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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

For the fiscal year ended December 31, 2001

or

For the transition period from                              to                             

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

        As of March 25, 2002 the aggregate market value of the 30,490,933 shares of common stock held by non-affiliates of the registrant was $845,818,481 based upon the closing price ($27.74) 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; such exclusion shall not be deemed to constitute an admission that any such person is an "affiliate" of the registrant.) As of March 25, 2002, there were 30,490,933 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 2002 are incorporated by reference into Part III.

THE MILLS CORPORATION

Annual Report on Form 10-K
December 31, 2001

TABLE OF CONTENTS

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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 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 the general economic climate; the supply and demand for retail properties; interest rate levels; the availability to the Company of financing for its development projects; and other 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 the Company 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, as well as those risks described in the section entitled "Risk Factors" beginning on page 19 of this Form 10-K.

        The Company undertakes 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.

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, acquire, expand and manage a portfolio currently consisting of 12 super-regional, retail and entertainment-oriented centers (the "Mills"), two community shopping centers (the "Community Centers"), one urban entertainment/retail project (the "Block"), a portfolio of 46 single tenant net lease properties subject to net leases that operate as CVS pharmacies ("Net Lease Properties") and other related commercial development. We are a fully-integrated, self-managed real estate investment trust (a "REIT") with approximately 1,357 employees as of December 31, 2001 and provide all development, redevelopment, leasing, financing, management and marketing services with respect to all properties currently in operation. The Mills, Block and Community Centers comprise the primary focus of our operations, with approximately 18.3 million square feet of gross leaseable area ("GLA") in eleven 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 a publicly traded company on April 21, 1994. We have authorized 150,000,000 shares of common stock, par value $0.01 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, 2001, there were 28,782,255 shares of common stock outstanding including 319,329 shares of common stock issued to the Operating Partnership and held in escrow to secure specific obligations pursuant to a settlement agreement entered into with Chelsea GCA Realty Partnership, L.P. and Simon Property Group, L.P. in October 1998. (The escrowed shares have been released in conjunction with the final payment made in

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January 2002.) Additionally, there were 750,000 shares of series A cumulative convertible preferred stock outstanding. We are the sole general partner of the Operating Partnership and currently own 62.89% 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). Each partnership unit of the Operating Partnership (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 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 holds, directly or indirectly, 100% of the equity interests in the entities that own Potomac Mills, Franklin Mills, Sawgrass Mills (Phases I and II and as of October, 2001, The Oasis at Sawgrass), Gurnee Mills, Liberty Plaza, Concord Mills Marketplace and the 46 Net Lease Properties. The Operating Partnership also owns, directly or indirectly, an equity interest in the joint venture entity that owns Arizona Mills and varying partnership interests in the joint venture entities that own Ontario Mills, Grapevine Mills, The Block at Orange, Concord Mills, Katy Mills, Opry Mills, Arundel Mills and Discover Mills. Our partnership interests in the joint venture entities give us the right, among others, to receive, after preferential payments on unreturned capital contributions generally, a percentage of net operating cash flow generated by a particular property and a percentage of net proceeds following the occurrence of a major capital event, such as the sale of the real property or the project or the receipt of proceeds arising from condemnation of the project. For a description of our partnership interests for existing properties generally, see "Item 2. Properties—Description of Existing Properties." The Operating Partnership has formed other joint ventures to develop additional properties. We have similar partnership interests under these joint venture agreements and we anticipate that we will have similar partnership interests under future joint venture agreements. For a description of our partnership interests for properties under development, see "—Mills Under Construction—Development Pipeline."

        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 wholly-owned projects, and (ii) MillsServices Corp. ("MSC"), which provides leasing and management services to our joint venture projects and provides development services for our properties and new properties acquired by us. The Operating Partnership owns 100% of the interests in Management Associates Limited Partnership and 100% of the voting common stock of MSC. Prior to August 2001, the Operating Partnership owned 5% of the voting common stock and 99% of the non-voting preferred stock of MSC. Through its ownership of 99% of MSC's non-voting preferred stock, the Operating Partnership had the perpetual right to receive 99% of the economic benefits (i.e. cash flows) generated by MSC's operations. The Company provides all of the operating capital of MSC. The two individuals who had contributed nominal amounts of equity of MSC for 95% of MSC's voting common shares and 1% of MSC's preferred stock, were officers and directors of both MSC and the Company. These two individuals' interests were aligned with the interests of the Company's management. Also, all of MSC's Board members were also Board members of the Company. All of these factors resulted in the Company having a controlling financial interest in MSC, and accordingly, the operations of MSC were consolidated by the Company prior to August 2001. In August 2001, the Operating Partnership acquired 95% of MSC's voting common stock and 1% of MSC's non-voting preferred stock that it did not then own for fair market value, totaling $170,000.

        MSC also owns 100% of Mills Enterprises, Inc. ("MEI"), an entity that holds investments in retail joint ventures, such as its investment in 60% of FoodBrand L.L.C., the Company's food and beverage entity that was created in 1999 to master lease, manage and operate food courts and restaurants at the Company's malls. FoodBrand has existing operations at Katy Mills, Opry Mills, Arundel Mills and Discover Mills and will have operations at our future projects under development.

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        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. The information on our web site is not, and should not be considered to be a part of this Form 10-K.

Our Portfolio

        The following table sets forth a summary of our operating properties as of December 31, 2001:

(1)

Presents the gross leaseable area ("GLA") of each of our operating properties. GLA includes 972,249 square feet of gross leaseable area owned by certain store tenants located as follows: Potomac Mills-80,000 square feet; Franklin Mills-209,612 square feet; Concord Mills Marketplace-11,316 square feet; Sawgrass Mills-281,774 square feet; Gurnee Mills-250,806 square feet; Ontario Mills-125,000 square feet; and Liberty Plaza-13,741 square feet. A ground lease at Franklin Mills of 152,370 square feet and a ground lease at Grapevine Mills of 177,063 square feet are also included.

(2)

An anchor store is a store that occupies at least 20,000 square feet.

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        The following is a brief description of the two types of real estate projects in our portfolio:

        Mills.    Mills are the primary focus of our operations. A typical Mills contains 175 to 200 specialty tenants and 12 to 22 anchor tenants, and averages approximately 1.4 million square feet of gross leaseable 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. The following list is representative of our tenants:

        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 or greater and a market with steady tourist appeal. The prototypical physical layout is a "race track" format of stores on one level with ample non-decked parking. We believe shoppers of Mills can generally be characterized as follows:

•

shoppers residing within a 10-15 mile radius of a Mills that use the Mills as their local regional mall equivalent;



•

shoppers residing within a 15-40 mile radius of a Mills that travel beyond other retail offerings to access the breadth and uniqueness of the Mills tenant mix; and



•

shoppers and tourists traveling from various distances as part of a planned shopping experience.

        Other Retail Formats.    We are continuing to explore the feasibility of alternative retail formats that will serve the unique needs of target markets such as major university towns, dense suburban areas and large city centers. 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 Skate Park, and a clothing/shoe store. The Company's continues to strengthen its position in the retail development industry leveraging the Mills concept with a powerful blend of shopping, entertainment, dining and recreation. We are creating synergies with the optimum retail concepts including office, hotel and convention facilities into our Meadowlands Mills project.

        In 2001, Mills began construction on its first European venture Madrid Xanadu. This new full-price retail format will contain the largest retailer in Spain, El Corte Ingles, (an anchor tenant, with

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350,000 square feet of department store space), and will have as its centerpiece the Snow Dome which will consist of a 17-story indoor ski and snowboarding slope, the first of its kind in Spain.

        In addition to opening the Discover Mills in November of 2001 the Company negotiated its first naming rights deal with Discover Financial Services. Under the ten-year, multi-million dollar agreement, the Discover Card is the preferred method of payment at Discover Mills with special incentives and benefits for cardholders. This deal creates business synergies that will generate incremental revenue and leverage the Company's branding and marketing positioning for the next ten years.

Competitive Advantages

        All Mills are located in areas which have other shopping centers and retail facilities. The amount of rentable retail space in the vicinity of a Mills could have an effect on the amount of rent we charge and on our ability to rent vacant space and/or renew leases of the Mills. In addition, Mills compete with numerous shopping alternatives as retailers themselves face increasing competition from discount shopping centers, outlet malls, discount shopping clubs, direct mail, internet sales and telemarketing. However, we believe that the Mills have a number of inherent competitive advantages over other retail formats in operation today, and that these advantages have resulted in 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 over 175 stores and 1.4 million square feet of gross leaseable 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 that people are attracted to our distinctive mix of tenants, which mix includes 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 in operation during 2001 are among the top tourist destinations in their respective states. On average, each of our Mills projects attract 18 million visitors per year and each of our Mills projects are 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 the Mills is the only retail shopping experience that is differentiated by its product type 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 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 maintenance costs are a result of several factors, including:

•

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



•

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

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•

Larger tenant base: Mills' significant specialty store tenant square footage results 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 flexibility makes it easier for us to make room for new and 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.

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MILLS UNDER CONSTRUCTION

Development Pipeline

        Projects Under Construction.    We currently have two projects under construction, comprising approximately 2.4 million square feet of new gross leaseable area. Estimated total development cost for these projects is approximately $391 million. The estimated development costs will be funded through construction financing proceeds and joint venture partner and our equity contributions. The following table sets forth certain information with regard to these projects:

(1)

Anticipated opening dates and approximate gross leaseable area may be subject to adjustment as a result of factors inherent in the development process, some of which may not be under the direct control of the Company.

(2)

Approximate GLA includes space that may be owned by anchor store tenants.

(3)

Denominated in euros.

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

        Colorado Mills—Lakewood, Colorado. The Colorado Mills project is being constructed on a 130-acre site located in Lakewood, Colorado, ten miles west of downtown Denver. The project is expected to be 1.2 million square feet. We have commitments from anchor tenants such as Off 5^th — Saks Fifth Avenue, Neiman Marcus—Last Call, Target, United Artists, Eddie Bauer, Garts Sports, and Off Broadway Shoes. The Operating Partnership, through Mills-Kan Am Colorado Limited Partnership, has formed a joint venture with Stevinson Partnership, Ltd. and Greg C. Stevinson (together, "Stevinson"), to be known as Colorado Mills Limited Partnership, to develop the Colorado Mills project. On April 11, 2001, Stevinson contributed its interest in the Colorado site to Colorado Mills Limited Partnership. Mills-Kan Am Colorado Limited Partnership, which holds a 75% equity interest in Colorado Mills Limited Partnership, is fully obligated to fund all cash equity requirements for the development of Colorado Mills and will receive a 9% cumulative preferred return on the first $42.7 million of its equity contributions and a 12% cumulative preferred return on any additional equity contributions. Stevinson, which holds a 25% equity interest in Colorado Mills Limited Partnership, will receive capital account credit for the negotiated value of the land contributed, and will receive a 9% cumulative preferred return on its capital account credit. Any remaining cash flow will be distributed pro rata in accordance with ownership interest.

        Mills-Kan Am Colorado Limited Partnership, through which the Operating Partnership will develop and operate its interest in the Colorado Mills project, is a joint venture formed with Kan Am pursuant to which Kan Am and the Operating Partnership each is required to fund 50% of the total equity required to develop the Colorado Mills project. The project's equity requirement is $51 million, of which we had funded approximately $16.8 million of our required equity as of December 31, 2001. Kan Am's invested capital in this project as of December 31, 2001 was $25.5 million.

        Under the terms of the joint venture agreement with Kan Am, Kan Am and the Operating Partnership each 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 the Operating Partnership and 25% to Kan Am. The Operating Partnership will guarantee Kan Am's and Stevinson's portion of construction debt

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and Kan Am's preference until qualified permanent financing is secured for the project, except that the amount of preference guaranteed by the Operating Partnership will be reduced to 9% following the substantial completion and opening of the project. Proceeds from a major capital event, such as the sale of the real property or the project or the receipt of proceeds arising from condemnation of the project, 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, an affiliate of the Operating Partnership will receive an asset management fee equal to 0.5% of the capital contributions made by Mills-Kan Am Colorado Limited Partnership to Colorado Mills Limited Partnership, but not to exceed $0.3 million per year.

        At specified times following the fifth anniversary of the project's opening or, if earlier, upon a change in control of the Company, either the Operating Partnership or Kan Am can exercise a buy-sell right. Pursuant to the buy-sell provision, the Operating Partnership can require Kan Am to sell to the Operating Partnership for cash or limited partnership units of the Operating Partnership, 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 the Operating Partnership to acquire for cash or limited partnership units of the Operating Partnership, at the Operating Partnership's election, Kan Am's entire interest in the joint venture entity. Only Kan Am may invoke the buy-sell right in the event of a change in control of the Company. Colorado Mills is targeted to open in the fall of 2002.

        Madrid Xanadu—Madrid, Spain. In August 2001, Mills Global II, LLC (our affiliate) entered into a joint venture agreement with Parecelatoria De Gonzalo Chacon, S.A. ("PGC"), pursuant to which the parties agreed to establish a joint ventures for the purpose of developing a retail and entertainment center and a joint venture to develop a snow dome indoor skiing facility on the site. The Madrid Xanadu project is being constructed on an 85-acre site located in the Municipality of Arroyomolinos, within the Communidad of Madrid and it will be in excess of one million square feet of gross leaseable area. This project will be anchored by a 350,000 square foot combination department store and hypermarket owned and operated by El Corte Ingles, the largest retailer in Spain. The project will also feature over 200 specialty retailers, including Sweden's Hennes and Mauritz, Italy's Benetton, and Spain's Zara which have already committed to the project. PGC as the landowner contributed the land to the joint venture, and Mills will contribute the capital in the form of equity to the retail joint venture. The retail joint venture will then contribute the U.S. dollar equivalent of 14 million British pounds in the form of a repayable tenant allowance loan and equity to the snow dome joint venture. Mills would own two-thirds of the retail joint venture and one-third of the snow dome joint venture. Mills would receive a 9% preference for its equity contributed to the retail joint venture, and the retail joint venture will receive 9% interest on the snow dome loan. The repayment of the snow dome loan would be secured by 75% of cash flow distributable to PGC from the retail joint venture and PGC will receive no distributions from sale or refinancing of the retail center until the snow dome loan is repaid. All public approvals necessary to commence construction were received and construction has commenced. Madrid Xanadu is targeted to open spring 2003. As of December 31, 2001, we had invested $28.1 million, including capitalized interest and overhead. Until certain conditions specified in the joint venture agreement have been satisfied (which includes the execution of certain additional agreements with El Corte Ingles), PGC has the right to purchase the company's interest in the joint venture at a price equal to its third party cost, plus any additional capital paid into the venture. The Company believes that these conditions will be satisfied by May 31, 2002, but can give no assurance that the conditions will be satisfied by that date.

        Projects Under Development.    In addition to the two projects currently under construction, we are also actively pursuing other prospective projects. These projects are in various levels of the due diligence stage 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 investment due diligence process and have

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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:

        St. Louis Mills—St. Louis, Missouri. In July 2001, we acquired a 200-acre site in Hazelwood, Missouri, for development of St. Louis Mills. We are in the process of forming a joint venture with Kan Am to contribute one-half of the project's estimated equity to develop the site. The site is located at the northwest quadrant of State Highway 370 and Missouri Bottom Road, approximately 16 miles from St. Louis and has all required entitlements. Some site work has already been completed. As of December 31, 2001, we had invested $39.8 million including capitalized interest and overhead. We anticipate commencement of construction in spring 2002 and an opening between fall 2003 and spring 2004.

        Vaughan Mills—Toronto, Ontario. In February 1998, we secured a site for the development of Vaughan Mills, the first Mills project to be developed in Canada. 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. The project will be developed jointly by an affiliate of the Operating Partnership and by Cambridge Shopping Centres II Limited, as tenants in common. We anticipate that our final equity requirement for Vaughan Mills may exceed $30 million. As of Deember 31, 2001 we have funded approximately $40.1 million, including capitalized interest and overhead. We anticipate opening Vaughan Mills between fall 2003 and spring 2004.

        Meadowlands Mills—Carlstadt, New Jersey. We have acquired a mortgage interest in a 592-acre site located on the New Jersey turnpike (I-95) adjacent to Meadowlands Sports Complex and approximately five miles from New York City. Commencement of construction is contingent upon the completion of an ongoing Environmental Impact Statement and the federal/state permitting process. A Special Area Management Plan ("SAMP") for the Meadowlands area was published in the Federal Register on April 22, 1999. On July 20, 2000, the U.S. Army Corp of Engineers announced that it had completed the Draft Environmental Impact Statement on our Section 404 Fill Permit and the period for public comment closed in October 2000. In December 2001, the U.S. Army Corp of Engineers circulated its Draft Final Environmental Impact Statement to cooperating federal agencies and closed the comment period at the end of January 2002. Completion of the Final Environmental Impact Statement is the last step before the U.S. Army Corp of Engineers issues its decision on whether to issue a wetlands fill permit.

        The Acting Governor of New Jersey requested in March 2001 that we withdraw our permit applications for the existing site and consider an alternate site in Bergen County. While we refused this request, we engaged in conversations with State officials considering a redevelopment of the Meadowlands Sports Complex, to consider whether an acceptable alternate site might be defined for our project. Significant support for this conceptual move has emerged in business, labor and environmental circles, and we have engaged in further discussions with the State of New Jersey to consider the future of the Meadowlands Sports Complex including recent conversations with the new administration of Governor McGreevey.

        The mixed-use development will consist of 2.0 million square feet of gross leaseable area for Meadowlands Mills, plus office and hotel space. The project would be developed on an entitled site of 90.5 acres, plus roads and retention facilities. Upon procurement of all necessary entitlements, it is anticipated that the project will be developed by Meadowlands Mills Limited Partnership, a joint venture entity in which each of the Operating Partnership, Kan Am, Empire Ltd. and Bennett S. Lazare will hold an interest. Currently, the Operating Partnership and Kan Am are the sole partners in Meadowlands Mills Limited Partnership. Our equity requirement has not yet been determined. As of December 31, 2001, we had invested $72.7 million, which includes capitalized interest and overhead. Of

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the amount we have invested, $32.2 million is our equity contribution and the balance is an advance to Meadowlands Mills Limited Partnership. Kan Am's invested capital in the project was $24.0 million as of December 31, 2001.

        The joint venture 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, 2003. The Operating Partnership 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, the Operating Partnership's construction period preference will be subordinated to Kan Am's construction period preference. Additionally, payment of the Operating Partnership's 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.

        The Operating Partnership currently guarantees Kan Am's preference. Beginning on the "Project Commencement Date," which is the date on which certain material contingencies have been satisfied, the Company will guarantee the return of Kan Am's capital contribution upon exercise of its redemption right, and which may occur prior to securing the construction loan. The Operating Partnership will guaranty Kan Am's portion of construction debt when a construction loan is obtained. The Operating Partnership's guaranty of Kan Am's preference and Kan Am's portion of construction debt will continue until qualified permanent financing is secured for the project. As of December 31, 2001, Kan Am's unpaid preference was $0.5 million.

        At specified times following the tenth anniversary of the project's opening, either the Operating Partnership or Kan Am can exercise a buy-sell provision. Pursuant to the buy-sell provision, the Operating Partnership can require Kan Am to sell to the Operating Partnership 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 the Operating Partnership to acquire for cash or limited partnership units of the Operating Partnership, at the Operating Partnership's election, Kan Am's entire interest in the partnership.

        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, in order to develop a full-price mixed-use office, retail, entertainment and recreation project. These negotiations have begun and 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; Boston, Massachusetts; San Francisco, CA and Tampa, Florida. We continue to evaluate various prospective international sites, in addition to other domestic sites for Mills-type and other retail oriented 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 expect to grow this aspect of our business significantly during the next few years, subject to tax law limitations applicable to REITs.

        Investing in Retail and Entertainment Concepts. Historically, many new retail and entertainment concepts have been developed at the Mills. A recent example is FoodBrand, an entity which was created in 1999 to master lease, manage and operate food courts and restaurants at our malls and that until October 2001 was owned 100% by MEI. In October 2001, we added a new partner, the Panda Restaurant Group, one of the nation's largest restaurant companies. Initial operations in 1999 existed at Katy Mills and in 2000 the operations were expanded into Opry Mills and Arundel Mills and Discover Mills operations were added when the mall opened in November 2001. Other opportunities

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for expansion and growth exist at future projects under development. We believe we have additional opportunities for investment in our own development pipeline where we view the risk of food court operations as similar to our real estate developments but where we expect to earn superior returns.

Capital Strategies

        To fund our capital needs, we have generally utilized project specific secured financing, joint venture equity contributions, cash flow from operations, our $75 million revolving loan and the issuance of preferred and/or common equity. 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 utilized:

        Development Financing. A typical Mills project 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 levels of pre-leasing. 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 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." 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 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.

        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 revolving loan and proceeds from any corporate debt or equity offerings.

        Permanent Financing. After a new 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 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 have generally achieved investment grade ratings on the entire refinanced balance. The refinancings of

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Ontario Mills, Grapevine Mills and Arizona Mills are examples of projects that are encumbered by permanent investment grade securitized mortgage loans. As of December 31, 2001, our indebtedness had a weighted average maturity of 5.83 years and a weighted average interest rate of 6.81%, 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.

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 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 U.S. real estate funds which currently manages about $700 million in equity for approximately 5,500 German investors. Over the last five years, Kan Am has invested approximately $330 million in equity in various projects with us. To date, Kan Am has never failed to raise the agreed upon level of capital.

        In addition to its existing investments at the property level, as of December 31, 2001, Kan Am owns approximately 30.7% of the partnership units of the Operating Partnership. Each unit 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. Directors and executive officers of Kan Am hold three seats on our Board of Directors.

        We are in the process of finalizing documentation with Kan Am pursuant to which Kan Am will commit during 2002 to contribute up to $50 million for investment in qualifying development projects. Kan Am's contribution commitment will be satisfied by entering into joint venture agreements with us relating to individual projects. It is contemplated that the terms of these joint venture agreements with Kan Am will be substantially similar to the terms of the joint venture agreement for the Colorado Mills project, which terms are described under "—Development Pipeline- Projects Under Construction," although the terms of individual projects may differ from the terms for the Colorado Mills project. We will not be obligated to offer Kan Am the opportunity to participate in development projects on these terms.

        We also are in the process of finalizing a waiver of the "Ownership Limit" established in our Amended and Restated Certificate of Incorporation as to Kan Am and its affiliates, subject to limitations established in our Amended and Restated Certificate of Incorporation to preserve our REIT status. This waiver, which is contingent on Kan Am and us entering into a definitive agreement relating to Kan Am's commitment to contribute additional funds for development projects as described above, also will apply to the initial transferees of Kan Am and its affiliates, subject to continued compliance by Kan Am with its contribution obligations, 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 restrictions relating to preservation of our REIT status.

        There can be no assurance that we will enter into a definitive agreement on the terms outlined above or at all. Additionally, Kan Am's contribution commitment obligation would be contingent on our ability to offer to Kan Am qualifying development projects that satisfy the criteria described in the contribution documentation. Many of the criteria are dependent upon factors that are not within our control, and therefore we cannot assure you that we will be able to make offers to Kan Am of projects that would require Kan Am to make contributions.

        As of December 31, 2001, Kan Am has property level investments in seven existing projects, Ontario Mills, Grapevine Mills, The Block at Orange, Concord Mills, Katy Mills, Arundel Mills and

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Discover Mills. In addition, Kan Am is participating with us in our efforts to develop the Meadowlands Mills site near Carlstadt, New Jersey and to construct Colorado Mills to be located near Denver, Colorado. Currently, we are in the process of forming a joint venture with Kan Am for the development of St. Louis Mills.

        Cambridge Shopping Centres Limited. In October 1999, we entered into a Master Agreement with Cambridge Shopping Centres Limited ("Cambridge") pursuant to which we agreed to examine with Cambridge the feasibility of jointly acquiring, owning, developing, constructing and operating one or more Mills projects 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 Cambridge have jointly acquired the site in Vaughan, Ontario and are examining the feasibility of several other locations. The agreement generally provides that when 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 project 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 project within a fifty mile radius of any project developed by the parties, and from developing any project having a gross leaseable area 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.

        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. Since entering into this agreement, we have jointly, with Simon Property, developed Ontario Mills in Ontario, California; Grapevine Mills in Grapevine, Texas; Arizona Mills in Phoenix, Arizona; Concord Mills in Charlotte, North Carolina; and Arundel Mills in Anne Arundel County, Maryland. The agreement generally provides that if 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 a Mills-type project unless it first offers to us the right to participate equally in the 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, acquiring representation on our Board of Directors 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 (partner in our joint venture that developed Arizona Mills) to jointly develop four Mills projects during the initial five-year period of the term and a total of seven Mills 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 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.

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

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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 101,000 square feet of specialty space and 93,000 of anchor space over the last five years, adding tenants such as Van's Skate Park, Brooks Brothers, Hush Puppies, Jones New York, Oshkosh B'Gosh, Pacific Sunwear, Polo Ralph Lauren Factory Store, Samsonite, Bath & Body Works, Bebe, Aeropostale, Tommy Hillfiger, and Banana Republic. In 2001, we released approximately 38,000 square feet of specialty space with tenants such as Liz Claiborne, Timberland and Chico's. Average specialty store sales at Potomac Mills rose approximately 13% from 1996 to 2001.



•

At Franklin Mills, we upgraded our tenant mix by adding approximately 175,000 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, Oshkosh B'Gosh and Bebe. In 2001, we re-leased approximately 20,000 square feet of anchor space to Liz Claiborne and 33,000 square feet of specialty space to tenants such as Banana Republic Factory Store, and Sketchers USA. Average specialty store sales at Franklin Mills rose approximately 22% from 1996 to 2001.



•

At Gurnee Mills, we have re-tenanted 40,000 square feet with upscale fashion tenants such as The GAP Outlet, Abercrombie & Fitch, Nautica, Chico's, and The Limited Too and added a 125,000 square foot Bass Pro Shops Outdoor World. In 2001, we re-leased 40,000 square feet of anchor space to Circuit City. Average specialty store sales at Gurnee Mills rose approximately 16% from 1996 to 2001.



•

At Ontario Mills, during 2001, we re-leased 45,000 square feet of anchor space to Nike and Off Broadway Shoes. Average specialty store sales at Ontario Mills rose approximately 11% from 1997 to 2001.

        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 a high degree of tenant retention. During 2001, for example, 80% of the expiring specialty store gross leaseable 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 step increases and their percentage rent provisions.

        Anchor leases, which generally represent approximately 60% of the gross leaseable 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, 2001, the weighted average lease maturity for our existing portfolio of leases was 7.5 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.

        We promote our Mills to consumers by spending $1.0 million to $1.5 million annually per Mills on advertising aimed at consumers. Our success in this program is evidenced by the following:

•

On average, 18 million people visit each Mills, ranking each Mills as a top tourist attraction in its respective state;

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•

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. 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 $144.6 million in renovation and expansion projects in our assets from 1996 to 2001.

Development Strategy

        Proven Track Record. Since our initial public offering in April 1994, we have developed and opened eight new Mills projects and one new Block project, adding a total of approximately 11 million square feet of new gross leaseable area to our portfolio at a total cost of approximately $1.9 billion. Each of these projects was completed in a timely fashion and on budget, with strong occupancy levels as outlined below:

(1)

Occupancy is percentage of gross leaseable area subject to fully executed leases.

        Disciplined Approach. We intend to complete one to two 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 work, 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 typically 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 obtain 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 obtained.

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•

Financing: We maintain a relationship with a network of 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 rent is 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, although this impact is largely mitigated by recognizing minimum rent on a straight-line basis over the term of related leases in accordance with GAAP.

        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.

        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.

        Insurance. The tragic events of September 11^th have resulted in an increase in insurance and security costs which are anticipated to be absorbed by the Company's tenants with only a modest impact on common area maintenance costs at each property. Insurance providers have reduced coverage for terrorist attacks from full coverage to a $100 million per incident maximum, which reduction could impact the loan underwriting process for the Company's future construction loans and the refinancing of the Company's existing debt. There is a possibility that the Federal government may provide assistance to companies that can no longer can obtain full coverage insurance for terrorist attacks. The Company has not yet assessed what the impact of a reduction of such coverage will be on the Company as a whole. Except in connection with terrorist attacks, management believes that all of our properties are adequately covered by insurance.

Tax Status

        We conduct our operations in a way intended to qualify us as a REIT under the Internal Revenue Code of 1986 (the "Code"). As a REIT, we generally will not be subject to federal and state income taxes on our net taxable income that we currently distribute to stockholders. Qualification and taxation as a REIT depends on our ability to meet certain dividend distribution tests, share ownership requirements and various qualification tests prescribed in the Code.

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RISK FACTORS

        Described below are risks that we believe are material to our shareholders and to potential investors. You should consider carefully the following material risks together with the other information contained in and incorporated by reference in this Form 10-K, and the descriptions included in the Company's Consolidated Financial Statements and accompanying notes, before making a decision to invest in our capital stock.

RISKS ASSOCIATED WITH OUR CAPITAL STOCK

        You may be subject to adverse consequences if you attempt to acquire shares in excess of 9.225% of our capital stock.

        For us to qualify as a REIT, ownership of our capital stock, directly or by virtue of the applicable attribution provisions of the Internal Revenue Code, by any person or persons acting as a group is limited to 9.225% of our outstanding capital stock. Any transfer that would cause you to violate this 9.225% ownership limit will result in the immediate conversion of the excess shares into shares of "excess stock" that are non-voting and that may not participate in distributions (except for distributions in a liquidation of our company). The shares of excess stock would be immediately transferred to us as trustee of a trust for the exclusive benefit of beneficiaries that you may designate, subject to our right to purchase the shares for fair consideration.

        You may be subject to adverse consequences if you are not a U.S. person and you attempt to acquire shares of our capital stock.

        Provisions in our certificate of incorporation are designed to ensure that we maintain our status as a REIT by rendering void transfers of our shares that will jeopardize our status as a REIT and by eliminating rights of the shares of transferred stock. Under these provisions, if you are not a U.S. person and you acquire shares of our capital stock, if your acquisition causes less than 50% of our capital stock to be owned by U.S. persons, the shares that you acquire may convert immediately into shares of excess stock that will be non-voting and that may not participate in distributions (except for distributions in a liquidation of our company). The shares of excess stock would be immediately transferred to us as trustee of a trust for the exclusive benefit of beneficiaries that you may designate, subject to our right to purchase the shares for fair consideration.

        The price of our common stock is subject to many factors, some of which are not in our control.

        The price of our common stock in the public markets may be adversely affected by a number of factors, many of which are beyond our control. These factors include:

•

possible increases in market interest rates, which may lead to higher borrowing costs for the Company and lead purchasers of common stock to demand a higher annual return from our stock relative to other investments;



•

the relatively low daily trading volume of REITs in general, including our common stock; and



•

our ability to invest the proceeds of offerings of securities in a manner that will increase earnings per share.

        Any adverse effect on the market price of our common stock would materially adversely affect the value of your investment in our common stock. Additionally, a significant decrease in the market price of our common stock would make it more difficult for us to raise funds through future offerings of our common stock.

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        We may issue a large number of shares of our common stock. Future sales of these shares could adversely affect the value of your investment in our common stock.

        We may issue shares of common stock upon redemption of outstanding units of Mills LP issued at various times, including in connection with our formation and our initial public offering in 1994, and our subsequent acquisition of assets at various times. We have issued, and may be obligated to issue in the future, a substantial number of units of Mills LP to our joint venture partners in connection with their capital contributions to our joint venture projects, and to other persons or entities that contribute to our joint venture projects. These units of Mills LP are, and upon issuance, will be exchangeable for shares of our common stock. In addition, as of February 25, 2002, we have granted or authorized to be granted options to purchase 3,249,502 shares of common stock, taking into account options exercised and options forfeited upon employment termination, and we have authorized to be granted but have not issued 413,565 shares of restricted stock to a number of our directors, officers and employees. The issuance or sale of a substantial number of shares of common stock, or the perception that those sales could occur, could adversely affect prevailing market prices for shares. We cannot predict what effect future issuances and sales of common stock will have on the market prices of shares.

        Distributions to holders of our common stock are junior in right of payment to dividends on our preferred stock and our other liabilities.

        Mills LP's ability to make distributions to us depends on its subsidiaries' and joint ventures' ability first to satisfy their obligations to their creditors and then to make distributions to Mills LP. Similarly, our ability to make distributions to our stockholders depends on Mills LP's ability first to satisfy its obligations to its creditors and then to make distributions to us. In the event of a bankruptcy, liquidation or reorganization or similar proceeding relating to any of our subsidiaries or joint ventures, holders of their indebtedness and their creditors will generally be entitled to payment of their claims from the assets of those subsidiaries and joint ventures before any assets are made available for distribution to us. In every case, the holders of our common stock, and all other equity securities junior in right as to dividends and liquidating distributions to our series A cumulative convertible preferred stock, par value $.01 per share, will have the right to participate in any distribution of our assets only after the claims of our creditors and holders of our series A preferred stock are satisfied. The certificate of designations governing our series A preferred stock prohibits us from making dividend payments, distributions and all other payments to holders of our common stock and all other equity securities junior in right to our series A preferred stock, unless we have paid all accrued dividends on our series A preferred stock or set apart funds for payment of the dividends due to holders of our series A preferred stock.

RISKS ASSOCIATED WITH OUR COMPANY

        New accounting pronouncements and regulations could have an impact on our future earnings and funds from operations.

        We are required to implement new accounting pronouncements and regulations applicable to our business when issued by the Financial Accounting Standards Board, the Commission and other regulatory organizations within the accounting profession. Currently there are three pronouncements being considered that impact the real estate industry. The first proposal, "Accounting for Investments in Real Estate Ventures," contemplates a change in the method of calculating equity in earnings of unconsolidated joint ventures. The second proposal, "Accounting for Certain Costs and Activities Related to Property, Plant and Equipment," would eliminate the capitalization of various development costs and would require depreciation of different asset components based upon each of their lives.

        The third proposal is to eliminate the extraordinary classification requirement for debt extinguishments through a rescission of FASB Statement No. 4, "Reporting Gains and Losses From Extinguishment of Debt," which would require the Company to classify costs incurred to refinance debt

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obligations as ordinary operations rather than as an extraordinary item beginning January 1, 2003. Additionally, this proposal will require a similar reclassification of prior period amounts when comparative amounts are disclosed subsequent to adoption by the Company. Adoption of this proposal would not affect our reported earnings, but would reduce our reported funds from operations. For the year ended December 31, 2001, we reported as $16.6 million in extraordinary losses from extinguishment of debt.

        All proposals are still in the adoption process and have not been finalized. Accordingly, we cannot assure you that these proposals will be adopted in their current form or at all. If adopted, the final form of these proposals could have an impact on our earnings and funds from operations.

        We have substantial indebtedness. We require significant cash flow in order to make required payments on our securities and on our indebtedness.

        As of December 31, 2001, we had total debt of approximately $1.6 billion, including our pro rata share of unconsolidated joint venture debt. In addition, as of the date of this report, we have issued and outstanding 750,000 shares of series A preferred stock. We must make regular dividend payments to the holders of our series A preferred stock. The dividends payable are calculated based on the number of shares outstanding and the dividend rate, which regularly increases from year to year. We have also guaranteed selected outstanding unconsolidated joint venture debt, representing an affiliate's portion of outstanding unconsolidated joint venture debt, which guaranties expire upon the achievement of specified financial performance tests. We expect to make similar guarantees in connection with our future developments.

        We are subject to the risks normally associated with debt financing, including the risk that our cash flow will be insufficient to meet required payments of principal and interest. If a property were mortgaged to secure payment of indebtedness and we were unable to meet mortgage payments, the mortgagee could foreclose upon that property, appoint a receiver and receive an assignment of rents and leases or pursue other remedies. We are subject to the additional risk that our cash flow may be insufficient for us to make the required dividend payments to the holders of our series A preferred stock. If we fail to make the required dividend payments to the holders of our series A preferred stock, we will be subject to serious penalties under the terms of the documents that govern our series A preferred stock. Our substantial debt and our dividend obligations on the series A preferred stock could cause us to be unable to make dividend payments, distributions and other payments on our common stock and all other equity securities junior in right to our series A preferred stock.

Our degree of leverage could limit our ability to obtain additional financing.

        As of December 31, 2001, our consolidated borrowings and pro rata share of unconsolidated borrowings totaled approximately $1.6 billion, which represented approximately 55.0% of our total market capitalization as of that date. As used in this report, total market capitalization means the sum of the outstanding indebtedness (including our share of joint venture indebtedness), the total liquidation preference of all our preferred shares and the total market value of our common shares and units of partnership interest of Mills LP, based on the closing price of our common stock as of December 31, 2001. Increases in our leverage could adversely affect our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, development or other general corporate purposes, and may make us more vulnerable to a downturn in business or the economy generally.

        We will need additional capital to either refinance or repay existing indebtedness at maturity. There is no guaranty that we can refinance or obtain other financing to repay matured debt.

        The terms of most of our indebtedness do not require significant principal payments prior to maturity. Currently, we do not anticipate making any additional principal payments prior to maturity. Consequently, in order to pay the full principal amount at maturity, we may need to refinance or repay

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our indebtedness by (1) obtaining additional secured or unsecured debt financing; (2) issuing private or public debt instruments; (3) offering for sale additional equity securities; or (4) selling our assets. We have no refinancing commitments covering the principal payments at maturity. We cannot assure you that refinancing will be available on reasonable terms or at all. If prevailing interest rates or other factors at the time of refinancing result in higher interest rates upon refinancing, the interest expense relating to refinanced indebtedness would increase, which would adversely affect our funds from operations and reduce the amount of distributions we can make to our stockholders. If we are unable to secure refinancing of the mortgage indebtedness encumbering a property on acceptable terms, we may be forced to dispose of that property upon disadvantageous terms, or the mortgagee could foreclose upon the property. In addition to the loss of a source of income and an income flow, a disadvantageous sale or foreclosure may result in a partial or complete loss on our investment.

        A significant increase in the dividend rate on our series A preferred stock takes effect if we have not repurchased our outstanding series A preferred stock by October 30, 2004. In order to complete the repurchase of this series A preferred stock and prevent the dividend rate increase from taking effect, we may need to raise additional capital. There is no guaranty that we can raise additional capital for this repurchase.

        Dividend payments to holders of our series A preferred stock will increase significantly if shares of series A preferred stock remain issued and outstanding on October 30, 2004. Under the terms of our series A preferred stock, we are not permitted to repurchase our series A preferred stock prior to November 11, 2003 without incurring substantial extra costs. Accordingly, we anticipate that we will attempt to repurchase our series A preferred stock between November 11, 2003 and October 30, 2004. In order to finance the repurchase, we may need to use one or more of the methods listed in the previous risk factor. We cannot assure you that we will obtain financing on reasonable terms or at all. If we are unable to secure financing on reasonable terms, we may not be able to repurchase our outstanding series A preferred stock prior to the increase in required dividend payments, if at all.

        Holders of series A preferred stock have the right, under specific circumstances, to require us to repurchase the series A preferred stock. There is no guaranty that we can obtain financing for the repurchase. If we do not timely repurchase the series A preferred stock, the repurchase price will increase significantly.

        Holders of series A preferred stock may exercise their right under the series A preferred stock purchase agreement to require us to repurchase all or a portion of our series A preferred stock if:

•

a change in control occurs;



•

we fail, or we are deemed based on substantial evidence to fail, to continue to qualify as a REIT;



•

a material event of noncompliance occurs, such as a violation of the restrictive covenants described in the following risk factor or our failure to observe our obligations in connection with our call right to require the holders of series A preferred stock to sell to us all of the then outstanding shares of series A preferred stock; or



•

shares of series A preferred stock remain issued and outstanding after April 30, 2006.

        Generally, the repurchase price varies based on the event giving rise to the put right of the holders of series A preferred stock and the time of its occurrence. However, if the event is our failure to continue to qualify as a REIT or a material event of noncompliance, in each case caused by our willful and intentional actions, then the repurchase price will increase significantly. The increased repurchase price is based on a higher internal rate of return on the purchase price of the series A preferred stock and will be calculated from the date of purchase.

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        We do not have any financing arrangement in place for the repurchase of the series A preferred stock when required. In order to finance the repurchase, we may need to use one or more of the methods listed above. We cannot assure you that we will obtain financing on reasonable terms or at all. If we are unable to secure appropriate financing, we may be unable to repurchase on a timely basis, or at all, the shares of series A preferred stock that are put to us by the holders of series A preferred stock. In that case, we will become obligated to pay the increased repurchase price.

        We have entered into agreements that impose a number of restrictive covenants that may hinder our operational flexibility. Violation of these restrictive covenants carries serious consequences that may materially adversely affect our operations.

        Our revolving loan and term loan and the series A preferred stock purchase agreement impose numerous restrictive financial and operating covenants on us, including covenants that limit our ability to (1) incur additional debt, (2) sell assets, (3) repurchase our securities and (4) engage in mergers and consolidations. For example, if we sell any portion of our four wholly owned properties, holders of our series A preferred stock may require us to repurchase shares of our series A preferred stock at substantial release prices.

        Under our revolving loan and term loan, the lenders may accelerate payment and may pursue standard remedies upon a violation of any covenant. In addition, our failure to observe a number of the listed covenants constitutes a material event of noncompliance under the series A preferred stock purchase agreement and gives the holders of our series A preferred stock the right to require us to repurchase all or a portion of the then outstanding shares of series A preferred stock. If the material event of noncompliance triggering the put right of the holders of series A preferred stock is caused by our willful and intentional actions, then we must pay the increased repurchase price described above. Even if the material event of noncompliance is due to an inadvertent act, we still must pay the increased repurchase price if we do not make the repurchase in a timely manner. We may avoid the consequences under the series A preferred stock purchase agreement by exercising our call right to repurchase the shares of series A preferred stock then outstanding before taking the action that constitutes a violation. Our ability to exercise our call option, however, is subject to:

•

our ability to obtain financing for the premium payable upon repurchase, which premium depends on when we exercise our call option;



•

our obtaining the consent of the lenders under the credit facility and the term loan; and



•

a prohibition on exercise prior to April 30, 2002, except in very limited circumstances.

        These restrictions reduce our flexibility in fulfilling our obligations following the exercise of our call option, and otherwise reduce our ability in conducting our operations.

        The occurrence of an event of noncompliance under the series A preferred stock purchase agreement may give holders of our series A preferred stock rights that materially adversely affect the rights of holders of our common stock.

        Upon the occurrence of an event of noncompliance under the series A preferred stock purchase agreement, subject to a cure period for curable events, or our failure to make a required dividend payment:

•

the dividend rate payable on the series A preferred stock will increase significantly;



•

holders of series A preferred stock will vote with holders of common stock on all matters submitted to a vote of our stockholders, and will have the number of votes equal to the number of shares of common stock that they would receive if they were to convert their shares of series A preferred stock into common stock; and



•

holders of series A preferred stock will have the right to elect one member to our board of directors. If a failure to make a required dividend payment were to continue through the next scheduled dividend payment date, holders of series A preferred stock would have the right to elect an additional member to our board of directors. In addition, if the event of noncompliance constitutes a material event of noncompliance, the holders of series A preferred stock also have the right to require us to repurchase all or a portion of the series A preferred stock then issued and outstanding.

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        We depend on third party financing for our development and expansion activities.

        We are developing and plan to continue to develop new retail properties, including new Mills. The funds necessary to construct and develop new properties must be obtained through issuance of additional equity or debt securities offerings, conventional third-party debt financing, loan arrangements or joint venture arrangements. We cannot assure you that we will obtain the financing necessary to fund new development and expansion projects. In addition, the additional debt service payments required in respect of any additional debt incurred, and the dilutive effect of any additional equity securities issued to finance future development, could adversely affect our ability to make distributions to our stockholders. Financing by third parties may carry a floating interest rate. We anticipate financing new projects, some of which could be developed through joint venture arrangements, through lines of credit or other forms of secured or unsecured construction financing which generally carry a floating interest rate. We cannot assure you that we would be able to obtain permanent debt or equity financing on acceptable terms or at all to refinance the construction loans once the project is close to completion. As a result, the floating interest rate on the construction loans could be outstanding for a longer period of time than anticipated at the time of borrowing, leading to a decrease in our development activities or in the amount of cash available for distribution to our stockholders. If we had floating rate construction loans outstanding and interests rates were to increase, our debt service would increase up to the applicable cap rate.

        We rely on joint venture partners and Kan Am in particular for financing for our development and expansion activities.

        The majority of our current and planned projects are being developed through joint ventures. Our planned level of development activity depends on our success in finding joint venture partners, and their ability to finance their obligations to the joint venture, both of which factors are not entirely in our control. We rely heavily on Kan Am US, Inc. and its affiliates, which are partners with us in nine joint ventures. Kan Am raises investor capital to fund its equity commitments for projects on a project-by-project basis. We cannot guarantee that Kan Am will be able to raise capital for any particular project in accordance with its commitment for that project. If Kan Am or any other joint venture partner were to terminate its relationship with us, to file for bankruptcy or be placed into involuntary bankruptcy, or to fail to perform as expected, we may not be able to find other viable partners, in which case we may not be able to finance our development activity and may be forced to decrease development activity and cut back on our planning for new projects. If a partner were to fail to contribute capital that is required for a development project and we were not successful in finding another partner for a particular development project, we may have to find alternative sources of capital for the project. We cannot guarantee that we will be able to obtain other sources of equity. If we are unable to do so, we could suffer a partial or complete loss on our investment and be required to repay any recourse indebtedness incurred on the project.

        Our joint venture agreements include buy-sell and redemption obligations. There is no guaranty that we will have the necessary financing to meet these obligations.

        Our joint venture agreements with Kan Am and other investors typically include buy-sell provisions, under which our joint venture partner may be entitled, under certain circumstances, such as a change in control of us or a deadlock over certain major decisions, to require either that we buy their interest in the joint venture or sell our interest to them. If we are unwilling or unable to purchase their interest, we would be required to sell our interest to them at a time when we otherwise may not have wished to sell our interest.

        We are partners with Kan Am in a joint venture agreement for the development of Meadowlands Mills, under which Kan Am has the right to require the Meadowlands Mills joint venture to redeem Kan Am's interest in the joint venture (together with any accrued priority return) if a construction loan is not obtained by June 30, 2003. Mills LP currently guarantees Kan Am's receipt of its accrued priority

24

return. Beginning on the "project commencement date," which is the date on which certain material contingencies have been satisfied the Company 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. Mills LP's guaranty of Kan Am's priority return will continue until qualified permanent financing has been secured for the project. As of December 31, 2001, Kan Am's invested capital in this project was $24 million and the amount of accrued priority return was $0.5 million.

        In order to finance a purchase or redemption of a joint venture partner's interest, we may need to use one or more of the financing sources described above. We cannot assure you that we will be able to obtain financing on reasonable terms, or at all, to permit us to meet our obligations to purchase or redeem a joint venture partner's interest on a timely basis.

        We do not have exclusive control over the management of joint venture projects and must share control with our joint venture partners.

        We have invested and expect in the future to invest as a co-venturer or partner in the development of new properties, instead of developing projects on our own. These shared investments may involve risks not present in a wholly-owned development project that stem from us not having exclusive control over the development, financing, leasing, management and other aspects of the project. We may not have the right to take some significant actions without the approval of our joint venture partners. For example, we may need the other joint venturer's approval before selling or refinancing a joint venture's property, setting an annual budget, entering into specified transactions with affiliates, and settling litigation above specified thresholds. Additionally, our co-venturer might have interests or goals that are inconsistent with ours and may take actions that are contrary to our instructions, requests or interests, or otherwise hinder us from accomplishing our goals. Our joint venture partners could take actions binding on the joint venture without our consent. Actions by a joint venture partner could subject the joint venture assets to additional risk.

RISKS ASSOCIATED WITH THE OPERATION OF OUR PROPERTIES

We may be unable to develop and operate new properties successfully.

        We intend from time to time to develop new Mills or expand existing Mills, and may engage in the development of other retail or related mixed use projects, as opportunities arise. These projects generally require significant expenditures of capital and frequently depend on obtaining various forms of government and other approvals. We cannot assure you that we can obtain the necessary approvals in a timely manner or at all. We have policies in place designed to regulate development activities in an effort to limit the risks associated with development. However, these policies do not remove us from all development risks associated with a project and we continue to face the risk of expending funds for, and devotion of management's time to, a project that may not be developed on a timely basis or at all. We cannot assure you whether or when any development of new Mills, other retail or related mixed use projects or expansions of existing properties will be completed, or if completed, that the costs of development or expansion will not exceed, by a material amount, projected costs. Upon the completion of a project, we face the additional risk that occupancy rates and rents will not be sufficient to make the project profitable.

There is no guaranty that we can attract or retain tenants.

        Our income and cash available for distribution would be adversely affected if we were unable either to rent unleased space in any of our properties or to relet space after the expiration of a tenant's lease on economically favorable lease terms. Our ability to rent or to relet space in our properties is affected by many factors. Our tenants generally enter into leases with an initial term ranging from three to 15 years. We cannot assure you that any tenant whose lease expires in the future will renew its lease at that time, or on terms economically favorable to us, or that we will be able to find a replacement

25

tenant. In addition, our leases with a number of tenants contain covenants restricting the use of other space in our properties or requiring the presence of other specified co-tenants. Our failure to rent unleased space on a timely basis or at all would likely adversely affect our financial condition and results of operations. We may also incur costs in making improvements or repairs to property required by a new tenant.

Competition may cause the occupancy and rental rates of our properties to decrease.

        There are other companies that are engaged in the development or ownership of retail properties that compete with us in seeking tenants. We compete with these other companies for prime locations and for tenants who lease space in the retail properties that we and our competitors own or operate. The development by our competitors of new super-regional malls or other retail shopping centers with more convenient locations or better rents may attract our tenants to our competitors or may cause them to seek lease terms that are less favorable to us at or prior to renewal, and accordingly may adversely affect our business and the revenues that we derive from, and the value of, our properties. Furthermore, retailers at our properties may face increasing competition from e-commerce, outlet malls, discount shopping clubs, catalog companies, direct mail, telemarketing and home shopping networks.

        Bankruptcy of our tenants or downturns in our tenants' businesses may reduce our cash flow.

        Since we derive a significant amount of our income from rental payments, our cash available for distribution would be adversely affected if a significant number of our tenants were unable to meet their obligations to us, or if we were unable to lease vacant space in our properties on economically favorable terms. At any time, a tenant may seek the protection of the bankruptcy laws. Under the bankruptcy laws, the tenant may have the right to reject and terminate its lease and thereby cause a reduction in the cash available for distribution to our stockholders. If a tenant files for bankruptcy, we cannot be sure that it will affirm its leases and continue to make rental payments in a timely manner. Any change in a tenant, especially an anchor tenant, could materially adversely affect customer traffic in a center and thereby reduce the income generated by that center. Some of our rents are based on a percentage of our tenants' sales. A slowing economy generally could lead to a downturn in the retail sector and weaken the financial condition of a tenant and result in a reduction in the percentage rent paid by that tenant or in the failure to make rent payments when due. Furthermore, some of our tenants, including anchor tenants, hold the right under their leases to terminate their leases or reduce their rental rates if specified occupancy conditions are not met, if specified anchor tenants are closed, if specified sales levels or profit margins are not achieved or if an exclusive use provision is violated. If a significant number of these tenants were to terminate their leases, the terminations could adversely affect our cash available for distribution and the value of our common stock.

        The performance of our properties is subject to many factors that are not in our control.

        Real property investments are subject to varying degrees of risk that may affect the ability of our centers to generate sufficient revenues to meet operating and other expenses. The economic performance and value of a property are affected by a number of factors, including:

•

the national economic climate;



•

the regional and local economic climate, which may be adversely impacted by plant closings, industry slowdowns, natural disasters and other factors;



•

changing trends in the demand by consumers for merchandise offered by retailers conducting business at our properties;



•

local real estate conditions, such as an oversupply of retail space or a reduction in demand for real estate in the area;

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•

the existence and quality of the competition, such as the attractiveness of our property as compared to our competitors' properties based on considerations such as convenience of location and safety record; and



•

increased operating costs, including taxes.

        In addition, other factors may adversely affect a property's value, including changes in government regulations and other laws, rules and regulations governing real estate, zoning or taxes, changes in interest rate levels, the availability of financing and potential liability under environmental and other laws and other unforeseen events.

RISKS ASSOCIATED WITH REAL ESTATE INVESTMENT

        Due to the illiquid nature of investments in equity real estate, we may not be able to act quickly to diversity our portfolio in response to economic changes.

        Equity real estate investments generally are relatively illiquid. Additionally, all of our properties are in the same line of business. As a result, our ability to diversify our portfolio promptly in response to changes in economic or other conditions may be restricted. Moreover, significant expenditures associated with each equity investment, such as debt service, real estate taxes and operating and maintenance costs, generally are not reduced when circumstances cause a reduction in income from the investment. Consequently, if any of our properties fail, we may not be able to convert that property to an attractive alternative use or to sell that property to recoup our investment.

        We could incur significant costs related to environmental issues.

        Under some environmental laws, a current or previous owner or operator of real property, and parties that generate or transport hazardous substances that are disposed of on real property, may be liable for the costs of investigating and remediating hazardous substances on or under or released from the property and for damages to natural resources. The federal Comprehensive Environmental Response, Compensation & Liability Act, and similar state laws, impose liability on a joint and several basis, regardless of whether the owner, operator or other responsible party knew of or was at fault for the release or presence of hazardous substances. In connection with the ownership or operation of our properties, we could be liable for costs associated with investigation and remediation in the future. The costs of any required remediation and related liability as to any property could be substantial under these laws and could exceed the value of the property and/or our aggregate assets. The presence of hazardous substances, or the failure to properly remediate those substances, also may adversely affect our ability to sell or rent a property or to borrow funds using the property as collateral. In addition, environmental laws may impose restriction on the manner in which we use our properties or operate our business, and these restrictions may require expenditures for compliance. We cannot assure you that a material environmental claim or compliance obligation will not arise in the future. The costs of defending against any claims of liability, of remediating a contaminated property, or of complying with future environmental requirements could be substantial and affect our operating results.

Uninsured losses could adversely affect our financial condition.

        We carry comprehensive liability, fire, flood, extended coverage and rental loss insurance with respect to our properties with policy specifications and insured limits that we believe are customary for similar properties. We also carry comprehensive earthquake and pollution cleanup coverage on all our properties. We carry off-premises power coverage for each of our Mills. For Sawgrass Mills only, we carry sinkhole coverage. There are some types of losses, generally of a catastrophic nature, such as wars or acts of God, which may be either uninsurable or not economically insurable. As a result of the tragic events of September 11^th, insurance for terrorist attacks for each of our properties was reduced to a $100 million per incident maximum coverage. Should a property suffer an uninsured loss, we could lose

27

both our invested capital in and anticipated profits from that property, as well as the anticipated future revenue from that property. Additionally, in the case of recourse construction loans, we may remain obligated under those loans and any other financial obligations on that property. An uninsured loss or a loss in excess of insured limits may negatively impact our financial condition.

RISKS ASSOCIATED WITH OUR ORGANIZATION

        A number of our directors and significant stockholders may exert substantial influence over us.

        The executive officers of Kan Am US, Inc. and its affiliates directly and indirectly own a substantial percentage of the total outstanding number of shares of our common stock and the units of Mills LP. Three of our eleven directors substantially own and control the Kan Am entities. These three directors have significant influence over us as members of our board and, by virtue of their ownership of our common stock through the Kan Am entities, over the outcome of any matters submitted to our stockholders for approval. The interests of these directors may conflict with the interests of our other stockholders in connection with Kan Am's joint ventures with Mills LP to develop, own, and operate additional properties, and they may use their voting influence contrary to our other stockholders' interests. If these directors and the Kan Am entities, as stockholders, were to act together, they may have the ability to exercise significant influence over our affairs. The Kan Am entities may exchange all or a substantial portion of the units that they hold for shares of our common stock. If they do so, they and the three directors affiliated with them, as substantial owners of the Kan Am entities, will increase their influence over us and over the outcome of any matters submitted to our stockholders for approval. The influence and voting power of our other stockholders may diminish accordingly.

        We are the sole general partner of the operating partnership, Mills LP, and have fiduciary responsibilities to the other partners of Mills LP. As a result, we may be in a position where we have duties to others whose interests conflict with those of our stockholders.

        We, as the sole general partner of Mills LP, may have fiduciary responsibilities to the other partners in Mills LP that may conflict with the interests of our stockholders, including decisions regarding the sale or refinancing of our properties and the timing and amount of distributions from Mills LP. In addition, individuals and entities, including our executive officers, our directors (including those who substantially own and control Kan Am US, Inc. and their respective affiliates that hold units of Mills LP) may have limited rights in decisions affecting Mills LP that may conflict with the interests of our common stockholders. In particular, a holder of units may suffer different and/or more adverse tax consequences than The Mills Corporation upon the sale or refinancing of some of our properties as a result of unrealized gain attributable to properties or the tax status of the unit holder. These unit holders, therefore, may have objectives different from ours regarding the appropriate pricing and timing of any sale or refinancing. We have the exclusive authority to determine whether and on what terms to sell or refinance an individual property as the sole general partner of Mills LP. However, these unit holders may try to influence us into not selling or refinancing the properties, even though a sale might otherwise be financially advantageous to us and our stockholders, or to influence us into refinancing a property with a higher level of debt than would be in our best interests or in the best interests of our stockholders.

        Our certificate of incorporation and by-laws contain provisions that could delay or prevent a change in control.

        In some instances, a change in control of our company could give the holders of our common stock the opportunity to realize a premium over the then prevailing market price of those securities. Provisions in our Amended and Restated Certificate of Incorporation and our Amended and Restated Bylaws may have the effect of discouraging a third party from trying to acquire our company even if a change in control were in the best interests of our stockholders. Our board of directors has the authority, without a vote of stockholders, to issue up to an additional 19,250,000 shares of preferred

28

stock and to establish the rights and preferences of any class or series of preferred stock to be issued, which rights and preferences could delay or prevent a change in control. The limitation on beneficial ownership of our company also may have the effect of precluding acquisition of control of our company by a third party even if a change in control were in the best interests of our stockholders. In addition, our board of directors is a classified board composed of three classes of directors with staggered terms. Directors for each class are chosen for a three-year term upon the expiration of the term of the current class. A classified board of directors makes it more difficult to effect a change in control and may discourage an attempt by a third party even if a change in control were in our stockholders' best interests. The holders of our series A preferred stock have the contractual right to require us to repurchase all or a portion of our series A preferred stock upon a change in control, which also may discourage third party acquisitions.

        A number of our joint venture partnership agreements contain provisions that could delay or prevent a change in control.

        The partnership agreements for a number of our joint ventures contain buy-sell rights that may be exercised upon a "change in control." This buy-sell right allows the Kan Am entity that is our partner in a particular joint venture to require us, and any other joint venture partner in the particular joint venture, to purchase that Kan Am entity's entire interest in the joint venture partnership. We are required to pay for any purchase of Kan Am entities' partnership interests in cash or with units of Mills LP. The required payments may have the effect of discouraging a third party from partaking in a change in control of our company, even if a change in control were in the best interests of our stockholders. For the purpose of determining when buy-sell rights may be exercised, each of the following events is a "change in control" when it occurs without the unanimous approval of the members of our board of directors who are affiliates of Kan Am:

•

we participate in any consolidation, merger or corporate reorganization in which more than 40% of our outstanding voting securities are transferred;



•

any person or group, other than Kan Am and its affiliates, becomes the beneficial owner, directly or indirectly, of more than 40% of the Company's then outstanding combined voting securities; and



•

a person, whose nomination for election as director was not recommended by our nominating committee of our board of directors, is elected as a director to our board of directors.

RISKS ASSOCIATED WITH INCOME TAX LAW

        Our failure to qualify as a REIT would result in adverse tax consequences with regard to our results of operations.

        We believe that we have been organized and have conducted our operations in a manner so as to qualify as a REIT under the Code, and we intend to continue to operate as a REIT in the future. We cannot assure you, however, that we currently qualify as a REIT or will continue to qualify as a REIT. Many of the REIT requirements are highly technical and complex and depend on various factual matters and circumstances that may not be completely within our control, such as actions taken by our joint venture partners. Any determination that we do not qualify as a REIT would have a material adverse effect on our results of operations and could reduce materially the value of our common stock. If we fail to qualify as a REIT,

•

we will not be allowed to take a deduction for distributions to stockholders in computing our taxable income, and



•

we will be subject to federal and state income tax, including any applicable alternative minimum tax, on our taxable income at regular corporate rates.

29

        In addition, unless entitled to relief under specific statutory provisions, we will also be disqualified from treatment as a REIT for the four taxable years following the year during which our qualification was lost. A disqualification would reduce our net earnings available for investment or distribution to our stockholders because of the additional tax liability to us for the year or years involved. Furthermore, we would no longer be required by the Internal Revenue Code to make any distributions to our stockholders as a condition to REIT qualification. Our failure to qualify as a REIT could reduce materially the value of our common stock and would cause any distributions to stockholders that otherwise would have been subject to tax as capital gain dividends to be taxable as ordinary income to the extent of our current and accumulated earnings and profits. Corporate distributees, however, may be eligible for the dividends received deduction on the distributions, subject to limitations under the Internal Revenue Code. If we make distributions to our stockholders in reliance on our continued qualification as a REIT, we might be required to borrow funds or to liquidate some of our investments to pay the taxes that would result from the actual failure to qualify as a REIT. In addition to these tax consequences, if we fail to qualify as a REIT, the holders of our series A preferred stock may require us to repurchase all or a portion of our series A preferred stock. Even if we currently qualify as a REIT, new tax rules or legislation may affect whether we continue to qualify as a REIT or the federal income tax consequences of our REIT qualification.

Despite our REIT status, we remain subject to various taxes.

        Notwithstanding our status as a REIT, we are subject, through our ownership interest in Mills LP, to various federal, state, local and foreign taxes on our income and property. We may have to pay some state or local income taxes because not all states and localities treat REITs the same as they are treated for federal income tax purposes. We may also have to pay some foreign taxes to the extent we own assets or conduct operations in foreign jurisdictions. Mills LP is obligated under its partnership agreement to pay all taxes, and any related interest and penalties, incurred by us. Our taxable REIT subsidiaries are taxable as corporations and will pay federal, state and local income tax on their net income at the applicable corporate rates, and foreign taxes to the extent they own assets or conduct operations in foreign jurisdictions. In addition, our taxable REIT subsidiaries are subject to special rules that may result in increased taxes. For example, our taxable REIT subsidiaries are limited in their ability to deduct interest payments made to us. In addition, we will be required to pay a 100% penalty tax on some payments that we receive if the economic arrangements between us, our tenants and our taxable REIT subsidiaries are not comparable to similar arrangements between unrelated parties.

        If the IRS were to challenge successfully Mills LP's status as a partnership for federal income tax purposes, we would cease to qualify as a REIT and suffer other adverse consequences.

        We believe that Mills LP qualifies to be treated as a partnership for federal income tax purposes. As a partnership, it is not subject to federal income tax on its income. Instead, each of its partners, including us, is required to pay tax on its allocable share of Mill LP's income. We cannot assure you, however, that the IRS will not challenge Mills LP's status as a partnership for federal income tax purposes, or that a court would not sustain an IRS challenge. If the IRS were successful in treating Mills LP as a corporation for tax purposes, we would fail to meet the income tests and some of the asset tests applicable to REITs and, accordingly, cease to qualify as a REIT. If we fail to qualify as a REIT, the holders of our series A preferred stock may require us to repurchase all or a portion of our series A preferred stock. Also, the failure of Mills LP to qualify as a partnership would cause Mills LP to become subject to federal and state corporate income tax, which would reduce significantly the amount of cash available for debt service and for distribution to Mills LP's partners, including us.

        As a REIT, we are subject to limitations on our ownership of debt and equity securities.

        Subject to certain exceptions, including the one discussed in this paragraph, a REIT is generally prohibited from owning securities in any one issuer if the value of those securities exceeds 5% of the

30

value of the REIT's total assets or the securities owned by the REIT represent more than 10% of the issuer's outstanding voting securities or more than 10% of the value of the issuer's outstanding securities. A REIT is permitted to own securities of a subsidiary in an amount that exceeds the 5% value test and the 10% vote or value test if the subsidiary elects to be a "taxable REIT subsidiary," which is taxable as a corporation. However, a REIT may not own securities of taxable REIT subsidiaries that represent in the aggregate more than 20% of the value of the REIT's total assets. MillsServices Corp. and each corporate subsidiary in which it owns 35% of the outstanding voting securities or 35% of the value of the outstanding securities have elected to be treated as a taxable REIT subsidiary. While we believe that we have satisfied these limitations on the ownership of securities during each of the taxable years that each such limitation applied to us, given the highly complex nature of the rules governing REITs (which complexity is exacerbated when a REIT owns its properties through partnerships, as we do) and the ongoing importance of factual determinations, we cannot provide any assurance that the Internal Revenue Service would not disagree with our determinations.

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Item 2. Properties

        The following tables set forth certain information relating to our properties as of December 31, 2001. The Operating Partnership holds, directly or indirectly, 100% of the equity interests in the entities that own Potomac Mills, Franklin Mills, Sawgrass Mills (Phases I and II and as of October 2001, The Oasis at Sawgrass), Gurnee Mills, Liberty Plaza, Concord Mills Marketplace and the 46 Net Lease Properties. The Operating Partnership also owns, directly or indirectly, an equity interest in the joint venture entity that owns Arizona Mills and varying partnership interests in the joint venture entities that own Ontario Mills, Grapevine Mills, The Block at Orange, Concord Mills, Katy Mills, Opry Mills, Arundel Mills and Discover Mills. Our partnership interests in the joint venture entities give us the right, among others, to receive after preferential payments on unreturned capital contributions generally, a percentage of net operating cash flow generated by a particular property and a percentage of net proceeds following the occurrence of a major capital event, such as the sale of the real property or the project or the receipt of proceeds arising from condemnation of the project. For a description of our partnership interests for existing properties generally, see "—Description of Existing Properties." The Operating Partnership has formed other joint ventures to develop additional properties. We have similar partnership interests under these joint venture agreements and we anticipate that we will have similar partnership interests under future joint venture agreements. For a description of our partnership interests for properties under development, see "Item 1. Business—Mills Under Construction—Development Pipeline."

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, 2001:

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SUMMARY OF PROPERTIES, Continued

33

SUMMARY OF PROPERTIES, Continued

(1)

Presents GLA of each of our operating properties. Included in GLA is 972,249 square feet owned by certain store tenants located 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; Concord Mills Marketplace 11,316; and Liberty Plaza—13,741 square feet. Ground leases at Franklin Mills of 152,370 square feet and at Grapevine Mills of 177,063 square feet are also included.

(2)

Annualized base rent is defined as the contractual minimum rent of tenants comprising gross leaseable area at December 1, 2001 multiplied by 12, excluding tenants as noted in footnote (1).

(3)

Anchor stores include all stores occupying at least 20,000 square feet and certain store tenants described in footnote (1).

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PROPERTY OPERATING INCOME
(UNAUDITED, IN THOUSANDS)

        The following table presents the property operating income for our wholly-owned properties and unconsolidated joint venture properties and provides details about certain line items within our consolidated financial statements for the year ended December 31, 2001. The information in the table is not intended to represent net income according to accounting principles generally accepted in the United States.

FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2001

(1)

Total property operating costs exclude management fees as follows: wholly owned properties of $4,212 and joint venture properties of $9,602.

(2)

Stabilized wholly-owned properties include Potomac Mills, Franklin Mills, Sawgrass Mills, Gurnee Mills, Liberty Plaza, and Mainstreet, the Company's push cart program. Stabilized unconsolidated joint venture properties include Ontario Mills, Grapevine Mills, Arizona Mills and The Block at Orange.

(3)

During the third and fourth quarters of 2000, the Company acquired a portfolio of 46 single tenant net lease properties from an unrelated third party.

(4)

The new wholly-owned property is Concord Mills Marketplace. New unconsolidated joint venture properties include The Oasis at Sawgrass, Concord Mills, Katy Mills, Opry Mills, Arundel Mills and Discover Mills.

(5)

During the third quarter of 2000, the Company sold ten of its eleven community centers (the "Disposed Properties") to an unrelated third party.

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LEASE EXPIRATION SCHEDULES (1)

Wholly-Owned Properties

        The following table summarizes the lease expirations assuming that none of the tenants exercise 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, 2001, multiplied by 12.

(1)

Excludes 847,249 square feet of gross leaseable area owned by tenants and a ground lease of 152,370 square feet.

(2)

Anchor tenants are defined as any tenant whose GLA is at least 20,000 square feet.

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LEASE EXPIRATION SCHEDULES (Continued) (1)

Unconsolidated Joint Ventures

        The following table summarizes lease expirations assuming that none of the tenants exercise 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, 2001, multiplied by 12.

(1)

Excludes 125,000 square feet of GLA owned by tenants and a ground lease of 177,063 square feet.

(2)

Anchor tenants are defined as any tenant whose GLA is at least 20,000 square feet.

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RENTAL RATES (1)

        The following tables present the average base rent per leased square foot of store openings and closings for the anchor and specialty tenant stores collectively (except as noted in footnote (1)) for each property for the five years ended December 31, 2001, 2000, 1999, 1998, and 1997.