<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 June 30, 1998
Commission File Number 1-12994
-------
THE MILLS CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 52-1802283
-------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
</TABLE>
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.
23,113,964 shares of Common Stock
$.01 par value as of August 11, 1998
<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 June 30, 1998
and December 31, 1997. 1
Consolidated Statements of Operations for the
Quarters Ended June 30, 1998 and June 30, 1997. 2
Consolidated Statements of Operations for the
Six Months Ended June 30, 1998 and June 30, 1997 3
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1998 and June 30, 1997. 4
Notes to Consolidated Financial Statements 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 21
</TABLE>
Certain matters discussed in this form 10-Q 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 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," "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. These risks and uncertainties
include those set forth in the Company's annual report on Form 10-K and other
SEC filings.
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
THE MILLS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
(Unaudited) (Note)
----------------- -------------------
<S> <C> <C>
ASSETS
Income producing property:
Land and land improvement $ 167,409 $ 167,409
Building and improvements 708,371 703,805
Furniture, fixtures and equipment 27,100 25,253
Less: accumulated depreciation and amortization (219,879) (206,357)
------------- -------------
Total income producing property 683,001 690,110
Land held for investment and/or sale 10,215 7,397
Real estate development in progress 17,730 18,904
Investment in unconsolidated entities 137,111 95,299
------------ -------------
Total real estate and development assets 848,057 811,710
Cash and cash equivalents 1,109 25,263
Restricted cash 15,753 15,623
Accounts receivable 19,758 21,078
Notes receivable 6,684 6,733
Deferred costs, net 43,614 43,654
Other assets 3,775 2,560
------------ ------------
TOTAL ASSETS $ 938,750 $ 926,621
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgages, notes and loans payable $ 737,678 $ 703,713
Accounts payable and other liabilities 51,551 54,929
------------ ------------
Total liabilities 789,229 758,642
Minority interest 60,810 68,955
STOCKHOLDERS' EQUITY
Common stock $.01 par value, authorized 100,000,000
shares, issued and outstanding 23,113,964 and
22,912,242 shares in 1998 and 1997, respectively 229 229
Additional paid-in capital 438,188 436,639
Accumulated deficit (348,159) (337,142)
Unamortized restricted stock awards (1,547) (702)
------------- -------------
Total stockholders' equity 88,711 99,024
------------ -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 938,750 $ 926,621
============ =============
</TABLE>
Note: The balance sheet at December 31, 1997 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 OPERATIONS
(In Thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Three
Months Ended Months Ended
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
REVENUES:
Minimum rent $ 25,036 $ 23,818
Percentage rents 233 1,003
Recoveries from tenants 12,109 11,422
Other property revenues 1,488 1,355
Fee income 3,365 1,846
Interest income 679 1,072
--------- ----------
Total revenues 42,910 40,516
EXPENSES:
Recoverable from tenants 10,517 10,290
Other operating 1,238 1,878
General and administrative 2,578 1,991
Interest expense 10,820 9,995
Depreciation and amortization 8,685 8,361
--------- ----------
Total expenses 33,838 32,515
Other expense (43) (40)
Equity in earnings of unconsolidated joint ventures 891 888
--------- ----------
Income before extraordinary item and minority interest 9,920 8,849
Extraordinary loss on debt extinguishment (422) (8,060)
--------- ----------
Income before minority interest 9,498 789
Minority interest (3,870) (328)
--------- ----------
Net income $ 5,628 $ 461
========= ==========
Earnings Per Common Share:
Income before extraordinary item $ 0.26 $ 0.24
Extraordinary loss on extinguishment of debt $ (0.01) $ (0.22)
--------- ----------
Net income per common share $ 0.25 $ 0.02
========= ==========
Earnings Per Common Share -- Assuming Dilution:
Income before extraordinary item $ 0.25 $ 0.24
Extraordinary loss on extinguishment of debt $ (0.01) $ (0.22)
--------- ----------
Net income per common share -- assuming dilution $ 0.24 $ 0.02
========= ==========
Dividends declared per common share $ 0.4875 $ 0.4725
========= ==========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
2
<PAGE> 5
THE MILLS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Six Six
Months Ended Months Ended
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
REVENUES:
Minimum rent $ 49,573 $ 47,018
Percentage rents 1,399 2,122
Recoveries from tenants 24,173 22,972
Other property revenues 2,978 2,632
Fee income 4,744 4,361
Interest income 1,788 1,635
