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TABLE OF CONTENTS
PART III

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

Commission File Number 1-12994

THE MILLS CORPORATION
(Exact Name of Registrant as Specified in Its Charter)

Registrant's telephone number, including area code: (703) 526-5000

Securities registered pursuant to Section 12(b) of the Act:

                  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 ý    No o

                  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. o

                  Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes ý    No o

                  As of June 28, 2002, the aggregate market value of the 34,265,214 shares of common stock held by non-affiliates of the registrant was $1,062,221,634 based upon the closing price ($31.00 per share) on the New York Stock Exchange composite tape on such date. As of March 27, 2003, there were 43,644,582 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

                  Portions of the registrant's proxy statement for the annual shareholders meeting to be held in 2003 are incorporated by reference into Part III. We expect to file our proxy statement by April 30, 2003.

THE MILLS CORPORATION

Annual Report on Form 10-K
December 31, 2002

TABLE OF CONTENTS

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PART I

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 and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are based on current expectations and are not guarantees of future performance.

              Forward-looking statements, which can be identified by the use of forward-looking terminology such as "may," "will," "expect," "anticipate," "estimate," "would be," or "continue" or the negative thereof or other variations thereon or comparable terminology are subject to certain risks, trends and uncertainties that could cause actual results to differ materially from those projected. Among those risks, trends and uncertainties are:

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the general economic climate,



•

the supply and demand for retail properties,



•

interest rate levels and fluctuations in the exchange rates between the US Dollar and foreign currencies in countries where we have investments,



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the availability to us of financing for our development projects or acquisition activities,



•

risks associated with the development, acquisition and operation of retail properties, including risks that the development of the project may not be completed on schedule, that we may not be able to lease available space to tenants at favorable rental rates, that tenants will not take occupancy or pay rent in accordance with their leases, or that development or operating costs may be greater than anticipated, and



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those risks described in the section entitled "Risk Factors" in this Form 10-K.

              We undertake no duty or obligation to publicly announce any revisions to, or updates of, these forward-looking statements that may result from future events or circumstances.

Item 1. Business

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 "Mills LP" refer to The Mills Limited Partnership, of which The Mills Corporation is the sole general partner. We conduct all of our business and own all of our properties through Mills LP and Mills LP's various subsidiaries. As the general partner of Mills LP, we have the exclusive power to manage and conduct the business of Mills LP, subject to some limited exceptions.

              We are a fully integrated, self-managed real estate investment trust (a "REIT") that develops, redevelops, leases, acquires, expands, and manages three types of retail and entertainment real estate properties, which are the main focus of our operations: Mills Landmark Centers, 21^st Century Retail and Entertainment Centers, and International Retail and Entertainment Venues. We have 13 "Mills Landmark Centers," which are retail and entertainment super-regional shopping centers branded as Mills. There are two "21^st Century Retail and Entertainment Centers," which are conventional regional shopping centers usually anchored by traditional department stores. The "International Retail and Entertainment Venues" can be either a Mills Landmark Center or a 21^st Century Retail and Entertainment Center located outside the United States. Madrid Xanadú, a super-regional shopping center scheduled to open in May 2003, is our premier project internationally. In addition, we own interests in two community shopping centers "Community Centers", a portfolio of single tenant properties, which we refer to as "Net Lease Properties," and other related commercial development.

              As of December 31, 2002, we held, directly or indirectly, 100% of the equity interests in five Mills Landmark Centers, one 21^st Century Retail and Entertainment Center, a total of 46 Net Lease Properties and two Community Centers. In addition, we held equity interests in various joint ventures that own eight Mills Landmark Centers and one 21^st Century Retail and Entertainment Center. For a description of our existing properties, projects under construction and projects under development as of December 31, 2002, see "—Development Pipeline" and "Item 2. Properties." We also own 100% of entities that provide leasing, management, development and financing services for all of our properties. Through MillsServices Corp. ("MSC"), we own 100% of Mills Enterprises, Inc. ("MEI"), an entity that holds investments in certain retail joint ventures.

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              In January 2003, we acquired five 21^st Century Retail and Entertainment Centers located in Ft. Lauderdale, Florida; Dover, Delaware; White Plains, New York; Jackson, Mississippi; and New Orleans, Louisiana. In September 2002, we acquired the Forest Fair Mall which will be redeveloped and renamed Cincinnati Mills when it opens in fall 2003. In conjunction with the acquisition of Forest Fair, we agreed to exchange 27 of our 46 Net Leased Properties. This exchange was completed in March 2003. As a result of these transactions and the opening of an additional Community Center, our core retail and entertainment real estate portfolio currently consists of 13 Mills Landmark Centers, seven 21^st Century Retail and Entertainment Centers, three Community Centers and 19 Net Leased Properties.

              We were originally incorporated in the Commonwealth of Virginia on January 2, 1991 and reincorporated in the State of Delaware in 1994. We became a publicly traded company on April 21, 1994. We have authorized 150,000,000 shares of common stock, par value $0.01 per share, consisting of 100,000,000 shares of voting common stock and 50,000,000 shares of nonvoting common stock. We have also authorized 20,000,000 shares of preferred stock, par value $0.01 per share. As of December 31, 2002, there were 43,196,297 shares of voting common stock, 750,000 shares of Series A Cumulative Convertible Preferred Stock, 4,300,000 shares of Series B Cumulative Redeemable Preferred Stock and 3,400,000 shares of Series C Cumulative Redeemable Preferred Stock outstanding. No shares of non-voting common stock were outstanding. As of December 31, 2002, we owned 72.68% of Mills LP's outstanding partnership units. Each partnership unit of Mills LP (other than those owned by us) is exchangeable under specified circumstances, at our option, for the cash equivalent of a share of our common stock or for a share of our common stock.

