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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

Form 10-Q

For the Quarterly Period Ended September 30, 2002

Commission File Number 1-12994

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

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

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

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

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

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

38,968,570 shares of Common Stock
$.01 par value, as of November 12, 2002

THE MILLS CORPORATION
FORM 10-Q
INDEX

        Certain information contained in this Form 10-Q and the information incorporated by reference may constitute "forward-looking statements" for the 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 associated with the development, acquisition, and operation of retail properties, including risks that the development of a 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, the Company's ability to satisfy complex rules in order for the Company to qualify as a real estate investment trust, or REIT for federal income tax purposes, the Operating Partnership's ability to satisfy the rules in order for it to qualify as a partner for federal income tax purposes, the ability of certain Company subsidiaries to qualify as taxable REIT subsidiaries for federal income tax purposes, and the Company's ability and the ability of its subsidiaries to operate effectively within the limitations imposed by these rules, as well as those risks described in the Company's Form 10-K filed on March 28, 2002 with the Securities and Exchange Commission.

        Although the Company believes that the expectations reflected in its forward-looking statements are based upon reasonable assumptions, the Company cannot make assurances that it will attain these expectations or that any deviations from these expectations will not be material.

        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.

PART I—FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

THE MILLS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands)

See Accompanying Notes to Consolidated Financial Statements

1

THE MILLS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data)
(Unaudited)

See Accompanying Notes to Consolidated Financial Statements

2

THE MILLS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data)
(Unaudited)

See Accompanying Notes to Consolidated Financial Statements

3

THE MILLS CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
(In Thousands)

See Accompanying Notes to Consolidated Financial Statements

4

THE MILLS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)

Non-cash investing and financing information provided in Note 13.

See Accompanying Notes to Consolidated Financial Statements

5

MILLS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, Dollars in thousands except share, unit and per share data)

1.    ORGANIZATION

        The Mills Corporation (the "Company") is a fully integrated, self-managed real estate investment trust ("REIT").

        The Company conducts all of its business through The Mills Limited Partnership (the "Operating Partnership"), in which it owns a 1% interest as the sole general partner and a 69.27% interest as a limited partner as of September 30, 2002. The Company, through the Operating Partnership, is engaged primarily in the ownership, development, redevelopment, leasing, acquisition, expansion and management of twelve super-regional, retail and entertainment-oriented centers, one urban entertainment/retail property, two community shopping centers and a portfolio of 46 single tenant net lease properties ("Net Lease Properties") located throughout the United States, 27 of which are subject to a sales contract (see Note 4). As of September 30, 2002, the Operating Partnership owned or held an interest in the following projects and two community centers:

        The Company is actively involved in the development or predevelopment of a number of projects, including Colorado Mills (Denver, CO) which will open to the public in November 2002, Madrid Xanadú (Madrid, Spain), St. Louis Mills (St. Louis, MO), Cincinnati Mills (Cincinnati, OH),Vaughan Mills (Toronto, Canada), Meadowlands Mills (Carlstadt, NJ) and San Francisco Piers 27-31 (San Francisco, CA).

        Additionally, the Operating Partnership owns MillsServices Corp. ("MSC"), a taxable REIT subsidiary formed in connection with the Company's initial public offering to provide development, management, leasing and financial services to entities in which the Company is not a significant investor. MSC owns 100% of Mills Enterprises, Inc. ("MEI"), an entity that holds investments in certain retail joint ventures and owns 60% of FoodBrand L.L.C. ("FoodBrand"), 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 properties.

        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 provided all of the operating capital of MSC. Two individuals, who had contributed nominal amounts of equity to MSC for 95% of MSC's voting common stock and 1% of MSC's preferred stock, were officers and directors of both MSC and the Company. As a result, these two individuals' interests were aligned with the interests of the Company's management. Also, all of MSC's Board members are members of the Company's Board. 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. In August 2001, the Operating Partnership acquired the 95% of MSC's voting common stock and 1% of MSC's non-voting preferred stock that it did not already own for fair market value, totaling $170.

6

MILLS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited, Dollars in thousands except share, unit and per share data)

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

        The accompanying unaudited consolidated financial statements have been prepared by the Company's management in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these consolidated financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments, which consist of normal recurring accruals, considered necessary for a fair presentation have been included. The results of operations for the three and nine month periods ended September 30, 2002 are not necessarily indicative of the results that may be expected for the full year. These consolidated financial statements should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations contained in this Form 10-Q and in the Company's audited financial statements and related footnotes included in the Company's 2001 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 28, 2002.