--------- ---------
Total revenues 84,655 80,740
EXPENSES:
Recoverable from tenants 20,900 20,689
Other operating 2,707 3,201
General and administrative 4,984 4,237
Interest expense 21,914 22,044
Depreciation and amortization 18,297 16,847
--------- ---------
Total expenses 68,802 67,018
Other income (expense) (86) 203
Equity in earnings of unconsolidated joint ventures 2,831 1,001
--------- ---------
Income before extraordinary item and minority interest 18,598 14,926
Extraordinary loss on debt extinguishment (422) (8,060)
--------- ---------
Income before minority interest 18,176 6,866
Minority interest (7,428) (3,039)
--------- ---------
Net income $ 10,748 $ 3,827
========= =========
Earnings Per Common Share:
Income before extraordinary item $ 0.48 $ 0.41
Extraordinary loss on extinguishment of debt $ (0.01) $ (0.22)
--------- ---------
Net income per common share $ 0.47 $ 0.19
========= =========
Earnings Per Common Share -- Assuming Dilution:
Income before extraordinary item $ 0.47 $ 0.41
Extraordinary loss on extinguishment of debt $ (0.01) $ (0.22)
--------- ---------
Net income per common share -- assuming dilution $ 0.46 $ 0.19
========= =========
Dividends declared per common share $ 0.975 $ 0.945
========= =========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
3
<PAGE> 6
THE MILLS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Six
Months Ended Months Ended
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Income before minority interest $ 18,176 $ 6,866
Adjustments to reconcile income before minority interest
to net cash provided by operating activities:
Net accretion of note receivable (350) (350)
Depreciation and amortization 18,297 18,169
Provision for losses on accounts receivable 109 61
Equity in earnings of unconsolidated entities (2,831) (1,101)
Net gain on sales of land and equipment -- (281)
Restricted stock awards 453 --
Extraordinary loss on debt extinguishment 422 8,060
Other changes in assets and liabilities:
Decrease(Increase) in accounts receivable 1,066 (1,443)
Decrease in notes receivable 399 540
Decrease in other assets (1,069) (2,652)
Increase (decrease) in accounts payable and other liabilities 3,038 (826)
---------- ----------
Net cash provided by operating activities 37,710 27,143
INVESTING ACTIVITIES:
Investment in real estate and development assets (63,533) (22,041)
Distributions received from unconsolidated entities 9,743 2,766
Proceeds from sale of land and equipment -- 650
Deferred costs (4,638) (6,443)
---------- ----------
Net cash used in investing activities (58,428)
FINANCING ACTIVITIES:
Proceeds from mortgages, notes and loans payable 135,055 114,082
Repayments of mortgages, notes and loans payable (101,095) (205,282)
Refinancing costs (179) (2,054)
Restricted cash (130) (1,602)
Dividends paid (22,067) ( 18,520)
Distributions paid (15,270) ( 15,434)
Proceeds from sale of common stock -- 121,811
Proceeds from exercise of stock options 250 --
---------- ----------
Net cash used in financing activities (3,436) (6,999)
---------- ----------
Net decrease in cash and cash equivalents (24,154) (4,924)
Cash and cash equivalents at beginning of period 25,263 6,327
---------- ----------
Cash and cash equivalents at end of period $ 1,109 $ 1,403
========== ==========
Supplemental disclosures of cash flow information:
Cash paid for interest, net of amounts capitalized $ 21,212 $ 24,830
========== ==========
</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 June 30,
1998, a 1% interest as the sole general partner and a 58.33% 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 June 30, 1998, the Operating Partnership owns or holds an
interest in the following operating properties:
<TABLE>
<CAPTION>
Mills Location
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<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)
Grapevine Mills Dallas, TX (Dallas/Fort Worth)
Arizona Mills Tempe, AZ (Phoenix)
<CAPTION>
Community Centers Location
----------------- --------
<S> <C>
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
pre-development or development of a number of new projects, including The Block
at Orange (Orange, California), Katy Mills (Houston, TX), Meadowlands Mills
(Carlstadt, NJ), Concord Mills (Charlotte, NC), Vaughan Mills (Toronto, Canada),
Opry Mills (Nashville, TN) and Sawgrass Phase III Expansion (Sunrise, FL).
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 six month
period ended June 30, 1998, is 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, 1997.
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 MillsServices
Corporation ("MSC"), an entity formed in connection with the Company's initial
public offering 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 interest in certain
Mills operating properties, as well as certain properties under development are
through investments in the partnerships and other types of joint venture entity
structures. The investments 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 1998 presentation.
3. PER SHARE DATA
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings Per Share (FAS 128) was adopted by the Company on
December 31, 1997. Under the new requirements, FAS 128 replaced "primary EPS"
with "basic EPS". Basic EPS is calculated by dividing income available to common
shareholders by the weighted number of common shares outstanding during the
period. Entities with complex capital structures are required to report "diluted
EPS". Diluted EPS is 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.
6
<PAGE> 9
THE MILLS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Three Six
Months Ended Months Ended
June 30, 1998 June 30, 1998
<S> <C> <C>
Numerator for basic earnings per share $ 5,621 $ 10,734
============= ===============
Numerator for diluted earnings per share $ 5,680 $ 10,849
============= ===============
Denominators:
Denominator for basic earnings
per share -- weighted average shares 23,063 22,999
------------- ---------------
Outstanding unvested restricted stock grants --
weighted average shares (77) (77)
------------- ---------------
Denominator for basic earnings per share
adjusted weighted average shares 22,986 22,922
------------- ---------------
Effect of dilutive securities:
Employee stock options and unvested restricted
stock grants 603 610
------------- ---------------
Denominator for diluted earnings per
share-adjusted weighted-average shares 23,589 23,532
============= ===============
Basic earnings per share $ 0.25 $ 0.47
Diluted earnings per share $ 0.24 $ 0.46
</TABLE>
Limited partnership units in the Operating Partnership of 15,845,220 and
16,328,884 outstanding at June 30, 1998 and December 31, 1997, respectively may
be exchanged for shares of common stock of the Company on a one-for-one basis in
certain circumstances. These limited partnership units have not been considered
in the computation of per share data as their exchange would not have a dilutive
effect.
4. INVESTMENT IN PARTNERSHIPS
Certain Mills under development are partially owed 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 June 30, 1998
------------- --------------------
<S> <C>
Ontario Mills 50.0%
Grapevine Mills 37.5%
Arizona Mills 36.8%
Sawgrass Mills Phase III 50.0%
The Block at Orange 50.0%
Concord Mills 50.0%
Katy Mills 75.0%
Meadowlands Mills 66.7%
Opry Mills 66.7%
</TABLE>
7
<PAGE> 10
THE MILLS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
As major business decisions require the approval of at least one other
General Partner, the Company does not control these joint ventures pursuant to
Statement of Position 78-9. As a result, its investments are accounted for under
the equity method, where the investments are recorded at cost and subsequently
adjusted for net equity in 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 $59.3 million of Joint Venture debt
until certain debt service coverage tests are met. Of the $59.3 million, $19.6
is also guaranteed joint and several with other partners. 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
$21.0 million and will be collected over a 25 year period through 2020 to fund
debt service on bonds issued by the City to fund the infrastructure
improvements.
Combined balance sheets at June 30, 1998 and December 31, 1997 and results
of operations for the six months ended June 30, 1998 and 1997 are presented
below for all Joint Ventures.
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ -------------
<S> <C> <C>
Assets:
Income producing assets $ 459,996 $ 465,316
Construction in progress 217,543 112,495
Other 130,600 122,458
----------- -----------
$ 808,139 $ 700,269
=========== ===========
Liabilities and partners' equity:
Debt $ 427,692 $ 358,538
Other liabilities 59,329 71,849
Operating Partnership's accumulated equity 97,485 75,600
Joint Venture partners' accumulated equity 223,633 194,282
----------- -----------
$ 808,139 $ 700,269
=========== ===========
<CAPTION>
Six Months Ended
June 30,
1998 1997
------------ -------------
<S> <C> <C>
Revenues $ 44,423 $ 13,259
Recoverable and other property expenses (14,304) (4,589)
Interest expense (13,080) (3,681)
Depreciation and amortization (12,553) (3,754)
Other income 3,670 3,145
Extraordinary loss on debt extinguishment -- (961)
----------- -----------
$ 8,156 $ 3,419
=========== ===========
Operating Partnership's equity in earnings of unconsolidated
joint ventures$ $ 2,831 $ 1,001
=========== ===========
</TABLE>
8
<PAGE> 11
THE MILLS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
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. REVENUE RECOGNITION
In May 1998, the Financial Accounting Standards Board issued EITF 98-9
"Accounting for Contingent Rent in Interim Financial Periods". The provisions of
EITF 98-9 do not allow the Company to accrue percentage rent until the tenant's
sales have reached the break points stipulated in the respective tenant leases.
The Company implemented EITF 98-9 for the quarter ended June 30, 1998. The
affect of implementation of this EITF was a decrease of approximately $.08
million for the period ended June 30, 1998 which the Company expects to
recognize as income in the fourth quarter of 1998.
6. DECLARATION OF DIVIDEND
On May 28, 1998, the Company declared a dividend of $.4875 per share which
was paid on July 21, 1998 to stockholders of record as of July 1, 1998.
9
<PAGE> 12
THE MILLS CORPORATION
(Unaudited)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Comparison of three months ended June 30, 1998 to three months ended
June 30, 1997.
Income before extraordinary item and minority interest for the three
months ended June 30, 1998 increased by approximately $1.1 million, (12.1%) to
$9.9 million as compared to the three months ended June 30, 1997. The increase
was the result of an increase in revenues of approximately $2.4 million (5.9%)
offset by an increase in expenses of approximately $1.3 million (4.1%).
Revenues:
Minimum rents for the three months ended June 30, 1998 increased approximately
$1.2 million (5.1%) compared with the three months ended June 30, 1997. The
increase was primarily due to additional rents obtained in connection with the
Company's expansion and remerchandising efforts coupled with higher occupancy
levels and lease rates across the properties.
Percentage rents for the three months ended June 30, 1998 decreased
approximately $0.8 million (76.8%) compared with the three months ended June 30,
1997. The implementation of EITF 98-9 does not allow the Company to accrue
percentage rents until the tenant's sales have reached the break points
stipulated in the respective leases.
Recoveries from tenants for the three months ended June 30, 1998 increased
approximately $0.7 million (6.0%) compared to the three months ended June 30,
1997. The increase was primarily due to increases in occupancy and recoverable
operating costs for various projects as well as an increase in the recoveries
from Franklin Mills due to increasing the management-imposed ceiling on
operating cost pass-throughs.
Interest income for the three months ended June 30, 1998 decreased approximately
$0.4 million (36.7%) compared with the three months ended June 30, 1997. The
decrease was due to higher average daily balances in interest bearing accounts
during the three months ended June 30, 1997 resulting from the temporary cash
investment of the proceeds from the sale of common stock in March 1997.
Fee income for the three months ended June 30, 1998 increased approximately $1.5
million (82.3%) compared with the three months ended June 30, 1997. Fee income
for the quarter ended June 30, 1998 is comprised of management fees of
approximately $0.8 million and development, leasing and finance fees of
approximately $2.6 million as compared to $0.4 million and $1.4 million
respectively for the same period in 1997. The increase in management fees in
1998 is due to the opening of two additional Mills projects in the fourth
quarter of 1997 (Arizona Mills and Grapevine Mills) for which the Company is
earning management fees. The increase in development, leasing and finance fees
in 1998 is due to the timing of the recognition of fees under the terms of the
Company's fee agreements.
Expenses:
Other operating expenses for the three months ended June 30, 1998 decreased
approximately $0.6 million (34.1%) compared with the three months ended June 30,
1997. The decrease was primarily due to a decrease in contributions to
promotional programs of $0.3 million, a decrease in bad debt expense of
approximately $0.2 million at certain projects and a decrease in legal fees of
$0.1 million for landlord/tenant litigation.
10
<PAGE> 13
THE MILLS CORPORATION
(Unaudited)
General and administrative expenses for the three months ended June 30, 1998
increased approximately $0.6 million (29.5%) compared with the three months
ended June 30, 1997. The increase was due to additional personnel required for
increased domestic and international development activities and the opening of
two additional projects.
Interest expense for the three months ended June 30, 1998 increased
approximately $0.8 million (8.3%) compared with the three months ended June 30,
1997. This increase was due to a larger average debt balance for the three
months ending June 30, 1998 than the prior year as a result of continued growth
in the Company's business.
Depreciation and amortization expense for the three months ended June 30, 1998
increased approximately $0.3 million (3.9%) compared with the three months ended
June 30, 1997. The increase is due to expense relating to assets placed in
service during the second half of 1997 associated with the remerchandising of
Franklin Mills, Potomac Mills and Gurnee Mills.
Extraordinary loss on debt extinguishment for the period June 30, 1998 decreased
approximately $7.6 million (94.8%) compared with the three months ended June 30,
1997. The decrease is due to a non-cash write off of $8.1 million ($4.1 million
net of minority interest) in deferred loan costs triggered by the refinancing of
Franklin Mills in the second quarter of 1997.
11
<PAGE> 14
THE MILLS CORPORATION
(Unaudited)
Comparison of six months ended June 30, 1998 to six months ended June 30, 1997.
Income before extraordinary item and minority interest for the six months
ended June 30, 1998 increased by approximately $3.7 million (24.6%) to $18.6
million as compared with the six months ended June 30, 1997. The increase was
the result of an increase in revenues of approximately $3.9 million (4.9%), an
increase in equity in earnings of unconsolidated joint ventures of approximately
$1.8 million (182.8%) offset by a increase in expenses of approximately $1.8
million (2.7%) and a decrease in other income of $0.3 million (142.4%).
Revenues:
Minimum rents for the six months ended June 30, 1998, increased approximately
$2.6 million (5.4%) compared with the six months ended June 30, 1997. The
increase was primarily due to additional rents obtained in connection with the
Company's expansion and remerchandising efforts coupled with higher occupancy
levels and lease rates across the properties.
Percentage rents for the six months ended June 30, 1998 decreased approximately
$0.7 million (34.1%) compared with the six months ended June 30, 1997. The
implementation of EITF 98-9 does not allow the Company to accrue percentage
rents until the tenant's sales have reached the break points stipulated in the
respective leases.
Recoveries from tenants for the six months ended June 30, 1998 increased
approximately $1.2 million (5.2%) compared to the six months ended June 30,
1997. The increase was primarily due to increases in occupancy and recoverable
operating costs for various projects as well as an increase in the recoveries
from Franklin Mills due to increasing the management-imposed ceiling on
operating cost pass-throughs.
Fee income for the six months ended June 30, 1998 increased approximately $0.4
million (8.8%) compared with the six months ended June 30, 1997. Fee income for
the six months ended June 30, 1998 is comprised of management fees of
approximately $1.6 million and development, leasing and finance fees of
approximately $3.2 million as compared to $0.9 million and $3.4 million
respectively for the same period in 1997. The increase in management fees in
1998 is due to the opening of two additional Mills projects in the fourth
quarter of 1997 (Arizona Mills and Grapevine Mills) for which the Company is
earning management fees. The increase in development, leasing and finance fees
in 1998 is due to the timing of the recognition of fees under the terms of the
Company's fee agreements.
Equity in earnings of unconsolidated joint ventures increased in 1998 primarily
due to the commencement of operations of Grapevine Mills and Arizona Mills which
opened in the fourth quarter of 1997.
Expenses:
Other operating expenses for the six months ended June 30, 1998 decreased
approximately $0.5 million (15.4%) compared with the six months ended June 30,
1997. The decrease was primarily due to a decrease in contribution to
promotional programs of $0.3 million and a decrease in bad debt expense of $0.2
million at certain projects.
General and administrative expenses for the six months ended June 30, 1998
increased approximately $0.7 million (17.6%) compared with the six months ended
June 30, 1997. The increase was due to additional personnel required for
increased domestic and international development activities and additional
projects.
Depreciation and amortization expense for the period June 30, 1998 increased
approximately $1.5 million (8.6%) compared with the three months ended June 30,
1997. The increase is due to expense relating to assets placed in service during
the second half of 1997 associated with the remerchandising of Franklin Mills,
Potomac Mills and Gurnee Mills.
12
<PAGE> 15
THE MILLS CORPORATION
(Unaudited)
Extraordinary loss on debt extinguishment for the six month period ended June
30, 1998 decreased approximately $7.6 million (94.8%) compared with the six
months ended June 30, 1997. The decrease was due to a non-cash write off of $8.1
million ($4.1 million net of minority interest) in deferred loan costs resulting
from the refinancing of Franklin Mills in the second quarter of 1997.
13
<PAGE> 16
THE MILLS CORPORATION
(Unaudited)
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1998, the Company's balance of cash and cash equivalents
was $1.1million, not including its proportionate share of cash held in
unconsolidated entities. In addition to its cash reserves, the Company had $40
million available under its Line of Credit.
<TABLE>
<CAPTION>
NATURE OF FACILITY
- ------------------
AMOUNT
TOTAL OUTSTANDING
MATURITY INTEREST RATE TERMS FACILITY AT 6/30/98
-------- ------------- ----- -------- ----------
<S> <C> <C> <C> <C> <C>
Line of Credit........................... 1/18/01 LIBOR + 1.40% Interest Only $ 100,000 $ 60,000
</TABLE>
Any 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 June 30, 1998.
On April 1, 1998, the Company refinanced its existing $60.0 million line
of credit with borrowings under a unsecured revolving line of credit facility
with Hypo Bank of New York. The line will be used to fund working capital
requirements, real estate acquisitions, development costs, and equity
investments. The term of the facility is for two years with a one year extension
option. Interest is payable at a variable rate with a variable margin (LIBOR
plus 1.40 percent at June 30, 1998) based on the Company's debt coverage ratio.
A facility fee of 0.20% is charged annually on the entire $100.0 million
facility.
The Company had consolidated debt of approximately $737.7 million at June
30, 1998, of which $628.0 million was fixed-rate debt and $109.7 million was
variable-rate debt. Scheduled principal repayments of consolidated indebtedness
through 2002 are $334.3 million with $403.4 million due thereafter. The Company
expects to refinance or repay these obligations with cash generated from
operations, external borrowings (including refinancing of existing loans) or
equity issuances. The Company's pro rata share of unconsolidated joint venture
debt at June 30, 1998, was $167.5 million (net of tax increment financing), of
which it had guaranteed $59.3 million ($19.6 million of this $ 59.3 million is
also guaranteed jointly and severally by other joint venture partners).
The Company's ratio of debt-to-total market capitalization was 44.1% and
37.3% at June 30, 1998 and June 30, 1997, 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 49.2%
and 40.0%, respectively.
14
<PAGE> 17
THE MILLS CORPORATION
(Unaudited)
Development, Remerchandising and Expansion. The Company is involved in the
following development, remerchandising and expansion efforts:
The Company currently is working on the development of six new projects:
The Block at Orange, Katy Mills, Concord Mills, Opry Mills, Vaughan Mills, and
Meadowlands Mills. The Block at Orange is scheduled to open in the fourth
quarter of 1998. Kan Am, the Company's joint venture partner in the development
of the project, has funded all of the required equity for this project ($60
million). The joint venture has also obtained a $136 million loan commitment for
this project. Concord Mills and Katy Mills are scheduled to open in the second
half of 1999. These projects will be financed principally with external
borrowings and other equity contributions from joint venture partners and the
Operating Partnership. The Company anticipates that the Operating Partnership's
equity requirements for Concord Mills and Katy Mills may total as much as $60
million in the aggregate of which approximately $41 million had been funded as
of June 30, 1998.
In February 1998, the Company announced that it had secured a site in
Vaughn, Ontario for the development of Vaughan Mills, the first Mills project to
be developed outside of the United States. This project will be developed
through a joint venture with Cambridge. The Company also expects to commence
development of Opry Mills and Meadowland Mills in the fourth quarter of 1998 and
during 1999, respectively. The Company anticipates that the Operating
Partnership's required total equity requirements for Opry Mills, Meadowland
Mills, and Vaughan Mills may exceed $100 million of which approximately $15
million had been funded at June 30, 1998. In connection with the Meadowlands
project, the Company has acquired a mortgage interest in a 592-acre site located
on the New Jersey Turnpike (I-95) adjacent to the Meadowlands sports Complex and
approximately five miles from New York City. Commencement of construction may be
delayed pending the completion of ongoing Environmental Impact Statement and the
federal/state permitting process. In December 1997, the White House Council on
Environmental Quality joined the Army Corp of Engineers, the Environmental
Protection Agency and other federal agencies in proposing a Special Area
Management Plan (SAMP) for the Meadowlands area. The guidelines proposal in the
SAMP would, upon their anticipated adoption in late 1998, permit Meadowland
Mills to be developed on a site ranging in size between 125 and 200 acres. Upon
procurement of all necessary entitlements it is anticipated that the project
will be developed by a joint venture formed among the Operating Partnership
(whose effective interest will be diluted from 66.7% to 58.2%), Kan Am (29.1%),
Empire Ltd. (9.2%), and Bennett S. Lazare and individual affiliated with the
Empire Ltd. (3.5%).
In May 1998, the Operating Partnership entered into an agreement with
Taubman Realty Group to develop jointly at least seven major value retail
projects over a ten year period. The arrangement includes a project currently
under development by Taubman in Metropolitan Detroit, Michigan and a project
currently under development by the Company in Metropolitan Houston, Texas (i.e.,
Katy Mills). The Company and Taubman are currently in the process of
formalizing joint venture agreements for these projects.
In addition to the above the Company is also conducting due diligence on
several other proposed sites, including sites in San Francisco, California,
North Aurora, Illinois (Chicago), Atlanta, Georgia, Cleveland, Ohio,
Philadelphia, Pennsylvania, South Weymouth, Massachusetts, Tampa, Florida and
Baltimore, Maryland. The Company is also continuing to evaluate various
prospective international sites outside of Canada with a concentrated focus on
South America and Europe as well as other domestic sites for other Mills-type
projects and for the Company's new "Block" project format.
The Company is in the process of expanding and/or remerchandising Potomac
Mills, Sawgrass Mills, Franklin Mills and Gurnee Mills. The costs of these
expansion and remerchandising programs is estimated at $145 million. At June 30,
1998, approximately $58 million had been spent on these projects and it is
anticipated that an additional $87 million will be spent during the next two
years. Completion of these projects will be financed with external borrowings,
equity contributions from Kan Am and other potential equity issuances. At June
30, 1998, the operating partnership had funded approximately $46 million of its
required equity to finance these programs and its remaining equity funding
requirements are estimated at approximately $31 million.
15
<PAGE> 18
THE MILLS CORPORATION
(Unaudited)
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.
As a potential source of additional longer-term capital, the Company is
exploring the possible repositioning of its community center portfolio in a way
that will facilitate the sale, transfer or exchange of these assets over a
period of time, as capital is needed. Such repositioning may include the
contribution of these assets into another real estate company with the intent of
liquidating this investment over a period of two to four years. In addition to
providing the Company with a new source of development capital, the disposition
will allow management to focus on its main retail products.
Dividends. The Company has paid and intends to continue to pay regular
quarterly distributions to its stockholders. Dividends 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 Six Months Ended June 30, 1998 to Six Months Ended June 30,
1997. Net cash provided by operating activities increased approximately $10.6
million (38.9%), to $37.7 million for the six months ended June 30, 1998 as
compared to $27.1 million for the six months ended June 30, 1997, primarily
resulting from net operating income growth for the portfolio as a whole. Net
cash used in investing activities increased approximately $33.5 million or
(133.8%), to $58.6 million for the six months ended June 30, 1998, as compared
to $25.1 million for the six months ended June 30, 1997, primarily as a result
of increased expenditures for real estate and development assets and advances to
certain joint ventures. Net cash used in financing activities decreased
approximately $3.7 million, or (53.5%) to $3.3 million for the six months ended
June 30, 1998, as compared to $7.0 million for the six months ended June 30,
1997 due to the incurrence of financing costs of $2.1 million in connection with
certain debt refinancings in the first quarter of 1997 and unused cash that was
placed into a restricted cash account in connection with the Potomac/Gurnee
securitization during 1997.
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.
16
<PAGE> 19
THE MILLS CORPORATION
(Unaudited)
FFO for the six months ended June 30, 1998 increased to $39.9 million compared
to $32.4 million for the comparable period in 1997. FFO amounts were calculated
in accordance with NAREIT's definition of FFO as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30
- -------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
---- ---- ---- ----
(Dollars in thousands) (Dollars in thousands)
<S> <C> <C> <C> <C>
Funds From Operations Calculation:
Income before extraordinary item and
minority interest...................... $ 9,920 $ 8,849 $ 18,598 $ 14,926
Adjustments:
Add: Depreciation and amortization of
real estate assets................... 7,810 7,742 16,369 15,447
Add: Extraordinary loss on debt
extinguishment of unconsolidated
joint ventures -- -- -- 397
Add: Real estate depreciation and
amortization of unconsolidated
entities 2,555 924 4,889 1,646
--------- --------- --------- ---------
Funds From Operations..................... $ 20,285 $ 17,515 $ 39,856 $ 32,416
========= ========= ========= =========
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
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
recognizing minimum rents on a straight-line basis over the term of related
leases 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 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.
IMPLICATIONS OF YEAR 2000
The year 2000 issue is the result of computer programs being written using
two digits rater than four to define the applicable year. Any of the Company's
internal computer software that has time -sensitive programs may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a system failure or miscalculation causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
17
<PAGE> 20
THE MILLS CORPORATION
(Unaudited)
The Company has recognized the need to ensure that its systems, equipment
and operations will not be adversely impacted by the change to calendar year
2000. As such, the Company has taken steps to identify potential areas of risks
and has begun addressing these in its planning, purchasing and daily operations.
The total cost of converting all internal systems, equipment and operations for
the year 2000 has not been fully quantified, but it is not expected to be a
material cost to the Company. However, no such estimates can be made as to the
potential adverse impact resulting from the failure of third party service
providers and vendors to prepare for the year 2000.
18
<PAGE> 21
THE MILLS CORPORATION
(Unaudited)
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
The Annual Meeting of the Shareholders of The Mills Corporation was
held on May 28, 1998. The following is a tabulation of the voting on
each proposal presented at the Annual Meeting and a listing of
Directors whose term of office as Directors continued after the
meeting.
Proposal 1: (to elect directors to a term expiring upon the date of the
Annual Shareholders Meeting in the year 2001):
<TABLE>
<CAPTION>
CONTINUING DIRECTORS TERM
-------------------- EXPIRES
-------
<S> <C>
Charles R. Black, Jr. 2000
Dietrich von Boetticher 2000
John M. Ingram 2000
James F. Dausch 2000
Peter B. McMillan 2000
Peter A. Gordon 1999
Franz von Perfall 1999
Laurence C. Siegel 1999
<CAPTION>
DIRECTORS STANDING TERM VOTES
FOR ELECTION EXPIRES VOTES FOR WITHHELD
------------------ ------- --------- --------
<S> <C> <C> <C>
James C. Braithwaite 2001 20,833.293 187,293
James F. Dausch 2001 20,803,806 196,780
Joseph B. Gildenhorn 2001 20,817,140 203,446
Harry H. Nick 2001 20,681,726 338,860
Robert P. Pincus 2001 20,832,086 188,500
</TABLE>
19
<PAGE> 22
THE MILLS CORPORATION
(Unaudited)
Nominees required a favorable vote of a plurality of the shares of
Common Stock present and entitled to vote, in person or by proxy, at
the Meeting, accordingly, all members standing for re-election were
elected.
Proposal 2: (to adopt and approve the Company's Amended and Restated
1994 Executive Equity Incentive Plan (the "Plan"):
<TABLE>
<S> <C>
Votes for: 8,808,382
Votes against: 4,503,122
Abstentions: 224,810
Non-votes: 7,484,267
</TABLE>
Under the Company's Plan and the rules of the New York Stock Exchange,
a vote to amend the Plan requires the approval of a majority of votes
cast, provided that the total votes cast represent more than a majority
in interest of all shares entitled to vote on the proposal.
Proposal 3: (to ratify the appointment of Ernst & Young LLP as the
Company's independent auditors for the fiscal year ending December 31,
1998):
<TABLE>
<S> <C>
Votes for: 20,892,004
Votes against: 50,482
Votes withheld: 78,100
</TABLE>
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. No reports on Form 8-K were filed by the registrant for
the applicable quarter covered by this report.
20
<PAGE> 23
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
August 11, 1998 By: /s/ Kenneth R. Parent
- ------------------------- ----------------------------------
(Date) Kenneth R. Parent
Executive Vice President, Chief Financial Officer
and Treasurer
(Principal Financial and Accounting Officer)
21
<PAGE> 24
THE MILLS CORPORATION
EXHIBIT INDEX
(Pursuant to item 601 of Regulation S-K)
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBER EXHIBIT NUMBERED PAGE
------ ------- -------------
<C> <S>
1.1 None
2.1 None
***3.1 Amended and Restated Certificate of Incorporation of the Company
***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 Amended and Restated 1994 Executive Equity Incentive Plan
**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
*10.28 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
*****21.1 List of Subsidiaries of the Registrant
</TABLE>
<PAGE> 25
NUMBER EXHIBIT
* Incorporated by reference to the Registrant's Registration Statement on
Form S-11, Registration No. 33-71524, which was declared effective by
Securities and Exchange Commission on April 14, 1994 (Commission File No.
1-12994).
** 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 Quarterly Report on Form 10-Q
for the second quarter ended June 30, 1997.
**** Incorporated by reference to the Registrant's Proxy Statement dated April
30,1998.
**** Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the first quarter ended March 31, 1998.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MILLS
CORPORATION CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF
OPERATIONS FOR THREE MONTHS ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30,
1998.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,109
<SECURITIES> 0
<RECEIVABLES> 26,442
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,067,936
<DEPRECIATION> 219,879
<TOTAL-ASSETS> 938,750
<CURRENT-LIABILITIES> 0
<BONDS> 737,678
0
0
<COMMON> 229
<OTHER-SE> 88,482
<TOTAL-LIABILITY-AND-EQUITY> 938,750
<SALES> 0
<TOTAL-REVENUES> 42,910
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 23,061
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,820
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 422
<CHANGES> 0
<NET-INCOME> 5,628
<EPS-PRIMARY> .25
<EPS-DILUTED> .24
</TABLE>