              As of December 31, 2002, we had approximately 1,400 employees.

              We maintain our executive offices at 1300 Wilson Boulevard, Suite 400, Arlington, Virginia 22209. Our telephone number is (703) 526-5000.

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Our Portfolio

              The following table sets forth a summary of our operating properties as of December 31, 2002:

(1)

Presents approximate gross leasable area ("GLA") of each of the operating properties. Included in GLA is an aggregate of approximately 1,266,000 square feet owned by certain store tenants located as follows: Concord Mills Marketplace—11,000 square feet; Franklin Mills—210,000 square feet; Gurnee Mills—251,000 square feet; Liberty Plaza—14,000 square feet; Ontario Mills—125,000 square feet; Potomac Mills—80,000 square feet; Riverside Square—293,000 square feet; and Sawgrass Mills—282,000 square feet.

(2)

Anchor stores include all stores occupying at least 20,000 square feet.

(3)

GLA includes approximately 96,000 square feet of The Marketplace at Arundel Mills which is open for operations.

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              Our experience with developing retail and entertainment centers that combine shopping, entertainment, dining and recreation into a consumer experience, was utilized to develop shopping centers branded as Mills. We are leveraging this expertise to provide the same type of consumer experience at conventional regional and super-regional shopping centers that we acquired in 2002 and the first quarter of 2003, as well as at our Madrid Xanadú project which will open in May 2003. We plan to continue to use our expertise in the development and operation of retail and entertainment projects to execute on a three-pronged, integrated strategy consisting of:

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super-regional retail and entertainment centers branded as Mills which we refer to as Mills Landmark Centers,



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conventional regional and super-regional shopping centers anchored by traditional department stores which we refer to as 21^st Century Retail and Entertainment Centers, and



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International Retail and Entertainment Venues.

              The following is a brief description of our Mills Landmark Centers, 21^st Century Retail and Entertainment Centers and International Retail and Entertainment Venues.

              Mills Landmark Centers.    Mills Landmark Centers are a major focus of our operations. A typical Mills Landmark Center contains approximately 1.4 million square feet of GLA, approximately 175 to 200 specialty tenants and 12 to 22 anchor tenants. Mills Landmark Centers are essentially a hybrid of various retail formats with a diverse tenant base consisting of anchor 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.

The following list is representative of our anchors and other tenants:

              Mills Landmark Centers are generally located in large, metropolitan areas with a population of at least one million within a 20 mile radius, median annual household income of $50,000 or greater and steady tourist appeal. The prototypical physical layout is a "race track" format of stores on one level with ample non-decked parking. Mills Landmark Center shoppers typically fit into one of the following categories:

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they reside within a 10-15 mile radius of a Mills Landmark Center and use the center as their local regional mall equivalent,



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they reside within a 15-40 mile radius of a Mills Landmark Center and travel beyond other retail offerings to access the breadth and uniqueness of the tenant mix at a Mills Landmark Center, or



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they travel from greater distances as part of a planned shopping experience.

              21st Century Retail and Entertainment Centers.    We continue to strengthen our position in the retail real estate industry, leveraging the Mills Landmark Centers concept with a powerful blend of shopping, entertainment, dining and recreation. With the opening of The Block at Orange in 1998, we created a new retail format consisting of an open-air urban mainstreet atmosphere combining both entertainment (with themed restaurants, theatres and other interactive attractions) with distinctive retail concepts such as Van's Skatepark. In addition, during 2002, we outlined a strategy to acquire and reinvigorate conventional retail properties using the principles that have differentiated us in the marketplace. In December 2002, we acquired Riverside Square in Hackensack, New Jersey and in January 2003, we acquired five mall properties from Cadillac Fairview Limited Corporation and various affiliated entities ("Cadillac"). We

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believe that we can enhance the value of these properties by combining comprehensive and innovative retail, entertainment and recreational offerings, typically found at our Mills Landmark Centers, with more traditional mall offerings.

              The following list is representative of our anchors and tenants at these properties:

              International Retail and Entertainment Venues.    Given our success in developing and operating retail malls in the United States that offer a variety of distinctive shopping experiences and entertainment destinations and our belief that international shoppers are looking for similar shopping experiences, we determined to expand internationally. In 2001, we began construction on our first European property, Madrid Xanadú, which is scheduled to open in May 2003. This new full-price retail property will contain El Corte Inglés, the largest retailer in Spain, which will occupy 350,000 square feet of department store space. Madrid Xanadú will have as its entertainment centerpiece the Snow Dome, a 17-story indoor ski and snowboarding slope, the first of its kind in Spain.

              In February 1998, we secured a site in Vaughan, Ontario for the development of Vaughan Mills, the first Mills Landmark Center project to be developed in Canada. The 180-acre site is located in the City of Vaughan, which is located approximately 20 miles north of downtown Toronto, Canada. The project is being developed jointly by us and Ivanhoe Cambridge. We expect construction on this project to begin in summer 2003.

