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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, 1998 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, SUITE 400
ARLINGTON, VA 22209
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (703) 526-5000
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class Name of each exchange on which registered
------------------- -----------------------------------------
COMMON STOCK, $0.01 PAR VALUE NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such report(s)) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (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 10-K or any amendment to this Form 10-K. [X]
As of March 26, 1999, the aggregate market value of the 22,627,138 shares of
common stock held by non-affiliates of the registrant was $391,732,327 based
upon the closing price ($17.3125) 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 26, 1999,
there were 24,139,317 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's annual report to shareholders for the fiscal year
ended December 31, 1998 are incorporated by reference into Part II. Portions of
the registrant's proxy statement for the annual shareholders meeting to be held
in 1999 are incorporated by reference into Part III.
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THE MILLS CORPORATION
ANNUAL REPORT ON FORM 10-K
DECEMBER 31, 1998
TABLE OF CONTENTS
PART I .......................................................................3
Item 1. Business...............................................................3
Item 2. Properties............................................................18
Item 3. Legal Proceedings.....................................................45
Item 4. Submission of Matters to a Vote of Security Holders...................45
PART II ......................................................................46
Item 5. Market for the Registrant's Common Equity and Related
Shareholder Matters...................................................46
Item 6. Selected Financial Data...............................................47
Item 7 and 7A . Management's Discussion and Analysis of Financial Condition
and Results of Operations and Quantitative and Qualitative
Disclosures About Market Risk.........................................47
Item 8. Financial Statements and Supplementary Data...........................47
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure..............................................47
PART III .....................................................................48
Item 10. Directors and Executive Officers of the Registrant...................48
Item 11. Executive Compensation...............................................49
Item 12. Security Ownership of Certain Beneficial Owners and Management.......49
Item 13. Certain Relationships and Related Transactions......................49
PART IV ......................................................................50
Item 14. Exhibits, Financial Statements, Schedules and Reports and
Form 8-K.............................................................50
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 1933, as amended (the
"Securities Act") and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") relating to, without limitation, future economic
performance, plans and objectives of management for future operations and
projections of revenue and other financial items, demographic projections and
federal income tax considerations, which can be identified by the use of
forward-looking terminology such as "may," "will," "except," "anticipate,"
"estimate," or "continue" or the negative thereof or other variations thereon or
comparable terminology. Such forward-looking statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those described in such forward-looking statements.
THE COMPANY
Except as otherwise required by the context, references in this
Form 10-K to "we," "us," "our" and the "Company" refer to The Mills
Corporation and its direct and indirect subsidiaries, including The Mills
Limited Partnership, and references in this Form 10-K to the "Operating
Partnership" refer to The Mills Limited Partnership, of which The Mills
Corporation is the sole general partner.
We own interests in, develop, redevelop, lease and manage a portfolio
currently consisting of seven super-regional, value and entertainment oriented
malls (the "Mills"), 11 community shopping centers (the "Community Centers") and
one urban entertainment/retail project (the "Block"). We are a fully-integrated,
self-managed real estate investment trust (a "REIT") with approximately 1,200
employees as of December 31, 1998 and provide all development, redevelopment,
leasing, financing, management and marketing services with respect to all
properties currently in operation. The Mills comprise the primary focus of our
operations, with approximately 10.7 million square feet of gross leasable area
in seven states, of which approximately 1.0 million square feet is owned by
certain anchor tenants.
We were originally incorporated in the Commonwealth of Virginia on
January 2, 1991 and reincorporated in the State of Delaware in 1994. We became
publicly traded on April 21, 1994. We have authorized 150,000,000 shares of
common stock, $0.01 par value per share, comprised of 100,000,000 shares of
voting common stock and 50,000,000 shares of nonvoting common stock and
20,000,000 shares of preferred stock, par value $0.01 per share. As of December
31, 1998, there were 24,139,317 shares of common stock (including 1,007,620
shares of common stock issued to the Operating Partnership and held in escrow
to secure specific obligations pursuant to a settlement agreement with Chelsea
GCA Realty and Simon Property; see "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources--Development, Remerchandising and Expansion.") and no shares of
preferred stock outstanding. We are the sole general partner of the Operating
Partnership and currently own 59.35% of the Operating Partnership's outstanding
partnership units (before giving effect to the common stock held in escrow and
the corresponding partnership units associated with those shares). The
Operating Partnership's partnership units (other than those owned by us) are
exchangeable under certain circumstances for the cash equivalent of a share of
our common stock or, at our option, a share of our common stock. As the sole
general partner of the Operating Partnership, we have 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 our
properties or directly or indirectly holds 100% of the general and limited
partnership interests in the partnerships that own the operating properties,
except for the joint ventures that own Ontario Mills, Grapevine Mills, Arizona
Mills and The Block at Orange in which the Operating Partnership holds 50.0%,
37.5%, 36.8% and 50.0% interest, respectively. The Operating Partnership has
also formed joint ventures to develop additional properties.
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We conduct all of our business through the Operating Partnership and the
Operating Partnership's various subsidiaries, which include: (i) Management
Associates Limited Partnership, which provides leasing and management services
for our properties, and (ii) MillsServices Corp., which provides management
services to properties in which we do not own an interest and provides
development services for our properties and new properties acquired by us. The
Operating Partnership owns 100% of the interests in the Management Associates
Limited Partnership, and 99% of the non-voting preferred stock (representing a
99% economic interest) and 5% of the voting common stock of MillsServices Corp.
In addition, a former director of ours and an affiliate of Kan Am U.S., Inc.
("Kan Am", which owns approximately 34.8% of the outstanding partnership 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 MillsServices Corp.
We maintain our executive offices at 1300 Wilson Boulevard, Suite 400,
Arlington, Virginia 22209. Our telephone number is (703) 526-5000. We also
maintain a web site at www.millscorp.com.
OUR PORTFOLIO
The following table sets forth a summary of our operating properties as
of December 31, 1998:
APPROX. NO. OF 1998
GROSS PERCENT ANCHOR SPECIALTY
METROPOLITAN YEAR LEASABLE AREA LEASED STORES STORE SALES COMPANY
NAME/LOCATION AREA SERVICED OPENED (SQ. FT.) (1) (2) (3) PER SQ. FT. OWNERSHIP
- ------------- ------------- ------ ------------- --- --- ----------- ---------
MILLS
Washington,
Potomac Mills D.C./Baltimore 1985 1,636,870 96% 17 $ 320 100%
Philadelphia/
Franklin Mills Wilmington 1989 1,739,849 97 19 294 100%
Fort Lauderdale/
Sawgrass Mills Miami/Palm Beach 1990 1,878,522 99 20 448 100%
Gurnee Mills Chicago/Milwaukee 1991 1,653,978 98 16 282 100%
Ontario Mills Los Angeles 1996 1,345,096 (4) 99 18 345 50% (5)
Grapevine Mills Dallas/Ft. Worth 1997 1,240,781 (6) 98 16 300 37.5% (7)
Arizona Mills Phoenix 1997 1,208,899 98 15 301 36.8% (8)
--------- --
MILLS TOTALS/WEIGHTED AVERAGES 10,703,995 97% 121 $ 332 (9)
========== ===
BLOCKS
Los Angeles/
The Block at Orange Orange County 1998 642,554(10) 90% 9 -- 50% (11)
======= =
COMMUNITY CENTERS (11 SHOPPING CENTERS) Various 2,220,502 95% 28 $ 245 100%
========= ==
(1) Includes 963,173 square feet of gross leasable area owned by tenants as
follows: Potomac Mills-80,000 square feet; Franklin Mills-209,612 square
feet; Sawgrass Mills-281,774 square feet; Gurnee Mills-250,806 square
feet; Ontario Mills-125,000 square feet; and
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Community Centers-15,981 square feet. A ground lease at Franklin Mills of
152,370 square feet and a ground lease at Ontario Mills of 16,595 square
feet are also included.
(2) Percent leased is defined as all space leased and for which rent is being
paid as of December 31, 1998, excluding tenants with leases having a term
of less than one year, plus gross leasable area owned by store tenants.
(3) Anchor stores include all stores occupying more than 20,000 square feet.
(4) Ontario Mills will contain approximately 1.7 million square feet of gross
leasable area, including gross leasable area owned by tenants, upon
full build out.
(5) Our other joint venture partners are Kan Am, with a 25% interest, and
Simon Property, with a 25% interest. We and our other partners each are
entitled to a priority return during operations equal to 9% per annum on
unreturned capital contributions.
(6) Grapevine Mills will contain approximately 1.5 million square feet of
gross leasable area, including gross leasable area owned by tenants, upon
full build out.
(7) Our other joint venture partners are Kan Am, with a 25% interest, and
Simon Property, with a 37.5% interest. We and our other partners each are
entitled to a priority return during operations equal to 9% per annum on
unreturned capital contributions.
(8) Our other joint venture partners are Taubman Realty, with a 36.8%
interest, and Simon Property, with a 26.4% interest.
(9) Includes Grapevine Mills and Arizona Mills, which opened in October 1997
and November 1997, respectively. Excluding projects in their first full
year of operations (Grapevine Mills and Arizona Mills), the average sales
per square foot would be $342.
(10) The Block at Orange will contain approximately 0.8 million square feet of
gross leasable area, including gross leasable area owned by tenants,
upon full build out.
(11) Our other joint venture partner is Kan Am, with a 50% interest. Each
partner is entitled to a cumulative construction period preference and a
priority return during operations equal to 9% per annum on its unreturned
capital contributions.