        The Company conducts its business through the Operating Partnership, and the Operating Partnership's wholly-owned subsidiaries and affiliates. The consolidated financial statements include the accounts of the Company and all subsidiaries that the Company controls, including the Operating Partnership. The Company does not consider itself to be in control of an entity when major business decisions require the approval of at least one other general partner. Accordingly, the Company accounts for its joint ventures under the equity method.

        All significant intercompany transactions and balances have been eliminated in consolidation. Minority interests represent the ownership interests in the Operating Partnership not held by the Company.

REAL ESTATE AND DEVELOPMENT ASSETS

        Income producing property is stated at cost and includes all costs related to acquisition, development, leasing and construction, including tenant improvements, interest incurred during construction, costs of pre-development and certain direct and indirect costs of development. Costs incurred during the predevelopment stage are capitalized once management has identified and secured a site, and has determined that the project is feasible and it is probable that management will be able to proceed. Land held for sale is carried at the lower of cost or fair value less costs to sell. Expenditures for ordinary maintenance and repairs are expensed to operations as they are incurred. Significant renovations and improvements, which improve or extend the useful life of the assets, are capitalized.

        Income producing properties are individually evaluated for impairment when various conditions exist that may indicate that it is probable that the sum of expected undiscounted future cash flows from a property are less than its historical net cost basis. Upon determination that a permanent impairment has occurred, the Company records an impairment charge equal to the excess of historical cost basis over fair value. In addition, the Company writes off costs related to predevelopment projects when it determines that it will no longer pursue the project.

        The Company is actively pursuing acquisition opportunities and will not be successful in all cases; costs incurred related to these acquisitions opportunities are expensed when it becomes probable that the Company will not be successful in the acquisition.

        Depreciation expense is computed using the straight-line method over the estimated useful lives of the assets, as follows:

        Total depreciation expense was $22,312 and $20,862 for the nine months ended September 30, 2002 and 2001, respectively, and $8,521 and $6,965 for the three months ended September 30, 2002 and 2001, respectively.

        Total interest expense capitalized to real estate and development assets, including amounts capitalized on the Company's investment in unconsolidated joint ventures under development, was $29,788 and $18,840 for the nine months ended September 30, 2002 and 2001, respectively, and $11,914 and $7,136 for the three months ended September 30, 2002 and 2001, respectively.

7

MILLS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited, Dollars in thousands except share, unit and per share data)

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

REVENUE RECOGNITION

        The Company, as lessor, has retained substantially all the risks and benefits of property ownership and accounts for its leases as operating leases. Minimum rent from income producing properties is recognized on a straight-line basis over the terms of the respective leases. Percentage rent for any tenant is recognized when a tenant's sales have reached certain levels specified in the respective tenant's leases. Recoveries from tenants for real estate taxes and other operating expenses are recognized as revenue in the period in which the applicable costs are incurred.

        MSC, a wholly owned subsidiary of the Company, has entered into agreements with the unconsolidated joint ventures to provide management, leasing, development and financing services for the joint venture properties. For management services, MSC is entitled to receive a percentage of rental revenues received by the joint venture property. For leasing services, MSC is entitled to an agreed-upon rate per square foot of space leased that is recognized upon execution of a lease. For development services, MSC is entitled to an agreed-upon fee that is deferred during the pre-development stage of the project and subsequently recognized ratably during the development period once a development agreement is executed. For financial services, MSC receives an agreed upon percentage of the total loan commitment that is recognized when a construction loan or permanent loan is executed by the lender. Costs incurred to provide leasing, development and financial services are capitalized when incurred and subsequently expensed as the fee is earned. Other fee income from unconsolidated joint ventures reflects the fees earned from providing leasing, development and financing services, net of the costs incurred to provide these services and the elimination of intercompany profits.

USE OF ESTIMATES

        The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

RECLASSIFICATIONS

        Certain amounts in the 2001 consolidated financial statements have been reclassified to conform to the current year presentation.