              The following list is representative of the anchors and tenants we expect at our international properties:

              We are also reviewing other potential development opportunities internationally. For example, in Spain, we are exploring follow-on opportunities beyond Madrid Xanadú for sites in and around Seville, Bilbao, Valencia and Barcelona. In addition, in Italy, we are reviewing several well-located sites in Milan, suburban Florence and Rome.

Development Pipeline

              Our development pipeline consists of projects under construction, projects under development and projects under review as more fully described below. A project is deemed to be under development if we have, at a minimum, performed substantive due diligence on the feasibility and desirability of constructing the project.

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              Projects Under Construction.    We currently have three projects under construction, which we expect will have an aggregate of approximately 4.0 million square feet of GLA upon completion. Estimated total development costs for these projects is approximately $585 million. The estimated development costs will be funded through construction loans and joint venture partners' and our equity contributions. The following table sets forth some information with regard to these projects as of December 31, 2002:

(1)

Anticipated opening dates, approximate GLA and estimated aggregate project cost are 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 GLA includes space that may be owned by certain anchor store tenants.

(3)

Anchor Store Tenant Commitments and Percentage Pre-Leased includes leasing activity through February 2003.

(4)

The Estimated Aggregate Project Cost, Required Equity from Company and the Company's Equity at 12/31/02 are denoted in U.S. Dollars. The functional currency for this entity is euros. The euro equivalent would be €239.0 million, €67.8 million and €135.1 million, respectively.

(5)

We purchased the Forest Fair Mall in Cincinnati, Ohio in September 2002 and are renovating the mall. We anticipate completing the redevelopment in fall 2003 and will rename the mall "Cincinnati Mills" upon completion. The anchor tenants will remain open during renovation. The anchor store tenant commitments and percentage pre-leased exclude Elder Beerman, which has given notice that it will close its department store at this property when its lease expires on May 2003. We will redemise and re-lease this two level space to a combination of anchor and specialty tenants.

              The following is a brief description of the three projects currently under construction:

              Madrid Xanadú—Madrid, Spain: The Madrid Xanadú project is being constructed on an 85-acre site located in the Municipality of Arroyomolinos, within the Communidad of Madrid. The project is expected to contain 1 million square feet of GLA. This new full-price retail property will have as its entertainment centerpiece the Snow Dome, a 17-story indoor ski and snowboarding slope, and will contain El Corte Inglés, the largest retailer in Spain, which will occupy 350,000 square feet of department store space. Madrid Xanadú will also feature over 200 specialty retailers, including Sweden's Hennes and Mauritz (H&M), Italy's Benetton and Spain's Zara. We are scheduled to open the property in May 2003.

              The project is being developed pursuant to two joint ventures between us and Parecelatoria De Gonzalo Chacón S.A. ("PGC"). One joint venture will develop, own and operate the retail component of the property and the other joint venture will develop, lease and operate the Snow Dome. We own two-thirds of the retail joint venture and one-third of the Snow Dome joint venture. PGC contributed the land to the retail joint venture. We are obligated to contribute to the retail joint venture any capital, in excess of construction loan proceeds, required to complete the construction of the retail component of the project. As of December 31, 2002, excluding capitalized interest and overhead, we had invested $141.3 million (€135.1 million Euro "€"). We closed a construction loan in December 2002, with a maximum loan amount of $172.6 million (€165 million). There are various conditions precedent to loan funding including finalization of various business arrangements and registration of certain documents that are required before a mortgage can be granted and finalization of the ground lease relating to the El Corte Inglés store. We expect that the loan will fund during the second quarter of 2003, although there can be no assurance that this will occur. If the loan does not fund in a timely manner and we do not obtain alternative financing, our liquidity and our development activity could be adversely impacted. We expect our final equity in the joint venture to be $70.9 million (€67.8 million).

              Under the existing joint venture agreements, the retail joint venture is obligated to provide $20.19 million (€19.3 million) to the Snow Dome joint venture in the form of a repayable tenant allowance loan. Additional equity beyond the tenant allowance loan is required to complete the project. We and PGC have agreed to contribute $5.0 million (€4.8 million), of which $3.3 million (€3.2 million) is to be funded by us and $1.7 million (€1.6 million) of which is to be funded by PGC. Furthermore, after such contributions have been made, PGC is obligated to contribute additional funds, up to a maximum of $4.4 million (€4.2 million). If additional funds are required to complete the Snow Dome project after all of the foregoing contributions have been made, the parties have agreed to fund such additional

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equity requirements on a fifty/fifty basis, provided that total funding for the Snow Dome does not exceed $43.9 million (€42 million). While we do not believe that development of the Snow Dome will require total funding in excess of $43.9 million (€42 million), in the event additional funds are required, either one or both of the partners may elect to make additional capital contributions or loans to the joint venture.

              We are also party to an agreement with PGC that has certain put/call provisions relating to PGC's interest after the construction period ends, that include, among other things, the right of PGC to require us to purchase its interest in the joint ventures for a minimum purchase price of $36.6 million (€35 million), which price may be adjusted upward depending on the stabilized financial performance of the project. Following grand opening, but prior to the third anniversary of grand opening, PGC has the right to require us to purchase PGC's interest in both the retail and leisure center and the Snow Dome. After the third anniversary of grand opening, but prior to the fifth anniversary, PGC has the right to require us to purchase PGC's interest in the retail and leisure center. We may, at our option, choose to purchase PGC's interest in the Snow Dome.

              St. Louis Mills—St. Louis, Missouri: In July 2001, we acquired a 200-acre site in Hazelwood, Missouri, for development of St. Louis Mills. The site is located approximately 16 miles from St. Louis. St. Louis Mills is scheduled to open in fall 2003. We have signed leases with Off 5^th-Saks Fifth Avenue, Off Broadway Shoes, Bed Bath & Beyond, Marshalls and Regal Cinemas, among others, for the project.

              The project is being developed by St. Louis Mills Limited Partnership, a joint venture between us and Kan Am. We anticipate that our final equity requirements will be approximately $31.5 million. As of December 31, 2002, we had invested $31.7 million, excluding capitalized interest and overhead, and Kan Am had invested $31.5 million in the project. We anticipate closing a construction loan for the project in the second quarter of 2003.

              Under the terms of the joint venture agreement between us and Kan Am, each of us will receive on a pro rata basis a cumulative construction period preference and a priority return during operations equal to 11% per annum on our qualifying equity. Any residual cash flow after preference payments will be distributed 75% to us and 25% to Kan Am. Proceeds from a major capital event, such as the sale of the property or the receipt of proceeds arising from condemnation of the property, will be distributed to the partners on a pro rata basis after the return of all capital contributions and the payment of any accrued but unpaid preferences. Commencing with the grand opening of the project, we will be entitled to receive an annual asset management fee that will be cumulative and will be payable solely out of Kan Am's share of pro rata distributions of cash flow or sales proceeds.

              We guarantee Kan Am's portion of construction debt and Kan Am's construction period preference until qualified permanent financing is secured for the project, except that the amount of preference guaranteed by us will be reduced to 9% following the substantial completion and opening of the project.

              If the construction loan for the project has not been closed on or before June 30, 2004, Kan Am will have the right to require the joint venture to redeem Kan Am's interest in the joint venture in exchange for the sum of Kan Am's total equity investment plus any unpaid construction period preference payments. This redemption obligation is guaranteed by us. We expect to close a construction loan in the second quarter of 2003 but no assurance can be given that a construction loan will be closed by the required date.

              At specified times following the fifth anniversary of the opening of St. Louis Mills, or, if earlier, upon our change in control, either we or Kan Am can exercise a buy-sell right. Pursuant to the buy-sell provision, we can require Kan Am to sell to us for cash or limited partnership units of Mills LP, at Kan Am's election, Kan Am's entire interest in the joint venture entity. Also, pursuant to the buy-sell provision, Kan Am can require us to acquire for cash or limited partnership units of Mills LP, at our election, Kan Am's entire interest in the joint venture entity. Only Kan Am may invoke the buy-sell right in the event of our change in control.

              The construction of this project was previously the subject of a lawsuit filed by the Missouri Coalition for the Environment against the U.S. Army Corps of Engineers challenging a fill permit that the Corps had previously granted to the former property owner. Because of our interest in the lawsuit, we intervened in the suit. In March 2003, the parties settled the lawsuit, with the Missouri Coalition agreeing to drop its opposition to the project.

              Cincinnati Mills—Cincinnati, Ohio: We purchased 100% of Forest Fair Mall in Cincinnati, Ohio in September 2002 and are currently renovating the mall. We anticipate completing the redevelopment in fall 2003 and will rename the mall Cincinnati Mills upon completion. The anchor stores will remain open during the renovation. Elder Beerman has given notice that it will close its department store in this property when its lease expires in May 2003. We will redemise and re-lease this two level space to a combination of anchor and specialty tenants.

              Projects Under Development.    In addition to the three projects currently under construction, we are also actively pursuing the development of other projects. These projects are in various levels of the due diligence stage

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during which we determine site/demographic viability, negotiate tenant commitments and work through third-party approval processes. Consistent with past practice, we will not begin construction on these projects until we have completed our due diligence and have 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 our current development projects:

              Vaughan Mills—Toronto, Canada: In February 1998, we secured a site in Vaughan, Ontario for the development of Vaughan Mills, the first Mills Landmark Center to be developed in Canada. The 180-acre site is located in the City of Vaughan, which is approximately 20 miles north of downtown Toronto, Canada. The project will be developed jointly by us and Ivanhoe Cambridge. We anticipate opening the center in 2004.

              Ivanhoe Cambridge and we will each own an undivided 50% interest in Vaughan Mills as tenants in common. Pursuant to our co-ownership agreement with Ivanhoe Cambridge, each of us will receive our proportionate share of all revenues received from the project and will be responsible for the payment of our proportionate share of all expenses associated with the project. At any time following the fourth anniversary of the opening of Vaughan Mills, Ivanhoe Cambridge and we each can exercise a buy-sell provision. Pursuant to the buy-sell provision, the offering party can require that the other party either purchase for cash the entire interest of the offering party in the project, or sell to the offering party the interest of such other party. Ivanhoe Cambridge and we are sharing responsibilities for the development and leasing of the project. We will be responsible for property management. Other decisions require the approval of both Ivanhoe Cambridge and us. Disputes over decisions generally are subject to arbitration, but certain specified major decisions, such as the financing, sale or redevelopment of the project, the budget for the construction of the project, and the initial decision to proceed with construction of the project, are not subject to arbitration.

              Meadowlands Xanadu—East Rutherford, New Jersey: In September 2002, we submitted a proposal, which was subsequently supplemented, to the New Jersey Sports & Exposition Authority to redevelop the Continental Arena site in East Rutherford, New Jersey. Our Meadowlands Xanadu proposal was selected on February 12, 2003 by the New Jersey Sports & Exposition Authority, providing the Xanadu team with the exclusive right to negotiate a developer's agreement. We are teamed with Mack-Cali Realty Corporation, a leading owner and manager of class A office properties located primarily in the Northeast United States, and the New York Giants football organization on this project.