A brief description of the three types of real estate projects in our
portfolio is set forth below:
Mills. The Mills are the primary focus of our operations. A typical Mills
contains 175 to 200 specialty tenants and 15 to 20 anchor tenants, and averages
approximately 1.5 million square feet of gross leasable area. Mills are
essentially a hybrid of various retail formats with a diverse tenant base
consisting of department stores, specialty stores, manufacturers outlets,
off-price retailers, catalog retailers, "category killers," which offer a
selection of products in one defined merchandise category, and entertainment
venues. A list of representative tenants is set forth below:
DEPARTMENT STORES SPECIALTY STORES MANUFACTURERS OUTLETS
----------------- ---------------- ---------------------
Off 5th by Saks Fifth Avenue Ann Taylor Ralph Lauren/Polo
Last Call from Neiman Marcus Benetton Nautica
Nordstrom Rack Joan and David Tommy Hilfiger
OFF-PRICE RETAILERS CATALOG RETAILERS
------------------- -----------------
Dress Barn Land's End
Famous Footwear Harry and David
Rack Room Shoes J.C. Penney Outlet
CATEGORY KILLERS ENTERTAINMENT VENUES
---------------- --------------------
Bed, Bath & Beyond AMC Theatres
Waccamaw Pottery Rainforest Cafe
The Sports Authority Dave & Busters
Mills are located in large, metropolitan areas with a minimum of one
million people within a 20 mile radius, a projected annual population growth of
at least 6%, a minimum median annual household income of $50,000 and a market
with steady tourist appeal. Prototypical physical layout is a "race track"
format of stores on one level with ample non-decked parking. We believe shoppers
of the Mills can generally be characterized as follows:
- shoppers within a 10-15 mile radius of the property that use the
Mills as their local regional mall equivalent;
- shoppers within a 15-40 mile radius that travel beyond other
retail offerings to access the breadth and uniqueness of the Mills
tenant mix; and
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- shoppers and tourists traveling from various distances as part of
a planned shopping experience.
Blocks. With the opening of The Block at Orange in November 1998, located
in Orange, California, we have begun the rollout of a new retail format
consisting of an open-air urban mainstreet atmosphere located in high traffic
areas. The Blocks will have a high component of entertainment including
restaurants, theatres and distinctive retail concepts such as Vans, a
clothing/shoe store and skateboarding park. The Block projects will have an
urban/suburban mainstreet scene with a size between 0.3 million square feet and
1.0 million square feet of gross leasable area and will be custom tailored for
each market and geographic location. We believe that this concept meets market
demand for an innovative retail format within target markets such as major
university towns, dense suburban areas and large city centers. We believe that
our success with the Mills concept will carry over to this new concept, as
evidenced by the 89% occupancy rate at the opening of The Block at Orange and
the favorable market reaction to this distinctive development.
Community Centers. The eleven Community Centers contain a total of
approximately 2.2 million square feet of gross leasable area 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,
Marshall's, Safeway, T.J. Maxx, Wal-Mart, Bed, Bath & Beyond and Walgreens.
While serving as a stable source of property operating income for the
Company, the Community Centers are not a strategic part of our business. We may
consider divesting these assets and redeploying the capital into the core
business of developing large scale value/entertainment-oriented assets. The
timing of any divestiture is dependent on market conditions.
COMPETITIVE ADVANTAGES
We believe that the Mills have a number of inherent competitive
advantages over other retail formats in operation today, and that these
advantages are responsible for the strong operating performance of our portfolio
of properties, as more fully described below.
Consumer Draw. We believe that the critical mass achieved by aggregating
an average of approximately 190 stores and 1.5 million square feet of gross
leasable area under one roof, coupled with the distinctive physical
characteristics of our Mills, are the primary reasons that our properties
attract so many people and create extended shopping trips. We believe people
are attracted to our distinctive mix of tenants, including department stores,
specialty stores, manufacturer's outlets, off-price retailers, catalog
retailers, "category killers," which offer a selection of products in one
defined merchandise category, and entertainment venues. We believe we have
created a shopping environment that is festive and social, with interior
designs resembling a "Mainstreet" atmosphere which incorporates staggered store
fronts and roof lines, natural lighting and colorful graphic accents. Shopping
avenues in our Mills are interspersed with a variety of food establishments and
video and entertainment courts, further enhancing the entertainment nature of
the shopping trip.
We believe our Mills have a primary trade area of an estimated 40 miles.
The Mills are the top tourist destinations in their respective states (excluding
Sawgrass Mills in Florida, which is second only to Disney World). The Mills
average 18 million visitors each per year, and are visited by an excess of
2,000 tour buses annually.
Brand Awareness. The Mills brand is synonymous with a one of a kind
value, entertainment and variety retail offering. We believe that the Mills is
the only retail shopping experience that is differentiated by its product type.
The Mills brand has intrinsic value due to its differentiation with the market,
consumers and tourist shoppers and their identification with the Mills brand.
Attractiveness to Tenants. We believe tenants are attracted to our Mills
as a result of the heavy foot traffic generated at the Mills and the length and
productivity of consumer visits, which translate into high sales levels. In
addition, we believe tenant occupancy costs are low as a result of lower common
area maintenance costs at a Mills versus many other retail formats. The lower
common maintanence costs are a result of several factors, including:
- Anchor contributions: due to 15 to 20 anchor stores contributing
significantly to common area maintenance pools;
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- Low maintenance costs: due to one-story construction, smaller
concourses and lack of deck parking; and
- Larger tenant base: due to each Mills' significant specialty
store shop tenant square footage, resulting in a lower per square
foot common area maintenance costs.
Flexibility of Product. The single-story, simple construction of our
Mills allows us to easily reconfigure them in response to changing retail
formats. Furthermore, our anchor leases give us more flexibility to establish
our preferred merchandise mix and to undertake any desired remodeling projects
than is afforded by traditional regional mall anchor leases. This makes it
easier for us to make room for new, exciting retailers, which keep the product
fresh and enhance consumer draw, and to replace underperforming stores.
Barriers to Entry. We believe that our status as the innovator of the
Mills and Block product types and our success with our existing portfolio have
made us the leading developer of large-scale value/entertainment oriented retail
projects. The strong relationships we have developed with our tenants give us a
number of competitive advantages in the development process, including the
ability to validate project feasibility in the predevelopment stage with tenant
commitments and the ability to fulfill significant pre-leasing requirements
imposed by construction lenders. In addition, the complexity and financial
commitment associated with developing a project the size and nature of a Mills
precludes many potential competitors from entering our business. Furthermore,
through our contractual alliances with Simon Property Realty Group, L.P. ("Simon
Property") and Taubman Realty Group, L.P. ("Taubman Realty"), we believe we are
already aligned with two of the strongest developers of retail projects in the
country. See "-- Strategic Relationships." Finally, we believe we are the only
company currently building Mills-type projects that has fully integrated
development capabilities reflecting lessons learned from successful past
development projects.
DEVELOPMENT PIPELINE
Projects Under Construction. As of December 31, 1998, we had four Mills
under construction, comprising approximately 4.2 million square feet of new
gross leasable area. Estimated total development cost for these projects is
approximately $726 million. After construction financing proceeds and joint
venture partner equity contributions, our equity requirement associated with
these projects is approximately $88.75 million, $45.4 million of which had been
funded as of December 31, 1998. The following table sets forth certain
information with regard to these projects.
MILLS UNDER CONSTRUCTION
APPROXIMATE ESTIMATED ANCHOR
ANTICIPATED GROSS TOTAL REQUIRED STORE
METROPOLITAN OPENING LEASABLE COMPANY PROJECT EQUITY FROM TENANT
NAME/LOCATION AREA SERVED DATE (1) AREA (1), (2) OWNERSHIP COST (3) COMPANY (4) COMMITMENTS
- ------------- ------------- -------- ------------- --------- ------------- ------------- -----------
(IN MILLIONS) (IN MILLIONS)
Sawgrass Mills - Ft. Lauderdale/
Phase III Miami/Palm Spring
Expansion Beach 1999 300,000 50% (5) $ 68 $ 0.00 4
Fall
Katy Mills Houston 1999 1,300,000 62.5% (6) 225 26.25 13
Fall
Concord Mills Charlotte 1999 1,400,000 37.5% (7) 211 12.50 11
Spring
Opry Mills Nashville 2000 1,200,000 66.7% (8) 222 50.00 5
--------- -------- --------
4,200,000 $ 726 88.75
========= ======== ========
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(1) Anticipated opening dates and approximate gross leasable area may be
subject to adjustment as a result of factors inherent in the development
process, some of which may not be under our direct control.
(2) Approximate gross leasable area includes space that will be owned by
anchor tenants.
(3) Our best estimate of aggregate project cost as of December 31, 1998 net
of reimbursements for tax increment financings, sales of land to anchor
tenants and other construction-related recoveries. Many of the underlying
components of development cost may not be under our direct control.
(4) Consists of equity requirement of the Company after construction loans
and joint venture equity partner contributions. Of the $88.75 million
required for all four projects, $45.4 million, or 51.2%, had been funded
by the Company as of December 31, 1998.
(5) Our other joint venture partner is Kan Am, with a 50% interest. Each
partner is entitled to a cumulative construction period preference and a
priority return during operations equal to 9% per annum on its unreturned
capital contributions.
(6) Our other joint venture partner is Kan Am, with a 37.5% interest. Each
partner is entitled to a cumulative construction period preference and a
priority return during operations equal to 9% per annum on its unreturned
capital contributions.
(7) Our other joint venture partners are Kan Am, with a 25% interest, and
Simon Property, with a 37.5% interest. Each partner is entitled to a
cumulative construction period preference and a priority return during
operations equal to 9% per annum on its unreturned capital contributions.
(8) Our other joint venture partner is a corporate affiliate of Gaylord
Entertainment Company, with a 33.3% interest. We are entitled to
a cumulative construction period preference and each partner is entitled
to a priority return during operations equal to 9% per annum on its
unreturned capital contributions.
The following is a brief description of the Mills projects currently
under construction:
Sawgrass Mills - Phase III Expansion - Sunrise, Florida.
The Phase III expansion of Sawgrass Mills will consist of an approximately
300,000 square foot entertainment zone, will be anchored by a 24-screen Regal
Theater, Gameworks, Wolfgang Puck Cafe and Ron Jon Surf Shop and will be
located across the ring road from the Florida Panthers Sports Arena. We expect
to open Phase III of Sawgrass Mills in the spring of 1999. Development costs
incurred through December 31, 1998 were approximately $32.5 million.
The Phase III expansion is being developed and is owned by a
limited partnership between us, with a 50% interest, and Kan Am, with a 50%
interest. Kan Am has agreed to fund 100% of the project's initial required
equity. We have no equity contribution requirement. Kan Am will receive a 9%
preferred return on its equity until permanent financing is secured for the
project. We have guaranteed Kan Am's receipt of this preferred return. After
permanent financing is secured, we and Kan Am will each receive a 9% preferred
return on our equity, and the remaining cash flow will be distributed pro rata
in accordance with the percentage ownership interests. We have the right to
provide all development, management and leasing services for the expansion,
subject to the approval of Kan Am of specified major decisions, including a sale
or refinancing of the project and the approval of the development and annual
budgets. We have guaranteed completion of the expansion within the parameters of
the approved development budget.
At specified times following the tenth anniversary of the
project's opening, either we or Kan Am can exercise a buy-sell provision.
Pursuant to the buy-sell provision, we can require Kan Am to sell to us, for
cash or limited partnership units of the Operating Partnership at Kan Am's
election, Kan Am's entire interest in the partnership. Also pursuant to the
buy-sell provision, Kan Am can require us to acquire, for cash or limited
partnership units of the Operating Partnership at our election, Kan Am's entire
interest in the partnership.
Katy Mills - Houston, Texas. In the first quarter of 1998, we
acquired a 500-acre site located at the intersection of Katy-Fort Bend Road and
I-10 in Fort Bend and Harris Counties. The approximately 1.3 million square foot
project planned for this site will consist of a combination of specialty
retailers, cinemas and themed restaurants. We have obtained anchor lease
commitments from Bed, Bath & Beyond, Books-A-Million, Jillian's, FYE (For Your
Entertainment), Starflight Cafe, Benetton Sportsystems, Sun & Ski, Boot Town,
Inc., AMC Theaters, Burlington Coat Factory, Marshalls, Bass Pro Shops and
Rainforest Cafe. Construction began on this project during the first quarter of
1998. The residual acreage that remains after the build out of the Katy Mills
project will be developed for mixed-use office and retail projects either by us
or by third parties. We expect to open this project in the fall of 1999.
Development costs through December 31, 1998 were approximately $106.2 million.
The project is being developed and is owned by a limited
partnership between us, with a 62.5% interest, and Kan Am, with a 37.5%
interest. Kan Am and we have committed to contribute up to $78.75 million and
$26.25 million, respectively, which represents 100% of the estimated equity
required for this project, and it is anticipated that construction and tax
increment financing will be obtained to complete the project. As of December
31, 1998, we had fully funded our commitment. We and Kan Am each will receive a
9% preferred return on our equity until permanent financing is secured for the
project. We have guaranteed Kan Am's receipt of this preferred return. After
permanent financing is secured, we and Kan Am each will receive a 9% preferred
return on our equity, and the remaining cash flow will be distributed pro rata
in accordance with the percentage ownership interests. We have the right to
provide all development, management and leasing services for the project,
subject to the approval of Kan Am for specified major decisions, including a
sale or refinancing of the project and approval of annual budgets. We have
guaranteed completion of the project within the parameters of an approved
development budget.
At specified times following the tenth anniversary of the
project's opening, either we or Kan Am can exercise a buy-sell provision.
Pursuant to the buy-sell provision, we can require Kan Am to sell to us, for
cash or limited partnership units of the Operating Partnership at Kan Am's
election, Kan Am's entire interest in the partnership. Also pursuant to the
buy-sell provision, Kan Am can require us to acquire, for cash or limited
partnership units of the Operating Partnership at our election, Kan Am's entire
interest in the partnership.
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Concord Mills - Charlotte, North Carolina. The Concord Mills
project will be situated on an approximately 165-acre site located at the
intersection of Interstate 85 and Kings Grant/Speedway Boulevard in the city of
Concord, North Carolina. The approximately 1.4 million square foot project
planned for this site will consist of a combination of specialty retailers,
cinemas and themed restaurants. We have obtained anchor lease commitments from
Burlington Coat Factory, Group USA, Jillian's, Bass Pro Shops, FYE (For Your
Entertainment), Alabama Grill, Sun & Ski, T.J. Maxx, Books-A-Million, Bed, Bath
& Beyond and AMC Theatres. We expect to open Concord Mills in the fall of 1999.
Acquisition and development costs incurred through December 31, 1998 were
approximately $72.2 million.
The project is being developed and is owned by a limited
partnership among us, with a 37.5% interest, Simon Property, with a 37.5%
interest, and Kan Am, with a 25% interest. We and Simon Property have committed
to contribute up to $12.5 million each and Kan Am has committed to contribute
up to $25.0 million to fund the project's equity capital requirements. As of
December 31, 1998, we had fully funded our commitment. The remainder of the
estimated project costs will be financed with a construction loan. We, Simon
Property and Kan Am each will receive a 9% preferred return on our equity until
permanent financing is secured for the project. We and Simon Property have
guaranteed Kan Am's receipt of this preferred return. After permanent financing
is secured, we, Simon Property and Kan Am each will receive a 9% preferred
return on our equity, and the remaining cash flow will be distributed pro rata
in accordance with the percentage ownership interests. We and Simon Property
have the right to provide development, management and leasing services for the
project. Development fees are allocated to us and Simon Property on a 60% and
40% basis, respectively. Leasing fees will be allocated to us and Simon
Property on a 75% and 25% basis, respectively. We will be entitled to a
management fee equal to 4% of revenues collected and Simon Property will be
entitled to an asset management fee equal to 2% of revenues collected.
Specified major decisions are subject to Simon Property's and Kan Am's
approval, which include the sale or refinancing of the project and approval of
annual budgets.
At specified times following the tenth anniversary of the
project's opening, either we and Simon Property together or Kan Am can exercise
a buy-sell provision. Pursuant to the buy-sell provision, we and Simon Property
can require Kan Am to sell to us, for cash or limited partnership units of the
Operating Partnership and limited partnership units of Simon Property at Kan
Am's election, Kan Am's entire interest in the partnership. Also pursuant to the
buy-sell provision, Kan Am can require us and Simon Property to acquire, for
cash or limited partnership units of the Operating Partnership and limited
partnership units of Simon Property at our and Simon Property's election, Kan
Am's entire interest in the partnership.
Opry Mills - Nashville, Tennessee. Opry Mills will be constructed
on a 67-acre site located adjacent to the Grand Ole Opry and the Opryland Hotel
Convention Center. Opry Mills will have approximately 1.2 million square feet of
retail and entertainment space and will feature an entertainment corridor
connecting the enhanced Opry Plaza and Cumberland Landing areas. We have
obtained anchor lease commitments from Regal Cinemas, Bass Pro Shops, Virgin
Megastore, Alabama Grill and Rainforest Cafe. Construction began in October
1998. We expect to open this project in the spring of 2000. Development costs
through December 31, 1998 were approximately $40.0 million.
The project is being developed and is owned by a limited
partnership between us, with a 66.7% interest, and a corporate affiliate of
Gaylord Entertainment Company, with a 33.3% interest. We have committed to
contribute up to $50 million to fund the project's equity capital requirements,
while the affiliate of Gaylord Entertainment Company has contributed the land
for the project, valued at $25 million. The remainder of the project costs will
be financed with a construction loan. We will receive a 9% preferred return on
our equity until such time as permanent financing is secured. After permanent
financing is secured, we will receive a new 9% preferred return on our equity.
After this preference, the affiliate of Gaylord Entertainment Company will
receive a 9% preferred return on its $25 million land contribution. After this
preference is paid to the affiliate of Gaylord Entertainment Company, the
remaining cash flow will be distributed pro rata in accordance with the
percentage ownership interests. We have the right to provide development,
leasing and management services for the project, subject to the approval of
such affiliate of Gaylord Entertainment
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Company for specified major decisions, including a sale or refinancing of the
project and approval of annual budgets.
At specified times, following the tenth anniversary of the
project's opening or at any time after the opening if the partners are unable to
agree on specified major decisions, either we or the affiliate of Gaylord
Entertainment Company can exercise a buy-sell provision. Pursuant to the
buy-sell provision, either party, as the offeror, may require the other party,
as the offeree, to elect to either sell to the offeror the offeree's interest in
the partnership or purchase from the offeror the offeror's interest in the
partnership.
Projects Under Development. In addition to the projects currently
under construction, we are also actively pursuing other prospective projects.
These projects are in various levels of the due diligence stage where we are in
the process of determining site/demographic viability, negotiating tenant
commitments or working through third-party approval processes. Consistent with
past practice, we will not begin construction on these projects until we have
completed our investment due diligence process and obtained significant
pre-leasing commitments. While we currently believe that these projects will
ultimately be completed, we cannot assure you that they will actually be
constructed or that they will have any particular level of operational success
or ultimate value. The following is a brief description of these prospective
projects. As of December 31, 1998, we had invested $49.3 million in the pursuit
of these prospective projects.
Vaughan Mills - Toronto, Ontario. We and Cambridge Shopping
Centers Ltd. have secured a site for the proposed development of a
Mills project. The 180-acre site is located in the City of Vaughan at the
southeast corner of Highway 400 and Rutherford Road, approximately 20 miles
north of downtown Toronto, Ontario. Upon completion, this project would be the
first Mills outside of the United States. Subject to the receipt of necessary
government approvals, construction is anticipated to begin by the spring of
2000. As of December 31, 1998, we had invested approximately $8.8 million in
this project.
We anticipate that the project will be developed and owned by a
limited partnership between us and Cambridge Shopping Centers Ltd. The limited
partnership agreement is still under negotiation. However, we anticipate that
our ownership interest will be 50%.
Meadowlands Mills - Carlstadt, New Jersey. We have 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 have signed certain preliminary agreements with Empire Ltd., the
current owner of the site, concerning the development of Meadowlands Mills.
