<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2000
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.
24,001,996 shares of Common Stock
$.01 par value, as of August 10, 2000
<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 June 30, 2000 1
and December 31, 1999.
Consolidated Statements of Income for the 2
Three Months Ended June 30, 2000 and June 30, 1999.
Consolidated Statements of Income for the 3
Six Months Ended June 30, 2000 and June 30, 1999.
Consolidated Statements of Cash Flows for the 4
Six Months Ended June 30, 2000 and June 30, 1999.
Notes to Consolidated Financial Statements 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 19
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings 20
Item 2. Changes in Securities 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
Signature 21
</TABLE>
Certain matters discussed in this Form 10-Q and the information incorporated by
reference herein contain "forward-looking statements" for purposes of Section
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, 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>
June 30, 2000 December 31,1999
(Unaudited) (Note)
----------------------- ---------------------------
<S> <C> <C>
ASSETS Income producing property:
Land and land improvement $ 171,127 $ 171,024
Building and improvements 736,718 725,530
Furniture, fixtures and equipment 42,595 36,958
Less: accumulated depreciation and amortization (252,900) (239,484)
-------------- ----------------
Total income producing property 697,540 694,028
Land held for investment and/or sale 9,879 9,924
Real estate development in progress 49,113 33,138
Investment in unconsolidated joint ventures 221,479 201,152
-------------- ----------------
Total real estate and development assets 978,011 938,242
Cash and cash equivalents 1,471 3,035
Restricted cash 14,276 13,771
Accounts receivable, net 30,726 25,389
Notes receivable 8,659 8,351
Deferred costs, net 49,527 47,942
Other assets 5,886 2,737
---------------- ----------------
TOTAL ASSETS $ 1,088,556 $ 1,039,467
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgages, notes and loans payable $ 944,540 $ 877,273
Accounts payable and other liabilities 66,579 61,189
---------------- ---------------
Total liabilities 1,011,119 938,462
Minority interests 31,269 40,978
STOCKHOLDERS' EQUITY
Common stock $.01 par value, authorized 100,000,000
shares, issued and outstanding 23,368,589 and
23,192,041 shares in 2000 and 1999, respectively 232 232
Additional paid-in capital 443,994 440,924
Accumulated deficit (394,332) (379,306)
Unamortized restricted stock award (3,726) (1,823)
---------------- -----------------
Total stockholders' equity 46,168 60,027
---------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,088,556 $ 1,039,467
================ ================
</TABLE>
Note: The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by accounting principles generally accepted in the United
States 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
June 30, 2000 June 30, 1999
------------- -------------
<S> <C> <C>
REVENUES:
Minimum rent $ 26,216 $ 25,948
Percentage rent 291 338
Recoveries from tenants 13,142 13,173
Other property revenue 2,213 1,756
Management fee income 1,821 1,054
Other fee income 2,502 1,608
Interest income 525 482
----------------- -----------------
46,710 44,359
EXPENSES:
Recoverable from tenants 11,193 11,488
Other operating 1,384 1,252
General and administrative 3,800 2,960
Interest expense 14,462 11,647
Depreciation and amortization 9,990 8,776
----------------- -----------------
40,829 36,123
Other income/(expense) (329) 822
Equity in earnings of unconsolidated joint ventures 2,521 2,340
----------------- -----------------
Income before extraordinary item and minority interests 8,073 11,398
Extraordinary losses on debt extinguishments (1,634) -
----------------- -----------------
Income before minority interests 6,439 11,398
Minority interests (2,598) (4,628)
----------------- -----------------
Net income $ 3,841 $ 6,770
================= =================
PER SHARE INFORMATION:
Net income per common share - basic:
Income before extraordinary item $ 0.21 $ 0.29
Extraordinary losses on debt extinguishment (0.05) -
----------------- -----------------
Net income $ 0.16 $ 0.29
================= =================
Net income per common share - diluted:
Income before extraordinary item $ 0.21 $ 0 29
Extraordinary loss on debt extinguishment (0.05) -
----------------- -----------------
Net income $ 0.16 $ 0.29
================= =================
Dividends declared $ 0.5175 $ 0.5025
================= =================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
2
<PAGE> 5
THE MILLS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Six Six
Months Ended Months Ended
June 30, 2000 June 30, 1999
------------- -------------
<S> <C> <C>
REVENUES:
Minimum rent $ 51,922 $ 51,965
Percentage rent 637 534
Recoveries from tenants 26,528 26,505
Other property revenue 4,500 3,421
Management fee income 3,614 2,005
Other fee income 4,912 3,985
Interest income 1,312 1,536
--------------- ---------------
93,425 89,951
EXPENSES:
Recoverable from tenants 22,648 23,210
Other operating 2,359 2,454
General and administrative 7,135 5,884
Interest expense 27,263 22,770
Depreciation and amortization 19,233 17,393
--------------- ---------------
78,638 71,711
Other income/(expense) (700) 643
Equity in earnings of unconsolidated joint ventures 4,189 3,357
--------------- ---------------
Income before extraordinary item and minority interests 18,276 22,240
Extraordinary losses on debt extinguishments (3,147) (2,762)
--------------- ---------------
Income before minority interests 15,129 19,478
Minority interests (6,122) (7,913)
--------------- ---------------
Net income $ 9,007 $ 11,565
=============== ===============
PER SHARE INFORMATION:
Net income per common share - basic:
Income before extraordinary item $ 0.47 $ 0.57
Extraordinary losses on debt extinguishment (0.08) (0.07)
--------------- ---------------
Net income $ 0.39 $ 0.50
=============== ===============
Net income per common share - diluted:
Income before extraordinary item $ 0.47 $ 0 57
Extraordinary loss on debt extinguishment (0.08) (0.07)
--------------- ---------------
Net income $ 0.39 $ 0.50
=============== ===============
Dividends declared $ 1.035 $ 1.005
=============== ===============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
3
<PAGE> 6
THE MILLS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Six
Months Ended Months Ended
June 30, 2000 June 30, 1999
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Income before minority interests $ 15,129 $ 19,478
Adjustments to reconcile income before minority interests
to net cash provided by operating activities:
Net accretion of note receivable (350) (350)
Depreciation and amortization 19,233 17,393
Provision for losses on accounts receivable (520) 427
Gain on sale of property (131) (728)
Equity in earnings of unconsolidated joint ventures (4,189) (3,357)
Amortization of incentive stock programs 1,167 372
Extraordinary loss on debt extinguishment 3,147 2,762
Other changes in assets and liabilities:
Increase in accounts receivable (3,067) (353)
(Increase) decrease in notes receivable (38) 371
Increase in other assets (2,729) (3,137)
Increase in accounts payable and other liabilities 5,859 968
--------- ---------
Net cash provided by operating activities 33,511 33,846
INVESTING ACTIVITIES:
Investment in real estate and development assets (63,324) (57,203)
Distributions received from unconsolidated joint ventures 11,319 12,356
Proceeds from sale of property 500 800
Notes receivable 80 -
Deferred costs (5,536) (4,373)
--------- ---------
Net cash used in investing activities (56,961) (48,420)
FINANCING ACTIVITIES:
Proceeds from mortgages, notes and loans payable 354,663 198,546
Repayments of mortgages, notes and loans payable (287,397) (146,673)
Refinancing costs (4,977) (4,593)
Restricted cash (505) (3,261)
Dividends (23,811) (23,306)
Distributions (16,087) (15,302)
--------- ---------
Net cash provided by financing activities 21,886 5,411
Net decrease in cash and cash equivalents (1,564) (9,163)
Cash and cash equivalents at beginning of period 3,035 10,510
--------- ---------
Cash and cash equivalents at end of period $ 1,471 $ 1,347
========= =========
Supplemental disclosures of cash flow information:
Cash paid for interest $ 34,511 $ 28,712
========= =========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
4
<PAGE> 7
THE MILLS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
The Mills Corporation (the "Company") is a fully integrated,
self-managed real estate investment trust ("REIT").
The Company conducts all of its business through The Mills Limited
Partnership (the "Operating Partnership"), in which it owns, as of June 30,
2000, a 1% interest as the sole general partner and a 58.62% 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 June 30, 2000 the Operating Partnership owns or
holds an interest in the following operating properties (see Note 10):
<TABLE>
<CAPTION>
Mills Location (Metropolitan Market Served)
----- -------------------------------------
<S> <C>
Franklin Mills Philadelphia, PA (Philadelphia)
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)
The Oasis at Sawgrass Sunrise, FL (Ft. Lauderdale)
Concord Mills Concord, NC (Charlotte)
Katy Mills Katy, TX (Houston)
Opry Mills Nashville, TN (Nashville)
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 actively
involved in the development of new Mills-type and other retail oriented
projects.
5
<PAGE> 8
THE MILLS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared by
the Company's management in accordance with accounting principles generally
accepted in the United States 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 accounting
principles generally accepted in the United States 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 and six month periods ended
June 30, 2000, are not necessarily indicative of the results that may be
expected for the full year. These financial statements should be read in
conjunction with Management's Discussion and Analysis of Financial Condition and
Results of Operation contained in the Form 10-Q and the Company's audited
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1999.
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 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 and Block operating properties, as well as certain properties under
development, are through investments in joint ventures. MSC also owns 100%
of Mills Enterprises, Inc. ("MEI"), an entity that owns Foodbrand (the
Company's food and beverage entity that was created in 1999 to master lease
and operate food courts at the Company's malls with existing operations at
Katy Mills, Franklin Mills, Opry Mills and future projects under development)
and which holds investments in other retail joint ventures. Such investments
are accounted for using the equity method of accounting (see note 6).
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. SEGMENT REPORTING
The Company operates in one reportable segment, the development,
ownership and operation of retail properties. These properties consist of
"Mills" superregional value and entertainment oriented malls, "Block" retail and
entertainment properties, community center retail shopping centers, food court
operations and other retail operations. Substantially all the Company's assets,
revenues and income are derived from this segment. The Company currently has no
operations in foreign countries.
6
<PAGE> 9
THE MILLS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
3. RECLASSIFICATIONS
Certain reclassifications of prior period amounts have been made in the
financial statements to conform to the 2000 presentation.
4. 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.
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 Six Months Ended
June 30, 2000 June 30, 2000
------------- -------------
<S> <C> <C>
Numerator for basic earnings per share $ 3,835 $ 8,998
======== ========
Numerator for diluted earnings per share $ 3,837 $ 9,005
======== ========
Denominators:
Denominator for basic earnings
per share -- weighted average shares 23,367 23,288
Outstanding unvested restricted stock awards --
weighted average shares (61) (61)
-------- --------
Denominator for basic earnings per share --
adjusted weighted average shares 23,306 23,227
Effect of dilutive securities:
Employee stock options and restricted stock awards 40 49
-------- --------
Denominator for diluted earnings per
share-adjusted weighted average shares 23,346 23,276
======== ========
Basic earnings per share $ 0.16 $ 0.39
======== ========
Diluted earnings per share
$ 0.16 $ 0.39
======== ========
</TABLE>
Limited partnership units in the Operating Partnership (15,827,909 and
15,831,636 outstanding at June 30, 2000 and December 31, 1999) 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.
7
<PAGE> 10
THE MILLS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
5. MINORITY INTERESTS
Minority interests represent the interests of the unitholders in the
Operating Partnership. The minority interest is adjusted at each period end to
reflect the ownership percentage at that particular time. The minority interest
was 40.38% and 40.57% at June 30, 2000 and December 31, 1999, respectively.
6. INVESTMENT IN UNCONSOLIDATED JOINT VENTURES
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 June 30, 2000
------------- --------------------
<S> <C>
Ontario Mills 50.0%
Grapevine Mills 37.5%
Arizona Mills 36.8%
The Oasis at Sawgrass 50.0%
The Block at Orange 50.0%
Concord Mills 37.5%
Katy Mills 62.5%
Opry Mills 66.7%
Arundel Mills 37.5%
Meadowlands Mills (1) 66.7%
Discover Mills 50.0%
Vaughan Mills 50.0%
</TABLE>
(1) The Company's ownership percentage for Meadowlands Mills will be
53.3%, when the conditions to the delivery of the executed joint
venture documents from escrow have been satisfied.
In addition to the above Joint Ventures, MEI holds investments in
certain retail joint ventures.
As major business decisions require the approval of at least one other
general partner, the Company does not control these Joint Ventures pursuant to
Statement of Position 78-9. As a result, its investments are accounted for under
the equity method, where the investments are recorded at cost and subsequently
adjusted for net equity in income (loss) and cash contributions and
distributions. The Company 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 amounts invested
to date. The Company has guaranteed repayment of $272.0 million of Joint Venture
debt, which includes $53.4 million of joint venture partners' share of 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
$17.9 million and will be collected over the remaining 21 year period through
2020 to fund debt service on bonds issued by the City to fund the infrastructure
improvements.
The Company's real estate joint venture agreements contain buy-sell
provisions whereby certain partners can require the purchase or sale of
ownership interests among certain partners.
8
<PAGE> 11
THE MILLS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Condensed combined balance sheets at June 30, 2000 and December 31, 1999 and
results of operations for the three and six months ended June 30, 2000 and 1999
are presented below for all Joint Ventures.
<TABLE>
<CAPTION>
JUNE 30, 2000
Operating Development Total
--------- ----------- -----
<S> <C> <C> <C>
ASSETS:
Income producing property $1,025,034 $ - $1,025,034
Construction in progress 33,942 243,313 277,255
Deferred costs, net 361,632 - 361,632
Other 162,633 17,854 180,487
--------------------------------------------
$1,583,241 $ 261,167 $1,844,408
============================================
LIABILITIES AND PARTNERS' EQUITY:
Debt $1,104,549 $ 40,055 $1,144,604
Other liabilities 100,357 16,354 116,711
Operating Partnership's accumulated equity 119,069 64,387 183,456
Joint Venture partners' accumulated equity 259,266 140,371 399,637
--------------------------------------------
$1,583,241 $ 261,167 $1,844,408
============================================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999
Operating Development Total
--------- ----------- -----
<S> <C> <C> <C>
ASSETS:
Income producing property $ 871,608 $ - $ 871,608
Construction in progress 27,949 276,219 304,168
Deferred costs, net 288,995 - 288,995
Other 146,759 12,961 159,720
--------------------------------------------
$1,335,311 $ 289,180 $1,624,491
============================================
LIABILITIES AND PARTNERS' EQUITY:
Debt $ 909,989 $ 37,986 $ 947,975
Other liabilities 105,938 56,344 162,282
Operating Partnership's accumulated equity 65,571 100,230 165,801
Joint Venture partners' accumulated equity 253,813 94,620 348,433
--------------------------------------------
$1,335,311 $ 289,180 $1,624,491
============================================
</TABLE>
9
<PAGE> 12
THE MILLS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 2000
Operating Development Total
--------- ----------- -----
<S> <C> <C> <C>
REVENUES:
Minimum rent $34,950 $ - $34,950
Percentage rent 108 - 108
Recoveries from tenants 13,758 - 13,758
Other property revenue 9,016 - 9,016
Interest income 1,541 77 1,618
-------------------------------------
Total revenues 59,373 77 59,450
EXPENSES:
Recoverable from tenants 13,373 - 13,373
Other operating 3,285 - 3,285
Interest expense 16,487 - 16,487
Depreciation and amortization 21,450 - 21,450
-------------------------------------
Total expenses 54,595 - 54,595
-------------------------------------
Other income/(expense) 1,853 - 1,853
-------------------------------------
Net income $ 6,631 $ 77 $ 6,708
=====================================
Operating Partnership's equity in earnings
of unconsolidated joint ventures $ 2,480 $ 41 $ 2,521
=====================================
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1999
Operating Development Total
--------- ----------- -----
<S> <C> <C> <C>
REVENUES:
Minimum rent $ 20,409 $ - $ 20,409
Percentage rent 4 - 4
Recoveries from tenants 8,296 - 8,296
Other property revenue 1,651 - 1,651
Interest income 1,318 442 1,760
----------------------------------------
Total revenues 31,678 442 32,120
EXPENSES:
Recoverable from tenants 7,717 - 7,717
Other operating 2,056 5 2,061
Interest expense 9,258 - 9,258
Depreciation and amortization 9,005 - 9,005
----------------------------------------
Total expenses 28,036 5 28,041
Other income/(expense) (606) 1,579 973
----------------------------------------
Net income $ 3,036 $ 2,016 $ 5,052
========================================
Operating Partnership's equity in earnings
of unconsolidated joint ventures $ 1,056 $ 1,284 $ 2,340
========================================
</TABLE>
10
<PAGE> 13
THE MILLS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 2000
Operating Development Total
--------- ----------- -----
<S> <C> <C> <C>
REVENUES:
Minimum rent $ 66,535 $ - $ 66,535
Percentage rent 933 - 933
Recoveries from tenants 26,234 - 26,234
Other property revenue 11,787 - 11,787
Interest income 3,986 219 4,205
---------------------------------------
Total revenues 109,475 219 109,694
EXPENSES:
Recoverable from tenants 24,951 - 24,951
Other operating 5,753 - 5,753
Interest expense 31,645 - 31,645
Depreciation and amortization 38,396 - 38,396
---------------------------------------
Total expenses 100,745 - 100,745
Other income/(expense) 1,953 - 1,953
---------------------------------------
Net income $ 10,683 $ 219 $ 10,902
=======================================
Operating Partnership's equity in earnings
of unconsolidated joint ventures $ 4,112 $ 77 $ 4,189
=======================================
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999
Operating Development Total
--------- ----------- -----
<S> <C> <C> <C>
REVENUES:
Minimum rent $ 39,821 $ - $ 39,821
Percentage rent 114 - 114
Recoveries from tenants 16,258 - 16,258
Other property revenue 3,118 - 3,118
Interest income 2,502 507 3,009
----------------------------------------
Total revenues 61,813 507 62,320
EXPENSES:
Recoverable from tenants 15,697 - 15,697
Other operating 3,906 8 3,914
Interest expense 18,206 - 18,206
Depreciation and amortization 17,203 - 17,203
----------------------------------------
Total expenses 55,012 8 55,020
Other income/(expense) (606) 1,579 973
----------------------------------------
Net income $ 6,195 $ 2,078 $ 8,273
========================================
Operating Partnership's equity in earnings
of unconsolidated joint ventures $ 2,073 $ 1,284 $ 3,357
========================================
</TABLE>
11
<PAGE> 14
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.
7. 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 is recognized on a straight-line basis over
the terms of the respective leases. Percentage rent is recognized when tenants'
sales have reached breakpoints stipulated in the respective leases. Recoveries
from tenants for real estate taxes and other operating expenses are recognized
as revenue in the period the applicable costs are incurred.
8. DECLARATION OF DIVIDEND
On May 19, 2000, the Company declared a dividend of $.5175 per share
which was paid on July 25, 2000 to stockholders of record as of July 10, 2000.
9. BORROWINGS
On January 31, 2000, the Company entered into a non-recourse mortgage
loan agreement in the amount of $285 million secured by its equity interest in
Sawgrass Mills. The proceeds were used to repay prior loans totaling $235
million and the remaining proceeds were used to pay down the line of credit and
fund the Company's development equity requirements. The new loan is a
non-amortizing loan with a repayment date of June 18, 2001. The interest rate is
payable at a variable rate, which is LIBOR plus 2.75%.
On June 14, 2000, the Company refinanced and increased its line of
credit from $100 million to $125 million. The new line of credit is comprised of
two components. The first component is a $50 million term loan which is secured
by the Company's equity interest in Franklin Mills. The loan has two mandatory
principal repayments of $5 million due on or before June 1, 2001 and $10 million
due on or before June 1, 2002. The loan matures on June 1, 2003. The interest
rate is payable at a variable rate with a variable margin, which was LIBOR plus
2.25% at June 30, 2000. The second component is a $75 million unsecured
revolving loan. The loan matures on June 1, 2002. The interest rate is payable
at a variable rate with a variable margin, which was LIBOR plus 2.75% at June
30, 2000.
12
<PAGE> 15
THE MILLS CORPORATION
(Unaudited)
10. SUBSEQUENT EVENTS
On August 3, 2000, the Company completed the first phase of its planned
disposition of its Community center portfolio in a $40 million equity
transaction which will be redeployed to meet the Company's development equity
requirements. At its completion, the sale will generate total net proceeds of
approximately $40 million including approximately $9 million which will be
temporarily invested in a low risk portfolio of single tenant A-rated credit
net leases until the Company can affect exchanges of this equity into
development projects. Phase I of the two-part transaction initially included
the sale of ten of the eleven centers in the portfolio. Phase II, the sale of
Liberty Plaza located in Philadelphia, PA., is contingent upon successful early
defeasance of the underlying debt which still requires certain third party
approvals.
Summarized balance sheet and income statement information as of June 30,
2000 and for the six months then ended is as follows (excluding Liberty Plaza,
in 000's):
<TABLE>
<S> <C>
Assets June 30,2000
---------------
Income producing property 101,547
Construction in progress 99
Deferred cost, net 9,224
Other 16,827
---------------
127,697
===============
Liabilities and Partners, Equity
Debt 111,197
Other liabilites 3,141
Equity 13,359
---------------
127,697
===============
June 30,2000
---------------
Revenues:
Minimum rent 7,809
Percentage rent 93
Recoveries from tenants 2,540
Other property revenue 438
---------------
Total revenues 10,880
Expenses:
Recoverable from tenants 2,465
Other operating 426
Interest expense 4,111
Depreciation and amortization 2,229
---------------
Total expenses 9,231
---------------
Net income 1,649
===============
</TABLE>
13
<PAGE> 16
THE MILLS CORPORATION
(Unaudited)
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Comparison of three months ended June 30, 2000 to three months ended June 30,
1999.
Income before extraordinary item and minority interest for the three
months ended June 30, 2000 decreased by approximately $3.3 million (29.2%) to
$8.1 million as compared to the three months ended June 30, 1999. The decrease
was the result of an increase in expenses of approximately $4.7 million (13.0%),
a decrease in other income/(expense) of approximately $1.2 million (140.0%),
offset by an increase in revenues of $2.4 million (5.3%) and by an increase in
equity in earnings on unconsolidated joint ventures of approximately $0.2
million (7.7%).
Revenues:
Minimum rent for the three months ended June 30, 2000, increased
approximately $0.3 million (1.0%) compared with the three months ended June 30,
1999. The increase was due to higher rents across the portfolio and the opening
of two new anchor tenants at Gurnee Mills and Potomac Mills.
Other property revenue for the three months ended June 30, 2000, increased
$0.5 million (26.0%) compared with the three months ended June 30, 1999. The
increase was due to current year recovery of accounts receivable that were
reserved in prior years and more aggressive termination policies for
underperforming tenants.
Management fee income for the three months ended June 30, 2000, increased
$0.8 million (72.8%) compared with the three months ended June 30, 1999. The
increase was primarily due to fees from all joint venture projects, including
The Oasis at Sawgrass which opened in the second quarter of 1999, Concord Mills
which opened in the third quarter of 1999, Katy Mills which opened in the fourth
quarter of 1999, and Opry Mills which opened in the second quarter of 2000.
Other fee income for the three months ended June 30, 2000, increased $0.9
million (55.6%) compared with the three months ended June 30, 1999. The increase
was due to an increase in finance fees that were related to Opry Mills and
Arundel Mills, and an increase in development fees that was related to Discover
Mills.
Expenses:
Recoverable expenses for the three months ended June 30, 2000, decreased
$0.3 million (2.6%) compared with the three months ended June 30, 1999. The
decrease primarily was due to a $0.2 million reduction in real estate taxes and
repairs and maintenance expenses at Sawgrass Mills.
General and administrative expenses for the three months ended June 30,
2000, increased $0.8 million (28.4%) compared with the three months ended June
30, 1999. The increase was primarily due to the increase in costs associated
with the Company's retail operations and expanded operations (i.e., the opening
of Concord Mills, Katy Mills and Opry Mills).
Interest expense for the three months ended June 30, 2000, increased $2.8
million (24.2%) compared with the three months ended June 30, 1999. The increase
was primarily due to the additional debt related to Sawgrass Mills that was
obtained in January 2000 (see Liquidity and Capital Resources discussion) and a
higher average debt burden related to the line of credit.
14
<PAGE> 17
THE MILLS CORPORATION
(Unaudited)
Depreciation and amortization expense for the three months ended June 30,
2000, increased $1.2 million (13.8%) compared with the three months ended June
30, 1999. The increase was due to $0.3 million increase in depreciation
associated with the Company's Foodbrand operations, $0.2 million increase in
depreciation associated with costs related to software conversion/upgrades, $0.2
million increase in amortization of leasing costs associated with wholly owned
property expansion/remerchandising, $0.1 million increase in loan cost
amortization related to the refinancing of Sawgrass Mills (see Liquidity and
Capital Resources discussion) in January 2000 and $0.1 million increase in
depreciation and amortization associated with the releasing of anchor/major
space at Western Hills.
Other income/(expense) decreased for the three months ended June 30, 2000
by $1.2 million (140.0%) compared with the three months ended June 30, 1999. The
decrease in income is due to the recognition of a land sale for Franklin Mills
Residual during the second quarter 1999 for $0.7 million. Also, the decrease was
due to start-up costs of $0.3 million that was associated with the Company's
Foodbrand operations at new malls.
Equity in earnings of unconsolidated joint ventures for the three months
ended June 30, 2000 increased $0.2 million (7.7%) compared with the three
months ended June 30, 1999. The increase is primarily due to increases in
operating income from the operating joint venture properties and related to an
increase in lease buyout fees at four of the joint venture properties, partially
offset by higher interest expense on the joint venture properties. The increase
was also due to operating income from Concord Mills and Katy Mills which
opened in the third and fourth quarter of 1999, respectively.
Extraordinary losses on debt extinguishments for the three months ended
June 30, 2000, increased $1.6 million compared with the three months ended June
30, 1999. The increase was primarily due to defeasance costs as a result of the
refinancing of Sawgrass Mills (see Liquidity and Capital Resources discussion).
15
<PAGE> 18
THE MILLS CORPORATION
(Unaudited)
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Comparison of six months ended June 30, 2000 to six months ended June 30, 1999.
Income before extraordinary item and minority interest for the six months
ended June 30, 2000 decreased by approximately $3.9 million (17.8%) to $18.3
million as compared to the six months ended June 30, 1999. The decrease was the
result of an increase in expenses of approximately $6.9 million (9.7%), a
decrease in other income/(expense) of approximately $1.3 million (208.9%),
offset by an increase in revenues of $3.5 million (3.9%) and by an increase in
equity in earnings on unconsolidated joint ventures of approximately $0.8
million (24.8%).
Revenues:
Other property revenue for the six months ended June 30, 2000, increased
$1.1 million (31.5%) compared with the six months ended June 30, 1999. The
increase was due to current year recovery of accounts receivable that were
reserved in prior years, more aggressive termination policies for
underperforming tenants and an increase in income related to the Company's
pushcart program.
Management fee income for the six months ended June 30, 2000, increased
$1.6 million (80.2%) compared with the six months ended June 30, 1999. The
increase was primarily due to fees from all joint venture projects, including
The Oasis at Sawgrass which opened in the second quarter of 1999, Concord Mills
which opened in the third quarter of 1999, Katy Mills which opened in the fourth
quarter of 1999, and Opry Mills which opened in the second quarter of 2000.
Other fee income for the six months ended June 30, 2000, increased $0.9
million (23.3%) compared with the six months ended June 30, 1999. The increase
was due to an increase in finance fees that was related to Opry Mills and
Arundel Mills, and an increase in development fees that was related to Discover
Mills.
Expenses:
Recoverable expenses for the six months ended June 30, 2000, decreased
$0.6 million (2.4%) compared with the six months ended June 30, 1999. The
decrease primarily was due to $0.4 million reduction in real estate taxes and
repairs and maintenance expenses at Sawgrass Mills.
General and administrative expenses for the six months ended June 30,
2000, increased $1.3 million (21.3%) compared with the six months ended June 30,
1999. The increase was primarily due to the increase in costs associated with
the Company's retail operations and expanded operations (i.e., the opening of
The Oasis at Sawgrass, Concord Mills, Katy Mills and Opry Mills).
Interest expense for the six months ended June 30, 2000, increased $4.5
million (19.7%) compared with the six months ended June 30, 1999. The increase
was primarily due to the additional debt related to Sawgrass Mills that was
obtained in January 2000 (see Liquidity and Capital Resources discussion) and a
higher average debt burden related to the line of credit.
Depreciation and amortization expense for the six months ended June 30,
2000, increased $1.8 million (10.6%) compared with the six months ended June 30,
1999. The increase was due to $0.6 million increase in depreciation associated
with the Company's Foodbrand operations, $0.5 million increase in loan cost
amortization related to the refinancing of Sawgrass Mills (see Liquidity and
Capital Resources discussion) in January 2000, $0.2 million increase in
equipment depreciation due to software conversions/upgrades, $0.2 million in
amortization of leasing costs associated with wholly owned property
expansion/remerchandising and $0.2 million increase in depreciation and
amortization of costs associated with the releasing of anchor/major space at
Western Hills.
16
<PAGE> 19
THE MILLS CORPORATION
(Unaudited)
Other income/(expense) decreased for the six months ended June 30, 2000 by
$1.3 million (208.9%) compared with the six months ended June 30, 1999. The
decrease in income is due to the recognition of a land sale gain for Franklin
Mills Residual during the second quarter 1999 for $0.7 million. Also, the
decrease was due to start-up costs of $0.7 million that was associated with the
Company's Foodbrand operations which was partially offset by a $0.1 million land
sale gain at Sawgrass Mills.
Equity in earnings of unconsolidated joint ventures for the six months
ended June 30, 2000, increased $0.8 million (24.8%) compared with the six months
ended June 30, 1999. The increase was primarily due to increases in operating
income across all operating joint venture properties and an increase in lease
buyout fees at four of the Company's joint venture properties which was
partially offset by higher interest expense on the joint venture properties. The
increase was also due to operating income from Concord Mills and Katy Mills
which opened in the third and fourth quarter of 1999, respectively.
Extraordinary losses on debt extinguishment for the six months ended June
30, 2000, increased $0.4 million (13.9%) compared with the six months ended June
30, 1999. In 1999, the Company incurred $2.7 million in extraordinary loss on
debt extinguishment that was related to the refinancing of the Community Centers
versus $3.1 million in extraordinary loss on debt extinguishment that was
related to the refinancing of Sawgrass Mills in 2000 (see Liquidity and Capital
Resources discussion).
17
<PAGE> 20
THE MILLS CORPORATION
(Unaudited)
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000 the Company's balance of cash and cash equivalents was
$1.5 million, not including its proportionate share of cash held in
unconsolidated entities. Additionally, the Company had imminent cash available
from the pending sale of its community center portfolio (see below). In addition
to its cash reserves, the Company had approximately $14 million available under
its line of credit. The terms of this facility are as follows:
<TABLE>
<CAPTION>
AMOUNT
TOTAL OUTSTANDING
FACILITY AT 6/30/00
MATURITY INTEREST RATE TERMS (000'S) (000'S)
-------- ------------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
Line of Credit............. 06/01/02 LIBOR + 2.75% Interest Only $ 75,000 $ 61,045
06/01/03 LIBOR + 2.25% Interest Only $ 50,000 $ 50,000
</TABLE>
Pursuant to the line of credit, the Company is subject to certain
performance measurements and restrictive covenants. The Company was compliance
with the applicable covenants at June 30, 2000.
FINANCING ACTIVITIES. The weighted average life of the Company's
indebtedness was 3.6 years at June 30, 2000 (including funded construction and
operating debt of the unconsolidated joint ventures), with investment-grade
interest rates (7.95% weighted average interest rate for the Company's
indebtedness and funded construction and operating debt of the unconsolidated
joint ventures at June 30, 2000).
On January 31, 2000, the Company entered into a non-recourse mortgage loan
agreement in the amount of $285 million secured by its equity interest in
Sawgrass Mills. The proceeds were used to repay prior loans totaling $235
million and the remaining proceeds were used to pay down the line of credit and
to fund the Company's development equity requirements. The new loan is a
non-amortizing loan with a repayment date of June 18, 2001. The interest rate is
payable at a variable rate, which is LIBOR plus 2.75%.
On May 20, 2000, the Arundel Mills joint venture entered into a loan
agreement in the amount of $191 million, of which approximately $23 million was
outstanding at June 30, 2000. The loan commitment matures on May 30, 2003. The
interest rate is LIBOR plus 1.65%. The loan is guaranteed severally by the
Company and its joint venture partner, Simon Property Group, L.P.
On June 14, 2000, the Company refinanced and increased its line of credit
from $100 million to $125 million. The new line of credit is comprised of two
components. The first component is a $50 million term loan which is secured by
the Company's equity interest in Franklin Mills. The loan has two mandatory
principal repayments of $5 million due on or before June 1, 2001 and $10
million due on or before June 1, 2002. The loan matures on June 1, 2003. The
interest rate is payable at a variable rate with a variable margin, which was
LIBOR plus 2.25% at June 30, 2000. The second component is a $75 million
unsecured revolving loan. The loan matures on June 1, 2002. The interest rate
is payable at a variable rate with a variable margin, which was LIBOR plus
2.75% at June 30, 2000.
18
<PAGE> 21
THE MILLS CORPORATION
(Unaudited)
On February 4, 1999, the Company received a five year, $750 million
capital commitment from Kan Am, a significant unit holder 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.
Definitive joint venture agreements have been executed for Arundel Mills and
Discover Mills wherein Kan Am's required contribution is $35 million and $70
million, respectively. 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 50% 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,
subject to further adjustment for the interest of other partners in such
partnerships. Kan Am must raise capital from other investors to meet its
funding commitments to the Company, and there can be no assurance that Kan Am
will be able to raise such capital in the amounts or at times necessary to
enable it to meet such commitments.
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. A balance of approximately $128
million of common stock, preferred stock and common stock warrants remain
available to the Company for issuance pursuant to this shelf registration.
At June 30, 2000 the Company had consolidated debt of approximately $944.5
million and gross unconsolidated joint venture debt of approximately $1.1
billion. The Company's pro rata share of gross unconsolidated joint venture debt
was $455.0 million (net of tax increment financing) at June 30, 2000. Of this
amount, the Company guaranteed $218.6 million (additionally, the Company has
guaranteed $53.4 million of its joint venture partners' share of debt). The
Company's consolidated debt plus its pro rata share of gross unconsolidated
joint venture debt totaled approximately $1.4 billion. Of this amount, $640.7
million was fixed rate debt and $759.3 million was variable rate debt. Scheduled
principal repayments of the Company's consolidated indebtedness and its pro rata
share of gross unconsolidated joint venture debt through 2004 are $1.0 billion
with $367.5 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 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) for the trailing 12 months was 2.50 and 2.70 at
June 30, 2000 and June 30, 1999, respectively.
19
<PAGE> 22
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 five projects: Arundel Mills, Discover Mills, Colorado
Mills, Vaughan Mills and Meadowlands Mills.
Arundel Mills broke ground on July 15, 1999 and is scheduled to open in
the fourth quarter of 2000. The project is being financed principally with
external borrowings and equity contributions from joint venture partners and the
Operating Partnership. The Company anticipates that the Operating Partnership's
equity requirements for Arundel Mills will be limited to $18 million, which has
been funded as of June 30, 2000. The project's remaining costs are being
financed through contributions from other partners in the Arundel Mills joint
venture and through proceeds of a $191 million construction loan.
The Company has formed a joint venture with Kan Am to develop Discover
Mills on a 225-acre site located near Atlanta, Georgia. As of June 30, 2000, the
Discover Mills joint venture has acquired the land assemblage for the project,
and plans to begin construction later in 2000. Discover Mills is targeted to
open in 2001. Kan Am will fund all of the required equity for this project and
the remaining project costs are expected to be financed through a construction
loan.
The Company has identified a 130 acre site in Lakewood, Colorado, which is
ten miles west of downtown Denver. The Company is in the process of forming a
joint venture to develop the site. Colorado Mills is targeted to open in late
2001 or early 2002.
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 of the United States. The project will be developed
jointly by an affiliate of the Operating Partnership and by Cambridge Shopping
Centres, Ltd. as tenants in common. The Company anticipates that the Operating
Partnership's equity requirement for Vaughan Mills may total as much as $30
million, of which approximately $19 million has been funded as of June 30, 2000.
The Company has completed the land assemblage and is targeting a 2000
groundbreaking.
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 is
contingent upon 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. On
July 20, 2000, the Corps of Engineers announced that it had completed the Draft
Environmental Impact Statement on Mills ' Section 404 Fill Permit and set
September 11, 2000, as the close of public comment. The guidelines proposal in
the SAMP would, upon their anticipated adoption in the fourth quarter of 2000,
permit development of 2.0 million square feet of gross leasable area (GLA) for
Meadowlands Mills plus office and hotel space. 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 to be formed among the Operating
Partnership, Kan Am, Empire Ltd. and Bennett S. Lazare, an individual. The
Operating Partnership's equity requirements have not yet been determined. As of
June 30, 2000, the Company has funded approximately $20 million of its required
equity. The Company has targeted a 2001 groundbreaking for this project.
20
<PAGE> 23
THE MILLS CORPORATION
(Unaudited)
In addition to the above, the Company is also conducting due diligence on
several other proposed sites for its Mills and Block projects, including sites
in Atlanta, Georgia; Cleveland, Ohio; North Aurora, Illinois (Chicago); San
Francisco, California; South Weymouth; Massachusetts (Boston); and Tampa,
Florida. The Company is also continuing to evaluate various prospective
international sites, including a site identified in Spain, with a concentrated
focus on Western Europe as well as other domestic sites for other Mills-type
projects and other retail-oriented projects.
The Company is in the process of expanding and/or remerchandising Potomac
Mills, Grapevine Mills and The Block at Orange. The costs of these expansions
and remerchandising programs is estimated at $22 million. Of the estimated costs
of $22 million, $12 million will be financed with external sources and $10
million will be funded by the Operating Partnership. As of June 30, 2000, the
Operating Partnership had funded approximately $3 million of the required equity
to finance these programs.
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
future borrowings, including loan draws under its Line of Credit.
On August 3, 2000 the Company completed the first phase of its planned
disposition of its community center portfolio in a $40 million equity
transaction which will be redeployed to meet the Company's development equity
requirements. At its completion, the sale will generate total net proceeds of
approximately $40 million, including appromimately $9 million which will be
temporarily invested in a low risk portfolio of single tenant A- credit net
leases until the Company can affect exchanges of this equity into development
projects. Phase I of the transaction initially included the sale of ten of the
eleven centers in the portfolio. Phase II, the sale of Liberty Plaza located in
Philadelphia, Pa., is contingent upon successful early defeasance of the
underlying debt which still require certain third party approvals.
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. In the
event such capital cannot be obtained, the Company's development plans could be
curtailed.
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 Six Months Ended June 30, 2000 to Six Months Ended June 30,
1999. Net cash provided by operating activities decreased approximately $0.3
million (1.0%) to $33.5 million for the six months ended June 30, 2000 as
compared to $33.8 million for the six months ended June 30, 1999. Net cash used
in investing activities increased approximately $8.5 million (17.6%) to $56.9
million for the six months ended June 30, 2000, as compared to $48.4 million for
the six months ended June 30, 1999, primarily as a result of increased
expenditures for real estate and development assets and advances to certain
joint ventures, and a decrease in distributions received from unconsolidated
entities. Net cash provided by financing activities increased approximately
$16.5 million (304.4%) to $21.9 million for the six months ended June 30, 2000
as compared to $5.4 million for the six months ended June 30, 1999. The increase
was primarily due to the net increase in proceeds offset by an increase in
repayments.
21
<PAGE> 24
THE MILLS CORPORATION
(Unaudited)
FUNDS FROM OPERATIONS
The Company 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 accounting principles generally accepted in the
United States (GAAP)), excluding gains (losses) from debt restructuring and
sales of depreciated 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 six months ended June 30, 2000, increased to $48.1 million
compared to $43.3 million for the comparable period in 1999. FFO amounts were
calculated in accordance with NAREIT's definition of FFO as follows:
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
(Dollars in thousands) (Dollars in thousands)
<S> <C> <C> <C> <C>
Funds from operations calculation:
Income before extraordinary
item and minority interest.............................. $ 8,073 $ 11,398 $ 18,276 $ 22,240
Adjustments:
Add: Depreciation and amortization of real
estate assets........................................... 8,739 7,774 16,467 15,488
Add: Real estate depreciation and
amortization of unconsolidated joint
ventures................................................ 7,648 2,836 13,335 5,584
------- -------- ------- --------
Funds from operations.................................... $ 24,460 $ 22,008 $ 48,078 $ 43,312
======== ======== ========= ========
</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 rent on a straight-line basis over the term of related
leases in accordance with GAAP.
22
<PAGE> 25
THE MILLS CORPORATION
(Unaudited)
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
23
<PAGE> 26
THE MILLS CORPORATION
(Unaudited)
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of the Shareholders of The Mills Corporation was held on
May 16, 2000. The following is a tabulation of the voting for each proposal
presented at the Annual Meeting and a listing of Directors whose term of office
as Directirs continued after the meeting.
Proposal 1: to elect directors to a term expiring upon the date of the Annual
Shareholders Meeting in the year 2003):
<TABLE>
<CAPTION>
CONTINUING DIRECTORS TERM EXPIRES
-------------------- ------------
<S> <C>
James C. Braithwaite 2001
James F. Dausch 2001
The Hon. Joseph B. Gildenhorn 2001
Harry H. Nick 2001
Robert P. Pincus 2001
Franz Von Perfall 2002
Christina L. Rose 2002
Laurence C. Siegel 2002
</TABLE>
<TABLE>
<CAPTION>
DIRECTORS STANDING TERM VOTES VOTES
FOR ELECTION EXPIRES FOR WITHHELD
------------------ ------- ----- --------
<S> <C> <C> <C>
Charles R. Black, Jr. 2003 20,612,907 425,438
Dietrich Von Boetticher 2003 20,592,527 445,818
John M. Ingram 2003 20,612,986 425,359
Peter B. McMillan 2003 20,615,359 422,986
</TABLE>
Nominees required a favorable vote of a plurality of the shares of Common
Stock present and entitled to vote, in person or by proxy, at the meeting.
Accordingly, all members standing for re-election were elected.
Proposal 2: (to ratify the appointment of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 31, 2000):
<TABLE>
<CAPTION>
<S> <C>
Votes for: 20,901,102
Votes against: 49,030
Abstentions: 88,213
</TABLE>
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The Exhibit Index attached hereto is hereby incorporated by reference
to this items.
Report on Form 8-K was filed by the Company on May 17, 2000 to report
certain operational information concerning the Company and the
properties owned or managed by it as of March 31, 2000. No other
reports on Form 8-K were filed by registrant for the applicable
quarter covered by this report.
24
<PAGE> 27
THE MILLS CORPORATION
(Unaudited)
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE MILLS CORPORATION
August 14, 2000 By : /s/ Kenneth R. Parent
------------------------ ---------------------------------
(Date) Kenneth R. Parent
Executive Vice President, Finance
and Chief Financial Officer (Principal
Financial and Accounting Officer)
25
<PAGE> 28
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> 29
<TABLE>
<CAPTION>
<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 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 June 30, 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.
