<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1999
Commission File Number 1-12994
THE MILLS CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 52-1802283
-------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
</TABLE>
1300 Wilson Boulevard, Arlington, Virginia 22209
-------------------------------------------------
(Address of principal executive offices - zip code)
(703) 526-5000
--------------
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
-------------------------------------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
23,940,245 shares of Common Stock
$.01 par value, as of May 13, 1999
<PAGE> 2
THE MILLS CORPORATION
FORM 10-Q
INDEX
-----
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
--------------------- ----
<S> <C>
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Consolidated Balance Sheets as of March 31, 1999
and December 31, 1998. 1
Consolidated Statements of Income for the
Three Months Ended March 31, 1999 and March 31, 1998. 2
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1999 and March 31, 1998. 3
Notes to Consolidated Financial Statements 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 11
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings 21
Item 2. Changes in Securities 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
Signature 22
</TABLE>
Certain matters discussed in this form 10-Q and the information incorporated by
reference herein contain "forward-looking statements" for purposes of Section
27A of the Securities Act of 1933, as amended (the "Securities Act") and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") relating to, without limitation, future economic performance, plans and
objectives of management for future operations (including Year 2000 compliance)
and projections of revenue and other financial items, demographic projections
and federal income tax consequences, which can be identified by the use of
forward-looking terminology such as "may," "will," "except," "anticipate,"
"estimate," or "continue" or the negative thereof or other variations thereon
or comparable terminology. Such forward-looking statements are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those described in such forward-looking statements. These risks
and uncertainties include those set forth in the Company's annual report on
Form 10-K and other SEC filings.
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
THE MILLS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
(Unaudited) (Note)
-------------- -----------------
<S> <C> <C>
ASSETS
Income producing property:
Land and land improvement $ 167,607 $ 167,607
Building and improvements 709,442 705,638
Furniture, fixtures and equipment 28,742 28,004
Less: accumulated depreciation and amortization (220,955) (214,766)
------------- ------------
Total income producing property 684,836 686,483
Land held for investment and/or sale 10,606 10,606
Real estate development in progress 34,718 28,987
Investment in unconsolidated joint ventures 171,881 145,980
------------ ------------
Total real estate and development assets 902,041 872,056
Cash and cash equivalents 4,100 10,510
Restricted cash 11,373 13,422
Accounts receivable 23,224 23,017
Notes receivable 6,396 6,291
Deferred costs, net 43,827 44,000
Other assets 4,424 1,066
------------ ------------
TOTAL ASSETS $ 995,385 $ 970,362
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgages, notes and loans payable $ 819,578 $ 782,182
Accounts payable and other liabilities 53,622 55,210
------------ ------------
Total liabilities 873,200 837,392
Minority interest 49,668 54,052
STOCKHOLDERS' EQUITY
Common stock $.01 par value, authorized 100,000,000
shares, issued and outstanding
23,131,697 shares in 1999 and 1998 231 231
Additional paid-in capital 439,448 439,448
Accumulated deficit (365,940) (359,404)
Unamortized restricted stock award (1,222) (1,357)
------------ -------------
Total stockholders' equity 72,517 78,918
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 995,385 $ 970,362
=========== ===========
</TABLE>
Note: The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See Accompanying Notes to Consolidated Financial Statements.
1
<PAGE> 4
THE MILLS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Three
Months Ended Months Ended
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
REVENUES:
Minimum rent $ 26,017 $ 24,537
Percentage rents 196 1,166
Recoveries from tenants 13,332 12,064
Other revenues 1,665 1,490
Fee income 3,328 1,379
Interest income 1,054 1,109
-------------- ------------
45,592 41,745
EXPENSES:
Recoverable from tenants 11,722 10,383
Other operating 1,202 1,469
General and administrative 2,924 2,406
Interest expense 11,123 11,094
Depreciation and amortization 8,617 9,612
-------------- ------------
35,588 34,964
Other expense (179) (43)
Equity in earnings of unconsolidated entities 1,017 1,940
-------------- -----------
Income before extraordinary item and minority interests 10,842 8,678
Extraordinary loss on debt extinguishment (2,762) --
--------------- -----------
Income before minority interests 8,080 8,678
Minority interests (3,285) (3,558)
--------------- ------------
Net income $ 4,795 $ 5,120
=============== ==============
Earnings Per Common Share - Basic:
Income before extraordinary item $ 0.28 $ 0.22
================ ================
Extraordinary loss on extinguishment of debt (0.07) --
================= ================
Net income per common share - basic $ 0.21 $ 0.22
=============== ================
Earnings Per Common Share - Assuming Dilution:
Income before extraordinary item $ 0.28 $ 0.22
=============== ================
Extraordinary loss on extinguishment of debt (0.07) --
================ ================
Net income per common share - assuming dilution $ 0.21 $ 0.22
=============== ================
Dividends declared per common share $ 0.5025 $ 0.4875
=============== ================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
2
<PAGE> 5
THE MILLS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Three
Months Ended Months Ended
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES:
Income before minority interests $ 8,080 $ 8,678
Adjustments to reconcile income before minority interests
to net cash provided by operating activities:
Net accretion of note receivable (175) (175)
Depreciation and amortization 8,617 9,612
Provision for losses on accounts receivable (13) (52)
Equity in earnings of unconsolidated entities (1,017) (1,940)
Amortization of restricted stock awards 134 342
Extraordinary loss on debt extinguishment 2,762 --
Other changes in assets and liabilities:
(Increase)/decrease in accounts receivable (408) 385
Decrease in notes receivable 70 179
(Increase)/decrease in other assets (2,403) (1,697)
Increase in accounts payable and other liabilities 401 (967)
------------ -------------
Net cash provided by operating activities 16,048 14,365
INVESTING ACTIVITIES:
Investment in real estate and development assets (48,047) (32,264)
Distributions received from unconsolidated entities 10,149 3,729
Deferred costs (1,518) (1,537)
------------- ------------
Net cash used in investing activities (39,416) (30,072)
FINANCING ACTIVITIES:
Proceeds from mortgages, notes and loans payable 130,576 21,500
Repayments of mortgages, notes and loans payable (93,180) (6,739)
Refinancing costs (3,487) --
Restricted cash 2,049 2,578
Dividends (11,276) (10,826)
Distributions (7,724) (7,542)
-------------- -------------
Net cash provided by (used in) financing activities 16,958 (1,029)
------------- -------------
Net decrease in cash and cash equivalents (6,410) (16,736)
Cash and cash equivalents at beginning of period 10,510 25,263
------------- -------------
Cash and cash equivalents at end of period $ 4,100 $ 8,527
================ =============
Supplemental disclosures of cash flow information:
Cash paid for interest, net of amounts capitalized $ 11,203 $ 11,075
================ ============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
3
<PAGE> 6
THE MILLS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
The Mills Corporation (the "Company") is a fully integrated,
self-managed real estate investment trust ("REIT").