Current plans also call for the construction of up to 1.0 million square feet of
office space and a 300 room hotel on the site. Timing of construction is
uncertain due to ongoing environmental impact studies and the federal and state
permitting process. In December 1997, the White House Council on Environmental
Quality joined the Army Corps of Engineers, the Environmental Protection Agency
and other federal agencies in proposing a Special Area Management Plan for the
Hackensack Meadowlands area. This plan provides a context and streamlined
process for evaluating and approving development proposals, including the
federal fill permit application now pending for this project. The guidelines
proposed in the plan would, upon their anticipated adoption by September 1999,
allow Meadowlands Mills to be developed on a site containing approximately 90
net developable acres. Approval of the plan is not required before completion of
the permitting process. We anticipate that site preparation could commence
during the second quarter of 2000. As of December 31, 1998, costs to date
invested in this project were $38.3 million, of which we had funded $21.3
million.
After we have received all necessary permits, we anticipate that
the project will be developed and owned by a limited partnership among us, Kan
Am, Empire Ltd. and Bennett S. Lazare, an individual affiliated with Empire Ltd.
Kan Am has committed to contribute approximately $70 million to the project if
it proceeds as planned. Final adjustments to the ownership interests of the
partners are under negotiation. We anticipate that Kan Am will receive a 9%
preferred return on its equity, which we will guarantee until permanent
financing is
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secured for the project. After the Kan Am preference, we anticipate that each
of the remaining partners will receive a 9% preferred return on their equity,
and the remaining cash flow will be split in accordance with the percentage
ownership interests.
Arundel Mills - Dorchester, Maryland. Jointly with Simon
Property, we have entered into a purchase agreement to acquire an approximately
400-acre site located near the intersection of the Baltimore-Washington Parkway
and State Route 100 in Anne Arundel County, Maryland. The project will contain
approximately 1.3 million square feet of gross leasable area on a site
containing approximately 107 acres. We intend to develop the remainder of the
site for commercial, office or other uses compatible with the Mills project. We
are in the process of seeking certain governmental approvals for the project and
tax increment financing. Subject to obtaining these approvals and closing on the
acquisition of the site, we anticipate that construction could commence during
1999 and that the project could open as early as 2000.
We anticipate that the project will be developed and owned by a
limited partnership among us, with a 37.5% interest, Simon Property, with a
37.5% interest, and Kan Am, with a 25% interest. We anticipate that we, Simon
Property and Kan Am will receive a 9% preferred return on our equity, and the
remaining cash flow will be distributed pro rata in accordance with the
percentage ownership interests. Prior to securing permanent financing for the
project, Kan Am's 9% preferred return will be guaranteed by us and Simon
Property.
Projects Under Review. In addition to the projects discussed
above, we are also conducting due diligence on several other proposed
developments, including sites in San Francisco, California; North Aurora,
Illinois; Atlanta, Georgia; Cleveland, Ohio; Denver, Colorado; Philadelphia,
Pennsylvania; South Weymouth, Massachusetts; and Tampa, Florida. We are also
continuing to evaluate various prospective international sites, with a
concentrated focus on Western Europe, as well as other domestic sites for Mills
and Block projects.
NEW BUSINESS OPPORTUNITIES
The following is a brief description of new revenue generating
opportunities that are related to, or are extensions of, our core business of
developing, redeveloping, leasing, financing and managing retail projects. We
generated $2 million in revenues though these initiatives in 1998, their first
full year of operation. We expect to grow this aspect of our business
significantly during the next few years, subject to tax law limitations
applicable to REITs.
Advertising/Non-Traditional Programs. In 1998, we began selling corporate
advertising space in Mills malls to both tenants and non-tenants through a
sponsorship program. We believe that the consumer traffic generated at our
properties make them valuable environments for corporate advertisers seeking to
market their products in non-traditional ways. At The Block at Orange, for
example, we erected over 19 billboards to enhance the urban mainstreet
experience while adding architectural features to the mall. We contracted with a
third-party billboard company to sell advertising on these billboards to both
tenants in the mall and non-tenants. In 1998, the initial year of our
sponsorship program, we generated approximately $0.7 million in sponsorship
revenue portfolio wide.
Other non-traditional programs conducted in 1998 include participating in
revenues from ATM machines and payphone operations located at our properties, as
well as leasing telephone lines to phone providers. These other activities
grossed approximately $1.3 million in revenue in 1998.
Investing in Retail and Entertainment Concepts. Historically, many new
retail and entertainment concepts have been developed and expanded at the Mills.
Examples include:
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- retail companies that have used Mills projects to launch
extensions of their brands, including Neiman Marcus and Saks Fifth
Avenue, which opened its first Off 5th by Saks Fifth Avenue
store at Franklin Mills in February 1990;
- urban retailers, including Virgin Megastore, Wolfgang Puck and
Planet Hollywood, which have used Mills projects to expand into
non-urban markets; and
- participatory retailers like Van's Skate Park and Bass Pro Shops
Outdoor World that are using Mills and Block projects to launch
new retail entertainment concepts and for additional promotion of
their products.
New concepts frequently require significant capital, which is provided by
both the tenant and landlord in the form of tenant allowances and
buildout. In a typical landlord/tenant relationship, the landlord receives
rental income for its investment and, if the concept performs well, can increase
its returns through percentage rents as well. Mills Enterprises, Inc., a
separate corporation wholly owned by MillsServices Corp., is able to acquire,
without significant investment, interests of up to 50% in retail, food and
beverage and entertainment enterprises in the early stage of their growth
cycles. Initial investments by Mills Enterprises, Inc. include partnership
interests in two Wolfgang Puck restaurants, two Ron Jon Surf Shops and 100%
interest in various kiosks and food courts. We have initially limited our
investment in Mills Enterprises, Inc. to $25 million. While we believe that this
initiative presents significant opportunities, the tax laws applicable to REITs
limit our ability to expand these types of investments.
CAPITAL STRATEGIES
To fund our capital needs, we have generally utilized project specific
secured financing, joint venture equity contributions, cash flow from operations
and our line of credit. New development is financed with construction loans, tax
increment municipal financing and joint venture partner equity contributions.
After project openings, the properties are refinanced with permanent debt
in the form of non-recourse, fixed rate mortgage debt. A description of our
capital cycle and the various funding sources utilized follows.
Development Financing. A typical Mills project will cost approximately
$200 to 250 million to build. Approximately 65 to 75% of this cost is funded
with a construction loan, provided by a bank group led by an agent bank. This
financing is obtained after a substantial portion of the equity contributions
to a project have been made and is based upon the achievement of certain levels
of pre-leasing. We have relationships with multiple lenders in the construction
loan market, evidenced by the fact that each of our last four development
projects were lead by different banks. Our construction loans generally have
terms of four years, some with extension options for an additional three years.
Interest rates range from 110 to 225 basis points over LIBOR. The construction
loans are guaranteed by us and our joint venture partners other than Kan Am,
and are generally obtained on a several and not joint basis. When Kan Am is a
partner in a project, we and our other joint venture partners, on a pro rata
basis, guarantee Kan Am's portion of the construction debt in addition to our
own portions. See "-- Strategic Relationships." All guarantees are reduced
incrementally after completion of a project based upon the achievement of
interest coverage ratios (ranging from 1.0 to 1.5).
In addition to construction debt, we have historically been able to
obtain tax increment financing to fund infrastructure costs (including roads,
traffic signals and interstate on and off ramps). This financing generally takes
the form of bonds that are issued by the local municipality in which our project
is located, and the capital is advanced as the infrastructure improvements are
constructed. This financing is advantageous to us because debt service is
typically paid from special tax assessments levied against the project which are
passed on to the tenants as part of their contractual leases, or from sales tax
revenues generated by the project and paid by shoppers. We have been successful
in obtaining this form of financial assistance because our projects typically
create new jobs and generate large sales revenues, much of which comes from
outside the municipality and is therefore beneficial to the municipality.
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The remainder of the cost of a development project is funded with equity
contributed by us and our joint venture partners. See "-- Strategic
Relationships." These equity contributions fund the initial development costs
prior to the funding of the construction loan. Our share of required equity is
funded with cash from operations, including proceeds from land sales, our $100
million line of credit and proceeds from any corporate debt or equity
offerings.
Permanent Financing. After a new project opens and stabilizes (generally
within 24 months of opening), we generally refinance the construction loan with
permanent, fixed rate, non-recourse mortgage debt. This debt usually has a
ten-year term and is amortized over 30 years. We have found that the credit of
our tenants and the stable nature of the property cash flows make our projects
attractive collateral for a number of real estate lenders, including commercial
banks, life insurance companies and investment banks (in the form of commercial
mortgage backed securitizations). When refinancing a construction loan, we
generally have not increased the leverage on a property and have historically
achieved investment grade ratings on the entire refinanced balance. As of
December 31, 1998, all of our operating Mills other than Arizona Mills, which
opened November 1997, are encumbered by permanent investment grade securitized
mortgage loans. As of December 31, 1998, our indebtedness had a weighted average
maturity of 5.2 years and a weighted average interest rate of 6.81%. None of our
project specific debt is cross-collateralized. We intend to permanently finance
our future projects in a similar manner.
STRATEGIC RELATIONSHIPS
We have formed strategic relationships with certain developers and equity
partners. These relationships serve as a source of equity for new development
projects, mitigate development risk and competition and provide assistance in
the identification of new development opportunities and the development and
expansion of tenant and lender relationships. The following is a brief
description of our contractual strategic partnerships.
Simon Property. In November 1995, we entered into an agreement with Simon
Property pursuant to which we agreed to examine with Simon Property the
feasibility of developing Mills projects in eight specified markets. Out of the
eight markets originally contemplated by the agreement, we have jointly, with
Simon Property, developed Grapevine Mills in Grapevine, Texas, and Arizona Mills
in Phoenix, Arizona; in addition, we have jointly developed Ontario Mills in
Ontario, California. We are in the process of developing Concord Mills in
Charlotte, North Carolina and we expect to begin joint development of Arundel
Mills in Anne Arundel County, Maryland during 1999. The agreement generally
provides that when Simon Property jointly develops a Mills project with us, each
party will hold equal interests and will be required to contribute needed equity
on a pro rata basis. The agreement restricts Simon Property from developing any
Mills project unless it first offers to us the right to participate equally in
such development. In exchange, the agreement also restricts us from developing a
Mills project in 25 specified metropolitan areas in which Simon Property has
major mall investments without first offering to Simon Property the right to
participate equally in such development. These restrictions extend through
December 2003. The agreement also prohibits Simon Property from acquiring more
than 800,000 shares of our common stock or from hiring specified members of our
senior management without our prior written approval.
Taubman Realty. In May 1998, we entered into an agreement with Taubman
Realty (a member of our joint venture that developed Arizona Mills) to jointly
develop four Mills projects during a five-year period and a total of seven Mills
projects in a ten-year period. The agreement establishes ownership percentages
for each project, and contemplates that the partners will contribute their pro
rata share of the equity required for such projects. The agreement requires that
each partner approve major decisions on the venture, and requires the partners
to share responsibility for developing, leasing and managing the projects.
Pursuant to this agreement, we currently are exploring with Taubman Realty the
feasibility of developing a Mills project on a site in the Denver, Colorado
metropolitan area.
Kan Am. We have a long-standing relationship with Kan Am, a German
syndicator of closed U.S. real estate funds which currently manages about $650
million in equity for approximately 3,000 German investors. Over the last two
years, Kan Am has invested $150 million in equity in various projects with us.
To date, Kan Am has never disapproved an offer to participate in any individual
Mills project or failed to raise the agreed upon level of capital.
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In addition to its existing investments at the property level, Kan Am
owns approximately 33.6% of the partnership units of the Operating Partnership,
which are freely exchangeable on a one-to-one basis for our common stock.
Directors and executive officers of Kan Am hold three seats on our Board of
Directors.
On February 4, 1999, we received from Kan Am an agreement that provides
that (i) Kan Am will contribute an additional $26.25 million to the Katy Mills
joint venture, as described above, (ii) Kan Am will contribute approximately
$25 million to the Concord Mills joint venture in 1999 and will participate in
developing an additional parcel at Concord Mills, as described above, (iii)
Kan Am will contribute approximately $70 million to the Meadowlands Mills joint
venture if the project proceeds as planned, as described above, and (iv) Kan Am
will contribute approximately $35 million to a joint venture to develop Arundel
Mills in exchange for a 25% interest in the joint venture, as described above.
In addition, Kan Am agreed in principle to provide approximately $120 to 160
million of additional financing for certain proposed projects under review by
us. Finally, Kan Am agreed to work with us to identify joint projects over the
next few years and, if projects are agreed upon between us, to use its best
efforts to provide approximately $150 million of additional financing in each
of 2001, 2002 and 2003 for such projects.
We expect that the terms of our future arrangements with Kan Am will be
similar to Kan Am's historical capital contributions in our projects. Kan Am
will agree to use its best efforts to provide up to one-half the required
equity for a project in return for an ownership interest equal to half of the
percentage of total project equity it has funded. Each of us, other partners
and Kan Am will be entitled to receive a 9% preferred return on our equity. We
and other partners will guarantee Kan Am's preference until such time as
permanent financing is secured for the project. After permanent financing is
secured, each partner will get a 9% preference on their equity, and the
remaining cash flow is split pro rata per the respective ownership interests.
We, along with any other joint venture partners on a specific project,
guarantee Kan Am's portion of construction debt.
As of December 31, 1998, Kan Am has property level investments in three
existing projects, Ontario Mills, Grapevine Mills and The Block at Orange, and
is currently a partner in two of our projects under construction, Katy Mills and
Concord Mills, as well as in our Phase III expansion of Sawgrass Mills. In
addition, Kan Am is participating with us in our efforts to develop the
Meadowlands Mills site near Carlstadt, New Jersey.
ASSET MANAGEMENT STRATEGIES
We believe that the property operating income provided by our existing
assets is a stable, predictable source of cash flow from which to fund our
corporate endeavors, including the development of new projects and the payment
of distributions to shareholders. All of our Mills have experienced stable,
moderate growth in standard measures of real estate operating performance. We
believe these results are attributable to our ability to optimize our tenant
mix, actively manage and promote our assets to tenants and consumers, and
maintain the high standards of our physical assets while maintaining low tenant
occupancy costs.
Optimization of Tenant Mix. Our management actively manages and leases
the properties with the goal of maintaining a fresh and exciting tenant mix that
continues to appeal to consumers over time. Below are examples of our
management's recent efforts in this regard.
At Potomac Mills, we remerchandised approximately 60,000 square feet of
specialty space over the last two years, adding tenants such as Brooks Brothers,
Hush Puppies, Jones New York, Oshkosh B'Gosh, Pacific Sunwear, Polo Ralph Lauren
Factory Store, Samsonite and Tommy Hilfiger. Average specialty store sales at
Potomac Mills rose approximately 11% from 1996 to 1998, to $320 per square foot.
At Franklin Mills, we upgraded our tenant mix by adding approximately
135,000 square feet of fashionable new tenants including Aeropostale, BCBG,
DKNY, Kenneth Cole, L'eggs Hanes Bali, Old Navy, Perry Ellis, Polo Ralph Lauren
Factory Store, Reebok-Rockport and Greg Norman, The Gap Outlet and
Track-n-Trail. Additionally, we updated the food court and created an
entertainment zone with a large-scale general cinema and themed restaurants like
Elephant & Castle Pub and Rainforest Cafe. Average specialty store sales at
Franklin Mills rose approximately 16% from 1996 to 1998, to $294 per square
foot.
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At Gurnee Mills, we have re-tenanted 30,000 square feet with upscale
fashion tenants such as The Gap Outlet, Abercrombie & Fitch and Nautica and
added a 125,000 square foot Bass Pro Shops Outdoor World. Average specialty
store sales at Gurnee Mills rose approximately 12% from 1996 to 1998, to $282
per square foot.
Active Management and Promotion of Properties to Tenants and Consumers.
As a result of the performance of our properties and our strong relationships
with retailers, the Mills have had high degree of tenant retention. During 1998,
for example, 69% of the expiring specialty store gross leasable area was renewed
by the existing tenants.
We generally obtain favorable lease terms as evidenced by the long
duration of our leases, their fixed rent steps and their percentage rent
provisions.
Anchor leases, which generally represent approximately 62% of
the gross leasable area of any individual project, generally have a ten-year
term with a series of five-year options exercisable at the tenant's discretion.
Specialty store leases generally range from three to seven years in term. As of
December 31, 1998, the weighted average lease maturity for our existing
portfolio of leases was 6.2 years.
Our leases generally provide for the payment of a fixed base rent as well
as an additional rent based upon sales levels achieved by the tenant. The lease
agreements also typically provide for base rental increases either in the form
of fixed rate step ups or consumer price index increases. As of December 31,
1998, these embedded rental increases totaled $45.4 million of additional
rent to be received over the remaining lives of the leases, assuming no early
terminations.
We promote our Mills to consumers by spending $1.0 million to $2.5
million annually per Mills on advertising aimed at consumers. Our success in
this program is evidenced by the following:
- 18 million visitors per Mills, ranking each Mills as the top
tourist attraction in its respective state (excluding Sawgrass
Mills in Florida, which is second only to Disney World);
- Average length of visit is significantly higher than the peer
group average; and
- Primary trade area is extended to 40 miles with tourist draw from
50 states and 49 countries.
Maintenance of High Standards of Physical Assets and Low Tenant
Occupancy Costs. We believe our properties are well maintained physically. To
ensure a high quality shopping experience for our customers, in addition to our
regular recurring maintenance program, we invested an additional $89.2 million
in renovation and expansion projects at our assets during that same period.
While continuing the high appearance standard and maintenance level of
our properties, we have maintained an affordable cost of occupancy for our
tenants. During 1998, specialty store cost of occupancy for the seven Mills
opened for a full year or more totaled 11.5%. (The industry average for
specialty store cost of occupancy for 1997 was 12.9%, according to Urban Land
Institute Dollars & Cents Shopping Centers: 1998).
DEVELOPMENT STRATEGY
Proven Track Record. Since our initial public offering in April 1994, we
have developed and opened three new Mills projects and one new Block project,
adding a total of approximately 4.4 million square feet of new gross leasable
area to our portfolio at a total cost of approximately $700 million. Each of
these projects was completed on time and under budget, with strong occupancy
levels as outlined below:
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OCCUPANCY AT OCCUPANCY AT
PROJECT DATE OPENED OPENING (1) DECEMBER 31, 1998 (1)
- ------- ----------- ----------- ---------------------
Ontario Mills November 1996 91.3% 98.9%
Grapevine Mills October 1997 91.8 98.0
Arizona Mills November 1997 92.6 97.6
The Block at Orange November 1998 88.5 89.7
(1) Occupancy is percentage of gross leasable area subject to fully executed
leases.
Disciplined Approach. We intend to complete two to three new development
projects per year, depending on market conditions and capital availability. We
employ what we consider to be a highly disciplined approach to the development
process. Our in-house development team consists of several senior officers who
are responsible for all aspects of development, including market research, site
selection, predevelopment, construction and tenant coordination. We maintain
strict asset management control through the entire development process,
including frequent internal reviews of costs and leasing status.
To mitigate development risk, we have adopted a number of procedures,
including the following:
- Site Selection: Mills projects are developed in the top standard
metropolitan statistical areas that are populous, growing and
reasonably affluent. We select sites within our target markets
that have at least one million people within a 20-mile radius. The
sites must be well situated and near major transportation
arteries. We perform predevelopment work when land is under option
to minimize capital exposure.
- Pre-leasing: We obtain tenant validation prior to land acquisition
and significant pre-leasing commitments prior to construction
commencement and financing. We traditionally obtain letters of
intent and approvals from at least five to ten key anchor tenants
indicating their desire to join us in the project. Typically, a
project will be 40-50% pre-leased before construction financing is
funded.
