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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

Form 10-Q

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

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

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

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

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

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

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

44,321,586 shares of Common Stock
$0.01 par value, as of August 11, 2003

THE MILLS CORPORATION
FORM 10-Q
INDEX

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

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

•

the general economic climate,



•

the supply and demand for retail properties,



•

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



•

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



•

those risks described in the section entitled "Risk Factors" in our Form 10-K for the year ended December 31, 2002 filed with the Securities and Exchange Commission on March 31, 2003.

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

2

PART I—FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements and Notes

THE MILLS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands)

3

THE MILLS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands)

See Accompanying Notes to Consolidated Financial Statements.

4

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

See Accompanying Notes to Consolidated Financial Statements

5

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

See Accompanying Notes to Consolidated Financial Statements

6

THE MILLS CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2003
(In Thousands)

See Accompanying Notes to Consolidated Financial Statements.

7

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

See Accompanying Notes to Consolidated Financial Statements.

8

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

1.     ORGANIZATION

        The Mills Corporation (the "Company") is a fully integrated, self-managed real estate investment trust ("REIT") and provides development, redevelopment, leasing, financing, management and marketing services to its properties. The Company conducts all of its business and owns all of its properties through The Mills Limited Partnership ("Mills LP") and its various subsidiaries. The Company is the sole general partner of Mills LP in which it owned, as of June 30, 2003, a 1% general partner interest and a 72.32% limited partner interest. Additionally, Mills LP owns 100% of MillsServices Corp. ("MSC"), a taxable REIT subsidiary that provides development, management, leasing and financial services to entities owned by unconsolidated joint ventures of the Company. MSC does not perform any services for entities in which the Company is not a significant investor. MSC owns 100% of Mills Enterprises, Inc. ("MEI"), an entity that holds investments in certain retail joint ventures and owns 60% of FoodBrand L.L.C. ("FoodBrand"), a food and beverage entity that leases, manages and operates food courts and restaurants.

        As of June 30, 2003, the Company's portfolio consisted of 24 retail and entertainment-oriented centers (13 super-regional "Mills Landmark Centers", ten "21^st Century Retail and Entertainment Centers and one "International Retail and Entertainment Center"), three community shopping centers (the "Community Centers"), a portfolio of 19 single tenant properties subject to net leases that operate as CVS pharmacies ("Net Lease Properties") and other related commercial development. The Mills Landmark Centers, the 21^st Century Retail/Entertainment Centers and the International Retail and Entertainment Center comprise the primary focus of the Company's operations.

        In addition, the Company is actively involved in the construction, development or redevelopment of a number of other projects, including St. Louis Mills (St. Louis, MO), Cincinnati Mills (Cincinnati, OH), Pittsburgh Mills (Pittsburgh, PA), Vaughan Mills (Toronto, Canada), Meadowlands Xanadu (East Rutherford, NJ), San Francisco Piers 27-31 (San Francisco, CA) and Block 37 (Chicago, IL).

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

        The accompanying unaudited consolidated financial statements have been prepared by the Company's management in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities Act of 1933. Accordingly, these consolidated financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The results of operations for the three and six months ended June 30, 2003 are not necessarily indicative of the results that may be expected for the full year. These consolidated financial statements should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations contained in this Form 10-Q and the Company's audited financial statements and related footnotes, included in the Company's Annual Report on Form 10-K for the year ended December 31, 2002 filed with the Securities and Exchange Commission on March 31, 2003, as supplemented by the Company's Current Report on Form 8-K filed on June 9, 2003.

9

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

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

        All significant intercompany transactions and balances have been eliminated in consolidation.

        Minority interest represents the ownership interests in Mills LP not held by the Company

REAL ESTATE AND DEVELOPMENT ASSETS

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

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

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

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

        Total depreciation expense was $22,568 and $13,791 for the six months ended June 30, 2003 and 2002, respectively, and $11,197 and $6,751 for the three months ended June 30, 2003 and 2002, respectively.

        Total interest expense capitalized to real estate and development assets, including investments in unconsolidated joint ventures under development, was $27,906 and $17,874 for the six months ended June 30, 2003 and 2002, respectively, and $13,168 and $9,508 for the three months ended June 30, 2003 and 2002, respectively.

