<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1997
Commission File Number 1-12994
-------
THE MILLS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 52-1802283
-------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1300 Wilson Boulevard, Arlington, Virginia 22209
------------------------------------------------
(Address of principal executive offices - zip code)
(703) 526-5000
--------------
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
-------------------------------------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
22,881,445 shares of Common Stock
$.01 par value as of November 11, 1997
<PAGE> 2
THE MILLS CORPORATION
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
--------------------- ----
<S> <C> <C>
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Consolidated Balance Sheets as of September 30, 1997
and December 31, 1996. 1
Consolidated Statements of Income for the
Three Months Ended September 30, 1997 and September 30, 1996. 2
Consolidated Statements of Income for the
Nine Months Ended September 30, 1997 and September 30, 1996 3
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1997 and September 30, 1996. 4
Notes to Consolidated Financial Statements 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
THE MILLS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
(Unaudited) (Note)
------------------ -----------------
<S> <C> <C>
ASSETS
Income producing property:
Land and land improvement $ 167,252 $ 164,420
Building and improvements 665,423 662,469
Furniture, fixtures and equipment 24,066 22,221
Less: accumulated depreciation and amortization (199,332) (179,658)
--------- ---------
Total income producing property 657,409 669,452
Land held for investment and/or sale 2,942 3,564
Real estate development in progress 51,542 28,259
Investment in unconsolidated entities 83,592 66,688
--------- ---------
Total real estate and development assets 795,485 767,963
Cash and cash equivalents 3,530 6,327
Restricted cash 15,868 13,215
Accounts receivable 22,156 19,165
Notes receivable 6,846 7,167
Deferred costs, net 41,844 45,655
Other assets 4,488 3,132
--------- ---------
TOTAL ASSETS $ 890,217 $ 862,624
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgages, notes and loans payable $ 671,698 $ 730,113
Accounts payable and other liabilities 45,357 43,011
--------- ---------
Total liabilities 717,055 773,124
Minority interest 71,135 43,975
STOCKHOLDERS' EQUITY
Common stock $.01 par value, authorized 100,000,000
shares, issued and outstanding 22,881,445 and
16,907,164 shares in 1997 and 1996, respectively 229 169
Additional paid-in capital 436,013 309,813
Accumulated deficit (333,386) (264,457)
Unamortized restricted stock award (829) --
--------- ---------
Total stockholders' equity 102,027 45,525
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 890,217 $ 862,624
========= =========
</TABLE>
Note: The balance sheet at December 31, 1996 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See Accompanying Notes to Consolidated Financial Statements.
1
<PAGE> 4
THE MILLS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Three
Months Ended Months Ended
September 30, 1997 September 30, 1996
------------------ ------------------
<S> <C> <C>
REVENUES:
Minimum rent $ 24,377 $ 23,847
Percentage rents 1,043 1,144
Recoveries from tenants 11,952 11,227
Other revenues 2,287 1,220
Fee income 2,056 1,489
Interest income 531 608
-------- --------
42,246 39,535
EXPENSES:
Recoverable from tenants 10,842 10,044
Other operating 1,498 1,264
General and administrative 2,499 1,888
Interest expense 9,424 11,196
Depreciation and amortization 9,151 8,620
-------- --------
33,414 33,012
Other income (expense) 181 413
Equity in earnings of unconsolidated entities 421 --
-------- --------
Income before minority interest 9,434 6,936
Minority interest (3,820) (3,408)
-------- --------
Net income $ 5,614 $ 3,528
======== ========
Net income per common share (Note 3) $ 0.24 $ 0.21
======== ========
Dividends declared per common share $ 0.4725 $ 0.4725
======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
2
<PAGE> 5
THE MILLS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Nine Nine
Months Ended Months Ended
September 30, 1997 September 30, 1996
------------------ ------------------
<S> <C> <C>
REVENUES:
Minimum rent $ 71,395 $ 70,179
Percentage rents 3,165 3,449
Recoveries from tenants 34,924 34,146
Other revenues 4,919 3,657
Fee income 6,417 3,276
Interest income 2,166 1,801
--------- ---------
122,986 116,508
EXPENSES:
Recoverable from tenants 31,531 30,708
Other operating 4,699 4,792
General and administrative 6,736 6,077
Interest expense 31,468 33,915
Depreciation and amortization 25,998 28,216
--------- ---------
100,432 103,708
Other income 384 2,629
Equity in earnings of unconsolidated entities 1,422 --
--------- ---------
Income before extraordinary item and minority interest 24,360 15,429
Extraordinary loss on debt extinguishment (8,060) (983)
--------- ---------
Income before minority interest 16,300 14,446
Minority interest (6,999) (7,098)
--------- ---------
Net income $ 9,301 $ 7,348
========= =========
Income per common share before extraordinary item (Note 3) $ 0.65 $ 0.46
========= =========
Net income per common share (Note 3) $ 0.43 $ 0.43
========= =========
Dividends declared per common share $ 1.4175 $ 1.4175
========= =========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
3
<PAGE> 6
THE MILLS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Nine
Months Ended Months Ended
September 30, 1997 September 30, 1996
------------------ ------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Income before minority interest $ 16,300 $ 14,446
Adjustments to reconcile income before minority interest
to net cash provided by operating activities:
Net accretion of note receivable (525) (525)
Depreciation and amortization 27,416 31,063
Provision for losses on accounts receivable 111 364
Equity in earnings of unconsolidated entities (1,422) --
Net gain on sales of land and equipment (509) (2,830)
Extraordinary loss on debt extinguishment 8,060 983
Other changes in assets and liabilities:
Increase in accounts receivable (2,957) (3,957)
Decrease in notes receivable 846 741
Increase in other assets (1,373) (1,491)
(Decrease) increase in accounts payable and other liabilities 2,695 3,182
--------- ---------
Net cash provided by operating activities 48,642 41,976
INVESTING ACTIVITIES:
Investment in real estate and development assets (50,241) (30,083)
Distributions received from unconsolidated entities 3,820 --
Proceeds from sale of land and equipment 1,116 4,222
Deferred costs (9,744) (10,370)
--------- ---------
Net cash used in financing activities (55,049) (36,231)
FINANCING ACTIVITIES:
Proceeds from mortgages, notes and loans payable 167,482 109,900
Repayments of mortgages, notes and loans payable (225,897) (85,197)
Refinancing costs (2,054) --
Restricted cash (2,653) 6,707
Dividends paid (32,106) (23,964)
Distributions paid (22,973) (23,374)
Proceeds from sale of common stock 121,811 --
--------- ---------
Net cash provided by (used in) financing activities 3,610 (15,928)
--------- ---------
Net decrease in cash and cash equivalents (2,797) (10,183)
Cash and cash equivalents at beginning of period 6,327 14,550
--------- ---------
Cash and cash equivalents at end of period $ 3,530 $ 4,367
========= =========
Supplemental disclosures of cash flow information:
Cash paid for interest, net of amounts capitalized $ 32,464 $ 30,461
========= =========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
4
<PAGE> 7
THE MILLS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
The Mills Corporation (the "Company") is a fully-integrated,
self-managed real estate investment trust ("REIT").