- Financing: We maintain a network of relationship banks to
facilitate construction financing and utilize strategic and
financial equity partners to share in the risks and costs,
including loan guarantees.
ADDITIONAL FACTORS
Seasonality. The regional shopping center industry is seasonal in nature,
with mall tenant sales peaking in the fourth quarter due to the holiday 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 funds from operations. However, minimum rent, which is
the largest source of income, is not affected by seasonality.
Environmental Matters. We believe that our properties are in compliance
in all material respects with all federal, state and local ordinances and
regulations regarding hazardous or toxic substances. We are not aware of any
environmental condition which we believe would have a material adverse effect on
our 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 we are 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 our properties have not been or will not be affected by tenants and
occupants of our properties, by the condition of properties in the vicinity of
our properties or by third parties unrelated to us.
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Limited quantities of asbestos containing materials are present in
certain of our properties. The asbestos containing materials found are generally
non-friable (meaning that the asbestos containing materials 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
asbestos containing materials will be removed by us in the ordinary course of
renovation or reconstruction. Prior to removal, these asbestos containing
materials will be monitored and maintained by us in accordance with procedures
established by the Environmental Protection Agency, the Occupational Safety and
Health Administration and other applicable governmental authorities.
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ITEM 2. PROPERTIES
The following tables set forth certain information relating to the
properties as of December 31, 1998. We either hold title to the properties or
directly or indirectly hold 100% of the general and limited partnership
interests in the partnerships that own the properties, except for joint
ventures that own Ontario Mills, Grapevine Mills, Arizona Mills and The Block
at Orange in which the Operating Partnership holds 50%, 37.5%, 36.8% and 50.0%
interests, respectively. The Operating Partnership has also formed joint
ventures to develop additional properties.
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SUMMARY OF PROPERTIES
The following table sets forth certain information with respect to the
Mills, the Block and the Community Centers as of December 31, 1998:
APPROX.
GROSS ANNUALIZED NO. OF
METROPOLITAN YEAR LEASABLE AREA PERCENT BASE ANCHOR
NAME/LOCATION AREA SERVICED OPENED (SQ. FT.)(1) LEASED (2) RENT (3) STORES (4)
------------- ------------- ------ ------------ ---------- -------- ----------
MILLS
Potomac Mills....... Washington D.C./Baltimore 1985 1,636,870 96% $ 21,067,598 17
Franklin Mills....... Philadelphia/Wilmington 1989 1,739,849 97% 18,454,122 19
Fort Lauderdale, FL/
Sawgrass Mills.. Miami/Palm Beach 1990 1,878,522 99% 25,087,996 20
Gurnee Mills....... Chicago/Milwaukee 1991 1,653,978 98% 17,277,272 16
Ontario Mills...... Los Angeles 1996 1,345,096 (5) 99% 18,426,668 18
Grapevine Mills.. Dallas/Fort Worth 1997 1,240,781 (6) 98% 20,816,085 16
Arizona Mills...... Phoenix 1997 1,208,899 98% 19,221,802 15
------------ ------------- -----
MILLS TOTALS/WEIGHTED AVERAGES 10,703,995 97% $ 140,351,543 121
============ ============= =====
The Block at Orange Los Angeles/Orange County 1998 642,554 (8) 90% 13,529,046 9
============ ============= =====
COMMUNITY CENTERS (11 CENTERS) 2,220,502 95% $ 18,830,602 28
============ ============= =====
1998 1998
SPECIALTY ANCHOR
STORE SALES STORE SALES
NAME/LOCATION ANCHOR STORE TENANTS PER SQ. FT. PER SQ. FT.
------------- -------------------- ----------- -----------
MILLS
Potomac Mills....... American Multi-Cinema, Books-A-Million, Burlington Coat Factory, $ 320 $ 202
Daffy's, Everything Rubbermaid, IKEA, J.C. Penney, Linens 'N Things,
Marshalls, Nordstrom Rack, Saks Clearinghouse, Spiegel, Sports
Authority, Syms, T.J. Maxx, Waccamaw Pottery, Group USA
Franklin Mills....... Bed, Bath & Beyond, Boscov's, Burlington Coat Factory, Filene's 294 160
Basement, General Cinema, Group USA, J.C. Penney, Last Call-Neiman
Marcus, Marshalls, Modells, Nordstrom Factory, Off 5th Clearinghouse,
OfficeMax, Pharmor, Off 5th by Saks Fifth Avenue, Sam's Wholesale,
Syms, Rainforest Cafe, Jillian's
Sawgrass Mills.. Beall's Outlet, Bed, Bath & Beyond, Books-A-Million, Brandsmart, 448 301
Burlington Coat Factory, Cobb Theatre, J.C. Penney, Last Call-Neiman
Marcus, Filene's Basement, Marshalls, Outlet Marketplace, Rainforest
Cafe, Saks, Service Merchandise, Spec's Outlet, Spiegel, Sports
Authority, T.J. Maxx, Target, Waccamaw Pottery
Gurnee Mills....... Bass Pro Shops, Bed, Bath & Beyond, Burlington Coat Factory, Computer 282 170
City, J.C. Penney, Lord & Taylor, Marcus Cinema, Marshalls, Off 5th -
Saks Fifth Avenue, Rainforest Cafe, Spiegel, Sports Authority, Syms,
T.J. Maxx, Value City, Waccamaw Pottery
Ontario Mills...... AMC Theatres, American Wilderness, Bed, Bath & Beyond, Burlington Coat 345 165
Factory, Dave & Busters, Foozles, Group USA, J.C. Penney, Marshalls,
Mikasa, Off Rodeo Drive, Saks Fifth Avenue, Sega Gameworks, Sports
Authority, T.J. Maxx, Totally for Kids, Virgin Megastores, Rainforest
Cafe
Grapevine Mills.. Bed, Bath & Beyond, Books-A-Million, Burlington Coat Factory, Group 300 179
USA, J.C. Penney, Marshalls, Off Rodeo Drive, Old Navy, Rainforest
Cafe, Saks Fifth Avenue, Sega Gameworks, Sports Authority, Virgin
Megastores, Western Warehouse, American Multi-Cinema, American
Wilderness
Arizona Mills...... Burlington Coat Factory, Gameworks, Group USA, Harkin's Great Mall 301 170
Cinemas, Hi-Health World of Nutrition, J.C. Penney, Linens' N Things,
Marshalls, Off 5th Saks Fifth Avenue, Off Rodeo Drive, Oshman's
Supersports, Rainforest Cafe, Ross Dress for Less, Virgin Megastores,
American Wilderness
MILLS TOTALS/WEIGHTED AVERAGES $ 332(7) $ 199
The Block at Orange Borders Books and Music, Vans, Virgin Megastores, Off-5th Saks Fifth N/A(9) N/A(9)
Avenue, Ron Jon Surf Shop, Stage 35 by Gameworks, American
Multi-Cinema, Dave & Busters, Hilo Hattie
- --------------
(1) Includes 963,173 square feet of gross leasable area owned by tenants as
follows: Potomac Mills-80,000 square feet; Franklin Mills-209,612
square feet; Sawgrass Mills-281,774 square feet; Gurnee Mills-250,806
square feet; Ontario Mills-125,000 square feet; and Community Centers-
15,981 square feet. Ground leases at Franklin Mills of 152,370 square
feet and at Ontario Mills of 16,595 square feet are also included.
(2) Percent leased is defined as all space leased and for which rent is being
paid as of December 31, 1998, excluding tenants with leases having a term
of less than one year plus gross leasable area owned by store tenants
described in footnote (1).
(3) Annualized base rent is defined as the contractual minimum rent of
tenants comprising gross leasable area at December 31, 1998 multiplied by
12.
(4) Anchor stores include all stores occupying more than 20,000 square feet.
(5) Ontario Mills will contain approximately 1.7 million square feet of gross
leasable area, including gross leasable area owned by certain store
tenants, upon full build out.
(6) Grapevine Mills will contain approximately 1.5 million square feet of
gross leasable area, including gross leasable area owned by certain store
tenants, upon full build out.
(7) Excluding first year projects (Grapevine Mills and Arizona Mills), the
1998 specialty store sales per square foot would have been $342.
(8) The Block at Orange will contain approximately 0.8 million square feet of
gross leasable area, including gross leasable area owned by certain store
tenants, upon full build out.
(9) 1998 sales per square foot information is not available for The Block at
Orange, which opened in November 1998.
19
20
PROPERTY OPERATING INCOME
(IN THOUSANDS, UNAUDITED)
The following table sets forth the property operating income for each of the
Mills, the Block, Mainstreet (our push cart program) and the Community Centers.
The purpose of this table is to provide details about selected line items within
our consolidated financial statements for the year ended December 31, 1998.
