects to begin demolition of the existing shopping center in
the first quarter of 1997 and to open the project in the fourth quarter of 1998.
The project is expected to cost approximately $167 million (net of tax increment
financing). Development costs through December 31, 1996 were approximately $9
million.

The project will be owned by a partnership between the Operating Partnership
(50%) and Kan Am (50%). The Company would provide all development, leasing and
management services for the project, subject to the approval of Kan Am for
certain major decisions, including a sale or refinancing of the project and
approval of annual budgets. The Company would guarantee completion of the
project within the parameters of an approved budget. Kan Am has committed to
fund up to $45 million (which represents 100% of the estimated equity required
for this project) after the receipt of construction loan financing in the amount
of $122 million.

Under the terms of the limited partnership agreement, following the tenth
anniversary of the project's opening, either the Operating Partnership or Kan Am
can exercise a buy-sell provision whereby the Operating Partnership, if it is
the offeror, can require Kan Am to transfer its entire interest in the
partnership or Kan Am, if it is the offeror, can require the Operating
Partnership to acquire Kan Am's entire interest in the partnership.

HOUSTON MILLS--HOUSTON, TEXAS. The Company has acquired an option to
acquire a 500-acre site located at the intersection of Katy-Fort Bend Road and
I-10 in Fort Bend and Harris Counties. The approximately 1.6 million square foot
project planned for this site will consist of a combination of specialty
retailers, cinemas and themed restaurants. The Company expects to open this
project in 1999. As of March 1996, the estimated residential population within a
40-mile radius of the site was approximately 3.3 million, which is projected to
grow to 3.6 million by the year 2001. Households within the 40-mile radius had a
1996 estimated average annual household income of approximately $46,273 per year
(compared to a national average of $44,436).

MEADOWLANDS MILLS--CARLSTADT, NEW JERSEY. The Company has acquired a
mortgage interest in a 595-acre site located on the New Jersey Turnpike (I-95)
adjacent to the Meadowlands Sports Complex and approximately five miles from New
York City and has signed certain preliminary agreements with Empire Ltd., the
current owner of the site, concerning the development of Meadowlands Mills. The
approximately 2.1 million square feet project planned for this site will combine
more than 200 specialty retailers, cinemas and themed restaurants. Ogden
Entertainment, DeBartolo Entertainment and Virgin Entertainment Group have
agreed in principle to plan and jointly develop the entertainment component of
the project which will occupy approximately 600,000 square feet. On November 19,
1996, the Company announced commitments from ten anchor store tenants, including
Off 5th--Saks Fifth Avenue, The Sports Authority, Group USA, Off Rodeo Drive and
Rainforest Cafe. The Company currently expects to open the project in 1999. As
of March 1996, the estimated residential population within a 40-mile radius of
the site was approximately 15.5 million, which is projected to remain stable
through the year 2001. Households within the 40-mile radius had a 1996 estimated
average annual household income of $62,146 per year (compared to a national
average of $44,436).

The preliminary agreements with the site owner contemplate that the project
will be developed by a joint venture to be formed among the Operating
Partnership (82%), Empire Ltd. (13%) and Bennett S.

S-21
<PAGE>
Lazare, an individual affiliated with Empire Ltd. (5%). The agreements further
provide that upon receipt of a final fill permit for the project, the site is to
be conveyed to the new joint venture, and the Operating Partnership is to
contribute 75% of its mortgage interest to the new joint venture and is to
receive a credit to its capital account in the amount of $12 million plus
certain other predevelopment costs advanced on behalf of the project. The
preliminary agreements also provide that the interests of the three joint
venture partners may be diluted by as much as 50% if an additional equity
partner is admitted to the joint venture. If all other permits required to
develop the shopping center shall not have been obtained within two years
following the receipt of the final fill permit, then the Operating Partnership
shall have the right to sell the site, subject to certain buy/sell provisions.

SIMON AGREEMENT. The Operating Partnership entered into an agreement with
Simon pursuant to which Simon and the Operating Partnership have agreed to
examine the feasibility of joint development and ownership of Mills-type
shopping centers in various metropolitan markets (the "Simon Agreement"). The
Simon Agreement provides, generally, that Simon and the Operating Partnership
would hold equal interests in each joint venture entity and contribute needed
capital on a pro rata basis. Three joint ventures have been formed as of
February 21, 1997 in connection with the development of Ontario Mills, Grapevine
Mills and Arizona Mills and the parties have announced their intention to form a
new joint venture in connection with the development of a site in Charlotte,
North Carolina. The Operating Partnership generally acts as the managing member
or managing general partner, as the case may be, of each entity. Primary
responsibility for the development, management and leasing of each joint venture
project formed as of the date hereof has been undertaken by the Operating
Partnership. The Simon Agreement restricts Simon until December 2003 from
competing with the Operating Partnership by developing or acquiring Mills-type
projects, and places additional restrictions on Simon's ability to hire
employees of the Operating Partnership or its affiliates and to acquire stock in
the Company above certain specified levels. In addition, the Operating
Partnership has agreed that until December 2003 it will not develop a Mills-type
shopping center within certain designated metropolitan areas without affording
Simon a first right to jointly develop such project.

FINANCING STRATEGIES

The Company intends to continue to reduce its exposure to refinancing risk
and interest rate fluctuations. Prior to the Potomac Mills--Gurnee Mills
securitization (at December 1, 1996), the Company's debt portfolio consisted of
48.3% variable rate debt ($349.0 million), most of which was subject to tiered
caps, and the portfolio had a weighted average maturity of 2.5 years. Following
this refinancing (at December 31, 1996), only 10% of the Company's debt
portfolio, or $72 million, was variable rate debt, and the weighted average
maturity of the debt portfolio was extended to 4.5 years. In addition, the
Company expects to refinance the $165 million mortgage on Franklin Mills in the
first half of 1997, extending its maturity through a fixed rate securitization.
The Company has also taken steps to increase its liquidity. In October 1996, the
Company obtained a $40 million line of credit from Credit Suisse First Boston
for the purpose of funding development activities and general working capital
(the "Line of Credit") which has a variable interest rate equal to LIBOR plus
300 basis points and matures on October 31, 1998 (with an option for a one-year
extension). The Company expects to increase the size of the Line of Credit in
the second quarter of 1997. Through its refinancing efforts and the Offering,
the Company will have significantly improved its balance sheet by lowering the
Company's leverage, extending debt maturities and fixing interest rates.

Over the last two years, the Company formed joint ventures to finance the
development of certain Mills projects. The Company has established certain joint
ventures with Kan Am, Simon and Taubman and has reached an agreement in
principle to form one or more such joint ventures with Cambridge. While the
Company has utilized such joint ventures in the past, the Company may or may not
continue to use joint ventures in the future as a financing vehicle, except when
required under the terms of the Simon Agreement. See "Recent Developments."

S-22
<PAGE>
RECENT DEVELOPMENTS

CHARLOTTE PROJECT

On February 21, 1997, the Company and Simon, pursuant to the Simon
Agreement, announced their intention to form a partnership to acquire and
develop an approximately 1.5 million square foot super-regional, value and
entertainment oriented mall on a 135-acre site in Charlotte, North Carolina.

FRANKLIN MILLS REFINANCING

The Company has received a proposal from an affiliate of Merrill Lynch for
the refinancing of $165 million of existing mortgage indebtedness encumbering
Franklin Mills. As part of such refinancing, the Company would use up to $75
million of the proceeds from this Offering to pay off a portion of the existing
mortgage indebtedness. The Company currently anticipates that, if the
refinancing is consummated, it will repay $65 million of the existing
indebtedness. See "Use of Proceeds." The remaining balance of such indebtedness
would bear interest at a fixed rate over seven- or ten-year treasuries, at the
option of the Company. Under certain circumstances, the Company would be able to
borrow from Merrill Lynch some or all of the amount of principal amounts repaid
in connection with the refinancing. However, there can be no assurance that the
refinancing will be consummated or, if consummated, what the terms of such
transaction will be.

POTOMAC MILLS--GURNEE MILLS SECURITIZATION

In December 1996, the Company completed a $289.9 million refinancing of the
existing mortgage indebtness on Potomac Mills and Gurnee Mills. This refinancing
was achieved through a $284 million all-investment grade securitization with a
weighted average fixed rate coupon of 7.02% and an anticipated balloon repayment
date in seven years. The all-in cost (which consists of interest expense and the
amortization of all costs and expenses associated with the related debt over the
term of such debt) of the new debt is 7.22% compared to an all-in cost of 8.21%
for the refinanced debt. The refinanced debt had a variable interest rate which
was 6.97% on December 1, 1996. Under an interest rate cap agreement, the maximum
variable interest rate on the refinanced debt was 8.12%. Approximately $151
million of the refinanced debt was scheduled to have matured in November 1997.

OPENING OF ONTARIO MILLS

On November 14, 1996, the Company opened its most recent project, Ontario
Mills, in Ontario, California. This approximately 1.7 million square foot
project (upon completion of space for eight anchor store tenants containing
approximately 500,000 square feet of GLA) opened on time, under budget and 90%
leased. The entertainment zone at Ontario Mills, which is the prototype for
future Mills entertainment zones, currently includes a 30-screen AMC Theatres, a
Virgin Megastore and will include, among others, American Wilderness Experience
and IWERKS.

USE OF PROCEEDS

The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby are estimated to be approximately $103.0 million ($118.6 million
if the Underwriters' over-allotment option is exercised in full). The Company
intends to contribute or otherwise transfer the net proceeds of the sale of
shares of Common Stock offered hereby to the Operating Partnership in exchange
for additional Units in the Operating Partnership. The Company intends to use
such funds to pay off the $17.7 million balance under its Line of Credit which
was used to fund development activities, to repay $65 million on its secured
loan on Franklin Mills as part of a proposed refinancing, to fund future
development projects, and to fund expansions and remerchandising of existing
Mills. The Line of Credit matures on October 31, 1998 and bears interest at
LIBOR plus 300 basis points. The Franklin Mills loan matures in December 1998
and bears interest at 7.125% and has an all-in cost of 9.6% including all
interest expense and the amortization

S-23
<PAGE>
of all costs and expenses of the debt over the term of the loan. If the proposed
refinancing of Franklin Mills does not occur, the $65 million will be used to
finance future development projects and to fund expansions and remerchandising
of existing Mills. See "Recent Developments--Franklin Mills Refinancing."
Pending application of the proceeds as described herein, the net proceeds may be
invested in short-term, income-producing investments such as commercial paper,
government securities or money market funds that invest in government
securities.

PRICE RANGE OF COMMON STOCK AND DISTRIBUTION HISTORY

The Company's Common Stock began trading on the New York Stock Exchange
("NYSE") under the symbol "MLS" on April 15, 1994 and the IPO was completed on
April 21, 1994. The following table sets forth the high and low closing sale
prices per share of Common Stock for the periods indicated as reported on the
NYSE and the distributions per share paid by the Company with respect to the
periods noted.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C> <C> <C>
1995:
First Quarter.................................................................. $ 19 5/8 $ 16
Second Quarter................................................................. 20 1/8 15 1/2
Third Quarter.................................................................. 19 7/8 17 7/8
Fourth Quarter................................................................. 18 3/4 16 7/8
1996:
First Quarter.................................................................. $ 18 3/8 $ 16 5/8
Second Quarter................................................................. 18 3/8 17 1/4
Third Quarter.................................................................. 20 5/8 17 5/8
Fourth Quarter................................................................. 24 3/8 19
1997:
First Quarter (through March 12)............................................... $ 26 1/4 $ 22 1/4

<CAPTION>
DISTRIBUTIONS
-------------
<S> <C>
1995:
First Quarter.................................................................. $ .4725
Second Quarter................................................................. .4725
Third Quarter.................................................................. .4725
Fourth Quarter................................................................. .4725
1996:
First Quarter.................................................................. $ .4725
Second Quarter................................................................. .4725
Third Quarter.................................................................. .4725
Fourth Quarter................................................................. .4725
1997:
First Quarter (through March 12)............................................... $ .4725(1)
</TABLE>

- --------------------------
(1) The Board of Directors has set a record date of April 1, 1997 for payment of
the first quarter distribution to the holders of record of Common Stock. It
is anticipated that the purchasers of shares of Common Stock in this
Offering will be entitled to receive such distribution.

The last reported closing sale price on the NYSE on March 12, 1997 was
$24 3/4 per share. As of March 12, 1997, there were 16,923,236 shares of Common
Stock outstanding, held by 508 holders of record.

The Company has made consecutive quarterly distributions since the IPO. The
indicated annual distribution rate is $1.89 per share of Common Stock based on
the first quarter 1997 distribution. A portion of the Company's distribution may
represent a non-taxable return of capital and/or a capital gain dividend.
Approximately 65% of 1996 distributions of $1.89 per share of Common Stock was a
non-taxable return of capital. There were no capital gain dividends in 1996. The
Company's ability to make distributions depends on a number of factors,
including its net cash provided by operating activities, its financial
condition, capital commitments, debt repayment schedules and such other factors
as the Board of Directors deems relevant.

Holders of Common Stock are entitled to receive distributions when, as and
if declared by the Board of Directors out of any funds legally available for
that purpose. The Company, as a REIT, is required to distribute annually to its
shareholders at least 95% of its "real estate investment trust taxable income,"
which, as defined by the relevant tax statutes and regulations, is generally
equivalent to net taxable ordinary income. See "Federal Income Tax
Considerations -- Taxation of the Company" in the accompanying Prospectus.

S-24
<PAGE>
CAPITALIZATION

The following table sets forth the historical capitalization of the Company
as of December 31, 1996, and on an as adjusted basis to give effect to the
completion of the Offering, the proposed Franklin Mills refinancing and the use
of the net proceeds therefrom as described in "Use of Proceeds." The information
set forth in the following table should be read in conjunction with the
financial information and notes thereto included and incorporated by reference
herein and in the accompanying Prospectus, and the discussion set forth in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------
HISTORICAL AS ADJUSTED
----------- -----------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
DEBT:
Mortgages, notes and loans payable(1)................................................. $ 710,430 $ 645,430
Line of Credit(2)..................................................................... 19,683 0
MINORITY INTEREST....................................................................... 43,975 83,295
STOCKHOLDERS' EQUITY:
Common Stock, $.01 par value, 100,000,000 authorized, 16,907,164 shares issued and
outstanding, and 21,407,164 shares, as adjusted, respectively, issued and
outstanding(3)...................................................................... 169 214
Additional paid-in capital.............................................................. 309,813 412,746
Accumulated deficit..................................................................... (264,457) (303,777)
----------- -----------
Total stockholders' equity.......................................................... 45,525 109,183
----------- -----------
TOTAL CAPITALIZATION.................................................................... $ 799,930 $ 837,908
----------- -----------
----------- -----------
</TABLE>

- ------------------------

(1) Excludes the Company's pro rata share of outstanding unconsolidated joint
venture debt, which at December 31, 1996 was $42.4 million (net of tax
increment financing).

(2) As of March 12, 1997, the aggregate outstanding balance under the Line of
Credit was $17.7 million.

(3) Excludes 16,328,884 shares of Common Stock reserved for possible issuance
upon the exchange of outstanding Units, 1,460,504 shares of Common Stock
issuable upon the exercise of outstanding options granted under the Plan and
63,247 shares of restricted stock that have been granted but not yet issued
under the Plan.

S-25
<PAGE>
SELECTED FINANCIAL AND OPERATING INFORMATION

The following table sets forth selected consolidated financial data for the
Company for the periods after the IPO and combined historical financial data of
the entities which owned the Properties and conducted the operations now
performed by the Operating Partnership and its subsidiaries (the "Mills
Entities") for the periods prior to the IPO. The historical financial data
should be read in conjunction with the financial statements and notes thereto
included or incorporated by reference herein and in the accompanying Prospectus
and the discussion set forth in "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
THE MILLS CORPORATION THE MILLS ENTITIES
---------------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE
FOR THE PERIOD
YEAR ENDED PERIOD JANUARY 1 YEAR ENDED DECEMBER
DECEMBER 31, APRIL 22 TO TO APRIL 31,
-------------------------- DECEMBER 31, 21, --------------------
1996 1995 1994 1994 1993 1992
------------ ------------ ------------ ----------- --------- ---------

<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:

Revenues:
Minimum rent............................ $ 94,678 $ 89,839 $ 62,174 $ 25,970 $ 78,134 $ 72,846
Percentage rents........................ 4,216 4,460 2,575 1,366 5,143 4,313
Recoveries from tenants................. 45,761 44,267 28,283 12,611 37,952 33,753
Other revenues.......................... 7,616 6,537 3,966 976 2,863 5,091
Fee income.............................. 3,639 3,975 2,118 914 3,103 1,843
Interest income......................... 2,850 2,431 1,556 402 1,361 1,609
------------ ------------ ------------ ----------- --------- ---------
158,760 151,509 100,672 42,239 128,556 119,455
Expenses:
Recoverable from tenants................ 41,308 39,299 26,002 11,578 35,184 34,388
Other operating......................... 6,170 5,231 3,069 3,629 4,460 5,782
General and administrative.............. 8,725 7,808 5,272 3,031 6,125 6,083
Interest expense........................ 45,885 43,947 28,349 17,992 60,245 61,561
Depreciation and amortization........... 39,020 40,815 28,805 10,686 34,670 34,506
------------ ------------ ------------ ----------- --------- ---------
141,108 137,100 91,497 46,916 140,684 142,320

Other income (expense).................... 1,073 859 (1,881) 478 565 2,589
Equity in earnings of unconsolidated joint
ventures................................ 2,661 -- -- -- -- --
------------ ------------ ------------ ----------- --------- ---------
Income (loss) before extraordinary items
and minority interest................... 21,386 15,268 7,294 (4,199) (11,563) (20,276)
Extraordinary gain (loss) on debt
extinguishment.......................... (5,301) (419) (5,414) 46 3,225 3,547
Minority interest......................... (7,904) (7,231) (915) -- -- --
------------ ------------ ------------ ----------- --------- ---------
Net income (loss)......................... $ 8,181 $ 7,618 $ 965 $ (4,153) $ (8,338) $ (16,729)
------------ ------------ ------------ ----------- --------- ---------
------------ ------------ ------------ ----------- --------- ---------
Earnings Per Common and Common Equivalent
Share(1):
Income before extraordinary items......... $ 0.64 $ 0.46 $ 0.22 N/A N/A N/A
Extraordinary loss on debt
extinguishments......................... (0.16) (0.01) (0.16) N/A N/A N/A
------------ ------------ ------------ ----------- --------- ---------
Net income per common and common
equivalent share........................ $ 0.48 $ 0.45 $ 0.06 N/A N/A N/A
------------ ------------ ------------ ----------- --------- ---------
------------ ------------ ------------ ----------- --------- ---------
</TABLE>

S-26
<PAGE>
<TABLE>
<CAPTION>
THE MILLS CORPORATION THE MILLS ENTITIES
---------------------------------------- ---------------------------------
FOR THE
FOR THE PERIOD
YEAR ENDED PERIOD JANUARY 1 YEAR ENDED DECEMBER
DECEMBER 31, APRIL 22 TO TO APRIL 31,
-------------------------- DECEMBER 31, 21, --------------------
1996 1995 1994 1994 1993 1992
------------ ------------ ------------ ----------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
OTHER DATA:

Cash flow provided by (used in):
Operating activities.................... $ 63,262 $ 61,823 $ 34,095 $ 10,975 $ 16,347 $ (3,519)
Investing activities.................... (67,468) (58,474) (146,613) (3,635) (43,299) 6,791
Financing activities.................... (4,017) (8,856) 116,301 (2,622) 31,712 (5,233)
Funds From Operations(2).................. 56,250 50,030
Distributions paid per share.............. 1.89 1.89 1.31 N/A N/A N/A
Weighted average common and common
equivalent shares outstanding........... 17,009 16,906 16,906 N/A N/A N/A
Weighted average common and common
equivalent shares and Units
outstanding............................. 33,341 32,964 32,964 N/A N/A N/A

PORTFOLIO DATA:

Total owned GLA at end of period.......... 9,233(3) 8,172 8,116 7,736 7,233
Number of Properties at end of period..... 16 15 15 14 14
<CAPTION>

THE MILLS CORPORATION
----------------------------------------
THE MILLS ENTITIES
AS OF DECEMBER 31, AS OF DECEMBER 31,
---------------------------------------- ----------------------
1996 1995 1994 1993 1992
------------ ------------ ------------ ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:

Investment in real estate assets (before
accumulated depreciation)............... $ 947,621 $ 894,265 $ 855,049 $ 760,757 $ 724,823
Total assets.............................. 862,624 853,057 853,889 749,472 731,320
Total mortgages, notes and loans
payable................................. 730,113 676,435 631,976 780,523 753,756
Minority interest......................... 43,975 66,839 90,466 N/A N/A
Total stockholders' equity/owners'
(deficit)............................... $ 45,525 $ 70,408 $ 95,295 $ (74,540) $ (68,805)
</TABLE>

(2) The Company generally considers Funds From Operations ("FFO") a widely used
and appropriate measure of performance for an equity REIT which provides a
relevant basis for comparison among REITs. FFO as defined by NAREIT means
income (loss) before minority interest (determined in accordance with GAAP),
excluding gains (losses) from debt restructuring and sales of property, plus
real estate related depreciation and amortization and after adjustments for
unconsolidated partnerships and joint ventures. FFO is presented to assist
investors in analyzing the performance of the Company. The Company's method
of calculating FFO may be different from methods used by other REITs and,
accordingly, may not be comparable to such other REITs. FFO (i) does not
represent cash flows from operations as defined by GAAP, (ii) is not
indicative of cash available to fund all cash flow needs and liquidity,
including its ability to make distributions and (iii) should not be
considered as an alternative to net income (as determined in accordance with
GAAP) for purposes of evaluating the Company's operating performance. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Funds From Operations."

(3) Excludes 125,000 square feet of GLA owned by one anchor store tenant.
Includes Ontario Mills at 1.1 million square feet of GLA which, upon
completion of space for eight anchor store tenants, will contain
approximately 1.6 million square feet of owned GLA.

S-27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the consolidated financial
condition and results of operations should be read in conjunction with the
Consolidated and Combined Financial Statements and Notes thereto included or
incorporated by reference herein or in the accompanying Prospectus.

The following discussion is based primarily on the consolidated financial
statements of the Company for the years ended December 31, 1996 and 1995, and
for the period April 22, 1994 to December 31, 1994, and the combined financial
statements of the Mills Entities for the period from January 1, 1994 to April
21, 1994. The combined financial statements of the Mills Entities include the
balance sheet data and results of operations of the management and leasing
operations of the Management Partnership, the 15 Property Partnerships that
owned the Properties and certain other affiliated entities, which were
contributed to the Operating Partnership and are now consolidated in the
Company's financial statements. The Mills Entities are considered the
predecessor to the Company, and the combined financial statements do not include
the effects of the IPO. For purposes of the discussion below, the term "Company"
is used to refer to The Mills Corporation, the Operating Partnership and their
subsidiaries, and/or their predecessor, the Mills Entities.

COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO YEAR ENDED DECEMBER 31, 1995

Income before minority interest for the year ended December 31, 1996,
increased by approximately $1.2 million (8.3%) to $16.1 million as compared to
the year ended December 31, 1995. The increase was the result of an increase in
revenues of $7.3 million (4.8%), offset by an increase in expenses of $4.0
million (2.9%), an increase in equity of earnings of unconsolidated joint
ventures of $2.7 million, and an increase in the extraordinary loss on debt
extinguishment of $4.9 million.

REVENUES. Minimum rent for the year ended December 31, 1996, increased
approximately $4.8 million (5.4%) compared to the year ended December 31, 1995.
The increase was primarily due to the expansions of Sawgrass Mills and Liberty
Plaza and higher lease renewal rates across the Properties.

Percentage rents decreased $0.2 million (5.5%) compared to the year ended
December 31, 1995, due to fixed lease escalations in 1996 shifting revenues from
percentage rents to minimum rent and to decreased sales for certain tenants
which pay percentage rents, although aggregate tenant sales have increased over
1995.

Recoveries from tenants for the year ended December 31, 1996, increased
approximately $1.5 million (3.4%) compared to the year ended December 31, 1995.
The increase was due to the expansion of Sawgrass Mills and increases in the
recoverable expenses across the remaining Mills mainly for real estate taxes.

Other revenue for the year ended December 31, 1996, increased $1.1 million
(16.5%) compared to the year ended December 31, 1995. The increase was primarily
due to increased revenues at the Company's pushcart program and in income from
tenants who occupy space on a temporary basis.

Fee income for the year ended December 31, 1996, decreased $0.3 million
(8.5%) compared to the year ended December 31, 1995. The decrease was due
primarily to lower fees earned on the sale of third party peripheral land.

Interest income increased by approximately $0.4 million (17.2%) for the year
ended December 31, 1996, compared to the year ended December 31, 1995. This
increase was primarily due to $0.5 million of interest earned on a note
receivable from an unconsolidated joint venture.

EXPENSES. Recoverable from tenants for the year ended December 31, 1996,
increased approximately $2.0 million (5.1%) compared to the year ended December
31, 1995. The increase was due to the expansion of Sawgrass Mills and increases
across the remaining Mills primarily for real estate taxes and snow removal.

S-28
<PAGE>
Other operating expenses for the year ended December 31, 1996, increased
approximately $0.9 million (18.0%) compared to the year ended December 31, 1995.
This increase was primarily due to an increase in contributions to promotional
programs of $0.8 million, an increase in bad debt of $0.3 million at certain
properties, an increase of $0.3 million for the expansion of the Company's
pushcart program, and an increase of $0.1 million for other taxes at Franklin
Mills. These increases were offset by a decrease in non-recurring legal fees of
$0.7 million at Sawgrass Mills.

General and administrative expenses increased by $0.9 million (11.7%) for
the year ended December 31, 1996, compared to the year ended December 31, 1995.
The increase was due to a $0.5 million legal settlement with a former officer of
the Company and the Company's hiring additional employees in connection with its
projects under development.

Interest expense increased by approximately $1.9 million (4.4%) for the year
ended December 31, 1996, compared to the year ended December 31, 1995. This
increase was primarily due to additional debt associated with the Phase II
expansion of Sawgrass Mills which opened in November 1995, and interest expense
associated with the opening of Ontario Mills in November 1996 that was
capitalized prior to opening.

Depreciation and amortization decreased $1.8 million (4.4%) for the year
ended December 31, 1996, compared to the year ended December 31, 1995. The
decrease was due to a $1.4 million decrease in amortization of loan costs as a
result of refinancing of certain mortgage indebtedness secured by the Community
Centers and a $2.5 million decrease in depreciation relating to assets reaching
the end of their depreciable lives. The decrease is partially offset by a $1.3
million increase in depreciation related to the Phase II expansion of Sawgrass
Mills and a $0.9 million acceleration of amortization of leasing costs at
Liberty Plaza in 1996.

Equity in earnings of unconsolidated joint ventures increased to $2.7
million in 1996 as the Company recognized its equity in the earnings in the
Ontario Mills and Ontario Mills Residual joint ventures, which began operations
in 1996.

The extraordinary loss on debt extinguishment for the year ended December
31, 1996, increased $4.9 million compared to the year ended December 31, 1995.
The 1996 loss was due principally to the write off of unamortized deferred
financing costs as a result of the refinancing of certain mortgage indebtedness
secured by the Community Centers in January 1996 and Gurnee Mills and Potomac
Mills in December 1996.

COMPARISON OF YEAR ENDED DECEMBER 31, 1995 TO YEAR ENDED DECEMBER 31, 1994

The following discussion compares the results of the Company for the year
ended December 31, 1995, to the results of the Company for the period April 22,
1994 to December 31, 1994, combined with the results of the Mills Entities for
the period January 1, 1994 to April 21, 1994. As a result of the IPO, the
Company's capital structure and leverage changed substantially. However, as the
effects of the IPO primarily impact other income and expense, such as interest
expense, the comparison of 1995 to combined 1994 results of operations provides
a reasonable basis for analysis of the results of recurring property operations.
The impact of the IPO on the analysis of other income and expense is noted
below.

Income before minority interest for the year ended December 31, 1995,
increased by approximately $17.1 million to $14.8 million compared to a loss of
$2.3 million for the year ended December 31, 1994. This increase was the result
of an increase in revenues of $8.6 million (6.0%), a decrease in expenses of
$1.3 million, an increase in other income of $2.3 million and a decrease in
extraordinary loss on debt extinguishment of $4.9 million.

REVENUES. Minimum rent for the year ended December 31, 1995, increased by
approximately $1.7 million (1.9%) compared to the year ended December 31, 1994.
This increase was partly due to contractual rent increases and lease renewals.
Additionally, the Company realized a full year of operations in 1995 of

S-29
<PAGE>
two community centers acquired in 1994, resulting in a $1.2 million increase in
rents. These increases were offset by the sale of one community center in 1994,
resulting in a $0.4 million decrease in rents.

Percentage rents increased $0.5 million (13.2%) compared to the year ended
December 31, 1994, due to increased tenant sales in aggregate at the Company's
properties, particularly Sawgrass Mills.

Recoveries from tenants increased approximately $3.4 million (8.3%) for the
year ended December 31, 1995, compared to the year ended December 31, 1994. This
increase was due to a full year of operations of two community centers acquired
in 1994 resulting in a $1.1 million increase, a utility income billing rate
adjustment at Franklin Mills of $0.7 million, the elimination of management
imposed caps at Gurnee Mills and Franklin Mills and overall increases in
recoverable expenses.

Fee income increased by $0.9 million (31.1%) for the year ended December 31,
1995, primarily as a result of development and leasing fees earned from the
Ontario Mills Limited Partnership.

EXPENSES. Recoverable from tenants for the year ended December 31, 1995,
increased approximately $1.7 million (4.6%) compared to the year ended December
31, 1994. This increase was primarily attributable to an increase in real estate
tax expense of $1.7 million at Franklin Mills due to the expiration of a tax
abatement.

Other operating expenses for the year ended December 31, 1995, decreased
approximately $1.5 million (21.9%) compared to the year ended December 31, 1994.
This decrease was primarily due to greater advertising costs in 1994 at Gurnee
Mills of $1.4 million which were funded by contributions to a promotion fund.
Typically, advertising costs are funded solely by tenant contributions.

General and administrative expenses decreased by $0.5 million (6.0%) for the
year ended December 31, 1995, primarily due to non-recurring costs incurred in
1994 combined with cost cutting measures implemented by the Company in 1995.

Interest expense decreased by approximately $2.4 million (5.2%) for the year
ended December 31, 1995, compared to the year ended December 31, 1994. This
decrease was primarily due to lower debt balances in 1995 (and subsequent to the
IPO in 1994) as a result of the application of a substantial portion of the
proceeds of the IPO to reduce outstanding borrowings.

Depreciation and amortization expense increased $1.3 million (3.4%) for the
year ended December 31, 1995, due to the two new community centers acquired in
1994, a step-up in certain asset bases as a result of the acquisition of certain
partnership interests at the time of the IPO and other increases in deferred
assets.

Other income and expense increased approximately $2.3 million (161.2%) for
the year ended December 31, 1995, as compared to the year ended December 31,
1994. The increase was mainly due to a 1994 write-down of Western Crossing to
net realizable value of $3.4 million offset by the decrease in the gain on land
sales of $0.7 million.

Extraordinary loss on debt extinguishment decreased approximately $4.9
million in 1995 due to the paydown of debt associated with the IPO in 1994.

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 1996, the Company's balance of cash and cash equivalents
was $6.3 million, not including its proportionate share of cash held in
partnerships which are not consolidated. In addition to its cash reserves, the
Company had unused availability of $20.3 million on its $40.0 million Line of
Credit (see below).

FINANCING ACTIVITIES. During 1996, the Company completed various financing
and refinancing activities which extended the weighted average remaining term of
the Company's total indebtedness from 3.5

S-30
<PAGE>
years at December 31, 1995 to 4.5 years at December 31, 1996, without increasing
the weighted average interest rate (7.05% at December 31, 1996).

Loans totaling $349.9 million were refinanced during 1996 with the proceeds
of new borrowings totaling $360.0 million. On January 31, 1996, the Company
obtained a $76.0 million permanent mortgage loan secured by nine of the
Community Centers to repay a $60.0 million loan maturing on March 31, 1996. The
permanent mortgage loan bears interest at a fixed rate of 7.16% and matures on
January 31, 2001. On December 17, 1996, the Company completed a $289.9 million
refinancing of the existing mortgage indebtedness on Gurnee Mills and Potomac
Mills. This refinancing was achieved through a $284 million all-investment grade
securitization with a weighted average fixed coupon of 7.02% and an anticipated
balloon repayment due in seven years. The shortfall in this refinancing was
funded through a draw on the Line of Credit. See "Recent Developments--Potomac
Mills--Gurnee Mills Securitization."

During 1996, three credit facilities were completed with Credit Suisse First
Boston, summarized as follows (dollars in thousands):

<TABLE>
<CAPTION>
AMOUNT
TOTAL OUTSTANDING
NATURE OF FACILITY MATURITY INTEREST RATE FACILITY AT 12/31/96
- ------------------------------------------------------- --------- ----------------- ------------ -----------
<S> <C> <C> <C> <C>
Line of Credit......................................... 10/31/98 LIBOR + 3.00% $ 40,000 $ 19,683
Revolving Master Repurchase Agreement.................. Varies LIBOR + 1.25% 10,600 10,556
Secured Term Loan...................................... 7/31/98 LIBOR + 2.35% 12,000 12,000
------------ -----------
$ 62,600 $ 42,239
------------ -----------
------------ -----------
</TABLE>

The amounts available under the Line of Credit are subject to certain
performance measurements and restrictive covenants. The Company was in
compliance with the applicable covenants at December 31, 1996 and anticipates
increasing the availability in 1997 under the facility.

In October 1996, the Company filed a universal shelf registration statement
on Form S-3 for up to $250 million of common stock, preferred stock and common
stock warrants which became effective October 28, 1996. In December 1996, the
Company filed a preliminary proxy statement seeking shareholder approval for up
to $150 million of preferred equity capital from Kan Am. In connection
therewith, the Company is currently negotiating an agreement, subject to such
shareholder approval, with Kan Am to provide the Company (or the Operating
Partnership) with approximately $50 million in preferred equity capital on terms
the Company believes would be attractive. There can be no assurance that any
such agreement will be enterered into or that such shareholder approval will be
obtained.

The Company had consolidated debt of approximately $730.1 million at
December 31, 1996 of which $657.9 million is fixed-rate debt and $72.2 million
is variable-rate debt. Scheduled principal repayments of consolidated
indebtedness over the next four years is $254.8 million, with $475.3 million
thereafter. The Company's pro rata share of unconsolidated joint venture debt at
December 31, 1996 was $42.4 million (net of tax increment financing).

The Company's ratio of debt-to-total market capitalization was approximately
47.9% at December 31, 1996. If the Company's pro-rata share of indebtedness of
all unconsolidated joint venture properties were included, the ratio of
debt-to-total market capitalization would be approximately 49.3%.

DEVELOPMENT, REMERCHANDISING AND EXPANSION. The Company is involved in the
following development, remerchandising and expansion efforts:

Five Mills projects are planned to be completed in the next three years.
Grapevine Mills and Arizona Mills are expected to open in the fourth quarter of
1997. Construction loans and loan commitments, aggregating approximately $285
million (expected to increase to $300 million), equity commitments from the
Company's joint venture partners and the Company's remaining required equity
contribution of approximately $15 million (as of December 31, 1996) are
considered adequate to fund the remaining development efforts for these
projects. The Company expects to obtain its required equity contributions from
external borrowings, potential equity issuances and/or cash flow from operating
activities.

S-31
<PAGE>
Mills City at Orange and Houston Mills are scheduled to open in the fourth
quarter of 1998 and in 1999, respectively. Both projects will be financed
principally with external borrowings, potential preferred and other equity
contributions from Kan Am and/or the potential equity issuances. The Company
anticipates its required future equity requirements for Mills City at Orange and
Houston Mills in the aggregate may total as much as $30 million.

The Company expects to commence construction in 1998 of Meadowlands Mills,
with a targeted opening date in 1999. The Company is currently evaluating its
financing options with respect to this project, including possibly obtaining an
additional partner to provide equity.

In addition to these new Mills, the Company is planning to spend
approximately $115 million on its existing portfolio during the next three years
to complete its expansion and remerchandising programs in each of the Company's
first four Mills. It is anticipated that these projects will be financed with
external borrowings, equity contributions from Kan Am and other potential equity
issuances. See "The Company's Strategies."

CAPITAL RESOURCES. The Company anticipates that its operating expenses,
interest expense on outstanding indebtedness, recurring capital expenditures and
distributions to stockholders in accordance with REIT requirements will be
provided by cash generated from operations, potential ancillary land sales and
borrowings under its Line of Credit.

The Company believes that it will have the capital and access to additional
capital resources sufficient to expand and develop its business in accordance
with its operating, development and financing strategies. See "The Company's
Strategies."

DISTRIBUTIONS. The Company has paid and intends to continue to pay regular
quarterly distributions to its stockholders. Distributions are payable at the
discretion of the Board of Directors and depend on a number of factors,
including net cash provided by operating activities, its financial condition,
capital commitments, debt repayment schedules and such other factors as the
Board of Directors deems relevant.

CASH FLOWS

COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO YEAR ENDED DECEMBER 31,
1995. Net cash provided by operating activities increased $1.4 million, or
2.3%, to $63.2 million for the year ended December 31, 1996 as compared to $61.8
million for the year ended December 31, 1995. Net cash used in investing
activities increased $9.0 million, or 15.4%, to $67.5 million for the year ended
December 31, 1996, as compared to $58.5 million for the year ended December 31,
1995, primarily as a result of capital invested by the Company for real estate
and development assets. Net cash used in financing activities decreased $4.8
million, or 54.6%, to $4.0 million for the year ended December 31, 1996, as
compared to $8.8 million for the year ended December 31, 1995, primarily as a
result of a decrease in net borrowings.

COMPARISON OF YEAR ENDED DECEMBER 31, 1995 TO YEAR ENDED DECEMBER 31,
1994. Net cash provided by operating activities increased $16.8 million, or
37.2% to $61.8 million for the year ended December 31, 1995, as compared to
$45.0 million for the year ended December 31, 1994 primarily due to increased
rental revenues. Net cash used in investing activities decreased $91.8 million,
or 61.1% to $58.4 million for the year ended December 31, 1995 as compared to
$150.2 million for the year ended December 31, 1994, primarily as a result of
decreased expenditures for real estate and development assets. Net cash provided
by financing activities decreased $122.5 million, or 107.8% to $8.8 million for
the year ended December 31, 1995 as compared to $113.7 million for the year
ended December 31, 1994, primarily due to the IPO proceeds in 1994.

FUNDS FROM OPERATIONS

The Company generally considers Funds From Operations ("FFO") a widely used
and appropriate measure of performance for an equity REIT which provides a
relevant basis for comparison among REITs. FFO as defined by NAREIT means income
(loss) before minority interest (determined in accordance with GAAP), excluding
gains (losses) from debt restructuring and sales of property, plus real estate
related

S-32
<PAGE>
depreciation and amortization and after adjustments for unconsolidated
partnerships and joint ventures. FFO is presented to assist investors in
analyzing the performance of the Company. The Company's method of calculating
FFO may be different from methods used by other REITs and, accordingly, may not
be comparable to such other REITs. FFO (i) does not represent cash flows from
operations as defined by GAAP, (ii) is not indicative of cash available to fund
all cash flow needs and liquidity, including its ability to make distributions
and (iii) should not be considered as an alternative to net income (determined
in accordance with GAAP) for purposes of evaluating the Company's operating
performance.

FFO for the year ended December 31, 1996, increased to $56.3 million
compared to $50.0 million for the comparable period in 1995. FFO amounts were
calculated in accordance with NAREIT's definition of FFO as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
<S> <C> <C>
1996 1995
--------- ---------

<CAPTION>
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
FUNDS FROM OPERATIONS CALCULATION(1):
Income before extraordinary item and minority interest................................... $ 21,386 $ 15,268
Adjustments:
Add: Depreciation and amortization of real estate assets............................... 33,501 34,414
Add: Write-off of development costs.................................................... -- 348
Add:Adjustment for real estate depreciation and amortization of unconsolidated
affiliates......................................................................... 561 --
Add: Loss on sale of furniture, fixtures and equipment................................. 802 --
--------- ---------
Funds From Operations.................................................................... $ 56,250 $ 50,030
--------- ---------
--------- ---------
</TABLE>

- ------------------------------

(1) The definition of FFO does not permit the add-back of amortization of loan
costs, including amortization relating to buydown fees and interest rate
caps. The annual amortization related to these items is not a cash expense
to the Company, although it reduces FFO. Potomac Mills and Gurnee Mills were
refinanced in December 1996 under a fixed rate securitization. Accordingly,
the related caps were sold and the amortization on such caps will not recur
in 1997. The impact of these items on the Company's historical effective
interest rate and other relevant information is detailed below (Sawgrass
Mills has no interest rate hedging instruments) (dollars in thousands):

<TABLE>
<CAPTION>
PRIOR TO REFINANCING
--------------------
<S> <C> <C> <C>
POTOMAC GURNEE
FRANKLIN MILLS MILLS MILLS
-------------- --------- ---------
Loan amount................................................. $165,000 $136,000 $151,152
Rate Rate Rate
Deferred cost type.......................................... buydown(1) cap(2) cap(3)
Deferred amount............................................. $17,500 $5,834 $4,632
Current rate................................................ 7.13% 6.28% 7.00%
Effective rate with amortization of cap or buydown.......... 9.43% 7.13% 8.02%
Amortization:
Period.................................................... 4.6 yrs 5 yrs 3 yrs
End date.................................................. Dec-98 Oct-99 Apr-97
Annual amortization......................................... $3,800 $1,167 $1,544

30-day LIBOR at December 16, 1996: 5.75%
</TABLE>

- ------------------------------

(1) On April 21, 1994 (IPO date), the Company paid $17.5 million to reduce the
interest rate on this mortgage to 7.125% from 9.625% and to extend the
maturity date.

(2) On October 19, 1994, the Company paid $5.8 million for an interest rate cap.
Through October 19, 1997, LIBOR is capped at 6.00%, provided LIBOR is below
8.00%. If LIBOR is greater than 8.00%, the LIBOR cap increases to 8.00%.
From October 20, 1997 through October 19, 1999, LIBOR is capped at 8.00%.

(3) On April 21, 1994 (IPO date), the Company paid $4.6 million for an interest
rate cap. Through April 1, 1997, LIBOR is capped at 5.25%, provided LIBOR is
below 7.25%. If LIBOR is 7.25% or above, the LIBOR cap increases to 6.25%.

S-33
<PAGE>
SEASONALITY

The regional shopping center industry is seasonal in nature, with mall
tenant sales peaking in the fourth quarter due to the Christmas season. As a
result, a substantial portion of the percentage rents are not paid until the
fourth quarter. Furthermore, most new lease-up occurs towards the later part of
the year in anticipation of the holiday season and most vacancies occur toward
the beginning of the year. In addition, the majority of the temporary tenants
take occupancy in the fourth quarter. Accordingly, cash flow and occupancy
levels are generally lowest in the first quarter and highest in the fourth
quarter. This seasonality also impacts the quarter-by-quarter results of net
operating income and FFO, although this impact is largely mitigated by accruing
minimum and percentage rents on a straight line basis during the year in
accordance with GAAP.

ECONOMIC TRENDS

Because inflation has remained relatively low during the last three years,
it has had little impact on the operation of the Mills Entities and the Company
during that period. Even in periods of higher inflation, however, tenant leases
provide, in part, a mechanism to help protect the Company. As operating costs
increase, leases permit a pass-through of the common area maintenance and other
operating costs, including real estate taxes and insurance, to the tenants.
Furthermore, most of the leases contain base rent steps and percentage rent
clauses that provide additional rent after a certain minimum sales level is
achieved. These provisions provide some protection to the Company during highly
inflationary periods.

SUMMARY OF OUTSTANDING INDEBTEDNESS

As of December 31, 1996, the Company had outstanding indebtedness in an
aggregate amount of approximately $730.1 million (excluding its pro rata share
of unconsolidated joint venture debt) as set forth below:

<TABLE>
<CAPTION>
EARLIEST
DATE
AT
WHICH
DEBT
PRINCIPAL INTEREST MATURITY ANNUAL DEBT CAN BE
SECURED PROPERTY: BALANCE RATE TYPE ANNUAL INTEREST RATE DATE SERVICE REPAID
- ----------------------- --------- ------------------ --------------------- --------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Potomac Mills/Gurnee
Mills:
Tranche A............ $ 212,000 Fixed 6.905% 12/17/26(1) $14,547 (2)
Tranche B............ 27,000 Fixed 7.021% 12/17/26(1) 1,896 (2)
Tranche C............ 15,000 Fixed 7.235% 12/17/26(1) 1,085 (2)
Tranche D............ 30,000 Fixed 7.701% 12/17/26(1) 2,310 (2)
Franklin Mills and
Liberty Plaza:
Mortgage Loan........ 165,000 Fixed 7.125% 12/01/98 11,756 (3)
Mortgage Loan........ 859 Fixed 4.000% 4/01/09 34 (4)
Sawgrass Mills:
Tranche A............ 115,000 Fixed 6.450% 1/18/01 7,418 (5)
Tranche B............ 10,000 Variable with cap 85 bp over LIBOR(6) 1/18/01 660(7) (5)
Tranche C............ 20,000 Variable with cap 230 bp over LIBOR(6) 1/18/01 1,620(7) (5)
Sawgrass Mills-- Variable 235 bp over LIBOR
Phase II............. 12,000 7/31/98 972(7) (8)
Western Hills.......... 14,949 Fixed 7.625% 1/01/99 1,140 (9)
9 Community Centers.... 74,218 Fixed 7.160% 1/31/01 5,314 (10)
Line of Credit......... 19,683 Variable 300 bp over LIBOR 10/31/98 1,722(7) (11)
Revolving Master
Repurchase Variable 125 bp over LIBOR
Agreement............ 10,556 739(7) (11)
Other.................. 3,848 Fixed 7.0% weighted average 269(7) (12)
--------- -----------
Total.............. $ 730,113 $51,482
--------- -----------
--------- -----------
</TABLE>

S-34
<PAGE>
- ------------------------

(1) This indebtedness is a 30 year amortizing loan with a balloon payment on or
about December 18, 2003. The maturity date of the note is December 17,
2026. Principal repayments are based on the scheduled amortization,
assuming a 7% mortgage loan interest rate, over a 30 year period ending on
December 17, 2006, of the principal amount of the mortgage loan, with the
monthly amortization payments being applied sequentially, beginning with
Tranche A, to reduce the principal balances.

(2) Optional payments of principal are not permitted prior to December 17,
1999. After such date, prepayments, in whole or in part, are permitted upon
at least 15 days notice. In addition, the Company is required to pay a
prepayment penalty equal to the greater of (i) 1% of the remaining
principal balance or (ii) a yield preservation payment. Generally, yield
preservation payments are intended to compensate the lender for the total
amount of interest it would have earned on the indebtedness but for the
repayment, less the amount of interest that the lender could earn if it
invested the repayment amount in United States Treasury obligations or
other similar securities from the date of repayment through the maturity
date of the indebtedness.

(3) Prepayable, in whole but not in part, at any time upon 30 days prior notice
to the lender. If prepaid prior to September 1, 1998 (other than as the
result of a casualty loss or condemnation), the Company is required to pay
a prepayment penalty equal to the greater of (i) 1% of the principal
balance or (ii) a yield preservation payment.

(4) Prepayable, in whole or in part, at any time upon payment of a prepayment
penalty of .05% of the outstanding principal amount.

(5) Optional prepayments of principal on Tranche A of this indebtedness are not
permitted prior to June 20, 2000 other than in connection with certain
casualty or condemnation events occurring with respect to Sawgrass Mills.
On and after such date, Tranche A may be prepaid in full, but not in part,
without any prepayment penalty. Optional prepayments of Tranches B and C of
the indebtedness may be made, in whole or in part, at any time without any
prepayment penalty, but only if payments of interest are current with
respect to each outstanding Tranche and an event of default is not then
continuing.

(6) The loan agreement provides for a cap on LIBOR at 14% for the life of the
loan. LIBOR is capped at 14% for Tranches B and C.

(7) Calculated using 30-day LIBOR at 5.75%, which was the rate at December 16,
1996.

(8) Prepayable, in whole or in part, at any time without prepayment penalty.

(9) Optional prepayments of principal are not permitted, in whole or in part,
prior to December 31, 1996. Thereafter, this indebtedness may be prepaid,
in whole or in part, upon 30 days notice to the lender and the payment of a
prepayment penalty. The penalty percentage due on prepayment at any time
during the first six months after December 1, 1996 is 3% of the outstanding
principal amount. Thereafter, the penalty decreases by 0.5% per six month
period to a minimum of 1.5%. During the last three months of its term, the
indebtedness may be prepaid without penalty.

(10) Prepayable, in whole or in part, at any time, upon 60 days prior notice to
the lender. Only in the case of a partial prepayment is the Company
required to pay a prepayment penalty which would equal the greater of (i)
1% of the principal balance or (ii) a yield preservation payment.

(11) Prepayable, in whole or in part, at any time without prepayment penalty.

(12) Primarily corporate debt with maturities under one year. Prepayable, in
whole or in part, at any time without prepayment penalty.

S-35
<PAGE>
THE PROPERTIES

TENANTS

The following table sets forth certain information with respect to the
Company's ten largest tenants (as measured by 1996 base rent) at December 31,
1996:

<TABLE>
<CAPTION>
PERCENT OF
1996 PERCENT OF NUMBER OF
TENANT BASE RENT TOTAL LEASED GLA STORES
- ----------------------------------------------------------------------- ----------- ----------------- ---------------
<S> <C> <C> <C>
TJ Maxx Group(1)....................................................... 4.7% 6.7% 16
J.C. Penney............................................................ 2.3% 4.7% 4
Spiegel Group(2)....................................................... 1.8% 3.0% 4
Bed, Bath and Beyond................................................... 1.5% 2.0% 3
Melville(3)............................................................ 1.4% 1.1% 10
Levi's................................................................. 1.3% 0.7% 4
Waccamaw Pottery....................................................... 1.3% 3.7% 3
Service Merchandise.................................................... 1.2% 1.8% 3
The Sports Authority................................................... 1.2% 1.4% 3
Off 5th--Saks Fifth Avenue............................................. 1.1% 1.7% 4
--
----------- ------
Total.............................................................. 17.8% 26.8% 54
--
--
----------- ------
----------- ------
</TABLE>

- ------------------------------

(1) Includes TJ Maxx, Marshalls and Hit or Miss.

(2) Includes Spiegel Outlet, Spiegel and Eddie Bauer Outlet.

(3) Includes Toy Works, Linens 'N Things, Footaction, KayBee Toys and Berman's.

THE MILLS

The following tables set forth certain information relating to the Mills as
of December 31, 1996. The Company either holds title to be Properties or
directly or indirectly holds 100% of the general and limited partnership
interests in the Property Partnerships, except for the Property Partnerships
that own Franklin Mills and Ontario Mills, in which the Company holds 77.6%
(which represents 100% of the current income and cash-flow from Franklin Mills)
and 50%, respectively, either directly or indirectly, of the partnership
interests.

S-36
<PAGE>
THE MILLS
<TABLE>
<CAPTION>
GROSS LEASABLE AREA (SQ.
FT.) PERCENT LEASED(3)
YEAR LAND ------------------------ ------------------ TOTAL
COMPLETED/ AREA ANCHOR SPECIALTY TOTAL ANCHOR SPECIALTY PERCENT
PROPERTY EXPANDED (ACRES) STORES(1)(2) STORES GLA(2) STORES STORES LEASED(3)
- --------------- ---------- ------- ------------ --------- --------- ------ --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Potomac Mills 1985/1986 161 1,005,942 632,921 1,638,863 100% 93% 97%
1993
Franklin Mills 1989 170 1,155,303 606,923 1,762,226 100% 83% 93%
Sawgrass Mills 1990 150 1,193,683 684,726 1,878,409 98% 97% 97%
1995
Gurnee Mills 1991 233 827,872 639,742 1,467,614 94% 91% 93%
Ontario Mills 1996 165 684,346 512,375 1,196,721(5) 95% 85% 90%
------- ------------ --------- ---------
Totals/Weighted
Averages 879 4,867,146 3,076,687 7,943,833 98%(7) 91%(7) 95%(7)
------- ------------ --------- ---------
------- ------------ --------- ---------

1996
SALES PER SQ. FT.
NUMBER ------------------
ANNUALIZED OF ANCHOR SPECIALTY
PROPERTY BASE RENT(4) STORES ANCHOR STORE TENANTS STORES STORES
- --------------- ------------ ------ ----------------------------------- ------ ---------
<S> <C> <C> <C> <C> <C>
Potomac Mills $20,103,649 229 AMC Theatres, Books-A-Million, $ 185 $ 289
Burlington Coat Factory*, Daffy
Dan's, Everything Rubbermaid, IKEA,
J.C. Penney Outlet, Linen's N'
Things, Marshalls, Nordstrom Rack,
Off 5th-Saks Fifth Avenue, Outlet
to the Far East, Spiegel Outlet,
Syms, The Sports Authority, TJ Maxx
and Waccamaw Pottery
Franklin Mills 15,471,871 225 Bed, Bath & Beyond, Burlington Coat 182 254
Factory, Filene's Basement, J.C.
Penney Outlet, Last Call from
Neiman Marcus, Marshalls, Nordstrom
Rack, Office Max, Pharmor*, Ports
of the World**, Off 5th-Saks Fifth
Avenue, Sams Wholesale Club*,
Spiegel Outlet, Syms and TJ Maxx
Sawgrass Mills 23,681,050 256 Beall's Outlet Store, Bed, Bath & 329 407
Beyond, Books-A-Million,
BrandsMart, Burlington Coat
Factory, Cobb Theatre, J.C. Penney
Outlet, Last Call from Neiman
Marcus, Loehmanns, Marshalls, Off
5th-Saks Fifth Avenue, Rainforest
Cafe, Service Merchandise*, Spec's
Outlet, Spiegel Outlet, The Sports
Authority, TJ Maxx, Target
Greatland*, VF (Vanity Fair) Outlet
Marketplace* and Waccamaw Pottery
Gurnee Mills 15,094,795 218 Bed, Bath & Beyond, Burlington Coat 151 252
Factory*, J.C. Penney Outlet,
Marcus Theater*, Marshall's, Off
5th-Saks Fifth Avenue, Rainforest
Cafe, Spiegel Outlet, The Sports
Authority, Syms, TJ Maxx, Value
City* and Waccamaw Pottery
Ontario Mills 14,797,592 174 AMC Theatres*, Bed, Bath & Beyond, N/A(6) N/A(6)
Burlington Coat Factory, Foozles,
Group USA, J.C. Penney Outlet,
Marshalls, Mikasa Factory Store,
Off 5th-Saks Fifth Avenue, Off
Rodeo Drive, The Sports Authority,
TJ Maxx, Totally For Kids

Totals/Weighted
Averages $89,148,957 1,102 218 307
------------ ------
------------ ------
</TABLE>

- ------------------------------

* Tenant owns store within the Mills

** Ground Lease
Notes:

(1) Anchor stores include all stores occupying more than 20,000 square feet.

(2) Includes 914,947 square feet of GLA owned by certain anchor store tenants as
follows: Potomac Mills--80,000 square feet of GLA; Franklin Mills--208,602
square feet of GLA; Sawgrass Mills--281,774 square feet of GLA; Gurnee
Mills--219,571 square feet of GLA, and Ontario Mills--125,000 square feet of
GLA.

(3) Percent Leased is defined as all space leased and for which rent was being
paid as of December 31, 1996 excluding tenants with leases having a term of
less than one year.

(4) Annualized Base Rent is the base rent payable in December 1996 multiplied by
12.

(6) 1996 Sales Per Square Foot information is not available for Ontario Mills
which has not completed its initial lease-up.

(7) Excludes Ontario Mills which opened on November 14, 1996 and has not
completed its initial lease-up.

S-37
<PAGE>
The lease expirations, operating trends and rental rates for each Mills
individually and the Community Centers in the aggregate follow this section. The
Operating Trends and Rental Rates tables for existing Mills exclude Ontario
Mills which opened on November 14, 1996 and has not yet completed its initial
lease-up.

EXISTING MILLS LEASE EXPIRATIONS

The following table sets forth scheduled lease expirations during each of
the next ten years and thereafter of leases for stores at the existing Mills
including Ontario Mills in the aggregate, assuming that none of the tenants
exercises available renewal options. At December 31, 1996, the average remaining
lease term was 7.4 years for anchor store tenants and 4.8 years for specialty
store tenants.

<TABLE>
<CAPTION>
NUMBER OF GROSS LEASEABLE AREA
TOTAL ANCHOR STORE --------------------------- ANNUALIZED BASE RENT(1)
NUMBER OF TENANT APPROXIMATE PERCENT -------------------------------------------
LEASES LEASES LEASES GLA OF PERCENT OF AVERAGE
EXPIRING IN: EXPIRING EXPIRING (SQ. FT.) TOTAL AMOUNT TOTAL PER SQ. FT.
- ------------ ------------- ----------------- ------------ ------------- ------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1997........ 125 1 409,657 6% $ 7,607,438 9% $18.57
1998........ 82 3 337,609 5% 6,044,233 7% 17.90
1999........ 96 6 593,676 9% 8,452,596 9% 14.24
2000........ 168 6 754,704 12% 13,443,086 15% 17.81
2001........ 236 7 1,204,207 19% 18,827,758 21% 15.63
2002........ 62 4 304,174 5% 4,886,336 5% 16.06
2003........ 51 9 619,431 10% 6,531,772 7% 10.54
2004........ 22 6 278,702 4% 3,293,205 4% 11.82
2005........ 23 3 322,136 5% 3,418,705 4% 10.61
2006........ 57 10 580,621 9% 8,632,942 10% 14.87
After 2006.. 34 15 1,021,079 16% 8,010,886 9% 7.85
</TABLE>

- ------------------------

(1) Annualized base rent is the base rent payable in December 1996 multiplied by
12.

EXISTING MILLS OPERATING TRENDS

The following table sets forth, for the last three years, certain
information regarding operating trends with respect to the existing Mills in the
aggregate.

<TABLE>
<CAPTION>
MINIMUM RENT PLUS PERCENTAGE RENTS
----------------------------------------------------------------------------------
AVERAGE TOTAL STORES ANCHOR STORES SPECIALTY STORES
PERCENT -------------------------- -------------------------- --------------------------
LEASED (1) TOTAL PER SQ. FT. TOTAL PER SQ. FT. TOTAL PER SQ. FT.
------------- ------------- ----------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1996......................... 94.1% $ 78,313,084 $ 13.97 $ 22,409,034 $ 6.80 $ 55,904,050 $ 24.21
1995......................... 94.7% 74,571,076 13.31 21,809,106 6.57 52,761,970 23.09
1994......................... 95.7% 73,471,573 12.99 21,706,046 6.56 51,765,527 22.08
</TABLE>

- ------------------------

(1) Average percent leased is defined as all space leased and for which rent was
being paid excluding tenants with leases having a term of less than one
year.

S-38
<PAGE>
EXISTING MILLS RENTAL RATES

The following table sets forth, for each of the last three years, the
average base rent per leased square foot of store openings and closings during
the given year with respect to the existing Mills in the aggregate.
<TABLE>
<CAPTION>
ANCHOR STORES
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
STORE OPENINGS STORE CLOSINGS RELEASING SPREAD(1)
DURING YEAR DURING YEAR
---------------------- ---------------------- --------------------

<CAPTION>
AVERAGE AVERAGE
BASE RENT TOTAL BASE RENT TOTAL
PER SQ. FT. SQ. FT. PER SQ. FT. SQ. FT.
----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
1996..... $ 18.54 91,653 $ 12.95 74,453 $ 5.59 43.17%
1995..... 11.00 45,158 8.36 152,790 $ 2.64 31.58%
1994..... 7.46 469,699 5.90 377,949 $ 1.56 26.44%

<CAPTION>
SPECIALTY STORES
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>

STORE OPENINGS STORE CLOSINGS RELEASING SPREAD(1)
DURING YEAR DURING YEAR
---------------------- ------------------------ --------------------
AVERAGE
BASE RENT AVERAGE BASE
PER SQ. TOTAL RENT TOTAL
FT. SQ. FT. PER SQ. FT. SQ. FT.
--------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
1996.....$22.76 290,825 $ 19.97 311,250 $ 2.79 13.97%
1995..... 22.71 318,320 20.38 271,597 $ 2.33 11.43%
1994..... 21.41 250,602 21.34 249,068 $ 0.07 0.33%
</TABLE>

- ------------------------

(1) The releasing spread is calculated as the difference between per square foot
openings and per square foot closings.

POTOMAC MILLS -- WOODBRIDGE, VIRGINIA

Potomac Mills contains approximately 1.6 million square feet of GLA, of
which approximately 80,000 square feet is owned by one anchor store tenant.
Potomac Mills opened in 1985 with a total of approximately 630,000 square feet
of GLA. As a result of customer demand, Potomac Mills was expanded to
approximately 1.2 million square feet of GLA in 1986. The Phase III expansion of
Potomac Mills opened on September 30, 1993 and increased total GLA by
approximately 355,208 square feet. The Company anticipates that construction of
a new entertainment zone will begin in late 1997 with an opening in late 1998 or
early 1999. See "The Company's Strategies--Operating Strategies--Create
Entertainment Zones." Potomac Mills has 17 anchors, including: IKEA, J.C. Penney
Outlet, Waccamaw Pottery, Marshalls, Spiegel Outlet, AMC Theatres, The Sports
Authority, Off 5th--Saks Fifth Avenue, TJ Maxx, Syms and Nordstrom Rack. Potomac
Mills is situated on approximately 161 acres located approximately 20 miles
southwest of Washington, D.C. Potomac Mills is adjacent to Interstate 95, which
serves as one of the transportation backbones of the Washington metropolitan
area. This location strategically positions Potomac Mills between the
Washington/Baltimore metropolitan market to the north and Richmond,
approximately 90 miles to the south. The 1996 estimated residential population
within a 40-mile radius of Potomac Mills is approximately 4.2 million which is
projected to grow to 4.4 million by the year 2001. Households within the 40-mile
radius had a 1996 estimated average annual household income of $66,848 (compared
to a national average of $44,436). The Company owns 100% of Potomac Mills.

POTOMAC MILLS LEASE EXPIRATIONS

<TABLE>
<CAPTION>
NUMBER OF
ANCHOR GROSS LEASABLE AREA
TOTAL STORE --------------------- ANNUALIZED BASE RENT(1)
NUMBER OF TENANT APPROXIMATE PERCENT ------------------------------------
LEASES LEASES LEASES GLA OF PERCENT OF AVERAGE
EXPIRING IN: EXPIRING EXPIRING (SQ. FT.) TOTAL AMOUNT TOTAL PER SQ. FT
- ------------------------------------------ --------- --------- ----------- ------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1997...................................... 25 -- 88,337 6% $1,731,670 9% $19.60
1998...................................... 33 1 115,026 8% 2,600,022 13% 22.60
1999...................................... 24 1 122,696 8% 2,009,180 10% 16.38
2000...................................... 33 1 122,303 8% 2,370,316 12% 19.38
2001...................................... 27 1 98,177 7% 1,928,661 10% 19.64
2002...................................... 14 1 57,702 4% 970,556 5% 16.82
2003...................................... 27 3 181,448 12% 2,637,903 13% 14.54
2004...................................... 8 2 123,422 8% 1,295,836 6% 10.50
2005...................................... 8 2 222,128 14% 1,644,682 8% 7.40
2006...................................... 6 2 225,995 15% 1,839,353 9% 8.14
After 2006................................ 5 2 146,816 10% 1,075,470 5% 7.33
</TABLE>

- ------------------------

(1) Annualized base rent is the base rent payable in December 1996 multiplied by
12.

S-39
<PAGE>
POTOMAC MILLS OPERATING TRENDS

<TABLE>
<CAPTION>
MINIMUM RENT PLUS PERCENTAGE RENTS
---------------------------------------------------------------------------------
TOTAL TOTAL
AVERAGE TOTAL STORES ANCHOR STORES SPECIALTY STORES
PERCENT -------------------------- ------------------------- --------------------------
LEASED(1) TOTAL PER SQ. FT. TOTAL PER SQ. FT. TOTAL PER SQ. FT
----------- ------------- ----------- ------------ ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1996......................... 95.6% $ 20,865,975 $ 14.00 $ 6,142,999 $ 6.76 $ 14,722,976 $ 25.32
1995......................... 96.2% 19,905,334 13.30 5,839,132 6.57 14,066,202 23.14
1994......................... 98.2% 19,840,738 13.00 5,766,085 6.47 14,074,653 22.17
</TABLE>

- ------------------------

(1) Average percent leased is defined as all space leased and for which rent was
being paid excluding tenants with leases having a term of less than one
year.

POTOMAC MILLS RENTAL RATES
<TABLE>
<CAPTION>
ANCHOR STORES
---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
STORE OPENINGS STORE CLOSINGS RELEASING SPREAD(1)
DURING YEAR DURING YEAR
----------------- ----------------- -------------------

<CAPTION>
AVERAGE AVERAGE
BASE BASE
RENT RENT
PER SQ. TOTAL PER SQ. TOTAL
FT. SQ. FT. FT. SQ. FT.
------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
1996... $11.43 33,406 $11.55 15,178 $ (0.12) (1.04%)
1995... 8.74 20,048 8.61 78,572 $ 0.13 1.51%
1994... 10.22 54,494 5.38 40,857 $ 4.84 89.96%

<CAPTION>
SPECIALTY STORES
-------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>

STORE OPENINGS STORE CLOSINGS RELEASING
DURING YEAR DURING YEAR SPREAD(1)
------------------- ----------------- --------------
AVERAGE
AVERAGE BASE
BASE RENT RENT TOTAL
PER SQ. TOTAL PER SQ. SQ.
FT. SQ. FT. FT. FT.
--------- ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
1996... $23.64 83,594 $21.80 66,607 $ 1.84 8.44%
1995... 24.91 49,135 18.89 82,912 $ 6.02 31.87%
1994... 22.06 58,200 20.82 57,859 $ 1.24 5.96%
</TABLE>

- ------------------------

(1) The releasing spread is calculated as the difference between per square foot
openings and per square foot closings.

FRANKLIN MILLS -- PHILADELPHIA, PENNSYLVANIA

Franklin Mills opened in 1989 and contains approximately 1.8 million square
feet of GLA, of which approximately 209,000 square feet is owned by certain
anchor store tenants. The Company began remerchandising Franklin Mills in 1996
by upgrading its tenant mix and plans to begin construction on an entertainment
zone, including themed restaurants and interactive entertainment venues in the
first half of 1997. See "The Company's Strategies--Operating Strategies--Create
Entertainment Zones." Franklin Mills has 18 anchors, including: Bed, Bath &
Beyond, Filene's Basement, Last Call from Neiman Marcus, Marshalls, Nordstrom
Rack, Office Max, Off 5th--Saks Fifth Avenue, Spiegel Outlet, Syms and TJ Maxx.
Franklin Mills features, what the Company believes is, the largest concentration
of outlet retailing in the Delaware Valley. With access from U.S. Highway 1 and
the Pennsylvania Turnpike, Franklin Mills is strategically positioned
approximately 15 miles northeast of Philadelphia's Center City and just west of
Interstate 95, a major thoroughfare serving the greater Philadelphia/Wilmington
metropolitan market. The 1996 estimated residential population within a 40-mile
radius of Franklin Mills is approximately 6.1 million which is projected to grow
to 6.2 million by the year 2001. Households within the 40-mile radius had a 1996
estimated average annual household income of $54,846 (compared to the national
average of $44,436). The Operating Partnership owns 77.6% of the partnership
interests in the partnership that owns Franklin Mills (which represents 100% of
the current income and cash-flow from Franklin Mills) and has signed agreements
to acquire the remaining partnership interests in April 1997, in exchange for
195,295 Units.

S-40
<PAGE>
FRANKLIN MILLS LEASE EXPIRATIONS

<TABLE>
<CAPTION>
NUMBER OF
ANCHOR GROSS LEASABLE AREA
TOTAL STORE --------------------- ANNUALIZED BASE RENT(1)
NUMBER OF TENANT APPROXIMATE PERCENT ---------------------------------------
LEASES LEASES LEASES GLA OF PERCENT OF AVERAGE PER
EXPIRING IN: EXPIRING EXPIRING (SQ. FT.) TOTAL AMOUNT TOTAL SQ. FT.
- ------------------------------------------ --------- --------- ----------- ------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997...................................... 36 -- 117,181 9% $2,108,190 14% $17.90
1998...................................... 11 1 54,689 4% 720,841 5% 13.18
1999...................................... 41 4 362,091 29% 4,082,949 26% 11.28
2000...................................... 28 2 206,163 16% 2,922,832 19% 14.18
2001...................................... 33 1 160,214 13% 2,381,264 15% 14.86
2002...................................... 10 1 51,400 4% 724,403 5% 14.09
2003...................................... 4 2 165,106 13% 886,814 6% 5.37
2004...................................... 4 1 54,556 4% 414,195 2% 7.59
2005...................................... 2 -- 9,803 1% 194,996 1% 19.89
2006...................................... 4 1 49,443 4% 578,561 4% 11.70
After 2006................................ 2 1 36,718 3% 456,826 3% 12.44
</TABLE>

- ------------------------

(1) Annualized base rent is the base rent payable in December 1996 multiplied by
12.

FRANKLIN MILLS OPERATING TRENDS

<TABLE>
<CAPTION>
MINIMUM RENT PLUS PERCENTAGE RENTS
---------------------------------------------------------------------------------
TOTAL TOTAL
AVERAGE TOTAL STORES ANCHOR STORES SPECIALTY STORES
PERCENT -------------------------- ------------------------- --------------------------
LEASED(1) TOTAL PER SQ. FT. TOTAL PER SQ. FT. TOTAL PER SQ. FT.
----------- ------------- ----------- ------------ ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1996.......................... 92.0% $ 16,318,689 $ 11.40 $ 5,291,698 $ 5.67 $ 11,026,991 $ 22.16
1995.......................... 95.5% 16,837,997 11.33 5,401,107 5.69 11,436,890 21.29
1994.......................... 97.0% 17,565,102 11.64 5,485,679 5.78 12,079,423 21.54
</TABLE>

- ------------------------

(1) Average percent leased is defined as all space leased and for which rent was
being paid excluding tenants with leases having a term of less than one
year.

FRANKLIN MILLS RENTAL RATES
<TABLE>
<CAPTION>
ANCHOR STORES
---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
STORE OPENINGS STORE CLOSINGS RELEASING SPREAD(1)
DURING YEAR DURING YEAR
----------------- ----------------- -------------------

<CAPTION>
AVERAGE AVERAGE
BASE BASE
RENT RENT
PER SQ. TOTAL PER SQ. TOTAL
FT. SQ. FT. FT. SQ. FT.
------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
1996... $10.41 18,247 $10.25 20,000 $ 0.16 1.56%
1995... -- -- -- -- -- 0.00%
1994... 6.10 2,471 -- -- $ 6.10 100.00%

<CAPTION>
SPECIALTY STORES
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>

STORE OPENINGS STORE CLOSINGS RELEASING
DURING YEAR DURING YEAR SPREAD(1)
------------------- ------------------- ----------------
AVERAGE
AVERAGE BASE
BASE RENT RENT
PER SQ. TOTAL PER SQ. TOTAL
FT. SQ. FT. FT. SQ. FT.
--------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
1996... $20.08 73,880 $18.61 115,416 $ 1.47 7.90%
1995... 19.49 46,453 21.90 77,713 $(2.41) (11.00%)
1994... 20.74 82,255 21.80 97,245 $(1.06) (4.86%)
</TABLE>

- ------------------------

(1) The releasing spread is calculated as difference between per square foot
openings and per square foot closings.

SAWGRASS MILLS -- SUNRISE, FLORIDA

Sawgrass Mills, which opened in 1990, contains approximately 1.9 million
square feet of GLA, of which approximately 282,000 square feet is owned by
certain anchor store tenants. As a result of customer demand, Sawgrass Mills was
expanded by approximately 136,000 square feet of GLA in 1995. The Company
expects to open a Phase III expansion of Sawgrass Mills in the third quarter of
1998 consisting of an approximately 270,000 square foot entertainment zone. See
"The Company's Strategies--Operating Strategies--Create Entertainment Zones."
Sawgrass Mills has 21 anchors, including: Beall's Outlet Store, Burlington Coat
Factory, Last Call from Neiman Marcus, Loehmanns, Rainforest Cafe, Spiegel
Outlet, The Sports Authority and Waccamaw Pottery. Sawgrass Mills is located in
Florida's "Gold Coast" market

S-41
<PAGE>
approximately 11 miles west of Fort Lauderdale. The site lies adjacent to both
the Sawgrass Expressway and Flamingo Road, between Sunrise and Oakland Park
Boulevards. The entire South Florida region is linked by the road network of the
Sawgrass Expressway, Interstate 75 and Interstate 595, which intersect at an
interchange located less than two miles southwest of Sawgrass Mills. The 1996
estimated residential population within a 40-mile radius of Sawgrass Mills is
approximately 4.1 million which is projected to grow to 4.3 million by the year
2001. Households within the 40-mile radius had a 1996 estimated average annual
household income of $47,069 (compared to the national average of $44,436).

The Company owns 100% of Sawgrass Mills. The Phase III expansion will be
owned by a partnership formed by the Operating Partnership (50%) and Kan Am
(50%) in which Kan Am has agreed to fund 100% of the project's initial required
equity for which Kan Am will receive a 9% annual preferred return. Under the
terms of the partnership agreement, the Company has the right to buy out Kan Am
prior to December 31, 1999 at 120% of Kan Am's equity contributions and
accumulated preferred returns, under certain terms and conditions set forth in
the partnership agreement. The Company would provide all development, management
and leasing services for the expansion, subject to the approval of Kan Am of
certain major decisions, including a sale or refinancing of the project and the
approval of the development and annual budgets. The Company would guarantee
completion of the expansion within the parameters of the approved development
budget.

SAWGRASS MILLS LEASE EXPIRATIONS

<TABLE>
<CAPTION>
NUMBER
OF
TOTAL ANCHOR GROSS LEASABLE AREA ANNUALIZED BASE RENT(1)
NUMBER STORE -------------------- ----------------------------------
OF TENANT APPROXIMATE PERCENT PERCENT
LEASES LEASES LEASES GLA OF OF AVERAGE PER
EXPIRING IN: EXPIRING EXPIRING (SQ. FT.) TOTAL AMOUNT TOTAL SQ. FT.
- ------------------------------- -------- -------- ----------- ------ ---------- ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997........................... 23 1 63,069 4% $1,325,497 6% $21.02
1998........................... 19 -- 56,209 4% 1,247,187 5% 22.19
1999........................... 12 1 46,352 3% 1,008,910 4% 21.77
2000........................... 93 3 391,619 25% 7,427,118 31% 18.97
2001........................... 52 2 295,010 19% 4,650,139 20% 15.76
2002........................... 11 1 46,638 3% 808,960 3% 17.35
2003........................... 7 1 122,393 8% 1,429,659 6% 11.68
2004........................... 7 3 96,340 6% 1,455,729 6% 15.11
2005........................... 10 1 68,718 5% 1,168,472 5% 17.00
2006........................... 5 2 95,966 6% 1,608,068 7% 16.76
After 2006..................... 4 3 264,143 17% 1,551,311 7% 5.87
</TABLE>

- ------------------------------

(1) Annualized base rent is the base rent payable in December 1996 multiplied by
12.

SAWGRASS MILLS OPERATING TRENDS

<TABLE>
<CAPTION>
MINIMUM RENT PLUS PERCENTAGE RENTS
---------------------------------------------------------------------------------
AVERAGE TOTAL STORES TOTAL ANCHOR STORES TOTAL SPECIALTY STORES
PERCENT -------------------------- ------------------------- --------------------------
LEASED (1) TOTAL PER SQ. FT. TOTAL PER SQ. FT. TOTAL PER SQ. FT.
------------- ------------- ----------- ------------ ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1996..................... 97.6% $ 25,787,924 $ 16.55 $ 7,150,346 $ 8.03 $ 18,637,578 $ 27.90
1995..................... 95.3% 22,738,214 15.66 6,670,486 7.68 16,067,728 27.58
1994..................... 94.9% 20,889,138 14.54 6,467,454 7.56 14,421,684 24.83
</TABLE>

- ------------------------------

(1) Average percent leased is defined as all space leased and for which rent was
being paid excluding tenants with leases having a term of less than one
year.

S-42
<PAGE>
SAWGRASS MILLS RENTAL RATES

<TABLE>
<CAPTION>
ANCHOR STORES SPECIALTY STORES
--------------------------------------------------------- -------------------------------------------------------
STORE OPENINGS STORE CLOSINGS RELEASING STORE OPENINGS STORE CLOSINGS RELEASING
DURING YEAR DURING YEAR SPREAD(1) DURING YEAR DURING YEAR SPREAD(1)
------------------- ------------------- --------------- ------------------- ------------------- ------------
AVERAGE AVERAGE AVERAGE AVERAGE
BASE RENT BASE RENT BASE RENT BASE RENT
PER SQ. TOTAL PER SQ. TOTAL PER SQ. TOTAL PER SQ. TOTAL
FT. SQ. FT. FT. SQ. FT. FT. SQ. FT. FT. SQ. FT.
--------- ------- --------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996.......... $26.39 20,000 $14.86 39,275 $11.53 77.59% $29.63 58,904 $22.24 57,770 $7.39 33.23%
1995.......... 12.80 25,110 -- -- $12.80 100.00% 24.58 173,744 23.11 55,108 $1.47 6.36%
1994.......... 7.86 307,486 6.29 251,643 $ 1.57 24.96% 25.55 37,167 20.95 30,785 $4.60 21.96%
</TABLE>

- ------------------------------

(1) The releasing spread is calculated as the difference between per square foot
openings and per square foot closings.

GURNEE MILLS -- GURNEE, ILLINOIS

Gurnee Mills opened in 1991 and contains approximately 1.5 million square
feet of GLA, of which approximately 220,000 square feet is owned by certain
anchor store tenants. The Company began construction of an expansion of over
150,000 square feet of GLA of Gurnee Mills to add entertainment venues to the
existing mall and is also remerchandising the project which the Company expects
will upgrade the tenant mix at Gurnee Mills. See "The Company's
Strategies--Operating Strategies--Create Entertainment Zones." Gurnee Mills has
14 anchors, including: J.C. Penney Outlet, Waccamaw Pottery, Marshalls, Spiegel
Outlet, Bed Bath & Beyond, The Sports Authority, Off 5th--Saks Fifth Avenue, TJ
Maxx and Syms. Gurnee Mills is located adjacent to Interstate 94, the major
north/south thoroughfare linking Chicago and Milwaukee. Gurnee Mills is clearly
visible from Interstate 94 and is situated directly across from Six Flags Great
America, one of the largest amusement parks in the Midwest. The 1996 estimated
residential population within a 40-mile radius of Gurnee Mills is approximately
5.3 million which is projected to grow to 5.5 million by the year 2001.
Households within the 40-mile radius had a 1996 estimated average annual
household income of $55,790 (compared to the national average of $44,436). The
Company owns 100% of Gurnee Mills.

GURNEE MILLS LEASE EXPIRATIONS

<TABLE>
<CAPTION>
NUMBER
OF
ANCHOR GROSS LEASABLE AREA ANNUALIZED BASE RENT(1)
TOTAL STORE --------------------- -----------------------------------
NUMBER OF TENANT APPROXIMATE PERCENT PERCENT AVERAGE
LEASES LEASES LEASES GLA OF OF PER
EXPIRING IN: EXPIRING EXPIRING (SQ. FT.) TOTAL AMOUNT TOTAL SQ. FT.
- -------------------------------- --------- -------- ---------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1997............................ 40 -- 137,731 12% 2,326,453 15% 16.89
1998............................ 19 1 111,685 10% 1,476,183 10% 13.22
1999............................ 14 -- 52,622 5% 1,089,657 7% 20.71
2000............................ 12 -- 29,015 3% 607,545 4% 20.94
2001............................ 69 3 425,307 37% 5,336,800 35% 12.55
2002............................ 13 1 97,730 9% 1,312,505 9% 13.43
2003............................ 6 3 127,075 11% 1,035,220 7% 8.15
2004............................ 3 -- 4,384 0% 127,445 1% 29.07
2005............................ 3 -- 21,487 2% 410,555 3% 19.11
2006............................ 6 1 27,458 2% 856,717 6% 31.20
After 2006...................... 1 1 105,248 9% 515,715 3% 4.90
</TABLE>

- ------------------------------

(1) Annualized base rent is the base rent payable in December 1996 multiplied by
12.

S-43
<PAGE>
GURNEE MILLS OPERATING TRENDS

<TABLE>
<CAPTION>
MINIMUM RENT PLUS PERCENTAGE RENTS
---------------------------------------------------------------------------------
TOTAL TOTAL
AVERAGE TOTAL STORES ANCHOR STORES SPECIALTY STORES
PERCENT -------------------------- ------------------------- --------------------------
LEASED (1) TOTAL PER SQ. FT. TOTAL PER SQ. FT. TOTAL PER SQ. FT.
----------- ------------- ----------- ------------ ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1996...................... 90.2% $ 15,340,496 $ 13.62 $ 3,823,991 $ 6.78 $ 11,516,505 $ 20.50
1995...................... 91.1% 15,089,531 12.89 3,898,381 6.36 11,191,150 20.08
1994...................... 92.1% 15,176,595 12.83 3,986,828 6.48 11,189,767 19.71
</TABLE>

- ------------------------

(1) Average percent leased is defined as all space leased and for which rent was
being paid excluding tenants with leases having a term of less than one
year.

GURNEE MILLS RENTAL RATES

<TABLE>
<CAPTION>
ANCHOR STORES SPECIALTY STORES
------------------------------------------------------------ --------------------------------------------------------
STORE OPENINGS STORE CLOSINGS RELEASING STORE OPENINGS STORE CLOSINGS RELEASING
DURING YEAR DURING YEAR SPREAD(1) DURING YEAR DURING YEAR SPREAD(1)
------------------- ------------------- ----------------- ----------------- ------------------- --------------
AVERAGE
AVERAGE AVERAGE BASE AVERAGE
BASE RENT BASE RENT RENT BASE RENT
PER SQ. TOTAL PER SQ. TOTAL PER SQ. TOTAL PER SQ. TOTAL
FT. SQ. FT. FT. SQ. FT. FT. SQ. FT. FT. SQ. FT.
--------- ------- --------- ------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996.. $30.00 20,000 $-- -- $30.00 100.00% $19.01 74,447 $18.63 71,457 $ 0.38 2.04%
1995.. -- -- 8.08 74,218 $(8.08) (100.00%) 16.95 48,988 17.79 55,864 $(0.84) (4.72%)
1994.. 4.90 105,248 5.00 85,449 $(0.10) (2.00%) 19.53 72,980 21.29 63,179 $(1.76) (8.27%)
</TABLE>

- ------------------------

(1) The releasing spread is calculated as the difference between per square foot
openings and per square foot closings.

ONTARIO MILLS -- ONTARIO, CALIFORNIA

Ontario Mills opened on November 14, 1996 with approximately 1.2 million
square feet of GLA (including space owned by certain anchor store tenants)
comprised of approximately 700,000 square feet of anchor space and approximately
500,000 square feet of specialty store space. The Company has plans to expand
the project to a total of 1.7 million square feet at completion. Ontario Mills
currently has 14 anchors, including: Off 5th--Saks Fifth Avenue Outlet, J.C.
Penney Outlet, Burlington Coat Factory, The Sports Authority, Marshalls, Bed,
Bath & Beyond, Mikasa, Off Rodeo Drive, TJ Maxx, AMC Theatres, Virgin Megastore,
Group USA, Foozles, and Totally 4 Kids. American Wilderness Experience and
IWERKS are scheduled to open by the third quarter of 1997 and an additional
three anchors have executed leases and are scheduled to open later in 1997.
Ontario Mills is located at the intersection of Interstate 10 and Interstate 15
in the heart of the Riverside/San Bernardino area known as the "Inland Empire."
Ontario Mills serves the Los Angeles/Orange County metropolitan market. The 1996
estimated residential population within a 40-mile radius of Ontario Mills is
approximately 8.6 million which is projected to grow to 9.0 million by the year
2001. Households within the 40-mile radius had a 1996 estimated average annual
household income of $57,576 (compared to the national average of $44,436).

Ontario Mills is owned by a joint venture among the Operating Partnership
(50%) and affiliates of Kan Am (25%) and Simon (25%). The Company has the right
to manage the development, property management and leasing of the Ontario Mills
project, subject to the other joint venture partners' approval of certain major
decisions, including sale or refinancing of the project and approval of an
annual budget. The joint venture partners have agreed to contribute equally all
initial required equity capital; provided, however, that the Company and Simon
have agreed to guarantee any project cost overruns not funded by initial
required equity capital and the partnership's construction financing. At any
time following the tenth anniversary of the project's opening, either the
Company, Simon or Kan Am can exercise a buy-sell provision whereby the Company
or Simon, if it is the offeror, can require Kan Am to transfer its entire

S-44
<PAGE>
interest in the partnership or Kan Am, if it is the offeror, can require the
Company or Simon to acquire Kan Am's entire interest in the partnership.
Estimated net construction costs are approximately $150 million. In addition to
its capital contributions from its joint venture partners, Simon and Kan Am, in
November 1995, the joint venture entered into a construction loan for a $110
million loan that was funded in the first half of 1996 and was refinanced in
February 1997. The refinanced loan of $120 million matures February 2002 with
two one-year extensions. The interest rate is variable at LIBOR plus 100 basis
points for the first $70 million and LIBOR plus 125 basis points for the
remaining $50 million, and the Company has the right to fix the interest rate at
any time.

ONTARIO MILLS LEASE EXPIRATIONS

<TABLE>
<CAPTION>
NUMBER OF GROSS LEASABLE AREA
TOTAL ANCHOR STORE ------------------------- ANNUALIZED BASE RENT(1)
NUMBER OF TENANT APPROXIMATE PERCENT --------------------------------------
LEASES LEASES LEASES GLA OF PERCENT OF AVERAGE PER
EXPIRING IN: EXPIRING EXPIRING (SQ. FT.) TOTAL AMOUNT TOTAL SQ. FT.
- ------------------------ --------------- ----------------- ------------ ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1997.................... 1 -- 2,739 0% $ 115,628 1% $ 42.22
1998.................... -- -- -- 0% -- 0% --
1999.................... 5 -- 9,915 1% 261,900 2% 26.41
2000.................... 2 -- 5,604 1% 115,275 1% 20.57
2001.................... 55 -- 225,499 23% 4,530,894 30% 20.09
2002.................... 14 -- 50,704 5% 1,069,912 7% 21.10
2003.................... 7 -- 23,409 3% 542,176 4% 23.16
2004.................... -- -- -- 0% -- 0% --
2005.................... -- -- -- 0% -- 0% --
2006.................... 36 4 181,759 19% 3,750,243 25% 20.63
After 2006.............. 22 8 468,154 48% 4,411,564 30% 9.42
</TABLE>

- ------------------------

(1) Annualized base rent is the base rent payable in December 1996 multiplied by
12.

THE COMMUNITY CENTERS

S-45
<PAGE>
COMMUNITY CENTERS
<TABLE>
<CAPTION>
GROSS LEASABLE AREA
(SQ. FT.) PERCENT LEASED(2)
LAND ----------------------- ------------------- TOTAL ANNUALIZED NUMBER
YEAR AREA ANCHOR SPECIALTY TOTAL ANCHOR SPECIALTY PERCENT BASE OF
PROPERTY COMPLETED (ACRES) STORES(1) STORES GLA STORES STORES LEASED(2) RENT(3) STORES
- --------------- ---------- ------ ---------- ---------- ---------- ------ ---------- ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
W. Falls Church
Outlet
Center....... 1982 7 37,841 47,726 85,567 100% 90% 94% $ 788,446 18
Butterfield
Plaza........ 1983 9 41,933 72,736 114,669 100% 89% 93% 1,421,526 18
Montgomery
Village...... 1983 11 36,405 80,986 117,391 100% 90% 93% 1,342,826 24
Western Hills
Plaza........ 1983 36 314,516 134,980 449,496 100% 92% 98% 2,648,237 46
Crosswinds
Center....... 1984 11 120,821 23,298 144,119 100% 94% 99% 759,573 14
Germantown
Commons...... 1986 20 46,756 130,341 177,097 100% 92% 94% 2,004,861 40
Fashion
Place........ 1987 13 73,258 74,692 147,950 100% 53% 76% 810,630 25
Gwinnett
Marketfair... 1987 10 97,547 96,827 194,374 100% 90% 95% 1,908,318 32
Mount Prospect
Plaza........ 1987 34 172,595 125,882 298,477 100% 92% 97% 2,128,608 37
Coopers
Crossing..... 1994 20 158,556 14,953 173,509 100% 100% 100% 1,656,887 4
Liberty
Plaza........ 1994 36 280,173 20,965 301,138 47%(4) 26%(4) 45%(4) 1,488,408 5
------ ---------- ---------- ---------- ---------- ------
Totals/Weighted
Averages..... 207 1,380,401 823,386 2,203,787 89% 86% 88% $16,958,320 263
------ ---------- ---------- ---------- ---------- ------
------ ---------- ---------- ---------- ---------- ------

<CAPTION>
1996
SALES PER SQ. FT.
-----------------
ANCHOR SPECIALTY
PROPERTY ANCHOR TENANTS STORES STORES
- --------------- --------------- ------ ------
<S> <C> <C> <C>
W. Falls Church Safeway Marketplace..........................
Outlet
Center....... $ 414 $ 139
Butterfield Arvey Paper & Office, Kids R Us..............
Plaza........ 153 202
Montgomery Safeway Marketplace..........................
Village...... 385 214
Western Hills Krogers, Marshalls, McAlpin's, Media Play and
Plaza........ Woolworth.................................... 299 217
Crosswinds Luria's, Marshalls and Scotty's..............
Center....... 127 233
Germantown Giant Food...................................
Commons...... 567 155
Fashion Staples, Superpetz and TJ Maxx...............
Place........ 140 136
Gwinnett A&P, Marshalls and TJ Maxx...................
Marketfair... 227 197
Mount Prospect Dominicks, Marshalls, TJ Maxx and
Plaza........ Walgreens.................................... 229 164
Coopers Marshalls, Pathmark and Service
Crossing..... Merchandise.................................. 113 129
Liberty Dick's Sporting Goods and Service
Plaza........ Merchandise.................................. N/A(5) N/A(5)
Totals/Weighted
Averages..... 266 184
</TABLE>

- ------------------------
(1) Anchor stores includes all stores occupying more than 20,000 square feet.
(2) Percent leased is defined as all space leased and for which rent was being
paid as of December 31, 1996, excluding tenants with leases having a term of
less than one year.
(3) Annualized base rent is the base rent payable in December 1996 multiplied by
12.
(4) The low total percent leased figures for Liberty Plaza are due to the
closing of Bradlees, a 149,000 square foot anchor store tenant, in October
1996 following its bankruptcy and one vacant 15,000 square foot specialty
shop.
(5) Tenants at Liberty Plaza are not required to report sales information.

S-46
<PAGE>
COMMUNITY CENTERS LEASE EXPIRATIONS

<TABLE>
<CAPTION>
NUMBER
OF
TOTAL ANCHOR GROSS LEASED AREA ANNUALIZED BASE RENT(1)
NUMBER STORE ---------------------- -------------------------------------
OF TENANT APPROXIMATE PERCENT PERCENT
LEASES LEASES LEASES GLA OF OF AVERAGE
EXPIRING IN: EXPIRING EXPIRING (SQ. FT.) TOTAL AMOUNT TOTAL PER SQ. FT.
- ---------------------------------------------- ------- ------- ------------ ------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1997.......................................... 40 1 143,454 8% $ 1,785,869 11% $ 12.45
1998.......................................... 37 4 254,515 13% 2,318,761 14% 9.11
1999.......................................... 33 -- 92,587 5% 1,355,624 8% 14.64
2000.......................................... 18 1 95,811 5% 1,088,402 6% 11.36
2001.......................................... 30 1 142,921 7% 1,645,372 10% 11.51
2002.......................................... 11 1 63,993 3% 525,754 3% 8.22
2003.......................................... 9 1 58,901 3% 653,705 4% 11.10
2004.......................................... 5 1 149,658 8% 351,452 2% 2.35
2005.......................................... 12 8 371,319 19% 2,774,688 16% 7.47
2006.......................................... 5 -- 26,628 1% 413,233 2% 15.52
After 2006.................................... 18 10 522,501 27% 4,045,460 24% 7.74
</TABLE>

- ------------------------
(1) Annualized base rent is the base rent payable in December 1996 multiplied by
12.

COMMUNITY CENTERS OPERATING TRENDS

<TABLE>
<CAPTION>
MINIMUM RENT PLUS PERCENTAGE RENTS
--------------------------------------------------------------------
TOTAL
TOTAL STORES ANCHOR STORES TOTAL
--------------------- -------------------- SPECIALTY STORES
AVERAGE PER PER ---------------------
PERCENT SQ. SQ. PER SQ.
LEASED(1) TOTAL FT. TOTAL FT. TOTAL FT.
------ ------------ ------ ----------- ------ ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1996.................................... 92.5% $ 18,492,347 $9.08 $ 8,956,215 $6.74 $ 9,536,132 $13.49
1995.................................... 90.0% 17,933,643 9.03 8,692,927 6.78 9,240,716 13.13
1994.................................... 91.3% 16,991,532 9.30 7,470,611 7.02 9,520,921 12.49
</TABLE>

- ------------------------
(1) Average percent leased is defined as all space leased and for which rent was
being paid excluding tenants with leases having a term of less than one
year.

COMMUNITY CENTERS RENTAL RATES
<TABLE>
<CAPTION>
ANCHOR STORES
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
STORE OPENINGS STORE CLOSINGS RELEASING
DURING YEAR DURING YEAR SPREAD(1)
-------------------- --------------------- ---------------------

1996........... $9.60 104,586 $8.69 176,238 $ 0.91 10.47%

1995........... 6.19 48,958 -- -- $ 6.19 100.00%

1994........... -- -- 1.15 42,000 $(1.15) (100.00)%

<CAPTION>
SPECIALTY STORES
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
STORE OPENINGS STORE CLOSINGS RELEASING
DURING YEAR DURING YEAR SPREAD(1)
-------------------- -------------------- --------------------
PER SQ. PER SQ.
FT. SQ. FT. FT. SQ. FT.
--------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
1996........... $14.63 58,130 $13.03 86,072 $ 1.60 12.28%
1995........... 13.77 45,077 13.07 42,954 $ 0.70 5.36%
1994........... 11.31 40,249 12.18 81,813 $(0.87) (7.14)%
</TABLE>

- ------------------------

(1) The releasing spread is calculated as the difference between per square foot
openings and per square foot closings.

S-47
<PAGE>
CAPITAL EXPENDITURES

The following tables set forth certain information regarding capital
expenditures for the Mills and the Community Centers combined, the existing
Mills and the Community Centers for each of the last three years.

EXISTING MILLS AND COMMUNITY CENTERS COMBINED

<TABLE>
<CAPTION>
3-YEAR
1996 1995 1994 AVERAGE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
RECURRING CAPITAL EXPENDITURES
Annual........................................ $ 328,974 $ 230,024 $ 504,039 $ 354,346
Per square foot(1)............................ 0.04 0.03 0.07 0.05
RECURRING TENANT IMPROVEMENTS/LEASING COSTS(2)
Annual........................................ 4,228,743(3) 2,043,279 5,750,945 4,007,656
Per square foot improved(4)................... 22.31 12.00 13.56 15.96
Per square foot(1)............................ 0.52 0.25 0.77 0.51
TOTAL RECURRING COSTS
Annual........................................ 4,557,717 2,273,303 6,254,984 4,362,001
Per square foot(1)............................ 0.56 0.28 0.84 0.56
NON-RECURRING TENANT IMPROVEMENTS/ LEASING
COSTS(2)
Annual........................................ 8,079,220 1,903,624(5) 5,892,942 5,291,928
Per square foot improved(6)................... 44.93 17.10 13.11 25.05
Per square foot(1)............................ 0.99 0.23 0.79 0.67
</TABLE>

- ------------------------

(1) Includes annual costs divided by total GLA (excluding space owned by certain
anchor store tenants) of the Properties (excluding Ontario Mills).

(2) Tenant Improvements/Leasing Costs include tenant allowances and capitalized
internal leasing costs.

(3) Includes $1,487,754 incurred with respect to three significant tenants at
Potomac Mills totaling approximately 53,000 square feet of GLA. Without
these three tenants the per square foot improved and per square foot
Recurring Tenant Improvements/Leasing Costs would have totaled $9.80 and
$0.33, respectively.

(4) Calculated as Recurring Tenant Improvements/Leasing Costs divided by GLA of
all recurring store openings (excluding spaces requiring no expenditures).

(5) Sawgrass Mills Phase II expansion costs have been excluded from this
analysis.

(6) Calculated as Non-Recurring Tenant Improvements/Leasing Costs divided by GLA
of all non-recurring store openings.

S-48
<PAGE>
EXISTING MILLS

<TABLE>
<CAPTION>
3-YEAR
1996 1995 1994 AVERAGE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
RECURRING CAPITAL EXPENDITURES
Annual........................................ $ 246,522 $ 191,613 $ 477,664 $ 305,266
Per square foot(1)............................ 0.04 0.03 0.08 0.05
RECURRING TENANT IMPROVEMENT/LEASING COSTS(2)
Annual........................................ 3,549,312(3) 1,488,391 5,017,749 3,351,818
Per square foot improved(4)................... 23.34 12.76 14.85 16.98
Per square foot(1)............................ 0.60 0.25 0.85 0.56
TOTAL RECURRING COSTS
Annual........................................ 3,795,834(3) 1,680,004 5,495,413 3,657,084
Per square foot(1)............................ 0.64 0.28 0.93 0.61
NON-RECURRING TENANT IMPROVEMENT/ LEASING
COSTS(2)
Total......................................... 7,746,906 1,636,001(5) 4,651,899 4,678,269
Per square foot improved(6)................... 50.00 21.69 11.83 27.84
Per square foot(1)............................ 1.30 0.27 0.79 0.79
</TABLE>

- ------------------------

(1) Includes annual costs divided by total GLA (excluding space owned by certain
anchor store tenants) of the existing Mills.

(2) Tenant Improvements/Leasing Costs include tenant allowances and capitalized
internal leasing costs.

(3) Includes $1,487,754 incurred with respect to three significant tenants at
Potomoc Mills totaling approximately 53,000 square feet of GLA. Without
these three tenants the per square foot improved and per square foot
Recurring Tenant Improvements/Leasing Costs would have totaled $9.32 and
$0.34, respectively.

(4) Calculated as Recurring Tenant Improvements/Leasing Costs divided by GLA of
all recurring store openings (excluding spaces requiring no expenditures).

(5) Sawgrass Mills Phase II expansion costs have been excluded from this
analysis.

(6) Calculated as Non-Recurring Tenant Improvements/Leasing Costs divided by GLA
of all non-recurring store openings.

S-49
<PAGE>
COMMUNITY CENTERS

<TABLE>
<CAPTION>
3-YEAR
1996 1995 1994 AVERAGE
------------ --------------- ------------ ------------
<S> <C> <C> <C> <C>
RECURRING CAPITAL EXPENDITURES
Annual.............................................. $ 82,452 $ 38,411 $ 26,375 $ 49,079
Per square foot(1).................................. 0.04 0.02 0.02 0.02
RECURRING TENANT IMPROVEMENT/LEASING COSTS(2)
Annual.............................................. 679,431 554,888 733,196 655,838
Per square foot improved(3)......................... 18.88 10.04 9.26 12.73
Per square foot(1).................................. 0.31 0.25 0.48 0.35
TOTAL RECURRING COSTS
Annual.............................................. 761,883 593,299 759,571 704,917
Per square foot(1).................................. 0.35 0.27 0.49 0.37
NON-RECURRING TENANT IMPROVEMENT/LEASING COSTS(2)
Total............................................... 332,314 267,622 1,241,043 613,660
Per square foot improved(4)......................... 13.35 7.46 22.56 14.46
Per square foot(1).................................. 0.15 0.12 0.81 0.36
</TABLE>

- ------------------------

(1) Includes annual costs divided by total GLA (excluding space owned by certain
anchor store tenants) of the Community Centers.

(2) Tenant Improvements/Leasing Costs include tenant allowances and capitalized
internal leasing costs.

(3) Calculated as Recurring Tenant Improvements/Leasing Costs divided by GLA of
all recurring store openings (excluding spaces requiring no expenditures).

(4) Calculated as Non-Recurring Tenant Improvements/Leasing Costs divided by GLA
of all non-recurring store openings.

S-50
<PAGE>
MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The directors and executive officers of the Company and their positions and
offices are set forth in the following table:

<TABLE>
<CAPTION>
NAME AGE POSITIONS AND OFFICES HELD
- ----------------------------------------- --- -----------------------------------------------------------------
<S> <C> <C>

Laurence C. Siegel....................... 44 Chairman of the Board, Chief Executive Officer and Director
Peter B. McMillan........................ 49 President, Chief Operating Officer and Director
Dietrich von Boetticher.................. 55 Vice Chairman and Director
John M. Ingram........................... 61 Vice Chairman and Director
Charles R. Black, Jr..................... 49 Director
James C. Braithwaite..................... 56 Director
The Hon. Joseph B. Gildenhorn............ 67 Director
Peter A. Gordon.......................... 54 Director
Herbert S. Miller........................ 53 Director
Harry H. Nick............................ 55 Director
Franz von Perfall........................ 55 Director
Robert P. Pincus......................... 50 Director
James F. Dausch.......................... 53 Executive Vice President -- Development
Howard J. Samuels........................ 42 Executive Vice President -- Leasing
Kent S. Digby............................ 44 Executive Vice President -- Management and Marketing
Judith S. Berson......................... 53 Executive Vice President -- Leasing
Thomas E. Frost.......................... 44 Senior Vice President, General Counsel and Secretary
Thomas M. Hindert........................ 43 Senior Vice President -- Planning, Pre-development and
Acquisition
Steven J. Jacobsen....................... 41 Senior Vice President -- Development
Kenneth R. Parent........................ 36 Senior Vice President and Chief Financial Officer
James P. Whitcome........................ 50 Senior Vice President -- Capital Services
Barry H. Young........................... 55 Senior Vice President -- Specialty Leasing
</TABLE>

S-51
<PAGE>
UNDERWRITING

Subject to the terms and conditions set forth in the terms agreement and
related underwriting agreement (collectively the "Underwriting Agreement"), the
Company has agreed to sell to each of the Underwriters named below, and each of
the Underwriters, for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Dean Witter Reynolds Inc., Legg Mason Wood Walker, Incorporated and Salomon
Brothers Inc are acting as representatives (the "Representatives"), have
severally agreed to purchase from the Company, the number of shares of Common
Stock set forth below opposite their respective names. The Underwriting
Agreement provides that the obligations of the Underwriters to purchase the
shares of Common Stock are subject to certain conditions precedent, and that the
Underwriters are committed to purchase all of such shares of Common Stock if any
are purchased.

<TABLE>
<CAPTION>
NUMBER OF SHARES OF
UNDERWRITERS COMMON STOCK
- ------------------------------------------------------------------------ -------------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.................................................. 662,500
Dean Witter Reynolds Inc. .............................................. 662,500
Legg Mason Wood Walker, Incorporated.................................... 662,500
Salomon Brothers Inc.................................................... 662,500
Alex. Brown & Sons Incorporated......................................... 100,000
Credit Suisse First Boston Corporation.................................. 100,000
Donaldson, Lufkin & Jenrette Securities Corporation..................... 100,000
A.G. Edwards & Sons, Inc. .............................................. 100,000
PaineWebber Incorporated................................................ 100,000
Prudential Securities Incorporated...................................... 100,000
Smith Barney Inc. ...................................................... 100,000
Wasserstein Perella Securities, Inc. ................................... 100,000
Robert W. Baird & Co. Incorporated...................................... 50,000
William Blair & Company, L.L.C. ........................................ 50,000
Crowell, Weedon & Co. .................................................. 50,000
Dain Bosworth Incorporated.............................................. 50,000
EVEREN Securities, Inc. ................................................ 50,000
Fahnestock & Co. Inc. .................................................. 50,000
Friedman, Billings, Ramsey & Co., Inc. ................................. 50,000
Gruntal & Co., Incorporated............................................. 50,000
Janney Montgomery Scott Inc. ........................................... 50,000
Edward D. Jones & Co., L.P. ............................................ 50,000
McDonald & Company Securities, Inc. .................................... 50,000
Mesirow Financial, Inc. ................................................ 50,000
Piper Jaffray Inc. ..................................................... 50,000
Rauscher Pierce Refsnes, Inc. .......................................... 50,000
Raymond James & Associates, Inc. ....................................... 50,000
Roney & Co., LLC........................................................ 50,000
Sands Brothers & Co., Ltd. ............................................. 50,000
The Seidler Companies Incorporated...................................... 50,000
Sutro & Co. Incorporated................................................ 50,000
Utendahl Capital Partners, L.P. ........................................ 50,000
Wheat, First Securities, Inc. .......................................... 50,000
----------
Total......................................................... 4,500,000
----------
----------
</TABLE>

The Representatives of the Underwriters have advised the Company that they
propose initially to offer such shares of Common Stock to the public at the
public offering price set forth on the cover page of

S-52
<PAGE>
this Prospectus Supplement and to certain dealers at such price less a
concession not in excess of $.75 per share. The Underwriters may allow, and such
dealers may reallow, a discount not in excess of $.10 per share on sales to
certain other dealers. After the offering, the public offering price, concession
and discount may be changed.

The Company has granted to the Underwriters an option exercisable for 30
days after the date of this Prospectus Supplement to purchase up to 675,000
additional shares of Common Stock to cover over-allotments, if any, at the price
to the public set forth on the cover page of this Prospectus Supplement, less
the sum of the underwriting discount. If the Underwriters exercise this option,
each of the Underwriters will have a firm commitment, subject to certain
conditions, to purchase approximately the same percentage thereof which the
number of shares of Common Stock to be purchased by it shown on the foregoing
table bears to the shares of Common Stock initially offered hereby.

In the Underwriting Agreement, the Company has agreed to indemnify the
several Underwriters against certain civil liabilities, including certain
liabilities under the Securities Act of 1933, as amended, or to contribute to
payments the Underwriters may be required to make in respect thereof.

In connection with the Offering, the rules of the Securities and Exchange
Commission permit the Representatives to engage in certain transactions that
stabilize the price of the Common Stock. Such transactions may consist of bids
or purchases for the purpose of pegging, fixing or maintaining the price of the
Common Stock.

If the Underwriters create a short position in the Common Stock in
connection with the Offering, (i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus Supplement), the
Representatives may reduce that short position by purchasing Common Stock in the
open market. The Representatives may also elect to reduce any short position by
exercising all or part of the over-allotment option described herein.

The Representatives also may impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
shares of Common Stock in the open market to reduce the Underwriters' short
position or to stabilize the price of the Common Stock, they may reclaim the
amount of the selling concession from the Underwriters and selling group members
who sold those shares as part of the Offering.

In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of such purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
the Offering.

Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
the Company nor any of the Underwriters makes any representation that the
Representatives will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.

Subject to certain exceptions, the Company, certain of its officers,
directors and affiliates and the Operating Partnership have agreed not to,
directly or indirectly, offer, sell, contract to sell, grant any option for the
sale of, or otherwise dispose of any shares of Common Stock or Units, or
securities exercisable or exchangeable for Common Stock or rights to purchase
Common Stock for a period of 90 days after the date of this Prospectus
Supplement without the prior written consent of the Representatives.

Merrill Lynch, Pierce, Fenner & Smith Incorporated has provided, and from
time to time provides, investment banking and financial advisory services to the
Company for which customary compensation has been, and will be, received.

LEGAL MATTERS

The validity of the issuance of the shares of Common Stock pursuant to this
Prospectus Supplement and certain federal income tax matters will be passed upon
for the Company by Hogan & Hartson L.L.P., Washington, D.C. Certain legal
matters will be passed upon for the Underwriters by Rogers & Wells, New York,
New York.

S-53
<PAGE>
PROSPECTUS

$250,000,000
THE MILLS CORPORATION
PREFERRED STOCK, COMMON STOCK AND COMMON STOCK WARRANTS
---------------------

The Mills Corporation (the "Company") may from time to time offer in one or
more series or classes its (i) preferred stock, $.01 par value ("Preferred
Stock"), (ii) common stock, $.01 par value ("Common Stock"), and (iii) warrants
exercisable for Common Stock ("Common Stock Warrants"), with an aggregate public
offering price of up to $250,000,000 (or its equivalent based on the exchange
rate at the time of sale) in amounts, at prices and on terms to be determined at
the time of offering. The Preferred Stock, Common Stock and Common Stock
Warrants (collectively, the "Securities") may be offered, separately or
together, in separate series, in amounts, at prices and on terms to be described
in one or more supplements to this Prospectus (each a "Prospectus Supplement").

The specific terms of the Securities in respect of which this Prospectus is
being delivered will be set forth in the applicable Prospectus Supplement and
will include, where applicable: (i) in the case of Preferred Stock, the specific
title and stated value, any dividend, liquidation, redemption, conversion,
voting and other rights, and any public offering price; (ii) in the case of
Common Stock, any public offering price; and (iii) in the case of Common Stock
Warrants, the specific title and aggregate number, the issue price and the
exercise price. In addition, such specific terms may include limitations on
direct or beneficial ownership and restrictions on transfer of the Securities,
in each case as may be appropriate to help preserve the status of the Company as
a real estate investment trust ("REIT") for federal income tax purposes.

The applicable Prospectus Supplement also will contain information, where
applicable, about certain U.S. federal income tax considerations relating to,
and any listing on a securities exchange of, the Securities covered by such
Prospectus Supplement.

The Securities may be offered directly, through agents designated from time
to time by the Company, or to or through underwriters or dealers. If any agents
or underwriters are involved in the sale of any of the Securities, their names,
and any applicable purchase price, fee, commission or discount arrangement with,
between or among them, will be set forth, or will be calculable from the
information set forth, in an accompanying Prospectus Supplement. See "Plan of
Distribution." No Securities may be sold without delivery of a Prospectus
Supplement describing the method and terms of the offering of such Securities.

SEE "RISK FACTORS" BEGINNING ON PAGE 2 FOR A DISCUSSION OF CERTAIN FACTORS
RELEVANT TO AN INVESTMENT IN THE SECURITIES.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

THE DATE OF THIS PROSPECTUS IS FEBRUARY 21, 1997.
<PAGE>
AS USED HEREIN, THE TERM "COMPANY" INCLUDES THE MILLS CORPORATION AND ITS
DIRECT AND INDIRECT SUBSIDIARIES, INCLUDING THE MILLS LIMITED PARTNERSHIP (THE
"OPERATING PARTNERSHIP"), MANAGEMENT ASSOCIATES LIMITED PARTNERSHIP (THE
"MANAGEMENT PARTNERSHIP") AND MILLSSERVICES CORP. (THE "THIRD-PARTY SERVICES
CORPORATION"), UNLESS THE CONTEXT INDICATES OTHERWISE.

THE COMPANY

The Company is the sole general partner of, and currently holds a majority
of the partnership interests ("Units") in, the Operating Partnership. Units
(other than those owned by the Company) are redeemable at the option of the
holder under certain circumstances for Common Stock or, at the option of the
Company, the cash equivalent thereof. As the sole general partner of the
Operating Partnership, the Company has the exclusive power to manage and conduct
the business of the Operating Partnership, subject to certain limited
exceptions. The Operating Partnership either holds title to the Properties or
directly or indirectly holds 100% of the general and limited partnership
interests in the partnerships that own the Properties (the "Property
Partnerships"), except for the Property Partnerships that own Franklin Mills and
Ontario Mills, in which the Operating Partnership holds 77.6% of the partnership
interests (which represents 100% of the current income and cash flow from
Franklin Mills) and 50%, respectively, as of December 31, 1996. The Company also
has formed joint ventures to develop additional properties.

The Company conducts all of its business through the Operating Partnership
and the Operating Partnership's various subsidiaries (the "Operating
Subsidiaries"), which include: (i) the Management Partnership, which provides
leasing and management services for the Properties, and (ii) the Third-Party
Services Corporation, which provides management services to properties in which
the Operating Partnership does not own an interest and provides development
services for the Properties and (iii) various partnership subsidiaries that have
been formed to hold title to the individual properties. The Operating
Partnership owns 100% of the interests in the Management Partnership and 99% of
the non-voting preferred stock and 5% of the voting common stock of the Third
Party Services Corporation (representing, in the aggregate, a 99% economic
interest). In addition, Herbert S. Miller, a director of the Company, and an
affiliate of Kan Am US, Inc. each owns .5% of the non-voting preferred stock and
47.5% of the voting stock of the Third-Party Services Corporation (representing,
in the aggregate, a 1% economic interest).

The Company was incorporated in Virginia on January 2, 1991, and was
reincorporated in Delaware in 1994. The principal executive offices of the
Company are located at 1300 Wilson Boulevard, Arlington, VA 22209, and its
telephone number is (703) 526-5000.

RISK FACTORS

Prospective investors should carefully consider, among other factors, the
matters described below.

PRICE FLUCTUATIONS OF THE COMMON STOCK AND TRADING VOLUME; SHARES AVAILABLE FOR
FUTURE SALE

A number of factors may adversely influence the price of the Company's
Common Stock in the public markets, many of which are beyond the control of the
Company. These factors include possible increases in market interest rates,
which may lead purchasers of Common Stock to demand a higher annual yield from
distributions by the Company in relation to the price paid for Common Stock, the
relatively low daily trading volume of REITs in general, including the Common
Stock and any inability of the Company to

2
<PAGE>
invest the proceeds of a future offering of Securities in a manner that will
increase earnings per share. Sales of a substantial number of shares of Common
Stock, or the perception that such sales could occur, could adversely affect
prevailing market prices for shares. The Company also may issue shares of Common
Stock (subject to the Ownership Limit, as defined under "Description of Common
Stock--Restrictions on Transfer; Excess Stock") upon redemption of Units issued
in connection with the formation of the Company, its initial public offering
("IPO") and the acquisition by the Company of its assets in April 1994
(collectively, the "Formation Transactions"). In addition, 2,500,000 shares of
Common Stock of the Company have been issued or reserved for issuance pursuant
to the Company's 1994 Executive Equity Incentive Plan, as amended (the "Plan"),
and these shares, upon issuance, will be available for sale in the public
markets from time to time pursuant to exemptions from registration requirements
or upon registration. As of December 31, 1996, options to purchase 1,460,504,
shares of Common Stock and 63,247 shares of restricted stock had been granted or
authorized to be granted to certain directors, officers and employees of the
Company and its subsidiaries and remain outstanding. No prediction can be made
about the effect that future sales of Common Stock will have on the market
prices of shares.

RISKS RELATING TO DEBT

As of December 31, 1996, the Company had consolidated debt of approximately
$730.1 million (excluding its pro rata share of unconsolidated joint venture
debt). The Company is subject to the risks normally associated with debt
financing, including the risk that its cash flow will be insufficient to meet
required payments of principal and interest. If a Property is mortgaged to
secure payment of indebtedness and the Company is unable to meet mortgage
payments, the mortgagee could foreclose upon the Property, appoint a receiver
and receive an assignment of rents and leases or pursue other remedies, all with
a consequent loss of income and asset value to the Company. Foreclosures could
also create taxable income without accompanying cash proceeds, thereby hindering
the Company's ability to meet the real estate investment trust distribution
requirements under the Internal Revenue Code of 1986, as amended (the "Code").

Because the terms of most of the Company's indebtedness do not require any
principal payments prior to maturity, and the Company does not anticipate making
any such payments prior to maturity, it may be necessary to refinance or repay
such indebtedness either through additional secured or unsecured debt financing,
private or public debt issuances, additional equity offerings or sales of
assets. If prevailing interest rates or other factors at the time of refinancing
result in higher interest rates upon refinancing, the interest expense relating
to such refinanced indebtedness would increase, which would adversely affect the
Company's funds from operations and the amount of distributions it can make to
its stockholders. If the Company were unable to secure refinancing of the
mortgage indebtedness encumbering a Property on acceptable terms, the Company
might be forced to dispose of such Property upon disadvantageous terms, which
might result in losses to the Company, thereby adversely affecting funds from
operations and cash available for distribution by the Company to its
stockholders.

The Company is developing and plans to continue to develop new retail
properties, including new Mills. The funds necessary to construct and develop
new properties must be obtained through additional equity or debt securities
offerings, conventional third-party debt financing, participating loan
arrangements or joint venture arrangements. There can be no assurance that the
Company will obtain the financing necessary to fund new development and
expansion projects. In addition, the additional debt service payments required
in respect of any additional debt incurred, and the dilutive effect of any
additional equity securities issued to finance future development, could
adversely affect the Company's ability to make distributions to its
stockholders.

The Company anticipates that any new projects, some of which could be
developed through joint venture arrangements, would be financed through lines of
credit or other forms of secured or unsecured construction financing which
generally carry a floating interest rate. Although the Company likely would
hedge or cap all of such construction financing, no assurance can be given that
the Company would be able

3
<PAGE>
to obtain permanent debt or equity financing on acceptable terms to refinance
such construction loans upon substantial completion of the project or that the
Company would be able to hedge or cap its debt on economically viable terms. As
a result, the floating interest rate on the construction loans could be
outstanding for a longer period of time than anticipated at the time of
borrowing, resulting in the curtailment of development activities or a decrease
in the amount of cash available for distribution to stockholders. If the Company
had construction loans outstanding and interests rates were to increase, the
Company's debt service for floating rate construction loans would increase (but
not in excess of the applicable cap rate), thereby adversely affecting the
Company's financial condition and results of operations.

The Company's organizational documents do not limit the amount of
indebtedness that the Company may incur. The Company could become more highly
leveraged, resulting in an increased risk of default on the obligations of the
Company and an increase in debt service requirements that could adversely affect
the financial condition and results of operations of the Company.

INFLUENCE OF OFFICERS, DIRECTORS AND SIGNIFICANT STOCKHOLDERS

The executive officers of the Company and Kan Am US, Inc. and its affiliates
("Kan Am"), which is substantially owned and controlled by three directors of
the Company (the "Kan Am Directors"), and their respective affiliates directly
and indirectly own a substantial percentage of the total Common Stock and Units
outstanding. The Units not held by the Company are exchangeable for Common Stock
or, at the option of the Company as sole general partner of the Operating
Partnership, the cash equivalent of that number of shares of Common Stock.
Interested directors may not vote on whether to elect to pay cash in exchange
for Units in which they have a direct or indirect interest. Various directors of
the Company, including the Kan Am Directors, have substantial influence on the
Company and, by virtue of their ownership of Common Stock, on the outcome of any
matters submitted to the Company's stockholders for approval. The interests of
such executive officers and Kan Am Directors might not be consistent with the
interests of all other stockholders, and they may use their voting influence
contrary to the stockholders' interest. Although there is no understanding or
arrangement for these stockholders and their affiliates to act together on any
matter, such stockholders would be in a position to exercise significant
influence over the affairs of the Company if they were to act together. In the
event that all or a substantial portion of such Units are exchanged for shares
of Common Stock, such persons will increase their influence over the Company and
on the outcome of any matters submitted to the Company's stockholders for
approval. The influence and voting power of the remaining stockholders would be
correspondingly limited.

The Company, as the sole general partner of the Operating Partnership, may
have certain fiduciary responsibilities to the other partners in the Operating
Partnership which may conflict with the interests of the stockholders of the
Company (including decisions regarding the sale or refinancing of the Properties
and the timing and amount of distributions from the Operating Partnership). In
addition, those individuals and entities (including the executive officers of
the Company, the Kan Am Directors and their respective affiliates) which hold
Units may have certain limited rights in decisions affecting the Operating
Partnership which may conflict with the interests of those individuals and
entities that purchase shares of Common Stock in this offering. In particular, a
holder of Units may suffer different and/or more adverse tax consequences than
the Company upon the sale or refinancing of some of the Properties as a result
of unrealized gain attributable to certain Properties or the tax status of the
Unit holder. These Unit holders and the Company, therefore, may have different
objectives regarding the appropriate pricing and timing of any sale or
refinancing of the Properties. Although the Company, as the sole general partner
of the Operating Partnership, has the exclusive authority as to whether and on
what terms to sell or refinance an individual Property, these Units holders
might seek to influence the Company not to sell or refinance the Properties,
even though such sale might otherwise be financially advantageous to the
Company, or may seek to influence the Company to refinance a Property with a
higher level of debt than would be in the best interests of the Company.

4
<PAGE>
The Kan Am Directors and their respective affiliates also may have interests
that may conflict with the interests of the stockholders of the Company in
connection with Kan Am's joint ventures with the Operating Partnership to
develop, own, and operate additional properties.

GENERAL RISKS OF DEVELOPING AND OPERATING RETAIL SHOPPING CENTERS

The Company intends from time to time to develop new Mills or expand
existing Mills, and may engage in the development of regional outlet centers,
new community centers and expansion of existing Community Centers, as such
opportunities arise. Such projects generally require significant expenditures of
capital and are frequently dependent on obtaining various forms of government
and other approvals, the receipt of which cannot be assured. In addition, while
policies with respect to development activities are intended to limit some of
the risks otherwise associated with development, the Company nevertheless would
incur development risks in connection with any such project, including
expenditures of funds for, and devotion of management's time to, projects which
may not be developed on a timely basis or at all. Accordingly, there can be no
assurance if or when any development of new Mills, regional outlet centers or
community centers or expansions of existing Properties would be completed, or if
completed, that the costs of development or expansion would not exceed, by a
material amount, projected costs.

The Company's income and cash available for distribution would be adversely
affected if multiple tenants were unable to meet their obligations. In the event
of default by a tenant, the Company may experience delays in enforcing its
rights as lessor and may incur substantial costs in protecting its investment.
Moreover, at any time, an anchor store tenant may seek the protection of the
bankruptcy laws, which could result in the termination of such tenant's lease
and, if followed by its closing or by its sale to a less desirable retailer,
could adversely affect customer traffic in a center and thereby reduce the
income generated by that center. Furthermore, certain of the Company's tenants,
including anchor tenants, hold the right under their leases to terminate their
leases or reduce their rental rate if certain occupancy conditions are not met,
if certain anchor tenants are closed, if certain sales levels are not achieved,
or if an exclusive use provision is violated.

The Company's income and cash available for distribution also would be
adversely affected if the Company were unable either to rent unleased space in
the Properties or to relet space after the expiration of a tenant's lease on
economically favorable lease terms. The ability of the Company to rent or to
relet space in the Properties is affected by many factors, including covenants
contained in leases with certain tenants in the Properties restricting the use
of other space at the Properties. The Company's tenants generally enter into
leases with an initial term ranging from five to 15 years. No assurance can be
given that any tenant whose lease expires in the future will renew its lease at
that time, or on economically favorable terms, or that the Company will be able
to find a replacement tenant. The failure by the Company to rent unleased space
on a timely basis or at all would likely adversely affect the Company's
financial condition and results of operations. The Company may also incur costs
in making improvements or repairs to property required by a new tenant.

There are other companies that are engaged in the development or ownership
of value retail properties that compete with the Company in seeking tenants.
This results in competition for acquisition of prime locations and for tenants
who will lease space in the value retail properties that the Company and its
competitors own or operate. The development of new super-regional outlet malls
or other value retail shopping centers with more convenient locations or better
rents may attract the Company's tenants or cause them to seek more favorable
lease terms at or prior to renewal, and may accordingly adversely affect the
business, revenues or value of the Properties. In addition, traditional
retailers may increase their competition with value retailers for the limited
pool of consumers by engaging in marketing and selling activities similar to
those of value retailers, thus blurring the distinction between traditional
retailers and value retailers.

5
<PAGE>
GENERAL RISKS OF EQUITY REAL ESTATE INVESTMENTS

Real property investments are subject to varying degrees of risk. The
economic performance and value of a Property are affected by a number of
factors, including: the national economic climate; the regional economic climate
(which may be adversely impacted by plant closings, industry slowdowns and other
factors); local real estate conditions such as an oversupply of retail space or
a reduction in demand for real estate in the area; the attractiveness of the
Properties to tenants; competition from other available space; the quality of
maintenance, insurance and management services; and increased operating costs.
In addition, other factors may adversely affect a Property's value, including
changes in government regulations and other laws, rules and regulations
governing real estate, zoning or taxes, changes in interest rate levels, the
availability of financing and potential liability under environmental and other
laws.

Equity real estate investments are relatively illiquid and therefore tend to
limit the ability of the Company to vary its portfolio promptly in response to
changes in economic or other conditions. All of the Properties are in the same
line of business. In addition, certain significant expenditures associated with
each equity investment (such as debt service, real estate taxes and operating
and maintenance costs) are generally not reduced when circumstances cause a
reduction in income from the investment. If any Property fails, the ability to
convert the Property to an attractive alternative use or to sell the Property to
recoup the Company's investment may be limited. Should any of the foregoing
events occur, the Company's income and funds available for distribution would be
adversely affected.

Under various federal, state and local laws, ordinances and regulations, the
Company may be considered an owner or operator of real property or may have
arranged for the disposal or treatment of hazardous or toxic substances and,
therefore, may become liable for the costs of removal or remediation of certain
hazardous substances released on or in its Properties or disposed of by it, as
well as certain other potential costs which could relate to hazardous or toxic
substances. Such laws often impose such liability without regard to whether the
owner or operator knew of, or was responsible for, the release of such hazardous
substances. The failure to remediate properly such substances may adversely
affect the owner's ability to sell such real estate or to borrow using such real
estate as collateral. Such costs or liabilities may exceed the value of such
real estate.

The Company carries comprehensive liability, fire, flood, extended coverage
and rental loss insurance with respect to its Properties with policy
specifications and insured limits that it believes are customary for similar
properties. The Company also carries comprehensive earthquake and pollution
cleanup coverage on all its Properties. With respect to the Mills only, the
Company carries off-premises power coverage and with respect to Sawgrass Mills
only, the Company carries sinkhole coverage. There are certain types of losses
(generally of a catastrophic nature, such as wars or other acts of God) which
may be either uninsurable or not economically insurable. Should an uninsured
loss occur with respect to a Property, the Company could lose both its invested
capital in and anticipated profits from the Property.

RISKS RELATING TO CONTROL OF THE COMPANY

The major policies of the Company, including its policies with respect to
development, acquisitions, financing, growth, operations, debt capitalization
and distributions, are determined by the Company's Board of Directors. The Board
of Directors may revise these and other policies from time to time, subject to
certain limitations, without the approval of stockholders. Accordingly,
stockholders have little control over changes in policies of the Company other
than its policy of maintaining its qualification as a REIT. A change in these
policies could adversely affect the Company's financial condition or results of
operations.

Certain provisions in the Amended and Restated Certificate of Incorporation
of the Company (the "Certificate of Incorporation") and the Amended and Restated
Bylaws of the Company (the "Bylaws") may have the effect of discouraging a third
party from making an acquisition proposal for the Company and may thereby have
the effect of impeding a change in control of the Company under circumstances
that could give the holders of Common Stock the opportunity to realize a premium
over the then prevailing

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market price. The Certificate of Incorporation further authorizes the Board of
Directors to issue up to 20,000,000 shares of Preferred Stock, and to establish
the preferences and rights (including the right to vote and the right to convert
into Common Stock) of any shares of Preferred Stock issued. The power to issue
Preferred Stock could have the effect of delaying or preventing a change in
control of the Company even if a change in control were in the best interests of
the stockholders. The Ownership Limit (as defined under "Description of Common
Stock--Restrictions on Transfer; Excess Stock") also may have the effect of
precluding acquisition of control of the Company by a third party even if a
change in control were in the best interests of the stockholders. In addition,
the Board of Directors of the Company has three classes of directors. Directors
for each class are chosen for a three-year term upon the expiration of the
current class' term. The staggered terms for directors may affect the
stockholders' ability to change control of the Company even if a change in
control were in the stockholders' best interest.

The Company has invested and expects in the future to invest in certain
instances as a co-venturer or partner in the development of new Properties,
instead of developing projects directly. Such investments may involve risks not
present in a wholly-owned development project, including the absence of
exclusive control over the development, financing, leasing, management and other
aspects of the project and the possibility that the Company's co-venturer or
participating lender might become bankrupt, have interests or goals that are
inconsistent with those of the Company, take action contrary to the
instructions, requests or interests of the Company or otherwise impede the
Company's objectives. The Operating Partnership may also have fiduciary
responsibilities to the other investors which may conflict with the interests of
the Company's stockholders.

POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF STOCK

In order to maintain its qualification as a REIT, not more than 50% in
number or value of the outstanding capital stock of the Company may be owned,
directly or constructively under the applicable attribution rules of the Code,
by five or fewer individuals (as defined in the Code to include certain
entities) during the last half of a taxable year. In order to help protect the
Company from the risk of losing its REIT status due to concentration of
ownership among its stockholders, the Company has limited ownership of the
issued and outstanding shares of capital stock by any single stockholder to 5%
of the outstanding Common Stock (determined taking into account certain
ownership attribution rules) (with exceptions for certain persons that became
stockholders or Unit holders in the Formation Transactions). The Board of
Directors may waive the percentage ownership limit if it is satisfied that
ownership in excess of this limit will not jeopardize the Company's status as a
REIT. See "Description of Common Stock-- Restrictions on Transfer; Excess
Stock." A transfer of Common Stock to a person who, as a result of the transfer,
violates the ownership limit will be void. Shares of Common Stock acquired in
breach of the limitation will be automatically exchanged for shares of a
separate class of stock not entitled to vote or to participate in distributions
("Excess Stock"). In addition, ownership, either directly or indirectly under
the applicable attribution rules of the Code, of stock in excess of the
ownership limit generally will result in the conversion of those shares into
Excess Stock. Excess Stock may be redeemed by the Company for the lesser of the
price paid and the average closing price for the ten trading days preceding
redemption. See "Description of Common Stock--Restrictions on Transfer; Excess
Stock" for additional information regarding the ownership limits.

CERTAIN TAX RISKS

The Company believes that it has qualified and will continue to qualify as a
REIT under the Code, commencing with its taxable year ended December 31, 1994.
Qualification as a REIT involves the determination of various factual matters
and circumstances not entirely within the Company's control, as well as the
satisfaction of numerous requirements (some on an annual and quarterly basis)
established under highly technical and complex Code provisions for which there
are only limited judicial or administrative interpretations. In this regard, the
Company regularly undertakes a wide range of marketing and

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promotional activities with respect to the Mills, some of which are different
from and more extensive than the marketing and promotional activities addressed
to date by the Internal Revenue Service (the "IRS") in private letter rulings
issued to other REITs, the only available guidance. Hogan & Hartson L.L.P.,
counsel to the Company, has rendered an opinion that, although the matter is not
free from doubt, the Company's performance of such marketing and promotional
activities will not affect its ability to qualify as a REIT. Accordingly, there
can be no assurance that the Company's performance of the marketing and
promotional activities or other activities might not adversely affect the
Company's qualification as a REIT.

If the Company were to fail to qualify as a REIT in any taxable year, the
Company would be subject to Federal income tax (including any applicable
alternative minimum tax) on its taxable income at corporate rates. Moreover,
unless entitled to relief under certain statutory provisions (in which event
certain penalty taxes would be applicable), the Company also would be
disqualified from treatment as a REIT for the four taxable years following the
year during which qualification is lost. The additional tax incurred in such
event would significantly reduce the cash flow available for distribution to
stockholders and to meet debt service obligations. In addition, distributions to
stockholders would no longer be required to be made. See "Federal Income Tax
Considerations--Taxation of the Company."

The Company believes that the Operating Partnership, the Management
Partnership, and each of the other partnership and limited liability company
subsidiaries will qualify for treatment as partnerships under the Code. If any
of such subsidiaries fails to qualify for such treatment under the Code, the
Company would cease to qualify as a REIT, and such subsidiary would be subject
to Federal income tax (including any alternative minimum tax) on its income at
corporate rates. See "Federal Income Tax Considerations-- Other Tax
Considerations."

To obtain the favorable tax treatment associated with qualifying as a REIT
under the Code, the Company generally is required each year to distribute to its
stockholders at least 95% of its net taxable income. See "Federal Income Tax
Considerations--Taxation of the Company (Annual Distribution Requirements)." The
Company could be required to borrow funds on a short-term basis to meet the
distribution requirements that are necessary to achieve the tax benefits
associated with qualifying as a REIT, even if management believed that then
prevailing market conditions were not generally favorable for such borrowings.

Even if the Company continues to qualify as a REIT, it is and will be
subject to certain Federal, state and local taxes on its income and property
(including possibly in certain circumstances a tax at the rate of 100% on
profits attributable to land sales). See "Federal Income Tax Considerations." In
addition, the Company's net income, if any, from the development activities and
other operations conducted through the Third-Party Services Corporation is
subject to federal income tax. See "Federal Income Tax Considerations--Other Tax
Consequences."

Furthermore, no assurance can be given that new legislation, Treasury
Regulations, existing administrative interpretations (which are not necessarily
binding on the IRS) or court decisions will not significantly change the
Company's qualification as a REIT or the Federal income tax consequences of such
qualification to the Company.

USE OF PROCEEDS

Unless otherwise specified in the applicable Prospectus Supplement, the net
proceeds from the sale of the Securities will be used for the development of
additional properties, as suitable opportunities arise, for the repayment of
certain outstanding indebtedness at such time and for working capital and other
general corporate purposes.

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RATIOS OF EARNINGS TO FIXED CHARGES

The Company's ratio of earnings to fixed charges for the nine months ended
September 30, 1996, for the year ended December 31, 1995 and for the period from
April 22, 1994 (the Company's IPO) to December 31, 1994 was 1.32x, 1.16x, and
1.20x, respectively. There was no preferred stock outstanding for any of these
periods or for any of the periods specified below. Accordingly, the ratio of
earnings to combined fixed charges and preferred stock dividends is identical to
the ratio of earnings to fixed charges.

The ratios of earnings to fixed charges were computed by dividing earnings
by fixed charges. For this purpose, earnings consist of income (loss) before
extraordinary items plus fixed charges. Fixed charges consist of interest
expense (including interest costs capitalized), and the amortization of debt
issuance costs.

Prior to completion of the Company's IPO, certain of the predecessor
entities to the Company (the "Mills Entities") operated in a highly leveraged
manner. As a result, although the Properties have historically generated
positive net cash flow, the combined statements of operations of The Mills
Entities for the period from January 1 to April 21, 1994 and for the fiscal
years ended December 31, 1993, 1992 and 1991 show net losses. Consequently, the
computation of the ratio of earnings to fixed charges for such periods indicates
that earnings were inadequate to cover fixed charges by approximately $4.4
million, $14.3 million, $21.5 million and $42.4 million, respectively. The
reorganization and recapitalization effected in connection with the IPO
permitted the Company to de-leverage the Properties significantly, resulting in
an improved ratio of earnings to fixed charges for the periods subsequent to the
IPO.

DESCRIPTION OF PREFERRED STOCK

The Company is authorized to issue 20,000,000 shares of Preferred Stock. As
of December 31, 1996, there were no shares of Preferred Stock outstanding.

Under the Company's Certificate of Incorporation, the Board of Directors may
from time to time establish and issue one or more classes or series of Preferred
Stock. The Board may classify or reclassify any unissued Preferred Stock by
setting or changing the number, designation, preference, conversion or other
rights, voting powers, restrictions, limitations as to dividends, qualifications
and terms or conditions of redemption of such series (a "Designating
Amendment").

The following description of the Preferred Stock sets forth certain general
terms and provisions of the Preferred Stock to which any Prospectus Supplement
may relate. The statements below describing the Preferred Stock are in all
respects subject to and qualified in their entirety by reference to the
applicable provisions of the Company's Certificate of Incorporation and Bylaws.

GENERAL

The Board of Directors is empowered by the Company's Certificate of
Incorporation to designate and issue from time to time one or more classes or
series of Preferred Stock without shareholder approval. The Board of Directors
may determine the relative preferences, rights and other terms of each class or
series of Preferred Stock so issued. Because the Board of Directors has the
power to establish the preferences and rights of each class or series of
Preferred Stock, it may afford the holders of any class or series of Preferred
Stock preferences, powers and rights, voting or otherwise, senior to the rights
of holders of Common Stock. The Preferred Stock will, when issued, be fully paid
and nonassessable.

The Prospectus Supplement relating to any Preferred Stock offered thereby
will contain the specific terms thereof, including, without limitation:

(1) The title and stated value of such Preferred Stock;

(2) The number of such shares of Preferred Stock offered, the
liquidation preference per share and the offering price of such Preferred
Stock;

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(3) The dividend rate(s), period(s) and/or payment date(s) or method(s)
of calculation thereof applicable to such Preferred Stock;

(4) The date from which dividends on such Preferred Stock will
accumulate, if applicable;

(5) The procedures for any auction and remarketing, if any, for such
Preferred Stock;

(6) The provision for a sinking fund, if any, for such Preferred Stock;

(7) The provision for redemption, if applicable, of such Preferred
Stock;

(8) Any listing of such Preferred Stock on any securities exchange;

(9) The terms and conditions, if applicable, upon which such Preferred
Stock will be convertible into Common Stock of the Company, including the
conversion price (or manner of calculation thereof);

(10) Any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Stock;

(11) A discussion of federal income tax considerations applicable to
such Preferred Stock;

(12) The relative ranking and preferences of such Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up of
the affairs of the Company;

(13) Any limitations on issuance of any series of Preferred Stock
ranking senior to or on a parity with such series of Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up of
the affairs of the Company; and

(14) Any limitations on direct or beneficial ownership and restrictions
on transfer, in each case as may be appropriate to preserve the status of
the Company as a REIT.

RANK

Unless otherwise specified in the Prospectus Supplement, the Preferred Stock
will, with respect to dividend rights and rights upon liquidation, dissolution
or winding up of the Company, rank (i) senior to all classes or series of Common
Stock of the Company, and to all equity securities ranking junior to such
Preferred Stock; (ii) on a parity with all equity securities issued by the
Company the terms of which specifically provide that such equity securities rank
on a parity with the Preferred Stock; and (iii) junior to all equity securities
issued by the Company the terms of which specifically provide that such equity
securities rank senior to the Preferred Stock. The term "equity securities" does
not include convertible debt securities.

DIVIDENDS

Holders of the Preferred Stock of each series will be entitled to receive,
when, as and if declared by the Board of Directors, out of assets of the Company
legally available for payment, cash dividends (or dividends in kind or in other
property if expressly permitted and described in the applicable Prospectus
Supplement) at such rates and on such dates as will be set forth in the
applicable Prospectus Supplement. Each such dividend will be payable to holders
of record as they appear on the stock transfer books of the Company on such
record dates as are fixed by the Board of Directors.

Dividends on any series of Preferred Stock may be cumulative or
non-cumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the Board of Directors fails to declare a
dividend payable on a dividend payment date on any series of the Preferred Stock
for which dividends are non-cumulative, then the holders of such series of the
Preferred Stock will have no right to receive a dividend in respect of the
dividend period ending on such dividend payment date, and the Company will have
no obligation to

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pay the dividend accrued for such period, whether or not dividends on such
series are declared payable on any future dividend payment date.

Unless otherwise specified in the Prospectus Supplement, if any shares of
Preferred Stock of any series are outstanding, no full dividends will be
declared or paid or set apart for payment on any capital stock of the Company of
any other series ranking, as to dividends, on a parity with or junior to the
Preferred Stock of such series for any period unless (i) if such series of
Preferred Stock has a cumulative dividend, full cumulative dividends have been
or contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for such payment on the Preferred Stock of such
series for all past dividend periods and the then current dividend period or
(ii) if such series of Preferred Stock does not have a cumulative dividend, full
dividends for the then current dividend period have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for such payment on the Preferred Stock of such series. When dividends
are not paid in full (or a sum sufficient for such full payment is not so set
apart) upon Preferred Stock of any series and the shares of any other series of
Preferred Stock ranking on a parity as to dividends with the Preferred Stock of
such series, all dividends declared upon Preferred Stock of such series and any
other series of Preferred Stock ranking on a parity as to dividends with such
Preferred Stock will be declared PRO RATA so that the amount of dividends
declared per share of Preferred Stock of such series and such other series of
Preferred Stock will in all cases bear to each other the same ratio that accrued
dividends per share on the Preferred Stock of such series (which will not
include any accumulation in respect of unpaid dividends for prior dividend
periods if such Preferred Stock do not have a cumulative dividend) and such
other series of Preferred Stock bear to each other. No interest, or sum of money
in lieu of interest, will be payable in respect of any dividend payment or
payments on Preferred Stock of such series which may be in arrears.

Except as provided in the immediately preceding paragraph, unless (i) if
such series of Preferred Stock has a cumulative dividend, full cumulative
dividends on the Preferred Stock of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for all past dividend periods and the then current
dividend period, and (ii) if such series of Preferred Stock does not have a
cumulative dividend, full dividends on the Preferred Stock of such series have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for payment for the then current dividend
period, no dividends (other than in Common Stock or other capital stock ranking
junior to the Preferred Stock of such series as to dividends and upon
liquidation) will be declared or paid or set aside for payment or other
distribution upon the Common Stock, or any other capital stock of the Company
ranking junior to or on a parity with the Preferred Stock of such series as to
dividends or upon liquidation, nor will any Common Stock, or any other capital
stock of the Company ranking junior to or on a parity with the Preferred Stock
of such series as to dividends or upon liquidation be redeemed, purchased or
otherwise acquired for any consideration (or any moneys be paid to or made
available for a sinking fund for the redemption of any such stock) by the
Company (except by conversion into or exchange for other capital stock of the
Company ranking junior to the Preferred Stock of such series as to dividends and
upon liquidation).

As a general rule, for purposes of determining whether a distribution with
respect to the Company's stock is a taxable dividend, the Company's current and
accumulated earnings and profits first are allocated to the distributions with
respect to Preferred Stock (and among classes and series of Preferred Stock in
accordance with their respective priorities), with any balance being allocated
to distribution with respect to Common Stock. The effect of this rule is to
cause all distributions with respect to Preferred Stock to be fully taxable as
dividends before any portion of a distribution with respect to Common Stock is
taxable as a dividend. See "Federal Income Tax Considerations--Taxation of
Taxable Domestic Stockholders" and "-- Taxation of Non-U.S. Stockholders." If
for any taxable year, the Company elects to designate as "capital gains
dividends" (as defined in Section 857 of the Code) any portion (the "Capital
Gains Amount") of the dividends (within the meaning of the Code) paid or made
available for the year to holders of all classes of shares of beneficial
interest (the "Total Dividends"), then the portion of the Capital Gains Amount
that

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will be allocable to the holders of shares of Preferred Stock will be the
Capital Gains Amount multiplied by a fraction, the numerator of which shall be
the total dividends (within the meaning of the Code) paid or made available to
the holders of shares of Preferred Stock for the year and the denominator of
which shall be the Total Dividends.

Excess Stock received in exchange for Preferred Stock would not be entitled
to receive dividends or other distributions paid on the Preferred Stock other
than liquidating distributions. See "Description of Common Stock--Restrictions
on Transfer; Excess Stock."

REDEMPTION

If so provided in the applicable Prospectus Supplement, the Preferred Stock
will be subject to mandatory redemption or redemption at the option of the
Company, in whole or in part, in each case upon the terms, at the times and at
the redemption prices set forth in such Prospectus Supplement.

The Prospectus Supplement relating to a series of Preferred Stock that is
subject to mandatory redemption will specify the number of shares of such
Preferred Stock that will be redeemed by the Company in each year commencing
after a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accrued and unpaid dividends thereon (which
will not, if such Preferred Stock does not have a cumulative dividend, include
any accumulation in respect of unpaid dividends for prior dividend periods) to
the date of redemption. The redemption price may be payable in cash or other
property, as specified in the applicable Prospectus Supplement. If the
redemption price for Preferred Stock of any series is payable only from the net
proceeds of the issuance of capital stock of the Company, the terms of such
Preferred Stock may provide that, if no such capital stock shall have been
issued or to the extent the net proceeds from any issuance are insufficient to
pay in full the aggregate redemption price then due, such Preferred Stock will
automatically and mandatorily be converted into the applicable capital stock of
the Company pursuant to conversion provisions specified in the applicable
Prospectus Supplement.

Notwithstanding the foregoing, unless (i) if such series of Preferred Stock
has a cumulative dividend, full cumulative dividends on all Preferred Stock of
any series shall have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for payment for
all past dividend periods and the current dividend period and (ii) if such
series of Preferred Stock does not have a cumulative dividend, full dividends of
the Preferred Stock of any series have been or contemporaneously are declared
and paid or declared and a sum sufficient for the payment thereof set apart for
payment for the then current dividend period, no Preferred Stock of any series
shall be redeemed unless all outstanding Preferred Stock of such series are
simultaneously redeemed; provided, however, that the foregoing shall not prevent
the purchase or acquisition of Preferred Stock of such series to preserve the
REIT status of the Company or pursuant to a purchase or exchange offer made on
the same terms to holders of all outstanding Preferred Stock of such series. In
addition, unless (i) if such series of Preferred Stock has a cumulative
dividend, full cumulative dividends on all outstanding shares of any series of
Preferred Stock have been or contemporaneously are declared and paid or declared
and a sum sufficient for the payment thereof set apart for payment for all past
dividends periods and the then current dividend period, and (ii) if such series
of Preferred Stock does not have a cumulative dividend, full dividends on the
Preferred Stock of any series have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof set apart for
payment for the then current dividend period, the Company will not purchase or
otherwise acquire directly or indirectly any Preferred Stock of such series
(except by conversion into or exchange for capital stock of the Company ranking
junior to the Preferred Stock of such series as to dividends and upon
liquidation); provided, however, that the foregoing will not prevent the
purchase or acquisition of Preferred Stock of such series to preserve the REIT
status of the Company or pursuant to a purchase or exchange offer made on the
same terms to holders of all outstanding Preferred Stock of such series.

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If fewer than all of the outstanding shares of Preferred Stock of any series
are to be redeemed, the number of shares to be redeemed will be determined by
the Company and such shares may be redeemed PRO RATA from the holders of record
of such shares in proportion to the number of such shares held or for which
redemption is requested by such holder (with adjustments to avoid redemption of
fractional shares) or by lot in a manner determined by the Company.

Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of Preferred Stock of
any series to be redeemed at the address shown on the stock transfer books of
the Company. Each notice will state: (i) the redemption date; (ii) the number of
shares and class or series of Preferred Stock to be redeemed; (iii) the
redemption price; (iv) the place or places where certificates for such Preferred
Stock are to be surrendered for payment of the redemption price; (v) that
dividends on the shares to be redeemed will cease to accrue on such redemption
date; and (vi) the date upon which the holder's conversion rights, if any, as to
such shares shall terminate. If fewer than all of the Preferred Stock of any
series are to be redeemed, the notice mailed to each such holder thereof will
also specify the number of shares of Preferred Stock to be redeemed from each
such holder. If notice of redemption of any Preferred Stock has been given and
if the funds necessary for such redemption have been set aside by the Company in
trust for the benefit of the holders of any Preferred Stock so called for
redemption, then from and after the redemption date dividends will cease to
accrue on such Preferred Stock, and all rights of the holders of such shares
will terminate, except the right to receive the redemption price.

LIQUIDATION PREFERENCE

Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Company, then, before any distribution or payment is made to
the holders of any Common Stock or any other class or series of capital stock of
the Company ranking junior to the Preferred Stock in the distribution of assets
upon any liquidation, dissolution or winding up of the Company, the holders of
each series of Preferred Stock shall be entitled to receive out of assets of the
Company legally available for distribution to stockholders liquidating
distributions in the amount of the liquidation preference per share (set forth
in the applicable Prospectus Supplement), plus an amount equal to all dividends
accrued and unpaid thereon (which will not include any accumulation in respect
of unpaid dividends for prior dividend periods if such Preferred Stock does not
have a cumulative dividend). After payment of the full amount of the liquidating
distributions to which they are entitled, the holders of Preferred Stock will
have no right or claim to any of the remaining assets of the Company. In the
event that, upon any such voluntary or involuntary liquidation, dissolution or
winding up, the available assets of the Company are insufficient to pay the
amount of the liquidating distributions on all outstanding Preferred Stock and
the corresponding amounts payable on all shares of other classes or series of
capital stock of the Company ranking on a parity with the Preferred Stock in the
distribution of assets, then the holders of the Preferred Stock and all other
such classes or series of capital stock shall share ratably in any such
distribution of assets in proportion to the full liquidating distributions to
which they would otherwise be respectively entitled.

If liquidating distributions shall have been made in full to all holders of
Preferred Stock, the remaining assets of the Company will be distributed among
the holders of any other classes or series of capital stock ranking junior to
the Preferred Stock upon liquidation, dissolution or winding up, according to
their respective rights and preferences and in each case according to their
respective number of shares. For such purposes, the consolidation or merger of
the Company with or into any other corporation, trust or entity, or the sale,
lease or conveyance of all or substantially all of the property or business of
the Company, will not be deemed to constitute a liquidation, dissolution or
winding up of the Company.

VOTING RIGHTS

Holders of Preferred Stock will not have any voting rights, except as set
forth below or as otherwise from time to time required by law or as indicated in
the applicable Prospectus Supplement.

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Whenever dividends on any Preferred Stock shall be in arrears for six or
more consecutive quarterly periods, the holders of such Preferred Stock (voting
separately as a class with all other series of Preferred Stock upon which like
voting rights have been conferred and are exercisable) will be entitled to vote
for the election of two additional directors of the Company at a special meeting
called by the holders of record of at least ten percent (10%) of any series of
Preferred Stock so in arrears (unless such request is received less than 90 days
before the date fixed for the next annual or special meeting of the
shareholders) or at the next annual meeting of shareholders, and at each
subsequent annual meeting until (i) if such series of Preferred Stock has a
cumulative dividend, all dividends accumulated on such shares of Preferred Stock
for the past dividend periods and the then current dividend period shall have
been fully paid or declared and a sum sufficient for the payment thereof set
aside for payment or (ii) if such series of Preferred Stock do not have a
cumulative dividend, four consecutive quarterly dividends shall have been fully
paid or declared and a sum sufficient for the payment thereof set aside for
payment. In such case, the entire Board of Directors will be increased by two
directors.

Unless provided otherwise for any series of Preferred Stock, so long as any
shares of Preferred Stock remain outstanding, the Company will not, without the
affirmative vote or consent of the holders of at least two-thirds of each series
of shares of Preferred Stock outstanding at the time, given in person or by
proxy, either in writing or at a meeting (such series voting separately as a
class), (i) authorize or create, or increase the authorized or issued amount of,
any class or series of capital stock ranking prior to such series of Preferred
Stock with respect to the payment of dividends or the distribution of assets
upon liquidation, dissolution or winding up or reclassify any authorized capital
stock of the Company into such shares, or create, authorize or issue any
obligation or security convertible into or evidencing the right to purchase any
such shares; or (ii) amend, alter or repeal the provisions of the Company's
Certificate of Incorporation or the Designating Amendment for such series of
Preferred Stock, whether by merger, consolidation or otherwise (an "Event"), so
as to materially and adversely affect any right, preference, privilege or voting
power of such series of Preferred Stock or the holders thereof; provided,
however, with respect to the occurrence of any of the Events set forth in (ii)
above, so long as the shares of Preferred Stock remain outstanding with the
terms thereof materially unchanged, taking into account that upon the occurrence
of an Event, the Company may not be the surviving entity, the occurrence of any
such Event will not be deemed to materially and adversely affect such rights,
preferences, privileges or voting power of holders of Preferred Stock and
provided further that (x) any increase in the amount of the authorized Preferred
Stock or the creation or issuance of any other series of Preferred Stock, or (y)
any increase in the amount of authorized shares of such series or any other
series of Preferred Stock, in each case ranking on a parity with or junior to
the Preferred Stock of such series with respect to payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up, will not be
deemed to materially and adversely affect such rights, preferences, privileges
or voting powers.

The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of Preferred Stock of such series shall have
been redeemed or called for redemption and sufficient funds shall have been
deposited in trust to effect such redemption.

CONVERSION RIGHTS

The terms and conditions, if any, upon which any series of Preferred Stock
is convertible into Common Stock will be set forth in the applicable Prospectus
Supplement relating thereto. Such terms will include the number of shares of
Common Stock into which the Preferred Stock are convertible, the conversion
price (or manner of calculation thereof), the conversion period, provisions as
to whether conversion will be at the option of the holders of the Preferred
Stock or the Company, the events requiring an adjustment of the conversion price
and provisions affecting conversion in the event of the redemption of such
series of Preferred Stock.

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RESTRICTIONS ON OWNERSHIP

As discussed below under "Description of Common Stock--Restrictions on
Transfer; Excess Stock," for the Company to qualify as a REIT under the Code,
not more than 50% in value of its outstanding capital stock may be owned,
directly or indirectly, by five or fewer individuals (as defined in the Code to
include certain entities) during the last half of a taxable year. To assist the
Company in meeting this requirement, the Certificate of Incorporation provides
that no holder of Preferred Stock may own, or be deemed to own by virtue of
certain attribution provisions of the Code, more than 5% of the Company's issued
and outstanding capital stock, subject to certain exceptions specified in the
Certificate of Incorporation. See "Description of Common Stock--Restrictions on
Transfer; Excess Stock."

TRANSFER AGENT AND REGISTRAR

The Registrar and Transfer Agent for the Preferred Stock will be set forth
in the applicable Prospectus Supplement.

DESCRIPTION OF COMMON STOCK

GENERAL

The Company is authorized to issue 100,000,000 shares of Common Stock. The
outstanding Common Stock entitles the holder to one vote on all matters
presented to shareholders for a vote. Holders of Common Stock have no preemptive
rights. At December 31, 1996, there were 16,907,164 shares of Common Stock
outstanding.

Shares of Common Stock currently outstanding are listed for trading on the
New York Stock Exchange (the "NYSE"). The Company will apply to the NYSE to list
the additional Common Stock to be sold pursuant to any Prospectus Supplement,
and the Company anticipates that such shares will be so listed.

Subject to such preferential rights as may be granted by the Board of
Directors in connection with the future issuance of Preferred Stock, holders of
Common Stock are entitled to one vote per share on all matters to be voted on by
stockholders and are entitled to receive ratably such dividends as may be
declared on the Common Stock by the Board of Directors in its discretion from
funds legally available therefor. In the event of the liquidation, dissolution
or winding up of the Company, holders of Common Stock are entitled to share
ratably in all assets remaining after payment of all debts and other liabilities
and any liquidation preference of the holders of Preferred Stock. Holders of
Common Stock have no subscription, redemption, conversion or preemptive rights.
Matters submitted for stockholder approval generally require a majority vote of
the shares present and voting thereon.

ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS

The Bylaws of the Company provide that, with respect to an annual meeting of
stockholders, the proposal of business to be considered by stockholders may be
made only (i) by or at the direction of the Board of Directors or (ii) by a
stockholder who is entitled to vote at the meeting and who has complied with the
advance notice procedures set forth in the Bylaws. In addition, with respect to
any meeting of stockholders, nominations of persons for election to the Board of
Directors may be made only (i) by or at the direction of the Board of Directors
or (ii) by any stockholder of the Company who is entitled to vote at the meeting
and has complied with the advance notice provisions set forth in the Bylaws. In
general, for notice of stockholder nominations or business to be timely, the
notice must be received by the Company not less than 60 days nor more than 90
days prior to the first anniversary of the previous year's annual meeting.

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TRANSFER AGENT AND REGISTRAR

The Transfer Agent, Registrar and Dividend Disbursing Agent for the Common
Stock is First Chicago Trust Company of New York.

RESTRICTIONS ON TRANSFER; EXCESS STOCK

For the Company to continue to qualify as a REIT under the Code, not more
than 50% in value of its outstanding capital stock may be owned, directly or
constructively, by five or fewer individuals (as defined in the Code) during the
last half of a taxable year, the Common Stock must be beneficially owned by 100
or more persons during at least 335 days of a taxable year of 12 months (or
during a proportionate part of a shorter taxable year) and certain percentages
of the Company's gross income must be from particular activities. See "Federal
Income Tax Considerations--Taxation of the Company--Requirements for
Qualification." Because the Board of Directors believes it is essential for the
Company to continue to qualify as a REIT, the Certificate of Incorporation
contains a provision restricting the acquisition of the Company's capital stock
that is intended to help the Company meet the applicable ownership requirements
(the "Ownership Limit Provision").

The Ownership Limit Provision provides that, subject to certain exceptions
specified in the Certificate of Incorporation, no stockholder (subject to
certain exceptions) may own, or be deemed to own by virtue of the constructive
ownership provisions of the Code, more than 5% (the "Ownership Limit") of the
Company's capital stock. The Ownership Limit Provision provides that certain
persons that became stockholders or Unit holders in the Formation Transactions
may (subject to certain limitations) acquire additional shares pursuant to the
right of any one or more of them to exchange Units in the Operating Partnership
into shares of Common Stock or from other sources, subject to an overriding
limitation that no person may acquire additional shares if, as a result, any
five beneficial owners of the Company's capital stock would own more than 49.9%
of the Company's outstanding capital stock. The constructive ownership rules are
complex and may cause the Company's capital stock owned directly or
constructively by a group of related individuals and/or entities to be
constructively owned by one individual or entity. As a result, the acquisition
of less than 5% of the Company's capital stock (or the acquisition of an
interest in an entity which owns the Company's capital stock) by an individual
or entity could cause that individual or entity (or another individual or
entity) to constructively own in excess of 5% of the Company's capital stock,
and thus subject such capital stock to the Ownership Limit.

The Board of Directors may waive the Ownership Limit with respect to a
particular stockholder if the stockholder obtains either a ruling from the
Internal Revenue Service or an opinion of counsel satisfactory to the Board of
Directors which concludes that the waiver will not cause any person to violate
the Ownership Limit. In addition to preserving the Company's status as a REIT,
the Ownership Limit may prevent any person or group of persons from acquiring
unilateral control of the Company. The Ownership Limit may be changed by the
Board of Directors, subject to certain limitations.

If shares of the Company's capital stock in excess of the Ownership Limit,
or shares which would cause the Company to be beneficially owned by fewer than
100 persons, are acquired by any person, such acquisition would be null and void
as to the intended transferee and the intended transferee would acquire no
rights or economic interest in those shares. The shares of the Company's capital
stock that would be in excess of the Ownership Limit will automatically be
exchanged for shares of Excess Stock that will be transferred, by operation of
law, to the Company as trustee of a trust for the exclusive benefit of the
transferee or transferees to whom the shares are ultimately transferred (without
violating the Ownership Limit). While held in trust, the Excess Stock will not
be entitled to vote, will not be considered for purposes of any stockholder vote
or the determination of a quorum for such vote and will not be entitled to
participate in any distributions made by the Company other than liquidating
distributions. The original transferee-stockholder may, at any time the Excess
Stock is held by the Company in trust, designate a beneficiary of such original
transferee-stockholder's interest in the trust (representing the number of

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shares of Excess Stock attributable to the capital stock originally held by the
transferor-stockholder), provided that (i) the price paid by such designated
beneficiaries does not exceed the price paid by such original
transferee-stockholder, and (ii) the designated beneficiary's ownership of the
capital stock represented by such Excess Stock would be permitted under the
Ownership Limit Provision. Immediately following such designation, the Excess
Stock would automatically be exchanged for capital stock out of the class of
which the Excess Stock resulted. In addition, the Company would have the right,
for a period of 90 days during the time the Excess Stock is held by the Company
in trust, to purchase all or any portion of the Excess Stock from the original
transferee-stockholder at a price equal to the lesser of the price paid for the
stock by the transferee-stockholder and the average closing market price for the
Company's capital stock on the date the Company exercises its option to purchase
the stock or, if the capital stock being redeemed is not then being traded, the
average of the last reported sales of the capital stock to be redeemed on the
ten days immediately preceding the relevant date. This 90-day period commences
on the date of the violative transfer if the transferee-stockholder gives notice
of the transfer to the Company, or the date the Board of Directors determines
that a violative transfer has occurred if no notice is provided.

All certificates representing shares of the Company's capital stock will
bear a legend referring to the restrictions described above.

All persons who own a percentage of the Company's capital stock equal to or
exceeding the Ownership Limit (or such lesser percentage as set forth in the
Treasury Regulations) of the Company's capital stock must file a statement with
the Company containing information regarding their ownership of the Company's
capital stock, as set forth in the Treasury Regulations. In addition, each
stockholder shall upon demand be required to disclose to the Company in writing
such information with respect to the direct, indirect and constructive ownership
of shares as the Board of Directors deems necessary to comply with the
provisions of the Code applicable to a REIT or to comply with the requirements
of any taxing authority or governmental agency.

DESCRIPTION OF COMMON STOCK WARRANTS

The Company may issue Common Stock Warrants for the purchase of Common
Stock. Common Stock Warrants may be issued independently or together with any
other Securities offered by any Prospectus Supplement and may be attached to or
separate from such Securities. Each series of Common Stock Warrants will be
issued under a separate warrant agreement (each, a "Warrant Agreement") to be
entered into between the Company and a warrant agent specified in the applicable
Prospectus Supplement (the "Warrant Agent"). The Warrant Agent will act solely
as an agent of the Company in connection with the Common Stock Warrants of such
series and will not assume any obligation or relationship of agency or trust for
or with any holders or beneficial owners of Common Stock Warrants. The following
sets forth certain general terms and provisions of the Common Stock Warrants
offered hereby. Further terms of the Common Stock Warrants and the applicable
Warrant Agreements will be set forth in the applicable Prospectus Supplement.

The applicable Prospectus Supplement will describe the terms of the Common
Stock Warrants in respect of which this Prospectus is being delivered,
including, where applicable, the following:

(1) the title of such Common Stock Warrants;

(2) the aggregate number of such Common Stock Warrants;

(3) the price or prices at which such Common Stock Warrants will be
issued;

(4) the designation, number and terms of the shares of Common Stock
purchasable upon exercise of such Common Stock Warrants;

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(5) the designation and terms of the other Securities offered thereby
with which such Common Stock Warrants are issued and the number of such
Common Stock Warrants issued with each such Security offered thereby;

(6) the date, if any, on and after which such Common Stock Warrants and
the related Common Stock will be separately transferable;

(7) the price at which each of the shares of Common Stock purchasable
upon exercise of such Common Stock Warrants may be purchased;

(8) the date on which the right to exercise such Common Stock Warrants
shall commence and the date on which such right shall expire;

(9) the minimum or maximum number of such Common Stock Warrants which
may be exercised at any one time;

(10) information with respect to book entry procedures, if any;

(11) a discussion of certain federal income tax considerations; and

(12) any other terms of such Common Stock Warrants, including terms,
procedures and limitations relating to the exchange and exercise of such
Common Stock Warrants.

FEDERAL INCOME TAX CONSIDERATIONS

GENERAL

The following is a description of certain Federal income tax considerations
to the Company and the holders of Securities of the treatment of the Company as
a REIT under applicable provisions of the Code. The applicable Prospectus
Supplement will contain information about specific Federal income tax
considerations, if any, relating to Securities other than Common Stock. The
following discussion, which is not exhaustive of all possible tax
considerations, does not give a detailed discussion of any state, local or
foreign tax considerations. Nor does it discuss all of the aspects of Federal
income taxation that may be relevant to a prospective stockholder in light of
his or her particular circumstances or to certain types of stockholders
(including insurance companies, tax-exempt entities, financial institutions or
broker-dealers, foreign corporations and persons who are not citizens or
residents of the United States) who are subject to special treatment under the
Federal income tax laws. As used in this section, the term "Company" refers
solely to The Mills Corporation and not to the Operating Partnership, the
Third-Party Services Corporation, or other entities.

The statements in this discussion are based on current provisions of the
Code, existing, temporary, and currently proposed Treasury Regulations
promulgated under the Code, the legislative history of the Code, existing
administrative rulings and practices of the IRS (including its practices and
policies in issuing private letter rulings, which are not binding on the IRS
except with respect to a taxpayer that receives such a ruling), and judicial
decisions. No assurance can be given that future legislative, judicial, or
administrative actions or decisions, which may be retroactive in effect, or
changes in administrative practices and policies of the IRS will not materially
affect the accuracy of any statements in this Prospectus.

EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT WITH HIS OR HER OWN TAX
ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE PURCHASE,
OWNERSHIP AND SALE OF SHARES IN AN ENTITY ELECTING TO BE TAXED AS A REIT,
INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH
PURCHASE, OWNERSHIP, SALE AND ELECTION AND OF POTENTIAL CHANGES IN APPLICABLE
TAX LAWS.

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TAXATION OF THE COMPANY

GENERAL. The Company, which is considered a corporation for Federal income
tax purposes, has elected to be taxed as a REIT under Sections 856 through 860
of the Code effective commencing with its taxable year ended December 31, 1994.
The Company believes that it is organized and has operated in such a manner so
as to qualify for taxation as a REIT under the Code, and the Company intends to
continue to operate in such a manner. No assurance, however, can be given that
the Company has operated in a manner so as to qualify as a REIT or that it will
continue to operate in such a manner in the future. Qualification and taxation
as a REIT depends upon the Company's ability to meet on a continuing basis,
through actual annual operating results, distribution levels and diversity of
stock ownership, the various qualification tests imposed under the Code on
REITs, some of which are summarized below. While the Company intends to operate
so that it qualifies as a REIT, given the highly complex nature of the rules
governing REITs, the ongoing importance of factual determinations, and the
possibility of future changes in circumstances of the Company, no assurance can
be given that the Company satisfies such tests or will continue to do so.

Hogan & Hartson L.L.P., counsel to the Company, has rendered its opinion
that the Company has qualified to be taxed as a REIT under the Code commencing
with the Company's taxable year ended December 31, 1994, and its organization
and proposed method of operation will enable it to continue to so qualify for
future taxable years. Although such opinion concludes that the Company's
performance of certain marketing and promotional activities will not affect its
ability to qualify as a REIT, such opinion is not free from doubt with respect
to this issue. Further, investors should be aware that opinions of counsel are
not binding upon the IRS or any court. The opinion of Hogan & Hartson L.L.P. is
based on various assumptions and is conditioned upon certain representations
made by the Company as to factual matters, including representations regarding
the nature of the Company's properties and the future conduct of its business.
Moreover, such qualification and taxation as a REIT depends upon the Company's
ability to meet on a continuing basis, through actual annual operating results,
distribution levels, and share ownership, the various qualification tests
imposed under the Code discussed below. Hogan & Hartson L.L.P. will not review
the Company's compliance with those tests on a continuing basis. Accordingly, no
assurance can be given that the actual results of the Company's operations for
any particular taxable year will satisfy such requirements. For a discussion of
the tax consequences of failure to qualify as a REIT, see "Failure to Qualify."

The following is a general summary of the Code provisions that govern the
Federal income tax treatment of a REIT and its stockholders. These provisions of
the Code are highly technical and complex. This summary is qualified in its
entirety by the applicable Code provisions, Treasury Regulations and
administrative and judicial interpretations thereof.

If the Company qualifies for taxation as a REIT, it generally will not be
subject to Federal corporate income taxes on net income that it currently
distributes to stockholders. However, the Company will be subject to Federal
income tax on any income that it does not distribute and will be subject to
Federal income tax in certain circumstances on certain types of income even
though that income is distributed.

If the Company invests in retail properties or other real estate in foreign
countries, the Company's profits from such investments will generally be subject
to tax in the countries where such properties are located. The precise nature
and amount of any such taxation will depend on the laws of the countries where
the properties are located. If the Company satisfies the annual distribution
requirements for qualification as a REIT and is therefore not subject to Federal
corporate income tax on that portion of its ordinary income and capital gain
that is currently distributed to its stockholders, the Company will generally
not be able to recover the cost of any foreign tax imposed on profits from its
foreign investments by claiming foreign tax credits against its U.S. tax
liability on such profits. Moreover, a REIT is not able to pass foreign tax
credits through to its stockholders. The Canadian joint ventures with Cambridge
described under the caption "The Company" likely will subject the Company to
Canadian tax. The Company will

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seek to structure its investment in a manner so as to reduce the amount of
Canadian tax imposed. Any Canadian taxes paid by the Company will be an
operational cost of the Company because the tax cost is not recoverable through
the foreign tax credit mechanism as discussed above.

REQUIREMENTS FOR QUALIFICATION. The Code defines a REIT as a corporation,
trust or association (1) that is managed by one or more trustees or directors;
(2) the beneficial ownership of which is evidenced by transferable shares of
stock, or by transferable certificates of beneficial interest; (3) that would be
taxable as a domestic corporation, but for Sections 856 through 859 of the Code;
(4) that is neither a financial institution nor an insurance company subject to
certain provisions of the Code; (5) the beneficial ownership of which is held by
100 or more persons; (6) that during the last half of each taxable year not more
than 50% in value of the outstanding stock of which is owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities); and (7) that meets certain other tests, described below,
regarding the nature of its income and assets. The Code provides that conditions
(1) through (4), inclusive, must be met during the entire taxable year and that
condition (5) must be met during at least 335 days of a taxable year of 12
months, or during a proportionate part of a taxable year of less than 12 months.
The Company's Certificate of Incorporation contains restrictions regarding the
transfer of its Common Stock that are intended to assist the Company in
continuing to satisfy the share ownership requirements described in (5) and (6)
above. See "Description of Common Stock--Restrictions on Transfer; Excess
Stock."

Section 856(i) of the Code provides that a corporation which is a "qualified
REIT subsidiary" (defined generally to mean any corporation if 100% of the stock
of such corporation is held by the real estate trust at all times during the
period such corporation was in existence) shall not be treated as a separate
corporation and all assets, liabilities, and items of income, deduction and
credit of a "qualified REIT subsidiary" shall be treated as assets, liabilities,
and items of income, deduction and credit (as the case may be) of the real
estate investment trust. Thus, in applying the requirements herein, the
Company's "qualified REIT subsidiaries" would be ignored, and all assets,
liabilities, and items of income, deduction and credit of such subsidiaries
would be treated as assets, liabilities and items of income, deduction and
credit of the Company. Potomac Mills Finance Corp., The Mills GP, Inc.,
Washington Potomac Partners Corp., and Mills Grapevine Corporation are all
qualified REIT subsidiaries.

If a REIT is a partner in a partnership, the REIT will be deemed to own its
proportionate share of the assets of the partnership and will be deemed to be
entitled to the income of the partnership attributable to such share. In
addition, the assets and gross income (as defined in the Code) of the
partnership attributed to the REIT will retain the same character as in the
hands of the partnership for purposes of Section 856 of the Code, including
satisfying the gross income tests and the assets tests described below. Thus,
proportionate share of the assets, liabilities and items of income of the
Operating Partnership the Company's and its subsidiary partnerships or limited
liability companies are treated as assets, liabilities and items of income of
the Company for purposes of applying the requirements described herein.

ABSENCE OF C CORPORATION EARNINGS AND PROFITS. A corporation will qualify
as a REIT only if, at the close of its taxable year, it has no earnings and
profits accumulated in any non-REIT tax year. The Company was formed in 1991 but
was not active until 1993. The Company elected S corporation status for its
taxable years commencing with January 1, 1993. The Company terminated its S
election immediately prior to its initial public offering in April of 1994. If
the Company's S corporation election was valid for all of its taxable years
commencing with January 1, 1993, including its short S corporation year ending
immediately prior to its initial public offering, the Company would have no
earnings and profits accumulated in any non-REIT year and thus would have met
the earnings and profits requirement for its short C corporation taxable year
ended December 31, 1994 and for tax years thereafter. The Company believes that
it qualified as an S corporation for its taxable years commencing with January
1, 1993, and including the short S corporation year, and that it does not have,
and has not had, accumulated earnings and profits from a non-REIT tax year.
Nevertheless, the S corporation requirements are highly technical and complex
and there can be no assurance that the IRS might not assert that the Company
failed to qualify as an S

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corporation for some reason. In such an event, the Company would not be eligible
to qualify as a REIT until the tax year when it paid out the accumulated
earnings and profits from the non-REIT tax years.

INCOME TESTS. In order to maintain qualification as a REIT, there are three
gross income requirements that must be satisfied annually. First, at least 75%
of the REIT's gross income (excluding gross income from prohibited transactions)
for each taxable year must be derived directly or indirectly from investments
relating to real property or mortgages on real property (including "rents from
real property" and, in certain circumstances, interest) or from certain types of
temporary investments. Second, at least 95% of the REIT's gross income
(excluding gross income from prohibited transactions) for each taxable year must
be derived from the same items which qualify under the 75% income test, and from
dividends, interest and gain from the sale or disposition of stock or
securities, or from any combination of the foregoing. Third, short-term gain
from the sale or other disposition of stock or securities, gain from prohibited
transactions and gain on the sale or other disposition of real property held for
less than four years (apart from involuntary conversions and sales of
foreclosure property) must represent less than 30% of the REIT's gross income
(including gross income from prohibited transactions) for each taxable year.

Rents received by the Company will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions (related to the identity of the tenant, the computation of
the rent payable, and the nature of the property leased) are met. The Company
does not anticipate receiving rents that fail to meet these conditions in an
amount that reasonably could be expected to jeopardize its satisfaction of the
75% and 95% gross income tests. In addition, for rents received to qualify as
"rents from real property," the Company generally must not operate or manage the
property or furnish or render services to tenants, other than through an
"independent contractor" from whom the Company derives no revenue. The
"independent contractor" requirement, however, does not apply to the extent the
services provided by the Company are "usually or customarily rendered" in
connection with the rental space for occupancy only and are not otherwise
considered "rendered to the occupant."

The Company, through the Operating Partnership, the Management Partnership
and Mainstreet Retail Limited Partnership, a subsidiary of the Management
Partnership, which are not "independent contractors," currently performs
management and leasing activities with respect to Properties that are owned
entirely or partially by the Operating Partnership. The Third-Party Services
Corporation provides development services for existing properties and new
properties acquired by the Company and may in the future provide management and
leasing services with respect to certain properties (including Ontario Mills) in
which the Company does not own a 100% interest.

In connection with the performance of such management and leasing
activities, the Company regularly undertakes a wide range of marketing and
promotional activities that are intended to promote and benefit an entire mall
operation through increasing consumer spending and thereby increasing the rents
that the Company derives from its tenants. The IRS, in a number of private
letter rulings issued to other REITs, has approved specific advertising and
promotional activities undertaken by a REIT that owns a retail shopping center
where such marketing activities are intended primarily to increase overall
spending at the centers (and therefore the REIT's revenues from tenants), rather
than to benefit a specific tenant. Some of the advertising and promotional
activities undertaken by the Company are identical to those approved by the IRS
in these private letter rulings, but in view of the relatively unique nature of
the Mills, some of the Company's advertising and promotional activities are
different from and more extensive than those addressed specifically by the IRS
to date in private letter rulings.

The Company has represented that all of its advertising and promotional
activities, whether focused on only the mall itself or on specific stores at the
mall, have as their primary purpose encouraging increased spending throughout
the mall and thereby increasing the Company's overall revenues through increased
rents (which are typically based upon a percentage of sales), which is the basic
premise upon which the IRS has concluded that a REIT owning retail properties
can engage in advertising and

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promotional activities generally. Accordingly, the Company believes that all of
its management, leasing and development activities, including its marketing and
promotional activities, to the extent that they might be considered a service to
tenants, should be considered "usually or customarily rendered" in connection
with the rental of space for occupancy. Based, in part, on the Company's various
representations, Hogan & Hartson L.L.P., counsel to the Company, is of the
opinion, that, although the matter is not free from doubt, the performance of
such activities by the Company will not affect the qualification of the rents
received from tenants as "rents from real property" (and thus the Company's
ability to qualify as a REIT). In addition, opinions of counsel are not binding
upon the IRS or a court. Accordingly, no assurance can be given that the IRS
will not challenge the Company's position with respect to certain activities
performed by the Company, or that such a challenge would not be successful. A
successful challenge by the IRS could result in the Company failing to satisfy
the gross income requriements for the years during which it engaged in such
activities, and therefore failing to qualify as a REIT for such years. See
"--Failure to Qualify." However, under certain circumstances, the Company may
not fail to qualify as a REIT but rather would be subject to a tax imposed with
respect to its "excess net income," as described below.

The Company does not believe, after consultation with its professional
advisors, that there will be a material adverse effect on its business
operations or its ability to qualify as a REIT as a result of its performance of
its marketing and promotional activities. Nevertheless, in order to remove any
possible ambiguity with respect to such activities, the Company will soon begin
requiring certain marketing and promotional activities to be performed by
independent contractors which are adequately compensated and from which the
Company receives no income. If the Company contemplates providing services to
tenants that may reasonably be expected not to meet the "usual or customary"
standard, it will arrange to have such services performed by such an independent
contractor. See "Failure to Qualify."

With respect to fees received by the Operating Partnership or other
partnership entities from Properties in which the Operating Partnership owns
less than a 100% interest, the IRS takes the position that a portion of such
fees (corresponding to that portion of a Property owned by a third-party) does
not qualify for the 75% or 95% gross income tests. Mainstreet Retail Limited
Partnership also manages vendor space in the common areas of third-party
properties and partially-owned properties the income from which may not qualify
for the 75% and 95% gross income tests.