10

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

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

        Acquisitions of properties are accounted for using the purchase method and, accordingly, the results of operations are included in the Company's results of operations from the respective dates of acquisition. The Company uses various valuation methods to allocate the purchase price of acquired property between land, buildings and improvements, equipment, and other identifiable intangibles such as lease origination costs and acquired leases and any debt assumed. The Company's allocation of the purchase prices for the acquisitions consummated during 2003 and 2002 is preliminary and is subject to change.

REVENUE RECOGNITION

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

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

FOREIGN OPERATIONS

        The U.S. dollar is the functional currency of the Company's consolidated and unconsolidated entities operating in the United States. The functional currency for the Company's unconsolidated entities operating outside of the United States is the local currency of the country in which the entity is located.

        The Company's unconsolidated entities whose functional currency is not the U.S. dollar translate their financial statements into U.S. dollars. Assets and liabilities are translated at the exchange rate in effect as of the financial statement date and income statement accounts are translated using the average exchange rate for the period. However, income statement accounts that represent significant, non recurring transactions are translated at the rate in effect as of the date of the transaction. The Company and its foreign entities have certain transactions denominated in currencies other than their functional currency. In these instances, nonmonetary assets and liabilities are reflected at the historical exchange rate, monetary assets and liabilities are remeasured at the exchange rate in effect at the end of the period, and income statement accounts are remeasured at the average exchange rate for the period. For the six months ended June 30, 2003, the total net foreign currency exchange gain related to the Company's unconsolidated joint ventures was $2,104, of which the Company's portion of $1,284 was recorded in equity in earnings. Gains and losses from remeasurement are included in the Company's results of operations. For the six months ended June 30, 2003, the Company's net foreign currency exchange gain, totaling $23,080 arose primarily from the remeasurement of investments and intercompany advances of the Company to unconsolidated joint ventures. In addition, gains or losses are recorded in the income statement when a transaction with a third party, denominated in a currency other than the functional currency, is settled and the functional currency cash flows realized are more or less than the exchange rate in effect when the transaction was initiated.

11

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

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

FOREIGN CURRENCY TRANSACTIONS—RESTATEMENT

        Prior to the forth quarter of 2002, the Company accounted for its investments and advances in foreign operations in U.S. dollars. In addition, the Company used U.S. dollars as the functional currency for the joint venture entities that own those projects.

        In early 2003, the Company determined that its investments and advances in its two foreign operations should be denominated in the applicable local foreign currencies, which also should be the functional currencies for accounting purposes. These changes resulted in foreign currency exchange gains of approximately $6,600 before minority interest in the second quarter of 2002 that previously were not recorded and resulted in the increase in the Company's net income of approximately $4,300 after minority interest for the three months ended June 30, 2002, for the six months ended June 30, 2002 and the nine months ended September 30, 2002. The foreign currency exchange gains primarily resulted from the strengthening of the Euro against the U.S. dollar. Basic income per common share increased from $0.33 per common share to $0.46 per common share for the three months ended, June 30, 2002 and $0.67 per common share to $0.80 for the six months ended June 30, 2002. On a fully diluted basis, income per common share increased from $0.32 per common share to $0.45 per common share and for the three months ended June 30, 2002, $0.66 cents per common share to $0.79 per common share for the six months ended June 30, 2002. There was no material impact on the operating results for any other period resulting from this restatement.

USE OF ESTIMATES

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

RECLASSIFICATIONS

        Certain amounts in the 2002 consolidated financial statements have been reclassified to conform to the current year presentation.

3.     ACQUISITIONS AND DISPOSITIONS

ACQUISITION OF DEL AMO PROPERTIES

        On June 30, 2003, the Company completed the acquisition of the Del Amo Fashion Center and certain associated properties (the "Del Amo Properties"). The Del Amo Properties, which are located in the South Bay submarket of Los Angeles, CA, contain approximately 2,500 square feet of gross leasable area. A significant portion of this property will be redeveloped over the next two years. The Del Amo Properties, purchased for approximately $442,000 excluding closing costs, were financed with a $316,000 mortgage loan and cash consideration of approximately $126,000. The mortgage loan bears interest at LIBOR plus 240 basis points. The loan matures in 2006 and has two one-year extension options.

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

3.     ACQUISITIONS AND DISPOSITIONS (Continued)

ACQUISITION OF CADILLAC FAIRVIEW PORTFOLIO

        In January 2003, the Company, completed its acquisition of five shopping center properties (the "Cadillac Fairview Portfolio"). The properties are located in Ft. Lauderdale, FL; Dover, DE; White Plains, NY; Jackson, MS; and New Orleans, LA and contain approximately 4,564 square feet of gross leasable area. In addition to the five properties, the Company acquired approximately 110 acres of developable land adjacent to the properties. The total aggregate purchase price for the five properties and the developable land adjacent to the properties was approximately $546,615.

        To finance the Cadillac Fairview Portfolio acquisition, the Company obtained a mortgage loan totaling $320,000 secured by Dover Mall, Dover Commons, The Galleria at White Plains, Northpark Mall and The Esplanade. The mortgage loan bears interest at LIBOR plus 210 basis points. The loan matures in February 2006 and has two one-year extension options. In conjunction with this financing, the Company entered into a swap agreement to effectively fix the interest rate at 4.17% through February 2005 on a notional amount of $245,000. Additionally, the Company assumed a $62,000 mortgage loan secured by Broward Mall. The loan bears interest at an effective rate of 5.34% and matures in March 2009. Principal payments of $1,500 are due in March 2004 and 2005, with annual principal payments of $2,000 due in March 2006, 2007 and 2008.

        The purchase agreement for the Cadillac Fairview Portfolio also provided for the Company's acquisition of Cadillac Fairview's interests in two joint ventures, each of which owns a property located in Atlanta, GA. In May 2003, the Company completed the acquisition of the interests in the 1,278 square foot Gwinnett Place and the 1,273 square foot Town Center at Cobb for an aggregate price of $62,500, excluding closing costs.

ACQUISITION OF RIVERSIDE SQUARE

        In December 2002, the Company acquired Riverside Square, a 637 square foot retail property located in Hackensack, NJ. The total aggregate consideration of $86,500 excluding closing costs, consisted of a cash payment of $22,567 and a newly acquired mortgage financing totaling $65,000. The cash component of the acquisition was financed with borrowings under the Company's unsecured revolving loan. The interest rate on the mortgage financing is fixed at 5.77% and the loan matures in January 2013.

ACQUISITION OF FOREST FAIR MALL

        In September 2002, the Company acquired the Forest Fair Mall in Cincinnati, OH. The acquisition was performed as part of an exchange transaction involving the sale of 27 CVS stores. The property contains 1,465 square feet of gross leasable area. The net purchase price of $68,793 consisted of the assumption of a $58,284 construction loan and $10,509 of cash funded from the Company's unsecured revolving loan. The construction loan matures in December 2006 and bears interest at LIBOR plus 200 basis points. The Company is redeveloping and renovating this property and expects to re-open it under the name of Cincinnati Mills in spring 2004.

ACQUISITION OF JOINT VENTURE INTERESTS

        In June 2002, the Company completed the acquisition of all of the interest in Opry Mills then held by its joint venture partner. As a result of the acquisition, the Company now holds 100% of the ownership interest in Opry Mills and consolidates the operations of the property. The net consideration paid by the Company was approximately $30,910 in cash. The Company paid the purchase price using a portion of the proceeds from the sale of its common stock in May 2002.

13

THE MILLS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited, in Thousands except per share data)

3.     ACQUISITIONS AND DISPOSITIONS (Continued)

        In May 2002, the Company completed the acquisition of 50% of Simon Property Group's ("Simon") interest in Arizona Mills, with Taubman Centers acquiring the remaining 50%, and of 75% of Simon's interest in Arundel Mills, Concord Mills, Grapevine Mills and Ontario Mills (collectively, the "Simon Acquired Properties"), with Kan Am, a joint venture partner in each of the partnerships and a long time private equity source to the Company, acquiring the remaining 25%. The Company has historically accounted for these assets using the equity method of accounting and continues to do so after the acquisition since major business decisions regarding these properties require the approval of at least one other partner. The total consideration paid by the Company for the interests in the Simon Acquired Properties was $124,480 in cash. The Company paid the purchase price using a portion of the proceeds from the sale of its common stock in May 2002.

DISPOSITION OF 27 NET LEASE PROPERTIES

        In a deferred exchange with the Company's acquisition of Forest Fair Mall, the Company entered into an agreement to exchange 27 of its 46 Net Lease Properties for an aggregate sales price of $58,700, net of transaction costs in March 2003. No gain or loss was recognized in conjunction with the sale. The results of operations related to the 27 Net Lease Properties are included in Discontinued Operations on the Company's Statements of Income for the three and six months ended June 30, 2003 and 2002, respectively. The assets and liabilities related to the 27 Net Lease Properties are set forth in the line items titled "Real estate assets held for disposition, net" and "Liabilities on real estate held for disposition" on the Consolidated Balance Sheet, respectively, at December 31, 2002.

        The following is a summary of the income from discontinued operations for the three and six months ended June 30, 2003 and 2002.

        Assets and liabilities of the 27 Net Lease Properties held for sale consisted of the following:

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

3.     ACQUISITIONS AND DISPOSITIONS (Continued)

PRO FORMA RESULTS OF OPERATIONS—UNAUDITED

        The following unaudited pro forma results of operations for the three and six months ended June 30, 2003 and 2002 reflect the Company's acquisition of the Del Amo Properties and the Cadillac Fairview Portfolio as if these transactions occurred on January 1, 2003 and 2002, respectively, and the Company's acquisition of the Simon Acquired Properties and the Company's acquisition of Riverside Square, as if these transactions occurred on January 1, 2002. In the Company's opinion, all significant adjustments necessary to reflect the effects of these transactions have been made.

4.     OTHER INCOME (EXPENSE)

        Other income (expense) consists of the following:

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

5.     NEW ACCOUNTING STANDARDS

        In January 2003, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities ("FIN 46"). Under FIN 46, companies will be required to determine if they absorb the majority of the expected losses and/or expected residual returns ("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 must 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. The Company is in the process of evaluating the effects of the adoption of FIN 46. Based on a preliminary review of FIN 46, the Company believes that it is reasonably possible that the adoption of FIN 46 will result in the consolidation of previously unconsolidated entities and the deferral of development fees until the joint venture no longer meets the requirements of FIN 46 to become consolidated. The adoption of FIN 46 requires certain disclosures about variable interest entities. From February 1, 2003 to June 30, 2003, the Company did not become party to any new variable interest entities.

        In April 2003, FASB issued Statement of Financial Accounting Standards ("SFAS") No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities," which clarifies the accounting and reporting for derivative instruments, including derivative instruments that are embedded in contracts. This statement is effective for contracts entered into or modified after June 30, 2003. The Company will adopt this pronouncement beginning July 1, 2003. In the opinion of management, the adoption of this statement will not have a material impact on the Company's financial condition or results of operations.

        In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." This statement establishes standards for the classification and measurement of financial instruments that possess characteristics similar to both liability and equity instruments. SFAS No. 150 also addresses the classification of certain financial instruments that include an obligation to issue equity shares. This statement is effective for financial instruments entered into or modified after May 31, 2003 and otherwise is effective at the beginning of the first interim period commencing after June 15, 2003. As a result of implementing SFAS No. 150, the Company's Series A Cumulative Convertible Preferred Stock will be included in liabilities.

6.     INVESTMENT IN UNCONSOLIDATED JOINT VENTURES

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

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

6.     INVESTMENT IN UNCONSOLIDATED JOINT VENTURES (Continued)

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

        The Company's residual sharing and capital contribution percentages for each joint venture property at June 30, 2003 are as follows:

        The Company is committed to provide additional equity to certain of its joint ventures under development pursuant to the relevant joint venture agreement. In addition, as of June 30, 2003, the Company had guaranteed repayment of $458,815 of joint venture debt, which guarantees generally exist until certain debt service coverage tests are met. The Company is also contingently liable for property taxes and assessments levied against Ontario Mills Limited Partnership by the City of Ontario Special Assessment District ("City"). The remaining aggregate amount of the special tax assessment is approximately $11,956 and will be collected over the remaining 17-year period through 2020 to fund debt service on bonds issued by the City.