YEAR ENDED DECEMBER 31, 1998
WHOLLY OWNED PROPERTIES
POTOMAC FRANKLIN SAWGRASS GURNEE
------------ ------------- ------------ ------------
RENTAL REVENUES:
Minimum rent $ 21,127 $ 17,182 $ 25,918 $ 17,004
Percentage rents 317 507 1,852 521
Recoveries from tenants 9,217 11,744 14,911 9,524
Other revenue 1,085 1,055 3,482 1,367
------------ ------------- ------------ ------------
Total rental revenues 31,746 30,488 46,163 28,416
PROPERTY OPERATING COSTS:
Recoverable from tenants 7,644 8,977 13,528 8,486
Other operating 739 1,018 616 1,221
------------ ------------- ------------ ------------
Total property operating costs (1) 8,383 9,995 14,144 9,707
------------ ------------- ------------ ------------
PROPERTY OPERATING INCOME $ 23,363 $ 20,493 $ 32,019 $ 18,709
============ ============= ============ ============
COMMUNITY
MAINSTREET CENTERS TOTAL
------------ ------------ ------------
RENTAL REVENUES:
Minimum rent $ 2,205 $ 18,067 $ 101,503
Percentage rents 306 329 3,832
Recoveries from tenants 48 5,499 50,943
Other revenue 521 143 7,653
------------ ------------ ------------
Total rental revenues 3,080 24,038 163,931
PROPERTY OPERATING COSTS:
Recoverable from tenants - 5,726 44,361
Other operating 1,535 743 5,872
------------ ------------ ------------
Total property operating costs (1) 1,535 6,469 50,233
------------ ------------ ------------
PROPERTY OPERATING INCOME $ 1,545 $ 17,569 $ 113,698
============ ============ ============
UNCONSOLIDATED JOINT VENTURES
ONTARIO GRAPEVINE ARIZONA THE BLOCK
------------ ------------- ------------ ------------
RENTAL REVENUES:
Minimum rent $ 19,003 $ 20,584 $ 18,776 $ 2,415
Percentage rents 514 524 389 0
Recoveries from tenants 8,860 8,763 7,646 476
Other revenue 2,230 2,349 1,945 169
------------ ------------- ------------ ------------
Total rental revenues 30,607 32,220 28,756 3,060
PROPERTY OPERATING COSTS:
Recoverable from tenants 8,110 8,142 6,987 701
Other operating 717 1,100 584 32
------------ ------------- ------------ ------------
Total property operating costs (1) 8,827 9,242 7,571 733
------------ ------------- ------------ ------------
PROPERTY OPERATING INCOME $ 21,780 $ 22,978 $ 21,185 $ 2,327
============ ============= ============ ============
Our Share (2) $ 9,088 $ 7,503 $ 7,805 $ 577
============ ============= ============ ============
OTHER TOTAL
------------ ------------
RENTAL REVENUES:
Minimum rent $ 77 $ 60,855
Percentage rents 0 1,427
Recoveries from tenants 2 25,747
Other revenue 0 6,693
------------ ------------
Total rental revenues 79 94,722
PROPERTY OPERATING COSTS:
Recoverable from tenants 0 23,940
Other operating 486 2,919
------------ ------------
Total property operating costs (1) 486 26,859
------------ ------------
PROPERTY OPERATING INCOME $ (407) $ 67,863
============ ============
Our Share (2) $ (203) $ 24,770
============ ============
- --------------
(1) Total property operating costs excludes management fees as follows:
Potomac Mills - $914, Franklin Mills - $738, Sawgrass Mills - $1,269,
Gurnee Mills - $765, Community Centers - $784, Ontario Mills - $878,
Grapevine Mills - $941, Arizona Mills - $1,292 and The Block at Orange -
$40.
(2) Based on our share of distributable cash flow for the year ended December
31, 1998, excluding management fees.
20
21
OCCUPANCY ANALYSIS
The following table sets forth occupancy analysis for our Mills, Community
Centers and the Block as of December 31, 1998.
GROSS LEASED & OCCUPIED AREA
(SQ. FT.) (1)
GROSS LEASABLE
AREA OCCUPIED (3)
TOTAL AT DECEMBER 31,
PROJECT GROSS LEASABLE AREA 1998 %
- ------- ------------------- ---- --
MILLS:
Potomac Mills 1,636,870 1,574,571 96.19%
Franklin Mills 1,739,849 1,687,338 96.98%
Sawgrass Mills 1,878,522 1,850,723 98.52%
Gurnee Mills 1,653,978 1,613,431 97.55%
-----------------------------------------------------
Total Mills 6,909,219 6,726,063 97.35%
COMMUNITY CENTERS:
Butterfield 114,610 104,610 91.27%
Coopers Crossing 173,509 173,509 100.00%
Crosswinds 144,273 144,273 100.00%
Fashion Place 147,950 130,518 88.22%
Germantown 177,097 168,109 94.92%
Gwinnett 194,719 186,079 95.56%
Liberty Plaza 315,033 292,807 92.94%
Montgomery Village 117,391 109,359 93.16%
Mt. Prospect 298,600 294,557 98.65%
West Falls Church 87,824 85,433 97.28%
Western Hills 449,496 412,521 91.77%
-----------------------------------------------------
2,220,502 2,101,775 94.65%
-----------------------------------------------------
Total Wholly Owned 9,129,721 8,827,838 96.69%
====================================================
JOINT VENTURES:
Ontario Mills 1,345,096 1,330,545 98.92%
Grapevine Mills 1,240,781 1,216,269 98.02%
Arizona Mills 1,208,899 1,179,469 97.57%
The Block at Orange 642,554 576,035 89.65%
-----------------------------------------------------
Total Joint Ventures 4,437,330 4,302,318 96.96%
====================================================
Total Wholly Owned
and Joint Ventures 13,567,051 13,130,156 96.78%
====================================================
GROSS LEASED & OCCUPIED AREA, NET OF ANCHORS
(SQ. FT.) (2)
GROSS LEASABLE
TOTAL AREA OCCUPIED (3)
PROJECT GROSS LEASABLE AREA AT DECEMBER 31, 1998 %
- ------- ------------------- ----------------------- --
MILLS:
Potomac Mills 627,860 598,091 95.26%
Franklin Mills 601,488 548,977 91.27%
Sawgrass Mills 676,617 668,818 98.85%
Gurnee Mills 633,302 592,755 93.60%
---------------------------------------------------------
Total Mills 2,539,267 2,408,641 94.86%
COMMUNITY CENTERS:
Butterfield 72,677 62,677 86.24%
Coopers Crossing 14,953 14,953 100.00%
Crosswinds 23,298 23,298 100.00%
Fashion Place 74,692 57,260 76.66%
Germantown 130,341 121,353 93.10%
Gwinnett 97,172 88,532 91.11%
Liberty Plaza 52,286 30,060 57.49%
Montgomery Village 80,986 72,954 90.08%
Mt. Prospect 126,005 121,962 96.79%
West Falls Church 47,743 45,352 94.99%
Western Hills 134,980 127,610 94.54%
---------------------------------------------------------
855,133 766,011 89.58%
---------------------------------------------------------
Total Wholly Owned 3,394,400 3,174,652 93.53%
=========================================================
JOINT VENTURES:
Ontario Mills 519,276 504,725 97.20%
Grapevine Mills 542,771 518,259 95.48%
Arizona Mills 533,162 503,732 94.48%
The Block at Orange 282,853 216,334 76.48%
---------------------------------------------------------
Total Joint Ventures 1,878,062 1,743,050 92.81%
=========================================================
Total Wholly Owned
and Joint Ventures 5,272,462 4,917,702 93.27%
=========================================================
TOTAL VACANT
(SQ. FT.)
PROJECT ANCHOR SPECIALTY STORE TOTAL
- ------- ------ ------------------- -----
MILLS:
Potomac Mills 32,530 29,769 62,299
Franklin Mills 0 52,511 52,511
Sawgrass Mills 20,000 7,799 27,799
Gurnee Mills 0 40,547 40,547
-------------------------------------------------
Total Mills 52,530 130,626 183,156
COMMUNITY CENTERS:
Butterfield 0 10,000 10,000
Coopers Crossing 0 0 0
Crosswinds 0 0 0
Fashion Place 0 17,432 17,432
Germantown 0 8,988 8,988
Gwinnett 0 8,640 8,640
Liberty Plaza 0 22,226 22,226
Montgomery Village 0 8,032 8,032
Mt. Prospect 0 4,043 4,043
West Falls Church 0 2,391 2,391
Western Hills 29,605 7,370 36,975
-------------------------------------------------
29,605 89,122 118,727
-------------------------------------------------
Total Wholly Owned 82,135 219,748 301,883
=================================================
JOINT VENTURES:
Ontario Mills 0 14,551 14,551
Grapevine Mills 0 24,512 24,512
Arizona Mills 0 29,430 29,430
The Block at Orange 0 66,519 66,519
-------------------------------------------------
Total Joint Ventures 0 135,012 135,012
=================================================
Total Wholly Owned
and Joint Ventures 82,135 354,760 436,895
=================================================
- ---------------
(1) Includes 963,173 square feet of gross leasable area owned by tenants as
follows: Potomac Mills-80,000 square feet; Franklin Mills-209,612 square
feet; Sawgrass Mills-281,774 square feet; Gurnee Mills-250,806 square
feet; Ontario Mills-125,000 square feet; Liberty Plaza-13,741 square
feet; and West Falls Church-2,240 square feet. Ground leases at Franklin
Mills of 152,370 square feet and at Ontario Mills of 16,595 square feet
are also included.
(2) Anchor stores include all stores occupying more than 20,000 square feet.
(3) Gross leasable area occupied is defined as follows: (i) all space leased
and for which rent is being paid as of December 31, 1998, excluding
tenants with leases that have a term of less than one year, and (ii)
gross leasable area owned by certain store tenants.
21
22
LEASE EXPIRATION SCHEDULE(1)
The following schedule shows lease expirations assuming that none of the tenants
exercised renewal options. Except as described in footnote (1), the minimum rent
is the monthly contractual minimum rent of the expiring leases as of December
31, 1998 multiplied by 12.
NO. OF 1999 NO. OF 2000
LEASES ANNUALIZED PER SQ. LEASES ANNUALIZED PER SQ.
EXPIRING SQ. FT MIN. RENT FT. EXPIRING SQ. FT MIN. RENT FT.