The Company conducts all of its business through The Mills Limited
Partnership ("the Operating Partnership"), in which it owns, as of September 30,
1997, a 1% interest as the sole general partner and a 57.9% interest as a
limited partner. The Company, through the Operating Partnership, is engaged
primarily in the ownership, development, redevelopment, leasing, acquisition,
expansion, and management of super-regional, value and entertainment-oriented
outlet malls (the "Mills") and community shopping centers (the "Community
Centers"). As of September 30, 1997, the Operating Partnership owns or holds an
interest in the following operating properties:
<TABLE>
<CAPTION>
Mills Location
----- --------
<S> <C>
Franklin Mills Philadelphia, PA
Gurnee Mills Gurnee, IL (Chicago)
Potomac Mills Woodbridge, VA (Washington, DC)
Sawgrass Mills Sunrise, FL (Ft. Lauderdale)
Ontario Mills Ontario, CA (Los Angeles)
Community Centers Location
----------------- --------
Butterfield Plaza Downers Grove, IL
Coopers Plaza Voorhees, NJ
Crosswinds Center St. Petersburg, FL
Fashion Place Columbia, SC
Germantown Commons Shopping Center Germantown, MD
Gwinnett Marketfair Duluth, GA
Liberty Plaza Philadelphia, PA
Montgomery Village Off-Price Center Gaithersburg, MD
Mount Prospect Plaza Mount Prospect, IL
West Falls Church Outlet Center Falls Church, VA
Western Hills Plaza Cincinnati, OH
</TABLE>
In addition to the operating properties, the Company is involved in the
development of a number of new Mills, including Grapevine Mills (Dallas, TX -
project opened October 30, 1997), Arizona Mills (Tempe, AZ), City Mills at
Orange (Orange, California), Katy Mills (Houston, TX), Meadowland Mills
(Carlstadt, NJ), Concord Mills (Charlotte, NC), and Candlestick Mills (San
Francisco, CA).
5
<PAGE> 8
THE MILLS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared by
the Company's management in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. The results of operations for the nine
month period ended September 30, 1997, are not necessarily indicative of the
results that may be expected for the full year. These financial statements
should be read in conjunction with the Company's audited financial statements
and footnotes thereto, included in the Mills Corporation Annual Report on Form
10-K for the year ended December 31, 1996.
The accompanying consolidated financial statements of the Company
include the accounts of the Company and its subsidiaries, including its majority
owned subsidiary, the Operating Partnership. The accounts of the Operating
Partnership include the accounts of all Properties which are wholly owned or
controlled by the Operating Partnership as well as its wholly-owned subsidiaries
Mills Management L.L.C. ("Mills Management"), and Management Associates Limited
Partnership ("MALP"). In addition, the Operating Partnership owns 5% of the
voting common stock and 99% of the preferred stock of the Mills Services
Corporation ("MSC"), an entity formed to provide development, management,
leasing and finance services to third-party companies and unconsolidated
entities. As a result of the Operating Partnership's ownership of 99% of the
economic interests, MSC is consolidated with the Operating Partnership. The
Company's investments in the partnerships that own Ontario Mills, Ontario Mills
Residual, Grapevine Mills, Grapevine Mills Residual, Arizona Mills, Columbus
Mills, City Mills and Concord Mills which represent non-controlling ownership
interests, are accounted for using the equity method of accounting. All
significant intercompany transactions and balances have been eliminated in
consolidation. Minority interests represent the ownership interests in the
Operating Partnership not held by the Company.
2. RECLASSIFICATIONS
Certain reclassifications of prior period amounts have been made in the
financial statements to conform to the 1997 presentation.
3. PER SHARE DATA
Net income per share is based on the weighted average number of common
shares and common equivalent shares outstanding during such period (21,516,021
and 23,449,983 for the nine months and three months ended September 30, 1997,
respectively, and 16,905,953 for each of the nine months and three months ended
September 30, 1996).
Limited partnership units in the Operating Partnership (15,954,220 and
16,332,517 outstanding at September 30, 1997 and September 30, 1996,
respectively) may be exchanged for shares of common stock of the Company on a
one-for-one basis in certain circumstances. This exchange right has not been
considered in the computation of per share data as it does not have a dilutive
effect.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings Per Share (FASB No. 128), which is required to be
adopted on December 31, 1997. At that time, the Company will be required to
change the method currently used to compute earnings per share and to restate
all prior periods. Under the new requirements, FASB No. 128 will replace
"primary EPS" with "basic EPS". Basic EPS is calculated by dividing income
available to common shareholders by the weighted average number of common shares
outstanding during the period. Entities with complex capital structures will be
required to report "diluted EPS". Diluted EPS is
6
<PAGE> 9
THE MILLS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
calculated by adjusting net income for the period for the effects of convertible
securities and dividing the resulting adjusted net income by the weighted
average shares outstanding during the period, adjusted for the dilutive effect
of options, warrants, contingent shares and convertible securities. Adoption of
FASB No. 128 is not expected to have a significant impact on earnings per share
reported for the nine months ended September 30, 1997 and September 30, 1996.
4. INVESTMENT IN UNCONSOLIDATED ENTITIES
Certain Mills under development or in operation are partially owned
through joint ventures ("Joint Ventures"). The Company is also the managing
general partner of these Joint Ventures. The Company's interest in each Joint
Venture is as follows:
<TABLE>
<CAPTION>
Ownership %
Joint Venture as of September 30, 1997
------------- ------------------------
(In thousands)
<S> <C>
Ontario Mills 50.0%
Grapevine Mills 37.5%
Arizona Mills 36.8%
Columbus Mills and
Sawgrass Expansion 50.0%
City Mills 50.0%
Concord Mills 50.0%
</TABLE>
The Company does not consolidate these Joint Ventures as major business
decisions require the approval of at least one other general partner. As a
result, its investments are accounted for under the equity method, where the
investments are recorded at cost and subsequently adjusted for equity in the net
income (loss) and cash contributions and distributions. The Company reduces its
investment in Joint Ventures to eliminate intercompany profits on sales of
services that are capitalized by the Joint Ventures.
In connection with the Joint Venture agreements, the Company is
committed to providing certain levels of equity in addition to amounts invested
to date. The Company has guaranteed repayment of $79.9 million of Joint Venture
debt until certain debt service coverage tests are met. In addition, the Company
is contingently liable for property taxes and assessments levied against Ontario
Mills Limited Partnership by the City of Ontario Special Assessment District.
The aggregate amount of the special tax assessment is approximately $22.0
million and will be collected over a 25 year period to fund debt service on
bonds issued by the City to fund the infrastructure improvements.
Combined balance sheet and results of operations information is
presented below for all Joint Ventures at September 30, 1997, and for the nine
months then ended:
<TABLE>
<CAPTION>
September 30, 1997
------------------
(In Thousands)
<S> <C>
Assets:
Income producing assets $ 137,817
Construction in progress 354,757
Other 82,805
-----------
$ 575,379
===========
Liabilities and partners' equity
Debt $ 274,965
Other liabilities 71,395
Operating Partnership's accumulated equity 54,882
Joint Venture partners' accumulated equity 174,137
-----------
$ 575,379
===========
</TABLE>
7
<PAGE> 10
THE MILLS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1997
------------------
<S> <C>
Revenues $ 20,734
Recoverable and other property expenses (7,113)
Interest expense (6,049)
Depreciation and amortization (5,738)
Other income 5,004
Extraordinary loss on debt extinguishment (961)
--------------
$ 5,877
==============
Equity in earnings of unconsolidated joint ventures $ 1,422
==============
</TABLE>
The primary difference between the carrying value of the Company's
investment in unconsolidated joint ventures and the Operating Partnership's
accumulated equity noted above is due to capitalized interest on the investment
balance, capitalized development and leasing costs which are recovered by the
Operating Partnership through fees earned during construction and loans to the
Joint Ventures included in other liabilities above.
5. DECLARATION OF DIVIDEND
On September 18, 1997, the Company declared a dividend of $.4725 per
share which was paid on October 21, 1997 to stockholders of record as of October
1, 1997.
6. BORROWINGS
On May 5, 1997, the Company refinanced loans secured by Franklin Mills
totaling $165,800, with the proceeds of a new $110,000 mortgage loan and funds
from the sale of common stock in March 1997. The new loan bears interest at a
fixed rate of 7.88% and amortizes over 30 years with a balloon payment in March
2008. In connection with this refinancing, the Company expensed $8,100 of
deferred loan costs as an extraordinary loss, including a prepayment penalty of
$2,054. The new loan can be increased to $165,000 through May 4, 1998, subject
to certain financial requirements relating to increases above $130,000. The
Company increased the borrowings under this loan to $130,000 on August 8, 1997.
8
<PAGE> 11
THE MILLS CORPORATION
(Unaudited)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Comparison of three months ended September 30, 1997, to three months ended
September 30, 1996.
Income before minority interest for the three months ended September 30,
1997 increased by approximately $2.5 million (36.0%) to $9.4 million as compared
with the three months ended September 30, 1996. The increase was the net result
of an increase in revenues of approximately $2.7 million (6.9%), an increase in
expenses of approximately $0.4 million (1.7%), a decrease in other income of
$0.2 million and an increase in equity in earnings of unconsolidated entities of
$0.4 million.
Revenues:
Minimum rents for the three months ended September 30, 1997, increased
approximately $0.5 million (2.2%) compared with the three months ended September
30, 1996. This was primarily due to higher lease renewal rates across the
properties, and ground rents earned from property leased to the partnership that
is developing the Sawgrass Mills expansion.
Recovery from tenants for the three months ended September 30, 1997,
increased approximately $0.7 million (6.5%) compared with the three months ended
September 30, 1996. This increase is due mainly to increased billing rates
relating to the increase in recoverable expenses.
Other revenues for the three months ended September 30, 1997, increased
approximately $1.1 million (87.4%) compared with the three months ended
September 30, 1996. This increase is due to greater income from the Company's
pushcart and kiosk programs, increases in income from tenants who occupy space
on a temporary basis and a refund of prior year worker's compensation insurance
premiums.
Fee income for the three months ended September 30, 1997, increased $0.6
million (38.1%) compared with the three months ended September 30, 1996. During
the three months ended September 30, 1996, the Company earned
development-related fees from one project under development (Ontario Mills),
compared to three projects (Grapevine Mills, Arizona Mills and City Mills) as
well as operating fees earned from Ontario Mills for the three months ended
September 30, 1997.
Expenses:
Recoverable from tenants expense for the three months ended September
30, 1997 increased approximately $0.8 million (7.9%) compared with the three
months ended September 30, 1996. The increase is due to increases in operating
expenses due to inflation.
General and administrative expenses increased $0.6 million (32.4%) for
the three months ended September 30, 1997, compared to the three months ended
September 30, 1996. The increase is due to additional personnel required for
expanding operations (i.e., increased development and operating activity) and
legal costs associated with international development rights.
Interest expense decreased by approximately $1.8 million (15.8%) for the
three months ended September 30, 1997, compared with the three months ended
September 30, 1996. The decrease was primarily due to lower interest rates
resulting from various refinancings and lower average debt balances resulting
from the paydown of debt with the proceeds of the March 1997 equity offering.
9
<PAGE> 12
THE MILLS CORPORATION
(Unaudited)
Depreciation and amortization increased $0.5 million (6.2%) for the
three months ended September 30, 1997, compared with the three months ended
September 30, 1996. The increase was due to additional amortization of tenant
improvement and allowances associated with the remerchandising of existing
Mills, and reevaluation of useful lives of income producing assets offset by a
decrease in amortization of loan costs as a result of refinancing the debt
secured by Potomac Mills and Gurnee Mills in December 1996 and a decrease in
depreciation relating to assets reaching their depreciable lives.
Equity in earnings of unconsolidated entities in 1997, relates primarily
to the commencement of operations of Ontario Mills which opened November 1996.
Comparison of nine months ended September 30, 1997 to nine months ended
September 30, 1996.
Income before minority interest for the nine months ended September 30,
1997, increased by approximately $1.9 million (10.9%) to $16.3 million as
compared with the nine months ended September 30, 1996. The net increase was the
result of an increase in revenues of approximately $6.4 million (5.6%), a
decrease in expenses of approximately $3.3 million (3.0%), a decrease in other
income of $2.2 million, an increase in equity in earnings of unconsolidated
joint ventures of $1.4 million, and an increase in the loss on debt
extinguishment of $7.1 million.
Revenues:
Minimum rents for the nine months ended September 30, 1997, increased
approximately $1.2 million (1.7%) compared with the nine months ended September
30, 1996. This was primarily due to higher lease renewal rates across the
properties and ground rents earned from the partnership that is developing the
Sawgrass Mills expansion.
Recoveries from tenants for the nine months ended September 30, 1997,
increased $0.8 million (2.3%) compared with the nine months ended September 30,
1996. The increase is due to the increased billing rates relating to the
increase in recoverable expenses.
Other revenues for the nine months ended September 30, 1997, increased
approximately $1.3 million (34.5%) compared with the nine months ended September
30, 1996. The increase is due to greater income from the Company's pushcart and
kiosk program, increases in income from tenants who occupy spaces on a temporary
basis, and a refund of prior year worker's compensation insurance premiums.
Fee income for the nine months ended September 30, 1997, increased $3.1
million (95.9%) compared to the nine months ended September 30, 1996. During the
nine month period ended September 30, 1996, the Company earned
development-related fees from one project under development (Ontario Mills),
compared to three projects (Grapevine Mills, Arizona Mills and City Mills) as
well as operating fees earned for the nine months ended September 30, 1997.
Expenses:
Recoverable from tenant expense for the nine months ended September 30,
1997, increased $0.8 million (2.7%) compared with the nine months ended
September 30, 1996. The increase is due to the increase in operating expenses
due to inflation.
General and administrative expenses for the nine months ended September
30, 1997, increased $0.7 million (10.8%) compared with the nine months ended
September 30, 1996. The increase is due to additional personnel required for
expanding operations (i.e., increased development and operating) and legal
costs associated with international development rights.
10
<PAGE> 13
THE MILLS CORPORATION
(Unaudited)
Interest expense decreased by approximately $2.4 million (7.2%) for the
nine months ended September 30, 1997, compared with the nine months ended
September 30, 1996. This decrease was primarily due to lower interest rates
resulting from various refinancings and lower average debt balances resulting
from the paydown of debt with the proceeds of the March 1997 equity offering.
Depreciation and amortization decreased $2.2 million (7.9%) for the nine
months ended September 30, 1997, compared with the nine months ended September
30, 1996. The decrease was due to a decrease in amortization of loan costs
resulting from refinancing the debt secured by Potomac Mills and Gurnee Mills in
1996 and a decrease in depreciation relating to assets reaching the end of their
depreciable lives, offset by additional amortization of tenant improvements and
allowances associated with the remerchandising of existing Mills.
Other income for the nine months ended September 30, 1997, decreased
$2.2 million compared with the nine months ended September 30, 1996. The
decrease was due to a decrease in gain on land sales.
Equity in earnings of unconsolidated entities earned in 1997 relates
primarily to operations of Ontario Mills which opened November 1996.
The extraordinary loss on debt extinguishment in 1997 and 1996 was due
to refinancing the debt secured by Franklin Mills and Liberty Plaza, and the
community centers, respectively.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1997, the Company's balance of cash and cash
equivalents was $3.5 million, not including its proportionate share of cash held
in unconsolidated entities. In addition to its cash reserves, the Company had
$48.0 million available under its Line of Credit, and $15.0 million available
under its Sawgrass D Tranche Certificate.
<TABLE>
<CAPTION>
AMOUNT
TOTAL OUTSTANDING
NATURE OF FACILITY MATURITY INTEREST RATE TERMS FACILITY AT 9/30/97
- ------------------ -------- ------------- ----- -------- ----------
<S> <C> <C> <C> <C> <C>
Line of Credit...................... 10/31/98 LIBOR + 3.00% Interest Only $ 60,000 $ 12,000
Sawgrass D Tranche Certificate...... 1/18/01 LIBOR + 4.30% Interest Only 15,000 -
--------- ---------
$ 75,000 $ 12,000
--------- ---------
</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 September 30, 1997.
Financing Activities. During 1996 and 1997, the Company completed
various financing and refinancing activities which extended the weighted average
remaining term of the Company's total indebtedness from 3.5 years at December
31, 1995 to 5.5 years at September 30, 1997, while maintaining investment-grade
interest rates (7.2% weighted average interest rate at September 30, 1997).
