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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1997 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from
____________________ to ____________________
Commission File Number 1-12994
THE MILLS CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 52-1802283
(State or other jurisdiction of (I.R.S. Employer
incorporate or organization) Identification No.)
1300 WILSON BOULEVARD
ARLINGTON, VA 22209
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (703) 526-5000
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class Name of each exchange on which registered
------------------- -----------------------------------------
COMMON STOCK, $0.01 PAR VALUE NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: None
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 periods that the registrant was
required to file such report(s)) and (2) has been subject to such filing
requirements for the past 90 days. Yes_x_ No___.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10K or any amendment to this Form 10-K.
As of March 24, 1998, the aggregate market value of the 22,271,516 shares of
Common Stock held by non-affiliates of the registrant was $593,090,471 based
upon the closing price ($26.63) on the New York Stock Exchange composite tape
on such date. (For this computation, the registrant has excluded the market
value of all shares of its Common Stock reported as beneficially owned by
executive officers and directors of the registrant and certain other
shareholders; such exclusion shall not be deemed to constitute an admission
that any such person is an "affiliate" of the registrant.) As of March 24,
1998, there were outstanding 22,912,242 shares of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the annual shareholders meeting to be held
in 1997 are incorporated by reference into Part III.
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THE MILLS CORPORATION
ANNUAL REPORT ON FORM 10-K
DECEMBER 31, 1997
TABLE OF CONTENTS
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PAGE NO.
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PART I .......................................................................................................................3
Item 1. Business.............................................................................................................3
Item 2. Properties..........................................................................................................15
Item 3. Legal Proceedings...................................................................................................40
Item 4. Submission of Matters to a Vote of Security Holders.................................................................41
PART II .....................................................................................................................42
Item 5. Market for the Registrant's Common Equity and Related Shareholder Matters...........................................42
Item 6. Selected Financial Data.............................................................................................43
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...............................46
Item 8. Financial Statements and Supplementary Data.........................................................................55
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................................55
PART III ....................................................................................................................56
Item 10. Directors and Executive Officers of the Registrant.................................................................56
Item 11. Executive Compensation.............................................................................................57
Item 12. Security Ownership of Certain Beneficial Owners and Management.....................................................57
Item 13. Certain Relationships and Related Transactions....................................................................57
PART IV .....................................................................................................................58
Item 14. Exhibits, Financial Statements, Schedules and Reports and Form 8-K.................................................58
SIGNATURES ..................................................................................................................63
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PART I
ITEM 1. BUSINESS
Cautionary Statement
Certain matters discussed in this Form 10-K 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.
The Company
The Mills Corporation (the "Company") owns interests in, develops,
redevelops, leases and manages a portfolio currently consisting of seven
super-regional, value and entertainment oriented malls (the "Mills") and 11
community shopping centers (the "Community Centers," and, together with the
Mills, the "Properties"). The Company is a fully-integrated, self-managed real
estate investment trust (a "REIT") with approximately 1000 employees as of
December 31, 1997 and provides all development, redevelopment, leasing,
financing, management and marketing services with respect to all Properties
currently in operation. The Mills comprise the primary focus of the Company's
operations, with approximately 10.5 million square feet of gross leasable area
("GLA") in seven states, of which approximately 1.0 million square feet is owned
by certain anchor tenants.
The Company was originally incorporated in Virginia on January 2,
1991 and was reincorporated in Delaware in 1994. The Company became publicly
traded on April 21, 1994. The Company has authorized 150,000,000 shares of
common stock, par value $0.01 per share comprised of 100,000,000 shares of
voting Common Stock and 50,000,000 shares of non-voting Common Stock
(collectively the "Common Stock") and 20,000,000 shares of preferred stock, par
value $0.01 per share ( the "Preferred Stock"). As of December 31, 1997, there
were 22,912,242 shares of Common Stock and no shares of Preferred Stock
outstanding. The Company is the sole general partner of The Mills Limited
Partnership (the "Operating Partnership") and currently owns 58.95% of the
outstanding partnership interests ("Units") therein. Units (other than those
owned by the Company) are exchangeable under certain circumstances for Common
Stock or, at the option of the Company, the cash equivalent thereof. As the
sole general partner of the Operating Partnership, the Company has the
exclusive power to manage and conduct the business of the Operating
Partnership, subject to certain limited exceptions. The Operating Partnership
either holds title to the Properties or directly or indirectly holds 100% of
the general and limited partnership interests in the partnerships that own the
operating properties (the "Property Partnerships"), except for the Property
Partnerships that own Ontario Mills, Grapevine Mills and Arizona Mills in which
the Operating Partnership holds 50.0%, 37.5% and 36.8%, respectively. The
Operating Partnership has also formed joint ventures to develop additional
properties.
The Company conducts all of its business through the Operating
Partnership and the Operating Partnership's various subsidiaries (the "Operating
Subsidiaries"), which include: (i) Management Associates Limited Partnership
(the "Management Partnership"), which provides leasing and management services
for the Properties, and (ii) Mills Services Corp. (the "Third-Party Services
Corporation"), which provides management services to properties in which the
Operating Partnership does not own an interest and provides development services
for the Properties and new properties acquired by the Company. The Operating
Partnership owns 100% of the interests in the Management Partnership and 99% of
the non-voting preferred stock (representing a 99% economic interest) and 5% of
the voting common stock of the Third Party Services Corporation. In addition, a
former director of the Company and affiliate of Kan Am U.S., Inc. ("Kan Am",
which owns approximately 34.8% of the outstanding Units in the Operating
Partnership) each own .5% of the non-voting preferred stock (representing, in
the aggregate, a 1% economic interest) and 47.5% of the voting common stock of
the Third-Party Services Corporation.
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BUSINESS STRATEGY
The Company intends to increase its cash flow and the value of its
portfolio through active management of its existing Properties, expansion and
remerchandising of existing Mills and the development of new Mills and other
retail projects, and through pursuing new business opportunities relating to the
development and ownership of retail projects.
OPERATING STRATEGIES
The Company intends to pursue the following operating strategies:
Modify and Expand Existing Mills: The Company leases vacant and
newly developed space with a view towards creating the most effective tenant
mix and maximizing rental income. The Company is planning expansions of Potomac
Mills and Sawgrass Mills and is in the process of completing its
remerchandising and expansion of Gurnee Mills and Franklin Mills. These
expansion and remerchandising programs will result in new entertainment zones
and, where appropriate, an upgrade of the tenant mix. The Company believes that
the new entertainment zones will complement the Mills and will enhance
productivity by attracting more shoppers and extending the shopping day.
Potomac Mills: The Company is planning to add an entertainment zone
to Potomac Mills. The Company anticipates a late 1999 opening. In anticipation
of the expansion, the Company is upgrading the tenant mix in the corridor near
the expansion and is negotiating to lease expansion space to AMC Theatres and a
variety of themed restaurants and other entertainment oriented tenants.
Sawgrass Mills: In November 1995, the Company completed the Phase II
expansion of Sawgrass Mills. This expansion added approximately 136,000 square
feet of GLA, which opened at 100% occupancy. The expansion cost approximately
$24 million. In the fourth quarter of 1998, the Company expects to open Phase
III of Sawgrass Mills shortly after the opening of the new Florida Panthers
Sports Arena located across the ring road from Sawgrass Mills. The Phase III
expansion will consist of an approximately 300,000 square foot entertainment
zone and will be anchored by a 24-screen Regal Theater.
Create Entertainment Zones: The Company is in the process of
expanding and reconfiguring its first four Mills projects to include new
entertainment zones, similar to the entertainment zones at Ontario Mills,
Grapevine Mills and Arizona Mills, the Company's newer projects. Such
entertainment zones will include multiplex theaters, virtual reality game rooms,
educational environmental habitats, themed restaurants and participatory
retailers in which the consumer is given the opportunity to test the products in
a real-life setting. Included in Ontario Mills' entertainment zone are a
30-screen AMC Theatres, a Virgin Megastore, GameWorks, Dave & Busters and
American Wilderness Experience. Phase III of Sawgrass Mills is expected to
include a Regal Cinema, expanded from 18 to 24 screens, and a GameWorks, Wolf
Gang Puck Cafe, Ron Jon Surf Shop and Cafe Tu Tu Tango. Franklin Mills opened an
18-screen General Cinema theater in 1997, and expects to open two themed
restaurants in 1998. Gurnee Mills opened a Rainforest Cafe in 1996 and opened a
Planet Hollywood and a Bass Pro Shops Outdoor World in 1997, and is planning to
complete other entertainment uses by the year 2000. The Company believes that
these entertainment zones will lead to significant incremental customer traffic
at the Mills, extend consumers' shopping day and lead to the creation of
additional destination sites.
Assist Tenants in the Development of New Retail Concepts: The
Company intends to continue to work with existing tenants and potential tenants
to develop new retail concepts. This strategy has worked for retailers who have
performed well in traditional retail formats but wanted to develop and expand
into the outlet format. Ann Taylor, Calvin Klein, Last Call from Neiman Marcus
and Saks Fifth Avenue are examples of retailers that opened their first outlet
stores in a Mills and that later expanded their outlet format in other Mills.
Ontario Mills is the site for Bernini's first Off Rodeo Drive outlet. In
addition, the Mills also provide traditional urban retailers a growth vehicle
for expanding into non-urban markets. Examples include Virgin Megastore, which
opened its first non-urban location in Ontario Mills in 1996 and Planet
Hollywood, which opened at Gurnee Mills during 1997.
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Build Brand Name Recognition for the Mills: The Company intends to
continue to build brand name recognition for the Mills. The Company has created
brand name recognition by developing a distinctive retail environment which
offers innovative retail formats, value shopping and entertainment concepts that
attract a wide variety of tenants and consumers. The Company coordinates its
advertising programs to increase brand name recognition in its primary markets
and to attract a high volume of consumers. The Company believes that its brand
name recognition has not been duplicated within the shopping center industry in
any U.S. market.
Maintain Strong Tenant Relationships: The Company intends to
continue to maintain strong relationships with its existing tenants and high
occupancy rates. The success of this strategy is evidenced by its high tenant
retention rate, with approximately 84% of expiring specialty store GLA being
renewed upon lease expiration during 1997. Two hundred and forty-two of the
Mills' tenants have stores located in more than one Mills. Of the total GLA of
each of the seven existing Mills at December 31, 1997 (excluding GLA owned by
anchor store tenants), 60% of Franklin Mills, 72% of Gurnee Mills, 72% of
Potomac Mills, 70% of Sawgrass Mills, 76% of Ontario Mills, 79% of Grapevine
Mills and 55% of Arizona Mills consist of tenants that are common to at least
one other Mills. The Company has generated goodwill among many retailers who
commit to future Mills projects years in advance of their completion. As an
example, City Mills, which is scheduled to open in 1998, was approximately 53%
pre-leased as of March 8, 1998, including six executed leases with anchor store
tenants and lease commitments from an additional two anchor store tenants.
Actively Market Properties to Consumers: The Company intends to
continue to actively market its Properties by formulating marketing plans based
on research and tailored to each specific Property. Such plans include print,
radio and television advertising, public relations, special events and the
development of tour and travel programs. The Company believes that an aggressive
marketing effort allows the Properties to maintain a loyal shopper base and
attract new consumers.
Provide Active Property Management Service: The Company intends to
continue to provide pro-active site management. The on-site property management
team controls every aspect of the day-to-day needs of the Mills including
operations, maintenance, and security and merchant relations in order to enhance
productivity and profitability. Further, where desirable and possible, such
management team attempts to terminate the leases of under-performing tenants and
renegotiate existing leases to expand, relocate or assemble space for more
productive tenants.
NEW BUSINESS STRATEGIES
The Company intends to pursue new business opportunities that relate
to its primary business of developing, operating and owning retail projects.
These opportunities range from investing in retail, ATM, and food and beverage
operations to selling corporate sponsorship.
In its first significant new ancillary business opportunity, the
Company and Ogden Corporation (Ogden) announced on February 9, 1998 their intent
to form a new joint venture for the purpose of owning and operating food and
beverage, retail and entertainment venues. The new venture will master lease and
operate all new and existing (as they become available) food courts, pushcarts
and kiosks at Mills' properties, third party retail facilities, and the food and
retail at airports, both international and domestic, where Ogden has or will
obtain the food, beverage and retail concessions. Ogden will also include in the
joint venture any Ogden controlled food and beverage and retail concession
contracts developed in conjunction or adjacent to existing and future Mills
projects for theme parks, stadiums, arenas and amphitheaters. Under the terms of
the proposed venture both Ogden and the Company would contribute equally the
start-up costs of these new ventures in return for 50% of the profits and cash
flow.
The Company has initiated a Sponsorship Marketing Program with major
national credit card companies, automobile manufacturers, airline companies and
other venues that seek maximum exposure to the public. The Company has already
entered into agreements with such companies as American Express, America Online
and GTE. The Company believes that the customer traffic visiting its properties,
combined with its diversified customer base, offers sponsors an attractive
national opportunity to market goods and services. These joint programs are
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designed to be mutually beneficial to both the Company and the Sponsors, and the
Company believes that these programs will become a significant source of new
income for the Company.
The Company currently has ATM's installed at its existing operating
properties. In the past, a third-party service provider has operated these
ATM's and paid rent to the Company. During 1997, the Company formed an
operating alliance with an ATM operator to enable the Company to participate in
the profits that are generated from owning and operating ATMs at the Company's
existing and future projects.
DEVELOPMENT STRATEGIES
The Company intends to pursue the development of Mills-type
projects in selected metropolitan markets and has identified several domestic
markets and certain selected international markets that could support a Mills
project. In addition, the Company is developing a non-Mills retail product that
is smaller and more entertainment focused than its traditional Mills projects.
The new prototype is designed to emulate an urban main-street atmosphere and
will allow the Company to broaden its development opportunities into non-Mills
markets.
In the short-term the Company's development strategy is focused on
selected markets, where management believes population growth exceeds national
rates, land is relatively abundant and the entitlement and development processes
are comparatively streamlined (e.g., Southern domestic markets). In the
longer-term the Company's strategy will be to focus on those markets where there
are favorable demographics but whose entitlement and development processes
are comparatively more complicated and protracted (e.g., Northeastern domestic
and selected international markets). Domestically, the Company has formed
partnerships with other developers or equity partners to develop its newer
projects. These partners provide equity and help defray the development risks.
The Company will continue to evaluate joint venture arrangements as a financing
alternative or for other strategic reasons on future projects. In addition, the
Company will develop projects with Simon DeBartolo Group, Inc., when required
under the terms of a separate agreement (see "Simon Agreement.) In connection
with these joint ventures, the Company receives fees or reimbursements for its
leasing management, development and financing services. The Company also has
aligned itself with Cambridge Shopping Centers Ltd. of Canada (Cambridge) to
develop retail properties in Canada.
Two Mills projects were opened in the fourth quarter of 1997,
Grapevine Mills, which serves the Dallas/Fort Worth metropolitan market and
Arizona Mills, which serves the Phoenix metropolitan market. Six new projects
and the expansion of an existing Mills are currently under development. City
Mills at Orange (the Company's new urban entertainment/retail prototype), which
will serve the Orange County & Los Angeles, California metropolitan markets is
currently under construction and is scheduled to open in the fourth quarter of
1998. The remaining five new sites under development, Katy Mills, Concord Mills,
Opry Mills, Vaughan Mills and Meadowlands Mills have recently broken ground or
are in the early stages of development. In addition, construction on the
Sawgrass Mills Phase III expansion is underway and is scheduled to open in the
fourth quarter of 1998.
In addition to the projects currently under development, the Company
and/or its joint venture partners control and are conducting due diligence on
sites in San Francisco, California, Denver, Colorado, North Aurora, Illinois
(Chicago), Atlanta, Georgia, Cleveland, Ohio, Tampa, Florida, South Weymouth,
Massachusetts, and Baltimore, Maryland. Furthermore, through its alliance with
Cambridge, the Company plans on beginning development of Mills projects in
Canada including the aforementioned Vaughan Mills, which is in Toronto, Canada,
and is evaluating opportunities in Brazil, Germany, the United Kingdom and
Japan.
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MILLS UNDER DEVELOPMENT
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ACTUAL/
ANTICIPATED ANTICIPATED
METROPOLITAN CONSTRUCTION OPENING APPROXIMATE COMPANY
NAME/LOCATION AREA SERVED START DATE (1) DATE(1) GLA(1),(2) OWNERSHIP
- ------------- ----------- -------------- ------- ---------- ---------
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City Mills -- Los Angeles/
Orange, CA Orange County 1997 1998 820,000 50.0%
Sawgrass Mills -
Phase III Expansion Ft. Lauderdale/
Sunrise, FL Miami/Palm Beach 1997 1998 300,000 50.0%
Katy Mills --
Houston, TX Houston 1998 1999 1,400,000 75.0%
Concord Mills --
Charlotte, NC Charlotte 1998 1999 1,400,000 50.0%
Vaughan Mills --
Toronto, Canada Toronto 1999 2000 1,400,000 N/A (4)
Opry Mills --
Nashville, TN Nashville 1998 2000 1,200,000 N/A (4)
Meadowlands Mills New York City/
Carlstadt, NJ Northern New Jersey 1999 N/A (1) N/A (4) 58.2%
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ESTIMATED ANCHOR
AGGREGATE STORE
PROJECT TENANT
NAME/LOCATION COST(3) COMMITMENTS
- ------------- ------- -----------
(IN MILLIONS)
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City Mills --
Orange, CA $186 8
Sawgrass Mills -
Phase III Expansion
Sunrise, FL $66 3
Katy Mills --
Houston, TX $200 10
Concord Mills --
Charlotte, NC $217 7
Vaughan Mills --
Toronto, Canada $220 N/A (5)
Opry Mills --
Nashville, TN $200 N/A (5)
Meadowlands Mills
Carlstadt, NJ N/A (4) 18
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(1) Anticipated Construction Start Dates and Opening Dates and Approximate GLA
may be subject to adjustment as a result of factors inherent in the
development process, some of which may not be under the direct control of
the Company.
(2) Approximate GLA includes space that may be owned by certain anchor store
tenants.
(3) Estimated Aggregate Project Cost as of December 31, 1997 is based on the
Company's best estimate of the underlying components, prior to recoveries
for tax increment financings, sales of land to anchor tenants, and other
construction-related recoveries. Many of such underlying components.
which may not be under the direct control of the Company.
(4) The ownership structure and/or budgets for these properties have not yet
been determined.
(5) The Company's leasing efforts began in 1998 on this project.
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Following is a description of the six projects currently under development by
the Company:
CITY MILLS AT ORANGE - ORANGE, CALIFORNIA
The City Mills project (the Company's new urban entertainment/retail
prototype) will be situated on an approximately 85-acre site located at the
intersection of the Santa Ana Freeway (I-10), the Garden Grove Freeway and
Orange Freeway (Highway 57) in the City of Orange, California, three miles from
Disneyland. This project is being developed on the site of an existing shopping
center located in what management believes to be one of the wealthiest areas and
strongest retail markets in the country. The redeveloped retail project will
consist of an approximately 820,000 square foot open air shopping center that
will feature a 30-screen AMC Theatres which will be included within
approximately 330,000 square feet of entertainment and dining facilities in
addition to upscale retail stores. In addition to AMC Theatres, the
Company has obtained anchor lease commitments from Off 5th-Saks Fifth Avenue,
Borders Books, Ron Jon Surf Shop, Stage 35 by Game Works, Off Rodeo, Virgin
Megastores and Dave & Buster's.
The Company began demolition of the existing shopping center during
1997 and expects to open the project in the fourth quarter of 1998. The project
is expected to cost approximately $186 million. Development costs through
December 31, 1997 were approximately $35.8 million.
The project is owned by a partnership between the Operating
Partnership (50%) and Kan Am (50%). The Company will provide all development,
leasing and management services for the project, subject to the approval of Kan
Am for certain major decisions, including a sale or refinancing of the project
and approval of annual budgets. The Company has guaranteed completion of the
project within the parameters of an approved budget. Kan Am has committed to
fund up to $60 million (which represents 100% of the estimated equity required
for this project). The Partnership has obtained a commitment in the amount of
$136 million from Hypo Bank, to finance the construction of the City Mills
project. Kan Am is entitled to a cumulative construction period preference and
a priority return during operations equal to 9% per annum on its unreturned
capital contributions. Under the terms of the limited partnership agreement,
following the tenth anniversary of the project's opening, either the Operating
Partnership or Kan Am can exercise a buy-sell provision whereby the Operating
Partnership, if it is the offeror, can require Kan Am to transfer its entire
interest in the partnership or Kan Am, if it is the offeror, can require the
Operating Partnership to acquire Kan Am's entire interest in the partnership.
SAWGRASS MILLS PHASE III - FT. LAUDERDALE FLORIDA
In the fourth quarter of 1998, the Company expects to open Phase III
of Sawgrass Mills shortly after with the opening of the new Florida Panthers
Sports Arena located across the ring road from Sawgrass Mills. The Phase III
expansion will consist of an approximately 300,000 square foot entertainment
zone and will to be anchored by a 24-screen Regal Theater, Gameworks, Wolfgang
Puck Cafe and Ron Jon Surf Shop. The Phase III expansion, which is presently
under construction, is owned by a partnership formed by the Operating
Partnership (50%) and Kan Am (50%) in which Kan Am has agreed to fund 100% of
the project's initial required equity, for which Kan Am will receive a 9%
annual preferred return. Under the terms of the partnership agreement, the
Company has the right to buy out Kan Am's interest in this partnership prior to
December 30, 1999, at 120% of Kan Am's capital contributions and accumulated
preferred returns under certain terms and conditions set forth in the
partnership agreement. The Company provides all development, management and
leasing services for the expansion, subject to the approval of Kan Am of
certain major decisions, including a sale or refinancing of the project and the
approval of the development and annual budgets. The Company has guaranteed
completion of the expansion within the parameters of the approved development
budget. Development costs incurred through December 31, 1997 were approximately
$3.7 million.
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KATY MILLS-HOUSTON, TEXAS
In the first quarter of 1998, the Company acquired a 500-acre site
located at the intersection of Katy-Fort Bend Road and I-10 in Fort Bend and
Harris Counties. The approximately 1.4 million square foot project planned for
this site will consist of a combination of specialty retailers, cinemas and
themed restaurants. The Company has obtained anchor lease commitments from Bed,
Bath & Beyond, Books-A-Million, Off Rodeo Drive, Boot Town, Inc., AMC Theaters,
Burlington Coat Factory, Gameworks, Marshalls, Bass Pro Shops and Rainforest
Cafe. Construction began on this project during the first quarter of 1998. The
Company has plans to sell the residual acreage that remains after the build-
out of the Katy Mills project or develop mixed-use office and retail projects.
The Company expects to open this project in the Fall of 1999. Development costs
through December 31, 1997 were approximately $8.6 million.
The project will be owned by a partnership between the Operating
Partnership (75%) and Kan Am (25%). The Company will provide all development,
leasing and management services for the project, subject to the approval of Kan
Am for certain major decisions, including a sale or refinancing of the project
and approval of annual budgets. The Company will guarantee completion of the
project within the parameters of an approved budget. Kan Am and the Company have
committed to contribute up to $35 million each (which represents 100% of the
estimated equity required for this project) and it is anticipated that
construction financing will be obtained in the amount of $130 million to
complete the project. Each partner is entitled to a cumulative construction
period preference and a priority return during operations equal to 9% per annum
on its unreturned capital contributions.
Under the terms of the limited partnership agreement, following the
tenth anniversary of the project's opening, either the Operating Partnership or
Kan Am can exercise a buy-sell provision whereby the Operating Partnership, if
it is the offeror, can require Kan Am to transfer its entire interest in the
partnership or Kan Am, if it is the offeror, can require the Operating
Partnership to acquire Kan Am's entire interest in the partnership.
CONCORD MILLS - CHARLOTTE, NORTH CAROLINA
The Concord Mills project will be situated on an approximately
165-acre site located at the intersection of Interstate 85 and Kings
Grant/Speedway Boulevard in the city of Concord, North Carolina. The
approximately 1.4 million square foot project planned for this site will consist
of a combination of specialty retailers, cinemas and themed restaurants. The
Company has obtained anchor lease commitments from Burlington Coat Factory,
Group USA, Off Rodeo Drive, TJ Maxx, Books-A-Million, Bed Bath & Beyond, and AMC
Theatres.
The project will be owned by a partnership between the Operating
Partnership (50%) and Simon (50%). The Company and Simon will each provide
development, leasing and management services for the project. Development fees
will be allocated to the Company and Simon on a 60% and 40% basis, respectively.
Leasing fees will be allocated to the Company and Simon on a 75% and 25% basis,
respectively. The Company will be entitled to a management fee equal to 4% of
revenues collected. The Company has been appointed as the managing partner of
the Operating Partnership with certain major decisions being subject to Simon's
approval which include the sale or refinancing of the project and approval of
annual budgets. The Company and Simon have committed to contribute up to $25
million each to fund the project's equity capital requirements. Each partner is
entitled to a cumulative construction period preference and a priority return
during operations equal to 9% per annum on its unreturned capital contributions.
The Company anticipates that the remainder of the project costs will be financed
with a construction loan in the amount of $130 million. Acquisition and
development costs incurred through December 31, 1997 were approximately $30
million.
Under the terms of the limited partnership agreement, following the
tenth anniversary of the project's opening, either the Operating Partnership or
Simon can exercise a buy-sell provision whereby the Operating Partnership, if it
is the offeror, can require Simon to transfer its entire interest in the
partnership or Simon, if it is the offeror, can require the Operating
Partnership to acquire Simon's entire interest in the partnership.
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OPRY MILLS - NASHVILLE, TENNESSEE
During 1997, the Company announced plans to develop Opry Mills, an
entertainment/retail center located adjacent to the Grand Ole Opry and the
Opryland Hotel Convention Center. The project will be developed in a joint
venture with Gaylord Entertainment Company ("Gaylord"). Opry Mills will be
constructed on a 67-acre site owned by Gaylord, with approximately 1.2 million
square feet of retail and entertainment space and will feature an entertainment
corridor connecting the enhanced Opry Plaza and Cumberland Landing areas.
Construction is anticipated to begin in the fourth quarter of 1998. The net cost
of the project is estimated at $200 million. It is anticipated that the joint
venture agreement between the partners will be formalized in the second quarter
of 1998.
VAUGHAN MILLS - TORONTO, CANADA
The Company and Cambridge Shopping Centers Limited of Toronto have
secured a site in Greater Toronto for the proposed development of a Mills format
mega-mall. The 180-acre site is located in the City of Vaughan at the southeast
corner of Highway 400 and Rutherford Road, approximately 20 miles north of
downtown Toronto. This retail and entertainment-oriented project will be the
first Mills outside of the United States. Construction is anticipated to begin,
in 1999. The joint venture agreement is still under negotiation, however it is
anticipated that the operating partnership's ownership interest will be 50%.
MEADOWLANDS MILLS - CARLSTADT, NEW JERSEY
The Company has acquired a mortgage interest in a 595-acre site
located on the New Jersey Turnpike (I-95) adjacent to the Meadowlands Sports
Complex and approximately five miles from New York City and has signed certain
preliminary agreements with Empire Ltd., the current owner of the site,
concerning the development of Meadowlands Mills. The project planned for this
site will combine more than 200 specialty retailers, cinemas and themed
restaurants. The Company has announced commitments from anchor store tenants,
including Off 5th-Saks Fifth Avenue, The Sports Authority, Group USA, Off Rodeo
Drive and Rainforest Cafe. Commencement of construction has been delayed pending
the completion of ongoing environmental impact studies and the federal/state
permitting process. In December 1997, the White House Council on Environmental
Quality joined the Army Corps of Engineers, the Environmental Protection Agency
and other federal agencies in proposing a Special Area Management Plan (SAMP)
for the Hackensack Meadowlands area. This long-awaited plan provides a context
and streamlined process for evaluating and approving development proposals,
including the federal fill permit application now pending for the Company's
Meadowlands project. The guidelines proposed in the SAMP would, upon their
anticipated adoption in mid-1998, allow Meadowlands Mills to be developed on a
site ranging in size between 160 and 200 acres. Approval of the SAMP is not
required before completion of the permitting process. The Company anticipates
that construction will commence during 1999 and that the project could open in
2001.
