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TABLE OF CONTENTS
PART III

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

Commission File Number 1-12994

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

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

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

                  Securities registered pursuant to Section 12(g) of the Act: None

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

                  Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

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

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

DOCUMENTS INCORPORATED BY REFERENCE

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

THE MILLS CORPORATION

Annual Report on Form 10-K
December 31, 2002

TABLE OF CONTENTS

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PART I

Cautionary Statement

              Certain matters discussed in this Form 10-K and the information incorporated by reference herein contain "forward-looking statements" for purposes of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are based on current expectations and are not guarantees of future performance.

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

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the general economic climate,



•

the supply and demand for retail properties,



•

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



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



•

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



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

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

Item 1. Business

The Company

              Except as otherwise required by the context, references in this Form 10-K to "we," "us," "our" and the "Company" refer to The Mills Corporation and its direct and indirect subsidiaries, including The Mills Limited Partnership, and references in this Form 10-K to "Mills LP" refer to The Mills Limited Partnership, of which The Mills Corporation is the sole general partner. We conduct all of our business and own all of our properties through Mills LP and Mills LP's various subsidiaries. As the general partner of Mills LP, we have the exclusive power to manage and conduct the business of Mills LP, subject to some limited exceptions.

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

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

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

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

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

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

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Our Portfolio

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

(1)

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

(2)

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

(3)

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

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

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



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



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International Retail and Entertainment Venues.

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

              Mills Landmark Centers.    Mills Landmark Centers are a major focus of our operations. A typical Mills Landmark Center contains approximately 1.4 million square feet of GLA, approximately 175 to 200 specialty tenants and 12 to 22 anchor tenants. Mills Landmark Centers are essentially a hybrid of various retail formats with a diverse tenant base consisting of anchor stores, specialty stores, manufacturers outlets, off-price retailers, catalog retailers, "category killers" (which offer a selection of products in one defined merchandise category) and entertainment venues.

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

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

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



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



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

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

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

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

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

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

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

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

Development Pipeline

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

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

(1)

Anticipated opening dates, approximate GLA and estimated aggregate project cost are subject to adjustment as a result of factors inherent in the development process, some of which may not be under our direct control.

(2)

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

(3)

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

(4)

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

(5)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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during which we determine site/demographic viability, negotiate tenant commitments and work through third-party approval processes. Consistent with past practice, we will not begin construction on these projects until we have completed our due diligence and have obtained significant pre-leasing commitments. While we currently believe that these projects will ultimately be completed, we cannot assure you that they will actually be constructed or that they will have any particular level of operational success or ultimate value. The following is a brief description of our current development projects:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Ancillary Business Opportunities

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

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Competition

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

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

Consumer Draw. We believe that the critical mass achieved by aggregating an average of over 175 stores and 1.4 million square feet of GLA area under one roof, coupled with the distinctive physical characteristics of our Mills Landmark Centers, are the primary reasons that our properties attract so many people and create extended shopping trips. We believe that shoppers are attracted to our unique mix of tenants, which includes department stores, specialty stores, manufacturer's outlets, off-price retailers, catalog retailers, "category killers" (which offer a selection of products in one defined merchandise category) and entertainment venues. We believe we have created a shopping environment that is festive and social, with interior designs resembling a "Mainstreet" atmosphere that incorporate staggered store fronts and roof lines, natural lighting and colorful graphic accents. Shopping avenues in our Mills Landmark Centers are interspersed with a variety of food establishments and video and entertainment courts, further enhancing the entertainment nature of the shopping trip.

The Mills Landmark Centers in operation during 2002 were among the top tourist destinations in their respective states. On average, each of our Mills Landmark Centers attracted 15 million visitors per year and was visited by more than 2,000 tour buses annually.

Brand Awareness. The Mills brand is synonymous with a one-of-a kind value, entertainment and variety retail offering. We believe that a Mills Landmark Center is the only retail shopping experience that is differentiated by its product type with the market, consumers and tourist shoppers.

              Attractiveness to Tenants. We believe tenants are attracted to our Mills Landmark Centers as a result of the heavy consumer traffic at a Mills Landmark Center and the length and productivity of consumer visits, which translate into high sales levels. In addition, we believe tenant occupancy costs are low as a result of lower common area maintenance costs at a Mills Landmark Center versus many other retail formats. The lower common maintenance costs are a result of several factors, including:

•

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



•

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



•

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

              Flexibility of Product. The single-story, simple construction of our Mills Landmark Centers allows us to easily reconfigure them in response to changing retail formats. Furthermore, our anchor leases give us more flexibility to establish our preferred merchandise mix and to undertake any desired remodeling projects than is afforded by traditional regional mall anchor leases. This flexibility makes it easier for us to replace underperforming stores or make room for new and exciting retailers, which keeps the product fresh and enhances consumer draw.

              Barriers to Entry. We believe that we are the innovator of a retail concept, represented by our Mills Landmark Centers, and that our success has made us the leading developer of large-scale value and entertainment-oriented retail projects. We have developed strong relationships with our tenants, which gives us a number of competitive advantages in the development process, including the ability to validate project feasibility in the predevelopment stage with tenant commitments and the ability to fulfill significant pre-leasing requirements imposed by construction lenders. In addition, the complexity and significant financial commitment associated with developing a project the size and nature of a Mills Landmark Center precludes many potential competitors from developing and operating similar properties.

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

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

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

Capital Strategies

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

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

Construction Financing. A typical Mills Landmark Center costs approximately $200 to $250 million to build. Approximately 65% to 75% of this cost is funded with a construction loan, provided by a bank group led by an agent bank. This financing is obtained after a substantial portion of the equity contributions to a project have been made and is based upon the achievement of certain pre-leasing levels. We have relationships with multiple lenders in the construction loan market. Our construction loans generally have terms of three years, some with extension options for an additional two years. Interest rates typically range from 120 to 275 basis points over LIBOR. The construction loans are typically guaranteed by us and our joint venture partners other than Kan Am, and are generally obtained on a several and not joint basis. When Kan Am is a partner in a project, we guarantee Kan Am's portion of the construction debt in addition to our own portions. See "Strategic Relationships." Guarantees are generally reduced incrementally after completion of a project based upon the achievement of interest coverage ratios (ranging from 1.0 to 1.5).

In addition to construction debt, we have historically been able to obtain tax increment financing to fund infrastructure costs (including roads, traffic signals and interstate on and off ramps). This financing generally takes the form of bonds that are issued by the local municipality in which our project is located, and the capital is advanced as the infrastructure improvements are constructed. This type of financing is advantageous to us because debt service is typically paid from special tax assessments levied against the project that are passed on to the tenants as part of their contractual leases, or from sales tax revenues generated by the project and paid by shoppers. We have been successful in obtaining this form of financial assistance because our projects typically create new jobs and generate large sales revenues, much of which comes from outside the municipality and is therefore beneficial to the municipality.

The remainder of the cost of a development project is funded with equity contributed by us and our joint venture partners. See "Strategic Relationships." These equity contributions fund the initial development costs prior to the funding of the construction loan. Our share of required equity is funded with cash from operations, including investment proceeds from land sales, our revolving loan and proceeds from any equity offerings.

Permanent Financing. After a new development project opens and stabilizes, which generally occurs within 36 months of opening, we generally refinance the construction loan with permanent, fixed rate, non-recourse mortgage debt. This debt is usually amortized over 30 years, with anticipated balloon payments due within a five to ten-year period. We have found that the financial stability of our tenants and the stable nature of the property cash flows make our projects attractive collateral for a number of real estate lenders, including commercial banks, life insurance companies and investment banks (in the form of commercial mortgage backed securitizations). When refinancing a construction loan, we have generally achieved investment grade ratings on the entire refinanced balance. The 2002 refinancings of Opry Mills, Katy Mills and Concord Mills

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

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

Strategic Relationships

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

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

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

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

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

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

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

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equity required for such projects. The agreement requires that each partner approve major decisions on the venture and requires the partners to share responsibility for developing, leasing and managing the projects.

Future Capital Requirements

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

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

Asset Management Strategies

              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 assets 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 our properties with the goal of maintaining a fresh and exciting tenant mix that continues to appeal to consumers over time. Below are examples of our management's recent efforts in this regard.