              Upon completion, Meadowlands Xanadu will be a 4.76 million square foot family entertainment and recreation complex that will include five themed zones: sports and recreation, kid's activities and fashion, and an office and hotel component. The Meadowlands Xanadu proposal features the Snow Dome, America's first year-round indoor Alpine ski resort with real snow and chair lifts. In addition to the Snow Dome, Meadowlands Xanadu is expected to feature a baseball park. Additional active and spectator activities include an ESPN XGames Skatepark (extreme wheel sports), an indoor surfing wave, a grand movie palace, a small format live entertainment venue and a Wildlife Museum. Other entertainment and recreation features are expected to include The House of Blues, UnderWater World aquarium, Wannado, where children can role-play adult professions such as news reporter, television producer, airline pilot or dozens of other jobs in an entertaining and educational environment, and a PBS Kids Pavilion. The office and hotel space will total 2.2 million square feet, consisting of four 14-story, 440,000 square-foot office buildings and a 520-room hotel with conference and exhibition facilities.

              We expect that Meadowlands Xanadu will be developed by a joint venture between an affiliate of Mack-Cali Realty Corporation and Meadowlands Mills Limited Partnership. We are in the process of negotiating the joint venture agreement and our equity requirement has not yet been determined. Meadowlands Mills Limited Partnership, the entity that submitted the bid to redevelop the Continental Arena site, is a joint venture solely owned by us and Kan Am. Empire, Ltd., the current owner of land adjacent to the Continental Arena site, and Benjamen Lazare have the right under certain circumstances to be admitted as limited partners to Meadowlands Mills Limited Partnership. As of December 31, 2002, we had invested $105.3 million in Meadowlands Mills Limited Partnership. Of the amount we had invested as of December 31, 2002, $48.3 million is an advance to Meadowlands Mills Limited Partnership. Kan Am's invested capital in Meadowlands Mills Limited Partnership was $24.0 million as of December 31, 2002. The Meadowlands Mills Limited Partnership agreement provides for Kan Am's right to require Meadowlands Mills Limited Partnership to redeem its interest in the joint venture if a construction loan is not obtained by June 30, 2004.

              Pursuant to the Meadowlands Mills Limited Partnership agreement, we and Kan Am each will receive a cumulative construction period preference and a priority return during operations equal to 9% per annum. Prior to securing qualified permanent financing, our construction period preference will be subordinated to Kan Am's construction period preference. Additionally, payment of our construction period preference will be made only from proceeds of the construction loan and only if the terms of the construction loan documentation so permit. We currently

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guarantee Kan Am's preference. Beginning on the "Project Commencement Date," which is the date on which certain material contingencies have been satisfied, we will guarantee the return of Kan Am's capital contribution upon exercise of its redemption right, which may occur prior to securing the construction loan. We will guarantee Kan Am's portion of the construction debt when a construction loan is obtained. Our guarantee of Kan Am's preference and Kan Am's portion of the construction debt will continue until qualified permanent financing is secured for the project. As of December 31, 2002, Kan Am's unpaid preference was $0.54 million.

              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 Mills LP, 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 Mills LP, at our election, Kan Am's entire interest in the partnership.

              On March 27, 2003, Hartz Mountain Industries, Inc. filed a lawsuit in the Superior Court of New Jersey, Law Division, for Bergen County, seeking to enjoin the New Jersey Sports & Exposition Authority from entering into a contract with Mack-Cali Realty Corporation and us for the redevelopment of the Continental Arena site. We believe that our proposal fully complied with applicable laws and the request for proposals, and we plan to vigorously enforce our rights concerning this project. We do not currently believe that this lawsuit will have any material affect on our ability to develop the project.

              In conjunction with the formation of Meadowlands Mills Limited Partnership we acquired a mortgage interest in a 587-acre tract of land commonly known as the "Empire Tract" which is adjacent to the Continental Airlines site. We originally planned to develop a mixed-use development to be known as "Meadowlands Mills" on the Empire Tract. Meadowlands Mills would consist of 2.0 million square feet of GLA, plus office and hotel space. The project would be developed on an entitled site of 90.5 acres, plus roads and retention facilities. Assuming the completion of a successful development agreement with the New Jersey Sports & Exposition Authority, we will convey the Empire Tract to the State of New Jersey. If we are not successful in concluding a development agreement, we will continue our efforts to develop Meadowlands Mills.

              Pittsburgh Mills—Pittsburgh Mills: In December 2002, Mills-Kan Am Pittsburgh Limited Partnership ("Mills-Kan Am Pittsburgh") and A.V. Associates Limited Partnership ("AV Associates") entered into a partnership agreement for the development of Pittsburgh Mills, which will be located on approximately 313 acres of land in Frazer Township, Pennsylvania.