The project will be developed by a joint venture formed among the
Operating Partnership (58.2%), Kan Am (29.1%), Empire Ltd. (9.2%) and Bennett S.
Lazare, an individual affiliated with Empire Ltd. (3.5%). The agreements further
provide that upon receipt of a final fill permit for the project, the site is to
be conveyed to the new joint venture, and the Operating Partnership is to
contribute 75% of its mortgage interest to the new joint venture and is to
receive a credit to its capital account in the amount of $12 million plus
certain other predevelopment costs advanced on behalf of the project. The
preliminary agreements also provide that the interests of the three joint
venture partners may be diluted by as much as 50% if an additional equity
partner is admitted to the joint venture. If all other permits that are required
in order to develop the shopping center are not obtained within two years
following the receipt of the final fill permit, then the Operating Partnership
shall have the right to sell the site, subject to certain buy/sell provisions.
In December 1997, Kan Am acquired 33% of the Company's interest in
the project. As part of the agreements to acquire such an interest, Kan Am
agreed to fund up to $24 million of the $36 million in predevelopment costs that
are expected to be incurred prior to the commencement of construction. The
agreements provide that Kan Am can require the partnership to redeem the
interests of Kan Am if an agreement has not been reached with Empire Ltd. and
Mr. Lazare on the form of partnership agreement for the project.
10
<PAGE> 11
OTHER DEVELOPMENT ACTIVITIES
During 1997, the Company completed its due diligence on a
prospective site located in Columbus, Ohio. A Mills-type project was to be
developed by a Mills-Kan Am partnership subsequent to the development of a
full-retail regional mall which was to be situated on an adjacent site. The
Mills-type project was to be developed in a joint venture with the owner of the
adjacent site. The Company's decision to move ahead with a Mills-type project
was predicated upon the demonstrated success of the adjacent project. Because
the owner of the adjacent site was unable to procure certain anchor tenants
within a stipulated time frame, the Company and its joint partner, Kan Am,
decided during 1997 not to pursue a Mills-type project in this area and to focus
the Company's efforts in those areas where the market dynamics are more
favorable. The Mills-Kan Am partnership that was formed in anticipation of
potentially developing a Mills project in Columbus, Ohio is the same partnership
that is developing the Sawgrass Phase III expansion. In conjunction with its
decision to not move forward with the Columbus project, the partnership expensed
all previously capitalized preacquisition and predevelopment costs related to
this project. Pursuant to the terms of the partnership agreement, and through a
separate agreement with the owner of the full-retail regional mall site, the
Company was reimbursed for all costs incurred in connection with the Columbus
project. The partnership will continue the development of the Sawgrass Mills
Phase III expansion as planned.
SIMON AGREEMENT. The Operating Partnership entered into an agreement
with Simon in December 1995 pursuant to which Simon and the Operating
Partnership have agreed to examine the feasibility of joint development and
ownership of Mills-type shopping centers in various metropolitan markets (the
"Simon Agreement"). The Simon Agreement provides, generally, that Simon and the
Operating Partnership would hold equal interests in each joint venture entity
and contribute needed capital on a pro rata basis. Four joint ventures have
been formed as of December 31, 1997 in connection with the development of
Ontario Mills, Grapevine Mills, Arizona Mills and Concord Mills. The Operating
Partnership generally acts as the managing member or managing general partner,
as the case may be, of each entity. Primary responsibility for the development,
management and leasing of each joint venture project formed as of the date
hereof has been undertaken by the Operating Partnership. The Simon Agreement
restricts Simon until December 2003 from competing with the Operating
Partnership by developing or acquiring Mills-type projects without first
offering the Operating Partnership the right to participate and under certain
terms and conditions, places additional restrictions on Simon's ability to hire
employees of the Operating Partnership or its affiliates and to acquire stock
in the Company above certain specified levels. In addition, the Operating
Partnership has agreed that until December 2003 it will not develop a
Mills-type shopping center within certain designated metropolitan areas without
affording Simon a first right to jointly develop such project.
FINANCING STRATEGIES
The Company intends to continue to reduce its exposure to
refinancing risk and interest rate fluctuations, increase its liquidity, and
provide sources for its long-term capital needs. At December 1, 1996, the
Company's debt portfolio consisted of 48.3% variable rate debt ($349.0 million),
most of which was subject to tiered caps, and the portfolio had a weighted
average maturity of 2.5 years. During 1996 and 1997 the Company refinanced $454
million of indebtedness secured by Gurnee Mills, Franklin Mills and Potomac
Mills. As a result of these refinancings, at December 31, 1997 approximately
12.5% or $87.7 million of the Company's debt portfolio was variable rate debt
and the weighted average maturity of the Company's debt portfolio was extended
to 5.2 years. The Company has also taken steps to increase its liquidity. In
October 1996, the Company obtained a $40 million line of credit from Credit
Suisse First Boston for the purpose of funding development activities and
general working capital (the "Line of Credit") which has a variable interest
rate equal to the London Interbank Offered Rate ("LIBOR") plus 300 basis points
and matures on October 31, 1998 (with an option for a one-year extension). The
Company increased the size of the Line of Credit to $60 million in the second
quarter of 1997. Presently, the Company is negotiating with a separate lender
to refinance the line of credit with a larger credit facility of up to $100
million and a lower interest rate.
Over the last two years, the Company formed joint ventures to
finance the development of certain Mills projects. The Company has established
certain joint ventures with Kan Am, Simon and Taubman Realty Group Limited
Partnership (Taubman) and has reached an agreement in principle to form one or
more such joint ventures with Cambridge. While the Company has utilized such
joint ventures in the past, the Company may or may not continue to use joint
ventures in the future as a financing vehicle, except when required under the
terms of the Simon Agreement.
11
<PAGE> 12
COMPETITION
There are other companies that are engaged in the development or
ownership of value retail properties that compete with the Company in seeking
tenants. This results in competition for acquisition of prime locations and for
tenants who will lease space in the value retail properties that the Company and
its competitors own or operate. The development of new super-regional outlet
malls or other value retail shopping centers with more convenient locations or
better rents may attract the Company's tenants or cause them to seek more
favorable lease terms at or prior to renewal, and may accordingly adversely
affect the business, revenues or value of the Properties. In addition,
traditional retailers may increase their competition with value retailers for
the limited pool of consumers by engaging in marketing and selling activities
similar to those of value retailers, thus blurring the distinction between
traditional retailers and value retailers.
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 is not paid until the
fourth quarter. Furthermore, most new lease-up occurs towards the later part of
the year in anticipation of the holiday season and most vacancies occur toward
the beginning of the year. In addition, the majority of the temporary tenants
take occupancy in the fourth quarter. Accordingly, cash flow and occupancy
levels are generally lowest in the first quarter and higher in the fourth
quarter. This seasonality also impacts the quarter-by-quarter results of net
operating income and FFO, although accruing minimum and percentage rents on a
straight-line basis during the year in accordance with GAAP largely mitigates
this impact.
TAX STATUS
The Company has elected to be taxed as a real estate investment
trust ("REIT") under the Internal Revenue Code of 1986, as amended (the "Code").
The Company believes that it was organized and has operated in such a manner to
qualify as a REIT, and the Company intends to continue to operate in such a
manner, but no assurance can be given that it has operated in a manner so as to
qualify, or will operate in a manner so as to continue to qualify as a REIT. If
the Company qualifies for taxation as a REIT, the Company generally will not be
subject to Federal income tax to the extent it distributes at least 95% of its
REIT taxable income to its shareholders. If the Company fails to qualify as a
REIT in any taxable year, the Company will be subject to Federal income tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Even if the Company qualifies for taxation as a REIT,
the Company may be subject to certain state and local taxes on its income and
property and to federal income and excise taxes on its undistributed income and
gains from certain property sales. The Third-Party Services Corporation, which
provides management services to properties in which the Operating Partnership
does not own an interest and provides development services for properties which
are not 100% owned by the Operating Partnership, is subject to corporate-level
federal, state and local corporate income taxes on its income.
ENVIRONMENTAL MATTERS
The Company believes that the Properties are in compliance in all
material respects with all federal, state and local ordinances and regulations
regarding hazardous or toxic substances. The Company is not aware of any
environmental condition which the Company believes would have a material
adverse effect on the Company's financial condition or results of operations
(before consideration of any potential insurance coverage). Nevertheless, it is
possible that there are material environmental liabilities of which the Company
is unaware. Moreover, no assurances can be given that (i) future laws,
ordinances or regulations will not impose any material environmental liability
or (ii) the current environmental condition of the Properties have not been or
will not be affected by tenants and occupants of the Properties, by the
condition of properties in the vicinity of the Properties or by third parties
unrelated to the Company.
Phase I environmental reports or updates thereof were completed by
independent environmental consultants on all Properties within the last four
years. These reports did not reveal any material environmental concerns except
with respect to the Western Hills Community Center. Concerns were raised in a
September 1993 Phase I report on the Mount Prospect Plaza Community Center as to
two offsite leaking underground storage tanks, but were rated as minimal on
additional investigation performed for a February 1995 update. Since Phase I
environmental reports do not involve invasive procedures such as soil sampling
and underground analysis, no assurance can be given that these reports reveal
all potential environmental liabilities.
12
<PAGE> 13
Limited quantities of asbestos containing materials ("ACMs") are
present in certain of the Properties. The ACMs found are generally non-friable
(meaning that the ACMs are not easily crumbled and thus are less likely to
release asbestos fibers into the air), in good condition and are unlikely to be
disturbed. With certain exceptions, the Company in the ordinary course of
renovation or reconstruction will remove these ACMs. Prior to removal, these
ACMs will be monitored and maintained by the Company in accordance with
procedures established by the Environmental Protection Agency, the Occupational
Safety and Health Administration and other applicable governmental authorities.
13
<PAGE> 14
CORPORATE HEADQUARTERS
The Company's executive offices are located at 1300 Wilson
Boulevard, Suite 400, Arlington, VA 22209. The Company's telephone number is
(703) 526-5000. The internet address is www.millscorp.com.
14
<PAGE> 15
ITEM 2. PROPERTIES
The following tables set forth certain information relating to the
properties as of December 31, 1997. The Company either holds title to the
Properties or directly or indirectly holds 100% of the general and limited
partnership interests in the Property Partnerships, except for the Property
Partnerships that own Ontario Mills, Grapevine Mills and Arizona Mills in which
the Operating Partnership holds 50%, 37.5% and 36.8% interests, respectively.
The Operating Partnership has also formed joint ventures to develop additional
properties.
15
<PAGE> 16
THE MILLS CORPORATION
SUMMARY OF PROPERTIES
The following table sets forth certain information with respect to the
Properties as of December 31, 1997:
<TABLE>
<CAPTION>
Approx. Annualized
Metropolitan Year GLA Percent Base
Name/Location Area Serviced Opened (Sq.Ft.)(1) Leased (2) Rent (3)
------------- ------------- ------ ----------- ---------- --------
<S> <C> <C> <C> <C> <C>
MILLS
Washington D.C./
Potomac Mills....... Baltimore 1985 1,637,370 96% $ 20,634,336
Philadelphia/
Franklin Mills....... Wilmington 1989 1,719,535 95% 16,464,508
Fort Lauderdale, FL/
Sawgrass Mills.. Miami/Palm Beach 1990 1,878,577 98% 24,357,315
Gurnee Mills....... Chicago/Milwaukee 1991 1,642,409 97% 16,520,221
Ontario Mills...... Los Angeles 1996 1,326,284 (5) 98% 18,297,050
Grapevine Mills.. Dallas/Fort Worth 1997 1,103,779 (6) 92% 16,199,275
Arizona Mills...... Phoenix 1997 1,153,131 (7) 93% 16,656,828
-------------- ------- -----------
MILLS TOTALS/WEIGHTED AVERAGES 10,461,085 96% 129,129,533 (8)
============== ======= ===========
COMMUNITY CENTERS (11 CENTERS) 2,220,194 85% 16,955,730
============== ======= ==========
</TABLE>
<TABLE>
<CAPTION>
No. of
Anchor
Name/Location Stores (4)
------------- ----------
<S> <C>
MILLS
Potomac Mills....... 17
Franklin Mills....... 18
Sawgrass Mills.. 20
Gurnee Mills....... 16
Ontario Mills...... 17
Grapevine Mills.. 14
Arizona Mills...... 14
MILLS TOTALS/WEIGHTED AVERAGES 116
=======
COMMUNITY CENTERS (11 CENTERS) 28
=======
</TABLE>
<TABLE>
<CAPTION>
Name/Location Anchor Store Tenants
------------- --------------------
<S> <C>
MILLS
American Multi-Cinema, Books-A-Million, Burlington Coat Factory,
Potomac Mills....... Daffy's, Everything Rubbermaid, IKEA, J.C. Penney, Linen's N' Things,
Marshalls, Nordstrom Rack, Outlet to the Far East, Saks Clearinghouse,
Spiegel, Sports Authority, Syms, T.J. Maxx, Waccamaw Pottery
Bed, Bath & Beyond, Boscov's, Burlington Coat Factory, Filene's
Franklin Mills....... Basement, General Cinema, Group USA, J.C. Penney, Last Call-Neiman
Marcus, Marshalls, Modells, Nordstrom Factory, Off 5th Clearinghouse,
OfficeMax, Pharmor, Saks Fifth Avenue Outlet, Sam's Wholesale,
Spiegel, Syms
Beall's Outlet, Bed, Bath & Beyond, Books-A-Million, Brandsmart,
Sawgrass Mills.. BurlingtonCoat Factory, Cobb Theatre, J.C. Penney, Last Call-Neiman
Marcus, Loehmann's, Marshalls, Outlet Marketplace, Rainforest Cafe,
Saks, Service Merchandise, Spec's Outlet, Spiegel, Sports Authority,
T.J. Maxx, Target, Waccamaw Pottery
Gurnee Mills....... Bass Pro Shops, Bed, Bath, & Beyond, Burlington Coat Factory, Computer
City, J.C. Penney, Lord & Taylor, Marcus Cinema, Marshalls, Off 5th -
Saks Fifth Avenue, Rainforest Cafe, Spiegel, Sports Authority, Syms,
T.J. Maxx, Value City, Waccamaw Pottery
Ontario Mills...... AMC Theatres, American Wilderness, Bed, Bath & Beyond, Burlington Coat
Factory, Dave & Buster's, Foozles, Group USA, J.C. Penney, Marshalls,
Mikasa, Off Rodeo Drive, Saks Fifth Avenue, Sega Gameworks, Sports
Authority, T.J. Maxx, Totally for Kids, Virgin Megastores
Grapevine Mills.. Bed, Bath, & Beyond, Books-A-Million, Burlington Coat Factory, Group
USA, J.C. Penney, Marshalls, Off Rodeo Drive, Old Navy, Rainforest
Cafe, Saks Fifth Avenue, Sega Gameworks, Sports Authority, Virgin
Megastores, Western Warehouse
Arizona Mills...... Burlington Coat Factory, Gameworks, Group USA, Harkin's Great Mall
Cinemas, Hi-Health World of Nutrition, J.C. Penney, Linens'N Things,
Marshalls, Off 5th Saks Fifth Avenue, Off Rodeo Drive, Oshman's
Supersports, Rainforest Cafe, Ross Dress for Less, Virgin Megastores
MILLS TOTALS/WEIGHTED AVERAGES
COMMUNITY CENTERS (11 CENTERS)
</TABLE>
<TABLE>
<CAPTION>
1997 1997
Specialty Anchor
Store Sales Store Sales
Name/Location Per Sq.Ft. Per Sq.Ft.
------------- ---------- ----------
<S> <C> <C>
MILLS
Potomac Mills....... $ 317 $ 203
Franklin Mills....... 292 181
Sawgrass Mills.. 450 312
Gurnee Mills....... 267 152
Ontario Mills...... 350 174
Grapevine Mills.. N/A (8) N/A (8)
Arizona Mills...... N/A (8) N/A (8)
$ 340 (8) $ 214 (8)
MILLS TOTALS/WEIGHTED AVERAGES
COMMUNITY CENTERS (11 CENTERS)
</TABLE>
(1) Includes 962,163 square feet of GLA owned by certain anchor tenants as
follows: Potomac Mills-80,000 square feet of GLA; Franklin Mills-208,602
square feet of GLA; Sawgrass Mills-281,774 square feet of GLA; Gurnee
Mills-250,806 square feet of GLA; (1) Liberty Plaza-13,741 square feet of
GLA; West Falls Church-2,240 square feet of GLA; and Ontario Mills-125,000
square feet of GLA. A ground lease at Franklin Mills of 152,370 square
feet is also included.
(2) Percent Leased is defined as all space leased and for which rent is being
paid as of December 31, 1997, excluding tenants with leases having a term
of less than 1 year plus GLA owned by anchor store tenants.
(3) Annualized Base Rent is defined as the contractual minimum rent of tenants
comprising GLOA at 12/97 multiplied by 12.
(4) Anchor stores include all stores occupying more than 20,000 square feet
and tenant owned anchors described in footnote (1).
(5) Ontario Mills will contain approximately 1.7 million square feet of GLA,
including GLA owned by certain anchor store tenants, upon completion.
(6) Grapevine Mills will contain approximately 1.5 million square feet of GLA,
including GLA owned by certain anchor store tenants, upon completion.
(7) Arizona Mills will contain approximately 1.2 million square feet of GLA,
including GLA owned by certain anchor store tenants, upon completion.
(8) 1997 Sales Per Square Foot information is not available for Grapevine
Mills and Arizona Mills which commenced business in October 1997 and
November 1997, respectively.
16
<PAGE> 17
THE MILLS CORPORATION
PROPERTY OPERATING INCOME
(IN THOUSANDS, UNAUDITED)
The following table sets forth the property operating income for each of the
Mills, Mainstreet (the Company's push cart program) and the Community Centers.
The purpose of this table is to provide details about certain line items within
the Supplemental Financial Data and is not intended to be a representation of
net income according to generally accepted accounting principles.
FOR THE YEAR ENDED DECEMBER 31, 1997
WHOLLY OWNED PROPERTIES
<TABLE>
<CAPTION>
Potomac Franklin Sawgrass Gurnee
------------- -------------- -------------- ------------
RENTAL REVENUES:
<S> <C> <C> <C> <C>
Minimum rent $ 20,598 $ 16,107 $ 24,804 $ 15,506
Percentage rent 383 442 2,444 394
Recoveries from tenants 8,442 11,135 13,388 9,049
Other revenue 1,192 1,331 3,291 1,578
------------ ------------ ---------- ----------
Total rental revenues 30,615 29,015 43,927 26,527
PROPERTY OPERATING COSTS:
Recoverable from tenants 7,069 9,312 12,091 8,180
Other operating 811 1,198 63 924
------------ ----------- ---------- ----------
Total property operating costs 7,880 10,510 12,154 9,104
------------ ----------- ---------- ----------
PROPERTY OPERATING INCOME $ 22,735 $ 18,505 $ 31,773 $ 17,423
============ =========== ========== ==========
</TABLE>
WHOLLY OWNED PROPERTIES
<TABLE>
<CAPTION>
Community
Mainstreet Centers Total
---------------- ------------- ---------
RENTAL REVENUES:
<S> <C> <C> <C>
Minimum rent $ 2,067 $ 17,288 $ 96,370
Percentage rent 184 566 4,413
Recoveries from tenants 51 5,285 47,350
Other revenue 428 330 8,150
------------ ------------ -----------
Total rental revenues 2,730 23,469 156,283
PROPERTY OPERATING COSTS:
Recoverable from tenants - 5,373 42,025
Other operating 1,531 1,193 5,720
------------ ------------ -----------
Total property operating costs 1,531 6,566 47,745
------------ ------------ -----------
PROPERTY OPERATING INCOME $ 1,199 $ 16,903 $ 108,538
============ =========== ===========
</TABLE>
UNCONSOLIDATED JOINT VENTURES (1)
<TABLE>
<CAPTION>
Ontario Grapevine Arizona
------- --------- -------
RENTAL REVENUES:
<S> <C> <C> <C>
Minimum rent $ 17,837 $ 2,960 $ 2,449
Percentage rent 871 90 162
Recoveries from tenants 7,674 898 636
Other revenue 1,964 734 94
----------- ------------ ------------
Total rental revenues 28,346 4,682 3,341
PROPERTY OPERATING COSTS:
Recoverable from tenants 7,409 881 772
Other operating 1,349 164 144
----------- ----------- ------------
Total property operating costs 8,758 1,045 916
----------- ----------- ------------
PROPERTY OPERATING INCOME $ 19,588 $ 3,637 $ 2,425
=========== =========== ============
Mills Share (2) $ 8,145 $ 1,139 $ 891
=========== =========== ============
</TABLE>
(1) Ontario Mills, Grapevine Mills and Arizona Mills opened November 1996,
October 1997 and November 1997, respectively.
(2) Based on Mills share of distributable cash flow for the year ended
December 31, 1997, excluding management fees.
17
<PAGE> 18
THE MILLS CORPORATION
PROPERTY OPERATING INCOME
(IN THOUSANDS, UNAUDITED)
The following table sets forth the property operating income for each of the
Mills, Mainstreet (the Company's push cart program) and the Community Centers.
The purpose of this table is to provide details about certain line items within
the Supplemental Financial Data and is not intended to be a representation of
net income according to generally accepted accounting principles.
FOR THE YEAR ENDED DECEMBER 31, 1996
WHOLLY OWNED PROPERTIES
<TABLE>
<CAPTION>
Potomac Franklin Sawgrass Gurnee
------------- -------------- -------------- ------------
RENTAL REVENUES:
<S> <C> <C> <C> <C>
Minimum rent $ 20,484 $ 15,946 $ 23,554 $ 14,879
Percentage rent 382 373 2,234 462
Recoveries from tenants 7,878 10,765 12,996 8,785
Other revenue 1,425 1,225 2,310 2,103
------------- ------------- ------------ -----------
Total rental revenues 30,169 28,309 41,094 26,229
PROPERTY OPERATING COSTS:
Recoverable from tenants 6,855 9,027 11,847 7,937
Other operating 892 1,273 616 1,055
------------- ------------- ------------ -----------
Total property operating costs 7,747 10,300 12,463 8,992
------------- ------------- ------------ -----------
PROPERTY OPERATING INCOME $ 22,422 $ 18,009 $ 28,631 $ 17,237
============= ============= ============ ===========
</TABLE>
<TABLE>
<CAPTION>
Community
Mainstreet Centers Total
---------------- ------------- --------------
RENTAL REVENUES:
<S> <C> <C> <C>
Minimum rent $ 1,947 $ 17,868 $ 94,678
Percentage rent 141 624 4,216
Recoveries from tenants 44 5,293 45,761
Other revenue 367 186 7,616
-------------- ------------- ------------
Total rental revenues 2,499 23,971 152,271
PROPERTY OPERATING COSTS:
Recoverable from tenants - 5,642 41,308
Other operating 1,443 891 6,170
------------- ------------- ------------
Total property operating costs 1,443 6,533 47,478
------------- ------------- ------------
PROPERTY OPERATING INCOME $ 1,056 $ 17,438 $ 104,793
============= ============= ============
</TABLE>
UNCONSOLIDATED JOINT VENTURES (1)
<TABLE>
<CAPTION>
Ontario
------------
RENTAL REVENUES:
<S> <C>
Minimum rent $ 2,318
Percentage rent 39
Recoveries from tenants 910
Other revenue 453
------------
Total rental revenues 3,720
PROPERTY OPERATING COSTS:
Recoverable from tenants 954
Other operating 112
------------
Total property operating costs 1,066
------------
PROPERTY OPERATING INCOME $ 2,654
============
Mills Share (2) $ 1,161
============
</TABLE>
(1) Ontario Mills opened November 1996.
(2) Based on Mills share of distributable cash flow for the year ended
December 31, 1996, excluding management fees.
18
<PAGE> 19
THE MILLS CORPORATION
OCCUPANCY ANALYSIS
<TABLE>
<CAPTION>
GROSS LEASED & OCCUPIED AREA (SF) (1)
GLA Occupied (3)
Project Total GLA at 12/97 %
- ------- --------- -------- -
<S> <C> <C> <C>
Potomac Mills 1,637,370 1,571,298 95.96%
Franklin Mills 1,719,535 1,634,535 95.06%
Sawgrass Mills 1,878,577 1,843,598 98.14%
Gurnee Mills 1,642,409 1,590,196 96.82%
------------------------------------------------------------
Total Mills 6,877,891 6,639,627 96.54%
Butterfield 114,610 96,240 83.97%
Coopers Crossing 173,509 173,509 100.00%
Crosswinds 144,119 101,584 70.49%
Fashion Place 147,950 125,208 84.63%
Germantown 177,097 162,333 91.66%
Gwinnett 194,719 186,979 96.03%
Liberty Plaza 314,879 153,629 48.79%
Montgomery Village 117,391 102,731 87.51%
Mt. Prospect 298,600 289,608 96.99%
West Falls Church 87,824 85,433 97.28%
Western Hills 449,496 412,281 91.72%
------------------------------------------------------------
2,220,194 1,889,535 85.11%
------------------------------------------------------------
Total Wholly Owned 9,098,085 8,529,162 93.75%
============================================================
Joint Ventures:
Grapevine Mills 1,103,779 1,013,436 91.82%
Arizona Mills 1,153,131 1,068,865 92.69%
Ontario Mills 1,326,284 1,298,219 97.88%
------------------------------------------------------------
Total Joint Ventures 3,583,194 3,380,520 94.34%
============================================================
Total Wholly Owned
and Joint Venture 12,681,279 11,909,682 93.92%
============================================================
</TABLE>
<TABLE>
<CAPTION>
GROSS LEASED & OCCUPIED AREA, NET OF ANCHORS (SF) (2)
Total Small GLA Occupied (3)
Project Shop GLA at 12/97 %
- ------- -------- -------- -
<S> <C> <C> <C>
Potomac Mills 628,360 589,356 93.79%
Franklin Mills 597,069 512,069 85.76%
Sawgrass Mills 684,594 669,615 97.81%
Gurnee Mills 633,302 581,089 91.76%
------------------------------------------------------------
Total Mills 2,543,325 2,352,129 92.48%
Butterfield 72,677 54,307 74.72%
Coopers Crossing 14,953 14,953 100.00%
Crosswinds 23,298 17,535 75.26%
Fashion Place 74,692 51,950 69.55%
Germantown 130,341 115,577 88.67%
Gwinnett 97,172 89,432 92.03%
Liberty Plaza 24,365 8,953 36.75%
Montgomery Village 80,986 66,326 81.90%
Mt. Prospect 126,005 117,013 92.86%
West Falls Church 47,743 45,352 94.99%
Western Hills 134,980 127,370 94.36%
------------------------------------------------------------
827,212 708,768 85.68%
============================================================
Total Wholly Owned 3,370,537 3,060,897 90.81%
============================================================
Joint Ventures:
Grapevine Mills 546,285 455,942 83.46%
Arizona Mills 514,745 430,479 83.63%
Ontario Mills 521,814 493,749 94.62%
------------------------------------------------------------
Total Joint Ventures 1,582,844 1,380,170 87.20%
============================================================
Total Wholly Owned
and Joint Venture 4,953,381 4,441,067 89.66%
============================================================
</TABLE>
<TABLE>
<CAPTION>
TOTAL VACANT SF
Vacancies
Project Anchor Small Shop Total
- ------- ------ ---------- -----
<S> <C> <C> <C>
Potomac Mills 27,068 39,004 66,072
Franklin Mills 0 85,000 85,000
Sawgrass Mills 20,000 14,979 34,979
Gurnee Mills 0 52,213 52,213
------------------------------------------------------------
Total Mills 47,068 191,196 238,264
Butterfield 0 18,370 18,370
Coopers Crossing 0 0 0
Crosswinds 36,772 5,763 42,535
Fashion Place 0 22,742 22,742
Germantown 0 14,764 14,764
Gwinnett 0 7,740 7,740
Liberty Plaza 145,838 15,412 161,250
Montgomery Village 0 14,660 14,660
Mt. Prospect 0 8,992 8,992
West Falls Church 0 2,391 2,391
Western Hills 29,605 7,610 37,215
------------------------------------------------------------
212,215 118,444 330,659
============================================================
Total Wholly Owned 259,283 309,640 568,923
============================================================
Joint Ventures:
Grapevine Mills 0 90,343 90,343
Arizona Mills 0 84,266 84,266
Ontario Mills 0 28,065 28,065
------------------------------------------------------------
Total Joint Ventures 0 202,674 202,674
============================================================
Total Wholly Owned
and Joint Venture 259,283 512,314 771,597
============================================================
</TABLE>
(1) Includes 962,163 square feet of GLA owned by certain anchor tenants as
follows: Potomac Mills-80,000 square feet of GLA; Franklin Mills-208,602
square feet of GLA; Sawgrass Mills-281,774 square feet of GLA; Gurnee
Mills-250,806 square feet of GLA; Liberty Plaza-13,741 square feet of GLA;
West Falls Church-2,240 square feet of GLA; and Ontario Mills-125,000
square feet of GLA. A ground lease at Franklin Mills of 152,370 square
feet is also included.
(2) Anchor stores include all stores occupying more than 20,000 square feet.
(3) GLA occupied is defined as all space leased (including GLA owned by
certain anchor store tenants) and for which rent is being paid as of
December 1, 1997, excluding tenants with leases that have a term of less
than 1 year.
19
<PAGE> 20
THE MILLS CORPORATION
LEASE EXPIRATION SCHEDULE
The following table shows lease expirations assuming that none of the tenants
exercised renewal options. The minimum rent is the monthly contractual minimum
rent of the expiring leases as of December 31, 1997 multiplied by 12.
<TABLE>
<CAPTION>
No. of 1998 No. of 1999
Leases Annualized Leases Annualized
Expiring Sq Ft Min. Rent psf Expiring Sq Ft Min. Rent psf
-------- ----- --------- ---- -------- ----- --------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Potomac Mills:
Anchors 0 - $ - $ - 0 - $ - $ -
Majors 1 37,960 341,640 9.00 1 42,212 316,590 7.50
Specialty 34 80,320 2,247,567 27.98 19 68,432 1,396,285 20.40
Food Court 2 1,567 85,208 54.38 0 - - -
----------------------------------------------- -----------------------------------------------
37 119,847 $2,674,415 $22.32 20 110,644 $1,712,875 $ 15.48
Franklin Mills:
Anchors 0 - $ - $ - 1 100,200 $ 547,725 $ 5.47
Majors 1 25,127 162,069 6.45 1 40,232 370,134 9.20
Specialty 24 91,897 1,508,954 16.42 30 89,093 2,103,588 23.61
Food Court 0 - - - 8 6,229 365,562 58.69
----------------------------------------------- -----------------------------------------------
25 117,024 $1,671,023 $ 14.28 40 235,754 $3,387,009 $ 14.37
Sawgrass Mills:
Anchors 0 - $ - $ - 0 - $ - $ -
Majors 0 - - - 1 28,152 422,280 15.00
Specialty 20 49,665 1,155,563 23.27 7 10,958 392,154 35.79
Food Court 0 - - - 2 1,206 80,500 66.75
----------------------------------------------- -----------------------------------------------
20 49,665 $1,155,563 $ 23.27 10 40,316 $ 894,934 $ 22.20
Gurnee Mills:
Anchors 0 - $ - $ - 0 - $ - $ -
Majors 1 40,752 262,850 6.45 0 - - -
Specialty 29 114,991 1,876,524 16.32 16 57,782 1,102,246 19.08
Food Court 0 - - - 0 - - -
----------------------------------------------- -----------------------------------------------
30 155,743 $2,139,374 $ 13.74 16 57,782 $1,102,246 $ 19.08
Total without
Joint Ventures:
Anchors 0 - $ - $ - 1 100,200 $ 547,725 $ 5.47
Majors 3 103,839 766,559 7.38 3 110,596 1,109,004 10.03
Specialty 107 336,873 6,788,608 20.15 72 226,265 4,994,273 22.07
Food Court 2 1,567 85,208 54.38 10 7,435 446,062 59.99
----------------------------------------------- -----------------------------------------------
112 442,279 $7,640,375 $ 17.28 86 444,496 $7,097,064 $ 15.97
=============================================== ===============================================
</TABLE>
<TABLE>
<CAPTION>
No. of 2000 No. of 2001
Leases Annualized Leases Annualized
Expiring Sq Ft Min. Rent psf Expiring Sq Ft Min. Rent psf
-------- ----- --------- ---- -------- ----- --------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Potomac Mills:
Anchors 0 - $ - $ - 0 - $ - $ -
Majors 1 41,321 309,908 7.50 1 29,092 232,736 8.00
Specialty 32 84,390 2,122,818 25.15 24 69,929 1,653,454 23.64
Food Court 3 2,331 154,939 66.47 3 2,484 149,037 60.00
--------------------------------------------------- --------------------------------------------------
36 128,042 $ 2,587,665 $ 20.21 28 101,505 $ 2,035,227 $ 20.05
Franklin Mills:
Anchors 1 60,115 $ 390,747 $ 6.50 1 70,701 $ 484,302 $ 6.85
Majors 1 32,637 297,256 9.11 0 - - -
Specialty 26 93,912 2,033,450 21.65 30 98,918 1,916,779 19.38
Food Court 0 - - - 1 510 25,990 50.96
--------------------------------------------------- --------------------------------------------------
28 186,664 $ 2,721,453 $ 14.58 32 170,129 $ 2,427,071 $ 14.27
Sawgrass Mills:
Anchors 1 78,619 $ 255,512 $ 3.25 2 147,915 $ 1,101,435 $ 7.45
Majors 2 59,929 647,335 10.80 0 - - -
Specialty 69 227,698 5,367,305 23.57 46 158,061 3,650,733 23.10
Food Court 21 17,595 989,719 56.25 5 4,313 217,503 50.43
--------------------------------------------------- --------------------------------------------------
93 383,841 $ 7,259,871 $ 18.91 53 310,289 $ 4,969,671 $ 16.02
Gurnee Mills:
Anchors 0 - $ - $ - 3 231,271 $ 1,381,540 $ 5.97
Majors 0 - - - 0 - - -
Specialty 19 56,396 1,046,845 18.56 58 196,618 3,626,075 18.44
Food Court 1 657 22,995 35.00 13 8,945 489,153 54.68
--------------------------------------------------- --------------------------------------------------
20 57,053 $ 1,069,840 $ 18.75 74 436,834 $ 5,496,768 $ 12.58
Total without
Joint Ventures:
Anchors 2 138,734 $ 646,259 $ 4.66 6 449,887 $ 2,967,277 $ 6.60
Majors 4 133,887 1,254,499 9.37 1 29,092 232,736 8.00
Specialty 146 462,396 10,570,418 22.86 158 523,526 10,847,041 20.72
Food Court 25 20,583 1,167,653 56.73 22 16,252 881,683 54.25
--------------------------------------------------- --------------------------------------------------
177 755,600 $13,638,829 $ 18.05 187 1,018,757 $ 14,928,737 $ 14.65
=================================================== ==================================================
</TABLE>
20
<PAGE> 21
THE MILLS CORPORATION
LEASE EXPIRATION SCHEDULE
The following table shows lease expirations assuming that none of the tenants
exercised renewal options. The minimum rent is the monthly contractual minimum
rent of the expiring leases as of December 31, 1997 multiplied by 12.
<TABLE>
<CAPTION>
No. of 1998 No. of 1999 No. of
Leases Annualized Leases Annualized Leases
Expiring Sq Ft Min. Rent psf Expiring Sq Ft Min. Rent psf Expiring
-------- ----- --------- ------- -------- ----- --------- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Ontario Mills:
Anchors 0 - $ - $ - 0 - $ - $ - 0
Majors 0 - - - 0 - - - 0
Specialty 1 2,739 96,000 35.05 5 9,915 261,900 26.41 6
Food Court 0 - - - 0 - - - 0
----------------------------------------------- ------------------------------------------------- ------
1 2,739 $ 96,000 $ 35.05 5 9,915 $ 261,900 $ 26.41 6
Grapevine Mills:
Anchors 0 - $ - $ - 0 - $ - $ - 0
Majors 0 - - - 0 - - - 0
Specialty 2 2,836 81,058 28.58 2 7,979 202,672 25.40 10
Food Court 0 - - - 0 - - - 0
----------------------------------------------- ------------------------------------------------- ------
2 2,836 $ 81,058 $ 28.58 2 7,979 $ 202,672 $ 25.40 10
Arizona Mills:
Anchors 0 - $ - $ - 0 - $ - $ - 0
Majors 0 - - - 0 - - - 0
Specialty 0 - - - 0 - - - 9
Food Court 0 - - - 0 - - - 0
----------------------------------------------- ------------------------------------------------- ------
0 - $ - $ - 0 - $ - $ - 9
Total with Joint
Ventures:
Anchors 0 - $ - $ - 1 100,200 $ 547,725 $ 5.47 2
Majors 3 103,839 766,559 7.38 3 110,596 1,109,004 10.03 4
Specialty 110 342,448 6,965,666 20.34 79 244,159 5,458,845 22.36 171
Food Court 2 1,567 85,208 54.38 10 7,435 446,062 59.99 25
----------------------------------------------- ------------------------------------------------- ------
115 447,854 $7,817,433 $ 17.46 93 462,390 $ 7,561,636 $ 16.35 202
=============================================== ================================================= ======
Community Centers:
Anchors 1 56,949 $ 194,300 $ 3.41 0 - $ - $ - 0
Majors 1 27,098 189,686 7.00 0 - - - 1
Specialty 30 80,220 1,128,323 14.07 34 95,779 1,362,769 14.23 24
Food Court 0 - - - 0 - - - 0
----------------------------------------------- ------------------------------------------------- ------
32 164,267 $1,512,309 $ 9.21 34 95,779 $ 1,362,769 $ 14.23 25
============================================== ================================================== ======
</TABLE>
<TABLE>
<CAPTION>
2000 No. of 2001
Annualized Leases Annualized
Sq Ft Min. Rent psf Expiring Sq Ft Min. Rent psf
----- --------- - ---- -------- ----- --------- - ---
<S> <C> <C> <C> <C> <C> <C> <C>
Ontario Mills:
Anchors - $ - $ - 0 - $ - $ -
Majors - - - 0 - - -
Specialty 13,267 328,742 24.78 50 211,566 4,180,773 19.76
Food Court - - - 0 - - -
---------------------------------------- ----------------------------------------------------
13,267 $ 328,742 $ 24.78 50 211,566 $ 4,180,773 $ 19.76
Grapevine Mills:
Anchors - $ - $ - 0 - $ - $ -
Majors - - - 0 - - -
Specialty 22,341 570,000 25.51 8 22,705 474,017 20.88
Food Court - - - 0 - - -
---------------------------------------- ----------------------------------------------------
22,341 $ 570,000 $ 25.51 8 22,705 $ 474,017 $ 20.88
Arizona Mills:
Anchors - $ - $ - 0 - $ - $ -
Majors - - - 0 - - -
Specialty 26,582 719,946 27.08 12 27,970 728,921 26.06
Food Court - - - 0 - - -
---------------------------------------- ----------------------------------------------------
26,582 $ 719,946 $ 27.08 12 27,970 $ 728,921 $ 26.06
Total with Joint
Ventures:
Anchors 138,734 $ 646,259 $ 4.66 6 449,887 $ 2,967,277 $ 6.60
Majors 133,887 1,254,499 9.37 1 29,092 232,736 8.00
Specialty 524,586 12,189,106 23.24 228 785,767 16,230,752 20.66
Food Court 20,583 1,167,653 56.73 22 16,252 881,683 54.25
---------------------------------------- ----------------------------------------------------
817,790 $15,257,517 $ 18.66 257 1,280,998 $ 20,312,448 $ 15.86
======================================== ====================================================
Community Centers:
Anchors - $ - $ - 0 - $ - $ -
Majors 21,007 273,091 13.00 1 24,300 133,650 5.50
Specialty 104,423 1,116,158 10.69 38 142,431 1,820,235 12.78
Food Court - - - 0 - - -
---------------------------------------- ----------------------------------------------------
125,430 $ 1,389,249 $ 11.08 39 166,731 $ 1,953,885 $ 11.72
======================================= =====================================================
</TABLE>
21
<PAGE> 22
THE MILLS CORPORATION
LEASE EXPIRATION SCHEDULE
The following table shows lease expirations assuming that none of the tenants
exercised renewal options. The minimum rent is the monthly contractual minimum
rent of the expiring leases as of December 31, 1997 multiplied by 12.
<TABLE>
<CAPTION>
No. of 2002 No. of 2003
Leases Annualized Leases Annualized
Expiring Sq Ft Min. Rent psf Expiring Sq Ft Min. Rent psf
-------- ----- --------- ---- -------- ----- --------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Potomac Mills:
Anchors 0 - $ - $ - 0 - $ - $ -
Majors 0 - - - 3 75,384 654,146 8.68
Specialty 30 101,639 2,263,542 22.27 24 75,627 1,886,154 24.94
Food Court 3 1,859 127,485 68.58 0 - - -
------------------------------------------------ -------------------------------------------------
33 103,498 $ 2,391,027 $ 23.10 27 151,011 $ 2,540,300 $ 16.82
Franklin Mills:
Anchors 0 - $ - $ - 1 128,950 $ 540,000 $ 4.19
Majors 2 65,155 448,715 6.89 0 - - -
Specialty 22 68,338 1,480,729 21.67 1 11,016 134,609 12.22
Food Court 4 2,997 112,660 37.59 2 1,238 47,050 38.00
------------------------------------------------ -------------------------------------------------
28 136,490 $ 2,042,104 $ 14.96 4 141,204 $ 721,659 $ 5.11
Sawgrass Mills:
Anchors 0 - $ - $ - 1 85,024 $ 467,632 $ 5.50
Majors 2 42,657 365,491 8.57 0 - - -
Specialty 26 69,818 2,065,365 29.58 6 38,627 1,015,985 26.30
Food Court 1 663 39,996 60.33 0 - - -
------------------------------------------------ -------------------------------------------------
29 113,138 $ 2,470,852 $ 21.84 7 123,651 $ 1,483,617 $ 12.00
Gurnee Mills:
Anchors 1 61,265 $ 495,000 $ 8.08 0 - $ - $ -
Majors 1 34,259 256,942 7.50 3 115,506 892,631 7.73
Specialty 20 65,956 1,448,093 21.96 4 15,127 242,994 16.06
Food Court 5 3,611 219,051 60.66 0 - - -
------------------------------------------------ -------------------------------------------------
27 165,091 $ 2,419,086 $ 14.65 7 130,633 $ 1,135,625 $ 8.69
Total without
Joint Ventures:
Anchors 1 61,265 $ 495,000 $ 8.08 2 213,974 $ 1,007,632 $ 4.71
Majors 5 142,071 1,071,148 7.54 6 190,890 1,546,777 8.10
Specialty 98 305,751 7,257,729 23.74 35 140,397 3,279,742 23.36
Food Court 13 9,130 499,192 54.68 2 1,238 47,050 38.00
------------------------------------------------ -------------------------------------------------
117 518,217 $ 9,323,069 $ 17.99 45 546,499 $ 5,881,201 $ 10.76
================================================ =================================================
</TABLE>
<TABLE>
<CAPTION>
No. of 2004 No. of 2005
Leases Annualized Leases Annualized
Expiring Sq Ft Min. Rent psf Expiring Sq Ft Min. Rent psf
-------- ----- --------- ---- -------- ----- --------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Potomac Mills:
Anchors 1 61,763 $ 478,665 $ 7.75 1 153,036 $ 525,000 $ 3.43
Majors 1 40,857 367,713 9.00 1 33,743 326,779 9.68
Specialty 6 21,709 465,874 21.46 7 37,672 875,359 23.24
Food Court 1 590 37,635 63.79 0 - - -
------------------------------------------------- -------------------------------------------------
9 124,919 $ 1,349,887 $ 10.81 9 224,451 $ 1,727,138 $ 7.69
Franklin Mills:
Anchors 0 - - - 0 - - -
Majors 1 42,241 253,446 6.00 0 - - -
Specialty 6 18,129 299,716 16.53 2 20,645 360,681 17.47
Food Court 0 - - - 0 - - -
------------------------------------------------- -------------------------------------------------
7 60,370 $ 553,162 $ 9.16 2 20,645 $ 360,681 $ 17.47
Sawgrass Mills:
Anchors 0 - $ - $ - 0 - $ - $ -
Majors 2 83,581 821,500 9.83 1 25,110 321,408 12.80
Specialty 6 12,026 417,032 34.68 9 42,349 872,853 20.61
Food Court 0 - - - 1 2,960 37,148 12.55
------------------------------------------------- -------------------------------------------------
8 95,607 $ 1,238,532 $ 12.95 11 70,419 $ 1,231,409 $ 17.49
Gurnee Mills:
Anchors 0 - $ - $ - 0 - $ - $ -
Majors 0 - - - 0 - - -
Specialty 1 3,027 79,950 26.41 2 20,945 388,875 18.57
Food Court 2 1,357 47,495 35.00 1 542 21,680 40.00
------------------------------------------------- -------------------------------------------------
3 4,384 $ 127,445 $ 29.07 3 21,487 $ 410,555 $ 19.11
Total without
Joint Ventures:
Anchors 1 61,763 $ 478,665 $ 7.75 1 153,036 $ 525,000 $ 3.43
Majors 4 166,679 1,442,659 8.66 2 58,853 648,187 11.01
Specialty 19 54,891 1,262,572 23.00 20 121,611 2,497,768 20.54
Food Court 3 1,947 85,130 43.72 2 3,502 58,828 16.80
------------------------------------------------- -------------------------------------------------
27 285,280 $ 3,269,026 $ 11.46 25 337,002 $ 3,729,783 $ 11.07
================================================ ==================================================
</TABLE>
22
<PAGE> 23
THE MILLS CORPORATION
LEASE EXPIRATION SCHEDULE
The following table shows lease expirations assuming that none of the tenants
exercised renewal options. The minimum rent is the monthly contractual minimum
rent of the expiring leases as of December 31, 1997 multiplied by 12.
<TABLE>
<CAPTION>
No. of 2002 No. of 2003
Leases Annualized Leases Annualized
Expiring Sq Ft Min. Rent psf Expiring Sq Ft Min. Rent psf
-------- ----- --------- ---- -------- ----- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ontario Mills:
Anchors 0 - $ - $ - 0 - $ - $ -
Majors 0 - - - 0 - - -
Specialty 24 84,074 1,898,170 22.58 9 30,847 736,007 23.86
Food Court 0 - - - 0 - - -
----------------------------------------------- -----------------------------------------------
24 84,074 $ 1,898,170 $ 22.58 9 30,847 $ 736,007 $ 23.86
Grapevine Mills:
Anchors 0 - $ - $ - 0 - $ - $ -
Majors 1 23,329 279,948 12.00 0 - - -
Specialty 59 192,795 4,294,128 22.27 7 19,923 438,850 22.03
Food Court 0 - - - 0 - - -
----------------------------------------------- -----------------------------------------------
60 216,124 $ 4,574,076 $ 21.16 7 19,923 $ 438,850 $ 22.03
Arizona Mills:
Anchors 0 - $ - $ - 0 - - -
Majors 0 - - - 0 - - -
Specialty 63 202,444 4,313,004 21.30 16 66,908 1,195,887 17.87
Food Court 0 - - - 0 - - -
----------------------------------------------- -----------------------------------------------
63 202,444 $ 4,313,004 $ 21.30 16 66,908 $ 1,195,887 $ 17.87
Total with Joint
Ventures:
Anchors 1 61,265 $ 495,000 $ 8.08 2 213,974 $ 1,007,632 $ 4.71
Majors 6 165,400 1,351,096 8.17 6 190,890 1,546,777 8.10
Specialty 244 785,064 17,763,031 22.63 67 258,075 5,650,486 21.89
Food Court 13 9,130 499,192 54.68 2 1,238 47,050 38.00
----------------------------------------------- -----------------------------------------------
264 1,020,859 $20,108,319 $ 19.70 77 664,177 $ 8,251,945 $ 12.42
=============================================== ===============================================
Community Centers:
Anchors 0 - $ - $ - 0 - $ - $ -
Majors 2 59,300 245,450 4.14 3 90,459 693,645 7.67
Specialty 33 104,291 1,503,295 14.41 11 31,778 483,946 15.23
Food Court 0 - - - 0 - - -
----------------------------------------------- -----------------------------------------------
35 163,591 $ 1,748,745 $ 10.69 14 122,237 $ 1,177,591 $ 9.63
============================================== ================================================
</TABLE>
<TABLE>
<CAPTION>
No. of 2004 No. of 2005
Leases Annualized Leases Annualized
Expiring Sq Ft Min. Rent psf Expiring Sq Ft Min. Rent psf
-------- ----- --------- ---- -------- ----- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ontario Mills:
Anchors 0 - $ - $ - 0 - $ - $ -
Majors 0 - - - 0 - - -
Specialty 1 1,490 47,680 32.00 0 - - -
Food Court 0 - - - 0 - - -
------------------------------------------------- --------------------------------------------------
1 1,490 $ 47,680 $ 32.00 0 - $ - $ -
Grapevine Mills:
Anchors 0 - $ - $ - 0 - $ - $ -
Majors 0 - - - 0 - - -
Specialty 4 10,802 288,178 26.68 3 16,158 386,100 23.90
Food Court 0 - - - 0 - - -
------------------------------------------------- --------------------------------------------------
4 10,802 $ 288,178 $ 26.68 3 16,158 $ 386,100 $ 23.90
Arizona Mills:
Anchors 0 - $ - $ - 0 - $ - $ -
Majors 0 - - - 0 - - -
Specialty 6 15,606 433,045 27.75 0 - - -
Food Court 0 - - - 0 - - -
------------------------------------------------- --------------------------------------------------
6 15,606 $ 433,045 $ 27.75 0 - $ - $ -
Total with Joint
Ventures:
Anchors 1 61,763 $ 478,665 $ 7.75 1 153,036 $ 525,000 $ 3.43
Majors 4 166,679 1,442,659 8.66 2 58,853 648,187 11.01
Specialty 30 82,789 2,031,475 24.54 23 137,769 2,883,868 20.93
Food Court 3 1,947 85,130 43.72 2 3,502 58,828 16.80
------------------------------------------------- --------------------------------------------------
38 313,178 $ 4,037,929 $ 12.89 28 353,160 $ 4,115,883 $ 11.65
================================================= ==================================================
Community Centers:
Anchors 1 129,615 $ 74,300 $ 0.57 2 126,246 $ 993,673 $ 7.87
Majors 0 - - - 6 215,480 1,438,325 6.67
Specialty 4 20,043 280,752 14.01 4 30,080 360,406 11.98
Food Court 0 - - - 0 - - -
------------------------------------------------- --------------------------------------------------
5 149,658 $ 355,052 $ 2.37 12 371,806 $ 2,792,404 $ 7.51
================================================ ===================================================
</TABLE>
23
<PAGE> 24
THE MILLS CORPORATION
LEASE EXPIRATION SCHEDULE
The following table shows lease expirations assuming that none of the tenants
exercised renewal options. The minimum rent is the monthly contractual minimum
rent of the expiring leases as of December 31, 1997 multiplied by 12.
<TABLE>
<CAPTION>
No. of 2006 No. of 2007
Leases Annualized Leases Annualized
Expiring Sq Ft Min. Rent psf Expiring Sq Ft Min. Rent psf
-------- ----- --------- ---- -------- ----- --------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Potomac Mills:
Anchors 2 208,813 $ 1,394,772 $ 6.68 0 - $ - $ -
Majors 0 - - - 2 70,740 662,694 9.37
Specialty 3 24,181 603,862 24.97 0 - - -
Food Court 2 1,354 80,750 59.64 0 - - -
------------------------------------------------ -------------------------------------------------
7 234,348 $ 2,079,384 $ 8.87 2 70,740 $ 662,694 $ 9.37
Franklin Mills:
Anchors 0 - $ - $ - 0 - $ - $ -
Majors 1 46,406 483,087 10.41 3 80,762 1,069,320 13.24
Specialty 2 2,561 71,198 27.80 0 - - -
Food Court 1 476 24,276 51.00 0 - - -
------------------------------------------------ -------------------------------------------------
4 49,443 $ 578,561 $ 11.70 3 80,762 $ 1,069,320 $ 13.24
Sawgrass Mills:
Anchors 1 59,480 $ 713,760 $ 12.00 0 - $ - $ -
Majors 1 20,300 527,800 26.00 0 - - -
Specialty 3 16,486 425,988 25.84 4 9,838 361,553 36.75
Food Court 0 - - - 0 - - -
------------------------------------------------ -------------------------------------------------
5 96,266 $ 1,667,548 $ 17.32 4 9,838 $ 361,553 $ 36.75
Gurnee Mills:
Anchors 0 - $ - $ - 0 - $ - $ -
Majors 1 20,000 600,000 30.00 0 - - -
Specialty 3 14,673 246,957 16.83 2 2,087 68,621 32.88
Food Court 3 2,285 144,760 63.35 2 1,426 57,645 40.42
------------------------------------------------ -------------------------------------------------
7 36,958 $ 991,717 $ 26.83 4 3,513 $ 126,266 $ 35.94
Total without
Joint Ventures:
Anchors 3 268,293 $ 2,108,532 $ 7.86 0 - $ - $ -
Majors 3 86,706 1,610,887 18.58 5 151,502 1,732,014 11.43
Specialty 11 57,901 1,348,005 23.28 6 11,925 430,174 36.07
Food Court 6 4,115 249,786 60.70 2 1,426 57,645 40.42
------------------------------------------------ -------------------------------------------------
23 417,015 $ 5,317,210 $ 12.75 13 164,853 $ 2,219,833 $ 13.47
=============================================== =================================================
</TABLE>
<TABLE>
<CAPTION>
No. of After 2007 No. of Total
Leases Annualized Leases Annualized
Expiring Sq Ft Min. Rent psf Expiring Sq Ft Min. Rent psf
-------- ----- --------- ---- -------- ----- --------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Potomac Mills:
Anchors 1 107,021 $ 560,560 $ 5.24 5 530,633 $ 2,958,997 $ 5.58
Majors 0 - - 11 371,309 3,212,206 8.65
Specialty 3 15,272 313,164 20.51 182 579,171 13,828,079 23.88
Food Court 0 - - - 14 10,185 635,054 62.35
------------------------------------------------ ------------------------------------------------
4 122,293 $ 873,724 $ 7.14 212 1,491,298 $ 20,634,336 $ 13.84
Franklin Mills:
Anchors 1 68,968 $ 760,000 $ 11.02 5 428,934 $ 2,722,774 $ 6.35
Majors 0 - - - 10 332,560 3,084,027 9.27
Specialty 1 6,110 172,465 28.23 144 500,619 10,082,169 20.14
Food Court 0 - - - 16 11,450 575,538 50.27
------------------------------------------------ ------------------------------------------------
2 75,078 $ 932,465 $ 12.42 175 1,273,563 $ 16,464,508 $ 12.93
Sawgrass Mills:
Anchors 3 261,442 $ 1,483,078 $ 5.67 8 632,480 $ 4,021,417 $ 6.36
Majors 0 - - - 9 259,729 3,105,814 11.96
Specialty 3 7,352 140,687 19.14 199 642,878 15,865,218 24.68
Food Court 0 - - - 30 26,737 1,364,866 51.05
------------------------------------------------ ------------------------------------------------
6 268,794 $ 1,623,765 $ 6.04 246 1,561,824 $ 24,357,315 $ 15.60
Gurnee Mills:
Anchors 2 230,248 $ 915,715 $ 3.98 6 522,784 $ 2,792,255 $ 5.34
Majors 1 25,000 250,000 10.00 7 235,517 2,262,423 9.61
Specialty 2 14,664 335,584 22.88 156 562,266 10,462,764 18.61
Food Court 0 - - - 27 18,823 1,002,779 53.27
------------------------------------------------ ------------------------------------------------
5 269,912 $ 1,501,299 $ 5.56 196 1,339,390 $ 16,520,221 $ 12.33
Total without
Joint Ventures:
Anchors 7 667,679 $ 3,719,353 $ 5.57 24 2,114,831 $ 12,495,443 $ 5.91
Majors 1 25,000 250,000 10.00 37 1,199,115 11,664,470 9.73
Specialty 9 43,398 961,900 22.16 681 2,284,934 50,238,230 21.99
Food Court 0 - - - 87 67,195 3,578,237 53.25
------------------------------------------------ ------------------------------------------------
17 736,077 $ 4,931,253 $ 6.70 829 5,666,075 $ 77,976,380 $ 13.76
================================================ ================================================
</TABLE>
24
<PAGE> 25
THE MILLS CORPORATION
LEASE EXPIRATION SCHEDULE
The following table shows lease expirations assuming that none of the tenants
exercised renewal options. The minimum rent is the monthly contractual minimum
rent of the expiring leases as of December 31, 1997 multiplied by 12.
<TABLE>
<CAPTION>
No. of 2006 No. of 2007
Leases Annualized Leases Annualized
Expiring Sq Ft Min. Rent psf Expiring Sq Ft Min. Rent psf
-------- ----- --------- ---- -------- ----- --------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ontario Mills:
Anchors 0 - $ - $ - 0 - $ - $ -
Majors 4 102,669 1,519,999 14.80 3 78,457 1,141,945 14.56
Specialty 30 76,642 2,170,536 28.32 9 14,958 593,364 39.67
Food Court 0 - - - 0 - - -
----------------------------------------------- -------------------------------------------------
34 179,311 $ 3,690,535 $ 20.58 12 93,415 $ 1,735,309 $ 18.58
Grapevine Mills:
Anchors 0 - $ - $ - 0 - $ - $ -
Majors 0 - - - 6 151,683 2,546,757 16.79
Specialty 0 - - - 27 88,873 2,261,136 25.44
Food Court 0 - - - 0 - - -
----------------------------------------------- -------------------------------------------------
0 - $ - $ - 33 240,556 $ 4,807,893 $ 19.99
Arizona Mills:
Anchors 0 - $ - $ - 0 - $ - $ -
Majors 1 22,774 318,276 13.98 4 111,578 1,893,444 16.97
Specialty 1 1,275 48,754 38.24 10 53,562 1,065,671 19.90
Food Court 0 - - - 0 - - -
----------------------------------------------- -------------------------------------------------
2 24,049 $ 367,030 $ 15.26 14 165,140 $ 2,959,115 $ 17.92
Total with Joint
Ventures:
Anchors 3 268,293 $ 2,108,532 $ 7.86 0 - $ - $ -
Majors 8 212,149 3,449,162 16.26 18 493,220 7,314,160 14.83
Specialty 42 135,818 3,567,295 26.27 52 169,318 4,350,345 25.69
Food Court 6 4,115 249,786 60.70 2 1,426 57,645 40.42
----------------------------------------------- -------------------------------------------------
59 620,375 $ 9,374,775 $ 15.11 72 663,964 $ 11,722,150 $ 17.65
=============================================== =================================================
Community Centers:
Anchors 0 - $ - $ - 0 - $ - $ -
Majors 0 - - - 0 - - -
Specialty 7 30,846 452,304 14.66 7 60,813 659,796 10.85
Food Court 0 - - - 0 - - -
----------------------------------------------- -------------------------------------------------
7 30,846 $ 452,304 $ 14.66 7 60,813 $ 659,796 $ 10.85
============================================== ==================================================
</TABLE>
<TABLE>
<CAPTION>
No. of After 2007 No. of Total
Leases Annualized Leases Annualized
Expiring Sq Ft Min. Rent psf Expiring Sq Ft Min. Rent psf
-------- ----- --------- - ---- -------- ----- --------- - ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ontario Mills:
Anchors 4 286,023 $ 1,883,132 $ 6.58 4 286,023 $ 1,883,132 $ 6.58
Majors 5 212,321 1,978,600 9.32 12 393,447 4,640,544 11.79
Specialty 8 36,923 907,047 24.57 143 482,421 11,220,219 23.26
Food Court 2 11,328 553,155 48.83 2 11,328 553,155 48.83
------------------------------------------------- --------------------------------------------------
19 546,595 $ 5,321,934 $ 9.74 161 1,173,219 $ 18,297,050 $ 15.60
Grapevine Mills:
Anchors 2 206,929 $ 1,028,920 $ 4.97 2 206,929 $ 1,028,920 $ 4.97
Majors 5 175,553 1,503,371 8.56 12 350,565 4,330,076 12.35
Specialty 16 71,530 1,844,140 25.78 138 455,942 10,840,279 23.78
Food Court 0 - - - 0 - - -
------------------------------------------------- --------------------------------------------------
23 454,012 $ 4,376,431 $ 9.64 152 1,013,436 $ 16,199,275 $ 15.98
Arizona Mills:
Anchors 5 383,061 $ 3,151,298 $ 8.23 5 383,061 $ 3,151,298 $ 8.23
Majors 4 120,973 1,311,876 10.84 9 255,325 3,523,596 13.80
Specialty 9 24,078 644,204 26.75 126 418,425 9,149,432 21.87
Food Court 1 12,054 832,502 69.06 1 12,054 832,502 69.06
------------------------------------------------- --------------------------------------------------
19 540,166 $ 5,939,880 $ 11.00 141 1,068,865 $ 16,656,828 $ 15.58
Total with Joint
Ventures:
Anchors 18 1,543,692 $ 9,782,703 $ 6.34 35 2,990,844 $ 18,558,793 $ 6.21
Majors 15 533,847 5,043,847 9.45 70 2,198,452 24,158,686 10.99
Specialty 42 175,929 4,357,291 24.77 1,088 3,641,722 81,448,160 22.37
Food Court 3 23,382 1,385,657 59.26 90 90,577 4,963,894 54.80
------------------------------------------------- --------------------------------------------------
78 2,276,850 $20,569,498 $ 9.03 1,283 8,921,595 $ 129,129,533 $ 14.47
================================================= ==================================================
Community Centers:
Anchors 2 139,818 $ 1,216,049 $ 8.70 6 452,628 $ 2,478,322 $ 5.48
Majors 6 251,878 2,132,102 8.46 20 689,522 5,105,949 7.41
Specialty 3 30,700 203,475 6.63 195 31,404 9,371,459 12.81
Food Court 0 - - - 0 - - -
------------------------------------------------- --------------------------------------------------
11 422,396 $ 3,551,626 $ 8.41 221 1,873,554 $ 16,955,730 $ 9.05
================================================ ====================================================
</TABLE>
25
<PAGE> 26
EXISTING MILLS OPERATING TRENDS
The following table sets forth, for the last four years, certain information
regarding operating trends with respect to the existing Mills.
<TABLE>
<CAPTION>
MINIMUM RENT PLUS PERCENTAGE RENTS
----------------------------------
AVERAGE TOTAL STORES ANCHOR STORES
PERCENT ------------ --------------
LEASED (1) TOTAL PER SQ. FT. TOTAL PER SQ. FT.
---------- ------------------ ------------------ --------------- --------------
POTOMAC MILLS
<S> <C> <C> <C> <C> <C>
1997 95.87% 20,980,272 14.04 6,284,111 6.86
1996 95.63% 20,865,975 14.00 6,142,999 6.76
1995 96.22% 19,905,334 13.30 5,839,132 6.57
1994 98.15% 19,840,738 13.00 5,766,085 6.47
FRANKLIN MILLS
1997 92.07% 16,549,052 11.47 5,700,661 6.05
1996 91.96% 16,318,689 11.40 5,291,698 5.67
1995 95.46% 16,837,997 11.33 5,401,107 5.69
1994 96.95% 17,565,102 11.64 5,485,679 5.78
SAWGRASS MILLS
1997 (2) 96.98% 26,448,955 17.08 7,384,896 8.28
1996 97.61% 25,787,924 16.55 7,150,346 8.03
1995 95.33% 22,738,214 15.66 6,670,486 7.68
1994 94.92% 20,889,138 14.54 6,467,454 7.56
GURNEE MILLS
1997 91.38% 15,900,406 13.80 4,418,036 7.42
1996 90.22% 15,340,496 13.62 3,823,991 6.78
1995 91.09% 15,089,531 12.89 3,898,381 6.36
1994 92.09% 15,176,595 12.83 3,986,828 6.48
ONTARIO MILLS
1997 95.20% 18,708,479 17.11 6,358,058 10.11
TOTAL - MILLS
1997 94% 98,587,164 14.65 30,145,762 7.58
1996 94% 78,313,084 13.97 22,409,034 6.80
1995 95% 74,571,076 13.31 21,809,106 6.57
1994 96% 73,471,573 12.99 21,706,046 6.56
</TABLE>
<TABLE>
<CAPTION>
MINIMUM RENT PLUS PERCENTAGE RENTS
----------------------------------
SPECIALTY STORES
----------------
TOTAL PER SQ. FT.
------------ --------------
POTOMAC MILLS
<S> <C> <C>
1997 14,696,161 25.44
1996 14,722,976 25.32
1995 14,066,202 23.14
1994 14,074,653 22.17
FRANKLIN MILLS
1997 10,848,391 21.68
1996 11,026,991 22.16
1995 11,436,890 21.29
1994 12,079,423 21.54
SAWGRASS MILLS
1997 (2) 19,064,059 29.04
1996 18,637,578 27.90
1995 16,067,728 27.58
1994 14,421,684 24.83
GURNEE MILLS
1997 11,482,370 20.63
1996 11,516,505 20.50
1995 11,191,150 20.08
1994 11,189,767 19.71
ONTARIO MILLS
1997 12,350,421 26.59
TOTAL - MILLS
1997 68,441,402 24.84
1996 55,904,050 24.21
1995 52,761,970 23.09
1994 51,765,527 22.08
</TABLE>
(1) Average percent leased is defined as all space leased and for which rent was
being paid excluding tenants with leases having a term of less than one year.
(2) Annual rent excludes $800,000 of ground lease rent.
Note:
The Operating Trends and Rental Rates tables for existing Mills exclude
Grapevine Mills and Arizona Mills which opened on October 30, 1997 and November
20, 1997, respectively, and have not yet completed their initial lease-up.
The above amounts do not include Mainstreet Retail income of $2,066,991 for
1997, $2,088,000 for 1996,$1,658,000 for 1995, and $1,794,000 for 1994.
26
<PAGE> 27
THE MILLS CORPORATION
RENTAL RATES (1)
The following table sets forth the average base rent per leased square foot of
store openings and closings for each property for the twelve months ended
December 31, 1997.
<TABLE>
<CAPTION>
ANCHOR STORES
---------------------------------------------------------------------------------------------
STORE OPENINGS STORE CLOSINGS RELEASING
DURING YEAR DURING YEAR SPREAD (2)
------------------------------- ----------------------------- --------------------------
AVERAGE AVERAGE
BASE RENT TOTAL BASE RENT TOTAL
PER SQ. FT. SQ. FT. PER SQ. FT. SQ. FT.
--------------- -------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
POTOMAC MILLS 1997 $ 7.71 73,432 $ 6.30 97,820 $ 1.41 22.33%
1996 11.43 33,406 11.55 15,178 (0.12) (1.04%)
1995 8.74 20,048 8.61 78,572 0.13 1.51%
FRANKLIN MILLS 1997 $ 11.27 85,072 $ 7.53 85,072 $ 3.74 49.74%
1996 10.41 18,247 10.25 20,000 0.16 1.56%
1995 - - - - - -
GURNEE MILLS 1997 $ 4.92 184,259 (3) $ - - $ 4.92 N/A
1996 30.00 20,000 - - 30.00 N/A
1995 - - 8.08 74,218 (8.08) N/A
SAWGRASS MILLS 1997 $ 8.91 50,579 $ 8.93 50,579 $ (0.02) (0.21%)
1996 26.39 20,000 14.86 39,275 11.53 77.59%
1995 12.80 25,110 - - 12.80 100.00%
--------------- -------------- --------------- ------------ ------------- ------------
TOTAL MILLS 1997 $ 7.33 393,342 $ 7.32 233,471 $ 0.01 0.15%
1996 18.54 91,653 12.95 74,453 5.59 43.17%
1995 11.00 45,158 8.36 152,790 2.64 31.58%
COMMUNITY
CENTERS 1997 $ - - $ 3.76 66,377 $ (3.76) N/A
1996 9.60 104,586 8.69 176,238 0.91 10.47%
1995 6.19 48,958 - - 6.19 N/A
</TABLE>
<TABLE>
<CAPTION>
SPECIALTY STORES
--------------------------------------------------------------------------------------------
STORE OPENINGS STORE CLOSINGS RELEASING
DURING YEAR DURING YEAR SPREAD (2)
----------------------------- ----------------------------- --------------------------
AVERAGE AVERAGE
BASE RENT TOTAL BASE RENT TOTAL
PER SQ. FT. SQ. FT. PER SQ. FT. SQ. FT.
--------------- ------------ --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
POTOMAC MILLS 1997 $ 22.78 128,964 $ 21.77 127,191 $ 1.00 4.61%
1996 23.64 83,594 21.80 66,607 1.84 8.44%
1995 24.91 49,135 18.89 82,912 6.02 31.87%
FRANKLIN MILLS 1997 $ 20.16 112,670 $ 19.34 106,202 $ 0.83 4.29%
1996 20.08 73,880 18.61 115,416 1.47 7.90%
1995 19.49 46,453 21.90 77,713 (2.41) (11.00%)
GURNEE MILLS 1997 $ 20.75 101,771 $ 19.24 104,086 $ 1.51 7.87%
1996 19.01 74,447 18.63 71,457 0.38 2.04%
1995 16.95 48,988 17.79 55,864 (0.84) (4.72%)
SAWGRASS MILLS 1997 $ 30.00 72,188 $ 24.57 64,626 $ 5.42 22.08%
1996 29.63 58,904 22.24 57,770 7.39 33.23%
1995 24.58 173,744 23.11 55,108 1.47 6.36%
--------------- -------------- --------------- ------------ ------------- ------------
TOTAL MILLS 1997 $ 22.83 415,593 $ 20.92 402,105 $ 1.90 9.10%
1996 22.76 290,825 19.97 311,250 2.79 13.97%
1995 22.71 318,320 20.38 271,597 2.33 11.43%
COMMUNITY
CENTERS 1997 $ 13.14 113,304 $ 14.08 114,631 $ (0.94) (6.66%)
1996 14.63 58,130 13.03 86,072 1.60 12.28%
1995 13.77 45,077 13.07 42,954 0.70 5.36%
</TABLE>
(1) Ontario Mills, Grapevine Mills and Arizona Mills are excluded from this
analysis, due to still being in their initial lease-up phase.
(2) The releasing spread is calculated as the difference between per square
foot openings and per square foot closings for the twelve months ended
December 31, 1997. Openings and closings include renewals but exclude
exercised options.
(3) Consists primarily of expansion space related to two anchor stores, Bass
Pro and Computer City, comprising 125,000 sq. ft. and 25,000 sq. ft.,
respectively. The Bass Pro lease is expected to provide substantial
percentage rent in addition to the base rent detailed above.
Note: Totals may not sum due to rounding.
27
<PAGE> 28
THE MILLS CORPORATION
GROSS SALES
AS OF DECEMBER 31, 1997
The following table sets forth certain gross sales information with respect to
the consolidated Mills as of December 31, 1997.
<TABLE>
<CAPTION>
Year Ended December 31, 1997 Year Ended December 31, 1996
------------------------------------------------ ---------------------------------------------------
Sq.Ft. Sales psf Sq.Ft. Sales psf
------ ----- --- ------ ----- ---
<S> <C> <C> <C> <C> <C> <C>
Potomac Mills:
Anchor/Majors 910,288 $ 184,834,466 $ 203 988,700 $ 183,164,739 $ 185
Specialty 566,004 179,387,582 317 581,470 168,199,660 289
Temporary/Kiosk - 4,490,966 - - 3,003,098 -
--------------- --------------- ------- ------------- ------------------- -----------
1,476,292 $ 368,713,014 $ 250 1,570,170 $ 354,367,497 $ 226
Franklin Mills:
Anchor/Majors 904,677 $ 163,692,900 $ 181 906,949 $ 163,200,049 $ 180
Specialty 487,463 142,341,207 292 497,697 126,589,740 254
Temporary/Kiosk - 6,388,496 - - 5,554,831 -
--------------- --------------- ------- ------------- ------------------- -----------
1,392,140 $ 312,422,603 $ 224 1,404,646 $ 295,344,620 $ 210
Sawgrass Mills:
Anchor/Majors 1,173,109 $ 365,821,871 $ 312 1,172,016 $ 353,980,590 $ 302
Specialty 655,233 295,180,646 450 667,926 271,682,972 407
Temporary/Kiosk - 13,962,865 - - 12,499,092 -
--------------- --------------- ------- ------------- ------------------ -----------
1,828,342 $ 674,965,382 $ 369 1,839,942 $ 638,162,654 $ 347
Gurnee Mills:
Anchor/Majors 681,640 $ 103,395,397 $ 152 646,362 $ 96,374,480 $ 149
Specialty 561,633 150,055,052 267 561,913 141,852,985 252
Temporary/Kiosk - 8,860,293 - - 6,082,243 -
--------------- --------------- ------- ------------- ------------------- -----------
1,243,273 $ 262,310,742 $ 211 1,208,275 $ 244,309,708 $ 202
Total Mills:
Anchor/Majors 3,669,714 $ 817,744,634 $ 223 3,714,027 $ 796,719,858 $ 215
Specialty 2,270,333 766,964,487 338 2,309,006 708,325,357 307
Temporary/Kiosk - 33,702,620 - - 27,139,264 -
--------------- --------------- ------- ------------- ------------------ -----------
5,940,047 $1,618,411,741 $ 272 6,023,033 $1,532,184,479 $ 254
============== ============== ======= ============= ============== =======
</TABLE>
(1) Ontario Mills, Grapevine Mills and Arizona Mills are excluded from this
analysis since they did not open until November 1996, October 1997 and
November 1997, respectively, and do not have 12 months of sales data for
comparison. Ontario Mills sales for the year ended December 31, 1997 were
$133,724,268 on 768,629 sq. ft. of anchor/major space ($174 psf),
$159,284,318 on 454,598 sq. ft. of specialty store space ($350 psf), and
$6,866,186 of Temp./Kiosk sales.
(2) Anchor/Major sales have been adjusted to include sales from certain anchor
tenants that own their parcels.
28
<PAGE> 29
POTOMAC MILLS - WOODBRIDGE, VIRGINIA
Potomac Mills contains approximately 1.6 million square feet of GLA,
of which one anchor store tenant owns approximately 80,000 square feet. Potomac
Mills opened in 1985 with a total of approximately 630,000 square feet of GLA.
As a result of customer demand, Potomac Mills was expanded to approximately 1.2
million square feet of GLA in 1986. The Phase III expansion of Potomac Mills
opened on September 30, 1993 and increased total GLA by approximately 355,208
square feet. The Company anticipates that construction of a new entertainment
zone will begin in mid-1998 with an opening in mid-1999. Potomac Mills has 17
anchors, including: IKEA, J.C. Penney Outlet, Waccamaw Pottery, Marshalls,
Spiegel Outlet, AMC Theatres, The Sports Authority, Off 5th-Saks Fifth Avenue,
TJ Maxx, Syms and Nordstrom Rack. Potomac Mills is situated on approximately 161
acres located approximately 20 miles southwest of Washington, D.C. Potomac Mills
is adjacent to Interstate 95, which serves as one of the transportation
backbones of the Washington metropolitan area. This location strategically
positions Potomac Mills between the Washington/Baltimore metropolitan market to
the north and Richmond, approximately 90 miles to the south. The Company owns
100% of Potomac Mills.
FRANKLIN MILLS - PHILADELPHIA, PENNSYLVANIA
Franklin Mills opened in 1989 and contains approximately 1.8 million
square feet of GLA, of which certain anchor store tenants own approximately
209,000 square feet. The Company began remerchandising Franklin Mills in 1996 by
upgrading its tenant mix and began construction on an entertainment zone,
including themed restaurants and interactive entertainment venues in the first
half of 1997 and is expected to be completed by the fourth quarter of 1998.
Franklin Mills has 18 anchors, including: Bed, Bath & Beyond, Filene's Basement,
Last Call from Neiman Marcus, Marshalls, Nordstrom Rack, Office Max, Off
5th-Saks Fifth Avenue, Spiegel Outlet and Syms. Franklin Mills features, what
the Company believes is the largest concentration of outlet retailing in the
Delaware Valley. With access from U.S. Highway 1 and the Pennsylvania Turnpike,
Franklin Mills is strategically positioned approximately 15 miles northeast of
Philadelphia's Center City and just west of Interstate 95, a major thoroughfare
serving the greater Philadelphia/Wilmington metropolitan market. At December 31,
1996 the Operating Partnership owned 77.6% of the partnership interests in the
partnership that owns Franklin Mills (which represented 100% of the income and
cash flow from Franklin Mills). In April 1997 the Operating Partnership acquired
the remaining partnership interests, in exchange for 195,295 Units.
SAWGRASS MILLS - SUNRISE, FLORIDA
Sawgrass Mills, which opened in 1990, contains approximately 1.9
million square feet of GLA, of which certain anchor store tenants own
approximately 282,000 square feet. As a result of customer demand, Sawgrass
Mills was expanded by approximately 136,000 square feet of GLA in 1995. The
Company expects to open a Phase III expansion of Sawgrass Mills in the fourth
quarter of 1998 consisting of an approximately 300,000 square foot
entertainment zone anchored by a 24-screen Regal Theater. Sawgrass Mills has 20
anchors, including: Beall's Outlet Store, Burlington Coat Factory, Last Call
from Neiman Marcus, Loehmanns, Rainforest Cafe, Spiegel Outlet, The Sports
Authority and Waccamaw Pottery. Sawgrass Mills is located in Florida's "Gold
Coast" market approximately 11 miles west of Fort Lauderdale. The site lies
adjacent to both the Sawgrass Expressway and Flamingo Road, between Sunrise and
Oakland Park Boulevards. The entire South Florida region is linked by the road
network of the Sawgrass Expressway, Interstate 75 and Interstate 595, which
intersect at an interchange located less than two miles southwest of Sawgrass
Mills.
The Company owns 100% of Sawgrass Mills. The Phase III expansion is
owned by a partnership formed by the Operating Partnership (50%) and Kan Am
(50%) in which Kan Am has agreed to fund 100% of the project's initial required
equity for which Kan Am will receive a 9% annual preferred return. Under the
terms of the partnership agreement, the Company has the right to acquire Kan
Am's interest in the Partnership prior to December 31, 1999 at 120% of Kan Am's
equity contributions and accumulated preferred returns, under certain terms and
conditions set forth in the partnership agreement. The Company provides all
development, management and leasing
29
<PAGE> 30
services for the expansion, subject to the approval of Kan Am of certain major
decisions, including a sale or refinancing of the project and the approval of
the development and annual budgets. The Company has guaranteed completion of the
expansion within the parameters of the approved development budget.
GURNEE MILLS - GURNEE, ILLINOIS
Gurnee Mills opened in 1991 and contains approximately 1.5 million
square feet of GLA, of which certain anchor store tenants own approximately
220,000 square feet. The Company has completed construction of an expansion of
over 150,000 square feet of GLA, which added entertainment venues to the
existing mall. Gurnee Mills has been remerchandised resulting in the upgrade of
the project's tenant mix. Gurnee Mills has 16 anchors, including: Bass Pro, J.C.
Penney Outlet, Waccamaw Pottery, Marshalls, Spiegel Outlet, Bed Bath & Beyond,
The Sports Authority, Off 5th-Saks Fifth Avenue, TJ Maxx and Syms. The project
is located adjacent to Interstate 94, the major north/south thoroughfare linking
Chicago and Milwaukee. Gurnee Mills is clearly visible from Interstate 94 and is
situated directly across from Six Flags Great America, one of the largest
amusement parks in the Midwest. The Company owns 100% of Gurnee Mills.
ONTARIO MILLS - ONTARIO, CALIFORNIA
Ontario Mills opened on November 14, 1996 with approximately 1.2
million square feet of GLA (including space owned by certain anchor store
tenants) comprised of approximately 700,000 square feet of anchor space and
approximately 500,000 square feet of specialty store space. The Company has
plans to expand the project to a total of 1.7 million square feet at completion.
Ontario Mills currently has 17 anchors, including: Off 5th-Saks Fifth Avenue
Outlet, Dave & Busters, J.C. Penney Outlet, Burlington Coat Factory, The Sports
Authority, Marshalls, Bed, Bath & Beyond, Mikasa, Off Rodeo Drive, TJ Maxx, AMC
Theatres, Virgin Megastore, Group USA, Foozles, Totally 4 Kids, American
Wilderness Experience and Sega Gameworks.
Ontario Mills is located at the intersection of Interstate 10 and
Interstate 15 in the heart of the Riverside/San Bernardino area known as the
"Inland Empire." Ontario Mills serves the Los Angeles/Orange County metropolitan
market.
Ontario Mills is owned by a joint venture among the Operating
Partnership (50%) and affiliates of Kan Am (25%) and Simon (25%). The Company
has the right to manage the development, property management and leasing of the
Ontario Mills project, subject to the other joint venture partners' approval of
certain major decisions, including sale or refinancing of the project and
approval of an annual budget. The joint venture partners have agreed to
contribute equally all initial required equity capital; provided, however, that
the Company and Simon have agreed to guarantee any project cost overruns not
funded by initial required equity capital and the partnership's construction
financing. At any time following the tenth anniversary of the project's opening,
either the Company, Simon or Kan Am can exercise a buy-sell provision whereby
the Company or Simon, if it is the offeror, can require Kan Am to transfer its
entire interest in the partnership or Kan Am, if it is the offeror, can require
the Company or Simon to acquire Kan Am's entire interest in the partnership. Net
construction costs at completion are estimated at $174 million. In addition to
its capital contributions from its joint venture partners, in November 1995, the
joint venture entered into a construction loan for a $110 million loan that was
funded in the first half of 1996. This loan was refinanced in February 1997 with
a permanent loan of $120 million which matures in February 2002 with two
one-year extensions. The interest rate is fixed at 7.21% for the first $70
million and 7.37% for the remaining 50 million.
30
<PAGE> 31
GRAPEVINE MILLS-GRAPEVINE, TEXAS
Grapevine Mills opened on October 30, 1997 with approximately 1.1
million square feet of GLA (including space owned by certain anchor store
tenants) comprised of approximately 550,000 square feet of anchor space and
approximately 550,000 square feet of specialty store space. The Company has
plans to expand the project to a total of 1.4 million square feet at completion.
Grapevine Mills currently has 14 anchors, including: Off 5th-Saks Fifth Avenue,
Burlington Coat Factory, Bed, Bath and Beyond, Group USA, Rainforest Cafe,
Books-A-Million and Sega Gameworks, and has four additional anchor store tenant
commitments of approximately 300,000 square feet for a total anchor store tenant
square footage of approximately 850,000. Grapevine Mills is located on a
175-acre site located at the interchange of Highway 121 and International
Parkway, two miles north of the Dallas/Fort Worth Airport in Grapevine, Texas.
Grapevine Mills is approximately 19 miles northeast of downtown Fort Worth and
serves the Dallas/Fort Worth metropolitan area.
Grapevine Mills is owned by a limited partnership consisting of the
Operating Partnership (37.5%), Simon (37.5%) and Kan Am (25%). The Company is
providing development, management and leasing services for the project, subject
to the approval of Simon and Kan Am for certain major decisions, such as changes
to the plan of development, the annual operating budget for the project and any
proposed sale or refinancing. Kan Am has agreed to contribute 50% of the initial
required equity capital. The Operating Partnership and Simon are responsible for
the balance of the initial required equity capital on a pro rata basis and have
agreed to guarantee any project cost overruns not funded by the initial equity
capital and construction financing. The project is expected to cost a total of
$203 million. During 1996, the venture entered into a loan agreement with
NationsBank to provide $140 million of construction financing, which was
subsequently increased to $155 million in 1997. The loan has a term of four
years, subject to a one-year extension at the Company's option, and bears
interest at a rate equal to the 30-day LIBOR plus 150 basis points (subject to
reduction to 135 basis points if certain debt service ratios are achieved).
Development costs incurred through completion are estimated $203 million (net
of tax increment financing).
Any time following the tenth anniversary of the project's opening,
either the Company, Simon or Kan Am can exercise certain a buy-sell provision
whereby the Company, or Simon, if it is the offeror, can require Kan Am to
transfer its entire interest or Kan Am, if it is the offeror, can require the
Company or Simon to acquire Kan Am's entire interest in the Partnership.
ARIZONA MILLS-TEMPE, ARIZONA
Arizona Mills opened on November 20, 1997 with approximately 1.2
million square feet of GLA (including space owned by certain anchor store
tenants) comprised of approximately 700,000 square feet of anchor space and
approximately 450,000 square feet of specialty store space. Arizona Mills
currently has 14 anchors, including: Burlington Coat Factory, Off 5th-Saks Fifth
Avenue, Oshman's, Harkins Cinema, J.C. Penney, Rainforest Cafe, Group USA,
Hi-Health and Sega Gameworks, and commitments have been obtained from an
additional two anchor store tenants for a total anchor store tenant square
footage of approximately 750,000 square feet. The project is located on a
115-acre site located 20 minutes from downtown Phoenix, at the intersection of
Interstate 10 and Superstition Freeway (Highway 60).
Arizona Mills is owned by a joint venture consisting of the
Operating Partnership (36.8%), Taubman (36.8%) and Simon (26.4%). The Company is
providing construction management, property management, marketing and leasing
services for the project. Major decisions such as a sale or refinancing of the
project and approval of annual budgets require approval of all joint venture
partners. All joint venture partners are obligated to contribute required equity
capital on a pro rata basis. In January 1997, the joint venture entered into a
$145 million construction loan agreement with United Bank of Switzerland. The
loan has a term of five years and bears interest at a rate equal to LIBOR plus
130 basis points (subject to reduction to 115 basis points under certain terms
and conditions. Development costs through completion are estimated at
approximately $191 million (net of tax increment financing). Costs incurred
through December 31, 1997 were approximately $178 million.
31
<PAGE> 32
Under the terms of the joint venture agreement, following the fifth
anniversary of the project's opening (or, if later, the date that 90% of the
project has been leased), if the joint venture partners are unable to agree upon
certain major decisions, any joint venture partner can cause the project to be
sold pursuant to certain required procedures. Upon such a sale, the proceeds
would be distributed to the joint venture partners on a pro rata basis.
THE COMMUNITY CENTERS
The 11 Community Centers contain a total of approximately 2.2
million square feet of GLA and are located in Florida, Georgia, Illinois,
Maryland, New Jersey, Ohio, Pennsylvania, South Carolina and Virginia. The
Community Centers are open-air shopping centers containing traditional shopping
center tenants, such as grocery, drug, video and greeting card stores, as well
as a strong concentration of national value retailers. Anchor tenants of the
Community Centers include Giant Food, Krogers, Marshalls, Safeway, TJ Maxx and
Walgreens.
32
<PAGE> 33
COMMUNITY CENTERS
<TABLE>
<CAPTION>
GROSS LEASABLE AREA
(SQ.FT.) PERCENT LEASED (2)
YEAR LAND ------- ------------------- TOTAL
COMPLETED/ AREA ANCHOR SPECIALTY TOTAL ANCHOR SPECIALTY PERCENT
PROPERTY EXPANDED (ACRES) STORES(1) STORES GLA STORES STORES LEASED
--------- --------- ------- ---------- ------- ---- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
West Falls
Church Outlet
Center 1982 7 37,841 49,983 87,824 100% 95% 97%
Butterfield
Plaza 1983 9 41,933 72,702 114,635 100% 75% 84%
Montgomery
Village 1983 11 36,405 80,986 117,391 100% 82% 88%
Western Hills
Plaza 1983 36 314,516 134,980 449,496 91% 94% 92%
Crosswinds
Center 1984 11 120,821 23,298 144,119 70% 75% 70%
Germantown
Commons 1986 20 46,756 130,341 177,097 100% 89% 92%
Fashion
Place 1987 13 73,258 74,692 147,950 100% 70% 85%
Gwinnett
Marketfair 1987 18 97,547 97,000 194,547 100% 91% 96%
Mount
Prospect Plaza 1987 34 172,595 125,914 298,509 100% 93% 97%
Coopers
Crossing 1994 20 158,556 14,953 173,509 100% 100% 100%
Liberty
Plaza 1994 36 276,773 38,106 314,879 47%(4) 60% 50%
--- --------- ------- ---------
Totals/
Weighted
Averages 215 1,377,001 842,955 2,219,956 85% 86% 85%
=== ========= ======= =========
</TABLE>
<TABLE>
<CAPTION>
1997
SALES PER SQ. FT.
ANNUALIZED NUMBER --------------------
BASE OF ANCHOR SPECIALTY
PROPERTY RENT(3) STORES ANCHOR STORE TENANTS STORES STORES
--------- -------- ------ -------------------- ------ ------
<S> <C> <C> <C> <C> <C>
West Falls
Church Outlet
Center $ 819,540 18 Safeway Marketplace $ 435 $ 147
Butterfield
Plaza 1,230,411 18 Arvey Paper & Office, Kids R Us 130 213
Montgomery
Village 1,320,068 24 Safeway Marketplace 427 197
Western Hills Krogers, Staples, McAlpin's, and Media
Plaza 2,689,399 44 Play 278 233
Crosswinds
Center 627,491 14 Luria's, Marshalls and Scotty's 126 260
Germantown
Commons 2,004,649 39 Giant Food 544 155
Fashion
Place 954,487 21 Staples, Superpetz and TJ Maxx 137 129
Gwinnett
Marketfair 2,004,482 31 A&P, Marshalls and TJ Maxx 231 182
Mount Dominicks, Marshalls, TJ Maxx and
Prospect Plaza 2,146,026 36 Walgreens 225 163
Coopers Marshalls, Pathmark and Service
Crossing 1,656,887 4 Merchandise 123 149
Liberty Dick's Sporting Goods and Service
Plaza 1,502,290 7 Merchandise 101(5) N/A(5)
----------- -----
Totals/
Weighted
Averages $16,955,730 256 247 183
=========== =====
</TABLE>
(1) Anchor stores includes all stores occupying more than 20,000 square feet.
(2) Percent leased is defined as all space leased and for which rent was being
paid as of December 31, 1997, excluding tenants with leases having a term
of less than one year.
(3) Annualized base rent is the base rent payable in December 1997 multiplied
by 12.
(4) The low total percent leased figures for Liberty Plaza are due to the
closing of Bradlees, a 145,838 square foot anchor store tenant, in October
1996 following its bankruptcy and one vacant 15,412 square foot specialty
shop. This space has been released to Wal-Mart with a commencement date of
March 18, 1998.
(5) Dick's Clothing is the only store required to report sales information at
Liberty Plaza.
33
<PAGE> 34
COMMUNITY CENTERS OPERATING TRENDS
The following table sets forth, for the last four years, certain information
regarding operating trends with respect to the Community Centers.
<TABLE>
<CAPTION>
MINIMUM RENT PLUS PERCENTAGE RENTS
AVERAGE TOTAL STORES ANCHOR STORES
PERCENT ------------- --------------
LEASED (1) TOTAL PER SQ. FT. TOTAL PER SQ. FT.
---------- ------------------ ------------------- ---------------- ---------------
COMMUNITY CENTERS
<C> <C> <C> <C> <C> <C>
1997 86.80% $17,853,568 $9.33 $8,223,866 $6.76
1996 92.50% 18,492,347 9.08 8,956,215 6.74
1995 90.00% 17,933,643 9.03 8,692,927 6.78
1994 91.30% 16,991,532 9.30 7,470,611 7.02
</TABLE>
<TABLE>
<CAPTION>
SPECIALTY STORES
-----------------
TOTAL PER SQ. FT.
----------- --------------
COMMUNITY CENTERS
<C> <C> <C>
1997 $9,629,702 $13.84
1996 9,536,132 13.49
1995 9,240,716 13.13
1994 9,520,921 12.49
</TABLE>
34
<PAGE> 35
CAPITAL EXPENDITURES
The following tables set forth certain information regarding
capital expenditures for the Mills (excluding Ontario Mills,
Grapevine Mills and Arizona Mills) and the Community Centers
combined, the existing Mills (excluding Ontario Mills, Grapevine
Mills and Arizona Mills) and the Community Centers for each of the
last three years.
EXISTING MILLS AND EXISTING COMMUNITY CENTERS COMBINED
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
---- ---- ----
RECURRING NON-TENANT CAPITAL EXPENDITURES (1)
<S> <C> <C> <C> <C> <C>
Costs $ 435,742 $ 328,974 $ 230,024
Per Square Foot (2) 0.05 0.04 0.03
RECURRING TENANT IMPROVEMENTS/LEASING COSTS (3)
Costs $ 5,143,206 $ 4,228,743 $ 2,043,279
Per Square Foot Improved (4) 11.90 12.71 5.52
Per Square Foot (2) 0.62 0.52 0.25
TOTAL RECURRING COSTS
Costs $ 5,578,948 $ 4,557,717 $ 2,273,303
Per Square Foot (2) 0.67 0.56 0.28
NON RECURRING TENANT IMPROVEMENTS/LEASING COSTS (3)
Costs $41,571,485 (8) $ 8,079,220 $ 1,903,624 (5)
Per Square Foot Improved (6) 73.69 44.93 17.10
Per Square Foot (2) 5.03 0.99 0.23
WORK IN PROCESS (7)
Costs $ 4,703,992 - -
Per Square Foot Improved (9) 14.59 - -
</TABLE>
<TABLE>
<CAPTION>
3 - Year
Average
-----------
RECURRING NON-TENANT CAPITAL EXPENDITURES (1)
<S> <C>
Costs $ 331,580
Per Square Foot (2) 0.04
RECURRING TENANT IMPROVEMENTS/LEASING COSTS (3)
Costs $ 3,805,076
Per Square Foot Improved (4) 10.04
Per Square Foot (2) 0.46
TOTAL RECURRING COSTS
Costs $ 4,136,656
Per Square Foot (2) 0.50
NON RECURRING TENANT IMPROVEMENTS/LEASING COSTS (3)
Costs $16,914,776
Per Square Foot Improved (6) 45.24
Per Square Foot (2) 2.08
WORK IN PROCESS (7)
Costs $ 1,567,997
Per Square Foot Improved (9) 4.86
</TABLE>
(1) Recurring non-tenant capital expenditures include expenditures that are
not tenant related nor recoverable from tenants.
(2) Includes annual costs divided by total GLA (excluding space owned by
certain anchor store tenants) of the Properties (excluding Ontario Mills,
Grapevine Mills and Arizona Mills).
(3) Tenant Improvements/Leasing costs include tenant specific costs including
tenant improvements, tenant allowances and capitalized internal leasing
costs.
(4) Calculated as Recurring Tenant Improvements/Leasing Costs divided by GLA
of all Recurring Store Openings (including spaces requiring no
expenditures).
(5) Sawgrass Phase II expansion costs have been excluded from this analysis.
(6) Calculated as Non-Recurring Tenant Improvements/Leasing Costs divided by
GLA of all Non-Recurring Store Openings.
(7) Work in process will be shown as Recurring or Non-Recurring in the year
that the work is completed.
(8) Includes expansion costs at Franklin Mills and Gurnee Mills and
non-recurring remerchandising costs. Excludes costs relating to the
Sawgrass Phase III expansion.
(9) Calculated as Work In Process divided by GLA of all space with work in
process.
35
<PAGE> 36
EXISTING MILLS (EXCLUDING ONTARIO, GRAPEVINE AND ARIZONA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
---- ---- ----
RECURRING NON-TENANT CAPITAL EXPENDITURES (1)
<S> <C> <C> <C>
Costs $ 388,003 $ 246,522 $ 191,613
Per Square Foot (2) 0.06 0.04 0.03
RECURRING TENANT IMPROVEMENTS/LEASING COSTS (3)
Costs $ 4,518,073 $ 3,549,312 $ 1,488,391
Per Square Foot Improved (4) 13.35 12.94 4.85
Per Square Foot (2) 0.75 0.60 0.25
TOTAL RECURRING COSTS
Costs $ 4,906,076 $ 3,795,834 $ 1,680,004
Per Square Foot (2) 0.81 0.64 0.28
NON RECURRING TENANT IMPROVEMENTS/LEASING COSTS (3)
Costs $ 41,010,815 (8) $ 7,746,906 $ 1,636,001 (5)
Per Square Foot Improved (6) 78.37 50.00 21.69
Per Square Foot (2) 6.77 1.30 0.27
WORK IN PROCESS (7)
Costs $ 3,989,739 - -
Per Square Foot Improved (9) 31.27 - -
</TABLE>
<TABLE>
<CAPTION>
3 - Year
Average
-------
RECURRING NON-TENANT CAPITAL EXPENDITURES (1)
<S> <C>
Costs $ 275,379
Per Square Foot (2) 0.04
RECURRING TENANT IMPROVEMENTS/LEASING COSTS (3)
Costs $3,185,259
Per Square Foot Improved (4) 10.38
Per Square Foot (2) 0.53
TOTAL RECURRING COSTS
Costs $3,460,638
Per Square Foot (2) 0.58
NON RECURRING TENANT IMPROVEMENTS/LEASING COSTS (3)
Costs $16,797,907
Per Square Foot Improved (6) 50.02
Per Square Foot (2) 2.78
WORK IN PROCESS (7)
Costs $1,329,913
Per Square Foot Improved (9) 10.42
</TABLE>
(1) Recurring non-tenant capital expenditures include expenditures that are
not tenant related nor recoverable from tenants.
(2) Includes annual costs divided by total GLA (excluding space owned by
certain anchor store tenants) of the Properties (excluding Ontario Mills,
Grapevine Mills and Arizona Mills).
(3) Tenant Improvements/Leasing costs include tenant specific costs including
tenant improvements, tenant allowances and capitalized internal leasing
costs.
(4) Calculated as Recurring Tenant Improvements/Leasing Costs divided by GLA
of all Recurring Store Openings (including Spaces requiring no
expenditures).
(5) Sawgrass Phase II expansion costs have been excluded from this analysis.
(6) Calculated as Non-Recurring Tenant Improvements/Leasing Costs divided by
GLA of all Non-Recurring Store Openings.
(7) Work in process will be shown as Recurring or Non-Recurring in the year
that the work is completed.
(8) Includes expansion costs at Franklin Mills and Gurnee Mills. Excludes cost
relating to Sawgrass Phase III expansion.
(9) Calculated as Work In Process divided by GLA of all space with work in
process.
36
<PAGE> 37
COMMUNITY CENTERS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
---- ---- ----
RECURRING NON-TENANT CAPITAL EXPENDITURES (1)
<S> <C> <C> <C>
Costs $ 47,739 $ 82,452 $ 38,411
Per Square Foot (2) 0.02 0.04 0.02
RECURRING TENANT IMPROVEMENTS/LEASING COSTS (3)
Costs $ 625,133 $ 679,431 $ 554,888
Per Square Foot Improved (4) 6.68 15.06 9.54
Per Square Foot (1) 0.28 0.31 0.25
TOTAL RECURRING COSTS
Costs $ 672,872 $ 761,883 $ 593,299
Per Square Foot (2) 0.31 0.35 0.27
NON RECURRING TENANT IMPROVEMENTS/LEASING COSTS (3)
Costs $ 560,670 $ 332,314 $ 267,622
Per Square Foot Improved (5) 13.73 13.35 7.46
Per Square Foot (2) 0.25 0.15 0.12
WORK IN PROCESS (6)
Costs $ 714,253 - -
Per Square Foot Improved (7) 3.66 - -
</TABLE>
<TABLE>
<CAPTION>
3 - Year
Average
-------
RECURRING NON-TENANT CAPITAL EXPENDITURES (1)
<S> <C>
Costs $ 56,201
Per Square Foot (2) 0.03
RECURRING TENANT IMPROVEMENTS/LEASING COSTS (3)
Costs $ 619,817
Per Square Foot Improved (4) 10.43
Per Square Foot (1) 0.28
TOTAL RECURRING COSTS
Costs $ 676,018
Per Square Foot (2) 0.31
NON RECURRING TENANT IMPROVEMENTS/LEASING COSTS (3)
Costs $ 386,869
Per Square Foot Improved (5) 11.51
Per Square Foot (2) 0.17
WORK IN PROCESS (6)
Costs $ 238,084
Per Square Foot Improved (7) 1.22
</TABLE>
(1) Recurring non-tenant capital expenditures include expenditures that are
not tenant related nor recoverable from tenants.
(2) Includes annual costs divided by total GLA (excluding space owned by
certain tenants) of the Community Centers
(3) Tenant Improvements/Leasing costs include tenant specific costs including
tenant improvements, tenant allowances and capitalized internal leasing
costs.
(4) Calculated as Recurring Tenant Improvements/Leasing Costs divided by GLA
of all Recurring Store Openings (including spaces requiring no
expenditures).
(5) Calculated as Non-Recurring Tenant Improvements/Leasing Costs divided by
GLA of all Non-Recurring Store Openings.
(6) Work in process will be shown as Recurring or Non-Recurring in the year
that the work is completed.
(7) Calculated as Work In Process divided by GLA of all space with work in
process.
37
<PAGE> 38
TENANTS
The following table sets forth certain information with respect to the Company's
ten largest tenants (as measured by 1997 base rent) at December 31, 1997:
<TABLE>
<CAPTION>
PERCENT OF NUMBER
1997 PERCENT OF OF
TENANT BASE RENT TOTAL LEASED GLA STORES
--------- ----------------- -------
<S> <C> <C> <C>
TJ Maxx Group (1)................................... 5.3% 6.7% 17
J.C. Penney(2)...................................... 2.9% 5.1% 6
Bed, Bath & Beyond.................................. 2.0% 2.2% 4
Spiegel Group (3)................................... 1.8% 2.3% 5
Burlington Coat Factory Group(4).................... 1.7% 4.9% 6
The Sports Authority................................ 1.7% 1.8% 4
Off 5th - Saks Fifth Avenue......................... 1.7% 2.1% 6
Levi's.............................................. 1.4% 0.7% 5
Waccamaw Pottery.................................... 1.3% 2.8% 3
Service Merchandise................................. 1.2% 1.6% 3
========= ================================== ================
Total.................................... 21.0% 30.2% 59
========= ================================== ================
</TABLE>
- ------------------------
(1) Includes TJ Maxx and Marshalls.
(2) Includes JC Penney and Rite Aid.
(3) Includes Spiegel Outlet, Spiegel and Eddie Bauer Outlet.
(4) Includes Burlington Coat Factory and Totally 4 Kids.
38
<PAGE> 39
Income Producing Property - Federal Income Tax Basis
The following table sets forth certain information regarding federal
income tax basis and depreciation of income producing property for the Mills
(excluding Ontario Mills, Grapevine Mills, & Arizona Mills) as of December 31,
1997.
<TABLE>
<CAPTION>
LAND LAND IMPROVEMENTS BUILDING
---- ----------------------- --------
FEDERAL
FEDERAL TAX DEPRECIATION DEPRECIATION
TAX BASIS BASIS METHOD LIFE(YRS) FEDERAL TAX BASIS METHOD LIFE (YRS)
---------- --------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Franklin Mills $ 28,313 $ 6,238 MACRS 15 $139,183 MACRS 39
Gurnee Mills 18,456 16,588 MACRS 15 162,149 MACRS 31.5,39
MACRS 15
Potomac Mills 15,908 27,117 ACRS 15,18 114,574 MACRS 31.5,39
ACRS 15,18
Sawgrass Mills 12,801 8,855 MACRS 15 162,221 MACRS 31.5,39
</TABLE>
<TABLE>
<CAPTION>
FURNITURE, FIXTURE AND EQUIPMENT
--------------------------------
FEDERAL DEPRECIATION
TAX BASIS METHOD LIFE (YRS)
-----------------------------------------
<S> <C> <C> <C>
Franklin Mills $2,302 MACRS 5,7
Gurnee Mills 3,881 MACRS 5,7
Potomac Mills 2,335 MACRS 5,7
Sawgrass Mills 4,648 MACRS 5,7
</TABLE>
39
<PAGE> 40
ITEM 3. LEGAL PROCEEDINGS
Kramer Litigation
On March 3, 1998, the Company received a payment of $2.0 million
from the A.J. 1989 Trust (the "A.J. Trust"), in payment of a judgment obtained
in an action originally filed on April 27, 1994, by the A.J. Trust, Mr. Richard
Kramer and a partnership affiliated with Mr. Kramer against the Operating
Partnership, Herbert S. Miller, and certain other parties. Concurrently with
the payment, the parties to such litigation dismissed with prejudice the
remaining claims in the suit.
40
<PAGE> 41
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
41
<PAGE> 42
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
Market Information
The Company's Common Stock trades on the New York Stock Exchange
("NYSE") under the symbol "MLS". The following table sets forth the high and low
closing sale prices per share of Common Stock for the periods indicated as
reported on the NYSE and the distributions per share paid by the Company with
respect to the periods noted.
<TABLE>
<CAPTION>
HIGH LOW DISTRIBUTIONS
---- --- -------------
1996:
<S> <C> <C> <C>
First Quarter.............................................................. $18 3/8 $16 5/8 $ .4725
Second Quarter............................................................. 18 3/8 17 1/4 .4725
Third Quarter.............................................................. 20 5/8 17 5/8 .4725
Fourth Quarter............................................................. 24 3/8 19 .4725
1997:
First Quarter.............................................................. $26 1/4 $23 1/2 $ .4725
Second Quarter............................................................. 27 11/16 24 3/4 .4725
Third Quarter.............................................................. 28 7/8 25 5/8 .4725
Fourth Quarter............................................................. 28 23 7/8 .4725
</TABLE>
The last reported closing sale price on the NYSE on March 11, 1998
was $25.75 per share. As of March 11, 1998, there were 22,912,242 shares of
Common Stock outstanding, held by 670 holders of record.
Distributions
The Company has made consecutive quarterly distributions since the
IPO. The indicated annual distribution rate was $1.89 per share of Common Stock
based on the fourth quarter 1997 distribution. A portion of the Company's
distribution may represent a non-taxable return of capital and/or a capital gain
dividend. Approximately 65% of 1997 distributions of $1.89 per share of Common
Stock were a non-taxable return of capital. There were no capital gain dividends
in 1997. In 1998, the Company increased its annual distribution rate to $1.95
per share of common stock commencing with its April 1998 dividend. The Company's
ability to make distributions depends on a number of factors, including its net
cash provided by operating activities, its financial condition, capital
commitments, debt repayment schedules and such other factors, as the Board of
Directors deems relevant.
Holders of Common Stock are entitled to receive distributions when,
as and if declared by the Board of Directors out of any funds legally available
for that purpose. The Company, as a REIT, is required to distribute annually to
its shareholders at least 95% of its "real estate investment trust taxable
income," which, as defined by the relevant tax statutes and regulations, is
generally equivalent to net taxable ordinary income.
42
<PAGE> 43
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data
for the Company, the Operating Partnership and their subsidiaries (including the
Third Party Services Corporation) for the periods after the IPO and combined
historical financial data of the entities which owned the Properties and
conducted the operations now performed by the Operating Partnership and its
subsidiaries (the "Mills Entities") for the periods prior to the IPO. The
historical financial data should be read in conjunction with the financial
statements and notes thereto included herein and the discussion set forth in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
43
<PAGE> 44
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THE MILLS CORPORATION
--------------------------------------------------------------------------
FOR THE
PERIOD
APRIL 22 TO
YEAR ENDED DECEMBER 31, DECEMBER 31,
1997 1996 1995 1994
----- ----- ----- -----
STATEMENT OF
OPERATIONS DATA:
REVENUES:
<S> <C> <C> <C> <C>
Minimum rent $ 96,370 $ 94,678 $ 89,839 $ 62,174
Percentage rent 4,413 4,216 4,460 2,575
Recoveries from tenants 47,350 45,761 44,267 28,283
Other revenues 8,150 7,616 6,537 3,966
Fee income 7,132 3,639 3,975 2,118
Interest income 2,561 2,850 2,431 1,556
------------- --------------- -------------- --------------
165,976 158,760 151,509 100,672
EXPENSES:
Recoverable from tenants 42,025 41,308 39,299 26,002
Other operating 5,720 6,170 5,231 3,069
General and administrative 9,506 8,725 7,808 5,272
Interest expense 41,006 45,885 43,947 28,349
Depreciation and amortization 35,487 39,020 40,815 28,805
------------- --------------- -------------- --------------
133,744 141,108 137,100 91,497
Other income (expense) 567 1,073 859 (1,881)
Equity in earnings of
unconsolidated joint ventures 3,975 2,661 -- --
------------- --------------- -------------- --------------
Income (loss) before extraordinary items and
minority interest 36,774 21,386 15,268 7,294
Extraordinary gain (loss) on debt
extinguishment (8,060) (5,301) (419) (5,414)
------------- --------------- -------------- --------------
Income before minority interest 28,714 16,085 14,849 1,880
Minority interest (12,303) (7,904) (7,231) $ (915)
------------- --------------- -------------- --------------
Net income (loss) $ 16,411 $ 8,181 $ 7,618 $ 965
============= =============== ============== ==============
EARNINGS PER COMMON SHARE - BASIC:
Income before extraordinary items 0.98 $ 0.64 $ 0.46 $ 0.22
Extraordinary loss on debt
extinguishment (0.22) (0.16) (0.01) (0.16)
------------- --------------- -------------- --------------
Net income $ 0.76 $ 0.48 $ 0.45 $ 0.06
============= =============== ============== ==============
EARNINGS PER SHARE -DILUTED:
Income before extraordinary items $ 0.97 $ 0.64 $ 0.46 $ 0.22
Extraordinary loss on debt extinguishment (0.22) (0.16) (0.01) (0.16)
------------- --------------- -------------- --------------
Net income $ 0.75 $ 0.48 $ 0.45 $ 0.06
============= =============== ============== ==============
Dividends declared per common share $ 1.89 $ 1.89 $ 1.89 $ 1.31
============= =============== ============== ==============
Tax treatment of dividends (unaudited):
Ordinary income $ .66 $ 0.66 $ 0.60 $ 0.54
============= =============== ============== ==============
Capital gains $ - $ - $ 0.06 $ -
============= =============== ============== ==============
Return of capital $ 1.23 $ 1.23 $ 1.23 $ 0.77
============= =============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
THE MILLS ENTITIES
-------------------------------------
FOR THE
PERIOD
JANUARY 1 YEAR ENDED
TO APRIL 21, DECEMBER 31,
1994 1993
----- ----
STATEMENT OF
OPERATIONS DATA:
REVENUES:
<S> <C> <C>
Minimum rent $ 25,970 $ 78,134
Percentage rent 1,366 5,143
Recoveries from tenants 12,611 37,952
Other revenues 976 2,863
Fee income 914 3,103
Interest income 402 1,361
------------- -------------
42,239 128,556
EXPENSES:
Recoverable from tenants 11,578 35,184
Other operating 3,629 4,460
General and administrative 3,031 6,125
Interest expense 17,992 60,245
Depreciation and amortization 10,686 34,670
------------- -------------
46,916 140,684
Other income (expense) 478 565
Equity in earnings of
unconsolidated joint ventures -- --
------------ ------------
Income (loss) before extraordinary items and
minority interest (4,199) (11,563)
Extraordinary gain (loss) on debt
extinguishment 46 3,225
------------ ------------
Income before minority interest (4,153) (8,338)
Minority interest -- --
-- --
Net income (loss) $ (4,153) $ (8,338)
============ ============
EARNINGS PER COMMON SHARE - BASIC:
Income before extraordinary items
Extraordinary loss on debt
extinguishment
Net income
EARNINGS PER SHARE - DILUTED:
Income before extraordinary items
Extraordinary loss on debt extinguishment
Net income
Dividends declared per common share
Tax treatment of dividends (unaudited):
Ordinary income
Capital gains
Return of capital
</TABLE>
44
<PAGE> 45
<TABLE>
<CAPTION>
THE MILLS CORPORATION
------------------------------------------------------------------------
FOR THE
PERIOD
APRIL 22 TO
YEAR ENDED DECEMBER 31, DECEMBER 31,
1997 1996 1995 1994
----- ----- ----- -----
OTHER DATA:
<S> <C> <C> <C> <C>
Cash flow provided by (used in):
Operating activities $ 80,273 $ 63,262 $ 61,823 $ 34,095
Investing activities (74,837) (67,468) (58,474) (146,613)
Financing activities 13,500 ( 4,017) (8,856) 116,301
Funds From Operations (2) 74,055 56,250 50,030
Distributions paid per share 1.89 1.89 1.89 1.31
Weighted average shares outstanding
- Diluted 21,931 16,998 16,906 16,906
Weighted average shares and Units
Outstanding - Diluted 38,063 33,329 32,964 32,964
PORTFOLIO DATA:
Total owned GLA at end of period (3) 11,719 9,233 8,172 8,116
Number of Properties at end of period 18 16 15 15
</TABLE>
<TABLE>
<CAPTION>
THE MILLS ENTITIES
---------------------------------------
FOR THE
PERIOD
JANUARY 1 YEAR ENDED
TO APRIL 21, DECEMBER 31,
1994 1993
----- ----
OTHER DATA:
<S> <C> <C>
Cash flow provided by (used in):
Operating activities $ 10,975 $ 16,347
Investing activities (3,635) (43,299)
Financing activities (2,622) 31,712
Funds From Operations (2) N/A N/A
Distributions paid per share N/A N/A
Weighted average shares outstanding
- Diluted N/A N/A
Weighted average shares and Units
Outstanding - Diluted N/A N/A
PORTFOLIO DATA:
Total owned GLA at end of period (3) N/A 7,736
Number of Properties at end of period N/A 14
</TABLE>
<TABLE>
<CAPTION>
THE MILLS CORPORATION
---------------------
YEAR ENDED DECEMBER 31,
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
BALANCE SHEET DATA:
Investment in real estate assets (before
accumulated depreciation) $ 1,018,067 $ 947,621 $ 894,265
Total assets 926,621 862,624 853,057
Total mortgages, notes and loans
payable 703,713 730,113 676,435
Minority interest 68,955 43,975 66,839
Total stockholders' equity/owners'
deficit $ 99,024 $ 45,525 $ 70,408
</TABLE>
<TABLE>
<CAPTION>
THE
MILLS ENTITIES
--------------
YEAR ENDED DECEMBER 31,
1994 1993
----- ----
<S> <C> <C>
BALANCE SHEET DATA:
Investment in real estate assets (before
accumulated depreciation) $ 855,049 $ 760,757
Total assets 853,889 749,472
Total mortgages, notes and loans
payable 631,976 780,523
Minority interest 90,466 N/A
Total stockholders' equity/owners'
deficit $ 95,295 $ (74,540)
</TABLE>
================================================================================
(1) Per share data is reflected only for the Company. Per share data is not
relevant for the historical combined financial statements of the Mills
Entities since such financial statements are a combined presentation of
partnerships and corporations. Historical operating results, including net
income, may not be comparable to future operating results because of the
historically greater leverage of the Mills Entities.
(2) The Company generally considers Funds From Operations ("FFO") a widely
used and appropriate measure of performance for an equity REIT which
provides a relevant basis for comparison among REITs. FFO as defined by
NAREIT means income (loss) before minority interest (determined in
accordance with generally accepted accounting principles, referred to
herein as "GAAP"), excluding gains (losses) from debt restructuring and
sales of property, plus real estate related depreciation and amortization
and after adjustments for unconsolidated partnerships and joint ventures.
FFO is presented to assist investors in analyzing the performance of the
Company. The Company's method of calculating FFO may be different from
methods used by other REITs and, accordingly, may not be comparable to
such other REITs. FFO (i) does not represent cash flows from operations as
defined by GAAP, (ii) is not indicative of cash available to fund all cash
flow needs and liquidity, including its ability to make distributions and
(iii) should not be considered as an alternative to net income (as
determined in accordance with GAAP) for purposes of evaluating the
Company's operating performance. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations-Funds From Operations."
(3) Includes Grapevine Mills and Arizona Mills at 1.1 million square feet and
1.2 million square feet, respectively, which upon completion of space for
four anchor store tenants at Grapevine and two anchor store tenants at
Arizona, will contain approximately 1.5 million and 1.2 million square
feet of GLA, respectively.
45
<PAGE> 46
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of the consolidated financial
condition and results of operations should be read in conjunction with the
Consolidated Financial Statements and Notes thereto for the years ended December
31, 1997, December 31, 1996 and December 31, 1995.
Comparison of Year Ended December 31, 1997 to Year Ended December 31, 1996
Income before minority interest for the year ended December 31,
1997, increased by approximately $12.6 million (78.1%) to $28.7 million as
compared to the year ended December 31, 1996. The net increase was the result of
an increase in revenues of approximately $7.2 million (4.5%), a decrease in
expenses of approximately $7.4 million (5.2%), a decrease in other income of
$0.5 million, an increase in equity in earnings of unconsolidated joint ventures
of $1.3 million, and an increase in the loss on debt extinguishment of $2.8
million.
Revenues:
Minimum rent for the year ended December 31, 1997, increased
approximately $1.7 million (1.8%) compared to the year ended December 31, 1996.
The increase 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 year ended December 31, 1997,
increased $1.6 million (3.5%) compared to the year ended December 31, 1996. The
increase was due to the increased billing rates relating to the increase in
recoverable expenses (see below) and increased billings from tenants converting
from gross deals to net during 1997.
Other revenues for the year ended December 31, 1997, increased
approximately $0.5 million (7.0%) compared to the year ended December 31, 1996.
The increase was primarily due to greater income from the Company's pushcart and
kiosk program, and increases in income from tenants who occupy spaces on a
temporary basis.
Fee income for the year ended December 31, 1997, increased $3.5
million (96.0%) compared to the year ended December 31, 1996 as a result of
additional development and management fees relating to the joint ventures.
During the year ended December 31, 1996, the Company earned development-related
fees from one project under development (Ontario Mills) and management fees for
the 1.5 months that the project was open during 1996. During the year ended
December 31, 1997, the Company earned development related fees of $4.9 million
from three projects (Ontario Mills, Grapevine Mills and City Mills) and
management fees of $0.9 million from three projects (Ontario Mills, Grapevine
Mills and Arizona Mills).
Expenses:
Recoverable from tenant expense for the year ended December 31, 1997
increased $0.7 million (1.7%) compared with the year ended December 31, 1996.
The increase is due to an increase in operating expenses due to inflation.
General and administrative expenses for the year ended December 31,
1997, increased by $0.8 million (9.0%) compared to the year ended December 31,
1996. The increase is due to additional personnel required for expanding
operations (i.e. predevelopment and operating) and legal and due diligence costs
associated with international development activity.
Interest expense decreased by approximately $4.9 million (10.6%) for
the year ended December 31, 1997, compared to the year ended December 31, 1996.
This decrease was primarily due to lower interest rates resulting from various
refinancing and lower average debt balances resulting from the paydown of debt
with the proceeds of the March 1997 equity offering.
46
<PAGE> 47
Depreciation and amortization decreased $3.5 million (9.1%) for the
year ended December 31, 1997, compared to the year ended December 31, 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 year ended December 31, 1997, decreased $0.5
million (47.2%) compared with the year ended December 31, 1996. The decrease was
due to a decrease in gain on land sales.
Equity in earnings of unconsolidated entities increased $1.3 million
(49.4%) for the year ended December 31, 1997, compared with the year ended
December 31, 1996. The increase is primarily due to Ontario Mills being in
operation for all of 1997 versus two months during 1996 and the openings of
Grapevine and Arizona Mills in the fourth quarter of 1997.
The extraordinary loss on debt extinguishment for the year ended
December 31, 1997 increased $2.8 million compared to the year ended December 31,
1996. In 1997, $8.1 million of unamortized deferred financing costs were written
off due to the Franklin Mills refinancing versus a $5.3 million write-off of
deferred financing costs for Potomac Mills and Gurnee Mills refinancing which
occurred in 1996.
Comparison of Year Ended December 31, 1996 to Year Ended December 31, 1995
Income before minority interest for the year ended December 31,
1996, increased by approximately $1.2 million (8.3%) to $16.1 million as
compared to the year ended December 31, 1995. The increase was the result of an
increase in revenues of $7.3 million (4.8%), offset by an increase in expenses
of $4.0 million (2.9%), an increase in equity of earnings of unconsolidated
joint ventures of $2.7 million, and an increase in the extraordinary loss on
debt extinguishment of $4.9 million.
Revenues.
Minimum rent for the year ended December 31, 1996, increased
approximately $4.8 million (5.4%) compared to the year ended December 31, 1995.
The increase was primarily due to the expansions of Sawgrass Mills and Liberty
Plaza and higher lease renewal rates across the Properties.
Percentage rents decreased $0.2 million (5.5%) compared to the year
ended December 31, 1995, due to fixed lease escalations in 1996 shifting
revenues from percentage rents to minimum rent and to decreased sales for
certain tenants which pay percentage rents, although aggregate tenant sales have
increased over 1995.
Recoveries from tenants for the year ended December 31, 1996,
increased approximately $1.5 million (3.4%) compared to the year ended December
31, 1995. The increase was due to the expansion of Sawgrass Mills and increases
in the recoverable expenses across the remaining Mills mainly for real estate
taxes .
Other revenue for the year ended December 31, 1996, increased $1.1
million (16.5%) compared to the year ended December 31, 1995. The increase was
primarily due to increased revenues at the Company's pushcart program and in
income from tenants who occupy space on a temporary basis.
Fee income for the year ended December 31, 1996, decreased $0.3
million (8.5%) compared to the year ended December 31, 1995. The decrease was
due primarily to lower fees earned on the sale of third party peripheral land.
Interest income increased by approximately $0.4 million (17.2%) for
the year ended December 31, 1996, compared to the year ended December 31, 1995.
This increase was primarily due to $0.5 million of interest earned on a note
receivable from an unconsolidated joint venture.
47
<PAGE> 48
Expenses:
Recoverable from tenants for the year ended December 31, 1996,
increased approximately $2.0 million (5.1%) compared to the year ended December
31, 1995. The increase was due to the expansion of Sawgrass Mills and increases
across the remaining Mills primarily for real estate taxes and snow removal.
Other operating expenses for the year ended December 31, 1996,
increased approximately $0.9 million (18.0%) compared to the year ended December
31, 1995. This increase was primarily due to an increase in contributions to
promotional programs of $0.8 million, an increase in bad debt of $0.3 million at
certain properties, an increase of $0.3 million for the expansion of the
Company's pushcart program, and an increase of $0.1 million for other taxes at
Franklin Mills. These increases were offset by a decrease in non-recurring legal
fees of $0.7 million at Sawgrass Mills.
General and administrative expenses increased by $0.9 million
(11.7%) for the year ended December 31, 1996, compared to the year ended
December 31, 1995. The increase was due to a $0.5 million legal settlement with
a former officer of the Company and the Company's hiring additional employees in
connection with its projects under development.
Interest expense increased by approximately $1.9 million (4.4%) for
the year ended December 31, 1996, compared to the year ended December 31, 1995.
This increase was primarily due to additional debt associated with the Phase II
expansion of Sawgrass Mills which opened in November 1995, and interest expense
associated with the opening of Ontario Mills in November 1996 that was
capitalized prior to opening.
Depreciation and amortization decreased $1.8 million (4.4%) for the
year ended December 31, 1996, compared to the year ended December 31, 1995. The
decrease was due to a $1.4 million decrease in amortization of loan costs as a
result of refinancing of certain mortgage indebtedness secured by the Community
Centers and a $2.5 million decrease in depreciation relating to assets reaching
the end of their depreciable lives. The decrease is partially offset by a $1.3
million increase in depreciation related to the Sawgrass expansion and a $0.9
million acceleration of amortization of leasing costs at Liberty Plaza in 1996.
Equity in earnings of unconsolidated joint ventures increased to
$2.7 million in 1996 as the Company recognized its equity in the earnings in the
Ontario Mills and Ontario Mills Residual joint ventures, which began operations
in 1996.
The extraordinary loss on debt extinguishment for the year ended
December 31, 1996, increased $4.9 million compared to the year ended December
31, 1995. The 1996 loss was due principally to the write off of unamortized
deferred financing costs as a result of the refinancing of certain mortgage
indebtedness secured by the Community Centers in January 1996 and Gurnee Mills
and Potomac Mills in December 1996.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1997, the Company's balance of cash and cash
equivalents was $25.3 million, not including its proportionate share of cash
held in unconsolidated entities. In addition to its cash reserves, the Company
had $19.0 million available under its Line of Credit, and $15.0 million
available under its Sawgrass D Tranche Certificate.
<TABLE>
<CAPTION>
AMOUNT
OUTSTANDING
NATURE OF FACILITY MATURITY INTEREST RATE TERMS TOTAL FACILITY AT 12/31/97
- ------------------ -------- ------------- ----- -------------- -----------
<S> <C> <C> <C> <C> <C>
Line of Credit................................. 10/31/98 LIBOR + 3.00% Interest Only $ 60,000 $ 41,000
Sawgrass D Tranche Certificate................. 01/18/01 LIBOR + 4.30% Interest Only 15,000 -
-------------- ----------
$ 75,000 $ 41,000
-------------- ----------
</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 December 31, 1997.
48
<PAGE> 49
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
1995 to 5.2 years at December 31, 1997, while maintaining investment-grade
interest rates (7.2% weighted average interest rate at December 31, 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. Presently, the
Company is negotiating with a separate lender to refinance this line with a
larger facility of up to $100.0 million with a lower interest rate.
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 March 1997 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 an additional $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 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 of $121.8 million were
contributed to the Operating Partnership and were used to repay 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
was used to fund development costs.
The Company had consolidated debt of approximately $703.7 million at
December 31, 1997 of which $616.0 million was fixed-rate debt and $87.7 million
was variable-rate debt. Scheduled principal repayments of consolidated
indebtedness through 2000 are $101.0 million with $602.7 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 December 31, 1997 was $146.9 million (net of tax increment
financing), of which it had guaranteed $100.9 million ($56.0 million of this
$100.9 million is also guaranteed jointly and severally by other joint venture
partners).
The Company's ratio of debt-to-total market capitalization was 42.5%
and 47.9% at December 31, 1997 and December 31, 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 47.2% and 49.3%, respectively.
Development, Remerchandising and Expansion. The Company is involved
in the following development, remerchandising and expansion efforts:
Grapevine Mills opened on October 30, 1997, and Arizona Mills opened
November 20, 1997. Unfunded construction loans and loan commitments, aggregating
approximately $42.9 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.
At least six Mills projects are planned to be completed in the next
several years, including City Mills, Katy Mills, Concord Mills, Opry Mills,
Vaughan Mills and Meadowlands Mills. City Mills is scheduled to open in the
fourth quarter of 1998. Kan Am has committed to fund all of the equity required
for this project ($60.0 million) by the second quarter of 1998. The partnership
has also obtained a $136.0 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
49
<PAGE> 50
equity contributions from joint venture partners and the Operating Partnership.
The Company anticipates that the Operating Partnership's required future equity
requirements for Concord Mills and Katy Mills may total as much as $60 million
in the aggregate of which $23.4 million had been funded at December 31, 1997.
During 1997, the Company announced plans to develop Opry Mills, an
entertainment/retail center located adjacent to the Grand Ole Opry and the
Opryland Hotel Convention Center. The project will be developed through a joint
venture with Gaylord Entertainment. In February 1998, the Company announced that
it had secured a site in Toronto, Canada to develop 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 Meadowlands Mills in 1999. Kan Am has committed to
contribute two-thirds of the equity for a one-third ownership interest in this
project. At December 31, 1997, Kan Am had contributed $13.0 million of equity to
this project. The Company anticipates that the Operating Partnership's required
future equity requirements for these three projects may exceed $100.0 million
of which approximately $13.0 million had been funded at December 31, 1997.
The Company is also conducting due diligence on several other proposed sites,
including evaluating sites in North Aurora, Illinois (Chicago), Atlanta,
Georgia, South Weymouth, Massachusetts. The Company has also formed alliances
with Cambridge to study multiple sites in Canada and with Tishman-Speyer for
other international sites.
The Company is planning expansions of Potomac Mills and Sawgrass
Mills and is in the process of completing its remerchandising and expansion of
Franklin Mills and Gurnee Mills. At December 31, 1997, the Company had spent
approximately $42.0 million on these projects and anticipates spending
approximately $85.0 million 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 December 31, 1997, the
operating partnership's remaining equity funding requirements associated with
the remerchandising programs are estimated at approximately $30.0 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, 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 a sale 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 for stock (or other forms of ownership)
with the intent of liquidating the stock 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.
Distributions. The Company has paid and intends to continue to pay
regular quarterly distributions to its stockholders. Distributions are payable
at the discretion of the Board of Directors and depend on a number of factors,
including net cash provided by operating activities, its financial condition,
capital commitments, debt repayment schedules and such other factors as the
Board of Directors deems relevant.
CASH FLOWS
Comparison of Year Ended December 31, 1997 to Year Ended December
31, 1996. Net cash provided by operating activities increased $17.0 million, or
26.9% to $80.3 million for the year ended December 31, 1997, as compared to
$63.3 million for the year ended December 31, 1996 primarily due to increased
rental revenues and decreased interest expense. Net cash used in investing
activities increased $7.4 million, or 10.9% to $74.8 million for the year ended
December 31, 1997 as compared to $67.5 million for the year ended December 31,
1996, primarily as a result of capital invested by the Company for real estate
and development assets. Net cash provided by financing activities increased
$17.5 million, or 436.1% to $13.5 million for the year ended December 31, 1997
as compared to cash used in financing activities in the amount of $4.0 million
50
<PAGE> 51
for the year ended December 31, 1996, primarily due to proceeds generated from
the 1997 equity offering offset by a reduction in the amount of debt
refinancings between 1997 and 1996.
Comparison of Year Ended December 31, 1996 to Year Ended December
31, 1995. Net cash provided by operating activities increased $1.4 million, or
2.3%, to $63.2 million for the year ended December 31, 1996 as compared to $61.8
million for the year ended December 31, 1995. Net cash used in investing
activities increased $9.0 million, or 15.4%, to $67.5 million for the year ended
December 31, 1996, as compared to $58.5 million for the year ended December 31,
1995, primarily as a result of decreased expenditures for real estate and
development assets. Net cash used in financing activities decreased $4.8
million, or 54.6%, to $4.0 million for the year ended December 31, 1996, as
compared to $8.8 million for the year ended December 31, 1995, primarily as a
result of a decrease in net borrowings.
FUNDS FROM OPERATIONS
The Company generally considers Funds From Operations ("FFO") a
widely used and appropriate measure of performance for an equity REIT that
provides a relevant basis for comparison among REITs. FFO as defined by NAREIT
means income (loss) before minority interest (determined in accordance with
GAAP), excluding gains (losses) from debt restructuring and sales of property,
plus real estate related depreciation and amortization and after adjustments for
unconsolidated partnerships and joint ventures. FFO is presented to assist
investors in analyzing the performance of the Company. The Company's method of
calculating FFO may be different from methods used by other REITs and,
accordingly, may not be comparable to such other REITs. FFO (i) does not
represent cash flows from operations as defined by GAAP, (ii) is not indicative
of cash available to fund all cash flow needs and liquidity, including its
ability to make distributions and (iii) should not be considered as an
alternative to net income (determined in accordance with GAAP) for purposes of
evaluating the Company's operating performance.
FFO for the year ended December 31, 1997, increased to $74.1 million
compared to $56.3 million for the comparable period in 1996. FFO amounts were
calculated in accordance with NAREIT's definition of FFO as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997 1996
---- ----
(DOLLARS IN THOUSANDS)
Funds From Operations Calculation:
<S> <C> <C>
Income before extraordinary item and minority interest $ 36,774 $ 21,386
Adjustments:
Add: Depreciation and amortization of real estate assets 32,361 33,501
Add: Adjustment for real estate depreciation and amortization of unconsolidated affiliates 4,523 561
Add: Loss on sale of furniture, fixtures and equipment - 802
Add: Extraordinary loss on debt extinguishment of unconsolidated joint ventures 397 -
------------ ------------
Funds From Operations........................................................................ $ 74,055 $ 56,250
============ ============
</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 is not paid until the
fourth quarter. Furthermore, most new lease-up occurs towards the later part of
the year in anticipation of the holiday season and most
51
<PAGE> 52
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 accruing minimum and
percentage rents on a straight-line basis during the year in accordance with
GAAP largely mitigates this impact.
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.
IMPLICATIONS OF YEAR 2000
The year 2000 issue is the result of computer programs being written
using two digits rather 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 miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities
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 risk 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.
52
<PAGE> 53
SUMMARY OF OUTSTANDING INDEBTEDNESS
As of December 31, 1997, the Company had outstanding indebtedness in
an aggregate amount of approximately $703.7 million (excluding its pro rata
share of unconsolidated joint venture debt) as set forth below:
<TABLE>
<CAPTION>
Earliest date
Principal Interest Maturity Annual Debt at which debt
Mortgage/Loan: Balance Rate Type Annual Interest Rate Date Service can be repaid
- ------------- ------- --------- -------------------- ---- ------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Potomac Mills/ Gurnee
Mills:
Tranche A........... $209,117 Fixed 6.905% 12/17/26 (1) $14,438 (2)
Tranche B........... 27,000 Fixed 7.021% 12/17/26 (1) 1,896 (2)
Tranche C........... 15,000 Fixed 7.235% 12/17/26 (1) 1,085 (2)
Tranche D........... 30,000 Fixed 7.701% 12/17/26 (1) 2,310 (2)
Franklin Mills/
Liberty Plaza:
Tranche A 109,495 Fixed 7.882% 6/01/27 (3) 8,630 (4)
Mortgage Loan 20,000 Fixed 7.440% 6/01/27 (3) 1,488 (4)
Sawgrass Mills:
Tranche A........... 115,000 Fixed 6.450% 1/18/01 7,418 (5)
10,000 Variable with
Tranche B........... cap 85 bp over LIBOR (6) 1/18/01 657 (5),(7)
20,000 Variable with
Tranche C........... cap 230 bp over LIBOR(6) 1/18/01 1,604 (5),(7)
Sawgrass Mills-
Phase II................ 12,000 Variable 235 bp over LIBOR 7/31/98 968 (7),(8)
Western Hills........... 14,949 Fixed 7.675% 1/01/99 1,140 (9)
9 Community Centers..... 71,943 Fixed 7.160% 1/31/01 5,151 (10)
Operating P'ship 1,109 Fixed 8.250% 10/31/00 92 (12)
Operating P'ship 2,400 Fixed 6.150% 7/15/98 148 (12)
Line of Credit.......... 41,000 Variable 300 bp over LIBOR 10/31/98 3,575 (8), (11)
Sawgrass Residual 4,700 Variable 165 bp over LIBOR 1/18/01 347 (13)
---------- --------
Total........... $ 703,713 $50,947
========= =======
</TABLE>
(1) This indebtedness is a 30-year amortizing loan with an anticipated balloon
payment on December 18, 2003. In the event the mortgage loan is not repaid
by the anticipated balloon repayment date, the annual interest rate for
each tranche will be increased by 2% per annum in excess of the stated
interest rate. In addition, excess cash flow available after payment of
the increased interest rate and scheduled amortization will be used to
reduce the principal balance of the loan. Principal repayments are based
on the scheduled amortization, assuming a 7% mortgage interest rate, over
a 30 year period, with the monthly amortization payments being applied
sequentially, beginning with Tranche A to reduce the principal balance.
(2) Optional payments of principal are not permitted prior to December 17,
1999. After such date, prepayments, in whole or in part, are permitted
upon at least 15 days notice. In addition, the Company is required to pay
a prepayment penalty equal to the greater of (i) 1% of the remaining
principal balance or (ii) a yield preservation payment. Generally, yield
preservation payments are intended to compensate the lender for the total
amount of interest it would have earned on the indebtedness but for the
repayment, less the amount of interest that the lender could earn if it
invested the repayment amount in United States Treasury obligations or
other similar securities from the date of repayment through the maturity
date of the indebtedness.
(3) This indebtedness is a 30-year amortizing loan with an anticipated balloon
repayment on May 5, 2007. In the event the mortgage loan is not repaid by
the anticipated balloon repayment date, the annual interest rate will be
increased by 5% per annum in excess of the stated interest rate. In
addition, excess cash flow available after payment of the increased
interest rate and scheduled amortization will be used to reduce the
principal balance of the loan. The loan balance can be increased to
$165,000 through August 5, 1998, subject to certain financial requirements
relating to increases over $130,000. The loan amount was increased to
$130,000 on August 8, 1997 from $110,000.
53
<PAGE> 54
(4) This indebtedness may be prepaid, without a prepayment penalty, beginning
180 days prior to May 5, 2007. Prior to that date, there is no right to
prepay the indebtedness, except that $12.5 million of the principal
balance, which has been allocated to the Liberty Plaza shopping center,
may be defeased through the establishment of defeasance collateral (which
may include government or agency securities that have the full faith and
credit of the United Stated government).
(5) Optional prepayments of principal on Tranche A of this indebtedness are
not permitted prior to June 20, 2000 other than in connection with certain
casualty or condemnation events occurring with respect to Sawgrass Mills.
On and after such date, Tranche A may be prepaid in full, but not in part,
without any prepayment penalty. Optional prepayments of Tranches B and C
of the indebtedness may be made, in whole or in part, at any time without
any prepayment penalty, but only if payments of interest are current with
respect to each outstanding Tranche and an event of default is not then
continuing.
(6) The loan agreement provides for a cap on LIBOR at 14% for the life of the
loan. LIBOR is capped at 14% for Tranches B and C.
(7) Calculated using 30-day LIBOR at 5.72%, which was the rate at December 31,
1997.
(8) Prepayable, in whole or in part, at any time without prepayment penalty.
(9) This indebtedness may be prepaid, in whole or in part, upon 30 days notice
to the lender and the payment of a prepayment penalty. The penalty
percentage due on prepayment at any time during the first six months after
December 1, 1996 is 3% of the outstanding principal amount. Thereafter,
the penalty decreases by 0.5% per six month period to a minimum of 1.5%.
During the last three months of its term, the indebtedness may be prepaid
without penalty.
(10) Prepayable, in whole or in part, at any time, upon 60 days prior notice to
the lender. Only in the case of a partial prepayment is the Company
required to pay a prepayment penalty, which would equal the greater of (i)
1% of the principal balance or (ii), a yield preservation payment.
(11) The total commitment under the Line of Credit is $60,000. Funds are
available subject to certain performance measures and restrictive
covenants.
(12) Primarily corporate debt with maturities under one year. Prepayable, in
whole or in part, at any time without prepayment penalty.
(13) Prepayable, in whole or in part, at any time, upon 3 days prior notice to
lender without prepayment penalty.
54
<PAGE> 55
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the index to Financial Statements and Schedule
in Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
55
<PAGE> 56
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company and their
positions and offices are set forth in the following table:
<TABLE>
<CAPTION>
NAME AGE POSITIONS AND OFFICES HELD
---- --- --------------------------
<S> <C>
Laurence C. Siegel.......................................... 45 Chairman of the Board, Chief Executive Officer and Director
Peter B. McMillan........................................... 50 President, Chief Operating Officer and Director
Dietrich von Boetticher..................................... 56 Vice Chairman and Director
John M. Ingram.............................................. 62 Vice Chairman and Director
Charles R. Black, Jr........................................ 50 Director
James C. Braithwaite........................................ 57 Director
The Hon. Joseph B. Gildenhorn............................... 69 Director
Peter A. Gordon............................................. 55 Director
Harry H. Nick............................................... 56 Director
Franz von Perfall........................................... 56 Director
Robert P. Pincus............................................ 51 Director
James F. Dausch............................................. 54 Director and Executive Vice President - Development
Judith S. Berson............................................ 54 Executive Vice President - Leasing
Kent S. Digby............................................... 45 Executive Vice President - Management and Marketing
Kenneth R. Parent........................................... 37 Executive Vice President and Chief Financial Officer
Thomas E. Frost............................................. 45 Senior Vice President, General Counsel and Secretary
Thomas M. Hindert........................................... 44 Senior Vice President - Planning, Pre-development and Acquisition
Steven J. Jacobsen.......................................... 42 Senior Vice President - Development
James P. Whitcome........................................... 51 Senior Vice President - Capital Services
Mark J. Rivers.............................................. 33 Senior Vice President - Leasing
</TABLE>
Biographical summaries of the directors and executive officers of
the Company are included under the caption "Board of Directors" and "Executive
Officers," respectively, in the Company's proxy statement for the 1998 Annual
Meeting of Shareholders and are incorporated herein by reference. Information
required by Item 405 of Regulation S-K is included under the caption "Section
16(a) Beneficial Ownership Reporting Compliance" in the Company's proxy
statement for the 1998 Annual Meeting of Shareholders and is incorporated herein
by reference.
56
<PAGE> 57
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to executive compensation is incorporated
herein by reference to the information under the captions "Compensation of
Directors" and "Executive Compensation" in the Company's proxy statement for the
1998 Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to security ownership of certain beneficial
owners and management of the Company is incorporated herein by reference to the
information under the caption "Voting Securities and Principal Holders Thereof"
in the Company's proxy statement for the 1998 Annual Meeting of Shareholders.
ITEM 13. CERTAIN TRANSACTIONS WITH RELATED PARTIES
Information with respect to certain relationships and transactions
is incorporated herein by reference to the information under the caption
"Certain Relationships and Transactions" in the Company's proxy statement for
the 1998 Annual Meeting of Shareholders.
57
<PAGE> 58
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS AND FORM 8-K
14(a)(1) AND (2) FINANCIAL STATEMENTS AND SCHEDULE
<TABLE>
<CAPTION>
THE MILLS CORPORATION Page
<S> <C>
Report of Independent Auditors F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-3
Consolidated Statements of Stockholders' Equity F-4
Consolidated Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-6
FINANCIAL STATEMENT SCHEDULES
Schedule III - Schedule of Consolidated Real Estate and
Accumulated Depreciation F-19
Notes to Schedule III F-20
</TABLE>
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions, are included in the consolidated
financial statements or are inapplicable and therefore have been omitted.
14(a)(3) EXHIBITS
<TABLE>
<CAPTION>
NUMBER EXHIBIT
------ -------
<S> <C>
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 1994 Executive Equity Incentive Plan
</TABLE>
58
<PAGE> 59
<TABLE>
<CAPTION>
NUMBER EXHIBIT
------ -------
<S> <C>
**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
*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 Form of Promissory Note made payable by Franklin Mills Associates Limited
Partnership to and for the benefit of the Operating Partnership
*10.21 Form of Mortgage, Security Agreement and Assignment of Rents and Leases by
Franklin Mills Associates Limited Partnership to and for the benefit of
the Operating Partnership
*10.22 Form of Sale of Partnership Interests Agreement (Franklin Mills) by and
between the Operating Partnership and Herbert S. Miller, Laurence C.
Siegel, Harry H. Nick, Western Franklin Mills Corp., Kan Am USA IX Limited
Partnership and Kan Am USA X Limited Partnership
*10.23 Form of Indemnification Agreement between the Company and each of its
Directors and Executive Officers
*****10.24 Construction Loan Agreement dated November 9, 1995, by and between Ontario
Mills Limited Partnership and Canadian Imperial Bank of Commerce, Bayerische
Hypotheken-Und Wechsel-Bank Aktiengesellschaft and The Mitsubishi Bank of
Commerce
</TABLE>
59
<PAGE> 60
<TABLE>
<CAPTION>
NUMBER EXHIBIT
------ -------
<S> <C>
*****10.25 Construction Mortgage, Security Agreement, Assignment of Leases and Rents,
Fixture Filing and Financing Statement dated as of December 26, 1995 in
favor of Canadian Imperial Bank of Commerce, Bayerische Hypotheken-Und
Wechsel-Bank Aktiengesellschaft and The Mitsubishi Bank of Commerce
*****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 June 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
*******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
</TABLE>
60
<PAGE> 61
<TABLE>
<CAPTION>
NUMBER EXHIBIT
------ -------
<S> <C>
*******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,
and 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 Interested dated as of the 28th day of October,
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
23 Consent of Ernst & Young LLP
</TABLE>
* 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.
** Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the first quarter ended March 31, 1994.
*** 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 Report on Form
10-Q for the second quarter ended June 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 Quarterly Report on Form
10-Q for the third quarter ended September 30, 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 the Registrant's Quarterly Report on Form
10-Q for the second quarter ended June 30, 1997.
++ Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the third quarter ended September 30, 1997.
61
<PAGE> 62
14(b) REPORTS ON FORM 8-K
The Company filed two reports on Form 8-K during the last quarter of
the year ended December 31, 1996.
The Company's Current Report on Form 8-K dated November 21, 1996,
announced the Company's plans to refinance the indebtedness on
Potomac Mills and Gurnee Mills. The Company's Current Report on Form
8-K dated December 17, 1996 announced the closing of the refinancing
of the Potomac Mills and Gurnee Mills indebtedness through a fixed
rate securitization.
14(C) EXHIBITS
The list of exhibits filed with this report is set forth in response to
item 14(a)(3). The required exhibit index has been filed with the exhibits.
14(D) FINANCIAL STATEMENTS
Schedule III - Schedule of Consolidated Real Estate and Accumulated
Depreciation
Notes to Schedule III.
62
<PAGE> 63
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on March ___, 1998.
THE MILLS CORPORATION,
a Delaware corporation
By:
Laurence C. Siegel
Chairman of the Board of
Directors, Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Act, this
Registration Statement has been signed by the following persons in the
capacities indicated below on March ___, 1998:
<TABLE>
<CAPTION>
Name Title
---- -----
<S> <C>
/s/ LAURENCE C. SIEGEL
- -------------------------------- Chairman of the Board, Chief Executive Officer and Director
Laurence C. Siegel (principal executive officer)
/s/ PETER B. MCMILLAN
- ------------------------------- President, Chief Operating Officer and Director
Peter B. McMillan
/s/ JAMES F. DAUSCH
- ------------------------------- Executive Vice-President - Development and Director
James F. Dausch
/s/ KENNETH R. PARENT
- ------------------------------- Executive Vice President and Chief Financial Officer (principal
Kenneth R. Parent financial officer and principal accounting officer)
/s/ DIETRICH VON BOETTICHER
- ------------------------------- Vice Chairman and Director
Dietrich von Boetticher
/s/ JOHN M. INGRAM
- ------------------------------- Vice Chairman and Director
John M. Ingram
</TABLE>
63
<PAGE> 64
<TABLE>
<S> <C>
/s/ CHARLES R. BLACK, JR.
- ------------------------------- Director
Charles R. Black, Jr.
/s/ JAMES C. BRAITHWAITE
- -------------------------------- Director
James C. Braithwaite
- -------------------------------- Director
Harry H. Nick
/s/ JOSEPH B. GILDENHORN
- -------------------------------- Director
Joseph B. Gildenhorn
/s/ PETER A. GORDON
- -------------------------------- Director
Peter A. Gordon
/s/ FRANZ VON PERFALL
- -------------------------------- Director
Franz von Perfall
/s/ ROBERT P. PINCUS
- -------------------------------- Director
Robert P. Pincus
</TABLE>
64
<PAGE> 65
REPORT OF INDEPENDENT AUDITORS
Board of Directors
The Mills Corporation
We have audited the accompanying consolidated balance sheets of The Mills
Corporation as of December 31, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1997. Our audits also included
the financial statement schedule listed in the Index at Item 14(a). These
financial statements and schedule are the responsibility of the management of
The Mills Corporation. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Mills
Corporation as of December 31, 1997 and 1996, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Washington, D.C.
February 16, 1998, except for the
the first paragraph of Note 10, as
to which the date is March 3, 1998.
<PAGE> 66
THE MILLS CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Income producing property:
Land and land improvements $ 167,409 $ 164,420
Building and improvements 703,805 662,469
Furniture, fixtures and equipment 25,253 22,221
Less: accumulated depreciation and amortization (206,357) (179,658)
---------- ----------
Total income producing property 690,110 669,452
Land held for investment and/or sale 7,397 3,564
Construction in progress 18,904 28,259
Investment in unconsolidated joint ventures 95,299 66,688
---------- ----------
Total real estate and development assets 811,710 767,963
Cash and cash equivalents 25,263 6,327
Restricted cash 15,623 13,215
Accounts receivable 21,078 19,165
Notes receivable 6,733 7,167
Deferred costs, net 43,654 45,655
Other assets 2,560 3,132
---------- ----------
TOTAL ASSETS $ 926,621 $ 862,624
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgages, notes, and loans payable $ 703,713 $ 730,113
Accounts payable and other liabilities 54,929 43,011
---------- ----------
Total liabilities 758,642 773,124
Minority interests 68,955 43,975
Stockholders' equity:
Common stock $.01 par value, authorized 100,000,000 shares,
issued and outstanding 22,912,242 and 16,907,164 shares in
1997 and 1996, respectively 229 169
Additional paid-in capital 436,639 309,813
Accumulated deficit (337,142) (264,457)
Deferred compensation (702) -
---------- ----------
Total stockholders' equity 99,024 45,525
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 926,621 $ 862,624
========== ==========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F - 2
<PAGE> 67
THE MILLS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
----------- ---------- ----------
<S> <C> <C> <C>
REVENUES:
Minimum rent $ 96,370 $ 94,678 $ 89,839
Percentage rents 4,413 4,216 4,460
Recoveries from tenants 47,350 45,761 44,267
Other revenue 8,150 7,616 6,537
Fee income 7,132 3,639 3,975
Interest income 2,561 2,850 2,431
----------- ---------- ----------
165,976 158,760 151,509
EXPENSES:
Recoverable from tenants 42,025 41,308 39,299
Other operating 5,720 6,170 5,231
General and administrative 9,506 8,725 7,808
Interest expense 41,006 45,885 43,947
Depreciation and amortization 35,487 39,020 40,815
----------- ---------- ----------
133,744 141,108 137,100
Other income 567 1,073 859
Equity in earnings of unconsolidated joint ventures 3,975 2,661 -
----------- ---------- ----------
Income before extraordinary item
and minority interests 36,774 21,386 15,268
Extraordinary loss on debt extinguishment (8,060) (5,301) (419)
----------- ---------- ----------
Income before minority interests 28,714 16,085 14,849
Minority interests (12,303) (7,904) (7,231)
----------- ---------- ----------
Net income $ 16,411 $ 8,181 $ 7,618
=========== ========== ==========
EARNINGS PER COMMON SHARE - BASIC: (NOTE 2)
Income before extraordinary items $ .98 $ .64 $ .46
Extraordinary loss on debt extinguishment (.22) (.16) (.01)
----------- ---------- ----------
Net income $ .76 $ .48 $ .45
=========== ========== ==========
EARNINGS PER SHARE - DILUTED: (NOTE 2)
Income before extraordinary items $ .97 $ .64 $ .46
Extraordinary loss on debt extinguishment (.22) (.16) (.01)
----------- ---------- ----------
Net income $ .75 $ .48 $ .45
=========== ========== ==========
Dividends declared per common share $ 1.89 $ 1.89 $ 1.89
=========== ========== ==========
Tax treatment of dividends (unaudited):
Ordinary income $ .66 $ .66 $ .60
=========== ========== ==========
Capital gains $ - $ - $ .06
=========== ========== ==========
Return of capital $ 1.23 $ 1.23 $ 1.23
=========== ========== ==========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F - 3
<PAGE> 68
THE MILLS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON
STOCK PAR ADDITIONAL
(SHARES) VALUE PAID-IN CAPITAL
-------- ------- ---------------
<S> <C> <C> <C>
Balance, December 31, 1994 $ 16,906 $ 169 $ 309,813
REIT formation settlement adjustments - - -
Dividends declared - - -
Net income - - -
-------- ------ ----------
Balance, December 31, 1995 16,906 169 309,813
Conversion of operating partnership units 1 - -
Change in ownership - Note 1 - - -
REIT formation settlement adjustments - - -
Dividends declared - - -
Net income - - -
-------- ------ ----------
Balance, December 31, 1996 16,907 169 309,813
Net proceeds from additional
equity offering 5,325 53 121,757
Restricted stock incentive program 60 1 1,066
Amortization of stock incentive - - -
Units exchanged for common stock 572 6 2,981
Dividends declared - - -
Net income - - -
Exercise of stock options and other 48 - 1,022
Adjustment to minority interest (Note 2) - - -
-------- ------ ----------
Balance, December 31, 1997 $ 22,912 $ 229 $ 436,639
======== ====== ==========
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED DEFERRED
DEFICIT COMPENSATION TOTAL
------------- ------------ -----------
<S> <C> <C> <C>
Balance, December 31, 1994 $ (214,687) $ - $ 95,295
REIT formation settlement adjustments (553) - (553)
Dividends declared (31,952) - (31,952)
Net income 7,618 - 7,618
----------- -------- ----------
Balance, December 31, 1995 (239,574) - 70,408
Conversion of operating partnership units - - -
Change in ownership - Note 1 (596) - (596)
REIT formation settlement adjustments (516) - (516)
Dividends declared (31,952) - (31,952)
Net income 8,181 - 8,181
----------- -------- ----------
Balance, December 31, 1996 (264,457) - 45,525
Net proceeds from additional
equity offering - - 121,810
Restricted stock incentive program - (1,067) -
Amortization of stock incentive - 365 365
Units exchanged for common stock (2,987) - -
Dividends declared (42,924) - (42,924)
Net income 16,411 - 16,411
Exercise of stock options and other - - 1,022
Adjustment to minority interest (Note 2) (43,185) - (43,185)
----------- -------- ----------
Balance, December 31, 1997 $ (337,142) $ (702) $ 99,024
=========== ======== ==========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F - 4
<PAGE> 69
THE MILLS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Income before minority interest $ 28,714 $ 16,085 $ 14,849
Adjustments to reconcile income before minority
interest to net cash provided by operating activities:
Net accretion of note receivable (700) (700) (700)
Depreciation and amortization 36,752 42,816 44,618
Provision for losses on accounts receivable 591 441 848
Equity in earnings of unconsolidated joint ventures (3,975) (2,661) -
Net gain on sales of property (992) (1,048) (1,709)
Extraordinary loss on debt extinguishment 8,060 5,301 419
Other 225 - -
Other changes in assets and liabilities:
Increase in accounts receivable (2,212) (2,458) (1,135)
Decrease in notes receivable 1,134 890 1,361
Decrease in other assets 380 242 1,042
Increase in accounts payable
and other liabilities 12,296 4,354 2,230
---------- ---------- ----------
Net cash provided by operating activities 80,273 63,262 61,823
INVESTING ACTIVITIES:
Investment in real estate and development assets (94,416) (56,768) (58,541)
Distributions received from unconsolidated joint ventures 29,278 - -
Proceeds from sale of property 4,316 5,060 6,327
Deferred costs (14,015) (15,760) (6,260)
---------- ---------- ----------
Net cash used in investing activities (74,837) (67,468) (58,474)
FINANCING ACTIVITIES:
Proceeds from mortgages, notes and loans payable 196,482 423,029 85,233
Repayments of mortgages, notes and loans payable (227,582) (369,351) (26,193)
Refinancing costs (2,054) - -
Funding from affiliates - - 834
Restricted cash (2,408) 6,139 (6,434)
Net proceeds from common stock offering 121,810 - -
Dividends (42,924) (31,952) (31,952)
Distributions (30,506) (31,882) (30,344)
Proceeds from exercise of stock options 682 - -
---------- ---------- ----------
Net cash provided by (used in) financing activities 13,500 (4,017) (8,856)
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 18,936 (8,223) (5,507)
Cash and cash equivalents at beginning of year 6,327 14,550 20,057
---------- ---------- ----------
Cash and cash equivalents at end of year $ 25,263 $ 6,327 $ 14,550
========== ========== ==========
Supplemental disclosures of cash flow information:
Cash paid for interest $ 47,953 $ 52,956 $ 49,974
========== ========== ==========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F - 5
<PAGE> 70
THE MILLS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE INDICATED)
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 December 31, 1997, a 1%
interest as the sole general partner and a 57.95% 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
December 31, 1997, the Operating Partnership owns or holds an interest in the
following operating properties:
MILLS LOCATION
----- --------
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/Fort Worth)
Arizona Mills (Tempe/Phoenix)
COMMUNITY CENTERS
-----------------
Butterfield Plaza Downers Grove, IL
Coopers Crossing Voorhees, NJ
Crosswinds Center St. Petersburg, FL
Fashion Place Columbia, SC
Germantown Commons Germantown, MD
Gwinnett Marketfair Duluth, GA
Liberty Plaza Philadelphia, PA
Montgomery Village Gaithersburg, MD
Mount Prospect Plaza Mount Prospect, IL
West Falls Church Outlet Center Falls Church, VA
Western Hills Plaza Cincinnati, OH
In addition to the operating properties, the Company is actively involved in
the development of a number of new Mills.
BASIS OF PRESENTATION
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 LLC ("Mills Management") and Management
Associates
F - 6
<PAGE> 71
THE MILLS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE NOTED)
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 in connection with the Company's initial
public offering ("the Offering") to provide development, management, leasing
and financing services to the Company and other entities owned by affiliates of
the Company. 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 ownership in certain Mills operating properties, as well as
certain properties under development are through investments in the
partnerships (that own Ontario Mills, Ontario Mills Residual, Grapevine Mills,
Grapevine Mills Residual, Arizona Mills, Sawgrass Mills Phase III, City Mills,
Concord Mills and Meadowlands Mills). Such investments are accounted for using
the equity method of accounting (see Note 4).
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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INCOME PRODUCING PROPERTY
Income producing property is stated at the lower of cost or fair value and
includes all costs related to acquisition, development, leasing and
construction, including tenant improvements, interest incurred during
construction and certain direct and indirect costs of the development
department. Maintenance and repairs are charged to expense as incurred.
Depreciation expense is computed using the straight-line method over the
estimated useful lives of the assets, as follows:
<TABLE>
<S> <C>
Buildings and improvements 40 years
Land improvements 20 years
Furniture, fixtures and equipment 7 years
</TABLE>
Total interest expense capitalized to real estate and development assets was
$8,890, $7,171 and $6,046 for the years ended December 31, 1997, 1996 and 1995,
respectively.
INCOME RECOGNITION
The Company, as lessor, has retained substantially all the risks and benefits
of ownership and accounts for its leases as operating leases. Minimum rent
from income producing property are recognized on a straight-line basis over the
terms of the respective leases. Percentage rents are recognized on an accrual
basis. Recoveries from tenants for real estate taxes and other operating
expenses are recognized as revenue in the period the applicable costs are
incurred.
Management, leasing and development fees relating to entities not controlled by
the Company are recognized as revenue as they are earned.
DEFERRED COSTS
Deferred costs consist of loan fees and related expenses which are amortized on
a straight-line basis that approximates the interest method over the terms of
the related notes, and leasing charges, including tenant construction
allowances and direct salaries and other costs incurred by the Company to
obtain a lease, which are amortized on a straight-line basis over the terms of
the related leases.
Total accumulated amortization of deferred costs was $51,743 and $57,608 at
December 31, 1997 and 1996, respectively.
F - 7
<PAGE> 72
THE MILLS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE NOTED)
In connection with the 1997 refinancing of debt described in Note 5, the
Company wrote off $6,006 of unamortized loan costs and paid a prepayment
penalty of $2,054. Such amounts are reflected as an extraordinary loss in the
accompanying Consolidated Statements of Operations.
In connection with a 1996 refinancing of debt described in Note 5, unamortized
loan costs of $6,829 and a prepayment penalty of $600, net of the proceeds from
the sale of interest rate cap agreements of $557 and the reversal of accruals
for straight-line interest expense of $1,571, were written off and are included
as extraordinary items for 1996. Unamortized loan costs of $419 associated
with a line of credit that was paid in full during 1995, were written off and
included as an extraordinary item for 1995.
CASH AND CASH EQUIVALENTS
All highly liquid investments with an original maturity of three months or less
are considered to be cash equivalents.
RESTRICTED CASH
Restricted cash primarily consists of funds invested in cash collateral
accounts. The purpose of the cash collateral accounts is to hold proceeds from
certain transactions and to fund maintenance reserves, interest, taxes and
payments on debt. The cash collateral accounts are controlled by the lenders.
INCOME TAXES
Federal income taxes are not provided for because the Company believes it
qualifies as a REIT under the provisions of the Internal Revenue Code ("IRC")
and will distribute in excess of its taxable income to its shareholders. As a
REIT, the Company is required to distribute at least 95% of its taxable income
to shareholders and to meet certain other requirements. The differences
between net income available to common shareholders for financial reporting
purposes and taxable income before dividend deductions relate primarily to
temporary differences, principally real estate depreciation.
MSC, the Company's consolidated (for GAAP purposes) IRC subchapter C corporate
subsidiary, is subject to federal income taxes at the prevailing tax rates.
MSC has a federal net operating loss carryforward of approximately $3.8 million
and $16.9 million at December 31, 1997 and 1996, respectively. A valuation
allowance has been established for deferred tax assets principally relating to
the loss carryforward as there can be no assurance that MSC will generate
earnings in future years. MSC has recorded a $250 provision for the
alternative minimum tax for the year ended December 31, 1997.
F - 8
<PAGE> 73
THE MILLS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE NOTED)
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings Per Share (FAS 128), which 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 will be 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.
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ---------- ----------
<S> <C> <C> <C>
Numerator for basic and diluted earnings per share $ 16,411 $ 8,181 $ 7,618
========== ========== ==========
Denominator:
Denominator for basic earnings
per share - weighted average shares 21,470 16,907 16,906
Vested Restricted Stock Awards -
weighted average shares 30 10 -
----------- ---------- ----------
Denominator for basic earnings per share
adjusted weighted average shares 21,500 16,917 16,906
Effect of dilutive securities:
Employee stock options 431 81 -
----------- ---------- ----------
Denominator for diluted earnings per
share-adjusted weighted-average shares $ 21,931 $ 16,998 $ 16,906
========== ========== ==========
Basic earnings per share $ 0.76 $ 0.48 $ 0.45
Diluted earnings per share $ 0.75 $ 0.48 $ 0.45
</TABLE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
MINORITY INTERESTS
Minority interests include the interests of the unitholders in the Operating
Partnership. The unitholder interest is adjusted at each period end to reflect
the ownership percentage at that particular time. The unitholder interest was
41.05%, 49.10% and 49.10% at December 31, 1997, 1996 and 1995, respectively.
F - 9
<PAGE> 74
THE MILLS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE NOTED)
RECLASSIFICATIONS
Certain previously reported amounts have been reclassified to conform with the
current year presentation.
3. NOTES RECEIVABLE
Notes receivable include $6,639 and $7,080 at December 31, 1997 and 1996,
respectively, relating to a reimbursement and annexation agreement with the
Village of Gurnee ("Village") to reimburse the owner of Gurnee Mills for the
cost of certain public improvements. The Village has executed a non-interest
bearing note for $15,000 to be paid from taxes collected from tenants of Gurnee
Mills during a ten-year period beginning one year after Gurnee Mills opened in
August 1991. In 1996, the note was amended and the note amount increased to
$17,500 to be paid over a thirteen year period. The note was recorded in 1991
at its net present value, based on the estimated taxes to be collected by the
Village using a discount rate of 10%. Interest income accreted was $700 for
each of the years ended December 31, 1997, 1996 and 1995, respectively. For
the years ended December 31, 1997, 1996 and 1995, collections from the Village
totaled $988, $908 and $880, respectively.
4. INVESTMENT IN UNCONSOLIDATED JOINT VENTURES
Certain Mills and Mills under development are partially owned through joint
ventures ("Joint Ventures"). The Company is also a co-general and managing
partner of these Joint Ventures. The Company's interest in each Joint Venture
is as follows:
<TABLE>
<CAPTION>
Ownership %
Joint Venture as of 12/31/97
------------- --------------
<S> <C>
Ontario Mills 50.0%
Grapevine Mills 37.5%
Arizona Mills 36.8%
Sawgrass Mills Phase III 50.0%
City Mills 50.0%
Concord Mills 50.0%
Meadowlands Mills 58.2%
</TABLE>
As major business decisions require the approval of at least one other general
partner the Company is deemed to not control these Joint Ventures, pursuant to
statement of position No. 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 eliminates 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 the amounts invested to date.
The Company has guaranteed repayment of $100.9 million of the Joint Venture
debt until certain debt service coverage tests are met, (of the $100.9 million,
$56 million is also guaranteed jointly and severally with other partners in the
joint ventures). 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.
Certain of the Company's joint venture agreements contain buy-sell provisions
whereby certain partners can require the purchase or sale of owership interests
among the partners.
F - 10
<PAGE> 75
THE MILLS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE NOTED)
Combined balance sheet and results of operations information is presented below
for all Joint Ventures at December 31, 1997 and 1996, and for the years then
ended:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
---- ----
<S> <C> <C>
Assets:
Income producing assets $ 465,316 $ 124,208
Construction in progress 112,495 108,854
Other 122,458 65,938
----------- -----------
$ 700,269 $ 299,000
=========== ===========
Liabilities and partners' equity:
Debt $ 358,538 $ 99,021
Other liabilities 71,849 50,902
Operating Partnership's accumulated equity 75,600 41,959
Joint Venture partners' accumulated equity 194,282 107,118
----------- -----------
$ 700,269 $ 299,000
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996
---- ----
<S> <C> <C>
Revenues $ 40,367 $ 3,720
Recoverable and other property expenses (17,020) (1,085)
Interest expense (10,537) (523)
Depreciation and amortization (10,693) (1,268)
Other 6,711 5,489
Extraordinary loss on debt extinguishment (961) -
----------- -----------
Net income $ 7,867 $ 6,333
=========== ===========
Equity in earnings of unconsolidated joint ventures $ 3,975 $ 2,661
=========== ===========
</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 during construction and loans and advances
to the Joint Ventures included in other liabilities above.
During 1997, the Company completed its due diligence on a prospective
site located in Columbus, Ohio. A Mills-type project was to be developed by a
Mills-Kan Am partnership subsequent to the development of a full-retail
regional mall which was to be situated on an adjacent site. The Mills-type
project was to be developed in joint venture with the owner of the adjacent
site. The Company's decision to move ahead with a Mills-type project was
predicated upon the demonstrated success of the adjacent project. Because the
owner of the adjacent site was unable to procure certain anchor tenants within
a stipulated time frame, the Company and its joint partner, Kan Am, decided
during 1997 not to pursue a Mills-type project in this area and to focus the
Company's efforts on those areas where the market dynamics are more favorable.
The Mills-Kam Am partnership that was formed in anticipation of potentially
developing a Mills project in Columbus, Ohio is the same partnership that is
developing the Sawgrass Phase III expansion. In conjunction with its decision
to not move forward with the Columbus project, the joint venture expensed all
previously capitalized preacquisition and predevelopment costs related to this
project. Pursuant to the terms of the partnership agreement, and through a
separate agreement with the owner of the full-retail regional mall site, the
Company was reimbursed for all costs incurred in connection with the Columbus
project. The joint venture will continue the development of the Sawgrass Mills
Phase III expansion as planned.
F - 11
<PAGE> 76
THE MILLS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE NOTED)
5. BORROWINGS
Mortgages, notes, and loans payable, which are secured by the Company's income
producing properties, consist of the following at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Potomac Mills/Gurnee Mills securitized bonds - principal and
interest payments based on 30 year amortization with an
anticipated balloon payment in December 2003 and required
maturity in 2026; weighted average fixed interest rate of $ 281,117 $ 284,000
7.02%
Sawgrass Mills securitized bonds - interest only payments
through maturity in January 2001; fixed interest rate of
6.45% on $115,000; variable interest rates on remaining
amounts from LIBOR + .85% to LIBOR + 2.30% (LIBOR was 5.7% 145,000 145,000
at December 31, 1997)
Sawgrass Mills Phase II mortgage loan - interest only
payments through maturity in July 1998; variable interest
rate at LIBOR plus 2.35% 12,000 12,000
Franklin Mills mortgage loan - interest only payments
through maturity in December 1998; fixed interest rate at
7.125% per annum. Note was refinanced in May 1997 (see 165,000
below). -
Franklin Mills mortgage loan - principal and interest
payments based on 30 year amortization with an anticipated
balloon payment in March 2007 and required maturity in
2027; fixed interest rate at 7.88% per annum on $110
million and 7.44% on $20 million. 129,495 -
Western Hills mortgage loan - interest only payments through
maturity in January 1999; fixed interest rates at blended 14,949 14,949
rate of 7.675%
Community Centers' mortgage loan - principal and interest
payments through maturity in January 2001; fixed interest 71,943 74,218
rate of 7.16%
The Mills Limited Partnership $60.0 million revolving line of
credit - interest only payments through maturity in October
1998 (with a one year extension option); variable interest 41,000 19,683
rate at LIBOR plus 3.00%
The Mills Limited Partnership revolving master repurchase
agreement - interest only payments; balance due on demand;
variable interest rate at LIBOR plus 1.25% - 10,556
Other notes and loans payable 8,209 4,707
----------- ----------
$ 703,713 $ 730,113
=========== ==========
</TABLE>
F - 12
<PAGE> 77
THE MILLS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE NOTED)
The weighted average interest rate at December 31, 1997 and 1996, was 7.24% and
7.05%, respectively. Of the Company's approximately $703.7 million of
consolidated debt, $616 million was fixed rate at December 31, 1997.
In January 1992, in conjunction with improvements to one of the Mills, a Mills
Entity obtained from a bank a 10 year letter of credit in the amount of $30,249
which serves as a credit enhancement for bonds sold by a municipality to the
public. Proceeds from the bonds were used to reimburse the Mills Entity for
the costs of public works, which amounted to approximately $21,000. This
reimbursement was recorded as a reduction of the costs previously capitalized
to the income producing property. The bonds are payable from ad valorem taxes
levied by the municipality against the assessed value of the real property
owned by the Partnership and real property owned by outside parties. Funds can
be drawn on the letter of credit for the purpose of repaying principal and
interest on the bonds.
The aggregate maturities of the Company's borrowings at December 31, 1997 is as
follows:
<TABLE>
<S> <C>
1998 $ 67,412
1999 22,734
2000 10,912
2001 208,575
2002 5,660
Thereafter 388,420
---------
$ 703,713
=========
</TABLE>
6. LEASING ACTIVITIES
The Company has noncancellable leases with tenants with remaining terms ranging
from one to 25 years and requiring monthly payments of specified minimum rents.
A majority of the leases require reimbursement by the tenant of substantially
all operating expenses of the properties. In addition, many of the leases
provide for additional rental payments based on gross revenues of the tenant in
excess of specified amounts. Future minimum rental commitments to be received
under noncancellable leases for the Mills (excluding Ontario Mills, Grapevine
Mills and Arizona Mills) and the Community Centers are as follows:
F - 13
<PAGE> 78
THE MILLS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE NOTED)
<TABLE>
<CAPTION>
Year ending December 31
-----------------------
<S> <C>
1998 $ 89,189
1999 80,866
2000 71,528
2001 53,681
2002 39,843
Thereafter 137,772
----------
$ 472,879
==========
</TABLE>
The company has a noncancellable operating lease for its corporate headquarters
in Arlington, Virginia. The lease commenced April 1, 1996 for a term of ten
years. Minimum rental payments under this lease subsequent to December 31,
1997, are as follows:
<TABLE>
<CAPTION>
Year ending December 31
-----------------------
<S> <C>
1998 $ 1,407
1999 1,570
2000 1,610
2001 1,732
2002 1,804
Thereafter 6,203
---------
$ 14,326
=========
</TABLE>
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures of estimated fair value were determined by
management, using available market information and appropriate valuation
methodologies. Considerable judgment is necessary to interpret market data and
develop estimated fair value. Accordingly, the estimates presented herein are
not necessarily indicative of the amounts the Company could realize on
disposition of the financial instruments. The use of different market
assumptions and/or estimation methodologies could have a material effect on the
estimated fair value amounts.
Cash equivalents, accounts receivable, accounts payable and accrued expenses
and other liabilities are carried at amounts, which reasonably approximate
their fair values.
Fixed rate debt with an aggregate carrying value of approximately $616.0
million has an estimated aggregate fair value of $604.5 million at December 31,
1997. Estimated fair value of fixed rate debt is based on interest rates
currently available to the Company for issuance of debt with similar terms
and remaining maturities. The estimated fair value of the Company's variable
rate debt is estimated to be approximately equal to its carrying value of $87.7
million at December 31, 1997.
Disclosure about fair value of financial instruments is based on pertinent
information available to management at December 31, 1997. Although management
is not aware of any factors that would significantly affect the reasonable fair
value amounts, such amounts have not been comprehensively revalued for purposes
of these financial statements since December 31, 1997, and current estimates of
fair value may differ significantly from the amounts presented herein.
F - 14
<PAGE> 79
THE MILLS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE NOTED)
8. EMPLOYEE BENEFIT PLANS
The Company has a 401(k) defined contribution benefit plan that covers all
employees who are age 21 or older and have at least one year of service.
Contributions made by employees electing to participate in the plan under
salary reduction agreements are recorded when paid into the plan, or
alternatively, accrued if unpaid. Employer contributions are accrued and paid
into the plan periodically. Employer contributions were $372, $282, and $297
in 1997, 1996 and 1995, respectively.
9. STOCK OPTION PLAN
In connection with the Company's initial public offering, the Board of
Directors approved the 1994 Executive Equity Incentive Plan (which plan, as
amended in September 1996, is referred to herein as the "Plan") for the purpose
of attracting and retaining directors, executive officers and other key
personnel for the Company, the Operating Partnership and their subsidiaries.
Pursuant to the Plan, 2,500,000 shares of common stock have been reserved for
issuance of stock options at a price not less than 100% of fair market value at
the date of grant and restricted stock. The options expire 10 years from the
date of grant and will contain such other terms and conditions (including,
without limitation, conditions to vesting) as may be determined by the
Company's Executive Compensation Committee.
A summary of the Company's stock option activity, and related information for
the years ended December 31 follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------------------------------------
Weighted- Weighted- Weighted-
Options Average Options Average Options Average
(000) Exercise Price (000) Exercise Price (000) Exercise Price
------- -------------- ------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding -
beginning of year 1,461 $ 19.57 824 $ 22.28 1,079 $ 23.28
Granted 653 25.38 858 17.73 155 18.58
Exercised (34) 20.66 -0- -0- -0- -0-
Forfeited (188) 19.78 (221) 22.54 (410) 23.50
------ ------ ------
Outstanding -
end of year 1,892 21.53 1,461 19.57 824 22.28
===== ===== =====
Exercisable at end
of year 403 21.28 -0- -0- -0- -0-
Weighted-average fair
value of options granted
during the year $ 2.78 $ 0.92 $ 1.02
- --------------------------------------------------------------------------------------------------------------
</TABLE>
The range of exercise prices of options outstanding at December 31, 1997 was
$17.27 to $25.50. The weighted average remaining contractual life of options
outstanding at December 31, 1997 was 4.82 years.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related Interpretations
in accounting for its employee stock options because, as discussed
F - 15
<PAGE> 80
THE MILLS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE NOTED)
below, the alternative fair value accounting provided for under FASB Statement
No. 123, "Accounting for Stock-Based Compensation," (FAS 123) requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, when the exercise price of the Company's employee
stock options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized.
In 1996, the Company adopted pursuant to the Plan, its 1996 long-term Incentive
Plan which granted restricted stock and certain options to the Company's
executive officers and provided that such stock options would vest in 20%
increments over a five-year period. Generally, other options granted under the
Plan vest 50% and 100% on the third and fourth anniversaries, respectively, of
the date of grant.
Pro forma information regarding net income and earnings per share is required
by FAS 123 which also requires that the information be determined as if the
Company has accounted for its employee stock options granted subsequent to
December 31, 1994 under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1997, 1996, and 1995, respectively: risk-free interest of
6.71%, 6.25% and 6.07%; expected life of the option of 4.96 years, 4.83 and
4.16 years; a dividend yield of 7.0%; and volatility factors of the expected
market price of the Company's common stock of .210, .138 and .138.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions, including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows (in thousands except for earnings per share
information):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Pro forma income before minority interest $28,445 $15,937 $14,818
Pro forma net income per share - diluted $ .75 $ .48 $ .45
</TABLE>
Since FAS 123 is applicable only to options granted subsequent to December 31,
1994, its pro forma effect will not be fully reflected until later years.
10. LEGAL MATTERS
On March 3, 1998, the Company received a payment of $2.0 million from the A.J.
1989 Trust (the "A.J. Trust"), in payment of a judgment obtained in an action
originally filed on April 27, 1994, by the A.J. Trust, Mr. Richard Kramer and a
partnership affiliated with Mr. Kramer against the Operating Partnership,
Herbert S. Miller, and certain other parties. Concurrently with the payment,
the parties to such litigation dismissed with prejudice the remaining claims in
the suit.
The Company is involved in other litigation incident to the operations of its
income producing properties, the outcome of which is not expected to have a
material effect on the consolidated financial position or results of operations
of the Company.
F - 16
<PAGE> 81
THE MILLS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE NOTED)
11. TRANSACTIONS WITH AFFILIATES
MSC provides management, leasing, commissioned land sales, and related services
to entities owned by partners of the Operating Partnership. Fees earned for the
years ended December 31, 1997, 1996, and 1995, were $1,214, 1,166 and $1,588,
respectively.
In addition, MSC provides development and leasing, financing and management
services for Joint Ventures. Fees earned during 1997, 1996 and 1995 net of
amounts eliminated, were $5,918, $2,473 and $2,546, respectively.
The Company is the lessor of a ground lease with the Sawgrass Mills Phase III
Joint Venture. The lease commenced January 1, 1997, expires on June 30, 1998,
and contains five, six-month renewal options. Annual rent is $800 for the
first two years and $500 thereafter.
During 1997, MSC purchased land from an entity owned by certain partners of the
Operating Partnership for $2,300 and the assumption of debt of $4,700. The
assumption of debt has been treated as non-cash financing activity for the
Consolidated Statements of Cash Flows.
F - 17
<PAGE> 82
THE MILLS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE NOTED)
12. UNAUDITED QUARTERLY RESULTS OF OPERATIONS
The following is a summary of results of operations for each of the fiscal
quarters during 1997:
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Total rental revenues $ 37,146 $ 37,598 $ 39,659 $ 41,880
Income before extraordinary items
and minority interest 6,077 8,849 9,434 12,414
Income before minority interest 6,077 789 9,434 12,414
Net income 3,020 461 5,614 7,316
EARNINGS PER SHARE - BASIC:
Income per share before extraordinary items 0.18 0.24 0.24 0.32
Extraordinary loss on debt extinguishment - (0.22) - -
---------- ---------- ---------- ----------
Net income per share $ 0.18 $ 0.02 $ 0.24 $ 0.32
========== ========== ========== ==========
EARNINGS PER SHARE - DILUTED:
Income per share before extraordinary items 0.18 0.24 0.24 0.31
Extraordinary loss on debt extinguishment - (0.22) - -
---------- ---------- ---------- ----------
Net income per share $ 0.18 $ 0.02 $ 0.24 $ 0.31
========== ========== ========== ==========
Basic Shares 17,559,879 23,015,641 22,854,497 22,866,531
Diluted Shares 17,908,715 23,443,536 23,382,238 23,352,969
</TABLE>
The following is a summary of results of operations for each of the fiscal
quarters during 1996:
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Total rental revenues $ 36,921 $ 37,072 $ 37,438 $ 40,840
Income before extraordinary items
and minority interest 4,165 4,332 6,936 5,953
Income before minority interest 3,335 4,179 6,936 1,635
Net income 1,695 2,126 3,528 832
EARNINGS PER SHARE - BASIC:
Income per share before extraordinary items 0.13 0.13 0.21 0.17
Extraordinary loss on debt extinguishment (.03) - - (0.13)
---------- ---------- ---------- ----------
Net income per share 0.10 0.13 0.21 0.04
========== ========== ========== ==========
EARNINGS PER SHARE - DILUTED:
Income per share before extraordinary items 0.13 0.13 0.21 0.17
Extraordinary loss on debt extinguishment (.03) - - (0.13)
---------- ---------- ---------- ----------
Net income per share 0.10 0.13 0.21 0.04
========== ========== ========== ==========
Basic Shares 16,907,164 16,919,814 16,919,814 16,919,814
Diluted Shares 16,907,453 16,973,118 17,049,972 17,135,209
</TABLE>
F - 18
<PAGE> 83
THE MILLS CORPORATION
SCHEDULE III
CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION
(IN THOUSANDS)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Cost
Capitalized
Subsequent to
Initial Cost to Company (3) Acquisition
------------------------------------------ -------------
Building, Building,
Equipment Equipment
and and Land
Description(1) Encumbrances(2) Land Improvements Improvements
-------------- --------------- ---- ------------ ------------
<S> <C> <C> <C> <C>
Mills
Potomac Mills . . . . . $ 160,354 $ 8,486 $ $ 157,240
Sawgrass Mills . . . . . 145,000 11,194 144,973
Sawgrass Mills Phase II 12,000 2,556 22,584
Franklin Mills . . . . . 119,536 15,333 167,177
Franklin Mills Residual 4,779 (4,079)
Gurnee Mills . . . . . . 120,761 20,449 180,809
Hunt Club . . . . . . . 3,321 (3,181)
Community Centers
Montgomery Village . . . 8,613 13,649
Germantown Commons . . . 12,589 451 13,160
Mount Prospect Plaza . . 10,317 4,560 3,740 11,178
Butterfield Plaza . . . 7,478 1,604 9,595
Western Hills . . . . . 14,949 2,299 3,785 14,838
Crosswinds . . . . . . . 4,259 1,346 4,449 862
Gwinnett Marketfair . . 10,980 6,827 2,789 7,461
Fashion Place . . . . . 4,543 1,853 8,490
West Falls Church . . . 4,170 839 6,730
Liberty Plaza . . . . . 9,958 9,335 14,456 2,136
Coopers Crossing . . . . 8,992 769 7,888 800
Construction in Process and
Development Pre-construction Costs. 18,904
Corporate . . . . . . . . . 49,214 6,276 2,769 6,501
Mainstreet Retail . . . . . 484 304
--------- ---------- -------- ---------
Totals . . . . . . . . . . $ 703,713 $ 102,277 $ 40,360 $ 780,131
========= ========== ======== =========
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at Which
Carried at Close of Period
-------------------------------------------
Building,
Land Equipment
and and Accumulated Date Useful
Description(1) Improvements Improvements(7) Total(4)(5) Depreciation(6) Acquired Life(8)
-------------- ------------ --------------- ----------- --------------- -------- -------
<S> <C> <C> <C> <C> <C>
Mills
Potomac Mills . . . . . $ 41,499 $ 124,227 $ 165,726 $ 37,378 1983
Sawgrass Mills . . . . . 14,018 142,149 156,167 32,297 1986
Sawgrass Mills Phase II 3,588 21,552 25,140 1,333 1993
Franklin Mills . . . . . 30,714 151,796 182,510 53,692 1986
Franklin Mills Residual 700 700 1986
Gurnee Mills . . . . . . 36,981 164,277 201,258 42,415 1988
Hunt Club . . . . . . . 140 140 1988
Community Centers
Montgomery Village . . . 5,617 8,032 13,649 2,926 1980
Germantown Commons . . . 2,074 11,537 13,611 4,422 1980
Mount Prospect Plaza . . 4,221 15,257 19,478 5,044 1985
Butterfield Plaza . . . 2,419 8,780 11,199 3,147 1982
Western Hills . . . . . 3,679 17,243 20,922 6,000 1981
Crosswinds . . . . . . . 1,564 5,093 6,657 2,540 1981
Gwinnett Marketfair . . 8,030 9,047 17,077 3,255 1986
Fashion Place . . . . . 2,088 8,255 10,343 4,129 1985
West Falls Church . . . 1,803 5,766 7,569 2,566 1987
Liberty Plaza . . . . . 8,626 17,301 25,927 1,437 1994
Coopers Crossing . . . . 769 8,688 9,457 850 1994
Construction in Process and
Development Pre-construction Costs. 18,904 18,904 various
Corporate . . . . . . . . . 6,276 9,270 15,546 2,631 various
Mainstreet Retail . . . . . 788 788 295 1995
--------- --------- --------- ---------
Totals . . . . . . . . . . $ 174,806 $ 747,962 $ 922,768 $ 206,357
========= ========= ========= =========
</TABLE>
F - 19
<PAGE> 84
THE MILLS CORPORATION
NOTES TO SCHEDULE III
December 31, 1997
(1) The Mills Corporation, through the Operating Partnership, owns
super-regional, value and entertainment oriented malls ("Mills") and
community shopping centers ("Community Centers"). The geographic
location of the Mills and Community Centers are as follows:
<TABLE>
<CAPTION>
PROPERTY NAME LOCATION
------------- --------
<S> <C>
MILLS:
Franklin Mills . . . . . . . . . . . . . . . . . . . . . . . . . . . Philadelphia, PA
Franklin Mills - Residual . . . . . . . . . . . . . . . . . . . . . Philadelphia, PA
Gurnee Mills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gurnee, IL
Hunt Club . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gurnee, IL
Potomac Mills . . . . . . . . . . . . . . . . . . . . . . . . . . . . Woodbridge, VA
Sawgrass Mills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sunrise, FL
Sawgrass Mills - Phase II . . . . . . . . . . . . . . . . . . . . . . . . Sunrise, FL
COMMUNITY CENTERS:
Butterfield Plaza . . . . . . . . . . . . . . . . . . . . . . . . . Downers Grove, IL
Coopers Crossing . . . . . . . . . . . . . . . . . . . . . . . . . . . . Voorhees, NJ
Crosswinds Center . . . . . . . . . . . . . . . . . . . . . . . . St. Petersburg, FL
Fashion Place . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Columbia, SC
Germantown Commons . . . . . . . . . . . . . . . . . . . . . . . . . . Germantown, MD
Gwinnett Marketfair . . . . . . . . . . . . . . . . . . . . . . . . . . . Duluth, GA
Liberty Plaza . . . . . . . . . . . . . . . . . . . . . . . . . . . Philadelphia, PA
Montgomery Village . . . . . . . . . . . . . . . . . . . . . . . . . Gaithersburg, MD
Mount Prospect Plaza . . . . . . . . . . . . . . . . . . . . . . . Mount Prospect, IL
West Falls Church Outlet Center . . . . . . . . . . . . . . . . . . Falls Church, VA
Western Hills Plaza . . . . . . . . . . . . . . . . . . . . . . . . . Cincinnati, OH
</TABLE>
(2) See description of mortgage, notes and loans payable in Note 5 of the
Notes to Combined Financial Statements. The debt shown in regard to
Hunt Club is unsecured.
(3) Initial cost of properties is cost at the end of the calendar year for
the year of acquisition.
(4) The aggregate cost of land, land held for sale, buildings,
improvements, equipment, and tenant improvement for federal income tax
basis is $914,313 at December 31, 1997.
(5) Reconciliation of Real Estate and Development Assets, excluding
Investment in Partnerships
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Balance at January 1 . . . . . . . . . $ 880,933 $ 880,150 $ 855,049
Acquisitions . . . . . . . . . . . . . 69,535 23,177 58,541
Retirements . . . . . . . . . . . . . (760) (1,618) (3,778)
Other . . . . . . . . . . . . . . . . (26,940) (20,776) (29,662)
--------- --------- ---------
Balance at December 31 . . . . . . . . $ 922,768 $ 880,933 $ 880,150
========= ========= =========
</TABLE>
F - 20
<PAGE> 85
THE MILLS CORPORATION
NOTES TO SCHEDULE III
December 31, 1997
(6) Reconciliation of Accumulated Depreciation
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Balance at January 1 . . . . . . . . . $ 179,658 $ 152,713 $ 126,072
Additions charged to costs and expenses 26,799 27,724 27,180
Removal of accumulated depreciation . (100) (779) (539)
--------- --------- ---------
Balance at December 31 . . . . . . . . $ 206,357 $ 179,658 $ 152,713
========= ========= =========
</TABLE>
(7) In 1991, the city of Sunrise, Florida issued municipal bonds in the
amount of $24,730 and reimbursed a Partnership for costs of public
works which amounted to approximately $21,000. Costs previously
capitalized to income producing property were reduced upon
reimbursement.
In 1991, a note receivable of $5,925 was recorded pursuant to
reimbursement and annexation agreements with the Village of Gurnee to
reimburse the Partnership that owns Gurnee Mills for the cost of
certain public improvements. The Village of Gurnee has executed a
noninterest bearing note for $15,000, amended to $17,500 in 1996, to
be paid from taxes collected from the tenants of the shopping mall
during a ten-year period, amended to a thirteen year period in 1996,
beginning one year after the mall opens. The note was recorded in
1991, based on the estimated taxes to be collected by the Village of
Gurnee from the tenants using a discount rate of 10%.
(8) Depreciation is computed based upon the following estimated lives:
<TABLE>
<S> <C>
Building and improvements . . . . . . . . . . . . . . . . . . . . . . 40 years
Land improvements . . . . . . . . . . . . . . . . . . . . . . . . . . 20 years
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 years
Tenant improvements . . . . . . . . . Lesser of life of asset or life of lease
</TABLE>
F - 21
<PAGE> 1
EXHIBIT 21.1
LIST OF SUBSIDIARIES OF REGISTRANT AS OF 12/31/97
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
- ----------------------------------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------
Meadowlands Mills Limited Partnership Delaware
- -----------------------------------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------
Orange City Mills, L.L.C Delaware
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 District of
Limited Partnership Columbia
Pennsylvania
- -----------------------------------------------------------------------------------------------------------
Grapevine Mills Residual Limited District of Columbia
Partnership Pennsylvania
- -----------------------------------------------------------------------------------------------------------
Grapevine Mills Residual Operating Company, Delaware
L.L.C. Texas
- -----------------------------------------------------------------------------------------------------------
Mainstreet Retail, Inc. Delaware
- -----------------------------------------------------------------------------------------------------------
Mills USA, L.L.C. Delaware
- -----------------------------------------------------------------------------------------------------------
MillsServices of Grapevine, Delaware N/A
Inc. Texas
- -----------------------------------------------------------------------------------------------------------
MTS Services of Tempe, Delaware N/A
L.L.C. Arizona
Michigan
- -----------------------------------------------------------------------------------------------------------
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
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-3 No. 33-98362, Form S-3 No. 333-03205, Form S-3 No. 333-03596, Form
S-3, No. 333-13363, and Form S-8, No. 52-1802283) of The Mills Corporation and
in the related Prospectuses of our report dated February 16, 1998, except for
the first paragraph of Note 10, as to which the date is March 3, 1998, with
respect to the consolidated financial statements and schedule of The Mills
Corporation included in this Annual Report (Form 10-K) for the year ended
December 31, 1997.
ERNST & YOUNG LLP
Washington, D.C.
March 27, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MILLS
CORPORATION CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1997 AND CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE PERIOD ENDED DECEMBER 31, 1997 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH 1997 ANNUAL REPORT FORM 10-K OF THE MILLS
CORPORATION.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 25,263
<SECURITIES> 0
<RECEIVABLES> 27,811
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 896,467
<DEPRECIATION> 206,357
<TOTAL-ASSETS> 926,621
<CURRENT-LIABILITIES> 0
<BONDS> 703,713
0
0
<COMMON> 229
<OTHER-SE> 98,795
<TOTAL-LIABILITY-AND-EQUITY> 926,621
<SALES> 0
<TOTAL-REVENUES> 170,518
<CGS> 0
<TOTAL-COSTS> 47,745
<OTHER-EXPENSES> 44,993
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 41,006
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> (8,060)
<CHANGES> 0
<NET-INCOME> 16,411
<EPS-PRIMARY> .76
<EPS-DILUTED> .75
</TABLE>