•

At Potomac Mills, we remerchandised approximately 101,000 square feet of specialty space and 93,000 of anchor space over the last five years, adding tenants such as Van's Skatepark, L.L. Bean, H&M, Brooks Brothers, Hush Puppies, Jones New York, Oshkosh B'Gosh, Pacific Sunwear, Polo Ralph Lauren Factory Store, Samsonite, Bath & Body Works, Bebe, Aeropostale, Tommy Hillfiger and Banana Republic.



•

At Franklin Mills, we upgraded our tenant mix by adding approximately 175,000 square feet of fashionable new tenants including Aeropostale, BCBG, DKNY, Kenneth Cole, L'eggs Hanes Bali, Old Navy, Perry Ellis, Polo Ralph Lauren Factory Store, Reebok-Rockport, Greg Norman, The GAP Outlet, Oshkosh B'Gosh and Bebe. In 2002, we re-leased approximately 71,500 square feet of specialty space to tenants such as Bombay, Carters Children, Reebok, Perry Ellis and Van Huesen.



•

At Gurnee Mills, we have re-tenanted approximately 211,400 square feet with tenants such as Bed Bath & Beyond, Kohl's and Circuit City and added a 125,000 square foot Bass Pro Shops Outdoor World. In 2002, we re-leased approximately 61,300 square feet of anchor space to Marshalls.

              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, Mills Landmark Centers have had a high degree of tenant retention.

              Anchor leases, which generally represent approximately 60% of the GLA 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, 2002, the weighted average lease maturity for our existing portfolio of leases was 7.6 years.

              In addition, our leases generally provide for the payment of a fixed base rent as well as an additional rent based upon sales levels achieved by the tenant. The lease agreements also typically provide for base rental increases either in the form of fixed rate step-ups or consumer price index increases.

              We actively promote and market our Mills Landmark Centers. Our success is evidenced by the following:

•

On average, 15 million people visit each Mills Landmark Center ranking each center as a top tourist attraction in its respective state; average length of visit is significantly higher than the peer group average.

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•

The primary trade area for a Mills Landmark Center is approximately 40 miles, with tourist draw from 50 states and 49 countries.

              Maintenance of High Standards of Physical Assets.    We believe our properties are well maintained physically. To ensure a high quality shopping experience for our customers, in addition to our regular recurring maintenance program, we invested an additional $147.5 million in renovation and expansion projects in our assets from 1997 to 2002.

Development Strategy

              Proven Track Record.    Since our initial public offering in April 1994, we have developed and opened nine new Mills Landmark Centers and one 21^st Century Retail and Entertainment Center, adding a total of approximately 12 million square feet of new GLA to our portfolio at a total cost of approximately $2.1 billion. Each of these projects was completed in a timely fashion and on budget, with strong occupancy levels as outlined below:

(1)

Occupancy is the percentage of GLA subject to fully executed leases.

              Disciplined Approach. We intend to complete one 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 work, construction and tenant coordination. We maintain strict asset management control through the entire development process, including frequent internal reviews of costs and leasing status.

              To mitigate development risk, we have adopted a number of procedures, including the following:

•

Site Selection: Mills Landmark Centers are developed in top standard metropolitan statistical areas that are populous, growing and reasonably affluent. We typically select sites within our target markets that have at least one million people within a 20-mile radius. The sites must be well situated and near major transportation arteries. We perform predevelopment work when land is under option to minimize capital exposure.



•

Pre-leasing: We obtain tenant validation prior to land acquisition and obtain significant pre-leasing commitments prior to construction commencement and financing. We traditionally obtain letters of intent and approvals from at least five to ten key anchor stores indicating their desire to join us in the project. Typically, a project will be 40-50% pre-leased before construction financing is obtained.



•

Financing: We maintain a relationship with a network of banks to facilitate construction financing and utilize strategic and financial equity partners to share in the risks and costs, including loan guarantees.

Additional Factors

              Seasonality.    The regional shopping center industry is seasonal in nature, with mall tenant sales peaking in the fourth quarter due to the holiday season. As a result, a substantial portion of percentage rent is not paid until the fourth quarter. Furthermore, most new lease-up occurs towards the later part of the year in anticipation of the holiday season and most vacancies occur toward the beginning of the year. In addition, the majority of 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

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and funds from operations, although this impact is largely mitigated by recognizing minimum rent on a straight-line basis over the term of related leases in accordance with GAAP.

              Environmental Matters.    We believe that our properties are in compliance in all material respects with all federal, state and local ordinances and regulations regarding hazardous or toxic substances. We are not aware of any environmental condition that 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 (a) future laws, ordinances or regulations will not impose any material environmental liability or (b) the current environmental condition of our properties has not been or will not be affected by tenants and occupants of our properties, by the condition of properties in the vicinity of our properties or by third parties unrelated to us.

              Limited quantities of asbestos-containing materials are present in certain of our properties. The asbestos-containing materials found are generally non-friable (meaning that the asbestos-containing materials are not easily crumbled and thus are less likely to release asbestos fibers into the air), in good condition and are unlikely to be disturbed. With certain exceptions, these asbestos-containing materials will be removed by us in the ordinary course of renovation or reconstruction. Prior to removal, these asbestos-containing materials will be monitored and maintained by us in accordance with procedures established by the Environmental Protection Agency, the Occupational Safety and Health Administration and other applicable governmental authorities.

              Insurance.    Management believes that all of our properties are adequately covered by insurance.

Tax Status

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

Available Information

              We maintain an internet web site at www.millscorp.com. The information on our web site is not, and should not be, considered to be a part of this Form 10-K. You can obtain on our web site, free of charge, a copy of our annual report on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K and any amendments to those reports, as soon as reasonably practicable after we electronically file such reports or amendments with the SEC.

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RISK FACTORS

              Described below are risks that we believe are material to our stockholders and to potential investors. You should consider carefully the following material risks, together with the other information contained in and incorporated by reference in this Form 10-K, and the descriptions included in our Consolidated Financial Statements and accompanying Notes.

Risks Associated with Real Estate

              We face risks associated with numerous national, regional and local economic and real estate conditions that are not in our control, any or all of which could adversely affect our properties and our business.

              We are subject to various economic conditions and trends that may adversely affect our business. These conditions include:

•

slowdown of the national economy or a recession,



•

slowdown of the regional and local economic climate due to plant closings, industry slowdowns, natural disasters and other factors, and



•

negative population trends.

              In addition, as a real estate company, we are subject to the following real estate conditions, any negative trends of which may adversely affect our properties and business:

•

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



•

increased operating costs, including increased real property taxes and utilities costs,



•

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



•

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

              Moreover, other factors may adversely affect us, including changes in government regulations and other laws, rules and regulations governing real estate, zoning or taxes, changes in interest rate levels, the availability of financing and potential liability under environmental and other laws and other unforeseen events, most of which are discussed elsewhere in these risk factors. Any or all of these factors could materially adversely affect our properties and our business.

              Because real estate investments are illiquid, we may not be able to sell our properties in response to economic changes.

              Real estate investments generally are relatively illiquid and as a result cannot be sold quickly in response to changes in the economy or other conditions when it may be prudent to do so. This inability to respond quickly to changes in the performance of our properties could adversely affect our business and ability to meet our debt obligations and distribute earnings to our stockholders.

              We may be unable to compete with our competitors and other alternatives to our portfolio of properties.

              The commercial retail real estate business is highly competitive. We compete for interests in properties with other real estate investors and purchasers, many of whom have significant financial resources, revenues and geographical diversity. Furthermore, we compete for tenants with other property owners. Our properties compete with a variety of shopping alternatives including full-price malls, e-commerce, outlet malls, discount shopping clubs or centers, catalog companies and home shopping networks.

              We are subject to significant regulation that inhibits our activities.

              Local zoning and use laws, environmental statutes and other governmental requirements restrict our development, expansion, rehabilitation and reconstruction activities. These regulations may prevent or delay us from taking advantage of economic opportunities. We cannot predict what requirements may be enacted and we cannot assure you that such enactment will not have a materially adverse impact on us.

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Risks Associated with Our Properties

              We may be unable to develop new properties or expand existing properties successfully.

              We continue to develop new projects or expand existing properties, and may engage in the development of other retail or related mixed use projects, as opportunities arise. However, there are significant risks associated with our development activities in addition to those generally associated with the ownership and operation of established retail properties. While we have policies in place designed to regulate development activities in an effort to limit the risks associated with development, these policies do not remove us from all development risks associated with a project. These risks include the following:

•

significant expenditure of money and time on projects that may be delayed or never be completed,



•

higher than projected construction costs,



•

failure to obtain zoning, occupancy or other governmental approvals, and



•

late completion because of construction delays, delays in the receipt of zoning, occupancy and other approvals or other factors outside of our control.

              Any or all of these factors may impede our development strategy and adversely affect our overall business.

              We may be unable to lease new properties or renew leases or relet space at our existing properties as leases expire, which may adversely affect our operating results.

              Our tenants generally enter into leases with an initial term ranging from three to 15 years. As leases expire at our existing properties, tenants may elect not to renew them. We may not be able to relet the property on similar terms, if we are able to relet the property at all, due to a variety of reasons, including competition from other retailers. In addition, for new properties, we may be unable to attract enough tenants and the occupancy rates and rents may not be sufficient to make the property profitable. If we are unable to relet spaces at our existing properties on economically favorable lease terms or to lease spaces at our new properties, our operating results will be negatively affected.

              In addition, our leases with a number of tenants contain covenants restricting the use of other space in our properties or requiring the presence of other specified co-tenants. Our failure to rent unleased space on a timely basis or at all would likely adversely affect our financial condition and results of operations. Competition may cause the occupancy and rental rates of our properties to decrease. There are other companies that are engaged in the development or ownership of retail properties that compete with us in seeking tenants. We compete with these other companies for prime locations and for tenants who lease space in the retail properties that we and our competitors own or operate. The development by our competitors of new super-regional malls or other retail shopping centers with more convenient locations or better rents may attract our tenants to our competitors or may cause them to seek lease terms that are less favorable to us at or prior to renewal, and accordingly may adversely affect our business and the revenues that we derive from, and the value of, our properties. Furthermore, retailers at our properties may face increasing competition from traditional full-price malls, e-commerce, outlet malls, discount shopping clubs and centers, catalog companies, and home shopping networks.

              We have been and may continue to be affected negatively by tenant bankruptcies and downturns in tenants' businesses, which may adversely affect our operating results and reduce our cash flow.

              At any time, a tenant may experience a downturn in its business that may weaken its financial condition due to a slowing economy generally or a downturn in the retail sector. As a result, our tenants may delay lease commencement, cease or defer making rental payments or declare bankruptcy. In addition, the financial difficulty of a larger tenant, especially an anchor tenant, could materially adversely affect customer traffic in a property, thereby triggering, among other things, other tenants' rights to terminate their leases or reduce their rental rates.

              If a tenant files for bankruptcy, the tenant may have the right to reject and terminate its lease and we cannot be sure that it will affirm its leases and continue to make rental payments in a timely manner. We also cannot be sure that we will be able to lease vacant space in our properties on economically favorable terms. During 2002, we were impacted by the bankruptcies of several retail anchor tenants under multi-year lease agreements, including:

•

Sun & Ski at Arundel Mills, Concord Mills, Discover Mills, Grapevine Mills, Katy Mills, Opry Mills, Potomac Mills and Sawgrass Mills, and



•

World Kitchen/Corningware at Arundel Mills, Concord Mills, Discover Mills, Grapevine Mills, Gurnee Mills, Katy Mills, Ontario Mills, Opry Mills and Potomac Mills.

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              Any of these events may negatively affect our operating results and reduce our cash flows.

              We may be unable to successfully integrate and effectively manage the properties we acquire.

              We recently acquired Riverside Square and five mall properties from Cadillac and, subject to the availability of financing and other considerations, we intend to continue to acquire properties or interests in properties that we believe will be profitable or will enhance the value of our portfolio. The success of these acquisitions will depend, in part, on our ability to efficiently integrate the acquired properties and employees into our organization, and apply our business, operating, administrative, financial and accounting strategies and controls to the acquired properties. If we are unable to successfully integrate the acquired properties into our operations, our results of operations and financial condition may be adversely affected.

              We may not be able to achieve the anticipated financial and operating results from our acquisitions, which would adversely affect our operating results.

              We will continue to acquire properties that will enhance our future financial performance. Our belief is based on and is subject to risks, uncertainties and other factors, many of which are forward-looking and are uncertain in nature or are beyond our control. In addition, some of these properties may have unknown characteristics or deficiencies or may not complement our portfolio of existing properties. As a result, some properties may be worth less or may generate less revenue than we believed at the time of the acquisition, negatively affecting our operating results.

              We could incur significant costs related to environmental issues.

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

              Uninsured losses could adversely affect our financial condition.

              We carry comprehensive liability, fire, flood, extended coverage and rental loss insurance with respect to our properties with policy specifications and insured limits that we believe are customary for similar properties. We also carry comprehensive earthquake and pollution cleanup coverage on all our properties and we carry off-premises power coverage for each of our Mills projects. In addition, for Sawgrass Mills, we carry sinkhole coverage. There are some types of losses, generally of a catastrophic nature, such as wars or acts of God, which may be either uninsurable or not economically insurable. Should a property suffer an uninsured loss, we could lose both our invested capital in and anticipated profits from that property, as well as the anticipated future revenue from that property. Additionally, in the case of recourse construction loans, we may remain obligated under those loans and any other financial obligations on that property. An uninsured loss or a loss in excess of insured limits may negatively impact our financial condition.

Risks Associated with Our Indebtedness and Financing

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

              We rely heavily on debt financing for our business. As of December 31, 2002, we had total debt of approximately $2.0 billion, including our pro rata share of unconsolidated joint venture debt. We have also guaranteed selected outstanding unconsolidated joint venture debt, which guarantees expire upon the achievement of specified financial performance tests. We expect to make similar guarantees in connection with our future developments and to continue to rely on debt to finance our future developments and acquisitions. Due to our high level of debt, our cash flow may be insufficient to meet required payments of principal and interest. If a property were mortgaged to secure

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payment of indebtedness and we were unable to meet mortgage payments, the mortgagee could foreclose upon that property, appoint a receiver and receive an assignment of rents and leases or pursue other remedies.

              We may be unable to repay our existing indebtedness as it matures, which could adversely affect our financial condition.

              Most of our indebtedness does not require significant principal payments prior to maturity. However, we will need to raise additional equity capital, obtain secured or unsecured debt financing, issue private or public debt, or sell some of our assets to either refinance or repay our indebtedness as it matures. We cannot assure you that these sources of financing or refinancing will be available to us at reasonable terms or at all. Our inability to obtain financing or refinancing to repay our maturing indebtedness, and our inability to refinance existing indebtedness on reasonable terms, may require us to make higher interest and principal payments, issue additional equity securities, or sell some of our assets on disadvantageous terms, all or any of which may result in the foreclosure of properties or a partial or complete loss on our investment and otherwise adversely affect our financial conditions and results of operation.

              Our degree of leverage could limit our ability to obtain additional financing, which would negatively impact our business.

              As of December 31, 2002, our consolidated borrowings and pro rata share of unconsolidated borrowings totaled approximately $2.0 billion, which represented approximately 49.5% of our total market capitalization. Total market capitalization represents the sum of the outstanding indebtedness (including our share of joint venture indebtedness), the total liquidation preference of all our preferred stock and the total market value of our common shares and units of partnership interest of Mills LP, based on the closing price of our common stock as of December 31, 2002. Our leverage and any future increases in our leverage could adversely affect our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, development or other general corporate purposes which would negatively impact our business overall.

              Due to the significant amount of our variable rate debt, rising interest rates would adversely affect our results of operation.

              As of December 31, 2002, we had $338 million of variable rate debt outstanding, including our pro rata share of variable rate unconsolidated joint venture debt. While we have sought to refinance our variable rate debt with fixed rate debt or cap our exposure to interest rate fluctuations by using interest rate swap agreements where appropriate, a significant increase in interest rates would adversely affect our results of operations.

              We have entered into loan agreements that impose a number of restrictive covenants that may hinder our operational flexibility and violation of these restrictive covenants carries serious consequences.

              The agreements governing our $175 million revolving loan and term loan impose numerous restrictive financial and operating covenants on us, including covenants that limit our ability to (a) incur additional debt, (b) sell assets, (c) repurchase our securities and (d) engage in mergers and consolidations. For example, under our revolving loan and term loan, the lenders may accelerate payment and may pursue standard remedies upon a violation of any covenant. These restrictions may negatively impact our flexibility in conducting our operations and violations of these covenants may have adverse consequences to us.

              We depend on third party financing for our development, expansion or acquisition activities.

              As we continue to develop or acquire new retail properties or expand existing properties, we anticipate that we will finance these activities through lines of credit, other forms of secured or unsecured debt, including construction financing and permanent debt, and contributions from joint venture partners including Kan Am. There can be no assurance that we will be able to obtain the financing necessary to fund new development or project expansions or our acquisition activities on terms favorable to us or at all. In addition, we cannot assure you that our joint venture partners will make their required capital contributions. If we are unable to obtain sufficient levels of third party financing to fund our growth, our business will be negatively impacted.

Risks Associated with our Joint Ventures

              Our joint venture agreements contain various rights including buy-sell, redemption and guaranty provisions and obligations that could impose a significant financial burden on us.

              Our joint venture agreements with Kan Am and other investors typically include buy-sell provisions, under which our joint venture partner may be entitled, under certain circumstances, such as a change in control of us or a deadlock over certain major decisions, to require either that we buy their interest in the joint venture or sell our

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interest to them. If we are unwilling or unable to purchase their interest, we may be required to sell our interest to them at a time when we otherwise may not have wished to sell our interest and we will lose the revenues and profits that we otherwise would have earned on these properties.

              In addition, some of our other joint venture agreements contain obligations for us to redeem our partner's interest in the venture if certain conditions have not been satisfied, such as securing construction or other loans by specified dates, or require us to guarantee the payment of specified priority returns.

              There is no assurance that we will be financially able to satisfy any of these obligations when required to do so.

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

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

Risks Associated with our Capital Stock

              Series A Preferred Stock

              The terms of our Series A Preferred Stock impose certain restrictive covenants on us, which may limit our operational flexibility and adversely affect our business.

              The Series A Preferred Stock purchase agreement imposes numerous restrictive financial and operating covenants on us, including covenants that limit our ability to (a) incur additional debt, (b) sell assets, (c) repurchase our securities and (d) engage in mergers and consolidations. For example, we are restricted from selling any portion of Franklin Mills, Gurnee Mills, Potomac Mills or Sawgrass Mills.

              We may avoid the consequences under the Series A Preferred Stock purchase agreement by exercising our call right to repurchase the shares of Series A Preferred Stock then outstanding at a premium before taking the action that constitutes a violation. Our ability to exercise our call option, however, is subject to:

•

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



•

our obtaining the consent of the lenders under the revolving loan and the term loan.

              These restrictions reduce our operational flexibility and may adversely affect our business strategy.

              If we do not comply with some of the terms of the Series A Preferred Stock, we may trigger various rights of the holders of our Series A Preferred Stock that would materially adversely affect our financial condition and the rights of holders of our other equity securities.

              In addition to the restrictive covenants that are more fully described above, we must comply with other terms of the Series A Preferred Stock, such as maintaining our status as a REIT, continuing to make dividend payments and promptly repurchasing the Series A Preferred Stock when we are required to do so. If we fail to comply with any one or more of these restrictive covenants and terms imposed on us by the terms of the Series A Preferred Stock, among other things,

•

holders of our Series A Preferred Stock may require us to repurchase shares of our Series A Preferred Stock at a substantial premium,

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•

the dividend rate payable on the Series A Preferred Stock will increase significantly,



•

holders of Series A Preferred Stock will vote with holders of capital stock who are entitled to vote on all matters submitted to a vote of our stockholders, and will have the number of votes equal to the number of shares of common stock that they would receive if they were to convert their shares of Series A Preferred Stock into our common stock, and



•

holders of Series A Preferred Stock will have the right to elect one member to our board of directors and an additional member to our board of directors if such failure continues through the next scheduled dividend payment date.

              In addition, if the Series A Preferred Stock remains outstanding after April 30, 2006, the holders of our Series A Preferred Stock have the right to require us to repurchase shares of our Series A Preferred Stock, potentially at a substantial premium.

              Any failure to comply with the terms and covenants that result in any of the foregoing, or our failure to repurchase our Series A Preferred Stock prior to April 30, 2006, will materially adversely affect our financial condition and results of operation and may give the holders of the Series A Preferred Stock significant influence over us and a substantial economic benefit. In addition, we do not have any financing arrangement in place for the repurchase of the Series A Preferred Stock when required. We cannot assure you that we will obtain financing on reasonable terms or at all.

              If Series A Preferred Stock is outstanding after October 30, 2004, the dividend rate on our Series A Preferred Stock will increase significantly.

              Dividend payments to holders of our Series A Preferred Stock will increase significantly if shares of Series A Preferred Stock remain issued and outstanding on October 30, 2004. Under the terms of our Series A Preferred Stock, we are not permitted to repurchase our Series A Preferred Stock prior to November 11, 2003 without incurring substantial extra costs. Accordingly, we anticipate that we will attempt to repurchase our Series A Preferred Stock between November 11, 2003 and October 30, 2004. To finance the repurchase, we may need to obtain third party financing or issue additional common or preferred stock. We cannot assure you that we will obtain financing on reasonable terms or at all. If we are unable to secure financing on reasonable terms, we may not be able to repurchase our outstanding Series A Preferred Stock prior to the increase in required dividend payments, or at all.

              Capital Stock Generally

              The market value of our equity securities can be adversely affected by numerous factors.

              As with any publicly traded company, the market value of our equity securities may be negatively affected by a number of factors, many of which are beyond our control. These factors include the following:

•

general decline in the capital markets,



•

level of institutional interest in our equity securities,



•

perception of REITs generally and REITs with portfolios similar to ours,



•

attractiveness of equity securities of REITs generally compared to other publicly traded companies,



•

the market's perception of our business and dividend growth potential,



•

government action or regulation, including President Bush's proposal to eliminate taxes on dividends for individuals, which, if enacted, generally is not expected to apply to dividends paid by REITs,



•

our earnings and cash distributions,



•

increases in market interest rates, which may lead investors to demand a higher dividend payout rate in relation to the price of our equity securities,



•

The relatively low daily trading volume of equity securities of REITs in general, and



•

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

              In addition, issuances of a substantial number of shares of our capital stock, or the perception that such sales could occur, also could adversely affect the market value of our capital stock. This is particularly true with common stock, a substantial number of shares of which we may issue in connection with the exercise of outstanding options, redemption of outstanding units of partnership interests and for future financing needs.

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              We cannot predict what effect future issuances and sales of our equity securities, or the perception that those sales could occur, will have on the market prices of our equity securities. Any adverse effect on the market price of our equity securities, however, would materially adversely affect the value of an investment in our equity securities. Additionally, a significant decrease in the market price of our equity securities would make it more difficult for us to raise funds through future offerings of our equity securities.

              We may not have sufficient cash flow or assets to make distributions to holders of one or more classes of our capital stock.

              Our ability to make distributions to the holders of our capital stock depends on our ability first to cover our operating and related expenses and satisfy our obligations to our creditors. In addition, we have different classes of capital stock outstanding, each of which has a different priority as to the distribution of dividends relative to others. For example, holders of our Series A Preferred Stock are entitled to receive their dividends prior to the holders of our Series B and Series C Preferred Stock, who in turn are entitled to receive their dividends prior to our common stockholders. Generally, the terms of each different class of our preferred stock prohibits us from making dividend payments, distributions and all other payments to holders of our common stock and all other equity securities junior in right to such class of preferred stock, unless we have paid all accrued dividends on such class of preferred stock or set apart funds for payment of the dividends due to holders of such class of preferred stock. As a result, if we do not have sufficient cash remaining for our dividend distributions, holders of one or more classes of our capital stock may not receive any dividends.

              Also, in the event of a bankruptcy, liquidation or reorganization or similar proceeding, our creditors will generally be entitled to payment of their claims from our assets before any assets are made available for distribution to our stockholders. In every case, the holders of capital stock will have the right to participate in any distribution of our assets only after the claims of our creditors and holders of our priority capital stock are satisfied.

Risks Associated with Our Organization

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

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

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

              We, as the sole general partner of Mills LP, may have fiduciary responsibilities to the other partners in Mills LP that may conflict with the interests of our stockholders, including decisions regarding the sale or refinancing of our properties and the timing and amount of distributions from Mills LP. In addition, individuals and entities, including our executive officers and our directors (including those who are affiliated with Kan Am and their respective affiliates that hold units of Mills LP) may have limited rights in decisions affecting Mills LP that may conflict with the interests of our common stockholders. In particular, a holder of units may suffer different and/or more adverse tax consequences than we do on the sale or refinancing of some of our properties as a result of unrealized gain attributable to properties or the tax status of the unit holder. These unit holders, therefore, may have objectives different from ours regarding the appropriate pricing and timing of any sale or refinancing.

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

              In some instances, a change in control of our company could give the holders of our common stock the opportunity to realize a premium over the then prevailing market price of those securities. Provisions in our charter and our bylaws may have the effect of discouraging a third party from trying to acquire us even if a change in control were in the best interests of our stockholders. Our board of directors has the authority, without a vote of stockholders, to issue up to an additional 11,550,000 shares of preferred stock and to establish the rights and preferences of any class or series of preferred stock to be issued, which rights and preferences could delay or prevent a change in control. The limitation on beneficial ownership of our securities also may have the effect of precluding acquisition of control of us by

25

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

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

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

•

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



•

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



•

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

Risks Associated with Income Tax Laws and Accounting Pronouncements

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

              We believe that we have been organized and have conducted our operations in a manner so as to qualify as a REIT under the Sections 856 through 860 of the Code, and we intend to continue to operate as a REIT in the future. We cannot assure you, however, that we currently qualify as a REIT or will continue to qualify as a REIT. Many of the REIT requirements are highly technical and complex and depend on various factual matters and circumstances that may not be completely within our control, such as actions taken by our joint venture partners. Any determination that we do not qualify as a REIT would have a material adverse effect on our results of operations and could reduce materially the value of our common stock. If we fail to qualify as a REIT,

•

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



•

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

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

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

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

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

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

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

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

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

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

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

              Provisions in our certificate of incorporation are designed to ensure that we maintain our status as a REIT by rendering void transfers of our shares that will jeopardize our status as a REIT and by eliminating rights of the shares of transferred stock. Under these provisions, if you are not a U.S. person and you acquire shares of our capital stock, if your acquisition causes less than 50% of our capital stock to be owned by U.S. persons, the shares that you acquire may convert immediately into shares of excess stock that will be non-voting and that may not participate in distributions

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(except for distributions in the event of our liquidation). The shares of excess stock would be immediately transferred to us as trustee of a trust for the exclusive benefit of beneficiaries that you may designate, subject to our right to purchase the shares for fair consideration.

              Legislative or regulatory tax changes may adversely affect us.

              The federal income tax laws governing us and other corporations or the administrative interpretations of those laws may be amended at any time. Any new laws or interpretations may take effect retroactively and could adversely affect us or you, as our stockholder. On January 7, 2003, the Bush Administration released a proposal intended to eliminate one level of the "double taxation" that is currently imposed on corporate income for regular C corporations by excluding corporate dividends from an individual's taxable income to the extent that corporate income tax has been paid on the earnings from which the dividends are paid. REITs currently are tax-advantaged relative to regular C corporations because they are not subject to corporate-level federal income tax on income that they distribute to stockholders, but stockholders do include REIT dividends in taxable income. The tax treatment of REITs generally would not be affected by the Bush Administration's proposal in its current form, except that a REIT that receives dividends from a C corporation, such as a taxable REIT subsidiary, that have been subject to corporate income tax could distribute or retain those amounts without a second tax being imposed on the REIT or its stockholders. The Bush Administration's proposal, if enacted, could cause individual investors to view stocks of regular C corporations as more attractive relative to stocks of REITs than is the case currently because part or all of the dividends on the stocks of the regular C corporation would be exempt from tax for the individual. It is not possible to predict whether in fact this change in relative perceived value will occur or whether, if it occurs, what the impact will be on the value of our stock. In any event, there can be no assurance regarding whether the Bush Administration's proposal ultimately will be enacted or the form in which it might in fact be enacted.

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

              New accounting pronouncements

              In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections" ("SFAS No. 145"). The provisions related to the rescission of FASB Statement No. 4 and its amendment Statement No. 64 are effective for fiscal years beginning after May 15, 2002. Provisions related to FASB Statement No. 13 are effective for transactions occurring after May 15, 2002 and all other provisions are effective for financial statements issued on or after May 15, 2002. We expect that the impact of adopting SFAS No. 145 will result in restating prior year extraordinary losses from extinguishment of debt so that they are reflected as part of ordinary income. We do not expect that any other provisions of SFAS No. 145 will materially impact us subsequent to adoption.

              We adopted the disclosure provisions of FASB Interpretation No. ("FIN") 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, including Direct Guarantees of Indebtedness of Others," in the fourth quarter of 2002. We will apply the initial recognition and initial measurement provisions on a prospective basis for all guarantees issued after December 31, 2002. Under FIN 45, at the inception of guarantees issued after December 31, 2002, we will record the fair value of the guarantee as a liability, with the offsetting entry being recorded based on the circumstances in which the guarantee was issued. We will account for any fundings under the guarantee as a reduction of the liability. In general, we issue guarantees in connection with obtaining construction loans for our unconsolidated joint ventures, and thus in those cases the offsetting entry will be capitalized to our investment in these joint ventures. Adoption of FIN 45 will have no impact to our historical financial statements as existing guarantees are not subject to the measurement provisions of FIN 45. The impact on future financial statements will depend on the nature and the extent of issued guarantees and the extent of future development activities.

              In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"). Under FIN 46, companies will be required to determine if they are the primary beneficiary of a variable interest entity. If they are the primary beneficiary, the variable interest entity must be consolidated. All companies with variable interests in variable interest entities created after January 31, 2003 must apply the provisions of FIN 46 immediately. Public companies with a variable interest in a variable interest entity created before February 1, 2003 should apply the provisions of FIN 46 to that entity no later than the beginning of the first interim or annual reporting period beginning after June 15, 2003. If it is reasonably possible that a company will consolidate or disclose information about a variable interest entity when this interpretation becomes effective, certain disclosures are required in all financial statements issued after January 31, 2003.

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              Based on a preliminary review of FIN 46, we believe that it is reasonably possible that the adoption of FIN 46 will result in our consolidation of previously unconsolidated entities.

              Proposed accounting pronouncements

              We are required to implement new accounting pronouncements and regulations applicable to our business when issued by the Financial Accounting Standards Board, SEC and other regulatory organizations within the accounting profession. Currently a pronouncement is being considered that may impact the real estate industry. The proposal, "Accounting for Certain Costs and Activities Related to Property, Plant and Equipment," would eliminate the capitalization of various development costs and would require depreciation of different asset components based upon each of their lives. The proposal is still in the adoption process and has not been finalized. Accordingly, there can be no assurance that it will be adopted in its current form or at all. If adopted, the final form of this proposal and others being considered could have an impact on our earnings and funds from operations.

              We continue to pursue foreign development opportunities in international markets that are subject to foreign currency risks due to potential fluctuations in exchange rates.

              We have pursued and intend to continue to pursue foreign development opportunities in international markets where the U.S. dollar is not the national currency. As a result, we are subject to foreign currency risk due to potential fluctuations in exchange rates between foreign currencies and the U.S. dollar. For example, a significant depreciation in the value of the foreign currencies of one or more countries where we have a significant investment may materially adversely affect our performance. We are evaluating hedging strategies to mitigate such effects, although there can be no assurance that we will be successful in mitigating all the risks.

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Item 2. Properties

              The following table sets forth certain information relating to our properties as of December 31, 2002. As of December 31, 2002, we held, directly or indirectly, 100% of the equity interests in the entities that own Concord Mills Marketplace, Franklin Mills, Gurnee Mills, Liberty Plaza, Opry Mills, Potomac Mills, Riverside Square (which was acquired in December 2002), Sawgrass Mills (Phases I and II and The Oasis at Sawgrass), the Forest Fair Mall (which will be renamed Cincinnati Mills upon completion of its re-development), and the 46 Net Lease Properties, 27 of which were sold in March 2003. As of December 31, 2002, we also owned, directly or indirectly, partial equity interests in the entities that own Arizona Mills, Arundel Mills, Colorado Mills, Concord Mills, Discover Mills, Grapevine Mills, Katy Mills, Ontario Mills, and The Block at Orange. For a description of our interests in existing properties generally, see "—Description of Existing Properties." We have formed other joint ventures to develop additional properties. We have similar partnership interests under these joint venture agreements and we anticipate that we will have similar partnership interests under future joint venture agreements. For a description of our interests in properties under construction, see "Item 1. Business—Development Pipeline—Projects Under Construction."

SUMMARY OF PROPERTIES

The following table sets forth certain information relating to our Mills Landmark Centers, the 21st Century Retail and Entertainment Centers and the Community Centers as of December 31, 2002:

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(1)

Presents GLA of each of our operating properties. Included in GLA is 1,266,000 square feet owned by certain anchor stores located as follows: Concord Mills Marketplace—11,000 square feet; Franklin Mills—210,000 square feet; Gurnee Mills—251,000 square feet; Liberty Plaza—14,000 square feet; Ontario Mills—125,000 square feet; Potomac Mills—80,000 square feet; Riverside Square—293,000 square feet; and Sawgrass Mills—282,000 square feet. Ground leases at Franklin Mills of 152,000 square feet and at Grapevine Mills of 177,000 square feet are also included.

(2)

Annualized base rent is defined as the contractual minimum rent of tenants comprising GLA at December 2002 multiplied by 12, and excludes tenants noted in footnote (1).

(3)

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

(4)

Included in GLA, Annualized Base Rent and Anchor Store Tenants is 96,000 square feet of related tenants at The Marketplace at Arundel Mills which is open for business.

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Diversified Tenant Base

              Because our properties contain various retail formats under one roof, we believe that our tenant base represents one of the more diversified mixes of retailers in the industry. Despite the size of our properties, we have an average of 167 tenants per property and no tenant represents more than 3.4% of 2002 base rent. We further believe that the overall financial stability 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 sets forth certain information with respect to our ten largest tenants (measured by 2002 base rent) at our properties as of December 31, 2002:

(1)

Includes T.J. Maxx and Marshalls.

(2)

Includes GAP Outlet, Old Navy and Banana Republic.

(3)

Includes Burlington Coat Factory and Totally 4 Kids.

(4)

Includes Off Broadway Shoes and Rack Room Shoes.

(5)

Includes Levi's Outlet and Dockers Outlet, EB Outlet, Casual Male Big & Tall, Candies and Big and Tall Factory Store

Description of Existing Properties

              The following are descriptions of each of our existing Mills Landmark Centers and 21st Century Retail and Entertainment Centers as of December 31, 2002.

              Mills Landmark Centers

              Potomac Mills—Woodbridge, Virginia. Potomac Mills contains approximately 1.6 million square feet of GLA, 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 GLA. As a result of customer demand, we expanded Potomac Mills to approximately 1.2 million square feet of GLA in 1986. The Phase III expansion of Potomac Mills opened in September 1993 and increased total GLA by approximately 355,000 square feet. We also completed the construction of a 63,000 square foot Van's Skatepark which opened in spring 2000. Potomac Mills has 17 anchor stores and is situated on approximately 161 acres in Woodbridge, Virginia, which is located approximately 20 miles southwest of Washington, D.C. Potomac Mills is adjacent to Interstate 95, one of the transportation backbones of the Washington metropolitan area. This location strategically positions Potomac Mills between the Washington metropolitan market to the north and Richmond, approximately 90 miles to the south. We own 100% of Potomac Mills.

              Franklin Mills—Philadelphia, Pennsylvania. Franklin Mills opened in 1989 and contains approximately 1.8 million square feet of GLA, 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 in the first half of 1997 on an entertainment zone, including themed restaurants and interactive entertainment venues, which was completed in November 1998. Franklin Mills has 17 anchor tenants. Franklin Mills features what we believe is the largest concentration of outlet retailing in the Delaware Valley. Franklin Mills is strategically positioned approximately 15 miles northeast of Philadelphia's Center City. We own 100% of Franklin Mills.

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              Sawgrass Mills and The Oasis at Sawgrass—Sunrise, Florida. Sawgrass Mills, which opened in 1990, contains approximately 1.8 million square feet of GLA, of which three anchor store tenants own approximately 282,000 square feet. As a result of customer demand, we expanded Sawgrass Mills by approximately 136,000 square feet of GLA in 1995 and opened The Oasis at Sawgrass in April 1999, which contains approximately 300,000 square feet of GLA consisting of approximately 150,000 square feet of anchor space and approximately 150,000 square feet of specialty store space. The Oasis at Sawgrass currently has three anchor tenants. Sawgrass Mills is located in Florida's "Gold Coast" market which is approximately 11 miles west of Fort Lauderdale. We own 100% of Sawgrass Mills and, as result of our acquisition in 2001 of Kan Am's 50% interest in The Oasis at Sawgrass, we own 100% of The Oasis at Sawgrass.

              Gurnee Mills—Gurnee, Illinois. Gurnee Mills opened in 1991 and contains approximately 1.6 million square feet of GLA, of which three anchor store tenants own approximately 251,000 square feet. We expanded Gurnee Mills in 1999 by over 195,000 square feet of GLA, by adding an ice skating rink to the existing mall. Gurnee Mills has been remerchandised resulting in the upgrade of its tenant mix. Gurnee Mills has 15 anchor store tenants. Gurnee Mills is situated directly across from Six Flags Great America, one of the largest amusement parks in the Midwest. We own 100% of Gurnee Mills.

              Ontario Mills—Ontario, California. Ontario Mills opened in 1996 and contains approximately 1.5 million square feet of GLA consisting of approximately 1.0 million square feet of anchor space and approximately 500,000 square feet of specialty store space. In 1999, we completed a 136,000 square foot expansion which included tenants such as Van's Skatepark, Sam Ash Music and Cost Plus. Ontario Mills currently has 22 anchor stores. Ontario Mills serves the Los Angeles/Orange County metropolitan market.

              In May 2002, we and Kan Am purchased from Simon Property 100% of Simon's interest in Ontario Mills. As a result, we and Kan Am are the sole partners in the joint venture entities that own Ontario Mills. Pursuant to the terms of the joint venture agreements, each partner receives a priority return equal to 9% per annum on its capital contribution. Any residual cash flow after preference payments are distributed 68.75% to us and 31.25% to Kan Am. Following the occurrence of a major capital event, such as the sale of the property or the receipt of proceeds arising from condemnation of the property, each partner will receive its accumulated unpaid priority return and its unreturned capital contributions, and any residual cash flow will be distributed 68.8% to us and 31.2% to Kan Am. We have the right to manage the development, property management and leasing of Ontario Mills, subject to Kan Am's approval of specified major decisions, including sale or refinancing of Ontario Mills and approval of an annual budget.

              At specified times following November 2001, which is the fifth anniversary of the opening of Ontario Mills, we or Kan Am can exercise a buy-sell right. Pursuant to the buy-sell provision, we can require Kan Am to sell to us for cash or limited partnership units of Mills LP, at Kan Am's election, Kan Am's entire interest in the joint venture entity. Also, pursuant to the buy-sell provision, Kan Am can require us to acquire for cash or limited partnership units of Mills LP, at our election, Kan Am's entire interest in the joint venture entity.

              Grapevine Mills—Grapevine, Texas. Grapevine Mills opened in 1997 and contains approximately 1.6 million square feet of GLA consisting of approximately 1.1 million square feet of anchor space and approximately 500,000 square feet of specialty store space. Grapevine Mills currently has 19 anchor tenants. Grapevine Mills, which serves the Dallas/Fort Worth metropolitan area, is located approximately 19 miles northeast of downtown Fort Worth.

              In May 2002, we and Kan Am purchased from Simon Property 100% of Simon's interest in Grapevine Mills. As a result, we and Kan Am are the sole partners in the joint venture entities that own Grapevine Mills. Pursuant to the terms of the joint venture agreements, each partner receives a priority return equal to 9% per annum on its capital contribution. Any residual cash flow after preference payments are distributed 65.6% to us and 34.4% to Kan Am. Following the occurrence of a major capital event, such as the sale of the property or the receipt of proceeds arising from condemnation of the property, each partner will receive its accumulated unpaid priority return and its unreturned capital contributions, and any residual cash flow will be distributed 65.6% to us and 34.4% to Kan Am. We have the right to manage the development, property management and leasing of Grapevine Mills, subject to Kan Am's approval of specified major decisions, including sale or refinancing of Grapevine Mills and approval of an annual budget.

              At specified times following November 2007, which is the tenth anniversary of the opening of Grapevine Mills or, if earlier, upon our change in control, either we or Kan Am can exercise a buy-sell right. Pursuant to the buy-sell provision, we can require Kan Am to sell to us for cash or limited partnership units of Mills LP, at Kan Am's election, Kan Am's entire interest in the joint venture entity. Also, pursuant to the buy-sell provision, Kan Am can require us to acquire for cash or limited partnership units of Mills LP, at our election, Kan Am's entire interest in the joint venture entity. Only Kan Am may invoke the buy-sell provision in the event of our change in control.

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              Arizona Mills—Tempe, Arizona. Arizona Mills opened in 1997 and contains approximately 1.2 million square feet of GLA consisting of approximately 700,000 square feet of anchor space and approximately 500,000 square feet of specialty store space. Arizona Mills currently has 17 anchor tenants. The project is located on a 115-acre site located 20 minutes from downtown Phoenix.

              In May 2002, we and Taubman Realty purchased from Simon Property 100% of Simon's interest in Arizona Mills. As a result, the entity that owns Arizona Mills is owned 50% by us and 50% by Taubman Realty. Cash flow is distributed, and other payments are made, to each partner in accordance with each partner's respective equity interest. We have the right to manage the development, property management and leasing of Arizona Mills, subject to Taubman's approval of specified major decisions, including sale or refinancing of Arizona Mills and approval of an annual budget.

              At specified times following October 2002, which is the fifth anniversary of the opening of Arizona Mills, or the date that 90% of the project has been leased, if we and Taubman are unable to agree upon specified major decisions (including, among others, sales, refinancings, expansions, and certain capital expenditures), either Taubman or we can cause the project to be sold pursuant to specified procedures.

              Concord Mills—Concord, North Carolina. Concord Mills opened in 1999 and contains approximately 1.2 million square feet of GLA consisting of approximately 691,000 square feet of anchor space and approximately 556,000 square feet of specialty store space. Concord Mills currently has 16 anchor tenants. Concord Mills is located on a 165-acre site in the city of Concord, which is approximately ten miles north of downtown Charlotte.

              In May 2002, we and Kan Am purchased 100% of Simon Property's interest in Concord Mills. As a result, we and Kan Am are the sole partners in the joint venture entities that own Concord Mills. Pursuant to the terms of the joint venture agreements, each partner receives a priority equal to 9% per annum on its capital contribution. Any residual cash flow after preference payments are distributed 65.6% to us and 34.4% to Kan Am. Following the occurrence of a major capital event, such as the sale of the property or the receipt of proceeds arising from condemnation of the property, each partner will receive its unpaid priority return and its unreturned capital contributions, and any residual cash flow will be distributed 65.6% to us and 34.4% to Kan Am. We have the right to manage the development, property management and leasing of Concord Mills, subject to Kan Am's approval of specified major decisions, including the sale or refinancing of Concord Mills and approval of an annual budget.

              At specified times following November 2009, which is the tenth anniversary of the opening of Concord Mills, either we or Kan Am can exercise a buy-sell right. Pursuant to the buy-sell provision, we can require Kan Am to sell to us for cash or limited partnership units of Mills LP, at Kan Am's election, Kan Am's entire interest in the joint venture entity. Also, pursuant to the buy-sell provision, Kan Am can require us to acquire for cash or limited partnership units of Mills LP, at our election, Kan Am's entire interest in the joint venture entity.

              Katy Mills—Katy, Texas. Katy Mills opened in 1999 and contains approximately 1.2 million square feet of GLA consisting of approximately 632,000 square feet of anchor space and approximately 586,000 square feet of specialty store space. Katy Mills currently has 13 anchor tenants. Katy Mills is located on a 500-acre site located approximately 20 miles west of Houston.

              We and Kan Am are the sole partners in the joint venture entity that owns Katy Mills. Pursuant to the terms of the joint venture agreement, we and Kan Am each receive a priority return on our capital contributions equal to 9% per annum. A portion of our priority return, presently equal to $5.67 million and reducing to $5.3 million in December 2003 and to $5.0 million in December 2004, is subordinated to the payment of Kan Am's priority return. Any residual cash flow after preference payments is distributed 62.5% to us and 37.5% to Kan Am. As of December 31, 2002, Kan Am's unpaid preference was $1.8 million. Following the occurrence of a major capital event as specified in the joint venture agreement, each partner will receive its unpaid priority return and, on a pro rata basis, its unreturned capital contributions. Any residual cash proceeds will be distributed 62.5% to us and 37.5% to Kan Am. We have the right to manage the development, property management and leasing of Katy Mills, subject to Kan Am's approval of specified major decisions as specified in the joint venture agrement. We guarantee $15 million of the principal of the permanent loan encumbering the project.

              At specified times following October 2009, which is the tenth anniversary of the opening of Katy Mills, either we or Kan Am can exercise a buy-sell right. Pursuant to the buy-sell provision, we can require Kan Am to sell to us for cash or limited partnership units of Mills LP, at Kan Am's election, Kan Am's entire interest in the joint venture entity. Also, pursuant to the buy-sell provision, Kan Am can require us to acquire for cash or limited partnership units of Mills LP, at our election, Kan Am's entire interest in the joint venture entity.

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              Opry Mills—Nashville, Tennessee. Opry Mills opened in May 2000 and contains approximately 1.1 million square feet of GLA consisting of approximately 595,000 square feet of anchor space and approximately 518,000 square feet of specialty store space. Opry Mills currently has 16 anchor tenants. Opry Mills is located on a 67-acre site that is adjacent to the Opryland Hotel and Convention Center. In June 2002, we purchased from Opryland Attractions, Inc. (an affiliate of Gaylord Entertainment Company) its 33.3% interest in Opry Mills. As a result, Opry Mills is 100% owned by us.

              Arundel Mills—Anne Arundel County, Maryland. Arundel Mills opened in November 2000 and contains approximately 1.2 million square feet of GLA consisting of approximately 700,000 square feet of anchor GLA and approximately 500,000 square feet of specialty store space. Arundel Mills also includes 96,000 square feet of related tenants at the Marketplace at Arundel Mills. Arundel Mills currently has 13 anchor tenants. Arundel Mills is located on an approximately 107-acre site near the intersection of the Baltimore/Washington Parkway and State Route 100 in Anne Arundel County, Maryland.

              In May 2002, we and Kan Am purchased 100% of Simon Property's interest in Arundel Mills. As a result, we and Kan Am are the sole partners in the joint venture entities that own Arundel Mills. Pursuant to the terms of the joint venture agreements, each partner receives a construction period preference until construction is substantially completed and permanent financing is secured, and will receive a priority return thereafter, equal to 9% per annum on its capital contribution. Any residual cash flow, after preference payments, is distributed 65.6% to us and 34.4% to Kan Am. We currently guarantee a portion of Kan Am's construction period preference and a portion of Kan Am's construction debt and will continue these guaranties until qualified permanent financing is secured for the project. As of December 31, 2002, Kan Am's unpaid preference was $0.3 million. Following the occurrence of a major capital event, such as the sale of the property or the receipt of proceeds arising from condemnation of the property, each partner will receive its unpaid construction period preference, its unpaid priority return and its unreturned capital contributions, and any residual cash flow will be distributed 65.6% to us and 34.4% to Kan Am. We have the right to manage the development, property management and leasing of Arundel Mills, subject to Kan Am's approval of specified major decisions, including sale or refinancing of Arundel Mills and approval of an annual budget.

              At specified times following November 2010, which is the tenth anniversary of the opening of Arundel Mills or, if earlier, upon our change in control, either we or Kan Am can exercise a buy-sell right. Pursuant to the buy-sell provision, we can require Kan Am to sell to us for cash or limited partnership units of Mills LP, at Kan Am's election, Kan Am's entire interest in the joint venture entity. Also, pursuant to the buy-sell provision, Kan Am can require us to acquire for cash or limited partnership units of Mills LP, at our election, Kan Am's entire interest in the joint venture entity. Only Kan Am may invoke the buy-sell provision in the event of our change in control.

              Discover Mills—Sugarloaf, Georgia. Discover Mills opened in November 2001 and contains approximately 1.1 million square feet of GLA consisting of approximately 600,000 square feet of anchor GLA and approximately 500,000 square feet of specialty store space. Discover Mills currently has 12 anchor tenants. Discover Mills is located on an approximately 225-acre site just off Interstate 85 and Sugarloaf Parkway in Gwinette County, Georgia.

              We and Kan Am are the sole partners in the joint venture entity that owns Discover Mills. Pursuant to the terms of the joint venture agreement, Kan Am will receive a priority return, equal to 9% per annum on its $75 million capital contribution. Any residual cash flow, after paying the priority returns, is distributed 50% to Kan Am and 50% to us. We currently guarantee Kan Am's construction period preference and Kan Am's portion of construction debt and will continue these guaranties until qualified permanent financing is secured for the project. As of December 31, 2002, Kan Am's unpaid preference was $0.5 million. Following the occurrence of a major capital event, such as the sale of the property or the receipt of proceeds arising from condemnation of the property, Kan Am will receive its unpaid construction period preference, its unpaid priority return and its unreturned capital contributions, and any residual cash flow will be distributed 50% to Kan Am and 50% to us. We have the right to provide all the development, property management and leasing services for Discover Mills, subject to Kan Am's approval for specified major decisions, including the sale or refinancing of Discover Mills and approval of an annual budget.

              At specified times following November 2011, which is the tenth anniversary of the opening of Discover Mills, or, if earlier, upon our change in control, either we or Kan Am can exercise a buy-sell right. Pursuant to the buy-sell provision, we can require Kan Am to sell to us for cash or limited partnership units of Mills LP, at Kan Am's election, Kan Am's entire interest in the joint venture entity. Also, pursuant to the buy-sell provision, Kan Am can require us to acquire for cash or limited partnership units of Mills LP, at our election, Kan Am's entire interest in the joint venture entity. Only Kan Am may invoke the buy-sell right in the event of our change in control.

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              Colorado Mills—Denver, Colorado. Colorado Mills opened in November 2002 and contains approximately 1.1 million square feet of GLA area consisting of approximately 539,000 square feet of anchor tenant GLA and approximately 549,000 square feet of specialty store space. Colorado Mills currently has 10 anchors. Colorado Mills is located in Lakewood, Colorado, ten miles west of downtown Denver.

              Colorado Mills is owned by a joint venture between Mills-Kan Am Colorado Limited Partnership, which holds a 75% equity interest in the joint venture, and Stevinson Colorado Mills Holding L.L.C., which holds a 25% equity interest in the joint venture. Mills-Kan Am Colorado Limited Partnership is fully obligated to fund all cash equity requirements for the development of Colorado Mills and will receive a 9% cumulative preferred return on the first $43.7 million of its equity contributions and a 12% cumulative preferred return on any additional equity contributions. Stevinson will receive capital account credit for the negotiated value of land contributed, and will receive a 9% cumulative preferred return on its capital account credit. Any remaining cash flow will be distributed pro rata in accordance with ownership interests.

              Mills-Kan Am Colorado Limited Partnership, through which we operate our interest in the Colorado Mills project, is a joint venture formed with Kan Am. Each of Kan Am and us is required to fund 50% of the total equity required to develop the Colorado Mills project. The project's equity requirement is $51.0 million, of which we had funded approximately $25.5 million of our required equity as of December 31, 2002. Kan Am's invested capital in this project as of December 31, 2002 was $25.5 million and the amount of Kan Am's accrued preference was $0.7 million.

              Under the terms of the joint venture agreement with Kan Am, we and Kan Am each will receive on a pro rata basis a cumulative construction period preference and a priority return during operations equal to 11% per annum on its qualifying equity. Any residual cash flow after preference payments will be distributed 75% to us and 25% to Kan Am. We guarantee Kan Am's and Stevinson's portion of construction debt and Kan Am's preference until qualified permanent financing is secured for the project, except that the amount of preference guaranteed by us was reduced to 9% following the substantial completion and opening of the project. Proceeds from a major capital event, such as the sale of the property or the receipt of proceeds arising from condemnation of the property, will be distributed to the partners on a pro rata basis after the return of all capital contributions and the payment of any accrued but unpaid preferences.

              At specified times following November 2007, which is the fifth anniversary of the opening of Colorado Mills or, if earlier, upon our change in control, either we or Kan Am can exercise a buy-sell right. Pursuant to the buy-sell provision, we can require Kan Am to sell to us for cash or limited partnership units of Mills LP, at Kan Am's election, Kan Am's entire interest in the joint venture entity. Also, pursuant to the buy-sell provision, Kan Am can require us to acquire for cash or limited partnership units of Mills LP, at our election, Kan Am's entire interest in the joint venture entity. Only Kan Am may invoke the buy-sell right in the event of our change in control.

              21^st Century Retail and Entertainment Centers

              The Block at Orange—Orange, California. The Block at Orange opened in November 1998 and contains approximately 655,000 square feet of GLA consisting of approximately 385,000 square feet of anchor space and approximately 270,000 square feet of specialty store space. The Block at Orange currently has 10 anchor tenants. The Block at Orange is located on an 85-acre site located three miles from Disneyland.

              We and Kan Am are the sole partners in the joint venture entity that owns The Block at Orange. Pursuant to the terms of the joint venture agreement, Kan Am receives a priority return equal to 9% per annum on its capital contribution. Any residual cash flow after preference payments are distributed 50% to Kan Am and 50% to us. Following the occurrence of a major capital event, such as the sale of the property or the receipt of proceeds arising from condemnation of the property, Kan Am will receive its unpaid priority return and its unreturned capital contributions, and any residual cash flow will be distributed 50% to Kan Am and 50% to us. We have the right to manage the development, property management and leasing of The Block at Orange, subject to Kan Am's approval of specified major decisions, including sale or refinancing of The Block at Orange and approval of an annual budget.

              At specified times following November 2008, which is the tenth anniversary of the opening of the Block or, if earlier, upon our change in control, either we or Kan Am can exercise a buy-sell right. Pursuant to the buy-sell provision, we can require Kan Am to sell to us for cash or limited partnership units of Mills LP, at Kan Am's election, Kan Am's entire interest in the joint venture entity. Also, pursuant to the buy-sell provision, Kan Am can require us to acquire for cash or limited partnership units of Mills LP, at our election, Kan Am's entire interest in the joint venture entity. Only Kan Am may invoke the buy-sell right in the event of our change in control.

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              We have guaranteed to Kan Am the payment of its priority return, subject to an aggregate limit of $10.8 million. This aggregate limit is to be reduced annually by the sum of $1.1 million in each year in which we are not required to make payments under the guaranty, but not below $5.4 million. This guarantee will terminate upon the earlier of May 2006 or such time as the partnership's cash flow in any fiscal year exceeds $8.0 million.

              Riverside Square—Hackensack, New Jersey. In December 2002, we acquired 100% of Riverside Square from Riverside 062 Partners. Riverside Square contains approximately 637,000 square feet of GLA consisting of approximately 425,000 square feet of anchor space and approximately 212,000 square feet of specialty tenant space. Riverside Square has three anchor tenants and one anchor store owns approximately 293,000 square feet. Riverside Square is located six miles west of New York City.

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LEASE EXPIRATION SCHEDULES
Wholly Owned Properties (1)
(unaudited)

              The following table summarizes lease expirations for the Wholly Owned Properties assuming that none of the tenants exercise renewal options. Except as described in footnote (1), the minimum rent is the product of the monthly contractual minimum rent of the expiring leases as of December 2002 multiplied by 12.

(1)

Excludes approximately 1,143,000 square feet of GLA owned by tenants and a ground lease of approximately 150,000 square feet.

(2)

Anchor tenants are defined as any tenant whose GLA equals or exceeds 20,000 square feet.

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LEASE EXPIRATION SCHEDULES (Continued)
Unconsolidated Joint Ventures (1)
(unaudited)

              The following table summarizes lease expirations for the Unconsolidated Joint Venture Properties, assuming that none of the tenants exercise renewal options. Except as described in footnote (1), the minimum rent is the product of the monthly contractual minimum rent of the expiring leases as of December 2002 multiplied by 12.

(1)

Excludes approximately 125,000 square feet of GLA owned by tenants and a ground lease of approximately 180,000 square feet.

(2)

Anchor tenants are defined as any tenant whose GLA equals or exceeds 20,000 square feet.

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RENTAL RATES (1)
(unaudited)

              The following tables present the average base rent per leased square foot of store openings and closings for the anchor and specialty store tenants in the aggregate for the five years ended December 31, 2002, 2001, 2000, 1999 and 1998 (except as noted in footnote (1)).

ANCHOR STORES

SPECIALTY STORES