              AV Associates is obligated to contribute a portion of the land on which the mall will be situated and the rights to acquire the remaining land that will be used for the mall, as its initial capital contribution. The agreed value of these contributions is valued initially at approximately $13.11 million, which value may be reduced under certain circumstances. Mills-Kan Am Pittsburgh Limited Partnership, which holds a 75% equity interest in Pittsburgh Mills Limited Partnership, is obligated to fund three times AV Associates' initial capital contribution. Each partner will have the option, but not the obligation, to fund any additional capital necessary for the development of the project. In addition to each party's initial capital contribution, each of the parties has agreed to pay certain liabilities that accrued prior to the formation of Pittsburgh Mills Limited Partnership. AV Associates will receive a construction period preference equal to 5.5% and a priority return during operations equal to 11% per annum on its qualifying initial capital contribution and 14% per annum on its qualifying additional capital contributions. Mills-Kan Am Pittsburgh Limited Partnership will receive a cumulative construction period preference equal to 11%, a priority return during operations equal to 11% per annum on its qualifying initial capital contributions and 14% per annum on its qualifying additional capital contributions. Any residual cash flow after preference payments will be distributed 75% to Mills-Kan Am Pittsburgh and 25% to AV Associates and repayment of additional capital contributions.

              Commencing one year after the opening and terminating three years after the opening, AV Associates may elect to convert a certain portion of its partnership interest in Pittsburgh Mills Limited Partnership to cash or limited partnership units of Mills LP, at our election. In addition, if, after the opening of Pittsburgh Mills and prior to the exercise of the AV Associates' conversion right described above, a dispute arises regarding a "Major Decision," as defined in the partnership agreement, either Mills-Kan Am Pittsburgh or AV Associates can exercise a buy-sell right. Pursuant to the buy-sell provision, the partner receiving a buy/sell notice can elect to either purchase the other partner's interest in the project or sell its interest in the project to the other party.

              Mills-Kan Am Pittsburgh Limited Partnership, through which we will operate our interest in the Pittsburgh Mills project, is a joint venture between us and Kan Am. Each of us is required to fund 50% of Mills-Kan Am Pittsburgh initial capital contribution of $39.3 million. We anticipate that the total capital to be contributed by Mills-Kan Am Pittsburgh to Pittsburgh Mills Limited Partnership will be $47.2 million. As of December 31, 2002, we had contributed $2.3 million. Kan Am had not contributed any capital as of December 31, 2002.

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              Under the terms of the joint venture agreement between us and Kan Am, each of us will receive on a pro rata basis a cumulative construction period preference and a priority return during operations equal to 11% per annum on its qualifying equity. Any residual cash flow after preference payments will be distributed 75% to us and 25% to Kan Am. Proceeds from a major capital event, such as the sale of the property or the receipt of proceeds arising from condemnation of the property, will be distributed to the partners on a pro rata basis after the return of all capital contributions and the payment of any accrued but unpaid preferences. Commencing with the grand opening of the project, we will be entitled to receive an annual asset management fee that will be cumulative and will be payable solely out of Kan Am's share of pro rata distributions of cash flow or sales proceeds.

              We will guarantee Kan Am's portion of construction debt and Kan Am's construction period preference until qualified permanent financing is secured for the project, except that the amount of preference guaranteed by us will be reduced to 9% following the substantial completion and opening of the project.

              Kan Am will have the right to require the joint venture to redeem Kan Am's interest in the joint venture if specified conditions have not been met by a "redemption date," in exchange for the sum of Kan Am's total equity investment plus any unpaid construction period preference payments. The "redemption date" is June 30, 2004 or twelve months following the date that Kan Am has fully contributed its required equity to the joint venture. This redemption obligation is guaranteed by us. The specified conditions include the closing and initial funding of the construction loan, and the receipt of proceeds from public financings. We expect these conditions to be satisfied in the spring of 2004, but no assurance can be given that such conditions will be satisfied by that date.

              At specified times following the fifth anniverary of the opening of Pittsburgh Mills, or, if earlier, upon our change in control, either we or Kan Am can exercise a buy-sell right. Pursuant to the buy-sell provision, we can require Kan Am to sell to us for cash or limited partnership units of Mills LP, at Kan Am's election, Kan Am's entire interest in the joint venture entity. Also, pursuant to the buy-sell provision, Kan Am can require us to acquire for cash or limited partnership units of Mills LP, at our election, Kan Am's entire interest in the joint venture entity. Only Kan Am may invoke the buy-sell right in the event of our change in control.

              San Francisco Piers 27-31—San Francisco, California: In April 2001, the San Francisco Port Commission awarded us the exclusive right to negotiate for a long-term lease on Piers 27-31 on the San Francisco waterfront, to develop a full-price mixed-use retail, office, entertainment and recreation project. These negotiations have begun and are ongoing.

              Block 37—Chicago, Illinois: In June 2002, we were selected by the City of Chicago to negotiate the development of Block 37 (108 N. State Street), a key city block opposite the Marshall Fields department store in downtown Chicago, as a mixed-use project including retail, office, residential and hotel uses. These negotiations are ongoing.

              Projects Under Review.    In addition to the projects discussed above, we are also conducting due diligence on several other proposed sites for future projects, including sites in Cleveland, Ohio; Woodbridge, Virginia; Boston, Massachusetts; Tampa, Florida; and San Francisco, California. We are also reviewing other potential development opportunities internationally. For example, in Spain, we are exploring follow-on opportunities beyond Madrid Xanadú for sites in and around Seville, Bilbao, Valencia and Barcelona. In addition, in Italy, our efforts are concentrated on several well-located sites in Milan, suburban Florence and Rome.