-------- ------ --------- ---- -------- ------ --------- ----
Potomac Mills:
Anchors (2) - - $ - $ - - - $ - $ -
Majors (2) 1 42,212 316,590 7.50 1 41,321 309,908 7.50
Specialty 27 93,828 2,151,251 22.93 29 78,616 2,011,043 25.58
Food Court 2 1,567 85,208 54.38 3 2,331 154,992 66.49
---------------------------------------------- -----------------------------------------------
30 137,607 $ 2,553,049 $ 18.55 33 122,268 $ 2,475,943 $ 20.25
Franklin Mills:
Anchors (2) 1 100,200 $ 547,725 $ 5.47 - - $ - $ -
Majors (2) 1 40,232 370,134 9.20 1 32,637 297,256 9.11
Specialty 28 96,792 2,080,314 21.49 23 88,201 1,871,360 21.22
Food Court 7 5,602 306,600 54.73 - - - -
---------------------------------------------- -----------------------------------------------
37 242,826 $ 3,304,773 $ 13.61 24 120,838 $ 2,168,616 $ 17.95
Sawgrass Mills:
Anchors (2) - - $ - $ - 1 78,619 $ 255,512 $ 3.25
Majors (2) - - - - 2 67,851 776,198 11.44
Specialty 9 16,412 497,996 30.34 61 208,506 4,991,171 23.94
Food Court 2 1,206 80,500 66.75 21 17,595 994,014 56.49
---------------------------------------------- -----------------------------------------------
11 17,618 $ 578,496 $ 32.84 85 372,571 $ 7,016,895 $ 18.83
Gurnee Mills:
Anchors (2) - - $ - $ - - - $ - $ -
Majors (2) - - - - - - - -
Specialty 16 64,657 1,150,192 17.79 19 57,696 1,078,451 18.69
Food Court - - - - 1 657 22,995 35.00
---------------------------------------------- -----------------------------------------------
16 64,657 $ 1,150,192 $ 17.79 20 58,353 $ 1,101,446 $ 18.88
Total without Joint Ventures:
Anchors (2) 1 100,200 $ 547,725 $ 5.47 1 78,619 $ 255,512 $ 3.25
Majors (2) 2 82,444 686,724 8.33 4 141,809 1,383,362 9.76
Specialty 80 271,689 5,879,753 21.64 132 433,019 9,952,025 22.98
Food Court 11 8,375 472,308 56.39 25 20,583 1,172,001 56.94
---------------------------------------------- -----------------------------------------------
94 462,708 $ 7,586,510 $ 16.40 162 674,030 $ 12,762,900 $ 18.94
============================================== ===============================================
NO. OF 2001 NO. OF 2002
LEASES ANNUALIZED PER SQ. LEASES ANNUALIZED PER SQ.
EXPIRING SQ. FT MIN. RENT FT. EXPIRING SQ. FT MIN. RENT FT.
-------- ------ --------- ---- -------- ------ --------- ---
Potomac Mills:
Anchors (2) - - $ - $ - - - $ - $ -
Majors (2) 2 67,052 602,846 8.99 - - - -
Specialty 25 66,852 1,698,989 25.41 33 118,670 2,540,434 21.41
Food Court 3 2,484 149,959 60.37 3 1,859 127,485 68.58
------------------------------------------------- -----------------------------------------------
30 136,388 $ 2,451,794 $ 17.98 36 120,529 $ 2,667,919 $ 22.14
Franklin Mills:
Anchors (2) 1 70,701 $ 484,302 $ 6.85 - - $ - $ -
Majors (2) 1 25,127 178,402 7.10 2 65,155 448,715 6.89
Specialty 35 103,486 2,151,125 20.79 25 79,272 1,721,794 21.72
Food Court 1 510 25,990 50.96 3 2,512 74,660 29.72
------------------------------------------------- -----------------------------------------------
38 199,824 $ 2,839,819 $ 14.21 30 146,939 $ 2,245,169 $ 15.28
Sawgrass Mills:
Anchors (2) 2 147,915 $ 1,101,435 $ 7.45 - - $ - $ -
Majors (2) - - - - 2 42,657 365,491 8.57
Specialty 47 165,654 3,903,900 23.57 27 74,368 2,132,559 28.68
Food Court 4 3,124 174,901 55.99 1 663 45,000 67.87
------------------------------------------------- -----------------------------------------------
53 316,693 $ 5,180,236 $ 16.36 30 117,688 $ 2,543,050 $ 21.61
Gurnee Mills:
Anchors (2) 3 231,271 $ 1,381,540 $ 5.97 1 61,265 $ 495,000 $ 8.08
Majors (2) 1 40,752 289,339 7.10 1 33,627 252,202 7.50
Specialty 61 213,440 3,946,489 18.49 22 67,738 1,472,469 21.74
Food Court 14 10,061 569,153 56.57 5 3,611 226,154 62.63
------------------------------------------------- -----------------------------------------------
79 495,524 $ 6,186,521 $ 12.48 29 166,241 $ 2,445,825 $ 14.71
Total without Joint Ventures:
Anchors (2) 6 449,887 $ 2,967,277 $ 6.60 1 61,265 $ 495,000 $ 8.08
Majors (2) 4 132,931 1,070,587 8.05 5 141,439 1,066,408 7.54
Specialty 168 549,432 11,700,503 21.30 107 340,048 7,867,256 23.14
Food Court 22 16,179 920,003 56.86 12 8,645 473,299 54.75
------------------------------------------------- -----------------------------------------------
200 1,148,429 $ 16,658,370 $ 14.51 125 551,397 $ 9,901,963 $ 17.96
================================================= ===============================================
- -------------------------------
(1) Excludes 963,173 square feet of gross leasable area owned by tenants as
follows: Potomac Mills - 80,000 square feet; Franklin Mills - 209,612
square feet; Sawgrass Mills - 281,774 square feet; Gurnee Mills - 250,806
square feet; Ontario Mills - 125,000 square feet; and Community Centers
- 15,981 square feet. Ground leases at Franklin Mills of 152,370 square
feet and at Ontario Mills of 16,595 square feet are also excluded.
(2) For purposes of this schedule, anchor tenants are defined as any tenant
whose gross leasable area equals or exceeds 50,000 sq. ft. and major
tenants are defined as any tenant whose gross leasable area equals or
exceeds 20,000 sq. ft. but is less than 50,000 sq. ft.
22
23
LEASE EXPIRATION SCHEDULE(1)
The following schedule shows lease expirations assuming that none of the tenants
exercised renewal options. Except as described in footnote (1), the minimum rent
is the monthly contractual minimum rent of the expiring leases as of December
31, 1998 multiplied by 12.
NO. OF 1999 NO. OF 2000
LEASES ANNUALIZED PER SQ. LEASES ANNUALIZED PER SQ.
EXPIRING SQ. FT MIN. RENT FT. EXPIRING SQ. FT MIN. RENT FT.
-------- ------ --------- ---- -------- ------ --------- ----
Ontario Mills:
Anchors (2) - - $ - $ - - - $ - $ -
Majors (2) - - - - - - - -
Specialty 5 10,414 304,140 29.20 6 13,267 332,266 25.04
Food Court - - - - - - - -
---------------------------------------------- -----------------------------------------------
5 10,414 $ 304,140 $ 29.20 6 13,267 $ 332,266 $ 25.04
Arizona Mills:
Anchors(2) - - $ - $ - - - $ - $ -
Majors (2) - - - - - - - -
Specialty - - - - 9 26,473 698,472 26.38
Food Court - - - - - - - -
---------------------------------------------- -----------------------------------------------
- - $ - $ - 9 26,473 $ 698,472 $ 26.38
Grapevine Mills:
Anchors (2) - - $ - $ - - - $ - $ -
Majors (2) - - - - - - - -
Specialty 4 7,849 178,179 22.70 8 15,183 409,888 27.00
Food Court - - - - - - - -
---------------------------------------------- -----------------------------------------------
4 7,849 $ 178,179 $ 22.70 8 15,183 $ 409,888 $ 27.00
Total with Joint
Ventures:
Anchors (2) 1 100,200 $ 547,725 $ 5.47 1 78,619 $ 255,512 $ 3.25
Majors (2) 2 82,444 686,724 8.33 4 141,809 1,383,362 9.76
Specialty 89 289,952 6,362,072 21.94 155 487,942 11,392,651 23.35
Food Court 11 8,375 472,308 56.39 25 20,583 1,172,001 56.94
---------------------------------------------- -----------------------------------------------
103 480,971 $ 8,068,829 $ 16.78 185 728,953 $ 14,203,526 $ 19.48
============================================== ===============================================
The Block at Orange:
Anchors (2) - - $ - $ - - - $ - $ -
Majors (2) - - - - - - - -
Specialty - - - - 1 400 36,000 90.00
Food Court - - - - - - - -
---------------------------------------------- -----------------------------------------------
- - $ - $ - 1 400 $ 36,000 $ 90.00
============================================== ===============================================
Community Centers:
Anchors (2) - - $ - $ - - - $ - $ -
Majors (2) - - - - 1 21,007 278,343 13.25
Specialty 34 93,758 1,328,119 14.17 25 105,323 1,146,687 10.89
Food Court - - - - - - - -
---------------------------------------------- -----------------------------------------------
34 93,758 $ 1,328,119 $ 14.17 26 126,330 $ 1,425,030 $ 11.28
============================================== ===============================================
NO. OF 2001 NO. OF 2002
LEASES ANNUALIZED PER SQ. LEASES ANNUALIZED PER SQ.
EXPIRING SQ. FT MIN. RENT FT. EXPIRING SQ. FT MIN. RENT FT.
-------- ------ --------- ---- -------- ------ --------- ---
Ontario Mills:
Anchors (2) - - $ - $ - - - $ - $ -
Majors (2) - - - - - - - -
Specialty 50 209,623 4,093,677 19.53 21 72,507 1,605,795 22.15
Food Court - - - - - - - -
------------------------------------------------ ------------------------------------------------
50 209,623 $ 4,093,677 $ 19.53 21 72,507 $ 1,605,795 $ 22.15
Arizona Mills:
Anchors(2) - - $ - $ - - - $ - $ -
Majors (2) - - - - - - - -
Specialty 11 23,803 636,079 26.72 60 199,707 4,361,895 21.84
Food Court - - - - - - - -
------------------------------------------------ ------------------------------------------------
11 23,803 $ 636,079 $ 26.72 60 199,707 $ 4,361,895 $ 21.84
Grapevine Mills:
Anchors (2) - - $ - $ - - - $ - $ -
Majors (2) - - - - 1 23,329 279,948 12.00
Specialty 13 31,076 733,989 23.62 58 189,76