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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1998 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ____________________ to ____________________
Commission File Number 1-12994
THE MILLS CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 52-1802283
(State or other jurisdiction of (I.R.S. Employer
incorporate or organization) Identification No.)
1300 WILSON BOULEVARD, SUITE 400
ARLINGTON, VA 22209
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (703) 526-5000
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class Name of each exchange on which registered
------------------- -----------------------------------------
COMMON STOCK, $0.01 PAR VALUE NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such report(s)) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
As of March 26, 1999, the aggregate market value of the 22,627,138 shares of
common stock held by non-affiliates of the registrant was $391,732,327 based
upon the closing price ($17.3125) on the New York Stock Exchange composite tape
on such date. (For this computation, the registrant has excluded the market
value of all shares of its common stock reported as beneficially owned by
executive officers and directors of the registrant and certain other
shareholders; such exclusion shall not be deemed to constitute an admission that
any such person is an "affiliate" of the registrant.) As of March 26, 1999,
there were 24,139,317 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's annual report to shareholders for the fiscal year
ended December 31, 1998 are incorporated by reference into Part II. Portions of
the registrant's proxy statement for the annual shareholders meeting to be held
in 1999 are incorporated by reference into Part III.
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THE MILLS CORPORATION
ANNUAL REPORT ON FORM 10-K
DECEMBER 31, 1998
TABLE OF CONTENTS
PART I .......................................................................3
Item 1. Business...............................................................3
Item 2. Properties............................................................18
Item 3. Legal Proceedings.....................................................45
Item 4. Submission of Matters to a Vote of Security Holders...................45
PART II ......................................................................46
Item 5. Market for the Registrant's Common Equity and Related
Shareholder Matters...................................................46
Item 6. Selected Financial Data...............................................47
Item 7 and 7A . Management's Discussion and Analysis of Financial Condition
and Results of Operations and Quantitative and Qualitative
Disclosures About Market Risk.........................................47
Item 8. Financial Statements and Supplementary Data...........................47
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure..............................................47
PART III .....................................................................48
Item 10. Directors and Executive Officers of the Registrant...................48
Item 11. Executive Compensation...............................................49
Item 12. Security Ownership of Certain Beneficial Owners and Management.......49
Item 13. Certain Relationships and Related Transactions......................49
PART IV ......................................................................50
Item 14. Exhibits, Financial Statements, Schedules and Reports and
Form 8-K.............................................................50
SIGNATURES ...................................................................53
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PART I
ITEM 1. BUSINESS
CAUTIONARY STATEMENT
Certain matters discussed in this Form 10-K and the information
incorporated by reference herein contain "forward-looking statements" for
purposes of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act") and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") relating to, without limitation, future economic
performance, plans and objectives of management for future operations and
projections of revenue and other financial items, demographic projections and
federal income tax considerations, which can be identified by the use of
forward-looking terminology such as "may," "will," "except," "anticipate,"
"estimate," or "continue" or the negative thereof or other variations thereon or
comparable terminology. Such forward-looking statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those described in such forward-looking statements.
THE COMPANY
Except as otherwise required by the context, references in this
Form 10-K to "we," "us," "our" and the "Company" refer to The Mills
Corporation and its direct and indirect subsidiaries, including The Mills
Limited Partnership, and references in this Form 10-K to the "Operating
Partnership" refer to The Mills Limited Partnership, of which The Mills
Corporation is the sole general partner.
We own interests in, develop, redevelop, lease and manage a portfolio
currently consisting of seven super-regional, value and entertainment oriented
malls (the "Mills"), 11 community shopping centers (the "Community Centers") and
one urban entertainment/retail project (the "Block"). We are a fully-integrated,
self-managed real estate investment trust (a "REIT") with approximately 1,200
employees as of December 31, 1998 and provide all development, redevelopment,
leasing, financing, management and marketing services with respect to all
properties currently in operation. The Mills comprise the primary focus of our
operations, with approximately 10.7 million square feet of gross leasable area
in seven states, of which approximately 1.0 million square feet is owned by
certain anchor tenants.
We were originally incorporated in the Commonwealth of Virginia on
January 2, 1991 and reincorporated in the State of Delaware in 1994. We became
publicly traded on April 21, 1994. We have authorized 150,000,000 shares of
common stock, $0.01 par value per share, comprised of 100,000,000 shares of
voting common stock and 50,000,000 shares of nonvoting common stock and
20,000,000 shares of preferred stock, par value $0.01 per share. As of December
31, 1998, there were 24,139,317 shares of common stock (including 1,007,620
shares of common stock issued to the Operating Partnership and held in escrow
to secure specific obligations pursuant to a settlement agreement with Chelsea
GCA Realty and Simon Property; see "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources--Development, Remerchandising and Expansion.") and no shares of
preferred stock outstanding. We are the sole general partner of the Operating
Partnership and currently own 59.35% of the Operating Partnership's outstanding
partnership units (before giving effect to the common stock held in escrow and
the corresponding partnership units associated with those shares). The
Operating Partnership's partnership units (other than those owned by us) are
exchangeable under certain circumstances for the cash equivalent of a share of
our common stock or, at our option, a share of our common stock. As the sole
general partner of the Operating Partnership, we have the exclusive power to
manage and conduct the business of the Operating Partnership, subject to
certain limited exceptions. The Operating Partnership either holds title to our
properties or directly or indirectly holds 100% of the general and limited
partnership interests in the partnerships that own the operating properties,
except for the joint ventures that own Ontario Mills, Grapevine Mills, Arizona
Mills and The Block at Orange in which the Operating Partnership holds 50.0%,
37.5%, 36.8% and 50.0% interest, respectively. The Operating Partnership has
also formed joint ventures to develop additional properties.
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We conduct all of our business through the Operating Partnership and the
Operating Partnership's various subsidiaries, which include: (i) Management
Associates Limited Partnership, which provides leasing and management services
for our properties, and (ii) MillsServices Corp., which provides management
services to properties in which we do not own an interest and provides
development services for our properties and new properties acquired by us. The
Operating Partnership owns 100% of the interests in the Management Associates
Limited Partnership, and 99% of the non-voting preferred stock (representing a
99% economic interest) and 5% of the voting common stock of MillsServices Corp.
In addition, a former director of ours and an affiliate of Kan Am U.S., Inc.
("Kan Am", which owns approximately 34.8% of the outstanding partnership units
in the Operating Partnership) each own 5% of the non-voting preferred stock
(representing, in the aggregate, a 1% economic interest) and 47.5% of the voting
common stock of MillsServices Corp.
We maintain our executive offices at 1300 Wilson Boulevard, Suite 400,
Arlington, Virginia 22209. Our telephone number is (703) 526-5000. We also
maintain a web site at www.millscorp.com.
OUR PORTFOLIO
The following table sets forth a summary of our operating properties as
of December 31, 1998:
APPROX. NO. OF 1998
GROSS PERCENT ANCHOR SPECIALTY
METROPOLITAN YEAR LEASABLE AREA LEASED STORES STORE SALES COMPANY
NAME/LOCATION AREA SERVICED OPENED (SQ. FT.) (1) (2) (3) PER SQ. FT. OWNERSHIP
- ------------- ------------- ------ ------------- --- --- ----------- ---------
MILLS
Washington,
Potomac Mills D.C./Baltimore 1985 1,636,870 96% 17 $ 320 100%
Philadelphia/
Franklin Mills Wilmington 1989 1,739,849 97 19 294 100%
Fort Lauderdale/
Sawgrass Mills Miami/Palm Beach 1990 1,878,522 99 20 448 100%
Gurnee Mills Chicago/Milwaukee 1991 1,653,978 98 16 282 100%
Ontario Mills Los Angeles 1996 1,345,096 (4) 99 18 345 50% (5)
Grapevine Mills Dallas/Ft. Worth 1997 1,240,781 (6) 98 16 300 37.5% (7)
Arizona Mills Phoenix 1997 1,208,899 98 15 301 36.8% (8)
--------- --
MILLS TOTALS/WEIGHTED AVERAGES 10,703,995 97% 121 $ 332 (9)
========== ===
BLOCKS
Los Angeles/
The Block at Orange Orange County 1998 642,554(10) 90% 9 -- 50% (11)
======= =
COMMUNITY CENTERS (11 SHOPPING CENTERS) Various 2,220,502 95% 28 $ 245 100%
========= ==
(1) Includes 963,173 square feet of gross leasable area owned by tenants as
follows: Potomac Mills-80,000 square feet; Franklin Mills-209,612 square
feet; Sawgrass Mills-281,774 square feet; Gurnee Mills-250,806 square
feet; Ontario Mills-125,000 square feet; and
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Community Centers-15,981 square feet. A ground lease at Franklin Mills of
152,370 square feet and a ground lease at Ontario Mills of 16,595 square
feet are also included.
(2) Percent leased is defined as all space leased and for which rent is being
paid as of December 31, 1998, excluding tenants with leases having a term
of less than one year, plus gross leasable area owned by store tenants.
(3) Anchor stores include all stores occupying more than 20,000 square feet.
(4) Ontario Mills will contain approximately 1.7 million square feet of gross
leasable area, including gross leasable area owned by tenants, upon
full build out.
(5) Our other joint venture partners are Kan Am, with a 25% interest, and
Simon Property, with a 25% interest. We and our other partners each are
entitled to a priority return during operations equal to 9% per annum on
unreturned capital contributions.
(6) Grapevine Mills will contain approximately 1.5 million square feet of
gross leasable area, including gross leasable area owned by tenants, upon
full build out.
(7) Our other joint venture partners are Kan Am, with a 25% interest, and
Simon Property, with a 37.5% interest. We and our other partners each are
entitled to a priority return during operations equal to 9% per annum on
unreturned capital contributions.
(8) Our other joint venture partners are Taubman Realty, with a 36.8%
interest, and Simon Property, with a 26.4% interest.
(9) Includes Grapevine Mills and Arizona Mills, which opened in October 1997
and November 1997, respectively. Excluding projects in their first full
year of operations (Grapevine Mills and Arizona Mills), the average sales
per square foot would be $342.
(10) The Block at Orange will contain approximately 0.8 million square feet of
gross leasable area, including gross leasable area owned by tenants,
upon full build out.
(11) Our other joint venture partner is Kan Am, with a 50% interest. Each
partner is entitled to a cumulative construction period preference and a
priority return during operations equal to 9% per annum on its unreturned
capital contributions.
A brief description of the three types of real estate projects in our
portfolio is set forth below:
Mills. The Mills are the primary focus of our operations. A typical Mills
contains 175 to 200 specialty tenants and 15 to 20 anchor tenants, and averages
approximately 1.5 million square feet of gross leasable area. Mills are
essentially a hybrid of various retail formats with a diverse tenant base
consisting of department stores, specialty stores, manufacturers outlets,
off-price retailers, catalog retailers, "category killers," which offer a
selection of products in one defined merchandise category, and entertainment
venues. A list of representative tenants is set forth below:
DEPARTMENT STORES SPECIALTY STORES MANUFACTURERS OUTLETS
----------------- ---------------- ---------------------
Off 5th by Saks Fifth Avenue Ann Taylor Ralph Lauren/Polo
Last Call from Neiman Marcus Benetton Nautica
Nordstrom Rack Joan and David Tommy Hilfiger
OFF-PRICE RETAILERS CATALOG RETAILERS
------------------- -----------------
Dress Barn Land's End
Famous Footwear Harry and David
Rack Room Shoes J.C. Penney Outlet
CATEGORY KILLERS ENTERTAINMENT VENUES
---------------- --------------------
Bed, Bath & Beyond AMC Theatres
Waccamaw Pottery Rainforest Cafe
The Sports Authority Dave & Busters
Mills are located in large, metropolitan areas with a minimum of one
million people within a 20 mile radius, a projected annual population growth of
at least 6%, a minimum median annual household income of $50,000 and a market
with steady tourist appeal. Prototypical physical layout is a "race track"
format of stores on one level with ample non-decked parking. We believe shoppers
of the Mills can generally be characterized as follows:
- shoppers within a 10-15 mile radius of the property that use the
Mills as their local regional mall equivalent;
- shoppers within a 15-40 mile radius that travel beyond other
retail offerings to access the breadth and uniqueness of the Mills
tenant mix; and
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- shoppers and tourists traveling from various distances as part of
a planned shopping experience.
Blocks. With the opening of The Block at Orange in November 1998, located
in Orange, California, we have begun the rollout of a new retail format
consisting of an open-air urban mainstreet atmosphere located in high traffic
areas. The Blocks will have a high component of entertainment including
restaurants, theatres and distinctive retail concepts such as Vans, a
clothing/shoe store and skateboarding park. The Block projects will have an
urban/suburban mainstreet scene with a size between 0.3 million square feet and
1.0 million square feet of gross leasable area and will be custom tailored for
each market and geographic location. We believe that this concept meets market
demand for an innovative retail format within target markets such as major
university towns, dense suburban areas and large city centers. We believe that
our success with the Mills concept will carry over to this new concept, as
evidenced by the 89% occupancy rate at the opening of The Block at Orange and
the favorable market reaction to this distinctive development.
Community Centers. The eleven Community Centers contain a total of
approximately 2.2 million square feet of gross leasable area and are located in
Florida, Georgia, Illinois, Maryland, New Jersey, Ohio, Pennsylvania, South
Carolina and Virginia. The Community Centers are open-air shopping centers
containing traditional shopping center tenants such as grocery, drug, video and
greeting card stores, as well as a strong concentration of national value
retailers. Anchor tenants of the Community Centers include Giant Food, Krogers,
Marshall's, Safeway, T.J. Maxx, Wal-Mart, Bed, Bath & Beyond and Walgreens.
While serving as a stable source of property operating income for the
Company, the Community Centers are not a strategic part of our business. We may
consider divesting these assets and redeploying the capital into the core
business of developing large scale value/entertainment-oriented assets. The
timing of any divestiture is dependent on market conditions.
COMPETITIVE ADVANTAGES
We believe that the Mills have a number of inherent competitive
advantages over other retail formats in operation today, and that these
advantages are responsible for the strong operating performance of our portfolio
of properties, as more fully described below.
Consumer Draw. We believe that the critical mass achieved by aggregating
an average of approximately 190 stores and 1.5 million square feet of gross
leasable area under one roof, coupled with the distinctive physical
characteristics of our Mills, are the primary reasons that our properties
attract so many people and create extended shopping trips. We believe people
are attracted to our distinctive mix of tenants, including department stores,
specialty stores, manufacturer's outlets, off-price retailers, catalog
retailers, "category killers," which offer a selection of products in one
defined merchandise category, and entertainment venues. We believe we have
created a shopping environment that is festive and social, with interior
designs resembling a "Mainstreet" atmosphere which incorporates staggered store
fronts and roof lines, natural lighting and colorful graphic accents. Shopping
avenues in our Mills are interspersed with a variety of food establishments and
video and entertainment courts, further enhancing the entertainment nature of
the shopping trip.
We believe our Mills have a primary trade area of an estimated 40 miles.
The Mills are the top tourist destinations in their respective states (excluding
Sawgrass Mills in Florida, which is second only to Disney World). The Mills
average 18 million visitors each per year, and are visited by an excess of
2,000 tour buses annually.
Brand Awareness. The Mills brand is synonymous with a one of a kind
value, entertainment and variety retail offering. We believe that the Mills is
the only retail shopping experience that is differentiated by its product type.
The Mills brand has intrinsic value due to its differentiation with the market,
consumers and tourist shoppers and their identification with the Mills brand.
Attractiveness to Tenants. We believe tenants are attracted to our Mills
as a result of the heavy foot traffic generated at the Mills and the length and
productivity of consumer visits, which translate into high sales levels. In
addition, we believe tenant occupancy costs are low as a result of lower common
area maintenance costs at a Mills versus many other retail formats. The lower
common maintanence costs are a result of several factors, including:
- Anchor contributions: due to 15 to 20 anchor stores contributing
significantly to common area maintenance pools;
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- Low maintenance costs: due to one-story construction, smaller
concourses and lack of deck parking; and
- Larger tenant base: due to each Mills' significant specialty
store shop tenant square footage, resulting in a lower per square
foot common area maintenance costs.
Flexibility of Product. The single-story, simple construction of our
Mills allows us to easily reconfigure them in response to changing retail
formats. Furthermore, our anchor leases give us more flexibility to establish
our preferred merchandise mix and to undertake any desired remodeling projects
than is afforded by traditional regional mall anchor leases. This makes it
easier for us to make room for new, exciting retailers, which keep the product
fresh and enhance consumer draw, and to replace underperforming stores.
Barriers to Entry. We believe that our status as the innovator of the
Mills and Block product types and our success with our existing portfolio have
made us the leading developer of large-scale value/entertainment oriented retail
projects. The strong relationships we have developed with our tenants give us a
number of competitive advantages in the development process, including the
ability to validate project feasibility in the predevelopment stage with tenant
commitments and the ability to fulfill significant pre-leasing requirements
imposed by construction lenders. In addition, the complexity and financial
commitment associated with developing a project the size and nature of a Mills
precludes many potential competitors from entering our business. Furthermore,
through our contractual alliances with Simon Property Realty Group, L.P. ("Simon
Property") and Taubman Realty Group, L.P. ("Taubman Realty"), we believe we are
already aligned with two of the strongest developers of retail projects in the
country. See "-- Strategic Relationships." Finally, we believe we are the only
company currently building Mills-type projects that has fully integrated
development capabilities reflecting lessons learned from successful past
development projects.
DEVELOPMENT PIPELINE
Projects Under Construction. As of December 31, 1998, we had four Mills
under construction, comprising approximately 4.2 million square feet of new
gross leasable area. Estimated total development cost for these projects is
approximately $726 million. After construction financing proceeds and joint
venture partner equity contributions, our equity requirement associated with
these projects is approximately $88.75 million, $45.4 million of which had been
funded as of December 31, 1998. The following table sets forth certain
information with regard to these projects.
MILLS UNDER CONSTRUCTION
APPROXIMATE ESTIMATED ANCHOR
ANTICIPATED GROSS TOTAL REQUIRED STORE
METROPOLITAN OPENING LEASABLE COMPANY PROJECT EQUITY FROM TENANT
NAME/LOCATION AREA SERVED DATE (1) AREA (1), (2) OWNERSHIP COST (3) COMPANY (4) COMMITMENTS
- ------------- ------------- -------- ------------- --------- ------------- ------------- -----------
(IN MILLIONS) (IN MILLIONS)
Sawgrass Mills - Ft. Lauderdale/
Phase III Miami/Palm Spring
Expansion Beach 1999 300,000 50% (5) $ 68 $ 0.00 4
Fall
Katy Mills Houston 1999 1,300,000 62.5% (6) 225 26.25 13
Fall
Concord Mills Charlotte 1999 1,400,000 37.5% (7) 211 12.50 11
Spring
Opry Mills Nashville 2000 1,200,000 66.7% (8) 222 50.00 5
--------- -------- --------
4,200,000 $ 726 88.75
========= ======== ========
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(1) Anticipated opening dates and approximate gross leasable area may be
subject to adjustment as a result of factors inherent in the development
process, some of which may not be under our direct control.
(2) Approximate gross leasable area includes space that will be owned by
anchor tenants.
(3) Our best estimate of aggregate project cost as of December 31, 1998 net
of reimbursements for tax increment financings, sales of land to anchor
tenants and other construction-related recoveries. Many of the underlying
components of development cost may not be under our direct control.
(4) Consists of equity requirement of the Company after construction loans
and joint venture equity partner contributions. Of the $88.75 million
required for all four projects, $45.4 million, or 51.2%, had been funded
by the Company as of December 31, 1998.
(5) Our other joint venture partner is Kan Am, with a 50% interest. Each
partner is entitled to a cumulative construction period preference and a
priority return during operations equal to 9% per annum on its unreturned
capital contributions.
(6) Our other joint venture partner is Kan Am, with a 37.5% interest. Each
partner is entitled to a cumulative construction period preference and a
priority return during operations equal to 9% per annum on its unreturned
capital contributions.
(7) Our other joint venture partners are Kan Am, with a 25% interest, and
Simon Property, with a 37.5% interest. Each partner is entitled to a
cumulative construction period preference and a priority return during
operations equal to 9% per annum on its unreturned capital contributions.
(8) Our other joint venture partner is a corporate affiliate of Gaylord
Entertainment Company, with a 33.3% interest. We are entitled to
a cumulative construction period preference and each partner is entitled
to a priority return during operations equal to 9% per annum on its
unreturned capital contributions.
The following is a brief description of the Mills projects currently
under construction:
Sawgrass Mills - Phase III Expansion - Sunrise, Florida.
The Phase III expansion of Sawgrass Mills will consist of an approximately
300,000 square foot entertainment zone, will be anchored by a 24-screen Regal
Theater, Gameworks, Wolfgang Puck Cafe and Ron Jon Surf Shop and will be
located across the ring road from the Florida Panthers Sports Arena. We expect
to open Phase III of Sawgrass Mills in the spring of 1999. Development costs
incurred through December 31, 1998 were approximately $32.5 million.
The Phase III expansion is being developed and is owned by a
limited partnership between us, with a 50% interest, and Kan Am, with a 50%
interest. Kan Am has agreed to fund 100% of the project's initial required
equity. We have no equity contribution requirement. Kan Am will receive a 9%
preferred return on its equity until permanent financing is secured for the
project. We have guaranteed Kan Am's receipt of this preferred return. After
permanent financing is secured, we and Kan Am will each receive a 9% preferred
return on our equity, and the remaining cash flow will be distributed pro rata
in accordance with the percentage ownership interests. We have the right to
provide all development, management and leasing services for the expansion,
subject to the approval of Kan Am of specified major decisions, including a sale
or refinancing of the project and the approval of the development and annual
budgets. We have guaranteed completion of the expansion within the parameters of
the approved development budget.
At specified times following the tenth anniversary of the
project's opening, either we or Kan Am can exercise a buy-sell provision.
Pursuant to the buy-sell provision, we can require Kan Am to sell to us, for
cash or limited partnership units of the Operating Partnership at Kan Am's
election, Kan Am's entire interest in the partnership. Also pursuant to the
buy-sell provision, Kan Am can require us to acquire, for cash or limited
partnership units of the Operating Partnership at our election, Kan Am's entire
interest in the partnership.
Katy Mills - Houston, Texas. In the first quarter of 1998, we
acquired a 500-acre site located at the intersection of Katy-Fort Bend Road and
I-10 in Fort Bend and Harris Counties. The approximately 1.3 million square foot
project planned for this site will consist of a combination of specialty
retailers, cinemas and themed restaurants. We have obtained anchor lease
commitments from Bed, Bath & Beyond, Books-A-Million, Jillian's, FYE (For Your
Entertainment), Starflight Cafe, Benetton Sportsystems, Sun & Ski, Boot Town,
Inc., AMC Theaters, Burlington Coat Factory, Marshalls, Bass Pro Shops and
Rainforest Cafe. Construction began on this project during the first quarter of
1998. The residual acreage that remains after the build out of the Katy Mills
project will be developed for mixed-use office and retail projects either by us
or by third parties. We expect to open this project in the fall of 1999.
Development costs through December 31, 1998 were approximately $106.2 million.
The project is being developed and is owned by a limited
partnership between us, with a 62.5% interest, and Kan Am, with a 37.5%
interest. Kan Am and we have committed to contribute up to $78.75 million and
$26.25 million, respectively, which represents 100% of the estimated equity
required for this project, and it is anticipated that construction and tax
increment financing will be obtained to complete the project. As of December
31, 1998, we had fully funded our commitment. We and Kan Am each will receive a
9% preferred return on our equity until permanent financing is secured for the
project. We have guaranteed Kan Am's receipt of this preferred return. After
permanent financing is secured, we and Kan Am each will receive a 9% preferred
return on our equity, and the remaining cash flow will be distributed pro rata
in accordance with the percentage ownership interests. We have the right to
provide all development, management and leasing services for the project,
subject to the approval of Kan Am for specified major decisions, including a
sale or refinancing of the project and approval of annual budgets. We have
guaranteed completion of the project within the parameters of an approved
development budget.
At specified times following the tenth anniversary of the
project's opening, either we or Kan Am can exercise a buy-sell provision.
Pursuant to the buy-sell provision, we can require Kan Am to sell to us, for
cash or limited partnership units of the Operating Partnership at Kan Am's
election, Kan Am's entire interest in the partnership. Also pursuant to the
buy-sell provision, Kan Am can require us to acquire, for cash or limited
partnership units of the Operating Partnership at our election, Kan Am's entire
interest in the partnership.