The Company conducts all of its business through The Mills Limited
Partnership (the "Operating Partnership"), in which it owns, as of March 31,
1999 a 1% interest as the sole general partner and a 58.35% 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, retail and entertainment-oriented
centers (the "Mills" and "Block" projects) and community shopping centers
(the "Community Centers"). As of March 31, 1999, the Operating Partnership owns
or holds an interest in the following operating properties:
<TABLE>
<CAPTION>
Mills Location (Metropolitan Market Served)
----- -------------------------------------
<S> <C>
Franklin Mills Philadelphia, PA
Gurnee Mills Gurnee, IL (Chicago)
Potomac Mills Woodbridge, VA (Washington, DC)
Sawgrass Mills Sunrise, FL (Ft. Lauderdale)
Ontario Mills Ontario, CA (Los Angeles)
Grapevine Mills Dallas, TX (Dallas/Fort Worth)
Arizona Mills Tempe, AZ (Phoenix)
Block
-----
The Block at Orange Orange, CA (Los Angeles)
Community Centers
-----------------
Butterfield Plaza Downers Grove, IL
Coopers Plaza Voorhees, NJ
Crosswinds Center St. Petersburg, FL
Fashion Place Columbia, SC
Germantown Commons Shopping Center Germantown, MD
Gwinnett Marketfair Duluth, GA
Liberty Plaza Philadelphia, PA
Montgomery Village Off-Price Center Gaithersburg, MD
Mount Prospect Plaza Mount Prospect, IL
West Falls Church Outlet Center Falls Church, VA
Western Hills Plaza Cincinnati, OH
</TABLE>
In addition to the operating properties, the Company is involved in the
pre-development or development of a number of new projects.
4
<PAGE> 7
THE MILLS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared by
the Company's management in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. The results of operations for the
three-month period ended March 31, 1999 are not necessarily indicative of the
results that may be expected for the full year. These financial statements
should be read in conjunction with the Company's audited financial statements
and footnotes thereto included in the Mills Corporation Annual Report on Form
10-K for the year ended December 31, 1998.
The accompanying consolidated financial statements of the Company
include the accounts of the Company and its subsidiaries, including its majority
owned subsidiary, the Operating Partnership. The accounts of the Operating
Partnership include the accounts of all Properties which are wholly owned or
controlled by the Operating Partnership as well as its wholly owned subsidiaries
Mills Management L.L.C. ("Mills Management"), and Management Associates Limited
Partnership ("MALP"). In addition, the Operating Partnership owns 5% of the
voting common stock and 99% of the preferred stock of the MillsServices
Corp. ("MSC"), an entity formed in connection with the Company's initial
public offering to provide development, management, leasing and finance services
to third-party companies and unconsolidated entities. As a result of the
Operating Partnership's ownership of 99% of the economic interests, MSC is
consolidated with the Operating Partnership. The Company's interest in certain
Mills and Block operating properties, as well as certain properties under
development, are through investment in the partnerships that own Ontario Mills,
Ontario Mills Residual, Grapevine Mills, Grapevine Mills Residual, Arizona
Mills, Sawgrass Mills Phase III, The Block of Orange, Concord Mills, Katy Mills,
Opry Mills, Vaughan Mills and Meadowlands Mills. Such investments are accounted
for using the equity method of accounting. All significant intercompany
transactions and balances have been eliminated in consolidation. Minority
interests represent the ownership interests in the Operating Partnership not
held by the Company.
2. RECLASSIFICATIONS
Certain reclassifications of prior period amounts have been made in the
financial statements to conform to the 1999 presentation.
3. EARNINGS PER SHARE
The Company accounts for earnings per share pursuant to SFAS 128. Basic
EPS is calculated by dividing income available to common shareholders by the
weighted number of common shares outstanding during the period. Diluted EPS is
calculated by adjusting net income for the period for the effects on minority
interests resulting from issuance of stock pursuant to restricted stock or
option grants and dividing the resulting adjusted net income by the weighted
average shares outstanding during the period, adjusted for the dilutive effect
of options and stock grants.