Ancillary Business Opportunities

              We have developed new synergistic non-real estate based concepts in an effort to expand our revenue generating opportunities, subject to tax law limitations applicable to REITs. Typically, these opportunities are related to, or are extensions of, our core business of developing, redeveloping, leasing, financing and managing retail and entertainment real estate projects. For example, in 1999, we created FoodBrand to master lease, manage and operate food courts and restaurants at certain of our malls and third party facilities. In October 2001, we sold a portion of FoodBrand to the Panda Restaurant Group, one of the nation's largest restaurant companies. FoodBrand currently has operations in five Mills Landmark Centers and two third party owned facilities, The Mall at Stonecrest and the Cincinnati/Northern Kentucky International Airport. We believe that other opportunities for expansion and growth of the FoodBrand business may exist at other Mills projects and in other non-Mills projects including select airports. We expect to grow our non-real estate synergistic businesses during the next few years, subject to tax law limitations applicable to REITs.

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Competition

              All of our properties are located in areas that have other shopping centers and retail facilities and, as a result, we often face intense competition in attracting shoppers and retailers alike. In addition, our properties compete with the same shopping alternatives that other retailers face, including full-price malls, e-commerce, outlet malls, discount shopping clubs or centers, catalog companies and home shopping networks.

              Mills Landmark Centers.    We believe our Mills Landmark Center properties have a number of inherent competitive advantages over other retail formats in operation today. These advantages, which are more fully described below, have resulted in the strong operating performance of our Mills Landmark Centers.

Consumer Draw. We believe that the critical mass achieved by aggregating an average of over 175 stores and 1.4 million square feet of GLA area under one roof, coupled with the distinctive physical characteristics of our Mills Landmark Centers, are the primary reasons that our properties attract so many people and create extended shopping trips. We believe that shoppers are attracted to our unique mix of tenants, which includes 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 that incorporate staggered store fronts and roof lines, natural lighting and colorful graphic accents. Shopping avenues in our Mills Landmark Centers are interspersed with a variety of food establishments and video and entertainment courts, further enhancing the entertainment nature of the shopping trip.

The Mills Landmark Centers in operation during 2002 were among the top tourist destinations in their respective states. On average, each of our Mills Landmark Centers attracted 15 million visitors per year and was visited by more than 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 a Mills Landmark Center is the only retail shopping experience that is differentiated by its product type with the market, consumers and tourist shoppers.

              Attractiveness to Tenants. We believe tenants are attracted to our Mills Landmark Centers as a result of the heavy consumer traffic at a Mills Landmark Center 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 Landmark Center versus many other retail formats. The lower common maintenance costs are a result of several factors, including:

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Anchor contributions: 12 to 22 anchor stores make significant contributions to common area maintenance pools,



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Low maintenance costs: one-story construction, smaller concourses and lack of deck parking require less maintenance, and



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Larger tenant base: a Mills Landmark Center's significant specialty store tenant square footage results in lower common area maintenance costs per square foot.

              Flexibility of Product. The single-story, simple construction of our Mills Landmark Centers 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 flexibility makes it easier for us to replace underperforming stores or make room for new and exciting retailers, which keeps the product fresh and enhances consumer draw.

              Barriers to Entry. We believe that we are the innovator of a retail concept, represented by our Mills Landmark Centers, and that our success has made us the leading developer of large-scale value and entertainment-oriented retail projects. We have developed strong relationships with our tenants, which gives 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 significant financial commitment associated with developing a project the size and nature of a Mills Landmark Center precludes many potential competitors from developing and operating similar properties.

              21st Century Retail and Entertainment Centers.    We believe that, using our consumer-focused theming and branding, our unique relationships with a broad pool of retail and entertainment partners, our special corporate and strategic relationships and our global perspective, our 21st Century Retail and Entertainment Centers will be well

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positioned to compete against more traditional malls and other shopping alternatives. Similarly, we believe that our ability to develop new retailer relationships that can be cross-sold across our entire portfolio will provide us with a competitive advantage over more traditional malls.

              International Retail and Entertainment Venues.    European shopping habits are traditionally focused almost entirely on "high street" retailers, that is, those retailers located on primary city streets. The nuance of suburban-type retail is now just beginning to appear in and around Western Europe. This trend is not only due to the increased cost of living that has been occurring in Europe's "downtown" locations, but also as a result of increased populations in many of the countries. In addition, Europeans are much more protective of their leisure time. Given our experience and success in the United States in integrating leisure and entertainment retail venues, we believe we are well positioned to take advantage of this phenomena. We anticipate that we will enjoy success in our selected markets, Spain and Italy, through the creation of unique destination-type retail and leisure schemes.

Capital Strategies

              To fund our capital needs, we have generally used project specific secured financing, joint venture equity contributions, cash flow from operations, our $175 million revolving loan and the issuance of preferred and/or common equity.

              Development Financing.    New development is financed with construction loans, tax increment municipal financing and joint venture partner equity contributions. After project openings, the projects are refinanced with permanent debt generally in the form of non-recourse, fixed rate mortgage debt. The following is a description of our capital cycle and the various funding sources used:

Construction Financing. A typical Mills Landmark Center costs 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 pre-leasing levels. We have relationships with multiple lenders in the construction loan market. Our construction loans generally have terms of three years, some with extension options for an additional two years. Interest rates typically range from 120 to 275 basis points over LIBOR. The construction loans are typically 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 guarantee Kan Am's portion of the construction debt in addition to our own portions. See "Strategic Relationships." Guarantees are generally 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 type of financing is advantageous to us because debt service is typically paid from special tax assessments levied against the project that 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.

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 investment proceeds from land sales, our revolving loan and proceeds from any equity offerings.

Permanent Financing. After a new development project opens and stabilizes, which generally occurs within 36 months of opening, we generally refinance the construction loan with permanent, fixed rate, non-recourse mortgage debt. This debt is usually amortized over 30 years, with anticipated balloon payments due within a five to ten-year period. We have found that the financial stability 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 have generally achieved investment grade ratings on the entire refinanced balance. The 2002 refinancings of Opry Mills, Katy Mills and Concord Mills

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are examples of projects that are encumbered by permanent investment grade securitized mortgage loans. As of December 31, 2002, our indebtedness had a weighted average maturity of 5.9 years and a weighted average interest rate of 6.5%, including our share of funded construction and operating debt of the unconsolidated joint ventures. We intend to permanently finance our future projects in a similar manner.

              Acquisitions.    Our acquisitions to date have been financed using our $175 million revolving loan, the issuance of preferred and/or common equity and property level permanent, non-recourse mortgage debt. In the event we consummate future acquisitions, we anticipate using similar financing sources and joint venture partner equity, although there can be no assurance that these sources of financing will be available to us on reasonable terms or at all.

Strategic Relationships

              We have formed strategic relationships with certain developers and equity partners. Historically these relationships have served as a source of equity for development projects, mitigated development risk and competition and provided assistance in the identification of new development opportunities and the development and expansion of anchor tenant and lender relationships. The following is a brief description of our contractual strategic partnerships.

              Kan Am.    We have a long-standing relationship with Kan Am, a German syndicator of closed and open ended real estate funds that currently manages about $1.7 billion in equity for approximately 18,000 German investors. Over the last five years, Kan Am has invested approximately $350 million in equity in various projects with us. To date, Kan Am has always successfully raised the agreed upon level of capital.

              As of December 31, 2002, Kan Am had property level investments in eight existing projects, Arundel Mills, Colorado Mills, Concord Mills, Discover Mills, Grapevine Mills, Katy Mills, Ontario Mills and The Block at Orange, and in three development projects, Meadowlands Xanadu, St. Louis Mills and Pittsburgh Mills. In addition to its existing investments at the property level, as of December 31, 2002, Kan Am owned approximately 22.38% of the partnership units of Mills LP. Each unit is exchangeable under specified circumstances for, at our option, the cash equivalent of a share of our common stock or a share of our common stock. Directors and executive officers of Kan Am hold three seats on our Board of Directors.

              In May 2002, we entered into an agreement with Kan Am pursuant to which Kan Am committed during 2002 to contribute up to $50 million for investment in qualifying development projects. Kan Am's contribution commitment was satisfied by entering into joint venture agreements with us to develop St. Louis Mills and Pittsburgh Mills.

              In May 2002, we granted a waiver of the "ownership limit" established in our certificate of incorporation to Kan Am and its affiliates, subject to limitations established in our certificate of incorporation to preserve our REIT status. This waiver will also apply to the initial transferees of Kan Am and its affiliates, subject to continued compliance by Kan Am with its contribution obligations for development projects as described above, to Kan Am's compliance with certain first refusal rights in our favor, and to compliance by Kan Am and its affiliates and such transferees with the applicable ownership restrictions relating to preservation of our REIT status.

              Ivanhoe Cambridge.    In October 1999, we entered into a Master Agreement with Ivanhoe Cambridge pursuant to which we agreed to examine with Ivanhoe Cambridge the feasibility of jointly acquiring, developing, constructing, owning and operating one or more Mills Landmark Centers in the Provinces of Ontario, Quebec, Alberta and/or British Columbia or one or more Block projects in any Province in Canada. Pursuant to the agreement, we and Ivanhoe Cambridge have jointly acquired the site in Vaughan, Ontario and are examining the feasibility of several other locations. The agreement generally provides that when Ivanhoe Cambridge jointly develops a site with us, the parties will hold their interests as tenants-in-common having equal interests. The agreement restricts either party from developing a Mills Landmark Center in the four specified Provinces or from developing a Block project anywhere in Canada without first offering to the other party the right to participate equally in the development. The agreement also prohibits either party from developing a Mills Landmark Center within a fifty mile radius of any project developed by the parties, and from developing any project having a GLA in excess of 400,000 square feet within a ten mile radius of any project developed by the parties unless the individually developed project is approved by the other party. The term of this agreement extends through December 31, 2005, unless otherwise agreed by the parties.

              Taubman Realty.    In May 1998, we entered into an agreement with Taubman Realty (our partner in the joint venture that developed Arizona Mills) to jointly develop four Mills Landmark Centers during the initial five-year period of the term and a total of seven Mills Landmark Center projects in the ten-year term. The agreement establishes ownership percentages for each project and contemplates that the partners will contribute their pro rata share of the

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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.

Future Capital Requirements

              We anticipate that our operating expenses, interest expense on outstanding indebtedness, recurring capital expenditures and distributions to stockholders in accordance with REIT requirements will be provided by cash generated from operations and potential ancillary land sales. We anticipate that future development and non-recurring capital expenditures will be funded from future borrowings and possible sales of common and/or preferred equity.

              We will need equity and debt capital to fund our development projects going forward. Access to capital is dependent upon many factors outside of our control. We believe that we will have the capital and access to additional capital resources sufficient to expand and develop our business and to complete the projects currently under development. If the necessary capital cannot be obtained, our immediate and long-term development plans could be curtailed.

Asset Management Strategies