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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

Form 10-Q


ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2003

o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-12994

LOGO

THE MILLS CORPORATION
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction
of incorporation or organization)		   52-1802283
(I.R.S. Employer
Identification No.)

1300 Wilson Boulevard, Suite 400, Arlington, Virginia 22209
(Address of principal executive offices—zip code)

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


(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

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

Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date.

48,161,593 shares of Common Stock
$0.01 par value, as of November 10, 2003

THE MILLS CORPORATION
FORM 10-Q
INDEX

 
    
   Page
PART I.   FINANCIAL INFORMATION    
Item 1.   Consolidated Financial Statements and Notes    
    Consolidated Balance Sheets as of September 30, 2003 (unaudited) and December 31, 2002 (audited)   3
    Consolidated Statements of Income (unaudited) for the Three Months Ended September 30, 2003 and 2002   5
    Consolidated Statements of Income (unaudited) for the Nine Months Ended September 30, 2003 and 2002 (restated)   6
    Consolidated Statement of Stockholders' Equity (unaudited) for the Nine Months Ended September 30, 2003   7
    Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended September 30, 2003 and 2002 (restated)   8
    Notes to Consolidated Financial Statements (unaudited)   9
Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations   28
Item 3.   Quantitative and Qualitative Disclosures About Market Risk   52
Item 4.   Controls and Procedures   54

PART II.
 
OTHER INFORMATION
 
 
Item 1.   Legal Proceedings   55
Item 2.   Changes in Securities and Use of Proceeds   55
Item 3.   Defaults Upon Senior Securities   55
Item 4.   Submission of Matters to Vote of Security Holders   55
Item 5.   Other Information   55
Item 6.   Exhibits and Reports on Form 8-K   55
Signature       56

        Certain matters discussed in this Form 10-Q and the information incorporated by reference herein contain "forward-looking statements" for purposes of Section 27A of the Securities Act of 1933, as amended, 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:

        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.

2

PART I—FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements and Notes


THE MILLS CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)

 
   September 30, 2003
(Unaudited)
   December 31, 2002
(Audited)
  
ASSETS              
Income producing property:              
  Land and land improvements   $ 508,370   $ 246,273  
  Building and improvements     1,905,483     995,914  
  Furniture, fixtures and equipment     58,102     54,250  
  Accumulated depreciation and amortization     (329,251 )   (290,461 )
   
 
 
    Net income producing property     2,142,704     1,005,976  

Land held for investment and/or sale
 
 
11,966
 
 
11,531
 
Construction in progress     268,177     103,278  
Real estate assets held for disposition, net     —     61,748  
Investment in unconsolidated joint ventures     700,721     682,723  
   
 
 
    Net real estate and development assets     3,123,568     1,865,256  

Cash and cash equivalents
 
 
17,792
 
 
79,195
 
Restricted cash     39,584     28,600  
Accounts receivable, net     55,443     40,550  
Notes receivable     36,561     23,650  
Deferred costs and other intangibles, net     113,034     93,749  
Other assets     9,392     24,421  
   
 
 
    TOTAL ASSETS   $ 3,395,374   $ 2,155,421  
   
 
 

3

THE MILLS CORPORATION
CONSOLIDATED BALANCE SHEETS (Continued)
(Dollars in thousands)

 
   September 30, 2003
(Unaudited)
   December 31, 2002
(Audited)
  
LIABILITIES AND STOCKHOLDERS' EQUITY
              
Mortgages, notes and loans payable   $ 2,313,415   $ 1,243,062  
Liabilities on real estate held for disposition     —     55,620  
Accounts payable and other liabilities     161,674     105,205  
   
 
 
      2,475,089     1,403,887  
   
 
 

Minority interest, including Series D preferred units
 
 
130,249
 
 
132,261
 
Series A Cumulative Convertible Preferred Stock, par value $0.01, 750,000 shares authorized, issued and outstanding as of September 30, 2003 and December 31, 2002     75,000     75,000  

Series B Cumulative Redeemable Preferred Stock, par value $0.01, 4,300,000 shares authorized, issued and outstanding as of September 30, 2003 and 4,600,000 shares authorized and 4,300,000 shares issued and outstanding as of December 31, 2002
 
 
107,500
 
 
107,500
 
Series C Cumulative Redeemable Preferred Stock, par value $0.01, 3,500,000 shares authorized, issued and outstanding as of September 30, 2003, and 3,450,000 authorized and 3,400,000 issued and outstanding as of
December 31, 2002		     87,500     85,000  
Series E Cumulative Redeemable Preferred Stock, par value $0.01, 6,440,000 shares authorized, issued and outstanding as of September 30, 2003     161,000     —  
Common stock, $0.01 par value, 100,000,000 shares authorized, 45,285,771 and 43,196,297 shares issued and outstanding as of September 30, 2003 and December 31, 2002, respectively     453     432  
Additional paid-in capital     851,518     822,168  
Accumulated deficit     (462,389 )   (450,898 )
Accumulated other comprehensive loss     (20,220 )   (14,353 )
Deferred compensation     (10,326 )   (5,576 )
   
 
 
  Total stockholders' equity     715,036     544,273  
   
 
 
  TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY   $ 3,395,374   $ 2,155,421  
   
 
 

See Accompanying Notes to Consolidated Financial Statements.

4


THE MILLS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, dollars in thousands, except per share data)

 
   Three Months Ended
September 30,
  
 
   2003
   2002
  
REVENUES:              
  Minimum rent   $ 59,554   $ 32,519  
  Percentage rent     930     242  
  Recoveries from tenants     27,134     14,132  
  Other property revenue     5,123     3,734  
  Management fee income from unconsolidated joint ventures     2,748     3,244  
  Other fee income from unconsolidated joint ventures     1,489     1,001  
   
 
 
    Total operating revenues     96,978     54,872  
   
 
 
EXPENSES:              
  Recoverable from tenants     23,977     12,814  
  Other operating     3,836     1,424  
  General and administrative     7,120     3,082  
  Depreciation and amortization     24,180     12,374  
   
 
 
    Total operating expenses     59,113     29,694  
   
 
 
      37,865     25,178  
OTHER INCOME AND EXPENSES:              
  Equity in earnings of unconsolidated joint ventures     4,821     4,910  
  Interest income     3,873     2,141  
  Interest expense     (23,214 )   (12,467 )
  Loss on extinguishment of debt     —     (1,260 )
  Other income (expense)     (1,801 )   (343 )
  Foreign currency exchange gains, net     1,842     —  
   
 
 

INCOME BEFORE GAIN ON SALE OF JOINT VENTURE INTERESTS,
MINORITY INTEREST AND DISCONTINUED OPERATIONS
 
 
23,386
 
 
18,159
 
  Gain on sale of joint venture interests     8,462     —  
   
 
 
INCOME BEFORE MINORITY INTEREST AND DISCONTINUED OPERATIONS     31,848     18,159  
  Minority interest, including Series D preferred unit distributions     (6,409 )   (5,433 )
   
 
 
INCOME FROM CONTINUING OPERATIONS     25,439     12,726  
  Discontinued operations, net of minority interest     —     71  
   
 
 
NET INCOME     25,439     12,797  
  Series B, C and E preferred stock dividends     (7,908 )   —  
   
 
 
INCOME AVAILABLE TO COMMON STOCKHOLDERS   $ 17,531   $ 12,797  
   
 
 
EARNINGS PER COMMON SHARE — BASIC:              
  Income from continuing operations available to common stockholders   $ 0.40   $ 0.33  
  Discontinued operations     —     —  
   
 
 
  Income available to common stockholders per common share   $ 0.40   $ 0.33  
   
 
 
EARNINGS PER COMMON SHARE — DILUTED:              
  Income from continuing operations available to common stockholders   $ 0.39   $ 0.33  
  Discontinued operations     —     —  
   
 
 
  Income available to common stockholders per common share   $ 0.39   $ 0.33  
   
 
 
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:              
  Basic     44,094,565     38,425,345  
   
 
 
  Diluted     45,051,574     39,277,696  
   
 
 
DIVIDENDS PER COMMON SHARE DECLARED   $ 0.5650   $ 0.5475  
   
 
 

See Accompanying Notes to Consolidated Financial Statements

5

THE MILLS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, dollars in thousands, except per share data)

 
   Nine Months Ended
September 30,
  
 
   2003
   2002
  
 
    
   (Restated)

  
REVENUES:              
  Minimum rent   $ 148,118   $ 83,776  
  Percentage rent     1,173     458  
  Recoveries from tenants     71,686     39,239  
  Other property revenue     16,653     10,015  
  Management fee income from unconsolidated joint ventures     9,079     8,614  
  Other fee income from unconsolidated joint ventures     3,769     4,508  
   
 
 
    Total operating revenues     250,478     146,610  
   
 
 
EXPENSES:              
  Recoverable from tenants     62,227     34,414  
  Other operating     8,944     4,168  
  General and administrative     16,256     9,619  
  Depreciation and amortization     57,823     32,380  
   
 
 
    Total operating expenses     145,250     80,581  
   
 
 
      105,228     66,029  

OTHER INCOME AND EXPENSES:
 
 
 
 
 
 
 
  Equity in earnings of unconsolidated joint ventures     15,785     14,257  
  Interest income     8,782     5,631  
  Interest expense     (53,406 )   (35,761 )
  Loss on extinguishment of debt     (550 )   (1,260 )
  Other income (expense)     (2,036 )   1,581  
  Foreign currency exchange gains, net     24,922     6,599  
   
 
 

INCOME BEFORE GAIN ON SALE OF JOINT VENTURE INTERESTS,
MINORITY INTEREST AND DISCONTINUED OPERATIONS
 
 
98,725
 
 
57,076
 
  Gain on sale of joint venture interest     8,462     —  
   
 
 
INCOME BEFORE MINORITY INTEREST AND DISCONTINUED OPERATIONS     107,187     57,076  
  Minority interest, including Series D preferred unit distributions     (23,985 )   (18,736 )
   
 
 
INCOME FROM CONTINUING OPERATIONS     83,202     38,340  
  Discontinued operations, net of minority interest     93     201  
   
 
 
NET INCOME     83,295     38,541  
  Series B, C and E preferred stock dividends     (18,902 )   —  
   
 
 
INCOME AVAILABLE TO COMMON STOCKHOLDERS   $ 64,393   $ 38,541  
   
 
 
EARNINGS PER COMMON SHARE — BASIC:              
  Income from continuing operations available to common stockholders   $ 1.47   $ 1.12  
  Discontinued operations     —     0.01  
   
 
 
  Income available to common stockholders per common share   $ 1.47   $ 1.13  
   
 
 
EARNINGS PER COMMON SHARE — DILUTED:              
  Income from continuing operations available to common stockholders   $ 1.45   $ 1.10  
  Discontinued operations     —     0.01  
   
 
 
Income available to common stockholders per common share   $ 1.45   $ 1.11  
   
 
 
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:              
  Basic     43,541,003     34,112,472  
   
 
 
  Diluted     44,403,334     34,972,879  
   
 
 
DIVIDENDS PER COMMON SHARE DECLARED   $ 1.695   $ 1.643  
   
 
 

See Accompanying Notes to Consolidated Financial Statements

6


THE MILLS CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
(Dollars in thousands)

 
    
   COMMON STOCK
    
    
   ACCUMULATED
OTHER
COMPREHENSIVE
LOSS
    
    
    
  
 
   PREFERRED
STOCK
   ADDITIONAL
PAID IN
CAPITAL
   ACCUMULATED
DEFICIT
   DEFERRED
COMPENSATION
    
   TOTAL
COMPREHENSIVE
INCOME
  
 
   SHARES
   AMOUNT
   TOTAL
  
Balances, December 31, 2002 (audited)   $ 192,500   43,196,297   $ 432   $ 822,168   $ (450,898 ) $ (14,353 ) $ (5,576 ) $ 544,273   $ —  
Restricted stock incentive program     —   315,613     3     6,824     —     —     (6,827 )   —     —  
Amortization of restricted stock incentive program     —   —     —     —     —     —     2,077     2,077     —  
Exercise of stock options     —   800,040     8     22,339     —     —     —     22,347     —  
Sale of Series C preferred stock     2,500   —     —     (150 )   —     —     —     2,350     —  
Sale of Series E preferred stock     161,000   —     —     (5,446 )   —     —     —     155,554     —  
Units exchanged for common stock     —   973,821     10     9,066     —     —     —     9,076     —  
Change in fair value of cash flow hedges     —   —     —     —     —     (5,867 )   —     (5,867 )   (5,867 )
Dividends declared, common stock     —   —     —     —     (75,884 )   —     —     (75,884 )   —  
Dividends declared, Series B, C and E preferred stock     —   —     —     —     (18,902 )   —     —     (18,902 )   —  
Adjustment to minority interest     —   —     —     (3,283 )   —     —     —     (3,283 )   —  
Net income     —   —     —     —     83,295     —     —     83,295     83,295  
   
 
 
 
 
 
 
 
 
 
Balances, September 30, 2003 (unaudited)   $ 356,000   45,285,771   $ 453   $ 851,518   $ (462,389 ) $ (20,220 ) $ (10,326 ) $ 715,036   $ 77,428  
   
 
 
 
 
 
 
 
 
 


See Accompanying Notes to Consolidated Financial Statements.

7


THE MILLS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, dollars in thousands)

 
   Nine Months Ended
September 30,
  
 
   2003
   2002
  
 
    
   (Restated)

  
CASH FLOWS FROM OPERATING ACTIVITIES:              
Net income   $ 83,295   $ 38,541  
Adjustments to reconcile net income to net cash provided by operating activities:              
  Minority interest including Series D preferred unit distributions     24,020     18,833  
  Net accretion of notes receivable     (578 )   (275 )
  Depreciation and amortization     57,823     32,380  
  Depreciation and amortization from discontinued operations     286     859  
  Amortization of finance costs     5,528     3,856  
  Abandoned project costs     1,929     1,051  
  Provision for losses on accounts receivable     1,477     334  
  Equity in earnings of unconsolidated joint ventures     (15,785 )   (14,257 )
  Amortization of restricted stock incentive program     2,077