On July 15, 1997, the Company increased the funds available under the
line of credit facility from $40.0 million to $60.0 million.
11
<PAGE> 14
THE MILLS CORPORATION
(Unaudited)
On May 5, 1997, loans totaling $165.8 million Secured by Franklin Mills
and Liberty Plaza were refinanced with proceeds of new borrowings of a new
$110.0 million mortgage loan and funds from a recent stock issuance (see
below). The mortgage loan bears interest at 7.88% and amortizes over thirty
years with a balloon payment in May 2007. The new loan can be increased to
$165.0 million through May 4, 1998, subject to certain financial requirements
relating to increases above $130.0 million. On August 8, 1997, the Company
borrowed $20.0 million under this loan to bring the total proceeds to $130.0
million. This $20.0 million tranche bears interest at 7.44% and amortizes over
thirty years with a balloon payment in May 2007.
Effective October 28, 1996, the Company filed a universal shelf
registration statement on Form S-3 to offer a maximum of $250.0 million of
common stock, preferred stock, and common stock warrants. Pursuant to this shelf
registration, the Company sold a total of 5,175,000 shares of common stock on
March 19, 1997. On March 21, 1997, the Company sold an additional 150,000 shares
of its common stock to its underwriters to cover a portion of their short
position resulting from their over-allotments in connection with the March 19,
1997 offering. The net proceeds of these issuances ($121.8 million) were
contributed to the Operating Partnership and were used to pay down debt,
including $17.8 million outstanding under the line of credit, $10.6 million
outstanding under the previously outstanding Revolving Master Repurchase
Agreement and $55.0 million of prior loans secured by the Franklin Mills and
Liberty Plaza projects in connection with the refinancing discussed above. The
balance of the proceeds were used to fund development costs or are available to
fund future development and remerchandising activities.
The Company had consolidated debt of approximately $671.7 million at
September 30, 1997, of which $617.7 million was fixed-rate debt and $54.0
million was variable-rate debt. Scheduled principal repayments of consolidated
indebtedness through 2000 are $57.1 million, with $614.6 million due thereafter.
The Company expects to refinance or repay these obligations with cash generated
from operations, external borrowings or equity issuances. The Company's pro rata
share of unconsolidated joint venture debt at September 30, 1997 was $107.6
million (net of tax increment financing), of which it had guaranteed $79.9
million.
The Company's ratio of debt-to-total market capitalization was 40.1% and
51.6% at September 30, 1997 and September 30, 1996, respectively. 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 43.7% and 52.5%, respectively.
Development, Remerchandising and Expansion. The Company is involved in
the following development, remerchandising and expansion efforts:
At least seven Mills projects are planned to be completed in the next
several years, including Grapevine Mills, Arizona Mills, City Mills, Katy Mills,
Concord Mills, Candlestick Mills and Meadowland Mills.
Grapevine Mills opened on October 30, 1997, and Arizona Mills will open
November 20, 1997. Unfunded construction loan commitments, aggregating
approximately $167.0 million, are considered adequate to fund the remaining
development efforts for these projects. Equity commitments from the Company's
joint venture partners and the Company have been fully funded.
City Mills is scheduled to open in the fourth quarter of 1998, and
Concord Mills and Katy Mills are scheduled to open in the third quarter of 1999.
All three projects will be financed principally with external borrowings, and
equity contributions from joint venture partners and the Operating Partnership.
The Company anticipates that the Operating Partnership's required future equity
requirements for City Mills, Concord Mills, and Katy Mills may total as much as
$60 million in the aggregate of which $14.3 million has already been funded.
12
<PAGE> 15
THE MILLS CORPORATION
(Unaudited)
The Company has announced plans to develop a Mills project adjacent to
the new 49ers stadium at Candlestick Point near San Francisco with Simon
DeBartolo Group and an affiliate of DeBartolo Entertainment. The Company also
expects to commence development of Meadowlands Mills in 1999. Kan Am has
committed to contribute two-thirds of the equity for a one-third ownership
interest in this project. The Company is also conducting due diligence on
several other proposed sites, including evaluating sites in Nashville,
Tennessee, N. Aurora, Illinois, Toronto, Canada, Atlanta, Georgia, and Oahu,
Hawaii. In June 1997, the Company formed an alliance with Tishman-Speyer to
study potential international sites.
In addition to these new Mills, the Company is planning to spend
approximately $125 million on its existing portfolio during the next three years
to complete its expansion and remerchandising programs in each of the Company's
wholly-owned Mills. It is anticipated that these projects will be financed with
external borrowings, equity contributions from Kan Am and other potential equity
issuances. The operating partnership's remaining equity funding requirements
associated with the remerchandising programs are estimated at $40.0 million.
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, peripheral 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.
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 Nine Months Ended September 30, 1997, to Nine Months Ended
September 30, 1996. Net cash provided by operating activities increased $6.6
million, or 15.9%, to $48.6 million for the nine months ended September 30, 1997
as compared to $42.0 million for the nine months ended September 30, 1996. Net
cash used in investing activities increased $18.8 million or 51.9%, to $55.0
million for the nine months ended September 30, 1997, as compared to $36.2
million for the nine months ended September 30, 1996, primarily as a result of
capital expenditures for the remerchandising of existing mills and investment in
joint venture projects. Net cash provided by (used in) financing activities
increased $19.5 million, to $3.6 million for the nine months ended September 30,
1997, as compared to ($15.9) million for the nine months ended September 30,
1996, primarily as a result of the additional capital provided by the sale of
common stock in 1997, offset by the repayment of outstanding indebtedness.
13
<PAGE> 16
THE MILLS CORPORATION
(Unaudited)
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 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 (determined in accordance with GAAP) for purposes of
evaluating the Company's operating performance.
For the nine months ended September 30, 1997, FFO increased to $50.9
million from $40.2 million for the nine months ended September 30, 1996. For the
quarter ended September 30, 1997, FFO increased to $18.7 million from $14.1
million for the comparable period in 1996. FFO amounts were calculated in
accordance with NAREIT's definition of FFO as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30,
------------ -------------
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996
---- ---- ---- ----
(Dollars in thousands) (Dollars in thousands)
<S> <C> <C> <C> <C>
Funds From Operations Calculation:
Income before extraordinary item and minority
interest ................................................. $ 9,434 $ 6,936 $ 24,360 $ 15,429
Adjustments:
Add: Depreciation and amortization of real estate
assets ................................................ 8,370 7,187 23,817 24,049
Add: Loss on sale of furniture, fixtures, and
equipment ............................................. -- -- -- 776
Add: Real estate depreciation and amortization of
unconsolidated entities ............................... 930 -- 2,576 --
Add: Extraordinary loss on debt extinguishment of
unconsolidated entities ............................... -- -- 397 --
-------- -------- -------- --------
Funds From Operations ....................................... $ 18,734 $ 14,123 $ 51,150 $ 40,254
======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 17
THE MILLS CORPORATION
(Unaudited)
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 latter 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.
CAUTIONARY STATEMENT
Certain matters discussed in this Form 10Q and the information
incorporated by reference herein 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 1933, 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," "except," "anticipate,"
"estimate," or "continue" or the negative thereof or other variations thereon or
comparable terminology. Such forward-looking statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those described in such forward-looking statements.
15
<PAGE> 18
THE MILLS CORPORATION
(Unaudited)
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The Exhibit Index attached hereto is hereby incorporated by reference to
this item.
16
<PAGE> 19
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE MILLS CORPORATION
November 14, 1997 By: /s/ Kenneth R. Parent
- ------------------------ -----------------------------------------
(Date) Kenneth R. Parent
Senior Vice President, Chief Financial Officer
and Treasurer
(Principal Financial and Accounting Officer)
17
<PAGE> 20
THE MILLS CORPORATION
EXHIBIT INDEX
(Pursuant to item 601 of Regulation S-K)
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBER EXHIBIT NUMBERED PAGE
- ------ ------- -------------
<S> <C> <C>
*3.1 Amended and Restated Certificate of Incorporation of the Company,
as amended
**3.2 Amended and Restated Bylaws of the Company
**3.3 Limited Partnership Agreement of the Operating Partnership (filed as
part of Exhibit 10.3)
*4.1 Specimen Common Stock Certificate of Company
*4.2 Agreement dated March 15, 1994, among Richard L. Kramer, the A.J.
1989 Trust, the Irrevocable Intervivos Trust for the Benefit of the
Kramer Children, the N Street Investment Trust, Equity Resources
Associates, Herbert S. Miller, The Mills Corporation and The Mills
Limited Partnership (filed as Exhibit 10.19)
**4.3 Non-Affiliate Registration Rights and Lock-Up Agreement
**4.4 Affiliate Registration Rights and Lock-Up Agreement
*10.1 Form of Employee Non-Compete/Employment Agreements
+10.2 1994 Executive Equity Incentive Plan, as amended
**10.3 Limited Partnership Agreement of Operating Partnership
*10.4 Option Agreement (Sunrise Residuals/Parcels 4 and 5)
*10.5 Form of Noncompetition Agreement between the Company, the Operating
Partnership and each of Kan Am and the Kan Am Partnerships
*10.6 Form of Noncompetition Agreement with Kan Am Directors
*10.7 Trust and Servicing Agreement, dated as of December 1, 1993,
among Sawgrass Finance L.L.C., as depositor, The First National
Bank of Chicago, as servicer, and State Street Bank and Trust
Company, as Trustee
*10.8 Amended and Restated Mortgage, Security Agreement, Assignment of
Lessee and Rents and Fixture filing, dated as of December 1,
1993, by Sunrise Mills Limited Partnership, as mortgagor, in
favor of Sawgrass Finance L.L.C., as mortgagee
*10.9 Assignment of Leases and Rents, dated as of December 1, 1993,
between Sunrise Mills Limited Partnership and Sawgrass Finance
L.L.C.
*10.10 Assignment of Note, Mortgage, and Assignment of Rents dated as of
December 21, 1993, by Sawgrass Finance L.L.C. in favor of State
Street Bank & Trust Co.
*10.11 Promissory Note, dated as of November 16, 1993, by Western Hills
Associates Limited Partnership in favor of Connecticut General Life
Insurance Company
*10.12 Assignment of Rents and Leases, dated as of November 16, 1993, by
Western Hills Associates Limited Partnership in favor of
Connecticut General Life Insurance Company
</TABLE>
<PAGE> 21
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBER EXHIBIT NUMBERED PAGE
- ------ ------- -------------
<S> <C> <C>
*10.13 Open-End Mortgage, Security Agreement and Fixture Filing, dated as
of November 16, 1993, by Western Hills Associates Limited
Partnership in favor of Connecticut General Life Insurance Company
*10.19 Agreement dated March 15, 1994 among Richard L. Kramer, the A.J.
1989 Trust, the Irrevocable Intervivos Trust for the Benefit of the
Kramer Children, the N Street Investment Trust, Equity Resources
Associates, Herbert S. Miller, The Mills Corporation and The Mills
Limited Partnership
10.20 - 10.22 Intentionally omitted.
*10.23 Form of Indemnification Agreement between the Company and each of
its Directors and Executive Officers
10.24 - 10.25 Intentionally omitted.
*****10.26 Loan Agreement dated as of January 31, 1996 by and among Coopers
Crossing Associates (MLP) Limited Partnership, Crosswinds Center
Associates of St. Petersburg (MLP) Limited Partnership, Echo
Hills Center Associates (MLP) Limited Partnership, Fashion Center
Associates of Illinois No. 1 (MLP) Limited Partnership, Fashion
Place Associates (MLP) Limited Partnership, Germantown
Development Associates (MLP) Limited Partnership, Gwinnett Market
Fair Associates (MLP) Limited Partnership, Montgomery Village
Associates (MLP) Limited Partnership, Montgomery Village Ground
(MLP) Limited Partnership, Mount Prospect Plaza (MLP) Limited
Partnership (collectively, "The Mills Corporation, et al."), and
PFL Life Insurance Company
*****10.27 First Amended and Restated Promissory Note dated as of January
31, 1996, made by and among The Mills Corporation, et al., and
PFL Life Insurance Company
*****10.28 Absolute Assignment of Mortgage and Loan Documents dated January
31, 1996 by and between CS First Boston Mortgage Capital
Corporation as assignor and PFL Life Insurance Company as assignee
10.29 - 10.47 Intentionally Omitted
******10.48 Note dated July 30, 1996 by Sawgrass Mills Phase II Limited
Partnership in favor of CS First Boston Mortgage Capital Corp.
******10.49 Mortgage Security Agreement, Assignment of Leases and Rents and
Fixture Filing dated as of July 30, 1996, between Sawgrass Mills
Phase II Limited Partnership, as Mortgagor and CS First Boston
Mortgage Capital Corporation, as Mortgagee
****10.50 First Amendment to Trust and Servicing Agreement (Exhibit 10.7)
dated as of September 1, 1995, among Sawgrass Finance L.L.C., as
depositor, The First National Bank of Chicago, as servicer, and
State Street Bank and Trust Company, as trustee
****10.51 Prepayment Premium Agreement dated as of June 1, 1995, between The
Mills Limited Partnership and State Street Bank and Trust Company,
as trustee
*******10.52 Second Amended and Restated Deed of Trust, Security Agreement,
Assignment of Rents and Fixture Filing by Potomac Mills-Phase III
(MLP) Limited Partnership and Washington Outlet Mall (MLP)
Limited Partnership, collectively, as Grantor to R. Eric Taylor,
a resident of Fairfax County, Virginia as Deed Trustee for the
benefit of CS First Boston Mortgage Capital Corp., as Beneficiary
dated as of December 17, 1996
</TABLE>
<PAGE> 22
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBER EXHIBIT NUMBERED PAGE
- ------ ------- -------------
<S> <C> <C>
*******10.53 Assignment of Leases and Rents and Security Deposits dated as of
December 17, 1996 by Potomac Mills-Phase III (MLP) Limited
Partnership and Washington Outlet Mall (MLP) Limited Partnership to
CS First Boston mortgage Capital Corp.
*******10.54 Mortgage, Security Agreement, Assignment of Rents and Fixture Filing
by Gurnee Mills (MLP) Limited Partnership, as Mortgagor to CS First
Boston Mortgage Capital Corp., as Mortgagee dated as of December 17,
1996
*******10.55 Assignment of Leases and Rents and Security Deposits dated as of
December 17, 1996 by Gurnee Mills (MLP) Limited Partnership to CS
First Boston Mortgage Capital Corp.
*******10.56 Trust and Servicing Agreement dated as of December 1, 1996 among
Potomac Gurnee Finance Corp., as Depositor, AMRESCO Management,
Inc., as Servicer, ABN AMRO Bank N.V., as Fiscal Agent and
LaSalle National Bank, as Trustee
*******10.57 Credit Agreement dated as of October 28, 1996, among the Mills
Corporation, the Mills Limited Partnership, Sunrise Mills (MLP)
Limited Partnership and CS First Boston Mortgage Capital Corp.
*******10.58 General Pledge and Security Agreement, dated as of October 28,
1996 made by The Mills Limited Partnership in favor of CS First
Boston Mortgage Capital Corp.
*******10.59 Intercompany Pledge and Security Agreement dated as of October
28, 1996, by The Mills Limited Partnership, The Mills
Corporation, Sunrise Mills (MLP) Limited Partnership and Sawgrass
Mills Phase II Limited Partnership in favor of CS First Boston
Mortgage Capital Corp.
*******10.60 Assignment of Partnership Interest dated as of October 28, 1996 from
The Mills Limited Partnership to CS First Boston Mortgage Capital
Corp.
*******10.61 Revolving Note dated as of October 28, 1996 from The Mills Limited
Partnership to CS First Boston Mortgage Capital Corp. in the maximum
amount of $40,000,000
10.62 First amendment dated as of July 15, 1997 to Credit Agreement
dated as of October 28, 1996 among The Mills Corporation, The
Mills Limited Partnership, Sawgrass Mills Phase II Limited
Partnership, Sunrise Mills (MLP) Limited Partnership and Credit
Suisse First Boston Mortgage Capital Corp.
*******11 Statement Re: Computation of Per Share Earnings
21.1 List of Subsidiaries of the Registrant
</TABLE>
<PAGE> 23
<TABLE>
<CAPTION>
NUMBER EXHIBIT
- ------ -------
<S> <C>
* Incorporated by reference to Exhibits 3.1 and 3.2 to the Registrant's
Registration Statement on Form S-8, Registration No. 333-35853, which was
filed with Securities and Exchange Commission on September 17, 1997 ("Form
S-8").
** Incorporated by reference to the Registrant's Quarterly Report on
Form 10-Q for the first quarter ended March 31, 1994 (Commission File No.
1-12994).
*** Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1994.
**** Incorporated by reference to the Registrant's Quarterly by Report on Form
10-Q for the second quarter ended September 30, 1995.
***** Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1995.
****** Incorporated by reference to the Registrant's Annual Report on Form 10-Q
for the third quarter ended September 3, 1996.
******* Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1996.
+ Incorporated by reference to Exhibit 4.1 to Form S-8.
</TABLE>
<PAGE> 1
EXHIBIT 10.62
FIRST AMENDMENT
First Amendment dated as of July 15, 1997, to the Credit Agreement dated
as October 28, 1996 (the "Credit Agreement") among The Mills Corporation, a
Delaware corporation (together with its successors and assigns, the "REIT"), The
Mills Limited Partnership, a Delaware limited partnership (together with its
successors and assigns, the "Borrower"), Sawgrass Mills Phase II Limited
Partnership, a Delaware limited partnership (together with its successors and
assigns, "Sawgrass"), Sunrise Mills (MLP) Limited Partnership, a District of
Columbia limited partnership (together with its successors and assigns,
"Sunrise" and together with Sawgrass, the "Subsidiary Partnerships" and each, a
"Subsidiary Partnership") and Credit Suisse First Boston Mortgage Capital LLC,
successor by merger to CS First Boston Mortgage Capital Corp. (together with its
successors and assigns, the "Lender").
R E C I T A L S:
WHEREAS, the REIT, the Borrower, the Subsidiary Partnerships and the
Lender are parties to the Credit Agreement; and
WHEREAS, CS First Boston Mortgage Capital Corp. has been merged with and
into Credit Suisse First Boston Mortgage Capital LLC; and
WHEREAS, the Company desires that the Commitment be increased from
$40,000,000 to $60,000,000; and
WHEREAS, the parties hereto wish to make certain other changes in the
terms and conditions of the Credit Agreement and certain of the other Loan
Documents;
NOW, THEREFORE, in consideration of the premises contained herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto mutually agree as follows:
1. Capitalized terms used herein without definition shall have the
meanings given to such terms in the Credit Agreement.
2. All references in the Credit Agreement and in the other Loan
Documents to "CS First Boston Mortgage Capital Corp." are hereby modified to
read "Credit Suisse First Boston Mortgage Capital LLC."
1
<PAGE> 2
3. The definition of "Commitment" contained in Section 1.1 of the
Credit Agreement is hereby modified to change the amount "Forty Million Dollars
($40,000,000)" to read "Sixty Million Dollars ($60,000,000)", and all references
in the Credit Agreement and in the other Loan Documents to "Commitment" shall
mean from and after the date hereof the term "Commitment" as modified hereby.
4. The "Effective Date" referred to in paragraph (b) of Section 3.2
of the Credit Agreement shall hereafter be deemed to refer to the Effective Date
of this Agreement. Notwithstanding anything to the contrary contained in the
Credit Agreement, and in furtherance of this Section 4, it is hereby agreed that
no prepayment heretofore made or required to be made pursuant to Section 3.2(b)
of the Credit Agreement shall result in any reduction of the Commitment, as
increased hereby, pursuant to the terms of such Section 3.2(b), but that any
prepayment hereafter made or required to be made pursuant to Section 3.2(b) of
the Credit Agreement shall result in a reduction of the Commitment in accordance
with the terms thereof.
5. Clause (vii) of Section 7.3 of the Credit Agreement is hereby
modified to change the amount $2,000,000" referred to therein to read
$6,000,000".
6. Clause (vi) of Section 10.4 of the Credit Agreement is hereby
modified to read as follows:
"(iv) the Lender:
Credit Suisse First Boston Mortgage Capital LLC
11 Madison Avenue
New York, New York 10010
Attn: Mr. Robert K. Vahradian
Tel: (212) 325-2178
Fax: (212) 325-8160
with a copy to:
Moses & Singer LLP
1301 Avenue of the Americas
New York, New York 10019
Attn: Mark S. Fawer, Esq.
Tel: (212) 554-7857
Fax: (212) 554-7700"
7. Exhibit C to the Credit Agreement (Notice of Borrowing) is hereby
modified to change the name and address of the Lender appearing therein to read
as follows:
2
<PAGE> 3
"Credit Suisse First Boston Mortgage Capital LLC
11 Madison Avenue
New York, New York 10010"
8. Clause (b) of each of Section 18 of the General Pledge and
Security Agreement and Section 17 of the Intercompany Pledge and Security
Agreement are each hereby modified to read as follows:
"(b) the Pledgee:
Credit Suisse First Boston Mortgage Capital LLC
11 Madison Avenue
New York, New York 10010
Attn: Mr. Robert K. Vahradian
Tel: (212) 325-2178
Fax: (212) 325-8160
with a copy to:
Moses & Singer LLP
1301 Avenue of the Americas
New York, New York 10019
Attn: Mark S. Fawer, Esq.
Tel: (212) 554-7857
Fax: (212) 554-7700"
9. The Borrower shall pay to the Lender on the date hereof a
structuring and advisory fee of $615,000.
10. Contemporaneously with the execution and delivery of this
Amendment, and as a condition to its effectiveness, the Borrower shall have
delivered to the Lender a duly executed Note dated as of the date hereof (the
"New Note"), in substantionally the form of Exhibit A to the Credit Agreement as
amended hereby but reflecting the increase in the Commitment, and the Lender
shall surrender to the Borrower for cancellation the Note delivered to it under
the Credit Agreement prior to this Agreement marked "SUPERSEDED". (Each
reference to the "Note" in the Credit Agreement and in the other Loan Documents
shall henceforth be construed to refer to the New Note.)
11. Contemporaneously with the execution and delivery of this
Amendment, and as a condition to its effectiveness, the Lender shall have
received each of the following:
3
<PAGE> 4
(i) an opinion of Rudnick & Wolfe, counsel to the Borrower, covering
such matters as the Lender may reasonably request, and otherwise in form, scope
and substance satisfactory to the Lender;
(ii) from each of (i) Sunrise Mills L.L.C., as general partner of
Sunrise and (ii) Sawgrass Mills Phase II, L.L.C., as general partner of
Sawgrass, such acknowledgments and confirmations in respect of the Consent
Agreement executed by each of them, each to be in form and substance
satisfactory to the Lender; and
(iii) all corporate and partnership documents, instruments and
agreements in connection with the transactions contemplated by this Amendment
and the Loan Document as amended hereby, reasonably satisfactory in form and
substance to the Lender, and all information and copies of all documents and
papers, including records of corporate proceedings, governmentals approvals,
good standing certificates and bring-down telegrams, if any, which the Lender
reasonably may have requested in connection therewith, such documents and papers
where appropriate to be certified by proper corporate, partnership or
governmental authorities.
12. Each of the REIT, the Borrower and each Subsidiary Partnership
represents and warrants that (i) it has the right, power and capacity and has
been duly authorized and empowered by all requisite corporate, partnership and
other action to enter into, execute, deliver and perform this Amendment, the New
Note and the other agreements, instruments and documents contemplated hereby to
which it is a party (collectively, the "Amendment Documents"); (ii) this
Amendment and the other Amendment Documents to which it is a party constitute
legally valid and binding obligations, enforceable against it in accordance with
its terms except to the extent that the enforceability thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws generally affecting creditors' rights and by equitable principles
(regardless of whether enforcement is sought in equity or at law); (iii) the
execution, delivery and performance of this Amendment and of the other Amendment
Documents to which is it a party do not and will not in a manner, the effect of
which would be materially adverse to the Borrower or the Company, violate any
provision of its organizational documents or any contractual provision to which
it is a party or to which it or any of its property is subject; (iv) all
representations and warranties contained in the Credit Agreement and in the
other Loan Documents are true and correct in all material respects with the same
effect as though such representations and warranties have been made on and as of
the date hereof, except as to any matters that have changed in accordance with
or are permitted by the Credit Agreement; and (v) no Unmatured Default or Event
of Default has occurred and is continuing.
4
<PAGE> 5
13. The Borrower shall pay on demand all reasonable costs and
expenses of the Lender incurred by it in connection with or arising out of the
negotiation, preparation, review, execution and delivery of this Amendment, the
other Amendment Documents and the agreements and instruments referred to herein
or therein (including, without limitation, the reasonable fees and expenses of
the Lender's special counsel, Moses & Singer LLP).
14. Upon the execution and delivery of this Amendment by all parties,
the Credit Agreement and the other Loan Documents, each as amended hereby, shall
continue in full force and effect and each reference in the Credit Agreement or
the other Loan Documents to "this Agreement", "thereunder", "hereof", or words
of like import, shall mean, respectively, the Credit Agreement or such other
Loan Documents as each is amended hereby.
15. This Amendment sets forth the entire agreement of the parties
with respect to the subject matter contained herein.
16. This Amendment shall be governed by and construed and enforced in
accordance with the laws of the State of New York in effect from time to time
applicable to contracts made and to be performed wholly within such State,
without regard to any choice or conflict of laws rules.
17. This Amendment may be executed in counterparts, each of which
shall be deemed an original, and all of which taken together shall constitute
one and the same instrument.
18. This Amendment shall become effective on the date (the "Effective
Date") upon which the Lender shall have received (i) a counterpart of this
Amendment duly executed by each of the parties hereto, (ii) the structuring and
advisory fee referred to in Section 9 and evidence of this payment of all sums
due pursuant to Section 13, (iii) the New Note and (iv) each of the items set
forth in Section 11.
19. Except as modified hereby, the Credit Agreement and each of the
other Loan Documents is hereby ratified and confirmed in all respects.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto, each by its duly authorized
officer, have executed this Amendment as of the date and year first set forth
above.
THE MILLS CORPORATION
By:
-------------------------
Name: Thomas E. Frost
Title: Senior Vice President
THE MILLS LIMITED PARTNERSHIP
By: The Mills Corporation,
its General Partner
By:
----------------------------
Name: Thomas E. Frost
Title: Senior Vice President
SAWGRASS MILLS PHASE II LIMITED
PARTNERSHIP
By: Sawgrass Mills Phase II, L.L.C.,
its General Partner
By: The Mills Limited Partnership,
its Manager
By: The Mills Corporation,
its General Partner
------------------------
Name: Thomas E. Frost
Title: Senior Vice President
6
<PAGE> 7
SUNRISE MILLS (MLP) LIMITED
PARTNERSHIP
By: Sunrise Mills L.L.C.,
its General Partner
By: The Mills Limited Partnership
its Manager
By: The Mills Corporation,
its General Partner
-----------------------
Name: Thomas E. Frost
Title: Senior Vice President
CREDIT SUISSE FIRST BOSTON MORTGAGE
CAPITAL LLC
------------------------
Name: Robert K. Vahradian
Title: Vice President
7
<PAGE> 1
EXHIBIT 21.1
LIST OF SUBSIDIARIES OF REGISTRANT
A. SUBSIDIARIES OF THE MILLS CORPORATION
<TABLE>
<CAPTION>
==========================================================================================================
NAME STATE OF FICTITIOUS
FORMATION & QUALIFICATION BUSINESS NAMES
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Franklin Mills GP, Inc. Delaware N/A
District of Columbia
Pennsylvania
- ----------------------------------------------------------------------------------------------------------
Liberty Plaza GP, Inc. Delaware N/A
Pennsylvania
- ----------------------------------------------------------------------------------------------------------
Potomac Gurnee Finance Corp. Delaware N/A
Virginia
- ----------------------------------------------------------------------------------------------------------
Potomac Mills Finance Corp. Delaware N/A
Virginia
- ----------------------------------------------------------------------------------------------------------
The Mills GP, Inc. Delaware N/A
District of Columbia
Florida
South Carolina
Virginia
- ----------------------------------------------------------------------------------------------------------
Washington Potomac Partners Corp. Delaware N/A
Virginia
- ----------------------------------------------------------------------------------------------------------
The Mills Limited Partnership Delaware
Arizona Chandler Mills Limited
Partnership
California Delaware Mills Limited
Partnership
District of Columbia
Florida The Mills Limited
Partnership of
Delaware
Georgia
Illinois
Maryland
</TABLE>
1
<PAGE> 2
<TABLE>
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
New Jersey
North Carolina Delaware Mills
(Concord) Limited
Partnership
Ohio
Pennsylvania Delaware Mills Limited
Partnership
South Carolina
Texas The Delaware Mills
Limited Partnership
Virginia
- ----------------------------------------------------------------------------------------------------------
Sawgrass Finance L.L.C. Delaware N/A
==========================================================================================================
</TABLE>
B. SUBSIDIARIES OF THE MILLS LIMITED PARTNERSHIP
<TABLE>
<CAPTION>
===========================================================================================================
NAME STATE OF FICTITIOUS
FORMATION & BUSINESS NAMES
QUALIFICATION
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Arizona Mills, L.L.C. Delaware N/A
Arizona
Michigan
- -----------------------------------------------------------------------------------------------------------
Candlestick Mills Limited Partnership Delaware
- -----------------------------------------------------------------------------------------------------------
Candlestick Mills, L.L.C. Delaware
California
- -----------------------------------------------------------------------------------------------------------
Concord Mills Limited Delaware N/A
Partnership North Carolina
- -----------------------------------------------------------------------------------------------------------
Concord Mills, L.L.C. Delaware N/A
- -----------------------------------------------------------------------------------------------------------
Coopers Crossing Associates New Jersey N/A
(MLP) Limited Partnership
- -----------------------------------------------------------------------------------------------------------
Coopers Crossing L.L.C. Delaware N/A
New Jersey
- -----------------------------------------------------------------------------------------------------------
Crosswinds Center Associates District of Columbia N/A
of St. Petersburg (MLP) Florida
Limited Partnership
- -----------------------------------------------------------------------------------------------------------
Crosswinds L.L.C. Delaware N/A
District of Columbia
Florida Crosswinds L.L.C. of
DE, L.C.
</TABLE>
2
<PAGE> 3
<TABLE>
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Echo Hills Center Associates (MLP) Virginia N/A
Limited Partnership
- -----------------------------------------------------------------------------------------------------------
Fashion Center Associates of Illinois N/A
Illinois No. 1 (MLP) Limited
Partnership
- -----------------------------------------------------------------------------------------------------------
Fashion Center L.L.C. Delaware N/A
Illinois
- -----------------------------------------------------------------------------------------------------------
Fashion Place Associates, Delaware N/A
L.L.C. South Carolina
- -----------------------------------------------------------------------------------------------------------
Fashion Place Associates South Carolina N/A
Limited Partnership
- -----------------------------------------------------------------------------------------------------------
Four "J" Development Texas N/A
Company, Ltd.
- -----------------------------------------------------------------------------------------------------------
Franklin Mills Associates District of Columbia N/A
Limited Partnership Pennsylvania
- -----------------------------------------------------------------------------------------------------------
Franklin Mills, L.L.C. Delaware
District of Columbia
Pennsylvania
- -----------------------------------------------------------------------------------------------------------
Germantown Development Maryland N/A
Associates (MLP) Limited
Partnership
- -----------------------------------------------------------------------------------------------------------
Germantown Development Delaware N/A
Associates L.L.C. Maryland Maryland Germantown
Development
Associates, L.L.C.
- -----------------------------------------------------------------------------------------------------------
Grapevine Mills Limited Delaware N/A
Partnership Texas
- -----------------------------------------------------------------------------------------------------------
Grapevine Mills Operating Delaware N/A
Company, L.L.C. Texas
</TABLE>
3
<PAGE> 4
<TABLE>
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Gurnee Mills (MLP) Limited Illinois N/A
Partnership
- -----------------------------------------------------------------------------------------------------------
Gurnee Mills L.L.C. Delaware N/A
Illinois
- -----------------------------------------------------------------------------------------------------------
Gurnee Mills II L.L.C. Delaware N/A
Illinois
- -----------------------------------------------------------------------------------------------------------
Gwinnett L.L.C. Delaware N/A
Georgia
- -----------------------------------------------------------------------------------------------------------
Gwinnett Marketfair Georgia N/A
Associates Limited
Partnership
- -----------------------------------------------------------------------------------------------------------
Hunt Club Road Properties Illinois N/A
Associates Limited
Partnership
- -----------------------------------------------------------------------------------------------------------
Katy Mills Limited Partnership Delaware
- -----------------------------------------------------------------------------------------------------------
Katy Mills, L.L.C. Delaware
- -----------------------------------------------------------------------------------------------------------
Liberty Plaza Limited Delaware
Partnership Pennsylvania Delaware Liberty Plaza
Limited Partnership
- -----------------------------------------------------------------------------------------------------------
Liberty Plaza, L.L.C. Delaware N/A
Pennsylvania
- -----------------------------------------------------------------------------------------------------------
Mainstreet Retail Limited Delaware
Partnership Arizona Delaware Mainstreet
Retail Limited
Partnership
California
Florida
Illinois
Maryland
Ohio
Pennsylvania
South Carolina
Texas
Virginia
</TABLE>
4
<PAGE> 5
<TABLE>
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Management Associates Delaware
Limited Partnership Florida
Georgia
Illinois
Maryland
New jersey
Ohio
Pennsylvania
South Carolina
Virginia
- -----------------------------------------------------------------------------------------------------------
Meadowlands Mills L.L.C. Delaware N/A
New Jersey
- -----------------------------------------------------------------------------------------------------------
Mills-Kan Am Columbus/ Delaware N/A
Sawgrass Limited Florida
Partnership
- -----------------------------------------------------------------------------------------------------------
Mills Management L.L.C. Delaware N/A
California
Florida
Illinois
Maryland
Ohio
South Carolina
- -----------------------------------------------------------------------------------------------------------
MillsServices Corp. Arizona
Delaware
California
District of Columbia
Florida
New Jersey
North Carolina
Ohio MillsServices Corp. of
Ohio
Texas
Virginia MillsServices Corp. of
Virginia
- -----------------------------------------------------------------------------------------------------------
Franklin Mills Residual District of Columbia N/A
Associates Limited Pennsylvania
Partnership
- -----------------------------------------------------------------------------------------------------------
Montgomery Village Maryland N/A
Associates (MLP) Limited
Partnership
</TABLE>
5
<PAGE> 6
<TABLE>
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Montgomery Village Delaware
Associates L.L.C. Maryland Maryland Montgomery
Village Associates
L.L.C.
- -----------------------------------------------------------------------------------------------------------
Montgomery Village Ground Maryland N/A
(MLP) Limited Partnership
- -----------------------------------------------------------------------------------------------------------
Montgomery Village Ground Delaware N/A
L.L.C. Maryland
- -----------------------------------------------------------------------------------------------------------
Mount Prospect Plaza (MLP) Illinois N/A
Limited Partnership
- -----------------------------------------------------------------------------------------------------------
Mount Prospect Plaza L.L.C. Delaware N/A
Illinois
- -----------------------------------------------------------------------------------------------------------
MTS Services of Tempe, Delaware N/A
L.L.C. Arizona
Michigan
- -----------------------------------------------------------------------------------------------------------
Ontario Mills Limited Partnership Delaware
California
- -----------------------------------------------------------------------------------------------------------
Ontario Mills L.L.C. Delaware N/A
California
- -----------------------------------------------------------------------------------------------------------
Opry Mills, L.L.C. Delaware
Tennessee
- -----------------------------------------------------------------------------------------------------------
Orange City Mills Limited Delaware N/A
Partnership California
- -----------------------------------------------------------------------------------------------------------
Potomac Mills L.L.C. Delaware N/A
Virginia
- -----------------------------------------------------------------------------------------------------------
Potomac Mills Limited Virginia N/A
Partnership
- -----------------------------------------------------------------------------------------------------------
Sawgrass Mills Phase II Delaware N/A
Limited Partnership Florida
- -----------------------------------------------------------------------------------------------------------
Sawgrass Mills Phase II, Delaware N/A
L.L.C. Florida
- -----------------------------------------------------------------------------------------------------------
Sunrise Mills (MLP) Limited District of Columbia N/A
Partnership Florida
- -----------------------------------------------------------------------------------------------------------
Sunrise Mills L.L.C. Delaware N/A
District of Columbia
Florida Sunrise Mills of
Sunrise L.C.
</TABLE>
6
<PAGE> 7
<TABLE>
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
West Falls Church L.L.C. Delaware N/A
Virginia
===========================================================================================================
</TABLE>
C. SUBSIDIARIES OF MILLSSERVICES CORP.
<TABLE>
<CAPTION>
===========================================================================================================
NAME STATE OF FICTITIOUS
FORMATION & BUSINESS NAMES
QUALIFICATION
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Concord Mills Residual Delaware N/A
Limited Partnership North Carolina
- -----------------------------------------------------------------------------------------------------------
Concord Mills Residual, Delaware N/A
L.L.C.
- -----------------------------------------------------------------------------------------------------------
Franklin Mills Residual Corp. Delaware N/A
District of Columbia
Pennsylvania
- -----------------------------------------------------------------------------------------------------------
Franklin Mills Residual Associates District of
Limited Partnership Columbia
Pennsylvania
- -----------------------------------------------------------------------------------------------------------
Grapevine Mills Residual Operating Company, Delaware
L.L.C. Texas
- -----------------------------------------------------------------------------------------------------------
Mills USA, L.L.C. Delaware
- -----------------------------------------------------------------------------------------------------------
MillsServices of Grapevine, Delaware N/A
Inc. Texas
- -----------------------------------------------------------------------------------------------------------
Ontario Mills Residual Limited Partnership Delaware
California
- -----------------------------------------------------------------------------------------------------------
Ontario Mills Residual, Delaware N/A
L.L.C. California
- -----------------------------------------------------------------------------------------------------------
Potomac Title Services, Inc. Florida N/A
- -----------------------------------------------------------------------------------------------------------
Premises Providers, Inc. Maryland N/A
Arizona
California
District of Columbia
Florida
Illinois
North Carolina
Ohio
Pennsylvania
Texas
Virginia
Wisconsin
- -----------------------------------------------------------------------------------------------------------
WSM South Florida Corp. Florida N/A
District of Columbia
===========================================================================================================
</TABLE>
7
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 19,398
<SECURITIES> 0
<RECEIVABLES> 29,002
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 856,741
<DEPRECIATION> (199,332)
<TOTAL-ASSETS> 890,217
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 229
<OTHER-SE> 172,933
<TOTAL-LIABILITY-AND-EQUITY> 890,217
<SALES> 0
<TOTAL-REVENUES> 42,246
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 33,414
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,424
<INCOME-PRETAX> 5,614
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,614
<EPS-PRIMARY> .24
<EPS-DILUTED> .24
</TABLE>