5
<PAGE> 8
THE MILLS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1999 March 31, 1998
------------------ ------------------
<S> <C> <C>
Numerator for basic earnings per share $ 4,794 $ 5,116
============= ==============
Numerator for diluted earnings per share $ 4,803 $ 5,157
============= ==============
Denominators:
Denominator for basic earnings
per share -- weighted average shares 23,132 22,987
------------- --------------
Outstanding unvested Restricted Stock Awards
weighted average shares (20) (77)
Denominator for basic earnings per share -- ------------- --------------
adjusted weighted average shares 23,112 22,910
Effect of dilutive securities: ------------- --------------
Employee stock options and grants 93 417
Denominator for diluted earnings per ------------- --------------
share-adjusted weighted average shares 23,225 23,327
============= ==============
Basic earnings per share $ 0.21 $ 0.22
============= ==============
Diluted earnings per share $ 0.21 $ 0.22
============= ==============
</TABLE>
Limited partnership units in the Operating Partnership (15,844,084 outstanding
at March 31, 1999 and December 31, 1998) may be exchanged for shares of common
stock of the Company on a one-for-one basis in specified circumstances. This
exchange right has not been considered in the computation of per share data as
it does not have a dilutive effect.
4. MINORITY INTERESTS
Minority interests includes the interests of unitholders in the
Operating Partnership. The unitholders' interests are adjusted at each period
end to reflect the ownership percentage at that particular time. The
unitholders' interests were 40.65% at March 31, 1999 and December 31, 1998.
6
<PAGE> 9
THE MILLS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
5. INVESTMENT IN UNCONSOLIDATED ENTITIES
Certain operating properties and properties under development are
partially owned through joint ventures ("Joint Ventures") in which the Company
is also a co-general and co-managing partner. The Company's interest in each
Joint Venture is as follows:
<TABLE>
<CAPTION>
Ownership %
Joint Venture as of March 31, 1999
------------- --------------------
<S> <C>
Ontario Mills 50.0%
Grapevine Mills 37.5%
Arizona Mills 36.8%
Sawgrass Mills Phase III 50.0%
The Block at Orange 50.0%
Concord Mills 37.5%
Katy Mills 62.5%
Meadowlands Mills 66.7%
Opry Mills 66.7%
</TABLE>
The Company's ownership percentage in each joint venture is defined as
the Company's residual interest before giving consideration for a priority
return paid on partners' unreturned capital. In general, each partner earns a 9%
priority return on unreturned capital with the remaining cash flows split
according to ownership interest.
Since 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 78-9. As a result, its investments are
accounted for under the equity method, where the investments are recorded at
cost and subsequently adjusted for net equity in income (loss) and cash
contributions and distributions. The Company reduces its investments in Joint
Ventures to eliminate intercompany profits on sales of services that are
capitalized by the Joint Ventures.
In connection with the Joint Venture agreements, the Company is
committed to providing certain levels of equity in addition to amounts invested
to date. The Company has guaranteed repayment of $107.9 million of Joint Venture
debt until certain debt service coverage tests are met. In addition, the Company
is contingently liable for property taxes and assessments levied against Ontario
Mills Limited Partnership by the City of Ontario Special Assessment District.
The remaining aggregate amount of the special tax assessment is approximately
$18.8 million and will be collected over a 25 year period through 2020 to fund
debt service on bonds issued by the City to fund the infrastructure
improvements.
7
<PAGE> 10
THE MILLS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Condensed combined balance sheets at March 31, 1999 and December 31, 1998 and
results of operations for the three months ended March 31, 1999 and 1998 are
presented below for all Joint Ventures.
<TABLE>
<CAPTION>
MARCH 31, 1999
Operating Development Total
Assets:
<S> <C> <C> <C>
Income producing property $ 525,453 $ - $ 525,453
Construction in progress 26,475 325,756 352,231
Deferred costs, net 134,090 - 134,090
Other 73,204 14,325 87,529
---------------------------------------------
$ 759,222 $ 340,081 $ 1,099,303
=============================================
Liabilities and partners' equity:
Debt $ 562,741 $ 83,054 $ 645,795
Other liabilities 42,691 41,601 84,292
Operating Partnership's accumulated equity 22,225 93,949 116,174
Joint Venture partners' accumulated equity 131,565 121,477 253,042
---------------------------------------------
$ 759,222 $ 340,081 $ 1,099,303
=============================================
DECEMBER 31, 1998
Operating Development Total
Assets:
Income producing property $ 522,174 $ - $ 522,174
Construction in progress 34,787 264,434 299,221
Deferred costs, net 128,882 - 128,882
Other 79,562 33,573 113,135
---------------------------------------------
$ 765,405 $ 298,007 $ 1,063,412
=============================================
Liabilities and partners' equity:
Debt $ 546,726 $ 36,570 $ 583,296
Other liabilities 57,476 60,700 118,176
Operating Partnership's accumulated equity 23,761 83,114 106,875
Joint Venture partners' accumulated equity 137,442 117,623 255,065
---------------------------------------------
$ 765,405 $ 298,007 $ 1,063,412
=============================================
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999
Operating Development Total
<S> <C> <C> <C>
Revenues $ 29,902 $ 298 $ 30,200
Recoverable and other property expenses (9,748) (43) (9,791)
Interest expense (8,969) - (8,969)
Depreciation and amortization (8,198) - (8,198)
---------------------------------------
$ 2,987 $ 255 $ 3,242
=======================================
Operating Partnership's equity in earnings
of unconsolidated joint ventures $ 1,017 $ - $ 1,017
=======================================
THREE MONTHS ENDED MARCH 31, 1998
Operating Development Total
Revenues $ 21,973 $ 247 $ 22,220
Recoverable and other property expenses (6,822) (35) (6,857)
Interest expense (6,370) - (6,370)
Depreciation and amortization (6,165) - (6,165)
Other income 2,154 - 2,154
---------------------------------------
$ 4,770 $ 212 $ 4,982
=======================================
Operating Partnership's equity in earnings
of unconsolidated joint ventures $ 1,940 $ - $ 1,940
=======================================
</TABLE>
<PAGE> 11
THE MILLS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
The primary difference between the carrying value of the Company's
investment in unconsolidated joint ventures and the Operating Partnership's
accumulated equity noted above is due to capitalized interest on the investment
balance, and capitalized development and leasing costs which are recovered by
the Operating Partnership through fees earned during construction and loans to
the Joint Ventures included in other liabilities above.
6. REVENUE 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 is recognized on a straight-line basis over
the terms of the respective leases. Commencing in the second quarter of 1998,
percentage rents are recognized when tenants' sales have reached breakpoints
stipulated in the respective leases. For periods prior to the second quarter of
1998, such rents were recognized on an accrual basis. The effect of
implementation of this policy was a decrease in percentage rent for the three
months ended March 31, 1999, which the Company expects to recognize as income in
the fourth quarter of 1999.
7. DECLARATION OF DIVIDEND
On February 23, 1999, the Company declared a dividend of $.5025 per
share which was paid on April 27, 1999 to stockholders of record as of April 12,
1999.
9
<PAGE> 12
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Comparison of three months ended March 31, 1999 to three months ended March 31,
1998.
Income before extraordinary item and minority interest for the three months
ended March 31, 1999 increased by approximately $2.2 million, (24.9%) to $10.8
million as compared to the three months ended March 31, 1998. The increase was
the result of an increase in revenues of approximately $3.8 million (9.2%)
offset by an increase in expenses of approximately $0.6 million (1.8%), and a
decrease in equity in earnings of unconsolidated joint ventures of $0.9 million
(47.6%).
Revenues:
Minimum rent for the three months ended March 31, 1999 increased approximately
$1.5 million (6.0%) compared with the three months ended March 31, 1998. The
increase was primarily due to additional rents obtained in connection with the
Company's expansion and remerchandising efforts at Franklin Mills and Gurnee
Mills as well as higher lease rates across the properties. Also, the addition of
two anchor tenants at the community centers contributed to the increase in
minimum rents.
Percentage rents for the three months ended March 31, 1999 decreased
approximately $1.0 million (83.2%) compared with the three months ended March
31, 1998. The decrease was due to the implementation in the second quarter of
1998 of a policy of not recognizing percentage rents until the tenant's sales
have reached the break points stipulated in the respective leases. The Company
expects to recognize the percentage rent as income in the fourth quarter 1999.
Recoveries from tenants for the three months ended March 31, 1999 increased $1.3
million (10.5%) compared to the three months ended March 31, 1998. The increase
was primarily due to increases in occupancy and recoverable operating costs for
various projects.
Fee income for the three months ended March 31, 1999 increased $1.9 million
(141.3%) compared with the three months ended March 31, 1998. Fee income for the
three months ended March 31, 1999 is comprised of management fees of
approximately $1.0 million and development, leasing and finance fees of
approximately $2.3 million as compared to $0.8 million and $0.6 million,
respectively, for the same period in 1998. The increase in management fees in
1999 was due to the opening of one Block project in the fourth quarter 1998
(The Block at Orange) from which the Company is earning management fees. The
increase in development, leasing and finance fees in 1999 was due to fees being
earned from five projects in the first quarter of 1999 (The Block at Orange,
Katy Mills, Concord Mills, Opry Mills and Sawgrass Phase III Expansion) versus
three projects in the first quarter of 1998 (The Block at Orange, Grapevine
Mills and Ontario Mills).
Expenses:
Recoverable expenses for the three months ended March 31, 1999 increased $1.3
million (12.9%) compared with the three months ended March 31, 1998. The
increase was primarily due to an increase in real estate taxes of $0.3 million
at Sawgrass Mills and $0.1 million at each of the following projects: Potomac
Mills, Gurnee Mills and Mount Prospect. Additionally, Franklin Mills, Gurnee
Mills, Potomac Mills and Mount Prospect had combined increased snow removal
costs of $0.2 million.
General and administrative expenses for the three months ended increased $0.5
million (21.5%) compared with the three months ended March 31, 1998. The
increase was due to the increase in costs associated with the Company's retail
operations.
Other operating expenses for the three months ended March 31, 1999 decreased
$0.3 million (18.2%) compared with the three months ended March 31, 1998. The
decrease was primarily due to a decrease in contribution to promotional programs
of $0.2 million at Gurnee Mills.
Depreciation an amortization expense for the three months ended decreased
$1.0 million (10.4%) compared with the three months ended March 31, 1998. The
decrease was primarily due to $0.6 million decrease in expense relating to
assets reaching the end of their depreciable or amortizable lives at Gurnee
Mills.
Equity in earnings of unconsolidated joint ventures for the period March 31,
1999 decreased $0.9 million (47.6%) compared with the three months ended March
31, 1998. The decrease was primarily due to joint venture land sales in the
first quarter of 1998 offset by income earned at the Block at Orange which
commenced operations in the fourth quarter of 1998
10
<PAGE> 13
Extraordinary losses on debt extinguishments for the period March 31, 1999
increased $2.8 million (100.0%) compared with the three months ended March 31,
1998. The increase was due to a prepayment penalty of $2.4 million that was paid
with the refinancing of the community centers in the first quarter of 1999 plus
the write-off of the related prior unamortized loan costs.
11
<PAGE> 14
THE MILLS CORPORATION
(Unaudited)
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1999, the Company's balance of cash and cash equivalents was
$4.1 million, not including its proportionate share of cash held in
unconsolidated entities. In addition to its cash reserves, the Company had $4
million available under its line of credit. The terms of this facility are as
follows:
<TABLE>
<CAPTION>
AMOUNT
MATURITY/ TOTAL OUTSTANDING
--------- FACILITY AT 3/31/99
EXTENSION INTEREST RATE TERMS (000'S) (000'S)
--------- ------------- ----- -------- ------------
<S> <C> <C> <C> <C> <C>
Line of Credit................... 4/1/00 LIBOR + 1.40% Interest Only $ 100,000 $ 96,000
4/1/01
</TABLE>
FINANCING ACTIVITIES. During 1999, the Company completed several
financing and refinancing activities which extended the weighted average
remaining term of the Company's indebtedness (including funded construction and
operating debt of the unconsolidated joint ventures) from 5.2 years at December
31, 1998 to 5.3 years at March 31, 1999, while maintaining investment-grade
interest rates (6.78% weighted average interest rate for the Company's
indebtedness and funded construction and operating debt of the unconsolidated
joint ventures at March 31, 1999).
On March 31, 1999, the Katy Mills joint venture entered into a
construction loan commitment in the amount of $168 million. The loan commitment
matures on March 31, 2002 with a one year extension option. The interest rate is
payable at a variable rate with a variable margin, which is LIBOR plus 2.00% at
March 31, 1999. The Company guarantees 100% of the outstanding loan balance
until specified debt service requirements based on historical operating data are
fulfilled.
On March 31, 1999, the Katy Mills joint venture entered into a tax
increment financing bridge loan commitment in the amount of $25 million. The
loan will be used to bridge tax increment financing bonds that will be sold
later in 1999. The loan commitment matures on March 31, 2001. The interest rate
is payable at a variable rate with a variable margin at either the base rate
(which is the greater of the prime rate or federal funds rate plus 2.75%) or
LIBOR plus 2.75%. The Company guarantees the outstanding bridge loan balance.
On February 4, 1999, the Company received a five year, $750 million
capital commitment from Kan Am, a significant unitholder of the Operating
Partnership and joint venture partner, to fund future development projects.
Subject to terms and conditions, Kan Am will continue to fund certain project
level capital as they have on several of the Company's prior projects.
Approximately $300 million is to be funded in specifically identified
development projects over the next two years. In addition, Kan Am has agreed to
work with the Company to identify such other projects, and to use best efforts
to provide funding for such projects, in the approximate amount of $150 million
in each of 2001, 2002 and 2003. Consistent with prior partnerships, Kan Am will
fund up to 100% of a specific project's equity requirement and receive a
percentage of ownership interest equal to half of the percentage of equity that
they have funded.
On January 27, 1999, the Company entered into a nonrecourse mortgage
loan of $112.5 million for ten Community Centers. The proceeds were used to
repay a prior mortgage loan of $81.8 million. This new indebtedness is a 30-year
amortizing loan with an anticipated balloon repayment date of February 1, 2009.
The loan bears a fixed interest rate of 7.30%.
Effective October 28, 1996, the Company filed a universal shelf
registration statement on Form S-3 to offer a maximum of $250.0 million of
common stock, preferred stock and common stock warrants. Pursuant to this shelf
registration, the Company sold a total of 5,325,000 shares of common stock in
1997 generating net proceeds of $121.8 million.
12
<PAGE> 15
The Company had consolidated debt of approximately $819.6 million and
unconsolidated joint venture debt of approximately $645.8 million at March 31,
1999; $666.6 million was fixed-rate and $153.0 million was
variable-rate for the consolidated debt and $299.5 million was fixed-rate and
$346.3 million was variable rate for the unconsolidated joint venture debt.
Scheduled principal repayments of consolidated indebtedness through 2003 are
$322.1 million with $497.5 million due thereafter and scheduled principal
repayments of unconsolidated joint venture debt through 2003 are $357.2 million
with $288.6 million due thereafter . The Company and its partners expect 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
March 31, 1999, was $270.1 million (net of tax increment financing), of which it
had guaranteed $107.9 million.
The Company's EBITDA (earnings before interest, taxes, depreciation,
amortization and extraordinary items) to interest expense coverage ratio
(including the Company's proportionate share of EBITDA and interest expense of
unconsolidated joint ventures) was 2.50 and 2.51 at March 31, 1999 and March
31, 1998, respectively.
13
<PAGE> 16
THE MILLS CORPORATION
(Unaudited)
Development, Remerchandising and Expansion. The Company is involved in
the following development, remerchandising and expansion efforts:
The Company's most significant development efforts currently are focused
on the development of six projects: Katy Mills, Concord Mills, Opry Mills,
Arundel Mills, Vaughan Mills, and Meadowland Mills.
Katy Mills and Concord Mills are scheduled to open in the second half of
1999. These projects will be financed principally with external borrowings and
equity contributions from joint venture partners and the Operating Partnership.
The Concord Mills joint venture has obtained a $199.0 million construction loan
commitment and the Katy Mills joint venture has obtained a $168 million
construction loan commitment for their respective projects. The Company
anticipates that the Operating Partnership's equity requirements for Concord
Mills and Katy Mills may total as much as $38.8 million in the aggregate, of
which approximately $61.3 million had been funded as of March 31, 1999,
representing an over-funding of $22.5 million. This over-funding, which resulted
primarily from the admittance of Kan Am into Concord Mills joint venture in the
fourth quarter of 1998, will be refunded in the first half of 1999 as Kan Am
fulfills its equity requirements.
Opry Mills and Arundel Mills are scheduled to open in 2000. The
Operating Partnership committed $50.0 million of equity financing for Opry
Mills of which $10.3 million has been funded as of March 31, 1999 and Opryland
Attractions, Inc. contributed land valued at $25.0 million. The remaining
project costs are expected to be financed through a construction loan. Opry
Mills broke ground on October 5, 1998.
Jointly with Simon Property Group L.P., the Company entered into a
purchase agreement to acquire an approximately 400-acre site located near
Baltmore, Maryland for the Arundel Mills project. Subject to obtaining necessary
approvals, the Company anticipates closing on the acquisition of the site and
commencing construction in 1999. The Company anticipates that the project will
be developed in a joint venture arrangement with Simon Property Group and Kan
Am.
In February 1998, the Company announced that it had secured a site in
Vaughan, Ontario for the development of Vaughan Mills, the first Mills project
to be developed outside the United States. The project will be developed through
a joint venture with Cambridge Shopping Centres Limited of Toronto.
The Company has acquired a mortgage interest in a 592-acre site located
on the New Jersey Turnpike (I-95) adjacent to the Meadowlands Sports Complex
and approximately five miles from New York City. Commencement of construction
may be delayed pending the completion of ongoing Environmental Impact Statement
and the federal/state permitting process. A Special Area Management Plan (SAMP)
for the Meadowlands area was published in the Federal Register on April 22,
1999. The guidelines proposal in the SAMP would, upon their anticipated
adoption in the third quarter of 1999, permit development of 1.5 million square
feet of gross leaseable area (GLA) for Meadowlands Mills. The project would be
developed on an entitled site of 90.5 acres plus roads and retention
facilities. Upon procurement of all necessary entitlements it is anticipated
that the project will be developed by a joint venture formed among the
Operating Partnership, Kan Am, Empire Ltd., and Bennett S. Lazare, an
individual affiliated with the Empire Ltd.
The Company anticipates that the Operating Partnership's total required
equity for Arundel Mills, Opry Mills, Meadowlands Mills and Vaughan Mills may
exceed $100 million of which approximately $36.1 million had been funded as of
March 31, 1999. The Company is currently negotiating arrangements to obtain the
balance of such equity requirements, but these arrangements are subject to
certain matters outside the control of the Company.
In addition to the above, the Company is also conducting due diligence
on several other proposed sites, including sites in San Francisco, California;
North Aurora, Illinois (Chicago); Atlanta, Georgia; Cleveland, Ohio; Denver,
Colorado; Philadelphia, Pennsylvania; South Weymouth, Massachusetts (Boston) and
Tampa, Florida. The Company is also continuing to evaluate various prospective
international sites with a concentrated focus on Western Europe as well as other
domestic sites for other Mills-type projects and for the Company's new "Block"
project format.
14
<PAGE> 17
The Company is in the process of expanding and/or remerchandising
Potomac Mills, Sawgrass Mills, Franklin Mills, Gurnee Mills and Ontario Mills.
The costs of these expansion and remerchandising programs is estimated at $169.5
million. At March 31, 1999, approximately $98.3 million had been spent on these
projects and it is anticipated that an additional $7l.2 million will be spent
during the next two years. Of the estimated costs of $169.5 million, $77.2
million will be financed with external sources and $92.3 million will be funded
by the Operating Partnership. At March 31, 1999, the Operating Partnership had
funded $58.9 million of the required equity to finance those programs.
15
<PAGE> 18
THE MILLS CORPORATION
(Unaudited)
Capital Resources. The Company anticipates that its operating expenses,
interest expense on outstanding indebtedness, recurring capital expenditures and
distributions to stockholders in accordance with REIT requirements will be
provided by cash generated from operations, potential ancillary land sales and
borrowings under its Line of Credit.
The Company believes that it will have the capital and access to
additional capital resources sufficient to expand and develop its business in
accordance with its operating, development and financing strategies.
Dividends. The Company has paid and intends to continue to pay regular
quarterly distributions to its stockholders. Dividends are payable at the
discretion of the Board of Directors and depend on a number of factors,
including net cash provided by operating activities, its financial condition,
capital commitments, debt repayment schedules and such other factors as the
Board of Directors deems relevant.
CASH FLOWS
Comparison of Three Months Ended March 31, 1999 to Three Months Ended
March 31, 1998. Net cash provided by operating activities increased
approximately $1.7 million (11.7%) to $16.0 million for the three months ended
March 31, 1999 as compared to $14.4 million for the three months ended March 31,
1998. Net cash used in investing activities increased approximately $9.3 million
(31.1%) to $39.4 million for the three months ended March 31, 1999, as compared
to $30.1 million for the three months ended March 31, 1998, primarily as a
result of increased expenditures for real estate and development assets and
advances to certain joint ventures offset by an increase in distributions
received from unconsolidated entities. Net cash provided by financing
activities increased approximately $18.0 million (1748.0%) to $17.0 million for
the three months ended March 31, 1999 as compared to $(1.0) million for the
three months ended March 31, 1998. The increase in net cash provided by
financing activities was due to the refinancing of ten community centers.
FUNDS FROM OPERATIONS
The Company generally considers Funds From Operations ("FFO") a widely
used and appropriate measure of performance for an equity REIT which provides
a relevant basis for comparison among REITs. FFO as defined by National
Association of Real Estate Investment Trusts (NAREIT) means income (loss)
before minority interest (determined in accordance with generally accepted
accounting principles (GAAP)), excluding gains (losses) from debt restructuring
and sales of property, plus real estate related depreciation and amortization
and after adjustments for unconsolidated partnerships and joint ventures. FFO
is presented to assist investors in analyzing the performance of the Company.
The Company's method of calculating FFO may be different from methods used by
other REITs and, accordingly, may not be comparable to such other REITs. FFO
(i) does not represent cash flows from operations as defined by GAAP, (ii) is
not indicative of cash available to fund all cash flow needs and liquidity,
including its ability to make distributions and (iii) should not be considered
as an alternative to net income (determined in accordance with GAAP) for
purposes of evaluating the Company's operating performance.
16
<PAGE> 19
THE MILLS CORPORATION
(Unaudited)
FFO for the three months ended March 31, 1999 increased to $21.5 million
compared to $19.6 million for the comparable period in 1998. FFO amounts were
calculated in accordance with NAREIT's definition of FFO as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
Three Months Ended
March 31,
---------
- ----------------------------------------------------------------------------
1999 1998
---- ----
(Dollars in
thousands)
<S> <C> <C>
Funds from operations calculation:
Income before extraordinary item
and minority interests.................... $ 10,842 $ 8,678
Adjustments:
Add: Depreciation and amortization of real
estate assets........................... 7,714 8,559
Add: Real estate depreciation and 2,748 2,334
amortization of unconsolidated entities -------- --------
$ 21,304 $ 19,571
Funds from operations....................... ========= ========
- ----------------------------------------------------------------------------
</TABLE>
SEASONALITY
The regional shopping center industry is seasonal in nature, with mall
tenant sales peaking in the fourth quarter due to the Christmas season. As a
result, a substantial portion of the percentage rents are not paid until the
fourth quarter. Furthermore, most new lease-up occurs towards the latter part of
the year in anticipation of the holiday season and most vacancies occur toward
the beginning of the year. In addition, the majority of the temporary tenants
take occupancy in the fourth quarter. Accordingly, cash flow and occupancy
levels are generally lowest in the first quarter and highest in the fourth
quarter. This seasonality also impacts the quarter-by-quarter results of net
operating income and FFO, although this impact is largely mitigated by
recognizing minimum rents on a straight-line basis over the term of related
leases in accordance with GAAP.
ECONOMIC TRENDS
Because inflation has remained relatively low during the last three
years, it has had little impact on the operation of 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 ("Y2K") presents the problem that many existing computer
programs do not have the ability to properly recognize a year that begins with
"20" instead of the familiar "19". As a result, programs having time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. The failure to accurately recognize the year 2000 could result in a
variety of problems from data miscalculations to system failure. The Company has
identified potential risks related to the Y2K problem in five primary areas:
computer hardware, operating systems software, applications software, telephone
and voice mail, and embedded/3rd-party systems.
17
<PAGE> 20
THE MILLS CORPORATION
(Unaudited)
STATE OF READINESS
A. The Project Plan
The Company has developed a Year 2000 Compliance Assessment and
Remediation Project Plan (the "Project Plan") for the purpose of identifying,
understanding and addressing the issues associated with the Y2K problem. The
Project Plan involves three phases: Phase I (which has been implemented)
involved establishing a team of Company personnel and outside consultants who
would provide the technical expertise, temporary human resources and Project
management skills necessary to execute the Plan; Phase II (which is currently in
progress) focuses on inventory (i.e. identifying hardware, software, and
critical embedded/3rd-party systems) and assessment of Company information
technology and telecommunications systems; and Phase III (which will be
implemented in 1999) shall involve the repair or replacement of non-compliant
hardware, software and embedded systems, if required.
With respect to Y2K readiness of embedded systems, the Company is
seeking assurances from its vendors, contractors, lenders and tenants through
questionnaires, and will conduct testing, verification and/or remediation
in-house on an as needed basis. To date, questionnaires have been sent and
responses are being recorded and logged for follow-up. With respect to computer
systems, the Company is using consultants and in-house staff to inventory, test
and verify Y2K compliance of all hardware and software.
B. Financial and Accounting Systems
The Company has assessed its exposure with respect to its accounting and
management software. Specifically, a new general ledger system has been
installed and fully Y2K compliant in the first quarter 1999. The Company has
also developed its own Y2K compliant software package for its tenant ledger
system that was installed in 1998. The Company's payroll service provider has
recently received its ITAA*2000 certification. The Company will continue to
assess its software to determine whether additional portions will have to be
modified or replaced.
COSTS
The Company currently estimates a completion date of June 1999 for the
Y2K project. The Company believes that with the implementation of the new
financial and accounting systems, planned and completed, the Y2K issue will not
pose significant operational issues or costs. However, the costs of the project
and the date on which the Company plans to complete the Y2K modifications are
based on management's best estimates, which were derived utilizing numerous
assumptions of future events including the continued availability of certain
resources, third party Y2K readiness and other factors.
RISK ASSESSMENT
Based on the information the Company has received to date, the Company
does not believe that the impact of the Y2K problem will have a material adverse
effect on the its financial condition and results of operations. Moreover,
because the Company's major source of income is rental payments under long term
leases, the failure of key information systems is not expected to have a
material adverse effect on the Company's financial condition and results of
operations. Even if the Company experienced problems with its information
systems, the payment of rent under the leases would not be excused.
Should any of the Company's lenders, manufacturers, vendors or suppliers
cease to conduct business due to Y2K related problems, the Company is prepared
to contract with alternate providers without experiencing any material adverse
effect on the its financial condition and results of operations. With regard to
tenants, the Company is currently contacting tenants in order to assess the risk
of tenants' failure to operate due to the Y2K problem and the possible effect on
the Company's rental income, if any.
18
<PAGE> 21
CONTINGENCY PLANS
Contingency plans will be prepared so that the Company's critical
business processes can be expected to continue to function on January 1, 2000
and beyond.
19
<PAGE> 22
THE MILLS CORPORATION
(Unaudited)
<TABLE>
<CAPTION>
PART II - OTHER INFORMATION
<S> <C>
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The Exhibit Index attached hereto is hereby incorporated
by reference to this item.
Report on Form 8-K was filed by the Company on January 13,
1999 to report certain operational information concerning
the Company and the properties owned or managed by it as
of September 30, 1998. No other reports on Form 8-K were
filed by registrant for the applicable quarter covered by
this report.
</TABLE>
20
<PAGE> 23
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE MILLS CORPORATION
May 13, 1999 /s/ Kenneth R. Parent
- --------------- ---------------------------
(Date) Kenneth R. Parent
Executive Vice President, Finance
and Chief Financial Officer
(Principal Financial and Accounting Officer)
21
<PAGE> 24
THE MILLS CORPORATION
---------------------
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
NUMBER EXHIBIT
- ------ -------
<S> <C>
+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,
EquityResources 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
**10.3 Limited Partnership Agreement of Operating Partnership
*10.4 Form of Noncompetition Agreement between the Company, the
Operating Partnership and each of Kan Am and Kan Am
Partnerships of Kan Am and the Kan Am Partnerships
*10.5 Form of Noncompetition Agreement with Kan Am Directors
*10.6 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
*10.7 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
*10.8 Assignment of Leases and Rents, dated as of December
1, 1993, between Sunrise Mills Limited Partnership
and Sawgrass Finance L.L.C.
*10.9 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.
*10.10 Agreement dated March 15, 1994 among Richard L. Kramer, the
A.J. 1989 Trust, the Irrevocable Intervivos Associates, Herbert
S. Miller, The Mills Corporation and The Mills Limited
Partnership
</TABLE>
<PAGE> 25
<TABLE>
<S> <C>
*10.11 Form of Indemnification Agreement between the Company and each
of its Directors and Executive Officers
***10.12 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.
***10.13 Prepayment Premium Agreement dated as of June 1,
1995, between The Mills Limited Partnership and State
Street Bank and Trust Company, as trustee.
****10.14 Second Amendment 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.
****10.15 Form of 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 (see Exhibit
10.53).
****10.16 Mortgage Security Agreement, Assignment of Rents and Fixture
Filing by Gurnee Mills (MLP) Limited Partnership to CS First
Boston Mortgage Capital Corp., as Mortgagee dated as of
December 17, 1996
****10.17 Form of 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.
****10.18 Trust and Servicing Agreement dated as of December
17, 1996 among Potomac Gurnee Finance Corp., as
Depositor, AMRESCO Management, Inc., as Servicer, ABN
AMRO Bank NY, as Fiscal Agent and LaSalle National
Bank as Trustee.
</TABLE>
- -----------------------
* Incorporated by reference to the Registrant's Registration Statementon
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 Quarterly Report on Form
10-Q for the second quarter ended June 30, 1995.
**** Incorporated by reference to the Registrant's Quarterly Annual Report
on Form 10-Q for the third quarter ended September 30, 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 second quarter ended September 30, 1997.
+++ Incorporated by reference to the Registrant's Annual Report on form
10-K for the year ended December 31, 1998.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 4,100
<SECURITIES> 0
<RECEIVABLES> 29,620
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 905,791
<DEPRECIATION> (220,955)
<TOTAL-ASSETS> 995,385
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 231
<OTHER-SE> 121,954
<TOTAL-LIABILITY-AND-EQUITY> 995,385
<SALES> 0
<TOTAL-REVENUES> 46,609
<CGS> 0
<TOTAL-COSTS> 35,588
<OTHER-EXPENSES> 179
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,123
<INCOME-PRETAX> 8,080
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> (2,762)
<CHANGES> 0
<NET-INCOME> 4,795
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.21
</TABLE>