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

6.     INVESTMENT IN UNCONSOLIDATED JOINT VENTURES (Continued)

        Condensed balance sheets at June 30, 2003 and December 31, 2002 and condensed results of operations for the three and six months ended June 30, 2003 and 2002 are presented below for all unconsolidated joint ventures including investments in certain retail joint ventures held by MEI and the 60% interest in FoodBrand.

        The difference between the carrying value of the Company's investment in unconsolidated joint ventures and Mills LP's accumulated equity shown above is primarily due to the Company's increased basis as a result of acquiring interests in joint ventures whereby the purchase price was not allocated to the joint venture. Additionally, the difference is due to capitalized interest on the investment balance, capitalized development and leasing costs that are recovered by Mills LP through fees earned during construction, and loans to the joint ventures that are included in other liabilities. The difference is being amortized over the respective life of the asset to which such differences relates.

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

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

7.     FINANCIAL INSTRUMENTS: DERIVATIVES AND HEDGING

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

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

7.     FINANCIAL INSTRUMENTS: DERIVATIVES AND HEDGING (Continued)

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

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

        In conjunction with the Company's policy to reduce interest rate risk, the Company and its unconsolidated joint ventures have entered into interest rate swaps to hedge the variability of monthly cash outflows attributable to changes in LIBOR. Under the swaps, the Company receives LIBOR and pays a fixed rate. A summary of the terms of the derivative instruments and a reconciliation of their fair values and adjustments to accumulated other comprehensive loss are as follows:

The Company's share of joint ventures' total accumulative other comprehensive loss at June 30, 2003 was $4,173.

20

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

7.     FINANCIAL INSTRUMENTS: DERIVATIVES AND HEDGING (Continued)

        Within the next twelve months, the Company expects to reclassify $4,388 from accumulated other comprehensive loss to earnings as interest expense and its unconsolidated joint ventures expect to reclassify $7,096 from the balance held in accumulated other comprehensive income (loss) to earnings as interest expense, of which the Company's pro-rata share is $2,053.

        The Company's accumulated other comprehensive loss after minority interest at June 30, 2003 is $21,770. The Company's comprehensive income for the three months ended June 30, 2003 and 2002 was $32,736 and $11,377, respectively. The Company's comprehensive income for the six months ended June 30, 2003 and 2002 was $50,440 and $23,216, respectively.

8.     DIVIDENDS DECLARED

        On February 18, 2003, the Company declared a dividend of $0.5650 per common share, which was paid on May 1, 2003 to stockholders of record as of April 18, 2003.

        On February 18, 2003, the Company declared a dividend of $0.5625 per share for the Company's Series B Cumulative Redeemable Preferred Stock for the period beginning February 2, 2003 and ending May 1, 2003, which was paid on May 1, 2003 to stockholders of record as of April 18, 2003.

        On February 18, 2003, the Company declared a dividend of $0.5625 per share for the Company's Series C Cumulative Redeemable Preferred Stock for the period beginning February 2, 2003 and ending May 1, 2003, which was paid on May 1, 2003 to stockholders of record as of April 18, 2003.

        On June 5, 2003, the Company declared a dividend of $0.5650 per common share, which was paid on August 1, 2003 to stockholders of record as of July 18, 2003.

        On June 5, 2003, the Company declared a dividend of $0.5625 per share for the Company's Series B Cumulative Redeemable Preferred Stock for the period beginning May 2, 2003 and ending August 1, 2003, which was paid on August 1, 2003 to stockholders of record as of July 18, 2003.

        On June 5, 2003, the Company declared a dividend of $0.5625 per share for the Company's Series C Cumulative Redeemable Preferred Stock for the period beginning May 2, 2003 and ending August 1, 2003, which was paid on August 1, 2003 to stockholders of record as of July 18, 2003.

        On June 5, 2003, the Company declared a dividend of $0.534722 per share for the Company's Series E Cumulative Redeemable Preferred Stock for the period beginning May 6, 2003 and ending August 1, 2003, which was paid on August 1, 2003 to stockholders of record as of July 18, 2003.

21

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

9.     CAPITAL STOCK

AUTHORIZED AND OUTSTANDING CAPITAL

        At June 30, 2003 and December 31, 2002, the total number of shares authorized and outstanding was as follows: