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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1996 OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ____________________ to ____________________
Commission File Number 1-12994
THE MILLS CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 52-1802283
(State or other jurisdiction of (I.R.S. Employer
incorporate or organization) Identification No.)
1300 WILSON BOULEVARD 22209
ARLINGTON, VA (Zip Code)
(Address of principal executive office)
Registrant's telephone number, including area code: (703) 526-5000
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class Name of each exchange on which registered
------------------- -----------------------------------------
COMMON STOCK, NEW YORK STOCK EXCHANGE
$0.01 PAR VALUE
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
registrant was required to file such report(s)) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10K or any amendment to this Form 10-K. / /
As of March 10, 1997, the aggregate market value of the 16,308,744
shares of Common Stock held by non-affiliates of the registrant was
$413,834,379, based upon the closing price ($25.375) on the New York Stock
Exchange composite tape on such date. (For this computation, the registrant
has excluded the market value of all shares of its Common Stock reported as
beneficially owned by executive officers and directors of the registrant and
certain other shareholders; such exclusion shall not be deemed to constitute
an admission that any such person is an "affiliate" of the registrant.) As
of March 10, 1997, there were outstanding 16,923,236 shares of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the annual shareholders meeting to be
held in 1997 are incorporated by reference into Part III.
THE MILLS CORPORATION
ANNUAL REPORT ON FORM 10-K
DECEMBER 31, 1996
TABLE OF CONTENTS
PAGE NO.
PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . 29
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . 31
PART II. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Item 5. Market for the Registrant's Common Equity and Related
Shareholder Matters . . . . . . . . . . . . . . . . . . . . . . . 32
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . 32
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . . . . . . . . .35
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . 43
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure. . . . . . . . . . . . . . . . . . . . . 43
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Item 10. Directors and Executive Officers of the Registrant . . . . . . . 44
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . 46
Item 12. Security Ownership of Certain Beneficial Owners and Management . 47
Item 13. Certain Relationships and Related Transactions. . . . . . . . . 47
PART IV. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Item 14. Exhibits, Financial Statements, Schedules and Reports and
Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
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PART I
ITEM 1. BUSINESS
CAUTIONARY STATEMENT
Certain matters discussed in this Form 10-K and the information
incorporated by reference herein contain "forward-looking statements" for
purposes of Section 27A of the Securities Act of 1993, as amended (the
"Securities Act") and Section 21E of the Securities Exchange Act of 1933, as
amended (the "Exchange Act") relating to, without limitation, future economic
performance, plans and objectives of management for future operations and
projections of revenue and other financial items, demographic projections and
federal income tax considerations, which can be identified by the use of
forward-looking terminology such as "may," "will," "except," "anticipate,"
"estimate," or "continue" or the negative thereof or other variations thereon
or comparable terminology. Such forward-looking statements are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those described in such forward-looking statements.
THE COMPANY
The Mills Corporation (the "Company") owns, develops, redevelops, leases
and manages a portfolio currently consisting of five super-regional, value
and entertainment oriented malls (the "Mills") and 11 community shopping
centers (the "Community Centers," and, together with the Mills, the
"Properties"). The Company is a fully-integrated, self-managed real estate
investment trust (a "REIT") with approximately 900 employees as of December
31, 1996 and provides all development, redevelopment, leasing, financing
management and marketing services with respect to all Properties currently in
operation. The Mills comprise the primary focus of the Company's operations,
with approximately 7.9 million square feet of gross leasable area ("GLA") in
five states, of which approximately 900,000 square feet is owned by certain
anchor and tenants.
The Company was originally incorporated in Virginia on January 2, 1991.
In 1994, the Company was reincorporated in Delaware. On April 21, 1994, the
Company consummated an initial public offering ("IPO") of 14,380,000 shares
of its common stock, par value $.01 per share (the "Common Stock"). The net
proceeds of the IPO ($310.0 million) were used primarily to repay certain
mortgage and other indebtedness and to purchase interests in the partnerships
that owned the Properties. In connection with the IPO, the Company was
authorized to issue 20,000,000 shares of preferred stock, par value $.01 per
share (the "Preferred Stock"). As of December 31, 1996, there were no shares
of Preferred Stock outstanding. Upon completion of the IPO, the Company
became the sole general partner of The Mills Limited Partnership (the
"Operating Partnership") and currently owns 50.9% of the outstanding
partnership interests ("Units") therein. Units (other than those owned by
the Company) are exchangeable under certain circumstances for Common Stock
or, at the option of the Company, the cash equivalent thereof. As the sole
general partner of the Operating Partnership, the Company has the exclusive
power to manage and conduct the business of the Operating Partnership,
subject to certain limited exceptions. The Operating Partnership either
holds title to the Properties or directly or indirectly holds 100% of the
general and limited partnership interests in the partnerships that own the
Properties (the "Property Partnerships"), except for the Property
Partnerships that own Franklin Mills and Ontario Mills, in which the
Operating Partnership holds 77.6% (which represents 100% of the current
income and cash flow from Franklin Mills) and 50%, respectively, as of
December 31, 1996. The Operating Partnership has also formed joint ventures
to develop additional properties.
The Company conducts all of its business through the Operating
Partnership and the Operating Partnership's various subsidiaries (the
"Operating Subsidiaries"), which include: (i) Management Associates Limited
Partnership (the "Management Partnership"), which provides leasing and
management services for the Properties, and (ii) MillsServices Corp. (the
"Third-Party Services Corporation"), which provides management services to
properties in which the Operating Partnership does not own an interest and
provides development services for the Properties and new properties acquired
by the Company. The Operating Partnership owns 100% of the interests in the
Management Partnership and 99% of the non-voting preferred stock
(representing a 99% economic interest) and 5% of the voting common stock of
the Third Party Services Corporation. In addition,
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Herbert S. Miller, a director of the Company, and an affiliate of Kan Am U.S.,
Inc. ("Kan Am", which owns approximately 39.9% of the outstanding Units in
the Operating Partnership) each own .5% of the non-voting preferred stock
(representing, in the aggregate, a 1% economic interest) and 47.5% of the
voting common stock of the Third-Party Services Corporation.
BUSINESS STRATEGY
The Company intends to increase its cash flow and the value of its
portfolio through active management of its existing Properties, expansion and
remerchandising of existing Mills and the development of new Mills.
OPERATING STRATEGIES
The Company intends to pursue the following operating strategies:
MODIFY AND EXPAND EXISTING MILLS. The Company leases vacant and newly
developed space with a view towards creating the most effective tenant mix
and maximizing rental income. The Company is planning expansions of Potomac
Mills, Sawgrass Mills and Gurnee Mills and is presently in the process of
remerchandising Gurnee Mills and Franklin Mills, at an aggregate cost of
approximately $115 million over the next three years. These expansion and
remerchandising programs will result in new entertainment zones and, where
appropriate, an upgrade of the tenant mix. The Company believes that the new
entertainment zones will complement the Mills and will enhance productivity
by attracting more shoppers and extending the shopping day.
POTOMAC MILLS: The Company is planning to add an entertainment zone to
Potomac Mills. The Company anticipates that construction will begin in late 1997
for a late 1998 or early 1999 opening. In anticipation of the expansion, the
Company is upgrading the tenant mix in the corridor near the expansion and is
negotiating to lease expansion space to AMC Theatres and a variety of themed
restaurants and other entertainment oriented tenants.
SAWGRASS MILLS: In November 1995, the Company completed the Phase
II expansion of Sawgrass Mills. This expansion added approximately 136,000
square feet of GLA, which opened at 100% occupancy. The expansion cost
approximately $24 million. In the third quarter of 1998, the Company expects
to open Phase III of Sawgrass Mills to coincide with the opening of the new
Florida Panthers Sports Arena located across the ring road from Sawgrass
Mills. The Phase III expansion will consist of an approximately 270,000
square foot entertainment zone expected to be anchored by a 30-screen Cobb
Theater. The Phase III expansion, which is presently in the pre-development
stage, will be owned by a partnership formed by the Operating Partnership
(50%) and Kan Am (50%) in which Kan Am has agreed to fund 100% of the
project's initial required equity, for which Kan Am will receive a 9% annual
preferred return. Under the terms of the partnership agreement, the Company
has the right to buy out Kan Am's interest in this partnership prior to
December 30, 1999, at 120% of Kan Am's capital contributions and accumulated
preferred returns under certain terms and conditions set forth in the
partnership agreement. The Company would provide all development, management
and leasing services for the expansion, subject to the approval of Kan Am of
certain major decisions, including a sale or refinancing of the project and
the approval of the development and annual budgets. The Company would
guarantee completion of the expansion within the parameters of the approved
development budget.
GURNEE MILLS: As part of the Gurnee Mills expansion and
remerchandising initiative, the Company expects to expand Gurnee Mills by over
150,000 square feet of GLA in addition to upgrading the tenant mix. The
expansion will feature a 125,000 square foot Bass Pro Shops Outdoor World upon
which construction began in early 1997. In addition, the Company expects to open
two other anchor stores by the end of 1998. In 1996, Rainforest Cafe opened at
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Gurnee Mills. The Company has signed a lease with another themed restaurant,
Planet Hollywood, to open in 1997. In addition to these tenants, the Company
expects to add additional entertainment type uses within the existing mall
over the next two years.
FRANKLIN MILLS: The Company began its efforts to remerchandise
Franklin Mills in 1996 by upgrading its tenant mix with such tenants as Tommy
Hilfiger, Brooks Brothers and Nautica. In addition, the Company has signed
leases with DKNY, Talbots, The Gap Outlet and Polo and has obtained a
commitment from General Cinema for an 18-screen theatre on which the Company
expects to begin construction by the second quarter of 1997. The theatre will
be the cornerstone for an entertainment zone that will include at least two
other entertainment concepts, such as themed restaurants and interactive
entertainment venues.
CREATE ENTERTAINMENT ZONES. The Company intends to expand and reconfigure
its first four Mills projects to include new entertainment zones. The
entertainment zone at Ontario Mills, the Company's newest Mills, is the
prototype for future Mills entertainment zones. Such entertainment zones will
include multiplex theaters, virtual reality game rooms, educational
environmental habitats, themed restaurants and participatory retailers in which
the consumer is given the opportunity to test the products in a real-life
setting. Ontario Mills currently includes a 30-screen AMC Theatres and a Virgin
Megastore. Scheduled to open in 1997 are a Sega Gameworks, Dave & Busters and
American Wilderness Experience. Phase III of Sawgrass Mills is expected to
include a Cobb Theatre expanded from 18 to 30 screens. Franklin Mills has
received a commitment from General Cinema for an 18-screen theater. Gurnee Mills
opened a Rainforest Cafe in 1996 and plans to open a Planet Hollywood and a Bass
Pro Shops Outdoor World in 1997. The Company believes these entertainment zones
will lead to significant incremental customer traffic at the Mills, extend
consumers' shopping day and lead to the creation of additional destination
sites.
WORK WITH TENANTS TO DEVELOP NEW RETAIL CONCEPTS. The Company intends to
continue to work with existing tenants and potential tenants to develop new
retail concepts. This strategy has worked for retailers who have performed well
in traditional retail formats but wanted to develop and expand into the outlet
format. Ann Taylor, Calvin Klein, Last Call from Neiman Marcus and Saks Fifth
Avenue are examples of retailers that opened their first outlet stores in a
Mills and that later expanded their outlet format in other Mills. Ontario Mills
is the site for Bernini's first Off Rodeo Drive outlet. In addition, the Mills
also provide traditional urban retailers a growth vehicle for expanding into
non-urban markets. Examples include Virgin Megastore, which opened its first
non-urban location in Ontario Mills and Planet Hollywood, which has committed to
open at Gurnee Mills in 1997.
BUILD BRAND NAME RECOGNITION FOR THE MILLS. The Company intends to
continue to build brand name recognition for the Mills. The Company has created
brand name recognition by developing a distinctive retail environment which
offers innovative retail formats, value shopping and entertainment concepts that
attract a wide variety of tenants and consumers. The Company coordinates its
advertising programs to increase brand name recognition in its primary markets
and to attract high a volume of consumers. The Company believes that its brand
name recognition has not been duplicated within the shopping center industry in
any U.S. market.
MAINTAIN STRONG TENANT RELATIONSHIPS. The Company intends to continue to
maintain strong relationships with its existing tenants and high occupancy
rates. The success of this strategy is evidenced by both its high tenant
retention rate, with approximately 77% of expiring specialty store GLA being
renewed upon lease expiration during 1996 and by the existing Mills being 95%
leased as of December 31, 1996 (excluding Ontario Mills). One hundred and
eighty-three of the Mills' tenants have stores located in more than one Mills,
including Ontario Mills. Of the total GLA of each of the five existing Mills at
December 31, 1996 (excluding GLA owned by anchor store tenants), 77% of Gurnee
Mills, 67% of Potomac Mills, 67% of Sawgrass Mills, 62% of Ontario Mills, and
53% of Franklin Mills consist of tenants common to at least one other Mills.
The Company has generated goodwill among many retailers who commit to future
Mills projects years in advance of their completion. As of February 11, 1997,
Grapevine Mills was approximately 55% pre-leased including nine executed leases
and six lease commitments from anchor store tenants and Arizona Mills was
approximately 62% pre-leased including nine executed leases and three lease
commitments from anchor store tenants.
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ACTIVELY MARKET PROPERTIES TO CONSUMERS. The Company intends to continue
to actively market its Properties by formulating marketing plans based on
research and tailored to each specific Property. Such plans include print, radio
and television advertising, public relations, special events and the development
of tour and travel programs. The Company believes that an aggressive marketing
effort allows the Properties to maintain a loyal shopper base and attract new
consumers.
PROVIDE ACTIVE PROPERTY MANAGEMENT SERVICES. The Company intends to
continue to provide pro-active site management. The on-site property management
team controls every aspect of the day-to-day needs of the Mills including
operations, maintenance, security and merchant relations in order to enhance
productivity and profitability. Further, where desirable and possible, such
management team attempts to terminate the leases of under-performing tenants and
renegotiate existing leases to expand, relocate or assemble space for more
productive tenants.
DEVELOPMENT STRATEGIES
The Company's strategic business plan primarily consists of developing and
opening an additional five Mills over the next three years with an aggregate of
approximately 7.2 million square feet of GLA, including finishing construction
on Grapevine Mills and Arizona Mills and developing three additional Mills,
Mills City at Orange, Houston Mills and Meadowlands Mills. The Company also
intends to pursue the development of Mills-type projects in selected
metropolitan markets and has identified approximately 20 additional markets in
the U.S. that could currently support a Mills project. The Company is also
exploring the feasibility of developing additional Mills-type projects in
selected international major metropolitan markets as a long-term growth
strategy. The Company is focused on selected markets, where management believes
population growth exceeds national rates, land is relatively abundant and
development and entitlement processes are comparatively streamlined. Two
projects are currently under construction and scheduled to open in the fourth
quarter of 1997, Grapevine Mills, which will serve the Dallas/Fort Worth
metropolitan market and Arizona Mills, which will serve the Phoenix metropolitan
market. The remaining three sites under development, Mills City at Orange,
Houston Mills and Meadowlands Mills, are in the early stages of development and
are scheduled to open in 1998, 1999 and 1999, respectively.
To finance this rapid growth strategy, the Company has aligned itself with
certain joint venture partners, including Kan Am, Simon DeBartolo Group, Inc.
("Simon) and Taubman Realty Group Limited Partnership ("Taubman"), and has
reached an agreement in principle to form one or more such joint ventures with
Cambridge Shopping Centres Ltd. of Canada ("Cambridge"). Additionally, the
Company, subject to shareholder approval, is negotiating the terms of an
agreement with Kan Am whereby Kan Am will provide approximately $50 million in
preferred equity capital on what the Company believes would be attractive terms.
There can be no assurance, however, that any such agreement will be entered into
or that shareholder approval will be obtained. The Company believes that these
alliances are very beneficial to the Company for the following reasons: (1) such
joint ventures represent a clear endorsement by the Company's joint venture
partners of the Mills concept and the Company's management, and its development,
leasing and property management capabilities and (2) the joint venture partners
provide the Company with additional sources of equity and additional financial
strength and, as a result, facilitate construction and permanent financing.
Although the Company believes it is now well-positioned to develop future
projects on its own, it will continue to evaluate joint venture arrangements as
a financing alternative. In addition, the Company will develop projects with
Simon when required under the terms of the Simon Agreement. See "Simon
Agreement." In connection with these joint ventures, the Company receives fees
or reimbursements for its leasing, management, development and financing
services.
In addition to the five projects currently under development, the Company
or its joint venture partners control and are conducting due diligence on sites
in Charlotte, North Carolina, Monee, Illinois, Columbus, Ohio and San Francisco,
California, and is exploring many other locations, including Atlanta, Georgia,
Cleveland, Ohio, Baltimore, Maryland, Tampa Bay, Florida, St. Louis, Missouri
and San Diego, California. Furthermore, through its proposed alliance with
Cambridge, the Company plans on beginning development of Mills projects in
Canada. The Company is exploring Toronto, Ontario as the first site to be
developed by this future venture.
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MILLS UNDER DEVELOPMENT
ACTUAL/ ESTIMATED ANCHOR
ANTICIPATED ANTICIPATED COMPANY AGGREGATE STORE
METROPOLITAN CONSTRUCTION OPENING APPROXIMATE OWNERSHIP PROJECT TENANT
NAME/LOCATION AREA SERVED START DATE DATE(1) GLA(2) --------- COST(3) COMMITMENTS
- ------------- ------------ ------------ ----------- ----------- ------- -----------
(IN MILLIONS)
Grapevine Mills. . . . Dallas/Fort 3rd Q '96 4th Q '97 1,500,000 37.5% $203 15
Grapevine, TX Worth
Arizona Mills. . . . . Phoenix 3rd Q '96 4th Q '97 1,200,000 36.8% $183 12
Tempe, AZ
Mills City . . . . . . Los Angeles/ 2nd Q '97 4th Q '98 800,000 50.0% $167 3
at Orange Orange County
Orange, CA
Houston Mills. . . . . Houston 1998 1999 1,600,000 (4) (4) N/A(5)
Houston, TX
Meadowlands New York City/ 1998 1999 2,100,000 (4) (4) 10
Mills. . . . . . . . Northern New
Carlstadt, NJ Jersey
- ------------
(1) Anticipated Construction Start Dates and Opening Dates may be subject to
adjustment as a result of factors inherent in the development
process, some of which may not be under the direct control of the Company.
(2) Approximate GLA includes space that may be owned by certain anchor store
tenants.
(3) Estimated Aggregate Project Cost as of December 31, 1996 is based on the
Company's best estimate of the underlying components, many of which may
not be under the direct control of the Company.
(4) The ownership structure and budgets for these properties have not yet been
determined.
(5) Leasing activity has not yet commenced for Houston Mills.
Following is a description of the five projects currently under development
by the Company.
GRAPEVINE MILLS-GRAPEVINE, TEXAS. Development of Grapevine Mills commenced
in the third quarter of 1996 on a 175-acre site in the City of Grapevine, Texas,
two miles north of the Dallas/Fort Worth Airport. The project is expected to
include approximately 1.5 million square feet of GLA of both retail space and
large entertainment facilities. As of February 11, 1997, Grapevine Mills was
approximately 55% pre-leased, including nine executed leases with anchor store
tenants (Off 5th-Saks Fifth Avenue, Burlington Coat Factory, Bed, Bath and
Beyond, Group USA, Rainforest Cafe, Books-A-Million, Sega Gameworks, American
Wilderness Experience and AMC Theatres) and lease commitments from an additional
six anchor store tenants for a total of approximately 661,000 square feet of GLA
and has executed leases for approximately 157,000 square feet of specialty store
space.
Grapevine Mills is being developed by a limited partnership consisting of
the Operating Partnership (37.5%), Simon (37.5%) and Kan Am (25%). The Company
is providing development, management and leasing services for the project,
subject to the approval of Simon and Kan Am for certain major decisions, such as
changes to the plan of development, the annual operating budget for the project
and any proposed sale or refinancing. Kan Am has agreed to contribute 50% of the
initial required equity capital. The Operating Partnership and Simon are
responsible for the balance of the initial required equity capital on a pro rata
basis and have agreed to guarantee any project cost overruns not funded by the
initial equity capital and construction financing. The project is expected to
cost a total of $203 million. In July 1996, the venture obtained a commitment
from NationsBank to provide $140 million of construction financing, and expects
this commitment to be increased to $155 million. The loan will have a term of
four years, subject to a one-year extension at the Company's option, and will
bear interest at a rate equal to the 30-day LIBOR ("LIBOR")
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plus 165 basis points (subject to reduction to 135 basis points if certain debt
service ratios are achieved). Development costs incurred through December 31,
1996 were approximately $34 million (net of tax increment financing).
Under the terms of the limited partnership agreement, after the tenth
anniversary of the project's opening, any partner can exercise certain buy-sell
provisions by which the offering partner can require the other partners to sell
to the offering partner their respective interests in the partnership or
alternatively, purchase the interest of the offering partner in the partnership.
ARIZONA MILLS-TEMPE, ARIZONA. Development of Arizona Mills commenced in
the third quarter of 1996 on a 115-acre site located 20 minutes from downtown
Phoenix, at the intersection of Interstate 10 and Superstition Freeway
(Highway 60). Anticipated to open in the fourth quarter of 1997, Arizona
Mills is expected to contain approximately 1.2 million square feet of GLA of
both retail space and large entertainment facilities. As of February 11,
1997, Arizona Mills was approximately 62% pre-leased, including anchor store
tenant leases with Burlington Coat Factory, Off 5th-Saks Fifth Avenue,
Oshman's, Harkins Cinema, J.C. Penney, Rainforest Cafe, Group USA, Hi-Health
and Sega Gameworks, and commitments had been obtained from an additional
three anchor store tenants for a total anchor store tenant commitment of
approximately 553,000 square feet. The Company has executed leases for
approximately 216,000 square feet of GLA for specialty stores as of February
11, 1997.
Arizona Mills is being developed by a joint venture consisting of the
Operating Partnership (36.8%), Taubman (36.8%) and Simon (26.4%). The Company is
providing construction management, property management, marketing and leasing
services for the project. Major decisions such as a sale or refinancing of the
project and approval of annual budgets require approval of all joint venture
partners. All joint venture partners are obligated to contribute required equity
capital on a pro rata basis. The project is expected to cost approximately $183
million. In January 1997, the joint venture entered into a $145 million
construction financing loan with United Bank of Switzerland. The loan has a term
of five years and bears interest at a rate equal to LIBOR plus 130 basis points
(subject to reduction to 115 basis points upon obtaining a rating of A- or
better from a nationally recognized rating agency). Development costs through
December 31, 1996 were approximately $54.7 million (net of tax increment
financing).
Under the terms of the joint venture agreement, following the fifth
anniversary of the project's opening (or, if later, the date that 90% of the
project has been leased), if the joint venture partners are unable to agree upon
certain major decisions, any joint venture partner can cause the project to be
sold pursuant to certain required procedures. Upon such a sale, the proceeds
would be distributed to the joint venture partners on a pro rata basis.
MILLS CITY AT ORANGE-ORANGE, CALIFORNIA. Mills City at Orange is proposed
for development on an approximately 85-acre site located at the intersection of
the Santa Ana Freeway (I-10), the Garden Grove Freeway and Orange Freeway
(Highway 57) in the City of Orange, California, three miles from Disneyland.
This project will be developed on the site of an existing shopping center
located in what management believes to be one of the wealthiest areas and
strongest retail markets in the country. The redeveloped Mills-type project will
consist of an approximately 800,000 square foot open air shopping center that
will feature a 30-screen AMC Theatres included in approximately 330,000 square
feet of entertainment and dining facilities in addition to upscale value-retail
stores. In addition to AMC Theatres, the Mills has obtained commitments from Off
5th-Saks Fifth Avenue and Borders Books.
The Company expects to begin demolition of the existing shopping center in
the first quarter of 1997 and to open the project in the fourth quarter of 1998.
The project is expected to cost approximately $167 million (net of tax
increment financing). Development costs through December 31, 1996 were
approximately $9 million.
The project will be owned by a partnership between the Operating
Partnership (50%) and Kan Am (50%). The Company would provide all development,
leasing and management services for the project, subject to the approval of
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Kan Am for certain major decisions, including a sale or refinancing of the
project and approval of annual budgets. The Company would guarantee completion
of the project within the parameters of an approved budget. Kan Am has committed
to fund up to $45 million (which represents 100% of the estimated equity
required for this project) after the receipt of construction loan financing in
the amount of $122 million.
Under the terms of the limited partnership agreement, following the tenth
anniversary of the project's opening, either the Operating Partnership or Kan Am
can exercise a buy-sell provision whereby the Operating Partnership, if it is
the offeror, can require Kan Am to transfer its entire interest in the
partnership or Kan Am, if it is the offeror, can require the Operating
Partnership to acquire Kan Am's entire interest in the partnership.
HOUSTON MILLS-HOUSTON, TEXAS. The Company has acquired an option to
acquire a 500-acre site located at the intersection of Katy-Fort Bend Road and
I-10 in Fort Bend and Harris Counties. The approximately 1.6 million square foot
project planned for this site will consist of a combination of specialty
retailers, cinemas and themed restaurants. The Company expects to open this
project in 1999.
MEADOWLANDS MILLS-CARLSTADT, NEW JERSEY. The Company has acquired a
mortgage interest in a 595-acre site located on the New Jersey Turnpike (I-95)
adjacent to the Meadowlands Sports Complex and approximately five miles from New
York City and has signed certain preliminary agreements with Empire Ltd., the
current owner of the site, concerning the development of Meadowlands Mills. The
approximately 2.1 million square feet project planned for this site will combine
more than 200 specialty retailers, cinemas and themed restaurants. Ogden
Entertainment, DeBartolo Entertainment and Virgin Entertainment Group have
agreed in principle to plan and jointly develop the entertainment component of
the project which will occupy approximately 600,000 square feet. On November 19,
1996, the Company announced commitments from ten anchor store tenants, including
Off 5th-Saks Fifth Avenue, The Sports Authority, Group USA, Off Rodeo Drive and
Rainforest Cafe. The Company currently expects to open the project in 1999.
The preliminary agreements with the site owner contemplate that the project
will be developed by a joint venture to be formed among the Operating
Partnership (82%), Empire Ltd. (13%) and Bennett S. Lazare, an individual
affiliated with Empire Ltd. (5%). The agreements further provide that upon
receipt of a final fill permit for the project, the site is to be conveyed to
the new joint venture, and the Operating Partnership is to contribute 75% of its
mortgage interest to the new joint venture and is to receive a credit to its
capital account in the amount of $12 million plus certain other predevelopment
costs advanced on behalf of the project. The preliminary agreements also provide
that the interests of the three joint venture partners may be diluted by as much
as 50% if an additional equity partner is admitted to the joint venture. If all
other permits required to develop the shopping center shall not have been
obtained within two years following the receipt of the final fill permit, then
the Operating Partnership shall have the right to sell the site, subject to
certain buy/sell provisions.
SIMON AGREEMENT. The Operating Partnership entered into an agreement
with Simon pursuant to which Simon and the Operating Partnership have agreed
to examine the feasibility of joint development and ownership of Mills-type
shopping centers in various metropolitan markets (the "Simon Agreement").
The Simon Agreement provides, generally, that Simon and the Operating
Partnership would hold equal interests in each joint venture entity and
contribute needed capital on a pro rata basis. Three joint ventures have
been formed as of December 31, 1996 in connection with the development of
Ontario Mills, Grapevine Mills and Arizona Mills and the parties have
announced their intention to form a new joint venture in connection with the
development of a site in Charlotte, North Carolina. The Operating
Partnership generally acts as the managing member or managing general
partner, as the case may be, of each entity. Primary responsibility for the
development, management and leasing of each joint venture project formed as
of the date hereof has been undertaken by the Operating Partnership. The
Simon Agreement restricts Simon until December 2003 from competing with the
Operating Partnership by developing or acquiring Mills-type projects, and
places additional restrictions on Simon's ability to hire employees of the
Operating Partnership or its affiliates and to acquire stock in the
9
Company above certain specified levels. In addition, the Operating Partnership
has agreed that until December 2003 it will not develop a Mills-type shopping
center within certain designated metropolitan areas without affording Simon a
first right to jointly develop such project.
FINANCING STRATEGIES
The Company intends to continue to reduce its exposure to refinancing risk
and interest rate fluctuations. Prior to the Potomac Mills-Gurnee Mills
securitization (at December 1, 1996), the Company's debt portfolio consisted of
48.3% variable rate debt ($349.0 million), most of which was subject to tiered
caps, and the portfolio had a weighted average maturity of 2.5 years. Following
this refinancing (at December 31, 1996), only 10% of the Company's debt
portfolio, or $72 million, was variable rate debt, and the weighted average
maturity of the debt portfolio was extended to 4.5 years. In addition, the
Company expects to refinance the $165 million mortgage on Franklin Mills in the
first half of 1997, extending its maturity through a fixed rate securitization.
The Company has also taken steps to increase its liquidity. In October 1996, the
Company obtained a $40 million line of credit from Credit Suisse First Boston
for the purpose of funding development activities and general working capital
(the "Line of Credit") which has a variable interest rate equal to LIBOR plus
300 basis points and matures on October 31, 1998 (with an option for a one-year
extension). The Company expects to increase the size of the Line of Credit in
the second quarter of 1997. Through its refinancing efforts and the Offering,
the Company will have significantly improved its balance sheet by lowering the
Company's leverage, extending debt maturities and fixing interest rates.
Over the last two years, the Company formed joint ventures to finance the
development of certain Mills projects. The Company has established certain joint
ventures with Kan Am, Simon and Taubman and has reached an agreement in
principle to form one or more such joint ventures with Cambridge. While the
Company has utilized such joint ventures in the past, the Company may or may not
continue to use joint ventures in the future as a financing vehicle, except when
required under the terms of the Simon Agreement.
COMPETITION
There are other companies that are engaged in the development or
ownership of value retail properties that compete with the Company in seeking
tenants. This results in competition for acquisition of prime locations and
for tenants who will lease space in the value retail properties that the
Company and its competitors own or operate. The development of new
super-regional outlet malls or other value retail shopping centers with more
convenient locations or better rents may attract the Company's tenants or
cause them to seek more favorable lease terms at or prior to renewal, and may
accordingly adversely affect the business, revenues or value of the
Properties. In addition, traditional retailers may increase their competition
with value retailers for the limited pool of consumers by engaging in
marketing and selling activities similar to those of value retailers, thus
blurring the distinction between traditional retailers and value retailers.
SEASONALITY
The regional shopping center industry is seasonal in nature, with mall
tenant sales peaking in the fourth quarter due to the Christmas season. As a
result, a substantial portion of the percentage rents are not paid until the
fourth quarter. Furthermore, most new lease-up occurs towards the later part of
the year in anticipation of the holiday season and most vacancies occur toward
the beginning of the year. In addition, the majority of the temporary tenants
take occupancy in the fourth quarter. Accordingly, cash flow and occupancy
levels are generally lowest in the first quarter and highest in the fourth
quarter. This seasonality also impacts the quarter-by-quarter results of net
operating income and FFO, although this impact is largely mitigated by accruing
minimum and percentage rents on a straight line basis during the year in
accordance with GAAP.
TAX STATUS
The Company has elected to be taxed as a real estate investment trust
("REIT") under the Internal Revenue Code of 1986 (the "Code"). The Company
believes that it was organized and has operated in such a manner to qualify as a
REIT, and the Company intends to continue to operate in such a manner, but no
assurance can be given that it has operated in a manner so as to qualify, or
will operate in a manner so as to continue to qualify as a REIT. If the Company
qualifies for taxation as a REIT, the Company generally will not be subject to
Federal income tax to the extent it distributes at least 95% of its REIT taxable
income to its shareholders. If the Company fails to qualify as a REIT in any
taxable year, the Company will be subject to Federal income tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate
rates. Even if the Company qualifies for taxation as a REIT, the Company may be
subject to certain state and local taxes on its income and property and to
federal income and excise taxes on its undistributed income and gains from
certain property sales. The Third-Party Services Corporation, which provides
management services to properties in which the Operating Partnership does not
own an interest and provides development services for properties which are not
100% owned by the Operating Partnership, is subject to corporate-level federal,
state and local corporate income taxes on its income.
ENVIRONMENTAL MATTERS
The Company believes that the Properties are in compliance in all material
respects with all federal, state and local ordinances and regulations regarding
hazardous or toxic substances. The Company is not aware of any environmental
condition which the Company believes would have a material adverse effect on the
Company's financial condition or results of operations (before consideration of
any potential insurance coverage). Nevertheless, it is possible that there are
material environmental liabilities of which the Company is unaware. Moreover,
no assurances can be given that (i) future laws, ordinances or regulations will
not impose any material environmental liability or (ii) the current
environmental condition of the Properties have not been or will not be affected
by tenants and occupants of the Properties, by the condition of properties in
the vicinity of the Properties or by third parties unrelated to the Company.
10
Phase I environmental reports or updates thereof were completed by
independent environmental consultants on all Properties within the last four
years. These reports did not reveal any material environmental concerns except
as noted below with respect to the Western Hills Community Center. Concerns
were raised in a September 1993 Phase I report on the Mount Prospect Plaza
Community Center as to two offsite leaking underground storage tanks, but were
rated as minimal on additional investigation performed for a February 1995
update. Since Phase I environmental reports do not involve invasive procedures
such as soil sampling and underground analysis, no assurance can be given that
these reports reveal all potential environmental liabilities.
Limited quantities of asbestos containing materials ("ACMs") are present
in certain of the Properties. The ACMs found are generally non-friable
(meaning that the ACMs are not easily crumbled and thus are less likely to
release asbestos fibers into the air), in good condition and are unlikely to
be disturbed. With certain exceptions, these ACMs will be removed by the
Company in the ordinary course of renovation or reconstruction. Prior to
removal, these ACMs will be monitored and maintained by the Company in
accordance with procedures established by the Environmental Protection
Agency, the Occupational Safety and Health Administration and other
applicable governmental authorities.
The Phase I environmental assessment prepared for the Western Hills
Community Center revealed that leaking underground storage tanks were removed
from an adjacent BP service station. The site investigation BP's consultant
conducted after the removal determined that groundwater contamination
attributable to the BP site exists. The groundwater flow direction generally is
cross-gradient to the Western Hills Community Center. The Phase I report noted
that there is a potential that the southeastern corner of the Property that is
closest to the BP station may have been contaminated by the leaking tank at the
BP site. As a result, a recommended Phase II assessment of the Property was
conducted in December 1993 which did not encounter groundwater and thus found no
evidence of groundwater contamination. The Phase II assessment concluded that
although low levels of petroleum hydrocarbons were detected in the soil, those
levels were well below Ohio action levels.
UNINSURED LOSS
In February 1993, the Property Partnership that owns Sawgrass Mills
filed a lawsuit against various parties seeking damages for the repair and
replacement of the heating, ventilating and air conditioning systems (the
"HVAC") at Sawgrass Mills as a result of the excessive corrosion of HVAC
pipes. The partnership's insurance policy may not cover this loss.
Currently, the Company believes that remediation or replacement of the HVAC
systems may be phased in over several years. The partnership has established
a cash reserve of $1.5 million pursuant to the terms of the Sawgrass Mills
securitized debt financing. The reserve is pledged as additional security
for the Sawgrass Mills debt and is required to be used in its entirety by no
later than January 18, 2000 and only to fund the replacement of cooling water
piping used in the HVAC systems. In December 1996, the partnership settled
its claims for an aggregate sum of $2.8 million, the net proceeds of which
have been accrued as a reserve to fund such repair or replacement.
CORPORATE HEADQUARTERS
The Company's executive offices are located at 1300 Wilson Boulevard,
Arlington, VA 22209. The Company's telephone number is (703) 526-5000.
11
ITEM 2. PROPERTIES
THE MILLS
The following tables set forth certain information relating to the Mills as
of December 31, 1996. The Company either holds title to the Properties or
directly or indirectly holds 100% of the general and limited partnership
interests in the Property Partnerships, except for the Property Partnerships
that own Franklin Mills and Ontario Mills, in which the Company holds 77.6%
(which represents 100% of the current income and cash flow from Franklin Mills)
and 50%, respectively, either directly or indirectly, of the partnership
interests.
12
THE MILLS
GROSS LEASABLE AREA
(SQ. FT.) PERCENT LEASED (3)
------------------------ -------------------
YEAR LAND TOTAL
COMPLETED/ AREA ANCHOR SPECIALTY TOTAL ANCHOR SPECIALTY PERCENT
PROPERTY EXPANDED (ACRES) STORES(1)(2) STORES GLA (2) STORES STORES LEASED(3)
- --------- --------- ------- ------------ --------- ------- ------ --------- ---------
Potomac 1985/1986 161 1,005,942 632,921 1,638,863 100% 93% 97%
Mills 1993
Franklin 1989 170 1,155,303 606,923 1,762,226 100% 83% 93%
Mills
Sawgrass 1990 150 1,193,683 684,726 1,878,409 98% 97% 97%
Mills 1995
Gurnee 1991 233 827,872 639,742 1,467,614 94% 91% 93%
Mills
Ontario 1996 165 684,346 512,375 1,196,721(5) 95% 85% 90%
Mills
----- ---------- ---------- ---------
Totals/
Weighted
Averages 879 4,867,146 3,076,687 7,943,833 98%(7) 91%(7) 95%(7)
--- --------- --------- ---------
--- --------- --------- ---------
SALES PER SQ. FT.
ANNUALIZED NUMBER -----------------
BASE OF ANCHOR SPECIALTY
RENT(4) STORES ANCHOR STORE TENANTS STORES STORES
------- ------ -------------------- ------ ---------
Potomac Mills $20,103,649 229 AMC Theatres, Books-A-Million, Burlington $185 $289
Coat Factory*, Daffy Dan's, Everything
Rubbermaid, IKEA, J.C. Penney Outlet,
Linen's N'Things, Marshalls, Nordstrom
Rack, Off 5th-Saks Fifth Avenue, Outlet to
the Far East, Spiegel Outlet, Syms, The
Sports Authority, TJ Maxx and Waccamaw
Pottery
Franklin 15,471,871 225 Bed, Bath & Beyond, Burlington Coat 182 254
Mills Factory,Filene's Basement, J.C. Penney
Outlet, Last Call from Neiman Marcus,
Marshalls, Nordstrom Rack, Office Max,
Pharmor*, Ports of the World**, Off 5th -
Sakes Fifth Avenue, Sams Wholesale Club*,
Spiegel Outlet, Syms and TJMaxx
Sawgrass 23,681,050 256 Beall's Outlet Store, Bed, Bath & Beyond, 329 407
Mills Books-A-Million, BrandsMart, Burlington
Coat Factory, Cobb Theatre, J.C. Penney
Outlet, Last Call from Neiman Marcus,
Loehmanns, Marshalls, Off 5th - Saks Fifth
Avenue, Rainforest Cafe, Service
Merchandise*, Spec's Outlet, Spiegel
Outlet, The Sports Authority, TJ Maxx,
Target Greatland*, VF (Vanity Fair) Outlet
Marketplace* and Waccamaw Pottery
Gurnee 15,094,795 218 Bed, Bath & Beyond, Burlington Coat 151 252
Mills Factory*, J.C. Penney Outlet, Marcus
Theater*, Marshalls, Off 5th-Saks Fifth
Avenue, Rainforest Cafe, Spiegel Outlet,
The Sports Authority, Syms, TJ Maxx, Value
City* and Waccamaw Pottery
Ontario 14,797,592 174 AMC Theatres*, Bed, Bath & Beyond, N/A(6) N/A(6)
Mills Burlington Coat Factory, Foozles, Group
USA, J.C. Penney Outlet, Marshalls, Mikasa
Factory Store, Off 5th-Saks Fifth Avenue,
Off Rodeo Drive, The Sports Authority,
TJ Maxx, Totally For Kids
----------- -----
Totals/
Weighted
Averages $89,148,957 1,102 $ 218 $ 307
----------- -----
----------- -----
13
- -------------------------
*Tenant owns store within the Mills
**Ground Lease
Notes:
(1) Anchor stores include all stores occupying more than 20,000 square feet.
(2) Includes 914,947 square feet of GLA owned by certain anchor store tenants
as follows: Potomac Mills-80,000 square feet of GLA; Franklin Mills-208,602
square feet of GLA; Sawgrass Mills-281,774 square feet of GLA;
Gurnee Mills-219,571 square feet of GLA, and Ontario Mills-125,000 square
feet of GLA.
(3) Percent Leased is defined as all space leased and for which rent was being
paid as of December 31, 1996, excluding tenants with leases having a term
of less than one year.
(4) Annualized base rent is the base rent payable in December 1996 multiplied
by 12.
(5) Ontario Mills, upon completion of space for eight anchor store tenants
containing approximately 500,000 square feet of GLA, will contain
approximately 1.7 million square feet of GLA, including GLA owned by
certain anchor store tenants.
(6) 1996 Sales Per Square Foot information is not available for Ontario Mills
which has not completed its initial lease-up.
(7) Excludes Ontario Mills which opened on November 14, 1996 and has not
completed its initial lease-up.
14
AVERAGE ANNUAL EFFECTIVE RENT
The following table sets forth, for the past five years, certain
information regarding minimum and percentage rents for the Mills (excluding
Ontario Mills).
AVERAGE ANNUAL EFFECTIVE RENT PER SQUARE FOOT (1)
POTOMAC MILLS FRANKLIN MILLS SAWGRASS MILLS GURNEE MILLS
--------------- -------------- ---------------- -------------
1996 $ 14.00 $ 11.40 $ 16.55 $ 13.62
1995 13.30 11.33 15.66 12.89
1994 13.00 11.64 14.54 12.83
1993 11.99 12.59 15.69 13.86
1992 12.02 12.92 14.70 13.76
- --------------
(1) Average annual effective rent per square foot is based on annual minimum
rent and percentage rent dividend by average occupancy within each center.
The lease expirations, operating trends and rental rates for each Mills
individually and the Community Centers in the aggregate follow this section. The
Operating Trends and Rental Rates tables for existing Mills exclude Ontario
Mills which opened on November 14, 1996 and has not yet completed its initial
lease-up.
EXISTING MILLS LEASE EXPIRATIONS
The following table sets forth scheduled lease expirations during each of
the next ten years and thereafter of leases for stores at the existing Mills
including Ontario Mills in the aggregate, assuming that none of the tenants
exercises available renewal options. At December 31, 1996, the average remaining
lease term was 7.4 years for anchor store tenants and 4.8 years for specialty
store tenants.
NUMBER OF GROSS LEASABLE AREA
TOTAL ANCHOR STORE ----------------------------- ANNUALIZED BASE RENT (1)
NUMBER OF TENANT APPROXIMATE PERCENT -----------------------------------------
LEASES LEASES LEASES GLA OF PERCENT OF AVERAGE
EXPIRING IN: EXPIRING EXPIRING (SQ. FT.) TOTAL AMOUNT TOTAL PER SQ. FT.
- ------------ -------- -------- --------- ----- ------ ----- -----------
1997 . . . 125 1 409,657 6% $ 7,607,438 9% $18.57
1998 . . . 82 3 337,609 5% 6,044,233 7% 17.90
1999 . . . 96 6 593,676 9% 8,452,596 9% 14.24
2000 . . . 168 6 754,704 12% 13,443,086 15% 17.81
2001 . . . 236 7 1,204,207 19% 18,827,758 21% 15.63
2002 . . . 62 4 304,174 5% 4,886,336 5% 16.06
2003 . . . 51 9 619,431 10% 6,531,772 7% 10.54
2004 . . . 22 6 278,702 4% 3,293,205 4% 11.82
2005 . . . 23 3 322,136 5% 3,418,705 4% 10.61
2006 . . . 57 10 580,621 9% 8,632,942 10% 14.87
After 2006 34 15 1,021,079 16% 8,010,886 9% 7.85
- --------------
(1) Annualized base rent is the base rent payable in December 1996 multiplied
by 12.
15
EXISTING MILLS OPERATING TRENDS
The following table sets forth, for the last three years, certain
information regarding operating trends with respect to the existing Mills in the
aggregate.
MINIMUM RENT PLUS PERCENTAGE RENTS
--------------------------------------------------------------------------
AVERAGE TOTAL STORES ANCHOR STORES SPECIALTY STORES
PERCENT ------------ ------------- ----------------
LEASED(1) TOTAL PER SQ. FT. TOTAL PER SQ. FT. TOTAL PER SQ. FT.
--------- ----------- ----------- ----------- ----------- ----------- -----------
1996. . . . . 94.1% $78,313,084 $13.97 $22,409,034 $6.80 $55,904,050 $24.21
1995. . . . . 94.7% 74,571,076 13.31 21,809,106 6.57 52,761,970 23.09
1994. . . . . 95.7% 73,471,573 12.99 21,706,046 6.56 51,765,527 22.08
- -----------
(1) Average percent leased is defined as all space leased and for which rent
was being paid excluding tenants with leases having a term of less than one
year.
EXISTING MILLS RENTAL RATES
The following table sets forth, for each of the last three years, the
average base rent per leased square foot of store openings and closings during
the given year with respect to the existing Mills in the aggregate.
ANCHOR STORES
------------------------------------------------------------------------------------
STORE OPENINGS STORE CLOSINGS RELEASING
DURING YEAR DURING YEAR SPREAD(1)
----------------------- ----------------------- ------------------------
AVERAGE AVERAGE
BASE RENT TOTAL BASE RENT TOTAL
PER SQ. FT. SQ. FT. PER SQ. FT. SQ. FT.
----------- ---------- ----------- ----------
1996 $18.54 91,653 $12.95 74,453 $5.59 43.17%
1995 11.00 45,158 8.36 152,790 2.64 31.58%
1994 7.46 469,699 5.90 377,949 1.56 26.44%
SPECIALTY STORES
------------------------------------------------------------------------------------
STORE OPENINGS STORE CLOSINGS RELEASING
DURING YEAR DURING YEAR SPREAD(1)
----------------------- ----------------------- ------------------------
AVERAGE AVERAGE
BASE RENT TOTAL BASE RENT TOTAL
PER SQ. FT. SQ. FT. PER SQ. FT. SQ. FT.
----------- ---------- ----------- ----------
1996 $22.76 290,825 $19.97 311,250 $2.79 13.97%
1995 22.71 318,320 20.38 271,597 2.33 11.43%
1994 21.41 250,602 21.34 249,068 0.07 0.33%
- -----------
(1) The releasing spread is calculated as the difference between per square
foot openings and per square foot closings.
POTOMAC MILLS - WOODBRIDGE, VIRGINIA
Potomac Mills contains approximately 1.6 million square feet of GLA, of
which approximately 80,000 square feet is owned by one anchor store tenant.
Potomac Mills opened in 1985 with a total of approximately 630,000 square feet
of GLA. As a result of customer demand, Potomac Mills was expanded to
approximately 1.2 million square feet of GLA in 1986. The Phase III expansion of
Potomac Mills opened on September 30, 1993 and increased total GLA by
approximately 355,208 square feet. The Company anticipates that construction of
a new entertainment zone will begin in late 1997 with an opening in late 1998 or
early 1999. Real estate taxes paid in 1996 totaled approximately $2.5 million,
representing a tax rate of 1.6%. Potomac Mills has 17 anchors, including: IKEA,
J.C. Penney Outlet, Waccamaw Pottery, Marshalls, Spiegel Outlet, AMC Theatres,
The Sports Authority, Off 5th-Saks Fifth Avenue, TJ Maxx, Syms and Nordstrom
Rack. Potomac Mills is situated on approximately 161 acres located approximately
20 miles southwest of Washington, D.C. Potomac Mills is adjacent to Interstate
95, which serves as one of the transportation backbones of the Washington
metropolitan area. This location strategically positions Potomac Mills between
the Washington/Baltimore metropolitan market to the north and Richmond,
approximately 90 miles to the south. The Company owns 100% of Potomac Mills.
16
POTOMAC MILLS LEASE EXPIRATIONS
NUMBER OF GROSS LEASABLE AREA
TOTAL ANCHOR STORE --------------------------- ANNUALIZED BASE RENT(1)
NUMBER OF TENANT APPROXIMATE PERCENT ------------------------------------------
LEASES LEASES LEASES GLA OF PERCENT OF AVERAGE
EXPIRING IN: EXPIRING EXPIRING (SQ. FT.) TOTAL AMOUNT TOTAL PER SQ. FT.
- ------------- -------- -------- --------- ----- ------- ----- ----------
1997 . . . . . 25 - 88,337 6% $ 1,731,670 9% $19.60
1998 . . . . . 33 1 115,026 8% 2,600,022 13% 22.60
1999 . . . . . 24 1 122,696 8% 2,009,180 10% 16.38
2000 . . . . . 33 1 122,303 8% 2,370,316 12% 19.38
2001 . . . . . 27 1 98,177 7% 1,928,661 10% 19.64
2002 . . . . . 14 1 57,702 4% 970,556 5% 16.82
2003 . . . . . 27 3 181,448 12% 2,637,903 13% 14.54
2004 . . . . . 8 2 123,422 8% 1,295,836 6% 10.50
2005 . . . . . 8 2 222.128 14% 1,644,682 8% 7.40
2006 . . . . . 6 2 225.995 15% 1,839,353 9% 8.14
After 2006 5 2 146,816 10% 1,075,470 5% 7.33
- -----------
(1) Annualized base rent is the base rent payable in December 1996 multiplied
by 12.
POTOMAC MILLS OPERATING TRENDS
MINIMUM RENT PLUS PERCENTAGE RENTS
--------------------------------------------------------------------------
AVERAGE TOTAL STORES ANCHOR STORES SPECIALTY STORES
PERCENT ---------------------------- ---------------------------- ----------------------------
LEASED(1) TOTAL PER SQ. FT. TOTAL PER SQ. FT. TOTAL PER SQ. FT.
--------- ----------- ----------- ----------- ----------- ----------- -----------
1996 . . . . 95.6% $20,865,975 $14.00 $6,142,999 $6.76 $14,722,976 $25.32
1995 . . . . 96.2% 19,905,334 13.30 5,839,132 6.57 14,066,202 23.14
1994 . . . . 98.2% 19,840,738 13.00 5,766,085 6.47 14,074,653 22.17
- -----------
(1) Average percent leased is defined as all space leased and for which rent
was being paid excluding tenants with leases having a term of less than one
year.
POTOMAC MILLS BASE RENTAL RATES
ANCHOR STORES
------------------------------------------------------------------------------------
STORE OPENINGS STORE CLOSINGS RELEASING
DURING YEAR DURING YEAR SPREAD(1)
----------------------- ----------------------- ------------------------
AVERAGE AVERAGE
BASE RENT TOTAL BASE RENT TOTAL
PER SQ. FT. SQ. FT. PER SQ. FT. SQ. FT.
----------- ---------- ----------- ----------
1996 $11.43 33,406 $11.55 15,178 ($0.12) (1.04%)
1995 8.74 20,048 8.61 78,572 0.13 1.51%
1994 10.22 54,494 5.38 40,857 4.84 89.96%
SPECIALTY STORES
------------------------------------------------------------------------------------
STORE OPENINGS STORE CLOSINGS RELEASING
DURING YEAR DURING YEAR SPREAD(1)
----------------------- ----------------------- ------------------------
AVERAGE AVERAGE
BASE RENT TOTAL BASE RENT TOTAL
PER SQ. FT. SQ. FT. PER SQ. FT. SQ. FT.
----------- ---------- ----------- ----------
1996 $23.64 83,594 $21.80 66,607 $1.84 8.44%
1995 24.91 49,135 18.89 82,912 6.02 31.87%
1994 22.06 58,200 20.82 57,859 1.24 5.96%
- -----------
(1) The releasing spread is calculated as the difference between per square
foot openings and per square foot closings.
17
FRANKLIN MILLS - PHILADELPHIA, PENNSYLVANIA
Franklin Mills opened in 1989 and contains approximately 1.8 million square
feet of GLA, of which approximately 209,000 square feet is owned by certain
anchor store tenants. The Company began remerchandising Franklin Mills in 1996
by upgrading its tenant mix and plans to begin construction on an entertainment
zone, including themed restaurants and interactive entertainment venues in the
first half of 1997. Real estate taxes paid in 1996 totaled approximately $3.9
million, representing a tax rate of 2.6%. Franklin Mills has 18 anchors,
including: Bed, Bath & Beyond, Filene's Basement, Last Call from Neiman Marcus,
Marshalls, Nordstrom Rack, Office Max, Off 5th-Saks Fifth Avenue, Spiegel
Outlet, Syms and TJ Maxx. Franklin Mills features, what the Company believes is,
the largest concentration of outlet retailing in the Delaware Valley. With
access from U.S. Highway 1 and the Pennsylvania Turnpike, Franklin Mills is
strategically positioned approximately 15 miles northeast of Philadelphia's
Center City and just west of Interstate 95, a major thoroughfare serving the
greater Philadelphia/Wilmington metropolitan market. The Operating Partnership
owns 77.6% of the partnership interests in the partnership that owns Franklin
Mills (which represents 100% of the current income and cash-flow from Franklin
Mills) and has signed agreements to acquire the remaining partnership interests
in April 1997, in exchange for 195,295 Units.
FRANKLIN MILLS LEASE EXPIRATIONS
NUMBER OF GROSS LEASABLE AREA
TOTAL ANCHOR STORE --------------------------- ANNUALIZED BASE RENT(1)
NUMBER OF TENANT APPROXIMATE PERCENT ------------------------------------------
LEASES LEASES LEASES GLA OF PERCENT OF AVERAGE
EXPIRING IN: EXPIRING EXPIRING (SQ. FT.) TOTAL AMOUNT TOTAL PER SQ. FT.
- ------------- -------- -------- --------- ----- ------- ----- ----------
1997 . . . . . 36 - 117,181 9% $2,108,190 14% $17.90
1998 . . . . . 11 1 54,689 4% 720,841 5% 13.18
1999 . . . . . 41 4 362,091 29% 4,082,949 26% 11.28
2000 . . . . . 28 2 206,163 16% 2,922,832 19% 14.18
2001 . . . . . 33 1 160,214 13% 2,381,264 15% 14.86
2002 . . . . . 10 1 51,400 4% 724,403 5% 14.09
2003 . . . . . 4 2 165,106 13% 886,814 6% 5.37
2004 . . . . . 4 1 54,556 4% 414,195 2% 7.59
2005 . . . . . 2 - 9,803 1% 194,996 1% 19.89
2006 . . . . . 4 1 49,443 4% 578,561 4% 11.70
After 2006 2 1 36,718 3% 456,826 3% 12.44
- -----------
(1) Annualized base rent is the base rent payable in December 1996 multiplied
by 12.
FRANKLIN MILLS OPERATING TRENDS
MINIMUM RENT PLUS PERCENTAGE RENTS
--------------------------------------------------------------------------
AVERAGE TOTAL STORES ANCHOR STORES SPECIALTY STORES
PERCENT ---------------------------- ---------------------------- ----------------------------
LEASED(1) TOTAL PER SQ. FT. TOTAL PER SQ. FT. TOTAL PER SQ. FT.
--------- ----------- ----------- ----------- ----------- ----------- -----------
1996. . . . . 92.0% $16,318,689 $11.40 $5,291,698 $5.67 $11,026,991 $22.16
1995. . . . . 95.5% 16,837,997 11.33 5,401,107 5.69 11,436,890 21.29
1994. . . . . 97.0% 17,565,102 11.64 5,485,679 5.78 12,079,423 21.54
- -----------
(1) Average percent leased is defined as all space leased and for which rent
was being paid excluding tenants with leases having a term of less than one
year.
18
FRANKLIN MILLS BASE RENTAL RATES
ANCHOR STORES
------------------------------------------------------------------------------------
STORE OPENINGS STORE CLOSINGS RELEASING
DURING YEAR DURING YEAR SPREAD(1)
----------------------- ----------------------- ------------------------
AVERAGE AVERAGE
BASE RENT TOTAL BASE RENT TOTAL
PER SQ. FT. SQ. FT. PER SQ. FT. SQ. FT.
----------- ---------- ----------- ----------
1996 $10.41 18,247 $10.25 20,000 $0.16 1.56%
1995 - - - - - 0.00%
1994 6.10 2,471 - - 6.10 100.00%
SPECIALTY STORES
------------------------------------------------------------------------------------
STORE OPENINGS STORE CLOSINGS RELEASING
DURING YEAR DURING YEAR SPREAD(1)
----------------------- ----------------------- ------------------------
AVERAGE AVERAGE
BASE RENT TOTAL BASE RENT TOTAL
PER SQ. FT. SQ. FT. PER SQ. FT. SQ. FT.
----------- ---------- ----------- ----------
1996 $20.08 73,880 $18.61 115,416 $1.47 7.90%
1995 19.49 46,453 21.90 77,713 (2.41) (11.00%)
1994 20.74 82,255 21.80 97,245 (1.06) (4.86%)
- -----------
(1) The releasing spread is calculated as difference between per square foot
openings and per square foot closings.
SAWGRASS MILLS - SUNRISE, FLORIDA
Sawgrass Mills, which opened in 1990, contains approximately 1.9 million
square feet of GLA, of which approximately 282,000 square feet is owned by
certain anchor store tenants. As a result of customer demand, Sawgrass Mills was
expanded by approximately 136,000 square feet of GLA in 1995. The Company
expects to open a Phase III expansion of Sawgrass Mills in the third quarter of
1998 consisting of an approximately 270,000 square foot entertainment zone. Real
estate taxes paid in 1996 totaled approximately $5.2 million, representing a tax
rate of 3.8%. Sawgrass Mills has 21 anchors, including: Beall's Outlet Store,
Burlington Coat Factory, Last Call from Neiman Marcus, Loehmanns, Rainforest
Cafe, Spiegel Outlet, The Sports Authority and Waccamaw Pottery. Sawgrass Mills
is located in Florida's "Gold Coast" market approximately 11 miles west of Fort
Lauderdale. The site lies adjacent to both the Sawgrass Expressway and Flamingo
Road, between Sunrise and Oakland Park Boulevards. The entire South Florida
region is linked by the road network of the Sawgrass Expressway, Interstate 75
and Interstate 595, which intersect at an interchange located less than two
miles southwest of Sawgrass Mills.
The Company owns 100% of Sawgrass Mills. The Phase III expansion will be
owned by a partnership formed by the Operating Partnership (50%) and Kan Am
(50%) in which Kan Am has agreed to fund 100% of the project's initial required
equity for which Kan Am will receive a 9% annual preferred return. Under the
terms of the partnership agreement, the Company has the right to buy out Kan Am
prior to December 31, 1999 at 120% of Kan Am's equity contributions and
accumulated preferred returns, under certain terms and conditions set forth in
the partnership agreement. The Company would provide all development, management
and leasing services for the expansion, subject to the approval of Kan Am of
certain major decisions, including a sale or refinancing of the project and the
approval of the development and annual budgets. The Company would guarantee
completion of the expansion within the parameters of the approved development
budget.
19
SAWGRASS MILLS LEASE EXPIRATIONS
NUMBER OF GROSS LEASABLE AREA
TOTAL ANCHOR STORE --------------------------- ANNUALIZED BASE RENT(1)
NUMBER OF TENANT APPROXIMATE PERCENT ------------------------------------------
LEASES LEASES LEASES GLA OF PERCENT OF AVERAGE
EXPIRING IN: EXPIRING EXPIRING (SQ. FT.) TOTAL AMOUNT TOTAL PER SQ. FT.
- ------------- -------- -------- --------- ----- ------- ----- ----------
1997. . . . . 23 1 63,069 4% $ 1,325,497 6% $21.02
1998. . . . . 19 - 56,209 4% 1,297,187 5% 22.19
1999. . . . . 12 1 46,352 3% 1,008,910 4% 21.77
2000. . . . . 93 3 391,619 25% 7,427,118 31% 18.97
2001 .. . . . 52 2 295,010 19% 4,650,139 20% 15.76
2002. . . . . 11 1 46,638 3% 808,960 3% 17.35
2003. . . . . 7 1 122,393 8% 1,429,659 6% 11.68
2004. . . . . 7 3 96,340 6% 1,455,729 6% 15.11
2005. . . . . 10 1 68,718 5% 1,168,472 5% 17.00
2006. . . . . 5 2 95,966 6% 1,608,068 7% 16.76
After 2006 . 4 3 264,143 17% 1,551,311 7% 5.87
(1) Annualized base rent is the base rent payable in December 1996 multiplied
by 12.
SAWGRASS MILLS OPERATING TRENDS
MINIMUM RENT PLUS PERCENTAGE RENTS
--------------------------------------------------------------------------
AVERAGE TOTAL STORES ANCHOR STORES SPECIALTY STORES
PERCENT ---------------------------- ---------------------------- -------------------------
LEASED(1) TOTAL PER SQ. FT. TOTAL PER SQ. FT. TOTAL PER SQ. FT.
--------- ----------- ----------- ----------- ----------- ----------- -----------
1996. . . . . 97.6% $25,787,924 $16.55 $7,150,346 $8.03 $18,637,578 $27.90
1995. . . . . 95.3% 22,738,214 15.66 6,670,486 7.68 16,067,728 27.58
1994. . . . . 94.9% 20,889,138 14.54 6,467,454 7.56 14,421,684 24.83
- -----------
(1) Average percent leased is defined as all space leased and for which rent
was being paid excluding tenants with leases having a term of less than one
year.
SAWGRASS MILLS RENTAL RATES
ANCHOR STORES
------------------------------------------------------------------------------------
STORE OPENINGS STORE CLOSINGS RELEASING
DURING YEAR DURING YEAR SPREAD(1)
----------------------- ----------------------- ------------------------
AVERAGE AVERAGE
BASE RENT TOTAL BASE RENT TOTAL
PER SQ. FT. SQ. FT. PER SQ. FT. SQ. FT.
----------- ---------- ----------- ----------
1996 $26.39 20,000 $14.86 39,275 $11.53 77.59%
1995 12.80 25,110 - - 12.80 100.00%
1994 7.86 307,486 6.29 251,643 1.57 24.96%
SPECIALTY STORES
------------------------------------------------------------------------------------
STORE OPENINGS STORE CLOSINGS RELEASING
DURING YEAR DURING YEAR SPREAD(1)
----------------------- ----------------------- ------------------------
AVERAGE AVERAGE
BASE RENT TOTAL BASE RENT TOTAL
PER SQ. FT. SQ. FT. PER SQ. FT. SQ. FT.
----------- ---------- ----------- ----------
1996 $29.63 58,904 $22.24 57,770 $7.39 33.23%
1995 24.58 173,744 23.11 55,108 1.47 6.36%
1994 25.55 37,167 20.95 30,785 4.60 21.96%
- -----------
(1) The releasing spread is calculated as the difference between per square
foot openings and per square foot closings.
20
GURNEE MILLS - GURNEE, ILLINOIS
Gurnee Mills opened in 1991 and contains approximately 1.5 million square
feet of GLA, of which approximately 220,000 square feet is owned by certain
anchor store tenants. The Company began construction of an expansion of over
150,000 square feet of GLA of Gurnee Mills to add entertainment venues to the
existing mall and is also remerchandising the project which the Company expects
will upgrade the tenant mix at Gurnee Mills. Real estate taxes paid in 1996
totaled approximately $2.7 million, representing a tax rate of 2.3%. Gurnee
Mills has 14 anchors, including: J.C. Penney Outlet, Waccamaw Pottery,
Marshalls, Spiegel Outlet, Bed Bath & Beyond, The Sports Authority, Off 5th-Saks
Fifth Avenue, TJ Maxx and Syms. Gurnee Mills is located adjacent to Interstate
94, the major north/south thoroughfare linking Chicago and Milwaukee. Gurnee
Mills is clearly visible from Interstate 94 and is situated directly across from
Six Flags Great America, one of the largest amusement parks in the Midwest.
GURNEE MILLS LEASE EXPIRATIONS
NUMBER OF GROSS LEASABLE AREA
TOTAL ANCHOR STORE --------------------------- ANNUALIZED BASE RENT(1)
NUMBER OF TENANT APPROXIMATE PERCENT ------------------------------------------
LEASES LEASES LEASES GLA OF PERCENT OF AVERAGE
EXPIRING IN: EXPIRING EXPIRING (SQ. FT.) TOTAL AMOUNT TOTAL PER SQ. FT.
- ------------- -------- -------- --------- ----- ------- ----- ----------
1997 . . . . . 40 - 137,731 12% $ 2,326,453 15% $16.89
1998 . . . . . 19 1 111,685 10% 1,476,183 10% 13.22
1999 . . . . . 14 - 52,622 5% 1,089,657 7% 20.71
2000 . . . . . 12 - 29,015 3% 607,545 4% 20.94
2001 . . . . . 69 3 425,307 37% 5,336,800 35% 12.55
2002 . . . . . 13 1 97,730 9% 1,312,505 9% 13.43
2003 . . . . . 6 3 127,075 11% 1,035,220 7% 8.15
2004 . . . . . 3 - 4,384 0% 127,445 1% 29.07
2005 . . . . . 3 - 21,487 2% 410,555 3% 19.11
2006 . . . . . 6 1 27,458 2% 856,717 6% 31.20
After 2006 1 1 105,248 9% 515,715 3% 4.90
- -----------
(1) Annualized base rent is the base rent payable in December 1996 multiplied
by 12.
GURNEE MILLS OPERATING TRENDS
MINIMUM RENT PLUS PERCENTAGE RENTS
--------------------------------------------------------------------------
AVERAGE TOTAL STORES ANCHOR STORES SPECIALTY STORES
PERCENT ---------------------------- ---------------------------- -------------------------
LEASED(1) TOTAL PER SQ. FT. TOTAL PER SQ. FT. TOTAL PER SQ. FT.
--------- ----------- ----------- ----------- ----------- ----------- -----------
1996. . . . . 90.2% $15,340,496 $13.62 $3,823,991 $6.78 $11,516,505 $20.50
1995. . . . . 91.1% 15,089,531 12.89 3,898,381 6.36 11,191,150 20.08
1994. . . . . 92.1% 15,176,595 12.83 3,986,828 6.48 11,189,767 19.71
___________
(1) Average percent leased is defined as all space leased and for which rent
was being paid excluding tenants with leases having a term of less than one
year.
21
GURNEE MILLS RENTAL RATES
ANCHOR STORES
------------------------------------------------------------------------------------
STORE OPENINGS STORE CLOSINGS RELEASING
DURING YEAR DURING YEAR SPREAD(1)
----------------------- ----------------------- ------------------------
AVERAGE AVERAGE
BASE RENT TOTAL BASE RENT TOTAL
PER SQ. FT. SQ. FT. PER SQ. FT. SQ. FT.
----------- ---------- ----------- ----------
1996 $30.00 20,000 $ - - $30.00 100.00%
1995 - - 8.08 74,218 (8.08) (100.00%)
1994 4.90 105,248 5.00 85,449 (0.10) (2.00%)
SPECIALTY STORES
------------------------------------------------------------------------------------
STORE OPENINGS STORE CLOSINGS RELEASING
DURING YEAR DURING YEAR SPREAD(1)
----------------------- ----------------------- ------------------------
AVERAGE AVERAGE
BASE RENT TOTAL BASE RENT TOTAL
PER SQ. FT. SQ. FT. PER SQ. FT. SQ. FT.
----------- ---------- ----------- ----------
1996 $19.01 74,447 $18.63 71,457 $0.38 2.04%
1995 16.95 48,988 17.79 55,864 (0.84) (4.72%)
1994 19.53 72,980 21.29 63,179 (1.76) (8.27%)
- -----------
(1) The releasing spread is calculated as the difference between per square
foot openings and per square foot closings.
22
ONTARIO MILLS - ONTARIO, CALIFORNIA
Ontario Mills opened on November 14, 1996 with approximately 1.2 million
square feet of GLA (including space owned by certain anchor store tenants)
comprised of approximately 700,000 square feet of anchor space and approximately
500,000 square feet of specialty store space. The Company has plans to expand
the project to a total of 1.7 million square feet at completion. Ontario Mills
currently has 14 anchors, including: Off 5th-Saks Fifth Avenue Outlet, J.C.
Penney Outlet, Burlington Coat Factory, The Sports Authority, Marshalls, Bed,
Bath & Beyond, Mikasa, Off Rodeo Drive, TJ Maxx, AMC Theatres, Virgin Megastore,
Group USA, Foozles, and Totally 4 Kids. American Wilderness Experience and
IWERKS are scheduled to open by the third quarter of 1997 and an additional
three anchors have executed leases and are scheduled to open later in 1997.
Ontario Mills is located at the intersection of Interstate 10 and Interstate 15
in the heart of the Riverside/San Bernardino area known as the "Inland Empire."
Ontario Mills serves the Los Angeles/Orange County metropolitan market.
Ontario Mills is owned by a joint venture among the Operating Partnership
(50%) and affiliates of Kan Am (25%) and Simon (25%). The Company has the
right to manage the development, property management and leasing of the
Ontario Mills project, subject to the other joint venture partners' approval
of certain major decisions, including sale or refinancing of the project and
approval of an annual budget. The joint venture partners have agreed to
contribute equally all initial required equity capital; provided, however,
that the Company and Simon have agreed to guarantee any project cost overruns
not funded by initial required equity capital and the partnership's
construction financing. At any time following the tenth anniversary of the
project's opening, either the Company, Simon or Kan Am can exercise a
buy-sell provision whereby the Company or Simon, if it is the offeror, can
require Kan Am to transfer its entire interest in the partnership or Kan Am,
if it is the offeror, can require the Company or Simon to acquire Kan Am's
entire interest in the partnership. Estimated net construction costs are
approximately $150 million. In addition to its capital contributions from its
joint venture partners, in November 1995, the joint venture entered into a
construction loan for a $110 million loan that was funded in the first half
of 1996. This loan was refinanced in February 1997 with a permanent loan of
$120 million which matures in February 2002 with two one-year extensions. The
interest rate is variable at LIBOR plus 100 basis points for the first $70
million and LIBOR plus 125 basis points for the remaining 50 million, and the
Company has the right to fix the interest rate at any time.
ONTARIO MILLS LEASE EXPIRATIONS
NUMBER OF GROSS LEASABLE AREA
TOTAL ANCHOR STORE --------------------------- ANNUALIZED BASE RENT(1)
NUMBER OF TENANT APPROXIMATE PERCENT ------------------------------------------
LEASES LEASES LEASES GLA OF PERCENT OF AVERAGE
EXPIRING IN: EXPIRING EXPIRING (SQ. FT.) TOTAL AMOUNT TOTAL PER SQ. FT.
- ------------- -------- -------- --------- ----- ------- ----- ----------
1997. . . . . 1 - 2,739 0% $ 115,628 1% $42.22
1998. . . . . - - - 0% - 0% -
1999. . . . . 5 - 9,915 1% 261,900 2% 26.41
2000. . . . . 2 - 5,604 1% 115,275 1% 20.57
2001. . . . . 55 - 225,499 23% 4,530,894 30% 20.09
2002. . . . . 14 - 50,704 5% 1,069,912 7% 21.10
2003. . . . . 7 - 23,409 3% 542,176 4% 23.16
2004. . . . . - - - 0% - 0% -
2005. . . . . - - - 0% - 0% -
2006. . . . . 36 4 181,759 19% 3,750,243 25% 20.63
After 2006 . 22 8 468,154 48% 4,411,564 30% 9.42
- -----------
(1) Annualized base rent is the base rent payable in December 1996 multiplied
by 12.
23
THE COMMUNITY CENTERS
The 11 Community Centers contain a total of approximately 2.2 million
square feet of GLA and are located in Florida, Georgia, Illinois, Maryland, New
Jersey, Ohio, Pennsylvania, South Carolina and Virginia. The Community Centers
are open-air shopping centers containing traditional shopping center tenants,
such as grocery, drug, video and greeting card stores, as well as a strong
concentration of national value retailers. Anchor tenants of the Community
Centers include Giant Food, Krogers, Marshalls, Safeway, TJ Maxx and Walgreens.
24
COMMUNITY CENTERS
GROSS LEASABLE AREA
(SQ. FT.) PERCENT LEASED (2)
YEAR LAND ------------------------ -----------------------
COMPLETED/ AREA ANCHOR SPECIALTY TOTAL ANCHOR SPECIALTY
PROPERTY EXPANDED (ACRES) STORES(1) STORES GLA STORES STORES
- ---------- ---------- ------- --------- --------- ------- ------ ---------
West Falls 1982 7 37,841 47,726 85,567 100% 90%
Church Outlet
Center
Butterfield 1983 9 41,933 72,736 114,669 100% 89%
Plaza
Montgomery 1983 11 36,405 80,986 117,391 100% 90%
Village
Western Hills 1983 36 314,516 134,980 449,496 100% 92%
Plaza
Crosswinds 1984 11 120,821 23,298 144,119 100% 94%
Center
Germantown 1986 20 46,756 130,341 177,097 100% 92%
Commons
Fashion 1987 13 73,258 74,692 147,950 100% 53%
Place
Gwinnett 1987 10 97,547 96,827 194,374 100% 90%
Marketfair
Mount 1987 34 172,595 125,882 298,477 100% 92%
Prospect Plaza
Coopers 1994 20 158,556 14,953 173,509 100% 100%
Crossing
Liberty 1994 36 280,173 20,965 301,138 47%(4) 26%
Plaza
--- --------- --------- ---------
Totals/ Weighted
Averages 207 1,380,401 823,386 2,203,787 89% 86%
--- --------- --------- ---------
--- --------- --------- ---------
1996
SALES PER SQ. FT.
TOTAL ANNUALIZED NUMBER -----------------------
PERCENT BASE OF ANCHOR SPECIALTY
PROPERTY LEASED RENT(3) STORES ANCHOR STORE TENANTS STORES STORES
- ---------- ------- --------- ------ -------------------------- ------ ---------
West Falls 94% $788,446 18 Safeway Marketplace $ 414 $ 139
Church Outlet
Center
Butterfield 93% 1,421,526 18 Arvey Paper & Office, Kids R 153 202
Plaza Us
Montgomery 93% 1,342,826 24 Safeway Marketplace 385 214
Village
Western Hills 98% 2,648,237 46 Krogers, Marshalls, McAlpin's, 299 217
Plaza Media Play and Woolworth
Crosswinds 99% 759,573 14 Luria's, Marshalls and 127 233
Center Scotty's
Germantown 94% 2,004,861 40 Giant Food 567 155
Commons
Fashion 76% 810,630 25 Staples, Superpetz and TJ 140 136
Place Maxx
Gwinnett 95% 1,908,318 32 A&P, Marshalls and TJ Maxx 227 197
Marketfair
Mount 97% 2,128,608 37 Dominicks, Marshalls, TJ Maxx 229 164
Prospect Plaza and Walgreens
Coopers 100% 1,656,887 4 Marshalls, Pathmark and 113 129
Crossing Service Merchandise
Liberty 45% 1,488,408 5 Dick's Sporting Goods and N/A(5) N/A(5)
Plaza Service Merchandise
----------- ----
Totals/ Weighted
Averages 88% $16,958,320 263 266 184
----------- ----
----------- ----
- ----------
(1) Anchor stores includes all stores occupying more than 20,000 square feet.
(2) Percent leased is defined as all space leased and for which rent was being
paid as of December 31, 1996, excluding tenants with leases having a term
of less than one year.
(3) Annualized base rent is the base rent payable in December 1996 multiplied
by 12.
(4) The low total percent leased figures for Liberty Plaza are due to the
closing of Bradlees, a 149,000 square foot anchor store tenant, in October
1996 following its bankruptcy and one vacant 15,000 square foot specialty
shop.
(5) Tenants at Liberty Plaza are not required to report sales information.
25
NUMBER OF GROSS LEASABLE AREA
TOTAL ANCHOR STORE --------------------------- ANNUALIZED BASE RENT(1)
NUMBER OF TENANT APPROXIMATE PERCENT ------------------------------------------
LEASES LEASES LEASES GLA OF PERCENT OF AVERAGE
EXPIRING IN: EXPIRING EXPIRING (SQ. FT.) TOTAL AMOUNT TOTAL PER SQ. FT.
- ------------- -------- -------- --------- ----- ------- ----- ----------
1997. . . . . 40 1 143,454 8% $ 1,785,869 11% $12.45
1998. . . . . 37 4 254.515 13% 2,318,761 14% 9.11
1999. . . . . 33 - 92,587 5% 1,355,624 8% 14.64
2000. . . . . 18 1 95,811 5% 1,088,402 6% 11.36
2001. . . . . 30 1 142,921 7% 1,645,372 10% 11.51
2002. . . . . 11 1 63,993 3% 525,754 3% 8.22
2003. . . . . 9 1 58,901 3% 653,705 4% 11.10
2004. . . . . 5 1 149,658 8% 351,452 2% 2.35
2005. . . . . 12 8 371,319 19% 2,774,688 16% 7.47
2006. . . . . 5 - 26,628 1% 413,233 2% 15.52
After 2006 . 18 10 522,501 27% 4,045,460 24% 7.74
- -----------
(1) Annualized base rent is the base rent payable in December 1996 multiplied
by 12.
COMMUNITY CENTERS OPERATING TRENDS
MINIMUM RENT PLUS PERCENTAGE RENTS
--------------------------------------------------------------------------
AVERAGE TOTAL STORES ANCHOR STORES SPECIALTY STORES
PERCENT ------------ ------------- ----------------
LEASED(1) TOTAL PER SQ. FT. TOTAL PER SQ. FT. TOTAL PER SQ. FT.
--------- ----------- ----------- ----------- ----------- ----------- -----------
1996. . . . . 92.5% $18,492,347 $ 9.08 $ 8,956,215 $6.74 $ 9,536,132 $13.49
1995. . . . . 90.0% 17,933,643 9.03 8,692,927 6.78 9,240,716 13.13
1994. . . . . 91.3% 16,991,532 9.30 7,470,611 7.02 9,520,921 12.49
- -----------
(1) Average percent leased is defined as all space leased and for which rent
was being paid excluding tenants with leases having a term of less than one
year.
COMMUNITY CENTERS BASE RENTAL RATES
ANCHOR STORES
------------------------------------------------------------------------------------
STORE OPENINGS STORE CLOSINGS RELEASING
DURING YEAR DURING YEAR SPREAD(1)
----------------------- ----------------------- ------------------------
AVERAGE AVERAGE
BASE RENT TOTAL BASE RENT TOTAL
PER SQ. FT. SQ. FT. PER SQ. FT. SQ. FT.
----------- ---------- ----------- ----------
1996 $ 9.60 104,586 $8.69 176,238 $0.91 10.47%
1995 6.19 48,958 - - 6.19 100.00%
1994 - - 1.15 42,000 (1.15) (100.00%)
SPECIALTY STORES
------------------------------------------------------------------------------------
STORE OPENINGS STORE CLOSINGS RELEASING
DURING YEAR DURING YEAR SPREAD(1)
----------------------- ----------------------- ------------------------
AVERAGE AVERAGE
BASE RENT TOTAL BASE RENT TOTAL
PER SQ. FT. SQ. FT. PER SQ. FT. SQ. FT.
----------- ---------- ----------- ----------
1996 $14.63 58,130 $13.03 86,072 $1.60 12.28%
1995 13.77 45,077 13.07 42,954 0.70 5.36%
1994 11.31 40,249 12.18 81,813 (0.87) (7.14%)
- -----------
(1) The releasing spread is calculated as the difference between per square
foot openings and per square foot closings.
26
CAPITAL EXPENDITURES
The following tables set forth certain information regarding capital
expenditures for the Mills and the Community Centers combined, the existing
Mills and the Community Centers for each of the last three years.
EXISTING MILLS AND COMMUNITY CENTERS COMBINED
3-YEAR
1996 1995 1994 AVERAGE
---- ---- ---- -------
RECURRING CAPITAL EXPENDITURES
Annual . . . . . . . . . . . . . . . . . . . . . . . . . $ 328,974 $ 230,024 $ 504,039 $354,346
Per square foot (1). . . . . . . . . . . . . . . . . . . 0.04 0.03 0.07 0.05
RECURRING TENANT IMPROVEMENTS/LEASING COSTS (2)
Annual . . . . . . . . . . . . . . . . . . . . . . . . . 4,228,743(3) 2,043,279 5,750,945 4,007,656
Per square foot improved (5) . . . . . . . . . . . . . . 12.71 5.52 7.22 8.48
Per square foot (1). . . . . . . . . . . . . . . . . . . 0.52 0.25 0.77 0.51
TOTAL RECURRING COSTS
Annual . . . . . . . . . . . . . . . . . . . . . . . . . 4,557,717 2,273,303 6,254,984 4,362,001
Per square foot (1). . . . . . . . . . . . . . . . . . . 0.56 0.28 0.84 0.56
NON-RECURRING TENANT IMPROVEMENTS/LEASING COSTS(2)
Annual . . . . . . . . . . . . . . . . . . . . . . . . . 8,079,220 1,903,624(4) 5,892,942 5,291,928
Per square foot improved (6) . . . . . . . . . . . . . . 44.93 17.10 13.11 25.05
Per square foot (1). . . . . . . . . . . . . . . . . . . 0.99 0.23 0.79 0.67
- -----------
(1) Includes annual costs divided by total GLA (excluding space owned by
certain anchor store tenants) of the Properties (excluding Ontario Mills).
(2) Tenant Improvements/Leasing Costs include tenant allowances and capitalized
internal leasing costs.
(3) Includes $1,487,754 incurred with respect to three significant tenants at
Potomac Mills totaling approximately 53,000 square feet of GLA.
Without these three tenants the per square foot improved and per square
foot Recurring Tenant Improvements/Leasing Costs would have totaled
$9.80 and $0.33, respectively.
(4) Sawgrass Mills Phase II expansion costs have been excluded from this
analysis.
(5) Calculated as Recurring Tenant Improvements/Leasing Costs divided by GLA of
all Recurring Store Openings (including spaces requiring no expenditures).
(6) Calculated as Non-Recurring Tenant Improvements/Leasing Costs divided by
GLA of all Non-Recurring Store Openings.
27
EXISTING MILLS
3-YEAR
1996 1995 1994 AVERAGE
---- ---- ---- -------
RECURRING CAPITAL EXPENDITURES
Annual . . . . . . . . . . . . . . . . . . . . . . . . . $ 246,522 $ 191,613 $ 477,664 $ 305,266
Per square foot (1). . . . . . . . . . . . . . . . . . . 0.04 0.03 0.08 0.05
RECURRING TENANT IMPROVEMENTS/LEASING COSTS (2)
Annual . . . . . . . . . . . . . . . . . . . . . . . . . 3,549,312 1,488,391 5,017,749 3,351,818
Per square foot improved (5) . . . . . . . . . . . . . . 12.94 4.85 7.39 8.39
Per square foot (1). . . . . . . . . . . . . . . . . . . 0.60 0.25 0.85 0.56
TOTAL RECURRING COSTS
Annual . . . . . . . . . . . . . . . . . . . . . . . . . 3,795,834(3) 1,680,004 5,495,413 3,657,084
Per square foot (1). . . . . . . . . . . . . . . . . . . 0.64 0.28 0.93 0.61
NON-RECURRING TENANT IMPROVEMENTS/LEASING COSTS (2)
Annual . . . . . . . . . . . . . . . . . . . . . . . . . 7,746,906 1,636,001(4) 4,651,899 4,678,269
Per square foot improved (6) . . . . . . . . . . . . . . 50.00 21.69 11.83 27.84
Per square foot (1). . . . . . . . . . . . . . . . . . . 1.30 0.27 0.79 0.79
- -----------
(1) Includes annual costs divided by total GLA (excluding space owned by
certain anchor store tenants) of the existing Mills.
(2) Tenant Improvements/Leasing Costs include tenant allowances and capitalized
internal leasing costs.
(3) Includes $1,487,754 incurred with respect to three significant tenants at
Potomac Mills totaling approximately 53,000 square feet of GLA.
Without these three tenants the per square foot improved and per square
foot recurring Tenant Improvements/Leasing Costs would have totaled
$9.32 and $0.34, respectively.
(4) Sawgrass Mills Phase II expansion costs have been excluded from this
analysis.
(5) Calculated as Recurring Tenant Improvements/Leasing Costs divided by GLA of
all Recurring Store Openings (including spaces requiring no expenditures).
(6) Calculated as Non-Recurring Tenant Improvements/Leasing Costs divided by
GLA of all Non-Recurring Store Openings.
COMMUNITY CENTERS
3-YEAR
1996 1995 1994 AVERAGE
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RECURRING CAPITAL EXPENDITURES
Annual . . . . . . . . . . . . . . . . . . . . . . . . . $ 82,452 $ 38,411 $ 26,375 $ 49,079
Per square foot (1). . . . . . . . . . . . . . . . . . . 0.04 0.02 0.02 0.02
RECURRING TENANT IMPROVEMENTS/LEASING COSTS (2)
Annual . . . . . . . . . . . . . . . . . . . . . . . . . 679,431 554,888 733,196 655,838
Per square foot improved (3) . . . . . . . . . . . . . . 15.06 9.54 6.65 10.42
Per square foot (1). . . . . . . . . . . . . . . . . . . 0.31 0.25 0.48 0.35
TOTAL RECURRING COSTS
Annual . . . . . . . . . . . . . . . . . . . . . . . . . 761,883 593,299 759,571 704,917
Per square foot . . . . . . . . . . . . . . . . . . . . 0.35 0.27 0.49 0.37
NON-RECURRING TENANT IMPROVEMENTS/LEASING COSTS (2)
Annual . . . . . . . . . . . . . . . . . . . . . . . . . 332,314 267,622 1,241,043 613,660
Per square foot improved (4) . . . . . . . . . . . . . . 13.35 7,46 22.56 14.46
Per square foot (1). . . . . . . . . . . . . . . . . . . 0.15 0.12 0.81 0.36
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(1) Includes annual costs divided by total GLA (excluding space owned by
certain anchor store tenants) of the Community Centers.
(2) Tenant Improvements/Leasing Costs include tenant allowances and capitalized
internal leasing costs.
(3) Calculated as Recurring Tenant Improvements/Leasing Costs divided by GLA of
all Recurring