Services to properties in which the Operating Partnership does not own any
interest are rendered by the Third-Party Services Corporation. In addition, the
Third-Party Services Corporation provides development services to the
Properties, as discussed above. The Operating Partnership owns 99% of the non-
voting preferred stock and 5% of the voting common stock of the Third-Party
Services Corporation. The Operating Partnership also holds a note issued by the
Third-Party Services Corporation. The Company's share of any dividend or
interest received from the Third-Party Services Corporation should qualify for
purposes of the 95% test, but not for purposes of the 75% test. The Company does
not anticipate that it will receive sufficient dividends and interest from the
Third-Party Services Corporation to cause it to exceed the limit on
non-qualifying income under the 75% test.

In addition to rents, the Operating Partnership derives income from interest
on the mortgage loans extended by the Operating Partnership to the Property
Partnership holding Franklin Mills which will qualify for purposes of the 75%
and 95% gross income tests. To qualify for the 95% gross income test, interest
cannot depend in whole or in part on the income or profits of any person.
However, an amount received or accrued generally will not be disqualified solely
by reason of being based on fixed percentage or percentages of receipts or
sales. The Operating Partnership does not charge interest dependent in whole or
in part on profits.

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If the Company fails to satisfy one or both of the 75% or the 95% gross
income tests for any taxable year, it may nevertheless qualify as a REIT for
such year if (i) it attaches a schedule of the source and nature of each item of
its gross income to its federal income tax return for such year, (ii) the
inclusion of any incorrect information in its return was not due to fraud with
intent to evade tax, and (iii) the Company's failure to meet such tests is due
to reasonable cause and not due to willful neglect. It is not possible, however,
to state whether in all circumstances the Company would be entitled to the
benefit of these relief provisions. Even if these relief provisions were to
apply, however, a tax would be imposed with respect to the "excess net income"
attributable to the failure to satisfy the 75% and 95% gross income tests. See
"Failure to Qualify" for a discussion of such tax.

ASSET TESTS. The Company, at the close of each quarter of its taxable year,
must also satisfy three tests relating to the nature of its assets: (i) at least
75% of the value of the Company's total assets must be represented by "real
estate assets," cash, cash items and government securities; (ii) not more than
25% of the Company's total assets may be represented by securities other than
those in the 75% asset class; and (iii) of the investments included in the 25%
asset class, the value of any one issuer's securities (other than an interest in
a partnership, shares of a "qualified REIT subsidiary" or another REIT) owned by
the Company may not exceed 5% of the value of the Company's total assets, and
the Company may not own more than 10% of any one issuer's outstanding voting
securities (other than an interest in a partnership, shares of a "qualified REIT
subsidiary" or another REIT). The Operating Partnership owns 99% of the
nonvoting preferred stock and 5% of the voting common stock of the Third-Party
Services Corporation. In addition, the Operating Partnership owns a note issued
by the Third-Party Services Corporation, and by virtue of its ownership of
Units, the Company is considered to own its PRO RATA share of the stock of the
Third-Party Services Corporation owned by the Operating Partnership and the note
of the Third-Party Services Corporation. Neither the Company nor the Operating
Partnership, however, owns more than 10% of the voting securities of the
Third-Party Services Corporation. In addition, the Company and its senior
management believe that the Company's PRO RATA share of the value of the
securities of the Third-Party Services Corporation (taking into account both the
Company's pro rata share of the stock of the Third-Party Services Corporation
and the Company's PRO RATA share of the note of the Third-Party Services
Corporation) does not exceed 5% of the total value of the Company's assets.
There can be no assurance, however, that the IRS might not contend either that
the value of the securities of the Third-Party Services Corporation held by the
Company (through the Operating Partnership) exceeds the 5% value limitation or
that the nonvoting stock of the Third-Party Services Corporation owned by the
Operating Partnership should be considered "voting stock" for this purpose.

The 5% value requirement must be satisfied each time the Company increases
its ownership of securities of the Third-Party Services Corporation (including
as a result of increasing its interest in the Operating Partnership as limited
partners exercise their redemption rights). Although the Company plans to take
steps to ensure that it satisfies the 5% value test for any quarter with respect
to which retesting is to occur, there can be no assurance that such steps will
always be successful or will not require a reduction in the Company's overall
interest in the Third-Party Services Corporation.

ANNUAL DISTRIBUTION REQUIREMENTS. To qualify as a REIT, the Company
generally must distribute to its stockholders at least 95% of its income each
year. In addition, the Company will be subject to tax on the undistributed
amount and also may be subject to a 4% excise tax on undistributed income in
certain events.

The Company believes that it has made, and expects to continue to make,
timely distributions sufficient to satisfy the annual distribution requirements.
It is possible, however, that the Company, from time to time, may not have
sufficient cash or other liquid assets to meet the distribution requirements. In
that event, the Company may cause the Operating Partnership to arrange for
short-term, or possibly long-term, borrowing to permit the payments of required
dividends.

FAILURE TO QUALIFY. If the Company fails to qualify for taxation as a REIT
in any taxable year and the relief provisions do not apply, the Company will be
subject to tax (including any applicable alternative

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<PAGE>
minimum tax) on its taxable income at regular corporate rates. Unless entitled
to relief under specific statutory provisions, the Company also will be
disqualified from taxation as a REIT for the four taxable years following the
year during which qualification was lost. It is not possible to state whether in
all circumstances the Company would be entitled to such statutory relief. If the
Company were to fail to satisfy the 75% or 95% gross income test but were to
qualify for such statutory relief, it would be subject to a 100% tax on an
amount equal to (a) the amount of gross income by which it failed to satisfy the
applicable gross income test multiplied by (b) a fraction intended to reflect
the Company's profitability.

PENALTY TAX ON PROHIBITED TRANSACTIONS

The Company's share of any gain realized on the sale of any property held as
inventory or otherwise primarily for sale to customers in the ordinary course of
its trade or business generally will be treated as income from a prohibited
transaction that is subject to a 100% penalty tax. Such prohibited transaction
income will also have an adverse effect upon the Company's ability to satisfy
the income tests for qualification as a REIT. Under existing law, whether
property is held as inventory or primarily for sale to customers in the ordinary
course of a trade or business is a question of fact that depends on all the
facts and circumstances with respect to the particular transaction. The
Operating Partnership, through the Property Partnerships, intends to hold the
Properties for investment with a view to long-term appreciation, to engage in
the business of acquiring, developing, owning and operating the Properties and
other retail properties and to make such occasional sales of the Properties as
are consistent with the Company's investment objectives. Based upon such
investment objectives, the Company believes that in general the Properties
should not be considered inventory or other property held primarily for sale to
customers in the ordinary course of a trade or business and that the amount of
income from prohibited transactions, if any, will not be material. Nevertheless,
the IRS could contend otherwise. In particular, the Company indirectly owns
parcels of land which are located adjacent to particular Properties that are not
necessarily required for use within the regional outlet mall or community
shopping center located at the Property (referred to as "outparcels"). The
Company may sell one or more of these outparcels from time to time. In addition,
in connection with the development of a regional outlet mall at a Property, the
Company may sell parcels of land within the mall ("anchor parcels") to major
anchor tenants who desire to own the land on which their facility is located.
The Company believes that the outparcels and anchor parcels should not be
considered inventory or as held primarily for sale to customers in the ordinary
course of the Company's trade or business, but there is a risk that the IRS
could contend otherwise, in which event, the profit from such sales allocable to
the Company would be subject to a 100% tax. In the event that the Company
determines that the level of such activity with respect to the outparcels and/or
anchor parcels is sufficient to cause such sales to be subject to 100% tax, the
Company intends to hold and sell such parcels through a separate corporation in
which the Operating Partnership would hold a non-voting stock interest. The
Company would structure the stock interest owned by the Operating Partnership in
any such corporation to ensure that the various asset tests described above were
not violated (i.e., the Operating Partnership would not own more than 10% of the
voting securities of such corporation and the value of the stock interest would
not exceed 5% of the value of the Company's total assets). Such corporation
would be subject to a corporate level tax on its taxable income attributable to
land sales, thereby reducing the amount of cash available for distribution by
the Company.

TAXATION OF TAXABLE DOMESTIC STOCKHOLDERS

As long as the Company qualifies as a REIT, distributions made to the
Company's taxable domestic stockholders out of current or accumulated earnings
and profits (and not designated as capital gain dividends) will be taken into
account by them as ordinary income, and corporate stockholders will not be
eligible for the dividends received deduction as to such amounts. Distributions
that are designated as capital gain dividends will be taxed as long-term capital
gains (to the extent they do not exceed the Company's actual net capital gain
for the taxable year) without regard to the period for which the stockholder has
held its stock. However, corporate stockholders may be required to treat up to
20% of

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<PAGE>
certain capital gain dividends as ordinary income. Distributions in excess of
current or accumulated earnings and profits will not be taxable to a stockholder
to the extent that they do not exceed the adjusted basis of the stockholder's
Common Stock, but rather will reduce the adjusted basis of such Common Stock. To
the extent that such distributions exceed the adjusted basis of a stockholder's
Common Stock, they will be included in income as long-term capital gain (or
short-term capital gain if the Common Stock have been held for one year or
less), assuming the Common Stock are a capital asset in the hands of the
stockholder.

In general, a domestic stockholder will realize capital gain or loss on the
disposition of Common Stock equal to the difference between (i) the amount of
cash and the fair market value of any property received on such disposition and
(ii) the stockholder's adjusted basis of such Common Stock. Such gain or loss
generally will constitute long-term capital gain or loss if the stockholder has
held such shares for more than one year. Loss upon a sale or exchange of Common
Stock by a stockholder who has held such Common Stock for six months or less
(after applying certain holding period rules) will be treated as a long-term
capital loss to the extent of distributions from the Company required to be
treated by such stockholder as long-term capital gain.

Under certain circumstances, domestic stockholders may be subject to backup
withholding at the rate of 31% with respect to dividends paid.

TAXATION OF TAX EXEMPT STOCKHOLDERS

The Company does not expect that distributions by the Company to a
stockholder that is a tax-exempt entity will constitute "unrelated business
taxable income" ("UBTI"), provided that the tax-exempt entity has not financed
the acquisition of its Common Stock with "acquisition indebtedness" within the
meaning of the Code and the Common Stock is not otherwise used in an unrelated
trade or business of the tax-exempt entity.

TAXATION OF NON-U.S. STOCKHOLDERS

The rules governing U.S. Federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships and other foreign
stockholders (collectively, "Non-U.S. Stockholders") are complex, and no attempt
will be made herein to provide more than a limited summary of such rules.
Prospective Non-U.S. Stockholders should consult with their own tax advisors to
determine the impact of U.S. Federal, state and local income tax laws with
regard to an investment in Common Stock, including any reporting requirements.

Distributions that are not attributable to gain from sales or exchanges by
the Company of U.S. real property interests and not designated by the Company as
capital gain dividends will be treated as dividends of ordinary income to the
extent that they are made out of current or accumulated earnings and profits of
the Company. Such distributions, ordinarily, will be subject to a withholding
tax equal to 30% of the gross amount of the distribution unless an applicable
tax treaty reduces that tax. Distributions in excess of current and accumulated
earnings and profits of the Company will not be taxable to a Non-U.S.
Stockholder to the extent that they do not exceed the adjusted basis of the
stockholder's Common Stock, but rather will reduce the adjusted basis of such
Common Stock. To the extent that such distributions exceed the adjusted basis of
a Non-U.S. Stockholder's Common Stock, they will give rise to tax liability if
the Non-U.S. Stockholder would otherwise be subject to tax on any gain from the
sale or disposition of his Common Stock as described below (in which case they
also may be subject to a 30% branch profits tax if the stockholder is a foreign
corporation). As a result of a legislative change made by the Small Business Job
Protection Act of 1996, effective for distributions made after August 20, 1996,
the Company is required to withhold 10% of any distribution in excess of the
Company's current and accumulated earnings and profits. Consequently, although
the Company intends to withhold at a rate of 30% on the entire amount of any
distribution, to the extent that the Company does not do so any portion of a
distribution not subject to withholding at a rate of 30% will be subject to
withholding at a rate of 10%. However, the Non-U.S.

25
<PAGE>
Stockholder may seek a refund of such amounts from the IRS if it is subsequently
determined that such distribution was, in fact, in excess of current or
accumulated earnings and profits of the Company, and the amount withheld
exceeded the Non-U.S. Stockholder's United States tax liability, if any, with
respect to the distribution.

For any year in which the Company qualifies as a REIT, distributions that
are attributable to gain from sales or exchanges by the Company of U.S. real
property interests will be taxed to a Non-U.S. Stockholder under the provisions
of the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA") at the
normal capital gain rates applicable to U.S. stockholders (subject to applicable
alternative minimum tax and a special alternative minimum tax in the case of
nonresident alien individuals). Also, distributions subject to FIRPTA may be
subject to a 30% branch profits tax in the hands of a corporate Non-U.S.
Stockholder not entitled to treaty relief or exemption. The Company is required
to withhold 35% of any distribution that is or could be designated by the
Company as a capital gain dividend. The amount withheld is creditable against
the Non-U.S. Stockholder's FIRPTA tax liability.

Gain recognized by a Non-U.S. Stockholder upon a sale of Common Stock
generally will not be taxed under FIRPTA if the Company is a "domestically
controlled REIT," defined generally as a REIT in which at all times during a
specified testing period less than 50% in value of the stock was held directly
or indirectly by foreign persons. The Company believes that it is a
"domestically controlled REIT," and, therefore, that the sale of Common Stock
will not be subject to taxation under FIRPTA. If the gain on the sale of Common
Stock were to be subject to tax under FIRPTA, the Non-U.S. Stockholder would be
subject to the same treatment as U.S. stockholders with respect to such gain
(subject to applicable alternative minimum tax and a special alternative minimum
tax in the case of nonresident alien individuals), and the purchaser of the
Common Stock would be required to withhold and remit to the IRS 10% of the
purchase price.

OTHER TAX CONSIDERATIONS

EFFECT OF TAX STATUS OF OPERATING PARTNERSHIP, MANAGEMENT PARTNERSHIP AND
OTHER PARTNERSHIP SUBSIDIARIES ON REIT QUALIFICATION. Substantially all of the
Company's investments are through the Operating Partnership and Property
Partnerships (including limited liability companies which own interests in the
Property Partnerships and in which the Operating Partnership owns interests)
which hold title to the Properties. The Operating Partnership also carries out
activities through the Management Partnership and various subsidiary
partnerships and limited liability companies (together with the Property
Partnerships, the "Subsidiary Partnerships"). The Operating Partnership and the
Subsidiary Partnerships may involve special tax considerations. Such
considerations include (i) the allocations of income and expense items of the
Operating Partnership, which could affect the computation of taxable income of
the Company, (ii) the status of the Operating Partnership and the Subsidiary
Partnerships as partnerships (as opposed to associations taxable as
corporations) for income tax purposes, and (iii) the taking of actions by the
Operating Partnership and the Subsidiary Partnerships that could adversely
affect the Company's qualification as a REIT. The Company believes that the
Operating Partnership and the Subsidiary Partnerships each qualify for tax
purposes as a partnership (and not as an association taxable as a corporation).
If, however, either the Operating Partnership and/or the Subsidiary Partnerships
were treated as an association taxable as a corporation, the Company would fail
to qualify as a REIT for a number of reasons.

TAX ALLOCATIONS WITH RESPECT TO THE PROPERTIES. The Operating Partnership
was formed by way of contributions of appreciated property (including certain of
the Properties). When property is contributed to a partnership in exchange for
an interest in the partnership, the partnership generally takes a carryover
basis in that property for tax purposes equal to the adjusted basis of the
contributing partner in the property, rather than a basis equal to the fair
market value of the property at the time of contribution (this difference is
referred to as a "Book-Tax Difference"). The Partnership Agreement requires
allocations of income, loss, gain and deduction with respect to the contributed
Property be made in a manner consistent with the special rules in section 704(c)
of the Code and the regulations thereunder, which allocations will

26
<PAGE>
tend to eliminate the Book-Tax Differences with respect to the contributed
Properties over the life of the Operating Partnership. However, because of
certain technical limitations, the special allocation rules of section 704(c) of
the Code may not always entirely eliminate the Book-Tax Difference on an annual
basis or with respect to a specific taxable transaction such as a sale. Thus,
the carryover basis of the contributed Properties in the hands of the Operating
Partnership could cause the Company (i) to be allocated lower amounts of
depreciation and other deductions for tax purposes than would be allocated to
the Company if all Properties were to have a tax basis equal to their fair
market value at the time of their contribution to the Operating Partnership, and
(ii) possibly to be allocated taxable gain in the event of a sale of such
contributed Properties in excess of the economic or book income allocated to the
Company as a result of such sale.

THIRD-PARTY SERVICES CORPORATION. A portion of the amount distributed by
the Company to stockholders comes from the Third-Party Services Corporation,
through dividends on stock held by the Operating Partnership and payments on the
note held by the Operating Partnership. The Third-Party Services Corporation
does not qualify as a REIT and thus pays Federal, state and local income taxes
on its net income at normal corporate rates. As a result of interest and other
deductions, the Third-Party Service Corporation does not pay significant income
tax currently. There can be no assurance, however, that the IRS will not
challenge these deductions. In any event, future increases in the income of the
Third-Party Services Corporation will be subject to income tax. Any Federal,
state or local income taxes that the Third-Party Services Corporation is
required to pay reduces the cash available for distribution by the Company to
its stockholders. In addition, as described above, the value of the securities
of the Third-Party Services Corporation held by the Company cannot exceed 5% of
the value of the Company's assets at a time when a limited partner exercises his
redemption right. See "Taxation of the Company--Asset Tests." This limitation
may restrict the ability of the Third-Party Services Corporation to increase the
size of its respective business unless the value of the assets of the Company is
increasing at a commensurate rate.

STATE AND LOCAL TAXES. The Company and its stockholders may be subject to
state or local taxation in various state or local jurisdictions, including those
in which it or they transact business or reside. The state and local tax
treatment of the Company and its stockholders may not conform to the Federal
income tax consequences discussed above. Consequently, prospective stockholders
should consult their own tax advisors regarding the effect of state and local
tax laws on an investment in the Common Stock of the Company.

PLAN OF DISTRIBUTION

GENERAL

The Company may sell Securities in or through underwriters for public offer
and sale by them, and also may sell Securities offered hereby to investors
directly or through agents. Any such underwriter or agent involved in the offer
and sale of the Securities will be named in the applicable Prospectus
Supplement.

Underwriters may offer and sell the Securities at a fixed price or prices,
which may be changed, at prices related to the prevailing market prices at the
time of sale or at negotiated prices. The Company also may, from time to time,
authorize underwriters acting as the Company's agents to offer and sell
Securities upon terms and conditions set forth in the applicable Prospectus
Supplement. In connection with the sale of the Securities, underwriters may be
deemed to have received compensation from the Company in the form of
underwriting discounts or commissions and may also receive commissions from
purchasers of the Securities for whom they may act as agent. Underwriters may
sell Securities to or through dealers, and such dealers may receive compensation
in the form of discounts, concessions or commissions from the underwriters
and/or commissions from the purchasers for whom they may act as agent.

Any underwriting compensation paid by the Company to underwriters or agents
in connection with the offering of the Securities, and any discounts,
concessions or commissions allowed by underwriters to

27
<PAGE>
participating dealers, will be set forth in the applicable Prospectus
Supplement. Underwriters, dealers and agents participating in the distribution
of the Securities may be deemed to be underwriters, and any discounts and
commissions received by them and any profit realized by them on resale of the
Securities may be deemed to be underwriting discounts and commissions under the
Securities Act. Underwriters, dealers and agents may be entitled, under
agreements to be entered into with the Company, to indemnification against and
contribution toward certain civil liabilities, including liabilities under the
Securities Act.

If so indicated in the applicable Prospectus Supplement, the Company will
authorize underwriters or other persons acting as the Company's agents to
solicit offers by certain institutions to purchase Securities from the Company
at the public offering price set forth in such Prospectus Supplement pursuant to
delayed delivery contracts ("Contracts") providing for payment and delivery on
the date or dates stated in such Prospectus Supplement. Each Contract will be
for an amount not less than, and the aggregate principal amount of Securities
sold pursuant to Contracts shall be not less nor more than, the respective
amounts stated in the applicable Prospectus Supplement. Institutions with whom
Contracts, when authorized, may be made include commercial and savings banks,
insurance companies, pension funds, investment companies, educational and
charitable institutions, and other institutions but will in all cases be subject
to the approval of the Company. Contracts will not be subject to any conditions
except (i) the purchase by an institution of the Securities covered by its
Contracts shall not at the time of delivery be prohibited under the laws of any
jurisdiction in the United States to which such institution is subject, and (ii)
if the Securities are being sold to underwriters, the Company shall have sold to
such underwriters the total principal amount of the Securities less the
principal amount thereof covered by Contracts.

Certain of the underwriters and their affiliates may be customers of, engage
in transactions with and perform services for the Company and its Subsidiaries
in the ordinary course of business.

LEGAL MATTERS

The legality of the Preferred Stock, the Common Stock and the Common Stock
Warrants offered hereby, and certain federal tax matters, will be passed upon
for the Company by Hogan & Hartson L.L.P., Washington, D.C.

EXPERTS

The consolidated financial statements and financial statement schedule of
The Mills Corporation and the combined financial statements of The Mills
Entities appearing in The Mills Corporation Annual Report (Form 10-K) for the
year ended December 31, 1995, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon included therein and
incorporated herein by reference. Such consolidated financial statements and
financial statement schedule, and combined financial statements have been
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.

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<PAGE>
AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information can be inspected at the Public Reference Section maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and the
following regional offices of the Commission: 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511 and Seven World Trade Center, 13th Floor, New
York, New York 10048. Copies of such material can be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. In addition, the Company's Common Stock are listed
on the New York Stock Exchange and such reports, proxy statements and other
information concerning the Company can be inspected at the offices of the New
York Stock Exchange, 20 Broad Street, New York, New York 10005.

The Company has filed with the Commission a registration statement on Form
S-3 (the "Registration Statement"), of which this Prospectus is a part, under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the Securities offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain portions of which
have been omitted as permitted by the rules and regulations of the Commission.
Statements contained in this Prospectus as to the contents of any contract or
other documents are not necessarily complete, and in each instance, reference is
made to the copy of such contract or documents filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference and the exhibits and schedules thereto. For further information
regarding the Company and the Securities, reference is hereby made to the
Registration Statement and such exhibits and schedules which may be obtained
from the Commission at its principal office in Washington, D.C. upon payment of
the fees prescribed by the Commission. The Commission maintains a web site that
contains reports, proxy and information statements and other information
regarding issuers that file electronically with the Commission. The address of
such site is "http://www.sec.gov."

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<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The documents listed below have been filed by the Company under the Exchange
Act with the Commission and are incorporated herein by reference:

1. The Company's Annual Report on Form 10-K for the year ended December
31, 1996; and

2. The Company's Current Report on Form 8-K dated March 11, 1997.

All documents filed subsequent to the date of this Prospectus pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act and prior to termination
of the offering of all Securities to which this Prospectus relates shall be
deemed to be incorporated by reference in this Prospectus and shall be part
hereof from the date of filing of such document.

Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained in this
Prospectus (in the case of a statement in a previously filed document
incorporated or deemed to be incorporated by reference herein), in any
accompanying Prospectus Supplement relating to a specific offering of Securities
or in any other subsequently filed document that is also incorporated or deemed
to be incorporated by reference herein, modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus or any
accompanying Prospectus Supplement. Subject to the foregoing, all information
appearing in this Prospectus and each accompanying Prospectus Supplement is
qualified in its entirety by the information appearing in the documents
incorporated by reference.

The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon their
written or oral request, a copy of any or all of the documents incorporated
herein by reference (other than exhibits to such documents, unless such exhibits
are specifically incorporated by reference in such documents). Written requests
for such copies should be addressed to The Mills Corporation, 1300 Wilson
Boulevard, Arlington, VA 22209, Attention: Thomas E. Frost (telephone number
(703) 526-5000).

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NO DEALER, SALESMAN OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS IN
CONNECTION WITH THE OFFERING. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR ANY UNDERWRITER. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
DO NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE
COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL
TO MAKE ANY SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.

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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PROSPECTUS SUPPLEMENT
<S> <C>
PAGE
-----

Prospectus Supplement Summary.................. S-3
The Company.................................... S-12
The Company's Strategies....................... S-16
Recent Developments............................ S-23
Use of Proceeds................................ S-23
Price Range of Common Stock and Distribution
History....................................... S-24
Capitalization................................. S-25
Selected Financial and Operating Information... S-26
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... S-28
Summary of Outstanding Indebtedness............ S-34
The Properties................................. S-36
Management..................................... S-51
Underwriting................................... S-52
Legal Matters.................................. S-53

PROSPECTUS
PAGE
-----
<S> <C>

The Company.................................... 2
Risk Factors................................... 2
Use of Proceeds................................ 8
Ratios of Earnings to Fixed Charges............ 9
Description of Preferred Stock................. 9
Description of Common Stock.................... 15
Description of Common Stock Warrants........... 17
Federal Income Tax Considerations.............. 18
Plan of Distribution........................... 27
Legal Matters.................................. 28
Experts........................................ 28
Available Information.......................... 29
Incorporation of Certain Documents by
Reference..................................... 30
</TABLE>

4,500,000 SHARES

[LOGO]

COMMON STOCK

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PROSPECTUS SUPPLEMENT

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MERRILL LYNCH & CO.

DEAN WITTER REYNOLDS INC.

LEGG MASON WOOD WALKER
INCORPORATED

SALOMON BROTHERS INC

MARCH 12, 1997

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