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Concord Mills - Charlotte, North Carolina. The Concord Mills
project will be situated on an approximately 165-acre site located at the
intersection of Interstate 85 and Kings Grant/Speedway Boulevard in the city of
Concord, North Carolina. The approximately 1.4 million square foot project
planned for this site will consist of a combination of specialty retailers,
cinemas and themed restaurants. We have obtained anchor lease commitments from
Burlington Coat Factory, Group USA, Jillian's, Bass Pro Shops, FYE (For Your
Entertainment), Alabama Grill, Sun & Ski, T.J. Maxx, Books-A-Million, Bed, Bath
& Beyond and AMC Theatres. We expect to open Concord Mills in the fall of 1999.
Acquisition and development costs incurred through December 31, 1998 were
approximately $72.2 million.
The project is being developed and is owned by a limited
partnership among us, with a 37.5% interest, Simon Property, with a 37.5%
interest, and Kan Am, with a 25% interest. We and Simon Property have committed
to contribute up to $12.5 million each and Kan Am has committed to contribute
up to $25.0 million to fund the project's equity capital requirements. As of
December 31, 1998, we had fully funded our commitment. The remainder of the
estimated project costs will be financed with a construction loan. We, Simon
Property and Kan Am each will receive a 9% preferred return on our equity until
permanent financing is secured for the project. We and Simon Property have
guaranteed Kan Am's receipt of this preferred return. After permanent financing
is secured, we, Simon Property and Kan Am each will receive a 9% preferred
return on our equity, and the remaining cash flow will be distributed pro rata
in accordance with the percentage ownership interests. We and Simon Property
have the right to provide development, management and leasing services for the
project. Development fees are allocated to us and Simon Property on a 60% and
40% basis, respectively. Leasing fees will be allocated to us and Simon
Property on a 75% and 25% basis, respectively. We will be entitled to a
management fee equal to 4% of revenues collected and Simon Property will be
entitled to an asset management fee equal to 2% of revenues collected.
Specified major decisions are subject to Simon Property's and Kan Am's
approval, which include the sale or refinancing of the project and approval of
annual budgets.
At specified times following the tenth anniversary of the
project's opening, either we and Simon Property together or Kan Am can exercise
a buy-sell provision. Pursuant to the buy-sell provision, we and Simon Property
can require Kan Am to sell to us, for cash or limited partnership units of the
Operating Partnership and limited partnership units of Simon Property at Kan
Am's election, Kan Am's entire interest in the partnership. Also pursuant to the
buy-sell provision, Kan Am can require us and Simon Property to acquire, for
cash or limited partnership units of the Operating Partnership and limited
partnership units of Simon Property at our and Simon Property's election, Kan
Am's entire interest in the partnership.
Opry Mills - Nashville, Tennessee. Opry Mills will be constructed
on a 67-acre site located adjacent to the Grand Ole Opry and the Opryland Hotel
Convention Center. Opry Mills will have approximately 1.2 million square feet of
retail and entertainment space and will feature an entertainment corridor
connecting the enhanced Opry Plaza and Cumberland Landing areas. We have
obtained anchor lease commitments from Regal Cinemas, Bass Pro Shops, Virgin
Megastore, Alabama Grill and Rainforest Cafe. Construction began in October
1998. We expect to open this project in the spring of 2000. Development costs
through December 31, 1998 were approximately $40.0 million.
The project is being developed and is owned by a limited
partnership between us, with a 66.7% interest, and a corporate affiliate of
Gaylord Entertainment Company, with a 33.3% interest. We have committed to
contribute up to $50 million to fund the project's equity capital requirements,
while the affiliate of Gaylord Entertainment Company has contributed the land
for the project, valued at $25 million. The remainder of the project costs will
be financed with a construction loan. We will receive a 9% preferred return on
our equity until such time as permanent financing is secured. After permanent
financing is secured, we will receive a new 9% preferred return on our equity.
After this preference, the affiliate of Gaylord Entertainment Company will
receive a 9% preferred return on its $25 million land contribution. After this
preference is paid to the affiliate of Gaylord Entertainment Company, the
remaining cash flow will be distributed pro rata in accordance with the
percentage ownership interests. We have the right to provide development,
leasing and management services for the project, subject to the approval of
such affiliate of Gaylord Entertainment
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Company for specified major decisions, including a sale or refinancing of the
project and approval of annual budgets.
At specified times, following the tenth anniversary of the
project's opening or at any time after the opening if the partners are unable to
agree on specified major decisions, either we or the affiliate of Gaylord
Entertainment Company can exercise a buy-sell provision. Pursuant to the
buy-sell provision, either party, as the offeror, may require the other party,
as the offeree, to elect to either sell to the offeror the offeree's interest in
the partnership or purchase from the offeror the offeror's interest in the
partnership.
Projects Under Development. In addition to the projects currently
under construction, we are also actively pursuing other prospective projects.
These projects are in various levels of the due diligence stage where we are in
the process of determining site/demographic viability, negotiating tenant
commitments or working through third-party approval processes. Consistent with
past practice, we will not begin construction on these projects until we have
completed our investment due diligence process and obtained significant
pre-leasing commitments. While we currently believe that these projects will
ultimately be completed, we cannot assure you that they will actually be
constructed or that they will have any particular level of operational success
or ultimate value. The following is a brief description of these prospective
projects. As of December 31, 1998, we had invested $49.3 million in the pursuit
of these prospective projects.
Vaughan Mills - Toronto, Ontario. We and Cambridge Shopping
Centers Ltd. have secured a site for the proposed development of a
Mills project. The 180-acre site is located in the City of Vaughan at the
southeast corner of Highway 400 and Rutherford Road, approximately 20 miles
north of downtown Toronto, Ontario. Upon completion, this project would be the
first Mills outside of the United States. Subject to the receipt of necessary
government approvals, construction is anticipated to begin by the spring of
2000. As of December 31, 1998, we had invested approximately $8.8 million in
this project.
We anticipate that the project will be developed and owned by a
limited partnership between us and Cambridge Shopping Centers Ltd. The limited
partnership agreement is still under negotiation. However, we anticipate that
our ownership interest will be 50%.
Meadowlands Mills - Carlstadt, New Jersey. We have acquired a
mortgage interest in a 595-acre site located on the New Jersey Turnpike (I-95)
adjacent to the Meadowlands Sports Complex and approximately five miles from New
York City and have signed certain preliminary agreements with Empire Ltd., the
current owner of the site, concerning the development of Meadowlands Mills.
Current plans also call for the construction of up to 1.0 million square feet of
office space and a 300 room hotel on the site. Timing of construction is
uncertain due to ongoing environmental impact studies and the federal and state
permitting process. In December 1997, the White House Council on Environmental
Quality joined the Army Corps of Engineers, the Environmental Protection Agency
and other federal agencies in proposing a Special Area Management Plan for the
Hackensack Meadowlands area. This plan provides a context and streamlined
process for evaluating and approving development proposals, including the
federal fill permit application now pending for this project. The guidelines
proposed in the plan would, upon their anticipated adoption by September 1999,
allow Meadowlands Mills to be developed on a site containing approximately 90
net developable acres. Approval of the plan is not required before completion of
the permitting process. We anticipate that site preparation could commence
during the second quarter of 2000. As of December 31, 1998, costs to date
invested in this project were $38.3 million, of which we had funded $21.3
million.
After we have received all necessary permits, we anticipate that
the project will be developed and owned by a limited partnership among us, Kan
Am, Empire Ltd. and Bennett S. Lazare, an individual affiliated with Empire Ltd.
Kan Am has committed to contribute approximately $70 million to the project if
it proceeds as planned. Final adjustments to the ownership interests of the
partners are under negotiation. We anticipate that Kan Am will receive a 9%
preferred return on its equity, which we will guarantee until permanent
financing is
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secured for the project. After the Kan Am preference, we anticipate that each
of the remaining partners will receive a 9% preferred return on their equity,
and the remaining cash flow will be split in accordance with the percentage
ownership interests.
Arundel Mills - Dorchester, Maryland. Jointly with Simon
Property, we have entered into a purchase agreement to acquire an approximately
400-acre site located near the intersection of the Baltimore-Washington Parkway
and State Route 100 in Anne Arundel County, Maryland. The project will contain
approximately 1.3 million square feet of gross leasable area on a site
containing approximately 107 acres. We intend to develop the remainder of the
site for commercial, office or other uses compatible with the Mills project. We
are in the process of seeking certain governmental approvals for the project and
tax increment financing. Subject to obtaining these approvals and closing on the
acquisition of the site, we anticipate that construction could commence during
1999 and that the project could open as early as 2000.
We anticipate that the project will be developed and owned by a
limited partnership among us, with a 37.5% interest, Simon Property, with a
37.5% interest, and Kan Am, with a 25% interest. We anticipate that we, Simon
Property and Kan Am will receive a 9% preferred return on our equity, and the
remaining cash flow will be distributed pro rata in accordance with the
percentage ownership interests. Prior to securing permanent financing for the
project, Kan Am's 9% preferred return will be guaranteed by us and Simon
Property.
Projects Under Review. In addition to the projects discussed
above, we are also conducting due diligence on several other proposed
developments, including sites in San Francisco, California; North Aurora,
Illinois; Atlanta, Georgia; Cleveland, Ohio; Denver, Colorado; Philadelphia,
Pennsylvania; South Weymouth, Massachusetts; and Tampa, Florida. We are also
continuing to evaluate various prospective international sites, with a
concentrated focus on Western Europe, as well as other domestic sites for Mills
and Block projects.
NEW BUSINESS OPPORTUNITIES
The following is a brief description of new revenue generating
opportunities that are related to, or are extensions of, our core business of
developing, redeveloping, leasing, financing and managing retail projects. We
generated $2 million in revenues though these initiatives in 1998, their first
full year of operation. We expect to grow this aspect of our business
significantly during the next few years, subject to tax law limitations
applicable to REITs.
Advertising/Non-Traditional Programs. In 1998, we began selling corporate
advertising space in Mills malls to both tenants and non-tenants through a
sponsorship program. We believe that the consumer traffic generated at our
properties make them valuable environments for corporate advertisers seeking to
market their products in non-traditional ways. At The Block at Orange, for
example, we erected over 19 billboards to enhance the urban mainstreet
experience while adding architectural features to the mall. We contracted with a
third-party billboard company to sell advertising on these billboards to both
tenants in the mall and non-tenants. In 1998, the initial year of our
sponsorship program, we generated approximately $0.7 million in sponsorship
revenue portfolio wide.
Other non-traditional programs conducted in 1998 include participating in
revenues from ATM machines and payphone operations located at our properties, as
well as leasing telephone lines to phone providers. These other activities
grossed approximately $1.3 million in revenue in 1998.
Investing in Retail and Entertainment Concepts. Historically, many new
retail and entertainment concepts have been developed and expanded at the Mills.
Examples include:
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- retail companies that have used Mills projects to launch
extensions of their brands, including Neiman Marcus and Saks Fifth
Avenue, which opened its first Off 5th by Saks Fifth Avenue
store at Franklin Mills in February 1990;
- urban retailers, including Virgin Megastore, Wolfgang Puck and
Planet Hollywood, which have used Mills projects to expand into
non-urban markets; and
- participatory retailers like Van's Skate Park and Bass Pro Shops
Outdoor World that are using Mills and Block projects to launch
new retail entertainment concepts and for additional promotion of
their products.
New concepts frequently require significant capital, which is provided by
both the tenant and landlord in the form of tenant allowances and
buildout. In a typical landlord/tenant relationship, the landlord receives
rental income for its investment and, if the concept performs well, can increase
its returns through percentage rents as well. Mills Enterprises, Inc., a
separate corporation wholly owned by MillsServices Corp., is able to acquire,
without significant investment, interests of up to 50% in retail, food and
beverage and entertainment enterprises in the early stage of their growth
cycles. Initial investments by Mills Enterprises, Inc. include partnership
interests in two Wolfgang Puck restaurants, two Ron Jon Surf Shops and 100%
interest in various kiosks and food courts. We have initially limited our
investment in Mills Enterprises, Inc. to $25 million. While we believe that this
initiative presents significant opportunities, the tax laws applicable to REITs
limit our ability to expand these types of investments.
CAPITAL STRATEGIES
To fund our capital needs, we have generally utilized project specific
secured financing, joint venture equity contributions, cash flow from operations
and our line of credit. New development is financed with construction loans, tax
increment municipal financing and joint venture partner equity contributions.
After project openings, the properties are refinanced with permanent debt
in the form of non-recourse, fixed rate mortgage debt. A description of our
capital cycle and the various funding sources utilized follows.
Development Financing. A typical Mills project will cost approximately
$200 to 250 million to build. Approximately 65 to 75% of this cost is funded
with a construction loan, provided by a bank group led by an agent bank. This
financing is obtained after a substantial portion of the equity contributions
to a project have been made and is based upon the achievement of certain levels
of pre-leasing. We have relationships with multiple lenders in the construction
loan market, evidenced by the fact that each of our last four development
projects were lead by different banks. Our construction loans generally have
terms of four years, some with extension options for an additional three years.
Interest rates range from 110 to 225 basis points over LIBOR. The construction
loans are guaranteed by us and our joint venture partners other than Kan Am,
and are generally obtained on a several and not joint basis. When Kan Am is a
partner in a project, we and our other joint venture partners, on a pro rata
basis, guarantee Kan Am's portion of the construction debt in addition to our
own portions. See "-- Strategic Relationships." All guarantees are reduced
incrementally after completion of a project based upon the achievement of
interest coverage ratios (ranging from 1.0 to 1.5).
In addition to construction debt, we have historically been able to
obtain tax increment financing to fund infrastructure costs (including roads,
traffic signals and interstate on and off ramps). This financing generally takes
the form of bonds that are issued by the local municipality in which our project
is located, and the capital is advanced as the infrastructure improvements are
constructed. This financing is advantageous to us because debt service is
typically paid from special tax assessments levied against the project which are
passed on to the tenants as part of their contractual leases, or from sales tax
revenues generated by the project and paid by shoppers. We have been successful
in obtaining this form of financial assistance because our projects typically
create new jobs and generate large sales revenues, much of which comes from
outside the municipality and is therefore beneficial to the municipality.
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The remainder of the cost of a development project is funded with equity
contributed by us and our joint venture partners. See "-- Strategic
Relationships." These equity contributions fund the initial development costs
prior to the funding of the construction loan. Our share of required equity is
funded with cash from operations, including proceeds from land sales, our $100
million line of credit and proceeds from any corporate debt or equity
offerings.
Permanent Financing. After a new project opens and stabilizes (generally
within 24 months of opening), we generally refinance the construction loan with
permanent, fixed rate, non-recourse mortgage debt. This debt usually has a
ten-year term and is amortized over 30 years. We have found that the credit of
our tenants and the stable nature of the property cash flows make our projects
attractive collateral for a number of real estate lenders, including commercial
banks, life insurance companies and investment banks (in the form of commercial
mortgage backed securitizations). When refinancing a construction loan, we
generally have not increased the leverage on a property and have historically
achieved investment grade ratings on the entire refinanced balance. As of
December 31, 1998, all of our operating Mills other than Arizona Mills, which
opened November 1997, are encumbered by permanent investment grade securitized
mortgage loans. As of December 31, 1998, our indebtedness had a weighted average
maturity of 5.2 years and a weighted average interest rate of 6.81%. None of our
project specific debt is cross-collateralized. We intend to permanently finance
our future projects in a similar manner.
STRATEGIC RELATIONSHIPS
We have formed strategic relationships with certain developers and equity
partners. These relationships serve as a source of equity for new development
projects, mitigate development risk and competition and provide assistance in
the identification of new development opportunities and the development and
expansion of tenant and lender relationships. The following is a brief
description of our contractual strategic partnerships.
Simon Property. In November 1995, we entered into an agreement with Simon
Property pursuant to which we agreed to examine with Simon Property the
feasibility of developing Mills projects in eight specified markets. Out of the
eight markets originally contemplated by the agreement, we have jointly, with
Simon Property, developed Grapevine Mills in Grapevine, Texas, and Arizona Mills
in Phoenix, Arizona; in addition, we have jointly developed Ontario Mills in
Ontario, California. We are in the process of developing Concord Mills in
Charlotte, North Carolina and we expect to begin joint development of Arundel
Mills in Anne Arundel County, Maryland during 1999. The agreement generally
provides that when Simon Property jointly develops a Mills project with us, each
party will hold equal interests and will be required to contribute needed equity
on a pro rata basis. The agreement restricts Simon Property from developing any
Mills project unless it first offers to us the right to participate equally in
such development. In exchange, the agreement also restricts us from developing a
Mills project in 25 specified metropolitan areas in which Simon Property has
major mall investments without first offering to Simon Property the right to
participate equally in such development. These restrictions extend through
December 2003. The agreement also prohibits Simon Property from acquiring more
than 800,000 shares of our common stock or from hiring specified members of our
senior management without our prior written approval.
Taubman Realty. In May 1998, we entered into an agreement with Taubman
Realty (a member of our joint venture that developed Arizona Mills) to jointly
develop four Mills projects during a five-year period and a total of seven Mills
projects in a ten-year period. The agreement establishes ownership percentages
for each project, and contemplates that the partners will contribute their pro
rata share of the equity required for such projects. The agreement requires that
each partner approve major decisions on the venture, and requires the partners
to share responsibility for developing, leasing and managing the projects.
Pursuant to this agreement, we currently are exploring with Taubman Realty the
feasibility of developing a Mills project on a site in the Denver, Colorado
metropolitan area.
Kan Am. We have a long-standing relationship with Kan Am, a German
syndicator of closed U.S. real estate funds which currently manages about $650
million in equity for approximately 3,000 German investors. Over the last two
years, Kan Am has invested $150 million in equity in various projects with us.
To date, Kan Am has never disapproved an offer to participate in any individual
Mills project or failed to raise the agreed upon level of capital.
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In addition to its existing investments at the property level, Kan Am
owns approximately 33.6% of the partnership units of the Operating Partnership,
which are freely exchangeable on a one-to-one basis for our common stock.
Directors and executive officers of Kan Am hold three seats on our Board of
Directors.
On February 4, 1999, we received from Kan Am an agreement that provides
that (i) Kan Am will contribute an additional $26.25 million to the Katy Mills
joint venture, as described above, (ii) Kan Am will contribute approximately
$25 million to the Concord Mills joint venture in 1999 and will participate in
developing an additional parcel at Concord Mills, as described above, (iii)
Kan Am will contribute approximately $70 million to the Meadowlands Mills joint
venture if the project proceeds as planned, as described above, and (iv) Kan Am
will contribute approximately $35 million to a joint venture to develop Arundel
Mills in exchange for a 25% interest in the joint venture, as described above.
In addition, Kan Am agreed in principle to provide approximately $120 to 160
million of additional financing for certain proposed projects under review by
us. Finally, Kan Am agreed to work with us to identify joint projects over the
next few years and, if projects are agreed upon between us, to use its best
efforts to provide approximately $150 million of additional financing in each
of 2001, 2002 and 2003 for such projects.
We expect that the terms of our future arrangements with Kan Am will be
similar to Kan Am's historical capital contributions in our projects. Kan Am
will agree to use its best efforts to provide up to one-half the required
equity for a project in return for an ownership interest equal to half of the
percentage of total project equity it has funded. Each of us, other partners
and Kan Am will be entitled to receive a 9% preferred return on our equity. We
and other partners will guarantee Kan Am's preference until such time as
permanent financing is secured for the project. After permanent financing is
secured, each partner will get a 9% preference on their equity, and the
remaining cash flow is split pro rata per the respective ownership interests.
We, along with any other joint venture partners on a specific project,
guarantee Kan Am's portion of construction debt.
As of December 31, 1998, Kan Am has property level investments in three
existing projects, Ontario Mills, Grapevine Mills and The Block at Orange, and
is currently a partner in two of our projects under construction, Katy Mills and
Concord Mills, as well as in our Phase III expansion of Sawgrass Mills. In
addition, Kan Am is participating with us in our efforts to develop the
Meadowlands Mills site near Carlstadt, New Jersey.
ASSET MANAGEMENT STRATEGIES
We believe that the property operating income provided by our existing
assets is a stable, predictable source of cash flow from which to fund our
corporate endeavors, including the development of new projects and the payment
of distributions to shareholders. All of our Mills have experienced stable,
moderate growth in standard measures of real estate operating performance. We
believe these results are attributable to our ability to optimize our tenant
mix, actively manage and promote our assets to tenants and consumers, and
maintain the high standards of our physical assets while maintaining low tenant
occupancy costs.
Optimization of Tenant Mix. Our management actively manages and leases
the properties with the goal of maintaining a fresh and exciting tenant mix that
continues to appeal to consumers over time. Below are examples of our
management's recent efforts in this regard.
At Potomac Mills, we remerchandised approximately 60,000 square feet of
specialty space over the last two years, adding tenants such as Brooks Brothers,
Hush Puppies, Jones New York, Oshkosh B'Gosh, Pacific Sunwear, Polo Ralph Lauren
Factory Store, Samsonite and Tommy Hilfiger. Average specialty store sales at
Potomac Mills rose approximately 11% from 1996 to 1998, to $320 per square foot.
At Franklin Mills, we upgraded our tenant mix by adding approximately
135,000 square feet of fashionable new tenants including Aeropostale, BCBG,
DKNY, Kenneth Cole, L'eggs Hanes Bali, Old Navy, Perry Ellis, Polo Ralph Lauren
Factory Store, Reebok-Rockport and Greg Norman, The Gap Outlet and
Track-n-Trail. Additionally, we updated the food court and created an
entertainment zone with a large-scale general cinema and themed restaurants like
Elephant & Castle Pub and Rainforest Cafe. Average specialty store sales at
Franklin Mills rose approximately 16% from 1996 to 1998, to $294 per square
foot.
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At Gurnee Mills, we have re-tenanted 30,000 square feet with upscale
fashion tenants such as The Gap Outlet, Abercrombie & Fitch and Nautica and
added a 125,000 square foot Bass Pro Shops Outdoor World. Average specialty
store sales at Gurnee Mills rose approximately 12% from 1996 to 1998, to $282
per square foot.
Active Management and Promotion of Properties to Tenants and Consumers.
As a result of the performance of our properties and our strong relationships
with retailers, the Mills have had high degree of tenant retention. During 1998,
for example, 69% of the expiring specialty store gross leasable area was renewed
by the existing tenants.
We generally obtain favorable lease terms as evidenced by the long
duration of our leases, their fixed rent steps and their percentage rent
provisions.
Anchor leases, which generally represent approximately 62% of
the gross leasable area of any individual project, generally have a ten-year
term with a series of five-year options exercisable at the tenant's discretion.
Specialty store leases generally range from three to seven years in term. As of
December 31, 1998, the weighted average lease maturity for our existing
portfolio of leases was 6.2 years.
Our leases generally provide for the payment of a fixed base rent as well
as an additional rent based upon sales levels achieved by the tenant. The lease
agreements also typically provide for base rental increases either in the form
of fixed rate step ups or consumer price index increases. As of December 31,
1998, these embedded rental increases totaled $45.4 million of additional
rent to be received over the remaining lives of the leases, assuming no early
terminations.
We promote our Mills to consumers by spending $1.0 million to $2.5
million annually per Mills on advertising aimed at consumers. Our success in
this program is evidenced by the following:
- 18 million visitors per Mills, ranking each Mills as the top
tourist attraction in its respective state (excluding Sawgrass
Mills in Florida, which is second only to Disney World);
- Average length of visit is significantly higher than the peer
group average; and
- Primary trade area is extended to 40 miles with tourist draw from
50 states and 49 countries.
Maintenance of High Standards of Physical Assets and Low Tenant
Occupancy Costs. We believe our properties are well maintained physically. To
ensure a high quality shopping experience for our customers, in addition to our
regular recurring maintenance program, we invested an additional $89.2 million
in renovation and expansion projects at our assets during that same period.
While continuing the high appearance standard and maintenance level of
our properties, we have maintained an affordable cost of occupancy for our
tenants. During 1998, specialty store cost of occupancy for the seven Mills
opened for a full year or more totaled 11.5%. (The industry average for
specialty store cost of occupancy for 1997 was 12.9%, according to Urban Land
Institute Dollars & Cents Shopping Centers: 1998).
DEVELOPMENT STRATEGY
Proven Track Record. Since our initial public offering in April 1994, we
have developed and opened three new Mills projects and one new Block project,
adding a total of approximately 4.4 million square feet of new gross leasable
area to our portfolio at a total cost of approximately $700 million. Each of
these projects was completed on time and under budget, with strong occupancy
levels as outlined below:
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OCCUPANCY AT OCCUPANCY AT
PROJECT DATE OPENED OPENING (1) DECEMBER 31, 1998 (1)
- ------- ----------- ----------- ---------------------
Ontario Mills November 1996 91.3% 98.9%
Grapevine Mills October 1997 91.8 98.0
Arizona Mills November 1997 92.6 97.6
The Block at Orange November 1998 88.5 89.7
(1) Occupancy is percentage of gross leasable area subject to fully executed
leases.
Disciplined Approach. We intend to complete two to three new development
projects per year, depending on market conditions and capital availability. We
employ what we consider to be a highly disciplined approach to the development
process. Our in-house development team consists of several senior officers who
are responsible for all aspects of development, including market research, site
selection, predevelopment, construction and tenant coordination. We maintain
strict asset management control through the entire development process,
including frequent internal reviews of costs and leasing status.
To mitigate development risk, we have adopted a number of procedures,
including the following:
- Site Selection: Mills projects are developed in the top standard
metropolitan statistical areas that are populous, growing and
reasonably affluent. We select sites within our target markets
that have at least one million people within a 20-mile radius. The
sites must be well situated and near major transportation
arteries. We perform predevelopment work when land is under option
to minimize capital exposure.
- Pre-leasing: We obtain tenant validation prior to land acquisition
and significant pre-leasing commitments prior to construction
commencement and financing. We traditionally obtain letters of
intent and approvals from at least five to ten key anchor tenants
indicating their desire to join us in the project. Typically, a
project will be 40-50% pre-leased before construction financing is
funded.
- Financing: We maintain a network of relationship banks to
facilitate construction financing and utilize strategic and
financial equity partners to share in the risks and costs,
including loan guarantees.
ADDITIONAL FACTORS
Seasonality. The regional shopping center industry is seasonal in nature,
with mall tenant sales peaking in the fourth quarter due to the holiday season.
As a result, a substantial portion of the percentage rents are not paid until
the fourth quarter. Furthermore, most new lease-up occurs towards the later part
of the year in anticipation of the holiday season and most vacancies occur
toward the beginning of the year. In addition, the majority of the temporary
tenants take occupancy in the fourth quarter. Accordingly, cash flow and
occupancy levels are generally lowest in the first quarter and highest in the
fourth quarter. This seasonality also impacts the quarter-by-quarter results of
net operating income and funds from operations. However, minimum rent, which is
the largest source of income, is not affected by seasonality.
Environmental Matters. We believe that our properties are in compliance
in all material respects with all federal, state and local ordinances and
regulations regarding hazardous or toxic substances. We are not aware of any
environmental condition which we believe would have a material adverse effect on
our financial condition or results of operations (before consideration of any
potential insurance coverage). Nevertheless, it is possible that there are
material environmental liabilities of which we are unaware. Moreover, no
assurances can be given that (i) future laws, ordinances or regulations will not
impose any material environmental liability or (ii) the current environmental
condition of our properties have not been or will not be affected by tenants and
occupants of our properties, by the condition of properties in the vicinity of
our properties or by third parties unrelated to us.
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Limited quantities of asbestos containing materials are present in
certain of our properties. The asbestos containing materials found are generally
non-friable (meaning that the asbestos containing materials are not easily
crumbled and thus are less likely to release asbestos fibers into the air), in
good condition and are unlikely to be disturbed. With certain exceptions, these
asbestos containing materials will be removed by us in the ordinary course of
renovation or reconstruction. Prior to removal, these asbestos containing
materials will be monitored and maintained by us in accordance with procedures
established by the Environmental Protection Agency, the Occupational Safety and
Health Administration and other applicable governmental authorities.
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ITEM 2. PROPERTIES
The following tables set forth certain information relating to the
properties as of December 31, 1998. We either hold title to the properties or
directly or indirectly hold 100% of the general and limited partnership
interests in the partnerships that own the properties, except for joint
ventures that own Ontario Mills, Grapevine Mills, Arizona Mills and The Block
at Orange in which the Operating Partnership holds 50%, 37.5%, 36.8% and 50.0%
interests, respectively. The Operating Partnership has also formed joint
ventures to develop additional properties.
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SUMMARY OF PROPERTIES
The following table sets forth certain information with respect to the
Mills, the Block and the Community Centers as of December 31, 1998:
APPROX.
GROSS ANNUALIZED NO. OF
METROPOLITAN YEAR LEASABLE AREA PERCENT BASE ANCHOR
NAME/LOCATION AREA SERVICED OPENED (SQ. FT.)(1) LEASED (2) RENT (3) STORES (4)
------------- ------------- ------ ------------ ---------- -------- ----------
MILLS
Potomac Mills....... Washington D.C./Baltimore 1985 1,636,870 96% $ 21,067,598 17
Franklin Mills....... Philadelphia/Wilmington 1989 1,739,849 97% 18,454,122 19
Fort Lauderdale, FL/
Sawgrass Mills.. Miami/Palm Beach 1990 1,878,522 99% 25,087,996 20
Gurnee Mills....... Chicago/Milwaukee 1991 1,653,978 98% 17,277,272 16
Ontario Mills...... Los Angeles 1996 1,345,096 (5) 99% 18,426,668 18
Grapevine Mills.. Dallas/Fort Worth 1997 1,240,781 (6) 98% 20,816,085 16
Arizona Mills...... Phoenix 1997 1,208,899 98% 19,221,802 15
------------ ------------- -----
MILLS TOTALS/WEIGHTED AVERAGES 10,703,995 97% $ 140,351,543 121
============ ============= =====
The Block at Orange Los Angeles/Orange County 1998 642,554 (8) 90% 13,529,046 9
============ ============= =====
COMMUNITY CENTERS (11 CENTERS) 2,220,502 95% $ 18,830,602 28
============ ============= =====
1998 1998
SPECIALTY ANCHOR
STORE SALES STORE SALES
NAME/LOCATION ANCHOR STORE TENANTS PER SQ. FT. PER SQ. FT.
------------- -------------------- ----------- -----------
MILLS
Potomac Mills....... American Multi-Cinema, Books-A-Million, Burlington Coat Factory, $ 320 $ 202
Daffy's, Everything Rubbermaid, IKEA, J.C. Penney, Linens 'N Things,
Marshalls, Nordstrom Rack, Saks Clearinghouse, Spiegel, Sports
Authority, Syms, T.J. Maxx, Waccamaw Pottery, Group USA
Franklin Mills....... Bed, Bath & Beyond, Boscov's, Burlington Coat Factory, Filene's 294 160
Basement, General Cinema, Group USA, J.C. Penney, Last Call-Neiman
Marcus, Marshalls, Modells, Nordstrom Factory, Off 5th Clearinghouse,
OfficeMax, Pharmor, Off 5th by Saks Fifth Avenue, Sam's Wholesale,
Syms, Rainforest Cafe, Jillian's
Sawgrass Mills.. Beall's Outlet, Bed, Bath & Beyond, Books-A-Million, Brandsmart, 448 301
Burlington Coat Factory, Cobb Theatre, J.C. Penney, Last Call-Neiman
Marcus, Filene's Basement, Marshalls, Outlet Marketplace, Rainforest
Cafe, Saks, Service Merchandise, Spec's Outlet, Spiegel, Sports
Authority, T.J. Maxx, Target, Waccamaw Pottery
Gurnee Mills....... Bass Pro Shops, Bed, Bath & Beyond, Burlington Coat Factory, Computer 282 170
City, J.C. Penney, Lord & Taylor, Marcus Cinema, Marshalls, Off 5th -
Saks Fifth Avenue, Rainforest Cafe, Spiegel, Sports Authority, Syms,
T.J. Maxx, Value City, Waccamaw Pottery
Ontario Mills...... AMC Theatres, American Wilderness, Bed, Bath & Beyond, Burlington Coat 345 165
Factory, Dave & Busters, Foozles, Group USA, J.C. Penney, Marshalls,
Mikasa, Off Rodeo Drive, Saks Fifth Avenue, Sega Gameworks, Sports
Authority, T.J. Maxx, Totally for Kids, Virgin Megastores, Rainforest
Cafe
Grapevine Mills.. Bed, Bath & Beyond, Books-A-Million, Burlington Coat Factory, Group 300 179
USA, J.C. Penney, Marshalls, Off Rodeo Drive, Old Navy, Rainforest
Cafe, Saks Fifth Avenue, Sega Gameworks, Sports Authority, Virgin
Megastores, Western Warehouse, American Multi-Cinema, American
Wilderness
Arizona Mills...... Burlington Coat Factory, Gameworks, Group USA, Harkin's Great Mall 301 170
Cinemas, Hi-Health World of Nutrition, J.C. Penney, Linens' N Things,
Marshalls, Off 5th Saks Fifth Avenue, Off Rodeo Drive, Oshman's
Supersports, Rainforest Cafe, Ross Dress for Less, Virgin Megastores,
American Wilderness
MILLS TOTALS/WEIGHTED AVERAGES $ 332(7) $ 199
The Block at Orange Borders Books and Music, Vans, Virgin Megastores, Off-5th Saks Fifth N/A(9) N/A(9)
Avenue, Ron Jon Surf Shop, Stage 35 by Gameworks, American
Multi-Cinema, Dave & Busters, Hilo Hattie
- --------------
(1) Includes 963,173 square feet of gross leasable area owned by tenants as
follows: Potomac Mills-80,000 square feet; Franklin Mills-209,612
square feet; Sawgrass Mills-281,774 square feet; Gurnee Mills-250,806
square feet; Ontario Mills-125,000 square feet; and Community Centers-
15,981 square feet. Ground leases at Franklin Mills of 152,370 square
feet and at Ontario Mills of 16,595 square feet are also included.
(2) Percent leased is defined as all space leased and for which rent is being
paid as of December 31, 1998, excluding tenants with leases having a term
of less than one year plus gross leasable area owned by store tenants
described in footnote (1).
(3) Annualized base rent is defined as the contractual minimum rent of
tenants comprising gross leasable area at December 31, 1998 multiplied by
12.
(4) Anchor stores include all stores occupying more than 20,000 square feet.
(5) Ontario Mills will contain approximately 1.7 million square feet of gross
leasable area, including gross leasable area owned by certain store
tenants, upon full build out.
(6) Grapevine Mills will contain approximately 1.5 million square feet of
gross leasable area, including gross leasable area owned by certain store
tenants, upon full build out.
(7) Excluding first year projects (Grapevine Mills and Arizona Mills), the
1998 specialty store sales per square foot would have been $342.
(8) The Block at Orange will contain approximately 0.8 million square feet of
gross leasable area, including gross leasable area owned by certain store
tenants, upon full build out.
(9) 1998 sales per square foot information is not available for The Block at
Orange, which opened in November 1998.
19
20
PROPERTY OPERATING INCOME
(IN THOUSANDS, UNAUDITED)
The following table sets forth the property operating income for each of the
Mills, the Block, Mainstreet (our push cart program) and the Community Centers.
The purpose of this table is to provide details about selected line items within
our consolidated financial statements for the year ended December 31, 1998.
YEAR ENDED DECEMBER 31, 1998
WHOLLY OWNED PROPERTIES
POTOMAC FRANKLIN SAWGRASS GURNEE
------------ ------------- ------------ ------------
RENTAL REVENUES:
Minimum rent $ 21,127 $ 17,182 $ 25,918 $ 17,004
Percentage rents 317 507 1,852 521
Recoveries from tenants 9,217 11,744 14,911 9,524
Other revenue 1,085 1,055 3,482 1,367
------------ ------------- ------------ ------------
Total rental revenues 31,746 30,488 46,163 28,416
PROPERTY OPERATING COSTS:
Recoverable from tenants 7,644 8,977 13,528 8,486
Other operating 739 1,018 616 1,221
------------ ------------- ------------ ------------
Total property operating costs (1) 8,383 9,995 14,144 9,707
------------ ------------- ------------ ------------
PROPERTY OPERATING INCOME $ 23,363 $ 20,493 $ 32,019 $ 18,709
============ ============= ============ ============
COMMUNITY
MAINSTREET CENTERS TOTAL
------------ ------------ ------------
RENTAL REVENUES:
Minimum rent $ 2,205 $ 18,067 $ 101,503
Percentage rents 306 329 3,832
Recoveries from tenants 48 5,499 50,943
Other revenue 521 143 7,653
------------ ------------ ------------
Total rental revenues 3,080 24,038 163,931
PROPERTY OPERATING COSTS:
Recoverable from tenants - 5,726 44,361
Other operating 1,535 743 5,872
------------ ------------ ------------
Total property operating costs (1) 1,535 6,469 50,233
------------ ------------ ------------
PROPERTY OPERATING INCOME $ 1,545 $ 17,569 $ 113,698
============ ============ ============
UNCONSOLIDATED JOINT VENTURES
ONTARIO GRAPEVINE ARIZONA THE BLOCK
------------ ------------- ------------ ------------
RENTAL REVENUES:
Minimum rent $ 19,003 $ 20,584 $ 18,776 $ 2,415
Percentage rents 514 524 389 0
Recoveries from tenants 8,860 8,763 7,646 476
Other revenue 2,230 2,349 1,945 169
------------ ------------- ------------ ------------
Total rental revenues 30,607 32,220 28,756 3,060
PROPERTY OPERATING COSTS:
Recoverable from tenants 8,110 8,142 6,987 701
Other operating 717 1,100 584 32
------------ ------------- ------------ ------------
Total property operating costs (1) 8,827 9,242 7,571 733
------------ ------------- ------------ ------------
PROPERTY OPERATING INCOME $ 21,780 $ 22,978 $ 21,185 $ 2,327
============ ============= ============ ============
Our Share (2) $ 9,088 $ 7,503 $ 7,805 $ 577
============ ============= ============ ============
OTHER TOTAL
------------ ------------
RENTAL REVENUES:
Minimum rent $ 77 $ 60,855
Percentage rents 0 1,427
Recoveries from tenants 2 25,747
Other revenue 0 6,693
------------ ------------
Total rental revenues 79 94,722
PROPERTY OPERATING COSTS:
Recoverable from tenants 0 23,940
Other operating 486 2,919
------------ ------------
Total property operating costs (1) 486 26,859
------------ ------------
PROPERTY OPERATING INCOME $ (407) $ 67,863
============ ============
Our Share (2) $ (203) $ 24,770
============ ============
- --------------
(1) Total property operating costs excludes management fees as follows:
Potomac Mills - $914, Franklin Mills - $738, Sawgrass Mills - $1,269,
Gurnee Mills - $765, Community Centers - $784, Ontario Mills - $878,
Grapevine Mills - $941, Arizona Mills - $1,292 and The Block at Orange -
$40.
(2) Based on our share of distributable cash flow for the year ended December
31, 1998, excluding management fees.
20
21
OCCUPANCY ANALYSIS
The following table sets forth occupancy analysis for our Mills, Community
Centers and the Block as of December 31, 1998.
GROSS LEASED & OCCUPIED AREA
(SQ. FT.) (1)
GROSS LEASABLE
AREA OCCUPIED (3)
TOTAL AT DECEMBER 31,
PROJECT GROSS LEASABLE AREA 1998 %
- ------- ------------------- ---- --
MILLS:
Potomac Mills 1,636,870 1,574,571 96.19%
Franklin Mills 1,739,849 1,687,338 96.98%
Sawgrass Mills 1,878,522 1,850,723 98.52%
Gurnee Mills 1,653,978 1,613,431 97.55%
-----------------------------------------------------
Total Mills 6,909,219 6,726,063 97.35%
COMMUNITY CENTERS:
Butterfield 114,610 104,610 91.27%
Coopers Crossing 173,509 173,509 100.00%
Crosswinds 144,273 144,273 100.00%
Fashion Place 147,950 130,518 88.22%
Germantown 177,097 168,109 94.92%
Gwinnett 194,719 186,079 95.56%
Liberty Plaza 315,033 292,807 92.94%
Montgomery Village 117,391 109,359 93.16%
Mt. Prospect 298,600 294,557 98.65%
West Falls Church 87,824 85,433 97.28%
Western Hills 449,496 412,521 91.77%
-----------------------------------------------------
2,220,502 2,101,775 94.65%
-----------------------------------------------------
Total Wholly Owned 9,129,721 8,827,838 96.69%
====================================================
JOINT VENTURES:
Ontario Mills 1,345,096 1,330,545 98.92%
Grapevine Mills 1,240,781 1,216,269 98.02%
Arizona Mills 1,208,899 1,179,469 97.57%
The Block at Orange 642,554 576,035 89.65%
-----------------------------------------------------
Total Joint Ventures 4,437,330 4,302,318 96.96%
====================================================
Total Wholly Owned
and Joint Ventures 13,567,051 13,130,156 96.78%
====================================================
GROSS LEASED & OCCUPIED AREA, NET OF ANCHORS
(SQ. FT.) (2)
GROSS LEASABLE
TOTAL AREA OCCUPIED (3)
PROJECT GROSS LEASABLE AREA AT DECEMBER 31, 1998 %
- ------- ------------------- ----------------------- --
MILLS:
Potomac Mills 627,860 598,091 95.26%
Franklin Mills 601,488 548,977 91.27%
Sawgrass Mills 676,617 668,818 98.85%
Gurnee Mills 633,302 592,755 93.60%
---------------------------------------------------------
Total Mills 2,539,267 2,408,641 94.86%
COMMUNITY CENTERS:
Butterfield 72,677 62,677 86.24%
Coopers Crossing 14,953 14,953 100.00%
Crosswinds 23,298 23,298 100.00%
Fashion Place 74,692 57,260 76.66%
Germantown 130,341 121,353 93.10%
Gwinnett 97,172 88,532 91.11%
Liberty Plaza 52,286 30,060 57.49%
Montgomery Village 80,986 72,954 90.08%
Mt. Prospect 126,005 121,962 96.79%
West Falls Church 47,743 45,352 94.99%
Western Hills 134,980 127,610 94.54%
---------------------------------------------------------
855,133 766,011 89.58%
---------------------------------------------------------
Total Wholly Owned 3,394,400 3,174,652 93.53%
=========================================================
JOINT VENTURES:
Ontario Mills 519,276 504,725 97.20%
Grapevine Mills 542,771 518,259 95.48%
Arizona Mills 533,162 503,732 94.48%
The Block at Orange 282,853 216,334 76.48%
---------------------------------------------------------
Total Joint Ventures 1,878,062 1,743,050 92.81%
=========================================================
Total Wholly Owned
and Joint Ventures 5,272,462 4,917,702 93.27%
=========================================================
TOTAL VACANT
(SQ. FT.)
PROJECT ANCHOR SPECIALTY STORE TOTAL
- ------- ------ ------------------- -----
MILLS:
Potomac Mills 32,530 29,769 62,299
Franklin Mills 0 52,511 52,511
Sawgrass Mills 20,000 7,799 27,799
Gurnee Mills 0 40,547 40,547
-------------------------------------------------
Total Mills 52,530 130,626 183,156
COMMUNITY CENTERS:
Butterfield 0 10,000 10,000
Coopers Crossing 0 0 0
Crosswinds 0 0 0
Fashion Place 0 17,432 17,432
Germantown 0 8,988 8,988
Gwinnett 0 8,640 8,640
Liberty Plaza 0 22,226 22,226
Montgomery Village 0 8,032 8,032
Mt. Prospect 0 4,043 4,043
West Falls Church 0 2,391 2,391
Western Hills 29,605 7,370 36,975
-------------------------------------------------
29,605 89,122 118,727
-------------------------------------------------
Total Wholly Owned 82,135 219,748 301,883
=================================================
JOINT VENTURES:
Ontario Mills 0 14,551 14,551
Grapevine Mills 0 24,512 24,512
Arizona Mills 0 29,430 29,430
The Block at Orange 0 66,519 66,519
-------------------------------------------------
Total Joint Ventures 0 135,012 135,012
=================================================
Total Wholly Owned
and Joint Ventures 82,135 354,760 436,895
=================================================
- ---------------
(1) Includes 963,173 square feet of gross leasable area owned by tenants as
follows: Potomac Mills-80,000 square feet; Franklin Mills-209,612 square
feet; Sawgrass Mills-281,774 square feet; Gurnee Mills-250,806 square
feet; Ontario Mills-125,000 square feet; Liberty Plaza-13,741 square
feet; and West Falls Church-2,240 square feet. Ground leases at Franklin
Mills of 152,370 square feet and at Ontario Mills of 16,595 square feet
are also included.
(2) Anchor stores include all stores occupying more than 20,000 square feet.
(3) Gross leasable area occupied is defined as follows: (i) all space leased
and for which rent is being paid as of December 31, 1998, excluding
tenants with leases that have a term of less than one year, and (ii)
gross leasable area owned by certain store tenants.
21
22
LEASE EXPIRATION SCHEDULE(1)
The following schedule shows lease expirations assuming that none of the tenants
exercised renewal options. Except as described in footnote (1), the minimum rent
is the monthly contractual minimum rent of the expiring leases as of December
31, 1998 multiplied by 12.
NO. OF 1999 NO. OF 2000
LEASES ANNUALIZED PER SQ. LEASES ANNUALIZED PER SQ.
EXPIRING SQ. FT MIN. RENT FT. EXPIRING SQ. FT MIN. RENT FT.
-------- ------ --------- ---- -------- ------ --------- ----
Potomac Mills:
Anchors (2) - - $ - $ - - - $ - $ -
Majors (2) 1 42,212 316,590 7.50 1 41,321 309,908 7.50
Specialty 27 93,828 2,151,251 22.93 29 78,616 2,011,043 25.58
Food Court 2 1,567 85,208 54.38 3 2,331 154,992 66.49
---------------------------------------------- -----------------------------------------------
30 137,607 $ 2,553,049 $ 18.55 33 122,268 $ 2,475,943 $ 20.25
Franklin Mills:
Anchors (2) 1 100,200 $ 547,725 $ 5.47 - - $ - $ -
Majors (2) 1 40,232 370,134 9.20 1 32,637 297,256 9.11
Specialty 28 96,792 2,080,314 21.49 23 88,201 1,871,360 21.22
Food Court 7 5,602 306,600 54.73 - - - -
---------------------------------------------- -----------------------------------------------
37 242,826 $ 3,304,773 $ 13.61 24 120,838 $ 2,168,616 $ 17.95
Sawgrass Mills:
Anchors (2) - - $ - $ - 1 78,619 $ 255,512 $ 3.25
Majors (2) - - - - 2 67,851 776,198 11.44
Specialty 9 16,412 497,996 30.34 61 208,506 4,991,171 23.94
Food Court 2 1,206 80,500 66.75 21 17,595 994,014 56.49
---------------------------------------------- -----------------------------------------------
11 17,618 $ 578,496 $ 32.84 85 372,571 $ 7,016,895 $ 18.83
Gurnee Mills:
Anchors (2) - - $ - $ - - - $ - $ -
Majors (2) - - - - - - - -
Specialty 16 64,657 1,150,192 17.79 19 57,696 1,078,451 18.69
Food Court - - - - 1 657 22,995 35.00
---------------------------------------------- -----------------------------------------------
16 64,657 $ 1,150,192 $ 17.79 20 58,353 $ 1,101,446 $ 18.88
Total without Joint Ventures:
Anchors (2) 1 100,200 $ 547,725 $ 5.47 1 78,619 $ 255,512 $ 3.25
Majors (2) 2 82,444 686,724 8.33 4 141,809 1,383,362 9.76
Specialty 80 271,689 5,879,753 21.64 132 433,019 9,952,025 22.98
Food Court 11 8,375 472,308 56.39 25 20,583 1,172,001 56.94
---------------------------------------------- -----------------------------------------------
94 462,708 $ 7,586,510 $ 16.40 162 674,030 $ 12,762,900 $ 18.94
============================================== ===============================================
NO. OF 2001 NO. OF 2002
LEASES ANNUALIZED PER SQ. LEASES ANNUALIZED PER SQ.
EXPIRING SQ. FT MIN. RENT FT. EXPIRING SQ. FT MIN. RENT FT.
-------- ------ --------- ---- -------- ------ --------- ---
Potomac Mills:
Anchors (2) - - $ - $ - - - $ - $ -
Majors (2) 2 67,052 602,846 8.99 - - - -
Specialty 25 66,852 1,698,989 25.41 33 118,670 2,540,434 21.41
Food Court 3 2,484 149,959 60.37 3 1,859 127,485 68.58
------------------------------------------------- -----------------------------------------------
30 136,388 $ 2,451,794 $ 17.98 36 120,529 $ 2,667,919 $ 22.14
Franklin Mills:
Anchors (2) 1 70,701 $ 484,302 $ 6.85 - - $ - $ -
Majors (2) 1 25,127 178,402 7.10 2 65,155 448,715 6.89
Specialty 35 103,486 2,151,125 20.79 25 79,272 1,721,794 21.72
Food Court 1 510 25,990 50.96 3 2,512 74,660 29.72
------------------------------------------------- -----------------------------------------------
38 199,824 $ 2,839,819 $ 14.21 30 146,939 $ 2,245,169 $ 15.28
Sawgrass Mills:
Anchors (2) 2 147,915 $ 1,101,435 $ 7.45 - - $ - $ -
Majors (2) - - - - 2 42,657 365,491 8.57
Specialty 47 165,654 3,903,900 23.57 27 74,368 2,132,559 28.68
Food Court 4 3,124 174,901 55.99 1 663 45,000 67.87
------------------------------------------------- -----------------------------------------------
53 316,693 $ 5,180,236 $ 16.36 30 117,688 $ 2,543,050 $ 21.61
Gurnee Mills:
Anchors (2) 3 231,271 $ 1,381,540 $ 5.97 1 61,265 $ 495,000 $ 8.08
Majors (2) 1 40,752 289,339 7.10 1 33,627 252,202 7.50
Specialty 61 213,440 3,946,489 18.49 22 67,738 1,472,469 21.74
Food Court 14 10,061 569,153 56.57 5 3,611 226,154 62.63
------------------------------------------------- -----------------------------------------------
79 495,524 $ 6,186,521 $ 12.48 29 166,241 $ 2,445,825 $ 14.71
Total without Joint Ventures:
Anchors (2) 6 449,887 $ 2,967,277 $ 6.60 1 61,265 $ 495,000 $ 8.08
Majors (2) 4 132,931 1,070,587 8.05 5 141,439 1,066,408 7.54
Specialty 168 549,432 11,700,503 21.30 107 340,048 7,867,256 23.14
Food Court 22 16,179 920,003 56.86 12 8,645 473,299 54.75
------------------------------------------------- -----------------------------------------------
200 1,148,429 $ 16,658,370 $ 14.51 125 551,397 $ 9,901,963 $ 17.96
================================================= ===============================================
- -------------------------------
(1) Excludes 963,173 square feet of gross leasable area owned by tenants as
follows: Potomac Mills - 80,000 square feet; Franklin Mills - 209,612
square feet; Sawgrass Mills - 281,774 square feet; Gurnee Mills - 250,806
square feet; Ontario Mills - 125,000 square feet; and Community Centers
- 15,981 square feet. Ground leases at Franklin Mills of 152,370 square
feet and at Ontario Mills of 16,595 square feet are also excluded.
(2) For purposes of this schedule, anchor tenants are defined as any tenant
whose gross leasable area equals or exceeds 50,000 sq. ft. and major
tenants are defined as any tenant whose gross leasable area equals or
exceeds 20,000 sq. ft. but is less than 50,000 sq. ft.
22
23
LEASE EXPIRATION SCHEDULE(1)
The following schedule shows lease expirations assuming that none of the tenants
exercised renewal options. Except as described in footnote (1), the minimum rent
is the monthly contractual minimum rent of the expiring leases as of December
31, 1998 multiplied by 12.
NO. OF 1999 NO. OF 2000
LEASES ANNUALIZED PER SQ. LEASES ANNUALIZED PER SQ.
EXPIRING SQ. FT MIN. RENT FT. EXPIRING SQ. FT MIN. RENT FT.
-------- ------ --------- ---- -------- ------ --------- ----
Ontario Mills:
Anchors (2) - - $ - $ - - - $ - $ -
Majors (2) - - - - - - - -
Specialty 5 10,414 304,140 29.20 6 13,267 332,266 25.04
Food Court - - - - - - - -
---------------------------------------------- -----------------------------------------------
5 10,414 $ 304,140 $ 29.20 6 13,267 $ 332,266 $ 25.04
Arizona Mills:
Anchors(2) - - $ - $ - - - $ - $ -
Majors (2) - - - - - - - -
Specialty - - - - 9 26,473 698,472 26.38
Food Court - - - - - - - -
---------------------------------------------- -----------------------------------------------
- - $ - $ - 9 26,473 $ 698,472 $ 26.38
Grapevine Mills:
Anchors (2) - - $ - $ - - - $ - $ -
Majors (2) - - - - - - - -
Specialty 4 7,849 178,179 22.70 8 15,183 409,888 27.00
Food Court - - - - - - - -
---------------------------------------------- -----------------------------------------------
4 7,849 $ 178,179 $ 22.70 8 15,183 $ 409,888 $ 27.00
Total with Joint
Ventures:
Anchors (2) 1 100,200 $ 547,725 $ 5.47 1 78,619 $ 255,512 $ 3.25
Majors (2) 2 82,444 686,724 8.33 4 141,809 1,383,362 9.76
Specialty 89 289,952 6,362,072 21.94 155 487,942 11,392,651 23.35
Food Court 11 8,375 472,308 56.39 25 20,583 1,172,001 56.94
---------------------------------------------- -----------------------------------------------
103 480,971 $ 8,068,829 $ 16.78 185 728,953 $ 14,203,526 $ 19.48
============================================== ===============================================
The Block at Orange:
Anchors (2) - - $ - $ - - - $ - $ -
Majors (2) - - - - - - - -
Specialty - - - - 1 400 36,000 90.00
Food Court - - - - - - - -
---------------------------------------------- -----------------------------------------------
- - $ - $ - 1 400 $ 36,000 $ 90.00
============================================== ===============================================
Community Centers:
Anchors (2) - - $ - $ - - - $ - $ -
Majors (2) - - - - 1 21,007 278,343 13.25
Specialty 34 93,758 1,328,119 14.17 25 105,323 1,146,687 10.89
Food Court - - - - - - - -
---------------------------------------------- -----------------------------------------------
34 93,758 $ 1,328,119 $ 14.17 26 126,330 $ 1,425,030 $ 11.28
============================================== ===============================================
NO. OF 2001 NO. OF 2002
LEASES ANNUALIZED PER SQ. LEASES ANNUALIZED PER SQ.
EXPIRING SQ. FT MIN. RENT FT. EXPIRING SQ. FT MIN. RENT FT.
-------- ------ --------- ---- -------- ------ --------- ---
Ontario Mills:
Anchors (2) - - $ - $ - - - $ - $ -
Majors (2) - - - - - - - -
Specialty 50 209,623 4,093,677 19.53 21 72,507 1,605,795 22.15
Food Court - - - - - - - -
------------------------------------------------ ------------------------------------------------
50 209,623 $ 4,093,677 $ 19.53 21 72,507 $ 1,605,795 $ 22.15
Arizona Mills:
Anchors(2) - - $ - $ - - - $ - $ -
Majors (2) - - - - - - - -
Specialty 11 23,803 636,079 26.72 60 199,707 4,361,895 21.84
Food Court - - - - - - - -
------------------------------------------------ ------------------------------------------------
11 23,803 $ 636,079 $ 26.72 60 199,707 $ 4,361,895 $ 21.84
Grapevine Mills:
Anchors (2) - - $ - $ - - - $ - $ -
Majors (2) - - - - 1 23,329 279,948 12.00
Specialty 13 31,076 733,989 23.62 58 189,768 4,194,829 22.11
Food Court - - - - - - - -
------------------------------------------------ ------------------------------------------------
13 31,076 $ 733,989 $ 23.62 59 213,097 $ 4,474,777 $ 21.00
Total with Joint
Ventures:
Anchors (2) 6 449,887 $ 2,967,277 $ 6.60 1 61,265 $ 495,000 $ 8.08
Majors (2) 4 132,931 1,070,587 8.05 6 164,768 1,346,356 8.17
Specialty 242 813,934 17,164,248 21.09 246 802,030 18,029,775 22.48
Food Court 22 16,179 920,003 56.86 12 8,645 473,299 54.75
------------------------------------------------ ------------------------------------------------
274 1,412,931 $ 22,122,115 $ 15.66 265 1,036,708 $ 20,344,430 $ 19.62
================================================ ================================================
The Block at Orange:
Anchors (2) - - $ - $ - - - $ - $ -
Majors (2) - - - - - - - -
Specialty 6 5,910 228,040 38.59 2 3,627 113,323 31.24
Food Court - - - - - - - -
------------------------------------------------ ------------------------------------------------
6 5,910 $ 228,040 $ 38.59 2 3,627 $ 113,323 $ 31.24
================================================ ================================================
Community Centers:
Anchors (2) - - $ - $ - - - $ - $ -
Majors (2) 1 24,300 133,650 5.50 2 59,300 245,450 4.14
Specialty 45 164,248 2,130,466 12.97 40 125,362 1,765,660 14.08
Food Court - - - - - - - -
------------------------------------------------ ------------------------------------------------
46 188,548 $ 2,264,116 $ 12.01 42 184,662 $ 2,011,110 $ 10.89
================================================ ================================================
- -------------------------------
(1) Excludes 963,173 square feet of gross leasable area owned by tenants as
follows: Potomac Mills - 80,000 square feet; Franklin Mills - 209,612
square feet; Sawgrass Mills - 281,774 square feet; Gurnee Mills - 250,806
square feet; Ontario Mills - 125,000 square feet; and Community Centers
- 15,981 square feet. Ground leases at Franklin Mills of 152,370 square
feet and at Ontario Mills of 16,595 square feet are also excluded.
(2) For purposes of this schedule, anchor tenants are defined as any tenant
whose gross leasable area equals or exceeds 50,000 sq. ft. and major
tenants are defined as any tenant whose gross leasable area equals or
exceeds 20,000 sq. ft. but is less than 50,000 sq. ft.
23
24
LEASE EXPIRATION SCHEDULE(1)
The following schedule shows lease expirations assuming that none of the tenants
exercised renewal options. Except as described in footnote (1), the minimum rent
is the monthly contractual minimum rent of the expiring leases as of December
31, 1998 multiplied by 12.
NO. OF 2003 NO. OF 2004
LEASES ANNUALIZED PER SQ. LEASES ANNUALIZED PER SQ.
EXPIRING SQ. FT MIN. RENT FT. EXPIRING SQ. FT MIN. RENT FT.
-------- ------ --------- ---- -------- ------ --------- ----
Potomac Mills:
Anchors (2) - - $ - $ - 1 61,763 $ 509,546 $ 8.25
Majors (2) 3 75,384 654,146 8.68 1 40,857 367,713 9.00
Specialty 46 16,954 3,379,858 28.90 8 32,944 674,842 20.48
Food Court - - - - 1 590 37,635 63.79
---------------------------------------------- -----------------------------------------------
49 192,338 $ 4,034,004 $ 20.97 11 136,154 $ 1,589,736 $ 11.68
Franklin Mills:
Anchors (2) 1 128,950 $ 567,000 $ 4.40 - - $ - $ -
Majors (2) - - - - 1 42,241 253,446 6.00
Specialty 22 98,455 1,843,129 18.72 7 20,079 438,581 21.84
Food Court 2 1,238 47,050 38.00 - - - -
---------------------------------------------- -----------------------------------------------
25 228,643 $ 2,457,179 $ 10.75 8 62,320 $ 692,027 $ 11.10
Sawgrass Mills:
Anchors (2) 1 85,024 $ 467,632 $ 5.50 - - $ - $ -
Majors (2) - - - - 2 83,581 821,500 9.83
Specialty 20 3,842 2,062,568 27.93 7 14,784 489,014 33.08
Food Court 1 836 51,832 62.00 - - - -
---------------------------------------------- -----------------------------------------------
22 159,702 $ 2,582,032 $ 16.17 9 98,365 $ 1,310,514 $ 13.32
Gurnee Mills:
Anchors (2) - - $ - $ - - - $ - $ -
Majors (2) 3 115,506 964,142 8.35 - - - -
Specialty 24 85,015 1,759,482 20.70 4 18,770 346,789 18.48
Food Court - - - - 2 1,357 50,135 36.95
---------------------------------------------- -----------------------------------------------
27 200,521 $ 2,723,624 $ 13.58 6 20,127 $ 396,924 $ 19.72
Total without Joint
Ventures:
Anchors (2) 2 213,974 $ 1,034,632 $ 4.84 1 61,763 $ 509,546 $ 8.25
Majors (2) 6 190,890 1,618,288 8.48 4 166,679 1,442,659 8.66
Specialty 112 374,266 9,045,037 24.17 26 86,577 1,949,226 22.51
Food Court 3 2,074 98,882 47.68 3 1,947 87,770 45.08
---------------------------------------------- -----------------------------------------------
123 781,204 $ 11,796,839 $ 15.10 34 316,966 $ 3,989,201 $ 12.59
============================================== ===============================================
NO. OF 2005 NO. OF 2006
LEASES ANNUALIZED PER SQ. LEASES ANNUALIZED PER SQ.
EXPIRING SQ. FT MIN. RENT FT. EXPIRING SQ. FT MIN. RENT FT.
-------- ------ --------- ---- -------- ------ --------- ----
Potomac Mills:
Anchors (2) 1 153,036 $ 525,000 $ 3.43 2 208,813 $ 1,394,772 $ 6.68
Majors (2) 1 33,743 326,779 9.68 - - - -
Specialty 7 37,672 877,345 23.29 2 22,347 473,012 21.17
Food Court - - - - 2 1,354 80,750 59.64
------------------------------------------------ ------------------------------------------------
9 224,451 $ 1,729,124 $ 7.70 6 232,514 $ 1,948, 534 $ 8.38
Franklin Mills:
Anchors (2) - - $ - $ - - - $ - $ -
Majors (2) - - - - 1 46,406 483,087 10.41
Specialty 3 25,686 451,419 17.57 2 2,561 71,198 27.80
Food Court - - - - 1 476 24,276 51.00
------------------------------------------------ ------------------------------------------------
3 25,686 $ 451,419 $ 17.57 4 49,443 $ 578,561 $ 11.70
Sawgrass Mills:
Anchors (2) - - $ - $ - - - $ - $ -
Majors (2) 1 25,110 321,408 12.80 1 20,300 527,800 26.00
Specialty 12 48,911 1,176,240 24.05 4 17,593 483,552 27.49
Food Court 1 2,960 37,148 12.55 - - - -
------------------------------------------------ ------------------------------------------------
14 76,981 $ 1,534,796 $ 19.94 5 37,893 $ 1,011,352 $ 26.69
Gurnee Mills:
Anchors (2) - - $ - $ - - - $ - $ -
Majors (2) - - - - 1 20,000 600,000 30.00
Specialty 3 26,856 498,697 18.57 3 14,673 249,024 16.97
Food Court 1 542 24,390 45.00 2 1,169 64,760 55.40
------------------------------------------------ ------------------------------------------------
4 27,398 $ 523,087 $ 19.09 6 35,842 $ 913,784 $ 25.49
Total without Joint
Ventures:
Anchors (2) 1 153,036 $ 525,000 $ 3.43 2 208,813 $ 1,394,772 $ 6.68
Majors (2) 2 58,853 648,187 11.01 3 86,706 1,610,887 18.58
Specialty 25 139,125 3,003,701 21.59 11 57,174 1,276,786 22.33
Food Court 2 3,502 61,538 17.57 5 2,999 169,786 56.61
------------------------------------------------ ------------------------------------------------
30 354,516 $ 4,238,426 $ 11.96 21 355,692 $ 4,452,231 $ 12.52
================================================ ================================================
- -------------------------------
(1) Excludes 963,173 square feet of gross leasable area owned by tenants as
follows: Potomac Mills - 80,000 square feet; Franklin Mills - 209,612
square feet; Sawgrass Mills - 281,774 square feet; Gurnee Mills - 250,806
square feet; Ontario Mills - 125,000 square feet; and Community Centers
- 15,981 square feet. Ground leases at Franklin Mills of 152,370 square
feet and at Ontario Mills of 16,595 square feet are also excluded.
(2) For purposes of this schedule, anchor tenants are defined as any tenant
whose gross leasable area equals or exceeds 50,000 sq. ft. and major
tenants are defined as any tenant whose gross leasable area equals or
exceeds 20,000 sq. ft. but is less than 50,000 sq. ft.
24
25
LEASE EXPIRATION SCHEDULE(1)
The following schedule shows lease expirations assuming that none of the tenants
exercised renewal options. Except as described in footnote (1), the minimum rent
is the monthly contractual minimum rent of the expiring leases as of December
31, 1998 multiplied by 12.
NO. OF 2003 NO. OF 2004
LEASES ANNUALIZED PER SQ. LEASES ANNUALIZED PER SQ.
EXPIRING SQ. FT MIN. RENT FT. EXPIRING SQ. FT MIN. RENT FT.
-------- ------ --------- ---- -------- ------ --------- ----
Ontario Mills:
Anchors (2) - - $ - $ - - - $ - $ -
Majors (2) - - - - - - - -
Specialty 14 39,268 1,111,915 28.32 3 12,082 252,756 20.92
Food Court - - - - - - - -
---------------------------------------------- -----------------------------------------------
14 39,268 $ 1,111,915 $ 28.32 3 12,082 $ 252,756 $ 20.92
Arizona Mills:
Anchors (2) - - $ - $ - - - $ - $ -
Majors (2) - - - - - - - -
Specialty 23 90,908 1,943,256 21.38 8 23,061 601,571 26.09
Food Court - - - - - - - -
---------------------------------------------- -----------------------------------------------
23 90,908 $ 1,943,256 $ 21.38 8 23,061 $ 601,571 $ 26.09
Grapevine Mills:
Anchors (2) - - $ - $ - - - $ - $ -
Majors (2) - - - - - - - -
Specialty 22 73,061 1,567,215 21.45 5 12,227 325,228 26.60
Food Court - - - - - - - -
---------------------------------------------- -----------------------------------------------
22 73,061 $ 1,567,215 $ 21.45 5 12,227 $ 325,228 $ 26.60
Total with Joint
Ventures:
Anchors (2) 2 213,974 $ 1,034,632 $ 4.84 1 61,763 $ 509,546 $ 8.25
Majors (2) 6 190,890 1,618,288 8.48 4 166,679 1,442,659 8.66
Specialty 171 577,503 13,667,423 23.67 42 133,947 3,128,781 23.36
Food Court 3 2,074 98,882 47.68 3 1,947 87,770 45.08
---------------------------------------------- -----------------------------------------------
182 984,441 $ 16,419,225 $ 16.68 50 364,336 $ 5,168,756 $ 14.19
============================================== ===============================================
The Block at Orange:
Anchors (2) - - $ - $ - - - $ - $ -
Majors (2) - - - - - - - -
Specialty 21 57,795 1,608,350 27.83 5 14,177 373,516 26.35
Food Court 1 946 70,004 74.00 - - - -
---------------------------------------------- -----------------------------------------------
22 58,741 $ 1,678,354 $ 28.57 5 14,177 $ 373,516 $ 26.35
============================================== ===============================================
Community Centers:
Anchors (2) 1 56,949 $ 194,300 $ 3.41 1 129,615 $ 74,300 $ .57
Majors (2) 4 117,557 910,369 7.74 - - - -
Specialty 27 90,903 1,324,158 14.57 7 30,492 433,484 14.22
Food Court - - - - - - - -
---------------------------------------------- -----------------------------------------------
32 265,409 $ 2,428,827 $ 9.15 8 160,107 $ 507,784 $ 3.17
============================================== ===============================================
NO. OF 2005 NO. OF 2006
LEASES ANNUALIZED PER SQ. LEASES ANNUALIZED PER SQ.
EXPIRING SQ. FT MIN. RENT FT. EXPIRING SQ. FT MIN. RENT FT.
-------- ------ --------- ---- -------- ------ --------- ----
Ontario Mills:
Anchors (2) - - $ - $ - - - $ - $ -
Majors (2) - - - - 4 102,308 1,379,563 13.48
Specialty 1 5,382 137,241 25.50 28 73,449 2,015,485 27.44
Food Court - - - - 1 400 40,000 100.00
------------------------------------------------ ------------------------------------------------
1 5,382 $ 137,241 $ 25.50 33 176,157 $ 3,435,048 $ 19.50
Arizona Mills:
Anchors (2) - - $ - $ - - - $ - $ -
Majors (2) - - - - 1 22,774 120,000 5.27
Specialty 2 2,938 112,770 38.38 2 8,823 177,070 20.07
Food Court - - - - - - - -
------------------------------------------------ ------------------------------------------------
2 2,938 $ 112,770 $ 38.38 3 31,597 $ 297,070 $ 9.40
Grapevine Mills:
Anchors (2) - - $ - $ - - - $ - $ -
Majors (2) - - - - - - - -
Specialty 5 22,920 503,907 21.99 1 7,514 127,738 17.00
Food Court - - - - - - - -
------------------------------------------------ ------------------------------------------------
5 22,920 $ 503,907 $ 21.99 1 7,514 $ 127,738 $ 17.00
Total with Joint
Ventures:
Anchors (2) 1 153,036 $ 525,000 $ 3.43 2 208,813 $ 1,394,772 $ 6.68
Majors (2) 2 58,853 648,187 11.01 8 211,788 3,110.450 14.69
Specialty 33 170,365 3,757,619 22.06 42 146,960 3,597,079 24.48
Food Court 2 3,502 61,538 17.57 6 3,399 209,786 61.72
------------------------------------------------ ------------------------------------------------
38 385,756 $ 4,992,344 $ 12.94 58 570,960 $ 8,312,087 $ 14.56
================================================ ================================================
The Block at Orange:
Anchors (2) - - $ - $ - - - $ - $ -
Majors (2) - - - - - - - -
Specialty 3 12,548 299,800 23.89 - - - -
Food Court - - - - - - - -
------------------------------------------------ ------------------------------------------------
3 12,548 $ 299,800 $ 23.89 - - $ - $ -
================================================ ================================================
Community Centers:
Anchors (2) 3 184,640 $ 1,523,430 $ 8.25 - - $ - $ -
Majors (2) 5 157,086 908,568 5.78 - - - -
Specialty 4 30,080 377,525 12.55 7 32,946 510,096 15.48
Food Court - - - - - - - -
------------------------------------------------ ------------------------------------------------
12 371,806 $ 2,809,523 $ 7.56 7 32,946 $ 510,096 $ 15.48
================================================ ================================================
- -------------------------------
(1) Excludes 963,173 square feet of gross leasable area owned by tenants as
follows: Potomac Mills - 80,000 square feet; Franklin Mills - 209,612
square feet; Sawgrass Mills - 281,774 square feet; Gurnee Mills - 250,806
square feet; Ontario Mills - 125,000 square feet; and Community Centers
- 15,981 square feet. Ground leases at Franklin Mills of 152,370 square
feet and at Ontario Mills of 16,595 square feet are also excluded.
(2) For purposes of this schedule, anchor tenants are defined as any tenant
whose gross leasable area equals or exceeds 50,000 sq. ft. and major
tenants are defined as any tenant whose gross leasable area equals or
exceeds 20,000 sq. ft. but is less than 50,000 sq. ft.
25
26
LEASE EXPIRATION SCHEDULE(1)
The following schedule shows lease expirations assuming that none of the tenants
exercised renewal options. Except as described in footnote (1), the minimum rent
is the monthly contractual minimum rent of the expiring leases as of December
31, 1998 multiplied by 12.
NO. OF 2007 NO. OF 2008
LEASES ANNUALIZED PER SQ. LEASES ANNUALIZED PER SQ.
EXPIRING SQ. FT MIN. RENT FT. EXPIRING SQ. FT MIN. RENT FT.
-------- ------ --------- ---- -------- ------ --------- ----
Potomac Mills:
Anchors (2) - - $ - $ - 1 107,021 $ 611,520 $ 5.71
Majors (2) 1 38,210 337,394 8.83 1 27,068 216,000 7.98
Specialty - - - - 4 16,089 364,538 22.66
Food Court - - - - - - - -
---------------------------------------------- -----------------------------------------------
1 38,210 $ 337,394 $ 8.83 6 150,178 $ 1,192,058 $ 7.94
Franklin Mills:
Anchors (2) - - $ - $ - - - $ - $ -
Majors (2) 3 80,762 993,250 12.30 1 20,000 317,880 15.89
Specialty - - - - 2 15,736 333,160 21.17
Food Court - - - - - - - -
---------------------------------------------- -----------------------------------------------
3 80,762 $ 993,250 $ 12.30 3 35,736 $ 651,040 $ 18.22
Sawgrass Mills:
Anchors (2) - - $ - $ - 1 59,480 $ 713,760 $ 12.00
Majors (2) - - - - 1 28,152 422,280 15.00
Specialty 5 11,202 422,251 37.69 1 1,605 59,385 37.00
Food Court - - - - - - - -
---------------------------------------------- -----------------------------------------------
5 11,202 $ 422,251 $ 37.69 3 89,237 $ 1,195,425 $ 13.40
Gurnee Mills:
Anchors (2) - - $ - $ - - - $ - $ -
Majors (2) - - - - - - - -
Specialty 3 3,290 107,117 32.56 4 8,755 210,029 23.99
Food Court 2 1,426 58,835 41.26 - - - -
---------------------------------------------- -----------------------------------------------
5 4,716 $ 165,952 $ 35.19 4 8,755 $ 210,029 $ 23.99
Total without Joint
Ventures:
Anchors (2) - - $ - $ - 2 166,501 $ 1,325,280 $ 7.96
Majors (2) 4 118,972 1,330,644 11.18 3 75,220 956,160 12.71
Specialty 8 14,492 529,368 36.53 11 42,185 967,112 22.93
Food Court 2 1,426 58,835 41.26 - - - -
---------------------------------------------- -----------------------------------------------
14 134,890 $ 1,918,847 $ 14.23 16 283,906 $ 3,248,552 $ 11.44
============================================== ===============================================
NO. OF AFTER 2008 NO. OF TOTAL
LEASES ANNUALIZED PER SQ. LEASES ANNUALIZED PER SQ.
EXPIRING SQ. FT MIN. RENT FT. EXPIRING SQ. FT MIN. RENT FT.
-------- ------ --------- ---- -------- ------ --------- ----
Potomac Mills:
Anchors (2) - - $ - $ - 5 530,633 $ 3,040,838 $ 5.73
Majors (2) - - - - 11 365,847 3,131,376 8.56
Specialty 1 3,934 88,043 22.38 182 587,906 14,259,355 24.25
Food Court - - - - 14 10,185 636,029 62.45
------------------------------------------------ ------------------------------------------------
1 3,934 $ 88,043 $ 22.38 212 1,494,571 $ 21,067,598 $ 14.10
Franklin Mills:
Anchors (2) 2 123,968 $ 1,856,028 $ 14.97 5 423,819 $ 3,455,055 $ 8.15
Majors (2) - - - - 11 352,560 3,342,170 9.48
Specialty 2 8,371 216,241 25.83 149 538,639 11,178,321 20.75
Food Court - - - - 14 10,338 478,576 46.29
------------------------------------------------ ------------------------------------------------
4 132,339 $ 2,072,269 $ 15.66 179 1,325,356 $ 18,454,122 $ 13.92
Sawgrass Mills:
Anchors (2) 3 261,442 $ 1,483,078 $ 5.67 8 632,480 $ 4,021,417 $ 6.36
Majors (2) - - - - 9 267,651 3,234,677 12.09
Specialty 2 9,557 229,871 24.05 195 642,434 16,448,507 25.60
Food Court - - - - 30 26,384 1,383,395 52.43
------------------------------------------------ ------------------------------------------------
5 270,999 $ 1,712,949 $ 6.32 242 1,568,949 $ 25,087,996 $ 15.99
Gurnee Mills:
Anchors (2) 2 242,449 $ 915,715 $ 3.78 6 534,985 $ 2,792,255 $ 5.22
Majors (2) 1 25,000 250,000 10.00 7 234,885 2,355,683 10.03
Specialty 1 13,042 294,173 22.56 160 573,932 11,112,912 19.36
Food Court - - - - 27 18,823 1,016,422 54.00
------------------------------------------------ ------------------------------------------------
4 280,491 $ 1,459,888 $ 5.20 200 1,362,625 $ 17,277,272 $ 12.68
Total without Joint
Ventures:
Anchors (2) 7 627,859 $ 4,254,821 $ 6.78 24 2,121,917 $ 13,309,565 $ 6.27
Majors (2) 1 25,000 250,000 10.00 38 1,220,943 12,063,906 9.88
Specialty 6 34,904 828,328 23.73 686 2,342,911 52,999,095 22.62
Food Court - - - - 85 65,730 3,514,422 53.47
------------------------------------------------ ------------------------------------------------
14 687,763 $ 5,333,149 $ 7.75 833 5,751,501 $ 81,886,988 $ 14.24
================================================ ================================================
- -------------------------------
(1) Excludes 963,173 square feet of gross leasable area owned by tenants as
follows: Potomac Mills - 80,000 square feet; Franklin Mills - 209,612
square feet; Sawgrass Mills - 281,774 square feet; Gurnee Mills - 250,806
square feet; Ontario Mills - 125,000 square feet; and Community Centers
- 15,981 square feet. Ground leases at Franklin Mills of 152,370 square
feet and at Ontario Mills of 16,595 square feet are also excluded.
(2) For purposes of this schedule, anchor tenants are defined as any tenant
whose gross leasable area equals or exceeds 50,000 sq. ft. and major
tenants are defined as any tenant whose gross leasable area equals or
exceeds 20,000 sq. ft. but is less than 50,000 sq. ft.
26
27
LEASE EXPIRATION SCHEDULE(1)
The following schedule shows lease expirations assuming that none of the tenants
exercised renewal options. Except as described in footnote (1), the minimum rent
is the monthly contractual minimum rent of the expiring leases as of December
31, 1998 multiplied by 12.
NO. OF 2007 NO. OF 2008
LEASES ANNUALIZED PER SQ. LEASES ANNUALIZED PER SQ.
EXPIRING SQ. FT MIN. RENT FT. EXPIRING SQ. FT MIN. RENT FT.
-------- ------ --------- ---- -------- ------ --------- ----
Ontario Mills:
Anchors (2) - - $ - $ - - - $ - $ -
Majors (2) 3 78,457 1,141,946 14.56 1 21,711 500,000 23.03
Specialty 10 20,080 670,194 33.38 5 11,257 260,105 23.11
Food Court - - - - 2 11,330 554,165 48.91
---------------------------------------------- -----------------------------------------------
13 98,537 $ 1,812,140 $ 18.39 8 44,298 $ 1,314,270 $ 29.67
Arizona Mills:
Anchors (2) - - $ - $ - - - $ - $ -
Majors (2) 4 111,578 1,935,850 17.35 2 60,667 805,903 13.28
Specialty 11 67,779 1,345,318 19.85 9 16,612 592,337 35.66
Food Court - - - - - - - -
---------------------------------------------- -----------------------------------------------
15 179,357 $ 3,281,168 $ 18.29 11 77,279 $ 1,398,240 $ 18.09
Grapevine Mills:
Anchors (2) - - $ - $ - - - $ - $ -
Majors (2) 6 151,812 2,343,211 15.43 2 72,730 881,588 12.12
Specialty 26 86,670 2,141,266 24.71 10 45,279 999,802 22.08
Food Court - - - - - - - -
---------------------------------------------- -----------------------------------------------
32 238,482 $ 4,484,477 $ 18.80 12 118,009 $ 1,881,390 $ 15.94
Total with Joint
Ventures:
Anchors (2) - - $ - $ - 2 166,501 $ 1,325,280 $ 7.96
Majors (2) 17 460,819 6,751,651 14.65 8 230,328 3,143,651 13.65
Specialty 55 189,021 4,686,146 24.79 35 115,333 2,819,356 24.45
Food Court 2 1,426 58,835 41.26 2 11,330 554,165 48.91
---------------------------------------------- -----------------------------------------------
74 651,266 $ 11,496,632 $ 17.65 47 523,492 $ 7,842,452 $ 14.98
============================================== ===============================================
The Block at Orange:
Anchors (2) - - $ - $ - - - $ - $ -
Majors (2) - - - - 3 88,264 1,330,420 15.07
Specialty - - - - 17 63,913 2,178,022 34.08
Food Court - - - - 8 10,931 813,847 74.45
---------------------------------------------- -----------------------------------------------
- - $ - $ - 28 163,108 $ 4,322,289 $ 26.50
============================================== ===============================================
Community Centers:
Anchors (2) - - $ - $ - 1 131,812 $ 790,872 $ 6.00
Majors (2) - - - - 1 46,193 397,260 8.60
Specialty 7 54,558 603,199 11.06 2 16,536 250,040 15.12
Food Court - - - - - - - -
---------------------------------------------- -----------------------------------------------
7 54,558 $ 603,199 $ 11.06 4 194,541 $ 1,438,172 $ 7.39
============================================== ===============================================
NO. OF AFTER 2008 NO. OF TOTAL
LEASES ANNUALIZED PER SQ. LEASES ANNUALIZED PER SQ.
EXPIRING SQ. FT MIN. RENT FT. EXPIRING SQ. FT MIN. RENT FT.
-------- ------ --------- ---- -------- ------ --------- ---
Ontario Mills:
Anchors (2) 4 286,023 $ 1,883,132 $ 6.58 4 286,023 $ 1,883,132 $ 6.58
Majors (2) 5 212,321 1,978,600 9.32 13 414,797 5,000,109 12.05
Specialty 2 9,071 165,688 18.27 145 476,400 10,949,262 22.98
Food Court - - - - 3 11,730 594,165 50.65
------------------------------------------------ ------------------------------------------------
11 507,415 $ 4,027,420 $ 7.94 165 1,188,950 $ 18,426,668 $ 15.50
Arizona Mills:
Anchors (2) 5 382,513 $ 3,165,197 $ 8.27 5 382,513 $ 3,165,197 $ 8.27
Majors (2) 3 98,205 1,146,246 11.67 10 293,224 4,007,999 13.67
Specialty 3 29,704 747,336 25.16 138 489,808 11,216,104 22.90
Food Court 1 13,924 832,502 59.79 1 13,924 832,502 59.79
------------------------------------------------ ------------------------------------------------
12 524,346 $ 5,891,281 $ 11.24 154 1,179,469 $ 19,221,802 $ 16.30
Grapevine Mills:
Anchors (2) 3 315,042 $ 3,638,512 $ 11.55 3 315,042 $ 3,638,512 $ 11.55
Majors (2) 4 135,097 1,533,549 11.35 13 382,968 5,038,296 13.16
Specialty 5 15,180 265,316 17.48 157 506,727 11,447,357 22.59
Food Court 1 11,532 691,920 60.00 1 11,532 691,920 60.00
------------------------------------------------ ------------------------------------------------
13 476,851 $ 6,129,297 $ 12.85 174 1,216,269 $ 20,816,085 $ 17.11
Total with Joint
Ventures:
Anchors (2) 19 1,611,437 $ 12,941,662 $ 8.03 36 3,105,495 $ 21,996,406 $ 7.08
Majors (2) 13 470,623 4,908,395 10.43 74 2,311,932 26,110,310 11.29
Specialty 16 88,859 2,006,668 22.58 1,126 3,815,846 86,611,818 22.70
Food Court 2 25,456 1,524,422 59.88 90 102,916 5,633,009 54.73
------------------------------------------------ ------------------------------------------------
50 2,196,375 $ 21,381,147 $ 9.03 1,326 9,336,189 $140,351,543 $ 15.03
================================================ ================================================
The Block at Orange:
Anchors (2) 2 172,785 $ 3,473,326 $ 20.10 2 172,785 $ 3,473,326 $ 20.10
Majors (2) 4 98,652 1,509,411 15.30 7 186,916 2,839,831 15.19
Specialty 12 45,026 1,420,717 31.55 67 203,396 6,257,768 30.77
Food Court 1 1,061 74,270 70.00 10 12,938 958,121 74.05
------------------------------------------------ ------------------------------------------------
19 317,524 $ 6,477,724 $ 20.40 86 576,035 $ 13,529,046 $ 23.49
================================================ ================================================
Community Centers:
Anchors (2) 3 204,744 $ 1,823,107 $ 8.90 9 707,760 $ 4,406,009 $ 6.23
Majors (2) 5 177,685 1,478,044 8.32 19 603,128 4,351,684 7.22
Specialty 3 30,700 203,475 6.63 201 774,906 10,072,909 13.00
Food Court - - - - - - - -
------------------------------------------------ ------------------------------------------------
11 413,129 $ 3,504,626 $ 8.48 229 2,085,794 $ 18,830,602 $ 9.03
================================================ ================================================
- -------------------------------
(1) Excludes 963,173 square feet of gross leasable area owned by tenants as
follows: Potomac Mills - 80,000 square feet; Franklin Mills - 209,612
square feet; Sawgrass Mills - 281,774 square feet; Gurnee Mills - 250,806
square feet; Ontario Mills - 125,000 square feet; and Community Centers
- 15,981 square feet. Ground leases at Franklin Mills of 152,370 square
feet and at Ontario Mills of 16,595 square feet are also excluded.
(2) For purposes of this schedule, anchor tenants are defined as any tenant
whose gross leasable area equals or exceeds 50,000 sq. ft. and major
tenants are defined as any tenant whose gross leasable area equals or
exceeds 20,000 sq. ft. but is less than 50,000 sq. ft.
27
28
EXISTING MILLS OPERATING TRENDS
The following table sets forth, for each of the last five years, certain
information regarding operating trends with respect to the existing Mills.
MINIMUM RENT PLUS PERCENTAGE RENTS
-----------------------------------------------------------------------------------------------------
AVERAGE TOTAL STORES ANCHOR STORES SPECIALTY STORES
PERCENT ------------------------------------- ----------------------------- ------------------------------
LEASED (1) TOTAL PER SQ. FT. TOTAL PER SQ. FT. TOTAL PER SQ. FT.
---------- ----------------- ----------------- -------------- ------------- --------------- -------------
POTOMAC MILLS
1998 95% $21,443,619 $14.43 $6,001,966 $6.75 $15,441,653 $25.91
1997 96 20,980,272 14.04 6,284,111 6.86 14,696,161 25.44
1996 96 20,865,975 14.00 6,142,999 6.76 14,722,976 25.32
1995 96 19,905,334 13.30 5,839,132 6.57 14,066,202 23.14
1994 98 19,840,738 13.00 5,766,085 6.47 14,074,653 22.17
FRANKLIN MILLS
1998 94% 17,689,143 12.38 6,050,348 6.61 11,638,795 22.64
1997 92 16,549,052 11.47 5,700,661 6.05 10,848,391 21.68
1996 92 16,318,689 11.40 5,291,698 5.67 11,026,991 22.16
1995 95 16,837,997 11.33 5,401,107 5.69 11,436,890 21.29
1994 97 17,565,102 11.64 5,485,679 5.78 12,079,423 21.54
SAWGRASS MILLS
1998 (2) 98% 26,969,276 17.29 7,265,079 8.13 19,704,197 29.57
1997 (2) 97 26,448,955 17.08 7,384,896 8.28 19,064,059 29.04
1996 98 25,787,924 16.55 7,150,346 8.03 18,637,578 27.90
1995 95 22,738,214 15.66 6,670,486 7.68 16,067,728 27.58
1994 95 20,889,138 14.54 6,467,454 7.56 14,421,684 24.83
GURNEE MILLS
1998 96% 17,525,250 13.06 5,022,342 6.52 12,502,908 21.85
1997 91 15,900,406 13.80 4,418,036 7.42 11,482,370 20.63
1996 90 15,340,496 13.62 3,823,991 6.78 11,516,505 20.50
1995 91 15,089,531 12.89 3,898,381 6.36 11,191,150 20.08
1994 92 15,176,595 12.83 3,986,828 6.48 11,189,767 19.71
ONTARIO MILLS
1998 98% 19,516,934 16.50 7,300,086 10.61 12,216,848 24.68
1997 95 18,708,479 17.11 6,358,058 10.11 12,350,421 26.59
GRAPEVINE MILLS
1998 95% 21,108,019 18.03 8,797,950 12.74 12,310,069 25.63
ARIZONA MILLS
1998 95% 19,165,290 16.82 7,262,540 10.83 11,902,750 25.41
TOTAL - MILLS
1998 96% $143,417,531 $15.41 $47,700,311 $8.65 $95,717,220 $25.24
1997 94 98,587,164 14.65 30,145,762 7.58 68,441,402 24.84
1996 94 78,313,084 13.97 22,409,034 6.80 55,904,050 24.21
1995 95 74,571,076 13.31 21,809,106 6.57 52,761,970 23.09
1994 96 73,471,573 12.99 21,706,046 6.56 51,765,527 22.08
- ----------------
(1) Average percent leased is defined as total average space leased and for
which rent was being paid excluding tenants with leases having a term of
less than one year.
(2) Annual rent excludes $800,000 of ground lease rent.
Note: The above amounts do not include Mainstreet retail income of $2,205,661
for 1998, $2,066,991 for 1997, $2,088,000 for 1996, $1,658,000 for 1995
and $1,794,000 for 1994.
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29
RENTAL RATES (1)
The following table sets forth the average base rent per leased square foot of
store openings and closings for each property for the twelve months ended
December 31, 1998, 1997, 1996 and 1995.
ANCHOR STORES
---------------------------------------------------------------------------------------------
STORE OPENINGS STORE CLOSINGS RELEASING
DURING YEAR DURING YEAR SPREAD (2)
------------------------------- ----------------------------- --------------------------
AVERAGE AVERAGE
BASE RENT TOTAL BASE RENT TOTAL
PER SQ. FT. SQ. FT. PER SQ. FT. SQ. FT.
--------------- -------------- --------------- ------------
POTOMAC MILLS 1998 $ 11.52 65,028 $ 9.46 70,490 $ 2.06 21.75%
1997 7.71 73,432 6.30 97,820 1.41 22.33%
1996 11.43 33,406 11.55 15,178 (0.12) (1.04%)
1995 8.74 20,048 8.61 78,572 0.13 1.51%
FRANKLIN MILLS 1998 $ 13.33 100,127 $6.49 85,242 $ 6.85 105.60%
1997 11.27 85,072 7.53 85,072 3.74 49.74%
1996 10.41 18,247 10.25 20,000 0.16 1.56%
1995 - - - - - -
GURNEE MILLS 1998 $ 7.10 40,752 $ 6.45 40,752 $ 0.65 10.08%
1997 4.92 184,259 (3) - - N/A N/A
1996 30.00 20,000 - - N/A N/A
1995 - - 8.08 74,218 (8.08) N/A
SAWGRASS MILLS 1998 $ 15.00 28,152 $ 15.00 28,152 $ - -
1997 8.91 50,579 8.93 50,579 (0.02) (0.21%)
1996 26.39 20,000 14.86 39,275 11.53 77.59%
1995 12.80 25,110 - - N/A N/A
ONTARIO MILLS 1998 $ - - $ - - $ - -
$
TOTAL MILLS 1998 $ 11.94 234,059 $ 8.48 224,636 3.46 40.86%
1997 7.33 393,342 7.32 233,471 0.01 0.15%
1996 18.54 91,653 12.95 74,453 5.59 43.17%
1995 11.00 45,158 8.36 152,790 2.64 31.58%
COMMUNITY CENTERS 1998 $ 6.66 168,738 $ - - $ N/A N/A
1997 - - 3.76 66,377 (3.76) N/A
1996 9.60 104,586 8.69 176,238 0.91 10.47%
1995 6.19 48,958 - - N/A N/A
SPECIALTY STORES
--------------------------------------------------------------------------------------------
STORE OPENINGS STORE CLOSINGS RELEASING
DURING YEAR DURING YEAR SPREAD (2)
----------------------------- ------------------------------ ------------------------
AVERAGE AVERAGE
BASE RENT TOTAL BASE RENT TOTAL
PER SQ. FT. SQ. FT. PER SQ. FT. SQ. FT.
--------------- ------------ --------------- ------------
POTOMAC MILLS 1998 $ 27.68 70,769 $ 27.91 62,034 $ (0.23) (0.79%)
1997 22.78 128,964 21.77 127,191 1.00 4.61%
1996 23.64 83,594 21.80 66,607 1.84 8.44%
1995 24.91 49,135 18.89 82,912 6.02 31.87%
FRANKLIN MILLS 1998 $ 19.18 150,869 $ 17.65 113,961 $ 1.53 8.65%
1997 20.16 112,670 19.34 106,202 0.83 4.29%
1996 20.08 73,880 18.61 115,416 1.47 7.90%
1995 19.49 46,453 21.90 77,713 (2.41) (11.00%)
GURNEE MILLS 1998 $ 21.07 99,886 $ 18.59 88,220 $ 2.48 13.35%
1997 20.75 101,771 19.24 104,086 1.51 7.87%
1996 19.01 74,447 18.63 71,457 0.38 2.04%
1995 16.95 48,988 17.79 55,864 (0.84) (4.72%)
SAWGRASS MILLS 1998 $ 32.52 48,268 $ 26.32 49,373 $ 6.20 23.54%
1997 30.00 72,188 24.57 64,626 5.42 22.08%
1996 29.63 58,904 22.24 57,770 7.39 33.23%
1995 24.58 173,744 23.11 55,108 1.47 6.36%
ONTARIO MILLS 1998 $ 27.34 35,616 $ 27.64 26,400 $ (0.30) (1.08%)
TOTAL MILLS 1998 $ 23.43 405,408 $ 21.80 339,988 $ 1.63 7.49%
1997 22.83 415,593 20.92 402,105 1.90 9.10%
1996 22.76 290,825 19.97 311,250 2.79 13.97%
1995 22.71 318,320 20.38 271,597 2.33 11.43%
COMMUNITY CENTERS 1998 $ 14.07 80,184 $ 14.49 40,309 $ (0.42) (2.90%)
1997 13.14 113,304 14.08 114,631 (0.94) (6.66%)
1996 14.63 58,130 13.03 86,072 1.60 12.28%
1995 13.77 45,077 13.07 42,954 0.70 5.36%
- ----------------------------
(1) The Block at Orange, Grapevine Mills and Arizona Mills are excluded from
this analysis, due to still being in their initial lease-up phase.
Additionally, Ontario Mills for 1997 is excluded.
(2) The releasing spread is calculated as the difference between per square
foot openings and per square foot closings for the twelve months ended
December 31, 1998. Openings and closings include renewals but exclude
exercised options.
(3) Consists primarily of expansion space related to two anchor stores, Bass
Pro and Computer City, comprising 125,000 sq. ft. and 25,000 sq. ft.,
respectively. The Bass Pro lease is expected to provide substantial
percentage rent in addition to the base rent detailed above.
Note: Totals may not sum due to rounding.
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GROSS SALES(1)(2)
The following table sets forth certain gross sales information for the years
ended December 31, 1998 and December 31, 1997.
YEAR ENDED DECEMBER 31, 1998
---------------------------------------------------------------
SQ. FT. SALES PER SQ. FT.
------------ -------------------- ------------
Potomac Mills:
Anchor/Majors 951,043 $ 191,678,102 $ 202
Specialty 580,658 185,618,081 320
Temporary/Kiosk - 5,155,021 -
------------ -------------------- ------------
1,531,701 $ 382,451,204 $ 250
Franklin Mills:
Anchor/Majors 971,940 $ 155,395,973 $ 160
Specialty 527,403 155,109,858 294
Temporary/Kiosk - 3,496,367 -
------------ -------------------- ------------
1,499,343 $ 314,002,198 $ 209
Sawgrass Mills:
Anchor/Majors 1,174,642 $ 353,258,477 $ 301
Specialty 664,466 297,963,690 448
Temporary/Kiosk - 10,588,716 -
------------ -------------------- ------------
1,839,108 $ 661,810,883 $ 360
Gurnee Mills:
Anchor/Majors 831,201 $ 141,156,686 $ 170
Specialty 565,887 159,651,566 282
Temporary/Kiosk - 6,515,341 -
------------ -------------------- ------------
1,397,088 $ 307,323,593 $ 220
Ontario Mills:
Anchor/Majors 823,815 $ 136,055,601 $ 165
Specialty 482,653 166,299,546 345
Temporary/Kiosk - 8,188,974 -
------------ -------------------- ------------
1,306,468 $ 310,544,121 $ 238
Total Mills:
Anchor/Majors 4,752,641 $ 977,544,839 $ 206
Specialty 2,821,067 964,642,741 342
Temporary/Kiosk - 33,944,419 -
------------ -------------------- ------------
7,573,708 $ 1,976,131,999 $ 261
============ ==================== ============
YEAR ENDED DECEMBER 31, 1997
-----------------------------------------------------------------
SQ. FT. SALES PER SQ. FT.
-------------- --------------------- ------------
Potomac Mills:
Anchor/Majors 910,288 $ 184,834,466 $ 203
Specialty 566,004 179,387,582 317
Temporary/Kiosk - 4,490,966 -
-------------- --------------------- ------------
1,476,292 $ 368,713,014 $ 250
Franklin Mills:
Anchor/Majors 904,677 $ 163,692,900 $ 181
Specialty 487,463 142,341,207 292
Temporary/Kiosk - 6,388,496 -
-------------- --------------------- ------------
1,392,140 $ 312,422,603 $ 224
Sawgrass Mills:
Anchor/Majors 1,173,109 $ 365,821,871 $ 312
Specialty 655,233 295,180,646 450
Temporary/Kiosk - 13,962,865 -
-------------- --------------------- ------------
1,828,342 $ 674,965,382 $ 369
Gurnee Mills:
Anchor/Majors 681,640 $ 103,395,397 $ 152
Specialty 561,633 150,055,052 267
Temporary/Kiosk - 8,860,293 -
-------------- --------------------- ------------
1,243,273 $ 262,310,742 $ 211
Ontario Mills:
Anchor/Majors 768,629 $ 133,724,268 $ 174
Specialty 454,598 159,284,318 350
Temporary/Kiosk - 6,866,186 -
-------------- --------------------- ------------
1,223,227 $ 299,874,772 $ 245
Total Mills:
Anchor/Majors 4,438,343 $ 951,468,902 $ 214
Specialty 2,724,931 926,248,805 340
Temporary/Kiosk - 40,568,806 -
-------------- --------------------- ------------
7,163,274 $ 1,918,286,513 $ 268
============== ===================== ============
- --------------------
(1) Grapevine Mills and Arizona Mills are excluded from this analysis since
they did not open until October 1997 and November 1997, respectively, and
do not have twenty-four months of sales data for comparison. Grapevine
Mills sales for the year ended December 31, 1998, were $117,597,419 on
657,994 sq. ft. of anchor/major space ($179 per sq. ft.), $144,338,088
on 481,255 of specialty store space ($300 per sq. ft.), and $9,710,374
of Temp/Kiosk sales. Arizona Mills sales for the year ended December 31,
1998, were $113,812,451 on 669,035 sq. ft. of anchor/major space ($170
per sq. ft.), $137,253,170 on 455,674 sq. ft. of specialty store space
($301 per sq. ft.) and $8,300,350 of Temp/Kiosk sales.
(2) Anchor/major sales have been adjusted to include sales from tenants that
own their parcels.
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31
DIVERSIFIED TENANT BASE
Because our projects represent a collection of various retail formats
under one roof, we believe that our tenant base represents one of the more
diversified mixes of retailers in the industry today. This is evidenced by the
fact that no tenant represents more than 3.6% of 1998 base rent. We further
believe that the overall credit of our tenant base is strong given the
diversity of our retailers and the large number of manufacturer outlet tenants.
Our universe of tenants continues to expand.
The following table, which includes our joint venture projects (Ontario
Mills, Grapevine Mills, Arizona Mills and The Block at Orange), sets forth
certain information with respect to our ten largest tenants (as measured by 1998
base rent) as of December 31, 1998:
PERCENT OF PERCENT OF NUMBER
1998 TOTAL LEASED OF
TENANT BASE RENT GROSS LEASABLE AREA STORES
- ------ --------- ------------------- ------
TJ Maxx Group (1).............................................. 3.6% 5.4% 18
AMC ........................................................... 2.6% 2.9% 4
J.C. Penney (2) ............................................... 2.4% 5.5% 8
Burlington Coat Factory Group (3).............................. 1.6% 5.1% 8
Rainforest Cafe ............................................... 1.5% 0.9% 6
Off 5th by Saks Fifth Avenue................................... 1.5% 2.4% 9
The Sports Authority........................................... 1.5% 1.7% 5
Bed, Bath & Beyond............................................. 1.5% 2.2% 6
Levi's......................................................... 1.4% 0.8% 13
Ogden.......................................................... 1.3% 0.6% 4
---------------- -------------------------- --------
Total 18.9% 27.5% 81
================ ========================== ========
(1) Includes T.J. Maxx and Marshalls.
(2) Includes J.C. Penney and Rite Aid.
(3) Includes Burlington Coat Factory and Totally 4 Kids.
DESCRIPTION OF EXISTING PROPERTIES
Set forth below are descriptions of each of our existing Mills and Block
properties.
Potomac Mills - Woodbridge, Virginia. Potomac Mills contains
approximately 1.6 million square feet of gross leasable area, of which one
anchor store tenant owns approximately 80,000 square feet. Potomac Mills opened
in 1985 with a total of approximately 630,000 square feet of gross leasable
area. As a result of customer demand, Potomac Mills was expanded to
approximately 1.2 million square feet of gross leasable area in 1986. The Phase
III expansion of Potomac Mills opened on September 30, 1993 and increased total
gross leasable area by approximately 355,000 square feet. We anticipate that
construction of a new entertainment zone will begin in late 1999 with an opening
in 2000. Potomac Mills has 17 anchors, including: IKEA, J.C. Penney Outlet,
Waccamaw Pottery, Marshalls, Spiegel Outlet, AMC Theatres, The Sports Authority,
Off 5th by Saks Fifth Avenue, T.J. Maxx, Syms, Group USA and Nordstrom Rack.
Potomac Mills is situated on approximately 161 acres located approximately 20
miles southwest of Washington, D.C. Potomac Mills is adjacent to Interstate 95,
which serves as one of the transportation backbones of the Washington
metropolitan area. This location strategically positions Potomac Mills between
the Washington/Baltimore metropolitan market to the north and Richmond,
approximately 90 miles to the south. We own 100% of Potomac Mills.
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32
Franklin Mills - Philadelphia, Pennsylvania. Franklin Mills opened in
1989 and contains approximately 1.7 million square feet of gross leasable area,
of which two anchor store tenants own approximately 209,000 square feet. We
began remerchandising Franklin Mills in 1996 by upgrading its tenant mix and
began construction on an entertainment zone, including themed restaurants and
interactive entertainment venues, in the first half of 1997, which was completed
by November 19, 1998 with the openings of Rainforest Cafe and Elephant Castle.
Franklin Mills has 19 anchors, including: Bed, Bath & Beyond, Filene's Basement,
Last Call from Neiman Marcus, Marshalls, Nordstrom Rack, Office Max, Off 5th by
Saks Fifth Avenue, Jillian's and Syms. Franklin Mills features what we believe
is the largest concentration of outlet retailing in the Delaware Valley. With
access from U.S. Highway 1 and the Pennsylvania Turnpike, Franklin Mills is
strategically positioned approximately 15 miles northeast of Philadelphia's
Center City and just west of Interstate 95, a major thoroughfare serving the
greater Philadelphia/Wilmington metropolitan market. We own 100% of Franklin
Mills.
Sawgrass Mills - Sunrise, Florida. Sawgrass Mills, which opened in 1990,
contains approximately 1.9 million square feet of gross leasable area, of which
three anchor store tenants own approximately 282,000 square feet. As a result of
customer demand, Sawgrass Mills was expanded by approximately 136,000 square
feet of gross leasable area in 1995. We expect to open a Phase III expansion of
Sawgrass Mills in the spring of 1999 consisting of an approximately 300,000
square foot entertainment zone anchored by a 24-screen Regal Theater. Sawgrass
Mills has 20 anchors, including: Beall's Outlet Store, Burlington Coat Factory,
Last Call from Neiman Marcus, Loehmanns, Rainforest Cafe, Spiegel Outlet, The
Sports Authority and Waccamaw Pottery. Sawgrass Mills is located in Florida's
"Gold Coast" market approximately 11 miles west of Fort Lauderdale. The site
lies adjacent to both the Sawgrass Expressway and Flamingo Road, between Sunrise
and Oakland Park Boulevards. The entire South Florida region is linked by the
road network of the Sawgrass Expressway, Interstate 75 and Interstate 595, which
intersect at an interchange located less than two miles southwest of Sawgrass
Mills. We own 100% of Sawgrass Mills, excluding the Phase III expansion.
Gurnee Mills - Gurnee, Illinois. Gurnee Mills opened in 1991 and contains
approximately 1.7 million square feet of gross leasable area, of which three
anchor store tenants own approximately 251,000 square feet. We have completed
construction of an expansion of over 150,000 square feet of gross leasable area,
which added entertainment venues to the existing mall. Gurnee Mills has been
remerchandised resulting in the upgrade of the project's tenant mix. Gurnee
Mills has 16 anchors, including: Bass Pro Shops, J.C. Penney Outlet, Waccamaw
Pottery, Marshalls, Spiegel Outlet, Bed, Bath & Beyond, The Sports Authority,
Off 5th by Saks Fifth Avenue, T.J. Maxx and Syms. The project is located
adjacent to Interstate 94, the major north/south thoroughfare linking Chicago
and Milwaukee. Gurnee Mills is clearly visible from Interstate 94 and is
situated directly across from Six Flags Great America, one of the largest
amusement parks in the Midwest. We own 100% of Gurnee Mills.
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33
Ontario Mills - Ontario, California. Ontario Mills opened in 1996 and
contains approximately 1.3 million square feet of gross leasable area comprised
of approximately 800,000 square feet of anchor space and approximately 500,000
square feet of specialty store space. We have plans to expand the project to a
total of 1.7 million square feet upon full build out. Ontario Mills currently
has 18 anchors, including: Off 5th by Saks Fifth Avenue, Dave & Busters, J.C.
Penney Outlet, Burlington Coat Factory, The Sports Authority, Marshalls, Bed,
Bath & Beyond, Mikasa, Off Rodeo Drive, T.J. Maxx, AMC Theatres, Virgin
Megastore, Group USA, Foozles, Totally 4 Kids, American Wilderness Experience,
Sega Gameworks and Rainforest Cafe. Ontario Mills is located at the
intersection of Interstate 10 and Interstate 15 in the heart of the
Riverside/San Bernardino area known as the "Inland Empire." Ontario Mills
serves the Los Angeles/Orange County metropolitan market. Net construction
costs at completion are estimated at $174 million.
Ontario Mills is owned by a limited partnership among us, with a 50%
interest, Kan Am, with a 25% interest, and Simon Property, with a 25% interest.
Kan Am has agreed to contribute 50% of the initial required equity capital. We
and Simon Property are responsible for the balance of the initial required
equity capital on a pro rata basis. We, Simon Property and Kan Am each will
receive a 9% preferred return on our equity, and the remaining cash flow will
be distributed pro rata in accordance with the percentage ownership interests.
We have the right to manage the development, property management and leasing of
the Ontario Mills project, subject to the other joint venture partners'
approval of specified major decisions, including sale or refinancing of the
project and approval of an annual budget.
At specified times following the fifth anniversary of the project's
opening, either we and Simon Property together or Kan Am can exercise a buy-sell
provision. Pursuant to the buy-sell provision, we and Simon Property can require
Kan Am to sell to us Kan Am's entire interest in the partnership. Also pursuant
to the buy-sell provision, Kan Am can require us and Simon Property to acquire
Kan Am's entire interest in the partnership.
Grapevine Mills - Grapevine, Texas. Grapevine Mills opened in 1997 and
contains approximately 1.3 million square feet of gross leasable area comprised
of approximately 700,000 square feet of anchor space and approximately 550,000
square feet of specialty store space. We have plans to expand the project to a
total of 1.6 million square feet upon full build out. Grapevine Mills currently
has 14 anchors, including: Off 5th by Saks Fifth Avenue, Burlington Coat
Factory, Bed, Bath & Beyond, Group USA, Rainforest Cafe, Books-A-Million, Sega
Gameworks and Virgin Megastore. Grapevine Mills is located on a 175-acre site
located at the interchange of Highway 121 and International Parkway, two miles
north of the Dallas/Fort Worth Airport in Grapevine, Texas. Grapevine Mills is
approximately 19 miles northeast of downtown Fort Worth and serves the
Dallas/Fort Worth metropolitan area.
Grapevine Mills is owned by a limited partnership among us, with a 37.5%
interest, Simon Property, with a 37.5% interest, and Kan Am, with a 25%
interest. Kan Am has agreed to contribute 50% of the initial required equity
capital. We and Simon Property are responsible for the balance of the initial
required equity capital on a pro rata basis. We, Simon Property and Kan Am each
will receive a 9% preferred return on our equity, and the remaining cash flow
will be distributed pro rata in accordance with the percentage ownership
interests. We have the right to manage the development, property management and
leasing of the Grapevine Mills project, subject to the joint venture partners'
approval of specified major decisions, such as changes to the plan of
development, the annual operating budget for the project and any proposed sale
or refinancing.
At specified times following the tenth anniversary of the project's
opening, either we and Simon Property together or Kan Am can exercise a
buy-sell provision. Pursuant to the buy-sell provision, we and Simon Property
can require Kan Am to sell to us, for cash or limited partnership units of the
Operating Partnership and limited partnership units of Simon Property at Kan
Am's election, Kan Am's entire interest in the partnership. Also pursuant to
the buy-sell provision, Kan Am can require us and Simon Property to acquire,
for cash or limited partnership units of the
33
34
Operating Partnership and limited partnership units of Simon Property at our and
Simon Property's election, Kan Am's entire interest in the partnership.
Arizona Mills - Tempe, Arizona. Arizona Mills opened in November 1997
and contains approximately 1.2 million square feet of gross leasable area
comprised of approximately 680,000 square feet of anchor space and approximately
530,000 square feet of specialty store space. Arizona Mills currently has 14
anchors, including: Burlington Coat Factory, Off 5th by Saks Fifth Avenue,
Oshman's, Harkins Cinema, J.C. Penney, Rainforest Cafe, Group USA, Hi-Health,
Virgin Megastore and Sega Gameworks. The project is located on a 115-acre site
located 20 minutes from downtown Phoenix, at the intersection of Interstate 10
and Superstition Freeway (Highway 60).
Arizona Mills is owned by a limited liability company owned by us, with
a 36.8% interest, Taubman Realty, with a 36.8% interest, and Simon Property,
with a 26.4% interest. All joint venture partners are obligated to contribute
required equity capital on a pro rata basis. We have the right to manage the
development, property management and leasing services of the Arizona Mills
project, subject to the other joint venture partners' approval of specified
major decisions, including sale or refinancing of the project and approval of
an annual budget.
At specified times following the fifth anniversary of the project's
opening or, if later, the date that 90% of the project has been leased, if the
joint venture partners are unable to agree upon specified major decisions, any
joint venture partner can cause the project to be sold pursuant to specified
procedures.
The Block at Orange - Orange, California. The Block at Orange opened in
November 1998, with approximately 0.6 million square feet of gross leasable area
comprised of approximately 360,000 square feet of anchor space and approximately
280,000 square feet of specialty store space. We have plans to expand the
project to a total of 0.8 million square feet upon full build out. The Block at
Orange currently has nine anchors, including: Borders Books and Music, Vans,
Virgin Megastore, Off 5th by Saks Fifth Avenue, Ron Jon Surf Shop, Gameworks,
AMC Theatres, Dave & Busters and Hilo Hattie, and has two additional anchor
store commitments. The Block at Orange is located on an 85-acre site located at
the intersection of the Santa Ana Freeway (I-10), the Garden Grove Freeway and
Orange Freeway (Highway 57) in the City of Orange, California, three miles from
Disneyland.
The Block at Orange project is owned by a limited partnership between
us, with a 50% interest, and Kan Am, with a 50% interest. Kan Am has committed
to fund up to $60 million (which represents 100% of the estimated equity
requirements for this project). Kan Am will receive a 9% preferred return on
its equity until such time as permanent financing is secured for the project.
We have guaranteed Kan Am's receipt of this preferred return. After permanent
financing is secured, we and Kan Am each will receive a 9% preferred return on
our equity, and the remaining cash flow will be distributed pro rata in
accordance with the percentage ownership interests. We have the right to manage
the development, property management and leasing services for the project,
subject to the approval of Kan Am for specified major decisions, including the
sale or refinancing of the project and approval of an annual budget.
At specified times following the tenth anniversary of the project's
opening, either we or Kan Am can exercise a buy-sell provision. Pursuant to the
buy-sell provision, we can require Kan Am to sell to us, for cash or limited
partnership units of the Operating Partnership at Kan Am's election, Kan Am's
entire interest in the partnership. Also pursuant to the buy-sell provision, Kan
Am can require us to acquire, for cash or limited partnership units of the
Operating Partnership at our election, Kan Am's entire interest in the
partnership.
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35
THE COMMUNITY CENTERS
The eleven Community Centers contain a total of approximately 2.2 million
square feet of gross leasable area and are located in Florida, Georgia,
Illinois, Maryland, New Jersey, Ohio, Pennsylvania, South Carolina and Virginia.
The Community Centers are open-air shopping centers containing traditional
shopping center tenants, such as grocery, drug, video and greeting card stores,
as well as a strong concentration of national value retailers. Anchor tenants of
the Community Centers include Giant Food, Krogers, Marshalls, Safeway, T.J.
Maxx, Walgreens, Wal-Mart and Bed, Bath & Beyond.
35
36
COMMUNITY CENTERS
The following table sets forth certain information with respect to the Community
Centers as of December 31, 1998:
GROSS LEASABLE AREA
(SQ. FT.) PERCENT LEASED (2)
YEAR LAND -------------------------- TOTAL -----------------------
COMPLETED/ AREA ANCHOR SPECIALTY GROSS ANCHOR SPECIALTY
PROPERTY EXPANDED (ACRES) STORES(1) STORES LEASABLE AREA STORES STORES
-------- -------- ------- --------- ------ ------------- ------- -------
West Falls Church
Outlet Center 1982 7 40,081 47,743 87,824 100% 95%
Butterfield 1983 9 41,933 72,677 114,610 100% 86%
Plaza
Montgomery 1983 11 36,405 80,986 117,391 100% 90%
Village
Western Hills 1983 36 314,516 134,980 449,496 91% 95%
Plaza
Crosswinds 1984 11 120,975 23,298 144,273 100% 100%
Center
Germantown 1986 20 46,756 130,341 177,097 100% 93%
Commons
Fashion 1987 13 73,258 74,692 147,950 100% 77%
Place
Gwinnett 1987 18 97,547 97,172 194,719 100% 91%
Marketfair
Mount 1987 34 172,595 126,005 298,600 100% 97%
Prospect Plaza
Cooper's 1994 20 158,556 14,953 173,509 100% 100%
Plaza
Liberty 1994 36 262,747 52,286 315,033 100% 57%
Plaza ----- --------- ------- ---------
Totals/Weighted
Averages 215 1,365,369 855,133 2,220,502 98% 90%
==== ========= ======= =========
1998
SALES PER SQ. FT.
TOTAL ANNUALIZED NUMBER ------------------------
PERCENT BASE OF ANCHOR SPECIALTY
PROPERTY LEASED RENT(3) STORES ANCHOR STORE TENANTS STORES STORES
-------- ------ ------- ------ -------------------- ------ ------
West Falls Church 97% $ 840,762 18 Safeway Marketplace $ 435 $ 144
Outlet Center
Butterfield 91% 1,371,044 17 Arvey Paper & Office, Kids R Us 130 215
Plaza
Montgomery 93% 1,427,930 22 Safeway Marketplace 427 154
Village
Western Hills 92% 2,724,227 38 Krogers, Staples, McAlpin's, and 270 218
Plaza Media Play
Crosswinds 100% 1,064,841 14 Bed, Bath & Beyond, Marshalls and 206 227
Center Scotty's
Germantown 95% 2,120,431 33 Giant Food 529 153
Commons
Fashion 88% 992,246 16 Staples, Superpetz and TJ Maxx 168 123
Place
Gwinnett 96% 1,995,658 29 A&P, Marshalls and TJ Maxx 174 206
Marketfair
Mount 99% 2,201,962 32 Dominicks, Marshalls, TJ Maxx and 219 163
Prospect Plaza Walgreens
Cooper's 100% 1,656,887 4 Marshalls, Pathmark and Service 116 126
Plaza Merchandise
Liberty 93% 2,434,614 9 Dick's Sporting Goods, Service 199 137
Plaza ----------- --- Merchandise and Wal-Mart
Totals/Weighted
Averages 95% $18,830,602 232 $245 $175
=========== ===
- ------------------------------
(1) Anchor stores includes all stores occupying more than 20,000 square
feet.
(2) Percent leased is defined as all space leased and for which rent was
being paid as of December 31, 1998, excluding tenants with leases
having a term of less than one year.
(3) Annualized base rent is the base rent payable in December 1998
multiplied by 12.
36
37
OPERATING TRENDS
The following table sets forth, for the last five years, certain information
regarding operating trends with respect to the Community Centers as of December
31, 1998:
MINIMUM RENT PLUS PERCENTAGE RENTS
-----------------------------------------------------------------------------------
AVERAGE TOTAL STORES ANCHOR STORES
PERCENT ---------------------------------------- --------------------------------------
LEASED (1) TOTAL PER SQ. FT. TOTAL PER SQ. FT.
---------- ------------------ ------------------- ----------------- ------------------
COMMUNITY CENTERS
1998 91% $ 18,396,101 $ 9.19 $ 8,473,402 $ 6.66
1997 87 17,853,568 9.33 8,223,866 6.76
1996 93 18,492,347 9.08 8,956,215 6.74
1995 90 17,933,643 9.03 8,692,927 6.78
1994 91 16,991,532 9.30 7,470,611 7.02
MINIMUM RENT PLUS PERCENTAGE RENTS
---------------------------------------
SPECIALTY STORES
---------------------------------------
TOTAL PER SQ. FT.
------------------- -----------------
COMMUNITY CENTERS
1998 $ 9,922,699 $ 13.60
1997 9,629,702 13.84
1996 9,536,132 13.49
1995 9,240,716 13.13
1994 9,520,921 12.49
- -----------------
(1) Average percent leased is defined as total average space leased and for
which rent was paid excluding tenants with leases having a term of
less than one year.
37
38
CAPITAL EXPENDITURES
The following tables set forth certain information regarding capital
expenditures for the Mills and the Community Centers combined for each of the
last three years and a 3-year average, the existing Mills (Potomac Mills,
Franklin Mills, Sawgrass Mills, Gurnee Mills, Ontario Mills, Grapevine Mills
and Arizona Mills) for each of the last three years and a 3-year average, and
the Community Centers for each of the last three years and a 3-year average.
Only 1998 data is available for Ontario Mills, Grapevine Mills and Arizona
Mills.
CAPITAL EXPENDITURES - EXISTING MILLS AND EXISTING COMMUNITY CENTERS COMBINED
The following table sets forth certain information regarding capital
expenditures for the existing Mills and the Community Centers combined:
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1998 1997
---- ----
RECURRING NON-TENANT CAPITAL EXPENDITURES (1)
Costs $ 1,453,123 $ 435,742
Per Square Foot (2) 0.12 0.05
RECURRING TENANT IMPROVEMENTS/LEASING COSTS (3)
Costs $ 5,467,329 $ 5,143,206
Per Square Foot Improved (4) 7.85 11.90
Per Square Foot (2) 0.46 0.62
TOTAL RECURRING COSTS
Costs $ 6,920,452 $ 5,578,948
Per Square Foot (2) 0.58 0.67
NON-RECURRING TENANT IMPROVEMENTS/LEASING COSTS (3)
Costs $ 18,911,845 (7) $ 41,571,485 (7)
Per Square Foot Improved (5) 71.68 73.69
Per Square Foot (2) 1.58 5.03
WORK IN PROCESS (6)
Costs $ 8,447,326 $ 4,703,992
Per Square Foot Improved (8) 25.99 14.59
YEAR ENDED DECEMBER 31,
------------------------ 3 - YEAR
1996 AVERAGE
---- -------
RECURRING NON-TENANT CAPITAL EXPENDITURES (1)
Costs $ 328,974 $ 739,280
Per Square Foot (2) 0.04 0.07
RECURRING TENANT IMPROVEMENTS/LEASING COSTS (3)
Costs $ 4,228,743 $ 4,946,426
Per Square Foot Improved (4) 12.71 10.82
Per Square Foot (2) 0.52 0.53
TOTAL RECURRING COSTS
Costs $ 4,557,717 $ 5,685,706
Per Square Foot (2) 0.56 0.60
NON-RECURRING TENANT IMPROVEMENTS/LEASING COSTS (3)
Costs $ 8,079,220 $ 22,854,183
Per Square Foot Improved (5) 44.93 63.43
Per Square Foot (2) 0.99 2.53
WORK IN PROCESS (6)
Costs -- $ 4,383,772
Per Square Foot Improved (8) -- 13.53
- ------------------
(1) Recurring non-tenant capital expenditures include expenditures that are not
tenant related nor recoverable from tenants.
(2) Includes annual costs divided by total gross leasable area (excluding space
owned by certain store tenants) of our properties.
(3) Tenant Improvements/Leasing costs include tenant specific costs including
tenant improvements, tenant allowances and capitalized internal leasing
costs.
(4) Calculated as recurring tenant improvements/leasing costs divided by gross
leasable area of all recurring store openings (including spaces requiring
no expenditures).
(5) Calculated as non-recurring tenant improvements/leasing costs divided by
gross leasable area of all non-recurring store openings.
(6) Work in process will be shown as recurring or non-recurring in the year
that the work is completed.
(7) Includes expansion costs at Franklin Mills and Gurnee Mills and
non-recurring remerchandising costs. Excludes costs relating to the
Sawgrass Phase III expansion.
(8) Calculated as work in process divided by gross leasable area of all space
with work in process.
38
39
CAPITAL EXPENDITURES - EXISTING MILLS
The following table sets forth certain information regarding capital
expenditures for the existing Mills (Potomac Mills, Franklin Mills, Sawgrass
Mills, Gurnee Mills, Ontario Mills, Grapevine Mills and Arizona Mills). Only
1998 data is available for Ontario Mills, Grapevine Mills and Arizona Mills.
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1998 1997
---- ----
RECURRING NON-TENANT CAPITAL EXPENDITURES (1)
Costs $ 949,095 $ 388,003
Per Square Foot (2) 0.10 0.06
RECURRING TENANT IMPROVEMENTS/LEASING COSTS (3)
Costs $ 4,274,398 $ 4,518,073
Per Square Foot Improved (4) 8.53 13.35
Per Square Foot (2) 0.44 0.75
TOTAL RECURRING COSTS
Costs $ 5,223,493 $ 4,906,076
Per Square Foot (2) 0.54 0.81
NON-RECURRING TENANT IMPROVEMENTS/LEASING COSTS (3)
Costs $ 18,175,677 (7) $ 41,010,815 (7)
Per Square Foot Improved (5) 96.48 78.37
Per Square Foot (2) 1.86 6.77
WORK IN PROCESS (6)
Costs $ 6,779,660 $ 3,989,739
Per Square Foot Improved (8) 38.45 31.27
YEAR ENDED DECEMBER 31,
-------------------------- 3 - YEAR
1996 AVERAGE
---- -------
RECURRING NON-TENANT CAPITAL EXPENDITURES (1)
Costs $ 246,522 $ 527,873
Per Square Foot (2) 0.04 0.07
RECURRING TENANT IMPROVEMENTS/LEASING COSTS (3)
Costs $ 3,549,312 $ 4,113,928
Per Square Foot Improved (4) 12.94 11.61
Per Square Foot (2) 0.60 0.60
TOTAL RECURRING COSTS
Costs $ 3,795,834 $ 4,641,801
Per Square Foot (2) 0.64 0.66
NON-RECURRING TENANT IMPROVEMENTS/LEASING COSTS (3)
Costs $ 7,746,906 $ 22,311,133
Per Square Foot Improved (5) 50.00 74.95
Per Square Foot (2) 1.30 3.31
WORK IN PROCESS (6)
Costs $ 3,589,800
Per Square Foot Improved (8) -- 23.24
- -------------------------
(1) Recurring non-tenant capital expenditures include expenditures that are not
tenant related nor recoverable from tenants.
(2) Includes annual costs divided by total gross leasable area (excluding space
owned by certain store tenants) of our properties.
(3) Tenant improvements/leasing costs include tenant specific costs including
tenant improvements, tenant allowances and capitalized internal leasing
costs.
(4) Calculated as recurring tenant improvements/leasing costs divided by gross
leasable area of all recurring store openings (including spaces requiring
no expenditures).
(5) Calculated as non-recurring tenant improvements/leasing costs divided by
gross leasable area of all non-recurring store openings.
(6) Work in process will be shown as recurring or non-recurring in the year
that the work is completed.
(7) Includes expansion costs at Franklin Mills and Gurnee Mills. Excludes cost
relating to Sawgrass Phase III expansion.
(8) Calculated as work in process divided by gross leasable area of all space
with work in process.
39
40
CAPITAL EXPENDITURES - COMMUNITY CENTERS
The following table sets forth certain information regarding capital
expenditures for the Community Centers:
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1998 1997
---- ----
RECURRING NON-TENANT CAPITAL EXPENDITURES (1)
Costs $ 504,028 $ 47,739
Per Square Foot (2) 0.23 0.02
RECURRING TENANT IMPROVEMENTS/LEASING COSTS (3)
Costs $ 1,192,931 $ 625,133
Per Square Foot Improved (4) 6.10 6.68
Per Square Foot (1) 0.54 0.28
TOTAL RECURRING COSTS
Costs $ 1,696,959 $ 672,872
Per Square Foot (2) 0.77 0.31
NON-RECURRING TENANT IMPROVEMENTS/LEASING COSTS (3)
Costs $ 736,168 $ 560,670
Per Square Foot Improved (5) 9.76 13.73
Per Square Foot (2) 0.33 0.25
WORK IN PROCESS (6)
Costs $ 1,667,666 $ 714,253
Per Square Foot Improved (7) 11.22 3.66
YEAR ENDED DECEMBER 31,
------------------------ 3 - YEAR
1996 AVERAGE
---- -------
RECURRING NON-TENANT CAPITAL EXPENDITURES (1)
Costs $ 82,452 $ 211,406
Per Square Foot (2) 0.04 0.10
RECURRING TENANT IMPROVEMENTS/LEASING COSTS (3)
Costs $ 679,431 $ 832,498
Per Square Foot Improved (4) 15.06 9.28
Per Square Foot (1) 0.31 0.38
TOTAL RECURRING COSTS
Costs $ 761,883 $ 1,043,905
Per Square Foot (2) 0.35 0.48
NON-RECURRING TENANT IMPROVEMENTS/LEASING COSTS (3)
Costs $ 332,314 $ 543,051
Per Square Foot Improved (5) 13.35 12.28
Per Square Foot (2) 0.15 0.24
WORK IN PROCESS (6)
Costs -- $ 793,973
Per Square Foot Improved (7) -- 4.96
- -----------------
(1) Recurring non-tenant capital expenditures include expenditures that are not
tenant related nor recoverable from tenants.
(2) Includes annual costs divided by total gross leasable area (excluding space
owned by certain store tenants) of the Community Centers.
(3) Tenant improvements/leasing costs include tenant specific costs including
tenant improvements, tenant allowances and capitalized internal leasing
costs.
(4) Calculated as recurring tenant improvements/leasing costs divided by gross
leasable area of all recurring store openings (including spaces requiring
no expenditures).
(5) Calculated as non-recurring tenant improvements/leasing costs divided by
gross leasable area of all non-recurring store openings.
(6) Work in process will be shown as recurring or non-recurring in the year
that the work is completed.
(7) Calculated as work in process divided by gross leasable area of all space
with work in process.
40
41
THE MILLS CORPORATION
SUMMARY OF OUTSTANDING CONSOLIDATED INDEBTEDNESS
(DOLLARS IN THOUSANDS)
AS OF DECEMBER 31, 1998
As of December 31, 1998, the Company had outstanding consolidated indebtedness
in an aggregate amount of approximately $782.2 million (excluding its pro rata
share of unconsolidated joint venture debt) as set forth below.
Principal Interest Annual Maturity
Mortgage/Loan Balance Rate Type Interest Rate Date
------------------- ------- --------- ------------- ----
(000's) (000's)
Potomac Mills/Gurnee Mills:
Tranche A $206,022 Fixed 6.905% 12/17/26 (1)
Tranche B 27,000 Fixed 7.021% 12/17/26 (1)
Tranche C 15,000 Fixed 7.235% 12/17/26 (1)
Tranche D 30,000 Fixed 7.701% 12/17/26 (1)
Franklin Mills and Liberty Plaza
Tranche A 108,561 Fixed 7.882% 6/1/27 (3)
Mortgage Loan 19,764 Fixed 7.440% 6/1/27 (3)
Mortgage Loan 12,973 Fixed 6.220% 6/1/27 (3)
Sawgrass Mills:
Tranche A 115,000 Fixed 6.450% 1/18/01
Tranche B 10,000 Variable with cap 85 bp over LIBOR (6) 1/18/01
Tranche C 20,000 Variable with cap 230 bp over LIBOR (6) 1/18/01
Sawgrass Mills - Phase II: 18,000 Fixed 6.970% 1/18/01
Western Hills: 14,949 Fixed 7.675% 1/1/99 (18)
Nine Community Centers: 66,833 Fixed 7.160% 1/31/01
Concord Mills Residual III: 6,229 Variable 200 bp over LIBOR 12/31/00
--------------
Total Property Mortgages 670,331
--------------
Other Loans
Corporate Miscellaneous: 751 Fixed 8.250% 10/31/00
Corporate Miscellaneous: 2,400 Fixed 6.200% 7/15/99
Corporate Line of Credit: 89,000 Variable 140 bp over LIBOR 4/1/00
Corporate Miscellaneous: 15,000 Variable 125 bp over LIBOR 1/18/00
Sawgrass Residual: 4,700 Variable 165 bp over LIBOR 1/18/01
--------------
Total $782,182
==============
Earliest day Recourse to
Annual at which debt Company or
Mortgage/Loan Interest can be repaid Op. Ptnrshp
------------------- -------- ------------- -----------
(000's)
Potomac Mills/Gurnee Mills:
Tranche A $14,225 (2) 0%
Tranche B 1,896 (2) 0%
Tranche C 1,085 (2) 0%
Tranche D 2,310 (2) 0%
Franklin Mills and Liberty Plaza
Tranche A 8,557 (4) 0%
Mortgage Loan 1,470 (4) 0%
Mortgage Loan 807 (4)
Sawgrass Mills:
Tranche A 7,418 (5) 0%
Tranche B 649 (7) (5) 0%
Tranche C 1,588 (7) (5) 0%
Sawgrass Mills - Phase II: 1,255 (8) 0% (15)
Western Hills: 1,147 (9), (16) 0%
Nine Community Centers: 4,785 (10), (16) 0%
Concord Mills Residual III: 476 (17) 100%
------------
Total Propety Mortgages 47,668
------------
Other Loans
Corporate Miscellaneous: 62 (12) 0%
Corporate Miscellaneous: 149 (12) 0%
Corporate Line of Credit: 6,266 (8), (11) 100%
Corporate Miscellaneous: 1,034 (14) 100%
Sawgrass Residual: 343 (13) 0%
------------
Total $55,522
============
(1) This indebtedness is a 30 year amortizing loan with an anticipated balloon
repayment on December 18, 2003. In the event the mortgage loan is not
repaid by the anticipated balloon repayment date, the annual interest rate
for each tranche will be increased by 2% per annum in excess of the stated
interest rate. In addition, excess cash flow available after payment of
the increased interest rate and scheduled amortization will be used to
reduce the principal balance of the loan. Principal repayments are based
on the scheduled amortization, assuming a 7% mortgage interest rate, over
a 30 year period, with the monthly amortization payments being applied
sequentially, beginning with Tranche A to reduce the principal balance.
(2) Optional payments of principal are not permitted prior to December 17,
1999. After such date, prepayments, in whole or in part, are permitted
upon at least 15 days notice. In addition, the Company is required to pay
a prepayment penalty equal to the greater of (i) 1% of the remaining
principal balance or (ii) a yield preservation payment. Generally, yield
preservation payments are intended to compensate the lender for the total
amount of interest it would have earned on the indebtedness but for the
repayment, less the amount of interest that the lender could earn if it
invested the repayment amount in United States Treasury obligations or
other similar securities from the date of the repayment through the
maturity date of the indebtedness.
(3) This indebtedness is a 30 year amortizing loan with an anticipated balloon
repayment on May 5, 2007. In the event the mortgage loan is not repaid by
the anticipated balloon repayment date, the annual interest rate will be
increased by 5% per annum in excess of the stated interest rate. In
addition, excess cash flow available after payment of the increased
interest rate and scheduled amortization will be used to reduce the
principal balance of the loan.
(4) This indebtedness may be prepaid, without a prepayment penalty, beginning
180 days prior to May 5, 2007. Prior to that date, there is no right to
prepay the indebtedness, except that $12.5 million of the principal
balance, which has been allocated to the Liberty Plaza shopping center,
may be defeased through the establishment of defeasance collateral (which
may include government or agency securities that have the full faith and
credit of the United States government).
42
(5) Optional payments of principal on Tranche A of this indebtedness are not
permitted prior to June 20, 2000 other than in connection with certain
casualty or condemnation events occurring with respect to Sawgrass Mills.
On and after such date, Tranche A may be prepaid in full, but not in part,
without any prepayment penalty. Optional prepayments of Tranches B and C
of the indebtedness may be made, in whole or in part, at any time without
any prepayment penalty, but only if payments of interest are current with
respect to each outstanding Tranche and an event of default is not then
continuing.
(6) The loan agreement provides for a cap on LIBOR at 14% for the life of the
loan.
(7) Calculated using 30-day LIBOR at 5.6406%, which was the rate at
December 31, 1998.
(8) Prepayable, in whole or in part, at any time without prepayment penalty.
(9) This indebtedness may be prepaid, in whole or in part, upon 30 days
notice to the lender and the payment of a prepayment penalty. The
penalty percentage due on prepayment is 1.5% of the outstanding
principal. During the last three months of its term, the indebtedness
may be prepaid without penalty.
(10) Prepayable, in whole or in part, at any time, upon 60 days prior notice
to the lender. The Company is required to pay a prepayment penalty, which
would equal to the greater of (i) 1% of the principal balance, or (ii) a
yield preservation payment.
(11) The total commitment under the Line of Credit is $100,000. Funds are
available subject to certain performance measures and restrictive
covenants. This loan bears interest at a variable rate ranging from 100
bp to 165 bp over LIBOR subject to certain leverage tests (LIBOR + 140
bp at 12/31/98). The line of credit matures April 1, 2000 with a
one-year option to extend.
(12) Primarily corporate debt with maturities under one year. Prepayable, in
whole or in part, at any time without prepayment penalty.
(13) Prepayable, in whole or in part, at any time, upon 3 days prior notice to
lender without prepayment penalty.
(14) Prepayable, in whole or in part, at any time, upon 5 days prior notice to
lender without prepayment penalty.
(15) Principal is guaranteed by the Company if the Phase II project fails to
achieve a DSC ratio of 1.35 and a debt yield of 12.5%. As of December
31, 1998, the guaranteed amount was 0%.
(16) On January 27, 1999, the loans were repaid with the proceeds of a new
$112,500 permanent loan. The new indebtedness is a 30 year amortizing loan
with an anticipated balloon repayment date of February 1, 2009. Interest
will accrue at a fixed rate of 7.30%.. In the event the mortgage is not
repaid by the anticipated balloon repayment date, the interest rate will
be the greater of (i) the loan interest rate plus 2% or (ii) the yield
calculated by linear interpolation of the yields of noncallable United
States Treasury obligations with terms (one longer and one shorter) most
nearly approximating the period from such date of determination to the
anticipated repayment date.
(17) The total commitment under this loan is $9,000. Funds are available
subject to certain performance measures and restrictive covenants.
Interest accrues at 200 bp over LIBOR. The indebtedness matures on
December 31, 2000.
(18) In December 1998, the Company received a three month extension to 4/1/99.
43
THE MILLS CORPORATION
SUMMARY OF OUTSTANDING UNCONSOLIDATED JOINT VENTURE INDEBTEDNESS
(DOLLARS IN THOUSANDS)
AS OF DECEMBER 31, 1998
As of December 31, 1998, the unconsolidated joint ventures had outstanding
indebtedness in an aggregate amount of approximately $583.3 million as set
forth below.
Principal Total Interest Annual Maturity Annual
Mortgage/Loan Balance Commitment Rate Type Interest Rate Date Interest
- ---------------- ------- ---------- --------- ------------- ---- --------
(000's) (000's) (000's)
Arizona Mills $140,984 $145,000 Variable 130 bp over LIBOR (4),(5) 2/1/02 $ 9,785
Grapevine Mills 155,000 155,000 Fixed 6.465% 9/1/32 (8) 10,021
Ontario Mills 144,902 145,000 Fixed 6.75% 12/1/28 (9) 9,781
The Block at Orange 105,840 136,000 Variable 165 bp over LIBOR (6) 1/22/02 7,716 (4)
Sawgrass Phase III 12,319 44,000 Variable 165 bp over LIBOR (7) 1/18/01 898 (4)
Concord Mills 24,250 199,000 Variable 135 bp over LIBOR 12/2/01 1,695
----------- ------------- -------------
Total $583,295 $824,000 $39,896
` =========== ============= ============
Earliest day Recourse to
at which debt Company or
Mortgage/Loan can be repaid Op. Ptnrshp
- ---------------- ------------- -----------
Arizona Mills (1) 9.2% (10)
Grapevine Mills (2) 3.2% (11)
Ontario Mills (3) 0.0%
The Block at Orange (3) 100.0% (12)
Sawgrass Phase III (1) 100.0% (13)
Concord Mills (2) 50.0% (14)
Total
(1) This indebtedness may be prepaid, in whole or in part, upon 5 business
days notice to the Administrative Agent, be in principal amount of not
less than $1 million and an integral multiple of $100,000, and each
prepayment under this shall include all interest accrued on the amount
of principal prepaid (and all late charges and other sums that may be
payable) through the date of prepayment.
(2) This indebtedness may be prepaid, in whole or in part, upon 3 business
days notice to the Administrative Agent.
(3) The Company shall have the right to make prepayments of the loan,
without penalty, and a late charge, as the case may be, folllwing the
occurrence of an Event of Default under any of the Loan Documents, in
whole or in part, upon not less than 5 business days prior written
notice to lender. No prepayment of all or part of the loan, including
any mandatory prepayment of the Loan made as a result of an acceleration
of the loan or pursuant to the immediately preceding sentence, shall be
permitted unless same is made together with the payment of all interest
accrued on the loan though the date of prepayment and an amount equal to
all Breakage Costs and reasonable, out-of-pocket attorneys' fees and
disbursements incurred by Lender and any participants in good faith as a
result of the prepayment.
(4) Calculated using 30-day LIBOR at 5.6406%, which was the rate at
December 31, 1998.
(5) The Applicable Margin may be reduced to 115 basis points if the Company
receives a private letter bank loan rating equal to or better than "A-".
44
(6) Interest Rate shall be LIBOR plus (a) 165 basis points until the
following conditions have been satisfied: (i) the Construction Phase
Completion Date has occurred, (ii) the Grand Opening Date has occurred,
(iii) 33% of the Specialty Space has been and continues to be leased to
Specialty Tenants and 55% of the Anchor Space has been and continues to
be leased to Anchors, (iv) the DSC Ratio for any Calculation Period is
equal to or greater than 1.00 and (v) no Event of Default is continuing.
Once these conditions have been satisfied the Interest Rate shall be
LIBOR plus 150 bp. A further reduction to LIBOR plus 135 bp shall occur
once the DSC Ratio for any period is equal to or greater than 1.25.
Interest Rate will reduce to LIBOR plus 125 bp when the DSC Ratio for
any period is equal to or greater than 1.40.
Interest Rate will reduce to LIBOR plus 115 bp when the DSC Ratio for
any period is equal to or greater than 1.50.
(7) Interest Rate shall be LIBOR plus (a) 165 basis points until the
following conditions have been satisfied: (i) the Construction Phase
Completion Date has occurred and the project has achieved a DSC ratio of
1.00, the interest rate shall be LIBOR plus 150 bp; (ii) the project has
achieved a DSC ratio of 1.30 and a debt yield of 12.0% for a minimum of
three months, the interest rate shall be LIBOR plus 125 bp; (iii) the
project has achieved a DSC ratio of 1.35 and a debt yield of 12.5% for a
subsequent three months, the interest rate will be LIBOR plus 110 bp.
(8) This indebtedness is a 30 year amortizing loan with an anticipated
repayment date on October 1, 2008. The loan has an interest only period
through September 1, 2002. In the event the mortgage loan is not repaid
by the anticipated balloon repayment date, the annual interest rate will
be the greater of (i) the loan interest rate plus 2% or (ii) the yield
calculated by linear interpolation of the yields of noncallable United
States Treasury obligations with terms (one longer and one shorter) most
nearly approximating the period from such date of determination to the
anticipated repayment date.
(9) This indebtedness is a 30 year amortizing loan with an anticipated
repayment date on December 1, 2008. In the event the mortgage loan is
not repaid by the anticipated balloon repayment date, the annual
interest rate will be the greater of (i) the loan interest rate plus 5%
or (ii) the Treasury Rate plus 5%.
(10) Principal is guaranteed on a several basis by each partner (the
Company's share is 36.8%) reduced as follows: (i) as of closing, the
"Guaranteed Amount" was 100% of Loan Amount; (ii) upon completion of
construction, opening and achieving $16,000 of "In-Place Minimum Rent,"
the Guaranteed Amount will reduce to 50%; (iii) upon achieving a 13.5%
"Debt Yield," ("Debt Yield" is defined as EBITDA to total loan
commitment) the Guaranteed Amount will reduce to 25% of the Loan
Amount; (iv) upon achieving a 15% "Debt Yield," the Guaranteed Amount
will reduce to 15% of the Loan Amount; and (v) upon achieving a 17%
Debt Yield and an appraised value indicating a loan to value ratio of
no greater than 55%, the Guaranteed Amount will reduce to $0. As of
December 31, 1998, the Company's share of the Guaranteed Amount was
reduced from 36.8% to 9.2% according to the above formula.
(11) The Company and Simon Property (Texas) Group, L.P. have each guaranteed
$5,000 on this loan (3.2%). The guarantee terminates when the debt
service coverage for any twelve consecutive months is equal to or
exceeds 1.5 to 1.0.
(12) Principal is guaranteed by the Company, reduced as follows: (i) as of
closing, the "Guaranteed Amount" was 100% of Loan Amount; (ii) upon
construction completion, grand opening and a Debt Service Coverage
ratio of 1.00 the Guaranteed Amount will reduce to 50%; (iii) upon
achieving a DSC Ratio of 1.25 the Guaranteed Amount will reduce to 25%;
(iv) upon achieving a DSC Ratio of 1.40 the Guaranteed Amount will
reduce to 10%; and (v) upon achieving a DSC Ratio of 1.50 the
Guaranteed Amount will reduce to 0%.
(13) Principal is guaranteed by the Company, reduced as follows: (i) as of
closing, the "Guaranteed Amount" was 100% of Loan Amount; (ii) upon
achieving a DSC Ratio of 1.35 and a debt yield of 12.5% will reduce to
0%.
(14) The loan commitment has a term of three years with two one-year
extension options. The interest rate will be LIBOR plus 135 basis
points until completion and occupancy requirements are met. Once
achieved, the interest rate will be LIBOR plus 120 basis points. The
interest rate can be further reduced to LIBOR plus 110 basis points
when the project achieves a debt service coverage for three months of
1.35. The new loan is guaranteed severally by the Company (50%) and
Simon Property Group, L.P. (50%) and can be reduced as follows: (i) as
of closing, the "Guaranteed Amount" was 100% of loan amount; (ii) 50%
upon achieving completion and occupancy requirements; (iii) 35% upon
achieving a DSC ratio of 1.20 for three consecutive months; (iv) 20%
upon achieving a DSC ratio of 1.35 for three consecutive months
subsequent to the prior condition.
45
INCOME PRODUCING PROPERTY - FEDERAL INCOME TAX BASIS
The following table sets forth certain information regarding federal
income tax basis and depreciation of income producing property for the Mills
(including Ontario Mills, Grapevine Mills and Arizona Mills, which are
unconsolidated joint ventures) and The Block at Orange, which is an
unconsolidated joint venture, as of December 31, 1998:
LAND LAND IMPROVEMENTS BUILDING
---- ----------------- --------
FEDERAL TAX FEDERAL TAX DEPRECIATION FEDERAL TAX DEPRECIATION
BASIS BASIS METHOD LIFE (YRS) BASIS METHOD LIFE (YRS)
--------------------------------------------------------------------------------------------------------------
Franklin Mills $ 28,465 $ 6,289 MACRS 15 $150,400 MACRS 39
Gurnee Mills 18,456 16,394 MACRS 15 162,543 MACRS 31.5,39
MACRS 15 MACRS 31.5,39
Potomac Mills 15,908 27,194 ACRS 15,18 115,093 ACRS 15,18
Sawgrass Mills 17,195 8,348 MACRS 15 161,916 MACRS 39
Ontario Mills 7,264 10,643 MACRS 15 121,118 MACRS 39
Grapevine Mills 18,249 5,774 MACRS 15 108,504 MACRS 39
Arizona Mills 23,877 615 MACRS 15 132,974 MACRS 39
The Block at
Orange 23,264 8,935 MACRS 15 71,853 MACRS 39
FURNITURE, FIXTURE AND EQUIPMENT
--------------------------------
FEDERAL TAX DEPRECIATION
BASIS METHOD LIFE (YRS)
----------------------------------------
Franklin Mills $3,284 MACRS 5,7
Gurnee Mills 4,029 MACRS 3,5,7
Potomac Mills 2,473 MACRS 5,7
Sawgrass Mills 4,736 MACRS 3,5,7
Ontario Mills 3,805 MACRS 5,7
Grapevine Mills 4,086 MACRS 5,7
Arizona Mills 1,980 MACRS 3,5,7
The Block at
Orange 7,091 MACRS 5,7
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
45
46
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
Market Information
Our common stock trades on the New York Stock Exchange ("NYSE")
under the symbol "MLS". The following table sets forth the high and low closing
sale prices per share of common stock for the periods indicated as reported on
the NYSE and the distributions per share paid by us with respect to the periods
noted.
HIGH LOW DISTRIBUTIONS
---- --- -------------
1998
First Quarter.............................................................. $27 1/4 $23 11/16 $ .4825
Second Quarter............................................................. 26 9/16 23 3/16 .4875
Third Quarter.............................................................. 27 3/16 19 3/8 .4875
Fourth Quarter............................................................. 22 1/2 18 5/8 .4875
1997:
First Quarter.............................................................. $26 1/4 $23 1/2 $ .4725
Second Quarter............................................................. 27 11/16 24 3/4 .4725
Third Quarter.............................................................. 28 7/8 25 5/8 .4725
Fourth Quarter............................................................. 28 23 7/8 .4725
The last reported closing sale price on the NYSE on March 26, 1999
was $17.3125 per share. As of March 26, 1999, there were 24,139,317 shares of
our common stock outstanding, held by 895 holders of record (including
763,091 shares issued to the Operating Partnership and held in escrow to
secure specific obligations pursuant to a settlement agreement with Chelsea GCA
Realty and Simon Property; see "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources--Development, Remerchandising and Expansion.").
Distributions
We have made consecutive quarterly distributions since our
initial public offering. The indicated annual distribution rate was $1.95 per
share of common stock based on the fourth quarter 1998 distribution. A portion
of our distribution may represent a non-taxable return of capital and/or a
capital gain dividend. Approximately 40% of 1998 distributions of $1.95 per
share of common stock were a non-taxable return of capital. Approximately 1% of
1998 distributions were capital gain dividends. In 1999, we increased our annual
distribution rate to $2.01 per share of common stock commencing with our
dividend for the first quarter of 1999 which is payable in April 1999. Our
ability to make distributions depends on a number of factors, including net cash
provided by operating activities, financial condition, capital commitments, debt
repayment schedules and such other factors, as the Board of Directors deems
relevant.
Holders of common stock are entitled to receive distributions when,
as and if declared by the Board of Directors out of any funds legally available
for that purpose. As a REIT, we are required to distribute annually to our
shareholders at least 95% of its "real estate investment trust taxable income,"
which, as defined by the relevant tax statutes and regulations, is generally
equivalent to net taxable ordinary income.
46
47
ITEM 6. SELECTED FINANCIAL DATA
Information with respect to Selected Financial Data is incorporated
herein by reference to the information appearing in our 1998 Annual Report to
Shareholders under the caption "Selected Consolidated Financial Data."
ITEM 7. AND 7A. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS AND QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Information with respect to Management's Discussion and Analysis of
Financial Condition and Results of Operations is incorporated herein by
reference to the information appearing in our 1998 Annual Report to Shareholders
under the caption "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information with respect to Financial Statements and Supplementary
Data are set forth in Item 14 of this report and are hereby incorporated by
reference to the information appearing in our 1998 Annual Report to Shareholders
under the caption "Consolidated Financial Statements."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
47
48
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company and their
positions and offices as of February 28, 1999 are set forth in the following
table:
NAME AGE POSITION AND OFFICES HELD
- ---- --- -------------------------
Laurence C. Siegel........................... 46 Chairman of the Board, Chief Executive Officer and Director
Peter B. McMillan............................ 51 President, Chief Operating Officer and Director
Judith S. Berson............................. 56 Executive Vice President - Specialty Leasing
James F. Dausch.............................. 56 Executive Vice President - Development and Director
Kent S. Digby................................ 46 Executive Vice President - Management/Marketing
Kenneth R. Parent............................ 38 Executive Vice President - Finance and Chief Financial Officer
Thomas E. Frost.............................. 46 Senior Vice President, General Counsel and Secretary
Thomas M. Hindert............................ 45 Senior Vice President - Real Estate
Steven J. Jacobsen........................... 43 Senior Vice President - Development
Terrence W. LaPier........................... 45 Senior Vice President - International Development
Mark J. Rivers............................... 33 Senior Vice President - Anchor Leasing
James P. Whitcome............................ 52 Senior Vice President - Capital Services
Dietrich von Boetticher...................... 57 Vice Chairman and Director
John M. Ingram............................... 63 Vice Chairman and Director
Charles R. Black, Jr......................... 51 Director
James C. Braithwaite......................... 58 Director
The Hon. Joseph B. Gildenhorn................ 69 Director
Peter A. Gordon.............................. 57 Director
Harry H. Nick................................ 57 Director
Franz von Perfall............................ 57 Director
Robert P. Pincus............................. 52 Director
Cristina L. Rose............................. 52 Director
Peter A. Gordon, 57, has been a director of the Company since April
1994. Since 1992, Mr. Gordon has been the general partner of Ethos Capital
Management, Inc., an international investment company. From 1971 to 1992, Mr.
Gordon was employed by the investment bank of Salomon Brothers where he
eventually served as Managing Director of International Corporate Finance. Mr.
Gordon is a member of the Audit Committee of the Board of Directors.
Biographical summaries of the remaining directors and executive
officers of the Company are included under the caption "Board of Directors" and
"Executive Officers," respectively, in our proxy statement for the 1999 Annual
Meeting of Shareholders and are incorporated herein by reference. Information
required by Item 405 of Regulation S-K is included under the caption "Section
16(a) Beneficial Ownership Reporting Compliance" in our proxy statement for the
1999 Annual Meeting of Shareholders and is incorporated herein by reference.
48
49
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to executive compensation is incorporated
herein by reference to the information under the captions "Compensation of
Directors" and "Executive Compensation" in our proxy statement for the 1999
Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to security ownership of certain beneficial
owners and management of the Company is incorporated herein by reference to the
information under the caption "Voting Securities and Principal Holders Thereof"
in our proxy statement for the 1999 Annual Meeting of Shareholders.
ITEM 13. CERTAIN TRANSACTIONS WITH RELATED PARTIES
Information with respect to certain relationships and transactions
is incorporated herein by reference to the information under the caption
"Certain Relationships and Transactions" in our proxy statement for the 1999
Annual Meeting of Shareholders.
49
50
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS AND FORM 8-K
14(a) LIST OF DOCUMENTS FILED AS PART OF FORM 10-K
(1) FINANCIAL STATEMENTS
Report of Independent Auditors
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(2) FINANCIAL STATEMENTS SCHEDULES Page
----
Schedule III - Consolidated Real Estate and
Accumulated Depreciation F-1
Notes to Schedule III F-2
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions, are included in the consolidated
financial statements or are inapplicable and therefore have been omitted.
(3) EXHIBITS
NUMBER EXHIBIT
------ -------
+3.1 Amended and Restated Certificate of Incorporation of the Company.
+3.2 Amended and Restated Bylaws of the Company
**3.3 Limited Partnership Agreement of the Operating Partnership (filed as part of Exhibit 10.3)
*4.1 Specimen Common Stock Certificate of Company
*4.2 Agreement dated March 15, 1994, among Richard L. Kramer, the A.J. 1989 Trust, the Irrevocable
Intervivos Trust for the Benefit of the Kramer Children, the N Street Investment Trust, Equity
Resources Associates, Herbert S. Miller, The Mills Corporation and The Mills Limited Partnership
(filed as Exhibit 10.19)
**4.3 Non-Affiliate Registration Rights and Lock-Up Agreement
**4.4 Affiliate Registration Rights and Lock-Up Agreement
*10.1 Form of Employee Non-Compete/Employment Agreements
++10.2 1994 Executive Equity Incentive Plan
**10.3 Limited Partnership Agreement of Operating Partnership
50
51
NUMBER EXHIBIT
------ -------
*10.4 Form of Noncompetition Agreement between the Company, the Operating Partnership and each
of Kan Am and the Kan Am Partnerships
*10.5 Form of Noncompetition Agreement with Kan Am Directors
*10.6 Trust and Servicing Agreement, dated as of December 1, 1993, among Sawgrass Finance L.L.C.,
as depositor, The First National Bank of Chicago, as servicer, and State Street Bank and Trust
Company, as Trustee
*10.7 Amended and Restated Mortgage, Security Agreement, Assignment of Lessee and Rents and
Fixture filing, dated as of December 1, 1993, by Sunrise Mills Limited Partnership,
as mortgagor, in favor of Sawgrass Finance L.L.C., as mortgagee
*10.8 Assignment of Leases and Rents, dated as of December 1, 1993, between Sunrise Mills Limited
Partnership and Sawgrass Finance L.L.C.
*10.9 Assignment of Note, Mortgage, and Assignment of Rents dated as of December 21, 1993, by Sawgrass Finance
L.L.C. in favor of State Street Bank & Trust Co.
*10.10 Agreement dated March 15, 1994 among Richard L. Kramer, the A.J. 1989 Trust, the Irrevocable Intervivos
Trust for the Benefit of the Kramer Children, the N Street Investment Trust, Equity Resources
Associates, Herbert S. Miller, The Mills Corporation and The Mills Limited Partnership
*10.11 Form of Indemnification Agreement between the Company and each of its Directors and Executive Officers
***10.12 First Amendment to Trust and Servicing Agreement (Exhibit 10.7) dated as of June 1, 1995, among Sawgrass
Finance L.L.C., as depositor, The First National Bank of Chicago, as servicer, and State Street Bank and
Trust Company, as trustee.
***10.13 Prepayment Premium Agreement dated as of June 1, 1995, between The Mills Limited Partnership
and State Street Bank and Trust Company, as trustee.
****10.14 Second Amendment and Restated Deed of Trust, Security Agreement, Assignment of Rents and Fixture Filing
by Potomac Mills-Phase III (MLP) Limited Partnership and Washington Outlet Mall (MLP) Limited
Partnership, collectively, as Grantor to R. Eric Taylor, a resident of Fairfax County, Virginia as Deed
Trustee for the benefit of CS First Boston Mortgage Capital Corp., as Beneficiary dated as of
December 17, 1996.
****10.15 Form of Assignment of Leases and Rents and Security Deposits dated as of December 17, 1996 by Potomac
Mills-Phase III (MLP) Limited Partnership and Washington Outlet Mall (MLP) Limited Partnership to CS
First Boston Mortgage Capital Corp (see Exhibit 10.53).
****10.16 Mortgage Security Agreement, Assignment of Rents and Fixture Filing by Gurnee Mills (MLP) Limited
Partnership to CS First Boston Mortgage Capital Corp., as Mortgagee dated as of December 17, 1996
****10.17 Form of Assignment of Leases and Rents and Security Deposits dated as of December 17, 1996 by Gurnee
Mills (MLP)Limited Partnership to CS First Boston Mortgage Capital Corp.
****10.18 Trust and Servicing Agreement dated as of December 17, 1996 among Potomac Gurnee Finance Corp., as
Depositor, AMRESCO Management, Inc., as Servicer, ABN AMRO Bank NY, as Fiscal Agent and LaSalle National
Bank as Trustee.
51
52
NUMBER EXHIBIT
------ -------
# 13.1 Selected Consolidated Financial Data
# 13.2 Management's Discussion and Analysis of Financial Condition and Results of Operations
# 13.3 Consolidated Financial Statements
# 21.1 List of Subsidiaries of the Registrant
# 23 Consent of Ernst & Young LLP, Independent Auditors
# 27.1 Financial Data Schedule
- ----------------------
* Incorporated by reference to the Registrant's Registration Statement
on Form S-11, Registration No. 33-71524, which was declared
effective by Securities and Exchange Commission on April 14, 1994.
** Incorporated by reference to the Registrant's Quarterly Report on
Form 10-Q for the first quarter ended March 31, 1994.
*** Incorporated by reference to the Registrant's Quarterly Report on
Form 10-Q for the second quarter ended June 30, 1995.
**** Incorporated by reference to the Registrant's Quarterly Annual
Report on Form 10-Q for the third quarter ended September 30, 1996
+ Incorporated by reference to the Registrant's Quarterly Report on
Form 10-Q for the second quarter ended June 30, 1997.
++ Incorporated by reference to the Registrant's Quarterly Report on
Form 10-Q for the second quarter ended September 30, 1997.
# Filed herewith.
14(b) REPORTS ON FORM 8-K
The Company filed one report on Form 8-K during the last quarter of
the year ended December 31, 1998.
The Company's Current Report on Form 8-K dated June 30, 1998 and
filed on November 4, 1998 made available supplemental financial information
concerning the Company, and the properties owned or managed by it as of June 30,
1998, in the form of a Supplemental Information Package.
14(c) EXHIBITS
The list of exhibits filed with this report is set forth in response
to item 14(a)(3). The required exhibit index has been filed with the exhibits.
14(d) FINANCIAL STATEMENTS SCHEDULES
Schedule III - Real Estate and Accumulated Depreciation
Notes to Schedule III.
52
53
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on March 31, 1999.
THE MILLS CORPORATION,
a Delaware corporation
By: /s/ LAURENCE C. SIEGEL
-----------------------------
Laurence C. Siegel
Chairman of the Board of
Directors, Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Act, this
Registration Statement has been signed by the following persons in the
capacities indicated below on March 31, 1999:
Name Title
---- -----
/s/ LAURENCE C. SIEGEL
- ------------------------------- Chairman of the Board, Chief Executive
Laurence C. Siegel Officer and Director (principal executive
officer)
/s/ PETER B. MCMILLAN
- -------------------------------
Peter B. McMillan President, Chief Operating Officer and Director
/s/ JAMES F. DAUSCH
- -------------------------------
James F. Dausch Executive Vice-President - Development and Director
/s/ KENNETH R. PARENT
- ------------------------------- Executive Vice President - Finance and Chief Financial Officer
Kenneth R. Parent (principal financial officer and principal accounting officer)
- -------------------------------
Dietrich von Boetticher Vice Chairman and Director
/s/ JOHN M. INGRAM
- -------------------------------
John M. Ingram Vice Chairman and Director
54
/s/ CHARLES R. BLACK, Jr.
- -------------------------------
Charles R. Black, Jr. Director
/s/ JAMES C. BRAITHWAITE
- --------------------------------
James C. Braithwaite Director
/s/ JOSEPH B. GILDENHORN
- -------------------------------
Joseph B. Gildenhorn Director
/s/ PETER A. GORDON
- --------------------------------
Peter A. Gordon Director
/s/ HARRY H. NICK
- --------------------------------
Harry H. Nick Director
/s/ FRANZ VON PERFALL
- -------------------------------
Franz von Perfall Director
/s/ ROBERT P. PINCUS
- --------------------------------
Robert P. Pincus Director
/s/ CRISTINA L. ROSE
- --------------------------------
Cristina L. Rose Director
55
THE MILLS CORPORATION
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998
INITIAL COST TO PARTNERSHIP (3)
------------------------------------
BUILDING,
EQUIPMENT
AND
DESCRIPTION(1) ENCUMBRANCES(2) LAND IMPROVEMENTS
-------------- --------------- ---- ------------
Mills
Potomac Mills ......................... $ 158,590 $8,486 $ -
Sawgrass Mills......................... 145,000 11,194 -
Sawgrass Mills Phase II................ 18,000 2,556 -
Franklin Mills......................... 131,429 15,333 -
Franklin Mills Residual................ - 4,779 -
Gurnee Mills........................... 119,432 20,449 -
Hunt Club.............................. - 3,321 -
Community Centers
Montgomery Village..................... 8,040 - -
Germantown Commons..................... 11,747 451 -
Mount Prospect Plaza................... 9,408 4,560 3,740
Butterfield Plaza...................... 6,956 1,604 -
Western Hills.......................... 14,949 2,299 3,785
Crosswinds............................. 3,943 1,346 4,449
Gwinnett Marketfair.................... 10,259 6,827 2,789
Fashion Place.......................... 4,233 1,853 -
West Falls Church...................... 3,891 839 -
Liberty Plaza.......................... 9,869 9,335 14,456
Cooper's Plaza......................... 8,356 769 7,888
Construction in progress and
development pre-construction costs.
Corporate................................. 118,080 6,276 2,769
Mainstreet Retail......................... - - 484
----------- ---------- ---------
Totals.................................... $ 782,182 $ 102,277 $ 40,360
=========== ========== =========
COST
CAPITALIZED GROSS AMOUNT AT WHICH
SUBSEQUENT TO CARRIED AT CLOSE OF PERIOD
ACQUISITION --------------------------------------------------------
BUILDING, BUILDING,
EQUIPMENT LAND EQUIPMENT
AND LAND AND AND
DESCRIPTION(1) IMPROVEMENTS IMPROVEMENTS IMPROVEMENTS(7) TOTAL(4) (5)
-------------- ------------ ------------ --------------- ------------
Mills
Potomac Mills ......................... $ 157,975 $ 41,576 $ 124,885 $ 166,461
Sawgrass Mills......................... 143,623 13,344 141,473 154,817
Sawgrass Mills Phase II................ 25,632 4,765 23,423 28,188
Franklin Mills......................... 165,992 30,917 150,408 181,325
Franklin Mills Residual................ (4,079) 700 - 700
Gurnee Mills........................... 181,182 36,982 164,649 201,631
Hunt Club.............................. (3,152) 169 - 169
Community Centers
Montgomery Village..................... 13,748 5,620 8,128 13,748
Germantown Commons..................... 13,291 2,074 11,668 13,742
Mount Prospect Plaza................... 11,237 4,221 15,316 19,537
Butterfield Plaza...................... 9,626 2,419 8,811 11,230
Western Hills.......................... 15,088 3,668 17,504 21,172
Crosswinds............................. 1,378 1,633 5,540 7,173
Gwinnett Marketfair.................... 7,548 8,030 9,134 17,164
Fashion Place.......................... 8,818 2,088 8,583 10,671
West Falls Church...................... 6,759 1,803 5,795 7,598
Liberty Plaza.......................... 2,884 8,628 18,047 26,675
Cooper's Plaza......................... 800 769 8,688 9,457
Construction in progress and
development pre-construction costs. 28,987 - 28,987 28,987
Corporate................................. 10,557 8,807 10,795 19,602
Mainstreet Retail......................... 311 - 795 795
--------- --------- ---------- ---------
Totals.................................... $ 798,205 $ 178,213 $ 762,629 $ 940,842
========= ========= ========== =========
ACCUMULATED DATE USEFUL
DESCRIPTION(1) EPRECIATION(6) ACQUIRED LIFE(8)
-------------- -------------- -------- -------
Mills
Potomac Mills ......................... $42,403 1983
Sawgrass Mills......................... 35,527 1986
Sawgrass Mills Phase II................ 2,018 1993
Franklin Mills......................... 42,460 1986
Franklin Mills Residual................ - 1986
Gurnee Mills........................... 48,899 1988
Hunt Club.............................. - 1988
Community Centers
Montgomery Village..................... 3,190 1980
Germantown Commons..................... 4,867 1980
Mount Prospect Plaza................... 5,433 1985
Butterfield Plaza...................... 3,421 1982
Western Hills.......................... 6,501 1981
Crosswinds............................. 2,672 1981
Gwinnett Marketfair.................... 3,537 1986
Fashion Place.......................... 4,300 1985
West Falls Church...................... 2,998 1982
Liberty Plaza.......................... 1,878 1994
Cooper's Plaza......................... 1,098 1994
Construction in progress and
development pre-construction costs. various
Corporate................................. 3,137 various
Mainstreet Retail......................... 427 1995
---------
Totals.................................... $ 214,766
=========
F-1
56
THE MILLS CORPORATION
NOTES TO SCHEDULE III
DECEMBER 31, 1998
(1) The Company owns super-regional, value and entertainment oriented malls
("Mills") and community shopping centers ("Community Centers"). The
geographic location of the Mills and Community Centers are as follows:
PROPERTY NAME LOCATION
------------- --------
MILLS:
Franklin Mills.................................................Philadelphia, PA
Franklin Mills - Residual......................................Philadelphia, PA
Gurnee Mills.........................................................Gurnee, IL
Hunt Club............................................................Gurnee, IL
Potomac Mills....................................................Woodbridge, VA
Sawgrass Mills......................................................Sunrise, FL
Sawgrass Mills - Phase II...........................................Sunrise, FL
COMMUNITY CENTERS:
Butterfield Plaza.............................................Downers Grove, IL
Cooper's Plaza.....................................................Voorhees, NJ
Crosswinds Center............................................St. Petersburg, FL
Fashion Place......................................................Columbia, SC
Germantown Commons...............................................Germantown, MD
Gwinnett Marketfair..................................................Duluth, GA
Liberty Plaza..................................................Philadelphia, PA
Montgomery Village.............................................Gaithersburg, MD
Mount Prospect Plaza.........................................Mount Prospect, IL
West Falls Church Outlet Center................................Falls Church, VA
Western Hills Plaza..............................................Cincinnati, OH
(2) See description of mortgage, notes and loans payable in Note 5 of the
Notes to the Consolidated Financial Statements.
(3) Initial cost of properties is cost at the end of the calendar year for
the year of acquisition.
(4) The aggregate cost of land, land held for sale, buildings, improvements,
equipment and tenant improvement for federal income tax basis is
$943,849 at December 31, 1998.
(5) Reconciliation of real estate and development assets, excluding
investment in unconsolidated joint ventures
1998 1997 1996
---- ---- ----
Balance at January 1...................... $ 922,768 $ 880,933 $ 880,150
Acquisitions.............................. 49,303 69,535 23,177
Retirements............................... (18,121) (760) (1,618)
Other..................................... (13,108) (26,940) (20,776)
--------- --------- ---------
Balance at December 31.................... $ 940,842 $ 922,768 $ 880,933
========= ========= =========
(6) Reconciliation of accumulated depreciation
1998 1997 1996
--------- --------- ---------
Balance at January 1...................... $ 206,357 $ 179,658 $ 152,713
Additions charged to costs and expenses... 26,504 26,799 27,724
Removal of accumulated depreciation....... (18,095) (100) (779)
--------- --------- ---------
F-2
57
Balance at December 31.................... $ 214,766 $ 206,357 $ 179,658
========= ========= =========
(7) In 1991, the city of Sunrise, Florida issued municipal bonds in the
amount of $24,730 and reimbursed a partnership for costs of public works
which amounted to approximately $21,000. Costs previously capitalized to
income producing property were reduced upon reimbursement.
In 1991, a note receivable of $5,925 was recorded pursuant to
reimbursement and annexation agreements with the Village of Gurnee to
reimburse the Company that owns Gurnee Mills for the cost of certain
public improvements. The Village of Gurnee has executed a noninterest
bearing note for $15,000, amended to $17,500 in 1996, to be paid from
taxes collected from the tenants of the shopping mall during a ten-year
period, amended to a thirteen year period in 1996, beginning one year
after the mall opened. The note was recorded in 1991, based on the
estimated taxes to be collected by the Village of Gurnee from the
tenants using a discount rate of 10%.
(8) Depreciation is computed based upon the following estimated lives:
Building and improvements..............................................................40 years
Land improvements......................................................................20 years
Equipment...............................................................................7 years
Tenant improvements....................................Lesser of life of asset or life of lease
F-3