3.    ACQUISITIONS

        On September 25, 2002, the Company, through its Operating Partnership, acquired the Forest Fair Mall in Cincinnati, Ohio along with all rights, title and interest thereto, from Gator Forest Partners, Ltd. ("Gator"), an unrelated third party. The property contains approximately 1,500,000 gross leasable square feet of tenant space. The net purchase price of $69,043 is comprised of the assumption of a $58,284 construction loan and $10,759 of cash funded from the Company's unsecured revolving loan. The construction loan matures in December 2006, and bears interest at LIBOR plus 2%. The Company expects that it will renovate/redevelop the mall and re-open it under the name of Cincinnati Mills in late 2003 or early 2004 and the current anchor store tenants will remain open during the renovations.

4.    DISPOSITIONS

        In conjunction with the Company's acquisition of Forest Fair Mall, the Company entered into an agreement with Gator to exchange 27 of its 46 net lease properties for an aggregate sales price of $58,500, net of transaction costs. The Net Lease Properties are operating as CVS stores under single tenant net leases, and are subject to mortgages of approximately $56,000 at September 30, 2002. The exchange settlement is expected to occur during fourth quarter 2002. No gain or loss will be recognized in conjunction with the exchange.

8

MILLS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited, Dollars in thousands except share, unit and per share data)

5.    OTHER INCOME (EXPENSE)

        Other income (expense) consists primarily of land sale gains and abandoned project costs. For the three and nine months ended September 30, 2001, other income (expense) also includes the operating margins and start-up costs associated with the Company's FoodBrand operations. In October 2001, the Company sold a 40% interest in FoodBrand to privately-held Panda Restaurant Group at which time the Company began accounting for its interest in FoodBrand using the equity method. The Company retained ownership of the FoodBrand operations at Franklin Mills which are included in other income (expense) for both of the periods presented below. In June 2002, the Company sold a parcel of land to Gaylord Entertainment which is the Company's former partner in Opry Mills.

6.    INVESTMENT IN UNCONSOLIDATED JOINT VENTURES

        The Company owns certain operating properties and properties under development through joint ventures in which the Company is a co-general and managing partner. The Company also holds investments in certain retail joint ventures through MEI including a 60% interest in FoodBrand. The Company does not consider itself to be in control of joint ventures when major business decisions require the approval of at least one other general partner. Accordingly, the Company accounts for its joint ventures under the equity method.

        The Company calculates the equity in income or loss earned from its unconsolidated joint ventures based on the Company's estimate of anticipated stabilized cash flows as they would be distributed to each partner. Generally, under the terms of the respective joint venture agreements, net ordinary cash flow is distributed to each partner first to pay preferences on unreturned capital balances, including cumulative unpaid preferences, and thereafter in accordance with residual sharing percentages specified in the joint venture agreement. Cash flow from capital events, including refinancing and asset sales, is allocated first to partners in an amount equal to their unreturned capital account and thereafter in accordance with residual sharing percentages. The Company's residual sharing and capital contribution percentages for each joint venture property at September 30, 2002, are as follows:

9

MILLS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited, Dollars in thousands except share, unit and per share data)

6.    INVESTMENT IN UNCONSOLIDATED JOINT VENTURES (continued)

(1)

The Company's residual sharing percentage for Meadowlands Mills will be 53.3% when the conditions to delivery of the executed joint venture agreement documents from escrow have been satisfied.

        On June 28, 2002 the Company completed the acquisition of the interest in Opry Mills held by its partner, Opryland Attractions, Inc. (a subsidiary of Gaylord Entertainment) in an arm's length transaction. With this acquisition, the Company now holds 100% of the ownership interest in Opry Mills. Prior to the acquisition the Company owned a 66.7% residual sharing percentage and a 66.7% capital contribution percentage. The net consideration paid by the Company was approximately $30,910 in cash obtained from the issuance of common stock in May 2002 (see Note 10).

        On May 31, 2002, the Company completed its acquisition of 50% of Simon Property Group's ("Simon") interest in Arizona Mills, with Taubman Centers ("Taubman") acquiring the remaining 50%, and of 75% of Simon's interest in Arundel Mills, Concord Mills, Grapevine Mills and Ontario Mills ("Acquired Properties"), with Kan Am, a joint venture partner in each of the partnerships and a long time private equity source to the Company, acquiring the remaining 25%. The total consideration paid by the Company for the interests in the Acquired Properties was $124,480 in cash obtained from the issuance of common stock in May 2002 (see Note 10). Prior to the acquisition the Company's residual sharing percentage and capital contribution percentage were as follows:

        The Company will continue to reflect the results of operations from the Acquired Properties using the equity method. Additionally, the results of operations from the Company's ownership in Opry Mills was reflected in equity earnings of unconsolidated joint ventures through June 30, 2002 and will be consolidated thereafter.

10

MILLS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited, Dollars in thousands except share, unit and per share data)

6.    INVESTMENT IN UNCONSOLIDATED JOINT VENTURES (continued)

        The following unaudited pro-forma results of operations reflect the Company's acquisition of Simon's interest in the Acquired Properties and the Company's acquisition of the interest in Opry Mills that it did not already own as if these transactions occurred on January 1, 2001 and 2002, respectively. In the Company's opinion, all significant adjustments necessary to reflect the effects of the sale of common stock, the use of the net proceeds there from and the acquisition of property interests have been made.

        Pursuant to the joint venture agreements, the Company is committed to providing certain levels of equity in addition to amounts invested to date. As of September 30, 2002, the Company has guaranteed repayment of $332,608 of joint venture debt, which guarantees generally continue until specified debt service coverage tests are met. In addition, the Company is contingently liable for property taxes and assessments levied against Ontario Mills Limited Partnership by the City of Ontario Special Assessment District ("City"). The balance of the special tax assessment is $12,145 and will be collected over the remaining 18-year period through 2020 to fund debt service on bonds issued by the City to fund the infrastructure improvements.

        The Company's real estate joint venture agreements contain buy-sell provisions whereby certain partners can require the purchase or sale of ownership interests among certain partners. Additionally, there are provisions whereby the Company has guaranteed our partners' preference until permanent financing is obtained. The Company generally guarantees a 9% preferred return on Kan Am's equity balance. In the case of Meadowlands Mills, Kan Am has the right to redeem its interest in the Meadowlands Mills joint venture if a construction loan is not obtained by June 2003. Beginning on the "project commencement date," which is a date on which certain material contingencies have been satisfied, the Company will guarantee the return of Kan Am's capital contribution to the Meadowlands Mills joint venture upon exercise of Kan Am's redemption right, which was $24,000 at September 30, 2002.

11

MILLS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited, Dollars in thousands except share, unit and per share data)

6.    INVESTMENT IN UNCONSOLIDATED JOINT VENTURES (continued)

        Condensed balance sheets at September 30, 2002 and December 31, 2001 and condensed results of operations for the three months and nine months ended September 30, 2002 and 2001 are presented below for all unconsolidated joint ventures, including investments in certain retail joint ventures held by MEI and a 60% interest in FoodBrand.

        The primary difference between the carrying value of the Company's investment in unconsolidated joint ventures and the Operating Partnership's accumulated equity noted above is primarily due to the Company's increased basis as a result of acquiring interests in certain joint ventures whereby the purchase price was not pushed down to the joint venture. Additionally, the difference is due to capitalized interest on the investment balance, capitalized development and leasing costs which are recovered by the Operating Partnership through fees earned during construction, and loans to the joint ventures are included in other liabilities.

        The Company's share of working capital (current assets less current liabilities) excluding working capital from the Company's joint venture retail operations was approximately $32,636 at September 30, 2002. Also, the Company's share of land held for sale was approximately $17,766 at September 30, 2002.

        In March 2002, the Colorado Mills joint venture entered into a construction loan commitment of $160,000. Amounts drawn under this commitment will be guaranteed by the Company as amounts are drawn. The loan proceeds are being used to finance the construction and lease-up of Colorado Mills. The loan bears interest at LIBOR plus 225 basis points and matures in March 2005, subject to two one-year extension periods exercisable by the Company, provided no events of default exist at the time of extension and the Company pays a non-refundable extension fee of 30 basis points for each extension. In conjunction with this loan, the Colorado Mills joint venture also obtained a $10,000 letter of credit from the lender. Colorado Mills will open to the public in November 2002.

12

MILLS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited, Dollars in thousands except share, unit and per share data)

6.    INVESTMENT IN UNCONSOLIDATED JOINT VENTURES (continued)

        Significant accounting policies used by the unconsolidated joint ventures are similar to those used by the Company.

7.    BORROWINGS

        In September 2002, the Company refinanced its outstanding construction loan secured by the Operating Partnership's interest in Opry Mills for $175,000. The loan bears interest at LIBOR plus 1.2% through the initial maturity date in October, 2005 and intends on exercising its option to extend the maturity date for two one-year terms. The loan is secured by a deed of trust and assignment of tenant leases. In July 2002, the Company entered into a deferred start swap agreement to effectively fix the variable rate at 4.14% on a notional amount of $175,000. The swap became effective in October 2002 and terminates in October 2007.

        In May 2002, the Company refinanced and increased its unsecured revolving loan from $75,000 to $175,000. The unsecured revolving loan is used to fund acquisitions and redevelopment activities and serves as a revolving capital facility. As of September 30, 2002, there was $99,000 drawn on the unsecured revolving loan. Funds are available subject to certain performance measures and restrictive covenants. The unsecured revolving loan bears interest at a variable rate ranging from 175 basis points to 275 basis points over LIBOR subject to certain leverage hurdles. As of September 30, 2002 the unsecured revolving loan bore interest at LIBOR plus 2.50% and will mature in May 2005.

        Additionally in May 2002, the Company refinanced its term loan which is secured by the Operating Partnership's equity interest in Franklin Mills. The term loan was permanently reduced from $45,000 to $40,000 and requires two mandatory repayments of $5,000 due in June 2003 and June 2004 and matures in May 2005. The interest rate payable on the term loan is LIBOR plus 2.25%.

13

MILLS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited, Dollars in thousands except share, unit and per share data)

7.    BORROWINGS (continued)

        In conjunction with refinancings that occurred in 2002, the Company wrote off unamortized loan costs and paid a prepayment penalty totaling $1,260 for the three and nine months ended September 30, 2002. This amount is reflected as extraordinary losses on debt extinguishments.

8.    FINANCIAL INSTRUMENTS: DERIVATIVES AND HEDGING

        In the normal course of business, the Company and its joint ventures are exposed to the effect of interest rate changes. The Company and its joint ventures limit these risks by following established risk management policies and procedures including the use of a variety of derivative financial instruments to manage, or hedge, interest rate risk. The Company and its joint ventures do not enter into derivative instruments for speculative purposes. The Company and its joint ventures require that the hedging derivative instruments are effective in reducing the interest rate risk exposure. This effectiveness is essential for qualifying for hedge accounting. Changes in the hedging instrument's fair value related to the effective portion of the risk being hedged are included in accumulated other comprehensive income (loss). In those cases, hedge effectiveness criteria also require that it be probable that the underlying transaction occurs. Hedges that meet these hedging criteria are formally designated as cash flow hedges at the inception of the derivative contract. When the terms of an underlying transaction are modified, or when the underlying hedged item ceases to exist, the change in the fair value of the derivative instrument is marked to market with the change included in net income in each period until the derivative instrument matures. Additionally, any derivative instrument used for risk management that becomes ineffective is marked to market.

        To manage interest rate risk, the Company and its joint ventures may employ interest rate swaps, caps and floors, options, forwards or a combination thereof, depending on an underlying exposure. Interest rate swaps and collars are contractual agreements between the Company or joint venture and third parties to exchange fixed and floating interest payments periodically without the exchange of the underlying principal amounts (notional amounts). In the unlikely event that a counterparty fails to meet the terms of an interest rate swap contract or collar agreement, the Company's exposure is limited to the interest rate differential on the notional amount. The Company does not anticipate non-performance by any of its counterparties. Net interest differentials to be paid or received under a swap contract and/or collar agreement are accrued as interest expense as incurred or earned.

        Interest rate hedges that are designated as cash flow hedges, hedge the future cash outflows on debt. Interest rate swaps that convert variable payments to fixed payments, interest rate caps, floors, collars and forwards are cash flow hedges. The unrealized gains/losses in the fair value of these hedges are reported on the balance sheet and included in accounts payable and other liabilities or in investment in unconsolidated joint ventures (for joint venture hedges) with a corresponding adjustment to either accumulated other comprehensive income (loss) or in earnings depending on the hedging relationship. If the hedging transaction is a cash flow hedge, then the offsetting gains/losses are reported in accumulated other comprehensive income to the extent of the effective portion of the risk being hedged. Changes in the hedging instrument's fair value related to the effective portion of the risk being hedged are included in accumulated other comprehensive income (loss). Changes in fair value representing (1) the ineffectiveness of the hedging relationship and (2) any other component of fair value not related to the risk being hedged are recorded through earnings. Some derivative instruments are associated with the hedge of an anticipated transaction. Over time, the unrealized gains/losses held in accumulated other comprehensive income (loss) will be recognized in earnings consistent with when the hedged items are recognized in earnings.

        In conjunction with our policy to reduce interest rate risk, the Company, and its unconsolidated joint ventures, have entered into the following interest rate swaps to hedge the variability of monthly cash outflows attributable to changes in LIBOR. The swaps require us to receive LIBOR and pay a fixed rate. The terms of the derivative instruments, a reconciliation of their fair value and adjustments to accumulated other comprehensive income (loss) are as follows:

14

MILLS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited, Dollars in thousands except share, unit and per share data)

8.    FINANCIAL INSTRUMENTS: DERIVATIVES AND HEDGING (continued)

        The Opry Mills joint venture acquired a construction loan in September, 2002. In conjunction with this financing, Opry Mills entered into a collar agreement that effectively fixed LIBOR within a range from 6.275% to 7.0% on a notional amount of $170,000 maturing in September 2002. In June 2002, the Opry Mills joint venture terminated the collar, however, the debt for which the hedge was designated remained outstanding as a result of the Company's acquisition of Gaylord's interest in Opry Mills subsequent to the termination of the collar agreement (Note 6). The Company's share of the cost to terminate the hedge totaling $1,276 was deferred and amortized as interest expense through September 2002, the original maturity date of the hedge. The joint venture partner's share of the collar termination was $640. The collar's accumulated other comprehensive loss at December 31, 2001 was $5,979 and was reduced to zero at September 30, 2002 as a result of the termination and the effect of the passage of time on the fair value of the collar.

        In conjunction with the anticipated refinancing of the Concord Mills joint venture construction loan, the Company entered into a rate lock agreement which effectively fixes the interest rate at 6.065% on a notional amount totaling $181,000. The unrealized loss in fair value was $3,369 at September 30, 2002 and is included in accumulated other comprehensive income (loss). The Company anticipates that this loan will be consummated by December 31, 2002 and no amounts will be reclassified from accumulated other comprehensive income (loss) to earnings.

        Subsequent to September 30, 2002 the Company entered into deferred start interest rate exchange agreements to manage future interest rates. The agreements consist of swaps and involve the future receipt of a floating rate based on LIBOR and the payment of a fixed rate. The terms of the derivative instruments are as follows:

15

MILLS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited, Dollars in thousands except share, unit and per share data)

8.    FINANCIAL INSTRUMENTS: DERIVATIVES AND HEDGING (continued)

        Within the next twelve months, the Company expects to reclassify from accumulated other comprehensive income (loss) $1,959 to earnings as interest expense and our unconsolidated joint ventures expect to reclassify $4,491 to earnings as interest expense from the balance held in accumulated other comprehensive income (loss), of which the Company's pro-rata share is $1,019.

        The Company's pro-rata share of accumulated other comprehensive loss after minority interests at September 30, 2002 was $14,896. The Company's comprehensive income for the three and nine months ended September 30, 2002 was $1,193 and $24,409, respectively.

9.    DIVIDENDS DECLARED

        On September 17, 2002, the Company declared a dividend of $0.5475 per share which was paid on November 1, 2002 to shareholders of record as of October 18, 2002.

10.  CAPITAL STOCK

AUTHORIZED AND OUTSTANDING CAPITAL

        At September 30, 2002 and December 31, 2001, the total number of shares authorized and outstanding were as follows:

SALE OF COMMON STOCK

        On February 28, 2002, the Company sold an aggregate of 1,818,179 shares of common stock in two concurrent offerings at an initial purchase price of $27.50 per share. The net proceeds of both offerings, which totaled approximately $47,016 after discounts and expenses, were used to reduce the outstanding indebtedness under the Company's unsecured revolving loan.

        On May 6, 2002, the Company sold an aggregate of 7,500,000 shares of common stock at an initial price of $27.25 per share. The net proceeds of the offering, which totaled approximately $202,460 after discounts and expenses, were initially used to reduce the Company's outstanding indebtedness under the revolving loan and used as working capital until May 31, 2002. On May 31, 2002, the Company used approximately $124,480 of the net proceeds to acquire 50% of Simon's interest in Arizona Mills and 75% of Simon's interests in Arundel Mills, Concord Mills, Grapevine Mills and Ontario Mills. On June 28, 2002, the Company used approximately $30,910 of the net proceeds to acquire the ownership interest in Opry Mills that it did not already own (see Note 6).

16

MILLS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited, Dollars in thousands except share, unit and per share data)

10.  CAPITAL STOCK (continued)

EARNINGS PER SHARE

        The following table sets forth the computation of basic and diluted earnings per share as of the three and nine months ended September 30, 2002 and 2001, respectively: