**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

**FORM 10-K**

**x**                               ANNUAL REPORT PURSUANT TO SECTION 13OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

**Forthe fiscal year ended December 31, 2004**

**or**

** ̈**                                  TRANSITION REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

**Forthe transition periodfrom                to               **

**CommissionFile Numbers: 001-12994 and 000-50694**

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THE MILLS CORPORATIONTHE MILLS LIMITED PARTNERSHIP

(Exact name of registrantsas specified in their charters)

| **Delaware  Delaware**                                         | **52-1802283  52-1873369**                |
|----------------------------------------------------------------|-------------------------------------------|
| (State or other  jurisdiction of  incorporate or organization) | (I.R.S. Employer  Identification Numbers) |
| **1300 Wilson Boulevard, Suite 400,  Arlington, VA**      | **22209**                                 |
| (Address of  principal executive offices)                      | (Zip Code)                                |

 

**Registrants’ telephone number,including area code:**(703) 526-5000

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Securities registered pursuant to Section 12(b) ofthe Act:

| Title of each class                                                   | ** ** | **Name of each exchange on which registered** |
|-----------------------------------------------------------------------|------------|-----------------------------------------------|
| Common stock, $0.01 par value                                         |       | New York Stock Exchange                       |
| Series B cumulative redeemable preferred stock,  $0.01 par value |       | New York Stock Exchange                       |
| Series C cumulative redeemable preferred stock,  $0.01 par value |       | New York Stock Exchange                       |
| Series E cumulative redeemable preferred stock,  $0.01 par value |       | New York Stock Exchange                       |

 

Securities registeredpursuant to Section 12(g) of the Act: **Common Unitsof Limited Partnership Interest**

Indicate by check markwhether the registrants (1) have filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter periods that the registrants wererequired to file such report(s)) and (2) has been subject to such filingrequirements for the past 90 days.

|        | The Mills Corporation          | Yes x No o |
|--------|--------------------------------|---------------------------|
|   | The Mills Limited  Partnership | Yes x No o |

 

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K isnot contained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment tothis Form 10-K. x

Indicate by check markwhether the registrants are accelerated filers (as defined in Exchange Act Rule 12b-2).

|        | The Mills Corporation          | Yes x No o |
|--------|--------------------------------|---------------------------|
|   | The Mills Limited  Partnership | Yes o No x |

 

As of June 30, 2004,the aggregate market value of the 54,276,872 shares of Common Stock, par value$0.01 per share, of The Mills Corporation held by non-affiliates was$2,534,729,922 based upon the closing price of $46.70 per share on the New YorkStock Exchange composite tape on such date. As of June 30, 2004, theaggregate market value of the 10,185,987 Common Units of Limited Partnershipinterest of The Mills Limited Partnership held by non-affiliates andexchangeable on a one-for-one basis for shares of The Mills Corporation CommonStock was $475,685,593 based upon the closing price of The Mills CorporationCommon Stock of $46.70 per share on the New York Stock Exchange composite tapeon such date.

As of March 24, 2005,55,693,710 shares of Common Stock, par value $.01 per share, of The MillsCorporation and 64,661,204 Common Units of limited partnership interest of TheMills Limited Partnership were outstanding.

**DOCUMENTS INCORPORATED BYREFERENCE:**

Portions of The MillsCorporation’s definitive proxy statement for its 2005 annual shareholders’meeting are incorporated by reference into Part III of this Form 10-K.

 

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**THEMILLS CORPORATIONTHE MILLS LIMITED PARTNERSHIP**

**Annual Report on Form 10-KDecember 31, 2004TABLE OF CONTENTS**
| **PART I**   |                                                                                                                    |   |
|-------------------|-------------------------------------------------------------------------------------------------------------------------|--------|
| Item 1.           | Business                                                                                                                | 3      |
| Item 2.           | Properties                                                                                                              | 26     |
| Item 3.           | Legal Proceedings                                                                                                       | 38     |
| Item  4.          | Submission  of Matters to a Vote of Security Holders                                                                    | 38     |
| **PART II**  |                                                                                                                    |   |
| Item  5.          | Market  for the Registrant’s Common Equity, Related Stockholder Matters and Issuer  Purchases of Equity Securities | 39     |
| Item 6.           | Selected Financial Data                                                                                                 | 41     |
| Item  7.          | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                             | 44     |
| Item  7A.         | Quantitative  and Qualitative Disclosures About Market Risk                                                             | 62     |
| Item  8.          | Financial  Statements and Supplementary Data                                                                            | 64     |
| Item  9.          | Changes  in and Disagreements with Accountants on Accounting and Financial Disclosure                                   | 64     |
| Item 9A.          | Controls and  Procedures                                                                                                | 65     |
| Item 9B.          | Other Information                                                                                                       | 71     |
| **PART III** |                                                                                                                    |   |
| Item  10.         | Directors  and Executive Officers of the Registrant                                                                     | 72     |
| Item 11.          | Executive Compensation                                                                                                  | 72     |
| Item  12.         | Security  Ownership of Certain Beneficial Owners and Management and Related Stockholder  Matters         | 72     |
| Item  13.         | Certain  Relationships and Related Transactions                                                                         | 72     |
| Item  14.         | Principal  Accountant Fees and Services                                                                                 | 72     |
| **PART IV**  |                                                                                                                    |   |
| Item  15.         | Exhibits  and Financial Statement Schedules                                                                             | 73     |
|              | Signatures                                                                                                              | 80     |

 

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**PART I**

**Cautionary Statement**

Statements contained in this Form 10-K and theinformation incorporated by reference herein may be forward-lookingstatements within the meaning of Section 21E of the Securities ExchangeAct of 1934, as amended, or the Exchange Act. Such forward-looking statementsinclude, among others, statements regarding our future liquidity needs andavailability of capital, expectations regarding our development projects(including future expenditures), environmental conditions of our properties,asset management strategy, adequate insurance coverage, ability to renew leasesor re-lease space, and dealings with our joint venture partners.

Readers can identify forward-looking statementsby the use of words such as, but not limited to, “may,” “plan,” “will,” “expect,”“anticipate,” “estimate,” “would be,” “believe,” “intend” or “continue” or thenegative or other variations of comparable terms. We intend such forward-lookingstatements to be covered by the safe harbor provisions applicable to forward-lookingstatements contained in Section 21E of the Exchange Act. These statements,none of which is intended as a guarantee of performance, are subject to certainassumptions, risks and uncertainties, which could cause our actual futureresults, achievements or transactions to differ materially from those projectedor anticipated. Readers are cautioned not to place undue reliance on theseforward-looking statements, which speak only as of the date this Form 10-Kis filed with the Securities and Exchange Commission, or the SEC. A number ofimportant factors could cause actual results to differ materially from thoseindicated by the forward-looking statements, including, but not limitedto, the risks described in the section entitled “Risk Factors” in this Form 10-K.These factors include, among others:

·       international,national and local economic, business and real estate conditions that could,among other things, affect:

·        supplyand demand for retail space and retail properties,

·        thebusiness and economic cycles, including the effect on demand for retail spaceand the creation of new retail real estate developments,

·        availabilityand creditworthiness of tenants,

·        interestrate levels, and

·        exchangerates between the US dollar and foreign currencies in countries where we haveinvestments;

·       adversechanges in the real estate market, including, among other things:

·        theextent of tenant bankruptcies, financial difficulties and defaults,

·        theextent of future demand for retail space and barriers to entry into marketsthat we may seek to enter in the future, and

·        ourability to identify and consummate acquisitions on favorable terms;

·       risksassociated with the development, acquisition and operation of retailproperties, including risks that the development of the project may not becompleted on schedule, that we may not be able to lease available space totenants at favorable rental rates, that tenants will not take occupancy or payrent in accordance with their leases, or that development costs may be greaterthan anticipated;

·       availabilityof financing for our development and redevelopment projects or acquisitionactivities;

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·       ourability to maintain our status as a real estate investment trust, or REIT, forfederal and state income tax purposes;

·       ourability to raise capital at all or at reasonable rates;

·       ourability to obtain insurance at all or at a reasonable cost;

·       theeffect of any terrorist activity or other heightened geopolitical risks;

·       governmentalactions and initiatives; and

·       environmental/safetyrequirements.

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

**Introductory Note**

This Form 10-K includes information with respectto both The Mills Corporation, or TMC, and The Mills Limited Partnership, orMills LP, of which TMC is the sole general partner and in which TMC owned a1.00% general partner interest and a 85.12% limited partner interest as of December 31,2004. Separate financial statements and accompanying notes are provided foreach of TMC and Mills LP. Except as specifically noted otherwise, all otheritems are presented with respect to both TMC and Mills LP. TMC conducts all ofits business and owns all of its properties through Mills LP and Mills LP’svarious subsidiaries. As the general partner of Mills LP, TMC has the exclusivepower to manage the business of Mills LP, subject to certain limitedexceptions.

Except as otherwiserequired by the context, together TMC and Mills LP are referred to in this Form 10-Kas “we,” “us,” and “our.”

**Restatementof Financial Statements**

On February 16, 2005, we announced that we would restatepreviously filed audited financial results to correct accounting primarilyrelating to our treatment of equity in earnings from joint ventures, thecapitalization of interest and certain other costs, and the timing of gains onsales of partnership interests. We have restated our consolidated financialstatements for the fiscal years ended December 31, 2002 and 2003, and forthe quarters ended March 31, 2004, June 30, 2004 and September 30,2004. All applicable financial information contained in this Annual Report on Form 10-Kgives effect to these restatements. Consequently, you should not rely upon thefinancial statements for the abovementioned fiscal periods that have beenincluded in our previous filings with the Securities and Exchange Commission orincluded in previous announcements.

For information concerningthe background of the restatements and the specific adjustments made on anannual and quarterly basis, see “Item 6. Selected Financial Data—Restatement”and the Notes to Consolidated Financial Statements included in “Item 15. Exhibitsand Financial Statement Schedules.” We summarized the remedial measures that weidentified in the course of the restatement process in “Item 9A. Controls andProcedures.”

**Item 1.**                        Business

**Background**

TMC is a fully-integrated, self-managed REIT thatprovides development, redevelopment, leasing, financing, management andmarketing services to its properties through Mills LP and its varioussubsidiaries. We also hold investments incertain retail joint ventures.

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Our portfolioprimarily consists of three types of retail and entertainment real estateproperties:

·       MillsLandmark Centers—retail and entertainment super-regional shopping centerslocated in the United States and Canada branded as “Mills”;

·       21stCentury Retail and Entertainment Centers—conventional regional shopping centerslocated in the United States and Canada anchored by traditional departmentstores and open-air retail and entertainment centers; and

·       InternationalRetail and Entertainment Centers—full-priced retail and entertainment centerslocated in Europe.

As of December 31, 2004, our portfolio totaled 38properties and consisted of 17 Mills Landmark Centers, twenty 21st CenturyRetail and Entertainment Centers and one International Retail and EntertainmentCenter. Of these, 25 were owned by joint ventures in which we held equityinterests (12 Mills Landmark Centers and thirteen 21st CenturyRetail and Entertainment Centers). In January 2005, we purchased a 50%interest in St. Enoch Centre located in Glasgow, Scotland, an InternationalRetail and Entertainment Center. In March 2005, we acquired 100% ofSouthdale Center located near Minneapolis, Minnesota and Southridge Malllocated near Milwaukee, Wisconsin, adding to our 21st Century Retailand Entertainment Center portfolio. As of December 31, 2004, we also hadthree wholly-owned community shopping centers, a portfolio of 19 singletenant properties and other related commercial developments. For a descriptionof our existing properties, projects under construction and projects underdevelopment, refer to “Item 2. Properties” of this Form 10-K.

We utilize our experience with retail andentertainment centers that combine shopping, entertainment, dining andrecreation into a consumer experience to develop Mills-branded shoppingcenters. We believe that the expertise we have gained through our developmentof Mills Landmark Centers can be utilized to redevelop, remerchandise andgenerally improve the retail and entertainment offerings at the regional andinternational shopping centers we have acquired since 2002.

The following is a briefdescription of our three types of retail and entertainment real estateproperties.

***Mills Landmark Centers***

Mills Landmark Centers typically contain an average ofapproximately 1.3 million square feet of gross leasable area, or GLA, 175to 200 in-line tenants and an average of 16 anchor tenants. Mills LandmarkCenters are essentially a hybrid of various retail formats with a diversetenant base consisting of anchor stores, in-line stores, manufacturer’soutlets, off-price retailers, catalog retailers, “category killers” (whichoffer a selection of products in one defined merchandise category) andentertainment venues.

Thefollowing list is representative of anchors and other tenants at our MillsLandmark Centers:
| Anchor Stores                          | ** ** | **In-line Stores**                      | ** ** | **Manufacturer’s Outlets** | ** ** |
|----------------------------------------|------------|-----------------------------------------|------------|---------------------------------|------------|
| ·  Last Call-Neiman Marcus   |       | ·  Bath & Body Works |       | ·  Liz Claiborne      |       |
| ·  Nordstrom Rack            |       | ·  Build-A-Bear               |       | ·  Ralph Lauren/Polo  |       |
| ·  Off 5th-Saks Fifth Avenue |       | ·  The  Limited Too           |       | ·  Tommy  Hilfiger    |       |

 
| Off-Price Retailers                        | ** ** | **Catalog Retailers**   | ** ** | ** ** | ** ** |
|--------------------------------------------|------------|-------------------------|------------|------------|------------|
| ·  Banana Republic Factory Store |       | ·  JC Penney  |       |       |       |
| ·  Bebe Outlet                   |       | ·  J. Crew    |       |       |       |
| ·  GAP Outlet                    |       | ·  L.L.  Bean |       |       |       |

 

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| Category Killers                          | ** ** | **Entertainment Venues**                   | ** ** | ** ** | ** ** |
|-------------------------------------------|------------|--------------------------------------------|------------|------------|------------|
| ·  Bass Pro Shops Outdoor World |       | ·  AMC Theatres                  |       |       |       |
| ·  Bed, Bath & Beyond  |       | ·  Dave & Buster’s |       |       |       |
| ·  Books-A-Million              |       | ·  NASCAR  Speedpark             |       |       |       |

 

Mills LandmarkCenters are generally located in large, metropolitan areas with a population ofat least one million within a 20 mile radius, median annual household income of$50,000 or greater and steady tourist appeal. The typical physical layout is a “racetrack” format of stores and ample parking on one level. Mills Landmark Centershoppers typically fit into one of the following categories:

·       theyreside within a 15 mile radius of a Mills Landmark Center and use the center astheir local regional mall equivalent;

·       theyreside within a 15-40 mile radius of a Mills Landmark Center and travel beyondother retail offerings to access the breadth and uniqueness of the tenant mixat a Mills Landmark Center; or

·       theytravel from greater distances as part of a planned shopping experience.

During 2004, we added two Mills Landmark Centers toour portfolio—Cincinnati Mills, located in Cincinnati, Ohio, and Vaughan Mills,located near Toronto, Canada. Vaughan Mills is owned through a joint venturearrangement.

We believe our Mills Landmark Center properties have anumber of inherent competitive advantages over other retail formats inoperation today. These advantages, which are more fully described below, haveresulted in the strong operating performance of these properties.

*Consumer Draw.  *Webelieve that the critical mass achieved by aggregating 175 to 200 stores and1.3 million square feet of GLA under one roof, coupled with thedistinctive physical characteristics of our Mills Landmark Centers, are theprimary reasons our Landmark Centers attract many shoppers and create extendedshopping trips. We believe shoppers are attracted to our unique mix of tenants,which includes department stores, in-line stores, manufacturer’s outlets,off-price retailers, catalog retailers, “category killers” and entertainmentvenues. We believe we have created a shopping environment that is festive andsocial, with interior designs resembling a “Mainstreet” atmosphere thatincorporate staggered store fronts and roof lines, natural lighting andcolorful graphic accents. Shopping avenues in our Mills Landmark Centers areinterspersed with a variety of food establishments and entertainment courts,further enhancing the entertainment nature of the shopping experience.

*Brand Awareness.  *Webelieve that the Mills brand is synonymous with one-of-a-kind value,entertainment and variety of retail offerings. A Mills Landmark Center can bedifferentiated by the markets we serve and consumers and tourist shoppers wedraw.

*Attractivenessto Tenants.  *We believe tenants are attracted to ourMills Landmark Centers for two main reasons: (a) heavy consumer trafficand the extended length and high productivity of consumer visits, whichtranslate into higher sales levels than at traditional shopping malls; and (b) loweroccupancy costs for each of our in-line tenants as a result of lower commonarea maintenance costs compared to many other retail formats. Lower common areamaintenance costs for in-line tenants are a result of several factors,including:

·       *Anchor contributions*:   with anaverage of 16 anchor stores at each center, anchor stores make significantcontributions to the common area maintenance pools;

·       *Low maintenance costs*:   one-storyconstruction, smaller concourses and lack of deck parking require lessmaintenance; and

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·       *Larger tenant base*:   a Mills LandmarkCenter’s significant in-line tenant square footage results in lower common areamaintenance costs per square foot.

*Flexibility of Product.  *Thesingle-story, simple construction of our typical Mills Landmark Center allowsus to reconfigure the property relatively easily in response to changing retailformats. Furthermore, the terms of our anchor leases give us flexibility toestablish our preferred merchandise mix and undertake desired remodelingprojects. This flexibility allows us to replace underperforming tenants and/ormake room for new and exciting retailers, thus keeping the product fresh andenhancing consumer draw.

*Barriersto Entry.  *We believe that we are the innovator of aretail concept, represented by our Mills Landmark Centers, and that our successhas made us one of the leading developers of large-scale value andentertainment-oriented retail projects. We have developed strong relationshipswith our tenants, giving us a number of competitive advantages in thedevelopment process, including the ability to validate project feasibility inthe predevelopment stage with tenant commitments and to fulfill significantpre-leasing requirements imposed by construction lenders. In addition, webelieve the complexity and significant financial commitment associated withdeveloping a project the size and nature of a Mills Landmark Center deters manypotential competitors from developing and operating similar properties.

***21st Century Retail and Entertainment Centers***

In late 2002, we embarked on a strategy to acquire andreinvigorate traditional regional malls based on our belief that many of these regionalmalls can be improved through the addition of (a) anchor tenants similarto the ones found at our Mills Landmark properties, (b) enhancedentertainment and dining options and (c) select in-line retailers who arecurrently tenants at Mills Landmark Centers. Our experience in developing,redeveloping and managing our Landmark Mills Centers has uniquely positioned usto effectively implement these types of changes at open-air retail andentertainment centers and traditional regional malls. With the exception of TheBlock at Orange, which we developed with KanAm, we have acquired all of our 21stCentury Retail and Entertainment Centers as part of this strategy and we areactively engaged in redeveloping or planning to redevelop many of them.

In evaluating a potential acquisition, we focus onquality regional shopping centers that are or have the potential to be dominantin their locations. During 2004, we added ten 21st Century Retailand Entertainment Centers to our portfolio—Westland Mall near Miami, Florida;Stoneridge Mall in Pleasanton, California; Columbus City Center in Columbus,Ohio; Lakeforest Mall in Gaithersburg, Maryland; The Mall at Tuttle Crossing inColumbus, Ohio; Marley Station in Glen Burnie, Maryland; Hilltop Mall in WestContra Costa County, California; Briarwood Mall in Ann Arbor, Michigan;Meadowood Mall in Reno, Nevada; and The Falls in Miami, Florida. We own all ofthese properties, except for Westland Mall, through joint venture arrangementswith General Motors Pension Trust. In March 2005, we added SouthdaleCenter located near Minneapolis, Minnesota and Southridge Mall located nearMilwaukee, Wisconsin.

Thefollowing list is representative of anchors and other tenants at our 21stCentury Retail and Entertainment Centers:
| Anchor Stores                  | ** ** | **In-line Stores**                   | ** ** | **Entertainment Venues**                   |
|--------------------------------|------------|--------------------------------------|------------|--------------------------------------------|
| ·  JC Penney         |       | ·  Banana Republic         |       | ·  AMC Theatres                  |
| ·  Macy’s       |       | ·  Pottery Barn            |       | ·  Dave & Buster’s |
| ·  Saks Fifth Avenue |       | ·  Williams-Sonoma         |       |                                       |
| ·  Sears             |       | ·  Victoria’s  Secret |       |                                       |

 

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***InternationalRetail and Entertainment Centers***

Theshopping habits of international shoppers, especially European shoppers, havebeen traditionally focused almost entirely on “high street” retailers, or thoseretailers located on primary city streets. Suburban-type retail venues arebeginning to appear in and around Western Europe. We believe that there areattractive opportunities to develop and acquire retail real estate in Europedue to a number of factors, including:

·       thelack of retail space per capita in Europe, especially when compared to theretail space per capita in the U.S.;

·       thefragmented nature of retail property ownership;

·       U.S.retailers’ expansion into international markets;

·       thedesire of international shoppers for shopping and entertainment experiencessimilar to those experienced by American shoppers; and

·       theimportance of the entertainment aspect of a shopping experience for manyinternational shoppers.

For these reasons, andgiven our success in developing, re-developing and operating retail malls inthe United States that offer a variety of distinctive shopping experiences andentertainment destinations, we saw an opportunity to expand our operationsinternationally. In May 2003, we opened Madrid Xanadú, located nearMadrid, Spain. El Corte Inglés, the largest retailer in Spain, occupies 350,000square feet of GLA, and the project also has an indoor ski and snowboardingslope. The success of Madrid Xanadú has led to interest by other Europeancities for similar destination centers. In November 2004, the City of Romeselected us to re-develop the site of the former Mercati Generali into an urbancultural, entertainment and retail center that is anticipated to break groundin 2005.

Pursuant to our internationalgrowth strategy, in January 2005, we purchased a 50% interest in St. EnochCentre located in Glasgow, Scotland and are investigating potential expansionand development opportunities for the property. We continue to explore variousother opportunities internationally including additional opportunities inSpain, Italy and the United Kingdom.

**Asset ManagementStrategy**

We believe propertyoperating income provided by our existing assets is a stable, predictablesource of cash flow from which to fund a portion of our capital needs,including the development and acquisition of new projects, redevelopment ofexisting projects and the payment of dividends to TMC’s stockholders anddistributions to Mills LP’s unitholders. Our assets generally have experiencedstable, moderate growth in standard measures of real estate operatingperformance, such as net operating income, occupancy levels and in-line tenantsales per square foot. We believe these results are attributable to our abilityto optimize our tenant mix, actively manage and promote our assets to tenantsand consumers and maintain the high standards and physical appearance of ourassets while maintaining relatively low tenant occupancy costs.

***Optimization of Tenant Mix***

We actively manageand lease our properties with the goal of maintaining a tenant mix thatcontinues to appeal to consumers. For example, at Potomac Mills, which openedin 1985, we improved the tenant mix by introducing a number of new anchors andreconfiguring several spaces over the last two years, including:

·       In2004, AMC Theaters relocated from its then 54,000 square foot space to a newlybuilt 75,000 square foot mall addition. Sears Appliance leased the majority ofthe former AMC Theater space, leaving three additional spaces available forfuture in-line tenant use.

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·       In2004, Off Broadway Shoes leased a vacant portion of the former Ikea store. Anotherportion of the former Ikea store is leased by G-Street Fabrics.

·       In2003, Steve and Barry’s University Sportswear leased the former Spiegel spaceand H&M leased the former Sym’s space.

·       Thenew anchors in the center have helped attract over 57,000 square feet of newin-line tenants, including: American Eagle Outfitters, Anne Klein, Ecco,Hollister Outlet, Hot Topic Outlet, Love Sac, Rave Outlet, Select Comfort andSkechers USA, among others, each of which strengthens the mall’s merchandisingmix.

As a result, in 2004, atPotomac Mills, comparable in-line tenant sales and gross in-line tenant salesincreased 5.1% and 6.5% respectively, from the previous year.

***Active Management and Promotion of Properties toTenants and Consumers***

We actively market ourproperties and have a centralized marketing program which, among other things,create efficiencies and more consistently communicates our brand message.Benefits of our centralized marketing program include more effective managementof our local marketing programs; more in-depth consumer research; moreeffective property advertising strategies; new websites with data capture andemail capability; and portfolio-wide or product-type seasonal, gift card,tourism or other marketing programs.

**Development Strategy**

Over the next several years, we intend to complete oneor more new development, redevelopment or renovation projects per year,depending on market conditions and capital availability. We employ what weconsider to be a disciplined approach to the development process. Our in-housedevelopment team consists of several experienced officers who are responsiblefor all aspects of development, including market research, site selection,predevelopment work, construction and tenant coordination. We maintain assetmanagement control throughout the entire development process, includingfrequent internal reviews of costs and leasing status.

Tomitigate development risk, we have adopted a number of procedures, includingthe following:

·       *Site Selection:  *Projects aredeveloped in top standard metropolitan statistical areas that are populous,growing and reasonably affluent. We typically select sites within our targetmarkets that have at least one million people within a 20-mile radius.The sites must be well situated and near major transportation arteries. Weperform predevelopment work when land is under option to minimize capitalexposure.

·       *Pre-leasing:  *We obtain tenantvalidation prior to land acquisition and seek to obtain significant pre-leasingcommitments prior to construction commencement and financing. We traditionallyobtain letters of intent and approvals from at least five to ten key anchorstores indicating their desire to be an integral part of in the project.Typically, a project will be 40-50% pre-leased before constructionfinancing is obtained.

·       *Financing:  *We maintain arelationship with a network of banks and lending institutions to facilitateconstruction financing and utilize strategic and financial equity partners toshare in the risks and costs, where practicable.

·       *International:  *Wepartner with well-established local development, construction or real estateinvestment companies that know the local market and customs. We also seekstrong governmental support prior to beginning our developmental work.

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**Capital Strategy**

To fund our capital needs,which arise mostly from our development, redevelopment and acquisitionactivities, we have historically used mortgage financing, bridge loans, jointventure equity contributions, cash flow from operations, our line of credit andproceeds from issuances of preferred and/or common equity.

In 2004, we funded asignificant amount of our capital needs through our (a) issuance and saleof 316,250 shares of 6.75% Series F convertible cumulative redeemablepreferred stock in a private placement generating proceeds of $306.2 million, (b) saleof joint venture equity interests in Ontario Mills, (c) acceptance ofjoint venture equity contributions for Meadowlands Xanadu, Opry Mills, and DelAmo Fashion Center and (d) refinancing of our line of credit and term loanby entering into a revolving credit agreement with commitments of $1.0 billionand a term loan in the amount of $200 million. See “Item 7. Management’sDiscussion and Analysis of Financial Condition and Results ofOperation—Liquidity and Capital Resources.”

We anticipate that futureexpenditures including operating expenses, interest expenses and recurringprincipal payments on outstanding indebtedness, recurring capital expenditures,dividends to stockholders in accordance with REIT requirements anddistributions to unitholders, will be provided by cash generated fromoperations and potential peripheral land sales. We anticipate that futuredevelopment and non-recurring capital expenditures will be funded from cashfrom operations, proceeds from land sales, future borrowings, joint ventureequity contributions and proceeds from issuances of preferred and/or commonequity. See “Item 7. Management’s Discussion and Analysis of FinancialCondition and Results of Operation—Liquidity and Capital Resources.” Access tosuch future capital is dependent on many factors outside of our control. Webelieve that we will have access to additional capital resources sufficient toexpand and develop our business and to complete the projects currently underdevelopment. If we fail to raise the necessary capital, our immediate andlong-term development plans could be curtailed.

***Development and Redevelopment Financing***

New development projectsare typically financed with construction loans, tax increment financing, ourline of credit and joint venture partner equity contributions. For developmentprojects, after project openings and project stabilization, the projects aretypically refinanced with permanent non-recourse mortgage debt. The followingis a description of our capital cycle and the various funding sources used:

*Construction Financing.  *Wetypically fund approximately 65% to 75% of the cost of a new development with aconstruction loan. This financing is generally obtained after a substantialportion of the equity contributions to a project have been made and is basedupon the achievement of certain pre-leasing levels. We have relationships withmultiple lenders in the construction loan market. Our construction loansgenerally have terms of three years with extension options for an additionaltwo years. Interest rates typically range from 115 to 175 basis points overLIBOR or EURIBOR. Construction loans are typically guaranteed by us. When KanAm(discussed below in “—Strategic Relationships”) is a partner in a project, weguarantee KanAm’s portion of the construction debt in addition to our ownportion. Guarantees and interest rates are generally reduced incrementallyafter completion of a project based upon the achievement of interest coverageratios (ranging from 1.0 to 1.5) and certain other criteria.

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In addition to construction debt, we historically haveobtained tax increment financing to fund infrastructure costs including roads,traffic signals and interstate on and off ramps. This financing generally takesthe form of bonds that are issued by the local municipality in which theproject is located, with the capital advanced as the infrastructureimprovements are constructed. This type of financing is advantageous to usbecause debt service is typically paid from special tax assessments leviedagainst the project that are passed on to the tenants as part of theircontractual leases, or from tax revenues generated by the project and paid byshoppers. We have been successful in obtaining this form of financialassistance because our projects typically create new jobs, generate tax revenueand are therefore beneficial to the municipality.

The remainder of the cost of a development project isfunded with equity contributed by us and, if applicable, our joint venturepartners. See “Strategic Relationships.” These equity contributions fund theinitial development costs prior to the funding of the construction loan. Ourshare of required equity is funded with cash from operations, includingproceeds from land sales, our line of credit, excess proceeds from refinancings,sales of joint venture interests or proceeds from issuances of preferred and/orcommon equity.

Similar to development projects, our redevelopmentprojects are funded with cash from operations, construction loans,refinancings, tax increment financing, our line of credit, joint venturepartner equity contributions and proceeds from issuances of preferred and/orcommon equity.

*PermanentFinancing.  *After a new development project opens andstabilizes, which typically occurs within 36 months of opening, wegenerally refinance the construction loan with permanent non-recourse mortgagedebt. We have found that the financial stability of our tenants and the stablenature of property cash flows make our projects attractive collateral for anumber of real estate lenders, including commercial banks, life insurancecompanies and investment banks (in the form of commercial mortgage-backedsecuritizations). We intend to permanently finance our future projects,including our redevelopment projects, in a similar manner.

***Acquisition Financing***

Our acquisitions to datehave been financed using our line of credit, proceeds from issuances ofpreferred and/or common equity, permanent non-recourse mortgage debt and jointventure partner equity contributions. In the event we consummate futureacquisitions, we anticipate using similar financing sources, although there canbe no assurance that these sources of financing will be available to us onreasonable terms or at all.

**Strategic Relationships**

We have formed strategicrelationships with certain developers and equity partners. Historically, theserelationships have served as a source of equity for development projects,mitigated development risk and competition and provided assistance in theidentification of new development opportunities and the development andexpansion of lender relationships. The following is a brief description of ourstrategic partnerships. See “Item 2. Properties—Our Joint Venture OperatingProperties” for a table that summarizes the material terms of each of the jointventures discussed below.

***KanAm/KanAm Grund***

Wehave a long-standing relationship with KanAm, a German syndicator of closed andopen-end real estate funds, and its affiliates, which we refer to collectivelyas KanAm. Since its inception in 1978, KanAm has invested and managed aportfolio valued at approximately $10 billion in the United States andEurope on behalf of private and institutional investors through publiclyoffered real estate funds and private 

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placements. Since 1994, KanAm has investedapproximately $1 billion in equity in various projects with us. As of December 31,2004, through closed end funds, KanAm has  investments in the following properties:
| **Operating  Properties** | ** ** | ** **         | ** ** | **Construction Projects** |
|---------------------------|------------|--------------------|------------|---------------------------|
| Arundel Mills             |       | Meadowlands Xanadu |
| Colorado Mills            |       | Pittsburgh Mills   |
| Concord Mills             |       |               |
| Discover Mills            |       |               |
| Grapevine Mills           |       |               |
| Katy Mills                |       |               |
| St. Louis Mills           |       |               |
| The Block at  Orange      |       |               |

 

In addition to these investments, as of December 31,2004, KanAm owned approximately 1.23% of the common partnership units of MillsLP. 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 commonstock. Currently, three of the thirteen members of our board of directors areprincipals of KanAm.

KanAm Grund, a KanAm affiliate, manages Germansyndicated open-end real estate funds, which typically invest in stabilizedreal estate properties as opposed to development projects. Pursuant to awritten agreement, both KanAm’s closed-end funds and KanAm Grund’s open-endfunds currently make their retail real estate investments in the United Statesexclusively through us. As of December 31, 2004, KanAm Grund held an approximate50% equity interest in each of Great Mall of the Bay Area and Opry Mills.

Our KanAm jointventure agreements typically provide for the following material economic termsand rights:

·       preferredreturns of 9% (11% in limited instances) on each partner’s capitalcontribution;

·       distributionof operating cash flow based on the partners’ residual sharing percentagesafter payment of preferred return;

·       distributionof proceeds upon a major capital event (such as a sale of the property orreceipt of proceeds from a refinancing) to the partners so that the partnerswill receive, in the following order, (a) their respective accumulated butunpaid preferred returns, (b) their unreturned capital contributions and (c) theremaining cash, if any, based on their residual sharing percentages; and

·       managementby us of the property, subject to KanAm’s approval on various major decisionssuch as the refinancing or sale of a property.

***Ivanhoe Cambridge***

In November 2004, we opened Vaughan Mills locatednear Toronto, Canada. Vaughan Mills was the first project we developed jointlywith Ivanhoe Cambridge pursuant to a Master Agreement entered into in October 1999.Under this Master Agreement, we agreed to examine the feasibility of jointlyacquiring, developing, constructing, owning and operating one or more MillsLandmark Centers in the Provinces of Ontario, Quebec, Alberta and/or BritishColumbia or one or more Block projects in any Province in Canada. The agreementgenerally provides that when Ivanhoe Cambridge jointly develops a site with us,the parties will hold their interests as tenants-in-common having equalinterests. It also restricts either party from developing a Mills LandmarkCenter in the four specified Provinces or from developing a Block projectanywhere in Canada without first offering to the other party the right toparticipate equally in the development. The agreement also prohibits eitherparty from developing a Mills Landmark Center within 

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a fifty mile radius of anyproject developed by the parties in Canada, and from developing any projecthaving a GLA in excess of 400,000 square feet within a ten mile radius of anyproject developed by the parties unless the individually developed project isapproved by the other party. The term of this Master Agreement extends through December 31,2015, unless otherwise agreed by the parties.

In January 2005, weexpanded our relationship with Ivanhoe Cambridge beyond North America bybecoming a 50-50 partner in the acquisition of St. Enoch Centre in Glasgow,Scotland.

***GM Trusts***

In August 2004,we purchased an approximate 50% managing member LLC interest in nine regionalmall properties from GM Trusts (defined herein as comprised of G.M. Hourly andU.S. Salaried pension plans and certain current and formerly affiliated pensionplans) which through its affiliates, currently manages over $148 billion intotal assets for affiliated and unaffiliated clients. The nine regional mallproperties jointly owned are:

·       BriarwoodMall in Ann Arbor, Michigan;

·       ColumbusCity Center in Columbus, Ohio;

·       TheFalls, Miami, Florida.

·       HilltopMall in West Contra Costa County, California;

·       LakeforestMall in Gaithersburg, Maryland;

·       TheMall at Tuttle Crossing in Columbus, Ohio;

·       MarleyStation in Glen Burnie, Maryland;

·       MeadowoodMall, Reno, Nevada; and

·       StoneridgeMall in Pleasanton, California.

Our joint ventureagreements with GM Trusts provides for the following material economic termsand rights:

·       distributionsof available cash flow at least once per calendar month paid in the followingorder of priority: first, to repay any partner loans advanced to the jointventure in an amount equal to the partners’ percentage of total loans made; andsecond, to each partner in an amount equal to their percentage of contributedcapital;

·       managementby us of the property subject to GM Trusts approval of various major decisions,including, but not limited to, refinancing or sale of a property;

·       asthe managing member of the joint ventures, we receive leasing and propertymanagement fees in accordance with the management agreement; and

·       fundsrequired for any redevelopment at any property will be provided by both GMTrusts and us, in proportion to our ownership interests in the relevant jointventures.

**Competition**

We believe that our directcompetitors are other publicly traded retail mall development and operatingcompanies, various other private and public retail commercial propertydevelopers, retail real estate companies, and other owners of retail realestate that engage in similar businesses. We compete with these companies fordevelopment opportunities, potential acquisition of properties, retail tenantsand shoppers. All of our properties are located in populous areas that haveother shopping centers and retail 

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facilitiesand, as a result, we often confront intense competition in attracting shoppersand retailers alike. In addition, our properties compete with the same shoppingalternatives that other retailers face, including full-price malls, e-commerce,outlet malls, discount shopping clubs or centers, catalog companies and homeshopping networks. The intense competition for development and acquisitionopportunities, retailers and shoppers may materially adversely affect ouracquisition and development strategies, level of rents we can obtain, operatingresults and financial condition. We believe, however, that due to our size,management experience, operating experience, ability to attract key retailersand innovative mix of shopping and entertainment, we will be able to meet competitionin the retail real estate industry.

**Seasonality**

The regional shoppingcenter industry is seasonal in nature, with mall tenant sales peaking in thefourth quarter due to the holiday season. As a result, a substantial portion ofpercentage rent is not paid until the fourth quarter. Furthermore, most newlease-up occurs towards the later part of the year in anticipation of theholiday season and most vacancies occur toward the beginning of the year. Inaddition, the majority of temporary tenants take occupancy in the fourthquarter. Accordingly, cash flow and occupancy levels are generally lowest inthe first quarter and highest in the fourth quarter. This seasonality alsoimpacts the quarter-by-quarter results of net operating income and funds from operations,although this impact is largely mitigated by recognizing minimum rent on astraight-line basis over the term of related leases.

**Environmental Matters**

We believe that our properties are in compliance inall material respects with all federal, state and local ordinances andregulations regarding hazardous or toxic substances. Prior to purchasing aproperty or starting ground-up development, the relevant property is subjectedto a Phase I audit, which involves a review of publicly available informationand general property inspections, but does not necessarily involve soilsampling or ground water analysis, completed by an environmental consultant. Whenrecommended by the Phase I audits, we order a Phase II audit to furtherinvestigate any issues raised in the Phase I audit. In each case where Phase Ior Phase II audits resulted in specific recommendations for remedial actionsrequired by law, we have either taken or scheduled the recommended action.

We are not aware of anyenvironmental condition that we believe would have a material adverse effect onour financial condition or results of operations (before consideration of anypotential insurance coverage). Nevertheless, it is possible that there arematerial environmental liabilities of which we are unaware. Moreover, noassurances can be given that (a) future laws, ordinances or regulationswill not impose any material environmental liability or (b) the currentenvironmental condition of our properties has not been or will not be affectedby tenants and occupants of our properties, by the condition of properties inthe vicinity of our properties or by third parties unrelated to us. *See* “Item 1. Business—Risk Factors—Risks Associated with Our Properties—We could incur significant costs related to environmentalissues.”

**Segments**

We consider each of ourproperties a separate operating segment that are aggregated and reported as asingle segment.

**Insurance**

We carry comprehensiveliability, fire, flood, terrorism, extended coverage and rental loss insurancewith respect to our properties with policy specifications and insured limitsthat we believe are customary for similar properties. We also carrycomprehensive earthquake and pollution cleanup coverage on all our 

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propertiesand we carry off-premises power coverage for each of our Mills projects. Inaddition, for Sawgrass Mills, we carry sinkhole coverage. Although we believeour properties currently are adequately covered by insurance consistent withthe level of coverage that is standard in our industry, we cannot predict atthis time if we will be able to obtain adequate coverage at a reasonable costin the future.

**TaxStatus**

We conduct our operationsin a way intended to qualify us as a REIT under the Internal Revenue Code of1986 (the “Code”). As a REIT, we generally will not be subject to federal andstate income taxes on our net taxable income that we currently distribute tostockholders. Qualification and taxation as a REIT depend on our ability tomeet certain share ownership requirements and various qualification tests(including dividend distribution, asset ownership and income tests) prescribedin the Code. Notwithstanding our status as a REIT, however, we have to paycertain taxes, including (a) certain state and local income taxes, becausenot all states and localities treat REITs the same as they are treated forfederal income tax purposes, and (b) certain foreign income and othertaxes to the extent that we own assets or conduct operations in foreignjurisdictions. Moreover, each of our domestic taxable REIT subsidiaries issubject to federal, state and local corporate income taxes on its net income,while each of our non-U.S. taxable REIT subsidiaries may be subject to certainforeign corporate-level income taxes.

**Capital Stock and MLP Unit Ownership**

At December 31,2004, TMC had the following number of common and preferred shares authorizedand outstanding.
| ** **                                                        | ** ** | **Number of Shares  Authorized** | ** **  | **Number of Shares  Outstanding** | ** ** |
|-------------------------------------------------------------------|------------|--------------------------------------------|-------------|---------------------------------------------|------------|
| Common stock,  $0.01 par value                                    |       |                                       | 100,000,000 |                                        |       |   | 55,654,194 |   |   |
| Non-voting common  stock, $0.01 par value                         |       |                                       | 50,000,000  |                                        |       |   | — |   |   |
| Preferred stock:                                                  |       |                                       |        |                                        |       |   |   |   |   |
| Series B cumulative redeemable, $0.01 par value              |       |                                       | 4,300,000   |                                        |       |   | 4,300,000 |   |   |
| Series C cumulative redeemable, $0.01 par value              |       |                                       | 3,500,000   |                                        |       |   | 3,500,000 |   |   |
| Series D cumulative redeemable, $0.01 par value              |       |                                       | 400,000     |                                        |       |   | * |   |   |
| Series E cumulative redeemable, $0.01 par value              |       |                                       | 8,545,000   |                                        |       |   | 8,545,000 |   |   |
| Series F convertible cumulative redeemable,  $0.01 par value |       |                                       | 316,250     |                                        |       |   | 316,250 |   |   |
| Undesignated  preferred stock                                     |       |                                       | 2,938,750   |                                        |       |   | — |   |   |

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*                    Mills LP has400,000 Series D preferred units outstanding which are convertible on aone-for-one basis into TMC Series D cumulative redeemable preferred stock,none of which were outstanding as of December 31, 2004.

As of December 31,2004, Mills LP had 64,621,688 common partnership units outstanding of which TMCowned 86.12%. One percent of the aggregate number of units outstanding of allclasses is required to be held by TMC as a general partner interest. Each commonpartnership unit of Mills LP (other than those owned by TMC) is exchangeable inaccordance with Mills LP’s partnership agreement for, in our sole discretion,the cash equivalent of a share of our common stock or for a share of our commonstock. To date, TMC has always issued shares of its common stock in exchangefor the Mills LP common partnership units redeemed. In addition to the commonpartnership units, Mills LP has issued preferred units in the same quantity andclass as the corresponding series issued by TMC. All of Mills LP’s preferredunits, except for the Series D preferred units, are currently held by TMC.In each case, the preferred units have terms that substantially mirror theeconomic terms of the corresponding series of TMC’s preferred stock.

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**State of Incorporation**

TMC was originallyincorporated in the Commonwealth of Virginia in 1991 and reincorporated in theState of Delaware in 1994. Mills LP was formed in the State of Delaware in1994.

**Corporate Headquarters**

We maintain our executiveoffices at 1300 Wilson Boulevard, Suite 400, Arlington, Virginia 22209.Our telephone number is (703) 526-5000. In February 2004, weentered into a lease for a new corporate headquarters located in Chevy Chase,Maryland. We intend to begin occupying the newly built office space in thespring of 2006.

**Employees**

As of December 31,2004, we had approximately 1,150 employees, of which approximately 400 werelocated at our headquarters.

**Available Information**

We maintain an internetweb site at *www.themills.com*. The informationon 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, copies of our annual report on Form 10-K,our quarterly reports on Form 10-Q, our current reports on Form 8-K,the Section 16 reports filed by our directors and officers, and anyamendments to those reports, as soon as reasonably practicable after we, or ourdirectors and officers as applicable, electronically file such reports oramendments with the SEC. In addition, you may obtain from our website, copiesof our Corporate Governance Guidelines, our Code of Business Conduct andEthics, and the charters of our Audit Committee, Executive CompensationCommittee, Governance and Nominating Committee and International Committee. Anyof the above documents, and any of our reports on Form 10-K, Form 10-Qand Form 8-K and all amendments to those reports, can also beobtained in print by sending a written request to our Investor RelationsDepartment at The Mills Corporation, 1300 Wilson Boulevard, Suite 400,Arlington, Virginia 22209.

**Risk Factors**

Described below are risksthat we believe are material to our stockholders, unit holders and potentialinvestors. You should consider carefully the following material risks, togetherwith the other information contained in and incorporated by reference in this Form 10-K,and the descriptions included in our consolidated financial statements andaccompanying notes.

**Risks Associated with Real Estate**

***Weface risks associated with numerous international, national, regional and localeconomic and real estate conditions that are not in our control, any or all ofwhich could adversely affect our properties and our business***.   We are subject to various economicconditions and trends that may adversely affect our business. These conditionsinclude:

·       slowdownof the U.S. national economy or a recession;

·       slowdownof the regional and local economic climate due to plant closings, industryslowdowns, natural disasters and other factors; and

·       negativepopulation trends.

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In addition, we currently have operating properties inSpain, Canada and Scotland, are pursuing opportunities in other countries and aretherefore subject to similar risks as they relate to those countries and theinternational community.

Furthermore, as areal estate company, any negative trends in the following may adversely affectour properties and business:

·       theattractiveness of our property as compared to our competitors’ properties basedon considerations such as convenience of location, rental rates and safetyrecord;

·       increasedoperating costs, including increased real property taxes, insurance andutilities costs;

·       slowdownof local real estate conditions, such as an oversupply of retail space or areduction in demand for real estate in the area; and

·       changingtrends in the demand by consumers for merchandise offered by retailersconducting business at our properties.

Moreover, other factors may adversely affect us,including changes in government regulations and other laws, rules andregulations governing real estate, zoning or taxes, changes in interest ratelevels, the availability of financing and potential liability underenvironmental and other laws and other unforeseen events, most of which arediscussed elsewhere in these risk factors. Any or all of these factors couldmaterially adversely affect our properties and our business.

***Because real estateinvestments are illiquid, we may not be able to sell our properties in responseto economic changes.  ***Real estate investmentsgenerally are relatively illiquid and as a result cannot be sold quickly inresponse to changes in the economy or other conditions when it may be prudentto do so. This inability to respond quickly to changes in the performance of ourproperties could adversely affect our business and ability to meet our debtobligations and distribute earnings to our stockholders and unitholders.

***We may be unable tocompete with our competitors and other alternatives to our portfolio ofproperties.  ***The commercial retail real estatebusiness is highly competitive. We compete for interests in properties withother real estate investors and purchasers, many of whom have significantfinancial resources, revenues and geographical diversity. Furthermore, wecompete for tenants with other property owners. Our properties compete with avariety of shopping alternatives including full-price malls, e-commerce, outletmalls, discount shopping clubs or centers, catalog companies and home shoppingnetworks.

***We are subject to significant regulation that inhibits ouractivities.  ***Local zoning and use laws,environmental statutes and other governmental requirements restrict ourdevelopment, expansion, redevelopment and reconstruction activities. Theseregulations may prevent or delay us from taking advantage of economicopportunities. We cannot predict what laws and regulations may be enacted northeir potential impact on us.

**RisksAssociated with Our Properties**

***We may be unable to develop new properties or expandexisting properties successfully.  ***We continue todevelop new projects and expand existing properties, and may engage in thedevelopment of other retail or related mixed use projects, as opportunitiesarise. However, there are significant risks associated with our developmentactivities in addition to those generally associated with the ownership andoperation of established retail properties. While we have policies in placedesigned to limit the risks associated with development, these policies do notmitigate all development risks associated with a project. These risks includethe following:

·       significantexpenditure of money and time on projects that may be delayed or never becompleted;

·       higherthan projected construction costs;

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·       shortageof construction materials and supplies;

·       failureto obtain zoning, occupancy or other governmental approvals or to the extentrequired, tenant approvals; and

·       latecompletion 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 developmentstrategy and adversely affect our overall business.

***We may be unable to lease newproperties or renew leases or re-lease space at our existing properties asleases expire, which may adversely affect our operating results.***   Our tenants generally enter into leaseswith an initial term ranging from three to 15 years. As leases expire atour existing properties, tenants may elect not to renew them. We may not beable to re-lease the property on similar terms, if we are able to re-lease theproperty at all, due to a variety of reasons, including competition from otherretailers. In addition, for new properties, we may be unable to attract enoughtenants and the occupancy rates and rents may not be sufficient to make theproperty profitable. If we are unable to re-lease spaces at our existingproperties on economically favorable lease terms or to lease spaces at our newproperties, our operating results will be negatively affected.

In addition, our leases with a number of tenants containcovenants restricting the use of other space in our properties or requiring thepresence of other specified co-tenants. Our failure to rent vacant space on atimely basis or at all would likely adversely affect our financial conditionand results of operations. Competition may cause the occupancy and rental ratesof our properties to decrease. We compete with other companies that are engagedin the development or ownership of retail properties for prime locations andfor tenants who lease space in the retail properties that we and ourcompetitors own or operate. The development by our competitors of new super-regionalmalls or other retail shopping centers with more convenient locations or betterrents may attract our tenants to our competitors or may cause them to seeklease terms that are less favorable to us at or prior to renewal, andaccordingly may adversely affect our business and the revenues that we derivefrom, and the value of, our properties.

***We have been and may continue tobe affected negatively by tenant bankruptcies and downturns in tenants’businesses, which may adversely affect our operating results and reduce ourcash flow.  ***A tenant may experience a downturn inits business that may weaken its financial condition due to a slowing economygenerally or a downturn in the retail sector. A tenant’s retail business mayalso be adversely effected by increasing competition from traditionalfull-price malls, e-commerce, outlet malls, discount shopping clubs andcenters, catalog companies and home shopping networks. As a result, our tenantsmay delay lease commencement, cease or defer making rental payments or declarebankruptcy. In addition, the financial difficulty of a larger tenant,especially an anchor tenant, could materially adversely affect customer trafficin a property, thereby triggering, among other things, other tenants’ rights toterminate their leases or reduce their rental rates.

If a tenant files for bankruptcy, the tenant may havethe right to reject and terminate its lease and we cannot be sure that it willaffirm its leases and continue to make rental payments in a timely manner. Wealso cannot be sure that we will be able to lease vacant space in ourproperties on economically favorable terms. Although in 2004 we were not materiallyaffected by any bankruptcies of our in-line or anchor tenants, any of theseevents occurring in the future may negatively affect our operating results andreduce our cash flows.

***We may be unable tosuccessfully integrate and effectively manage the properties we acquire.  ***Wehave acquired a number of properties since 2002 and, subject to theavailability of financing and other considerations, we intend to continue toacquire properties or interests in properties that we believe will beprofitable or will enhance the value of our portfolio. The success of theseacquisitions will depend, in part, 

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on our ability toefficiently integrate the acquired properties and employees into ourorganization, and apply our business, operating, administrative, financial andaccounting strategies and controls to the acquired properties. In addition, weplan on expanding or redeveloping some of these recently acquired properties.Such expansion and redevelopment activities pose the same risks that areinherent in our development activities as discussed elsewhere in this AnnualReport on Form 10-K and pose additional risks that are unique toexpansion and redevelopment efforts, such as the uncertainty of obtainingtenant approvals. If we are unable to successfully integrate the acquiredproperties into our operations, our results of operations and financialcondition may be adversely affected.

***We continue to pursueopportunities in non-U.S. markets that are subject to foreign currency risksdue to potential fluctuations in exchange rates.  ***Wehave pursued and plan to continue to pursue opportunities in markets where theU.S. dollar is not the national currency. As a result, we are subject toforeign currency risk due to potential fluctuations in exchange rates betweenforeign currencies and the U.S. dollar. For example, a significant depreciationin the value of the foreign currencies of one or more countries where we have asignificant investment may materially adversely affect our performance. We areevaluating hedging strategies to mitigate such effects, although there can beno assurance that we will be successful in mitigating all the risks.

***We may not be able to achieve theanticipated financial and operating results from our acquisitions, which wouldadversely affect our operating results.  ***We willcontinue to acquire properties that we believe will enhance our futurefinancial performance. Our belief is based on and is subject to risks,uncertainties and other factors, many of which are forward-looking andare uncertain in nature or are beyond our control. In addition, some of theseproperties may have unknown characteristics or deficiencies or may notcomplement our portfolio of existing properties. As a result, some propertiesmay have less value or may generate less revenue than we believed at the timeof the acquisition, negatively affecting our operating results.

***We could incursignificant costs related to environmental issues.  ***Undersome environmental laws, a current or previous owner or operator of realproperty, and parties that generate or transport hazardous substances that aredisposed of on real property, may be liable for the costs of investigating, andthe remediation of, hazardous substances on or under or released from theproperty and for damages to natural resources. The Federal ComprehensiveEnvironmental Response, Compensation & Liability Act, and similarstate laws, impose liability on a joint and several basis, regardless ofwhether the owner, operator or other responsible party knew of or was at faultfor the release or presence of hazardous substances. In connection with theownership or operation of our properties, we could be liable for costsassociated with investigation and remediation in the future. The costs of anyrequired remediation and related liability as to any property could besubstantial under these laws and could exceed the value of the property and/orour aggregate assets. The presence of hazardous substances, or the failure toproperly remediate those substances, also may adversely affect our ability tosell or rent a property or to borrow funds using the property as collateral. Inaddition, environmental laws may impose restrictions on the manner in which weuse our properties or operate our business, and these restrictions may requireexpenditures for compliance. We cannot assure you that a material environmentalclaim or compliance obligation will not arise in the future. The costs ofdefending against any claims of liability, of the remediation of a contaminatedproperty, or of complying with future environmental requirements could besubstantial and affect our operating results. Such expansion and redevelopmentactivities pose the same risks that are inherent in development activities.

***Uninsured losses could adversely affect our financialcondition.  ***Although we have commercial generalliability insurance and property insurance, *see*“Item 1. Business—Insurance”,there are some types of losses, generally of a catastrophic nature, such aswars or acts of God, which may be either uninsurable or not economicallyinsurable. Should a property suffer an uninsured loss, we could lose ourinvested capital in and anticipated profits and future revenues from thatproperty. Additionally, in the case of recourse 

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construction loans,we may remain obligated under those loans and any other financial obligationson that property. An uninsured loss or a loss in excess of insured limits maynegatively impact our financial condition.

**RisksAssociated with Our Indebtedness and Financing**

***We have substantialindebtedness and we require significant cash flow to make required payments onour indebtedness.  ***We rely heavily on debt financingfor our business. As of December 31, 2004, we had total consolidated debtof approximately $3.8 billion. We have also guaranteed selected outstandingunconsolidated joint venture debt, which guarantees expire upon the achievementof specified financial performance tests. We expect to make similar guaranteesin connection with our future developments and to continue to rely on debt tofinance our future developments and acquisitions. Due to our high level ofdebt, our cash flow may be insufficient to make required payments of principaland interest. If a property were mortgaged to secure payment of indebtednessand we were unable to make mortgage payments, the mortgagee could forecloseupon that property, appoint a receiver and receive an assignment of rents andleases or pursue other remedies.

***We may be unable torepay our existing indebtedness as it matures, which could adversely affect ourfinancial condition.  ***Most of our indebtedness doesnot require significant principal payments prior to maturity. However, we willneed to raise additional equity capital, obtain secured or unsecured debtfinancing, issue private or public debt, or sell some of our assets to eitherrefinance or repay our indebtedness as it matures. We cannot assure you thatthese sources of financing or refinancing will be available to us on reasonableterms or at all. The potential inability to obtain financing or refinancing torepay our maturing indebtedness, and the potential inability to refinance existingindebtedness on reasonable terms, may require us to make higher interest andprincipal payments, issue additional equity securities, or sell some of ourassets on disadvantageous terms, all or any of which may result in a partial orcomplete loss on our investment and otherwise adversely affect our financialconditions and results of operation.

***Our degree ofleverage could limit our ability to obtain additional financing, which wouldnegatively impact our business.  ***As of December 31,2004, our pro rata share of both consolidated and unconsolidated borrowingstotaled approximately $3.8 billion and represented approximately 45.45% ofour total market capitalization. Total market capitalization represents the sumof the outstanding indebtedness, the total liquidation preference of all ourpreferred equity and the total market value of our common equity, based on theclosing price of TMC common stock as of December 31, 2004. Our leverageand any future increases in our leverage could adversely affect our ability toobtain additional financing in the future for working capital, capitalexpenditures, acquisitions, development or other general corporate purposeswhich would negatively impact our business overall.

***Due to the significant amount ofour variable rate debt, rising interest rates would adversely affect ourresults of operations.***   As of December 31,2004, we had $1.4 billion of variable rate consolidated debt outstanding.While we have sought to refinance our variable rate debt with fixed rate debtor cap our exposure to interest rate fluctuations by using interest rate swapagreements where appropriate, a significant increase in interest rates wouldadversely affect our results of operations.

***We have entered into loanagreements that impose a number of restrictive covenants that may hinder ouroperational flexibility and violation of these restrictive covenants wouldcarry serious consequences.***   The agreementsgoverning our line of credit and term loan impose numerous restrictivefinancial and operating covenants on us, including covenants that limit ourability to (a) incur additional debt, (b) sell assets, (c) repurchaseour securities and (d) engage in mergers and consolidations. For example,under the terms of our line of credit and term loan, the lenders may acceleratepayment and may pursue standard remedies upon a violation of any covenant.These restrictions may negatively impact our flexibility in conducting ouroperations and violations of these covenants may have adverse consequences tous.

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***We depend on third party financing for our development,expansion and acquisition activities.  ***As wecontinue to develop or acquire new retail properties or expand existingproperties, we anticipate that we will finance these activities through linesof credit, other forms of secured or unsecured debt, including constructionfinancing and permanent debt, and contributions from joint venture partners.There can be no assurance that we will be able to obtain the financingnecessary to fund new development, project expansions or our acquisitionactivities on terms favorable to us or at all. In addition, we cannot assureyou that our joint venture partners will make their required capitalcontributions. If we are unable to obtain sufficient levels of third partyfinancing to fund our growth, our business will be negatively impacted.

**RisksAssociated with our Joint Ventures**

***Our joint venture agreementscontain various rights including put-call, buy-sell, redemption and guarantyprovisions and obligations that could impose a significant financial burden onus.***   Many of our joint venture agreements with KanAminclude put-call provisions, under which KanAm may be entitled, under certaincircumstances, such as a change in control of us, to require that we buy theirinterest in the joint venture. Further, one of our joint venture agreementswith KanAm contains obligations for us to redeem their interest in the ventureif certain conditions have not been satisfied, such as securing construction orother loans by specified dates, or require us to guarantee the payment ofspecified priority returns. In the case of our Great Mall and Opry projects,KanAm Grund has the ability to cause the sale of the properties at any time. Ifwe are unwilling or unable to purchase their interest, we may be required tosell the properties at a time when we otherwise may not have wished to sell theprojects and we will lose the revenues and profits that we otherwise would haveearned on these properties.

Additionally, many of our joint venture agreementsinclude buy-sell provisions under which, upon the occurrence of certain eventsor passage of time, we must either purchase the other partner’s joint ventureinterest or sell our joint venture interest to our partner. There is noassurance that we will be financially able to purchase the joint ventureinterests, and therefore we may be forced to sell our interests and lose therevenues and profits that we otherwise would have earned on these properties.

***We must share decision making with our joint venturepartners.  ***We have invested and expect in the future toinvest as a co-venturer or partner in the development of some of our newproperties, instead of developing projects on our own. These shared investmentsmay involve risks not present in a wholly owned development project that stemfrom us not having control over the development, financing, leasing, managementand other aspects of the project. We may not have the right to take somesignificant actions without the approval of our joint venture partners, whichapprovals they may not grant, even if we think such actions would be in thebest interests of the joint ventures and the properties. For example, we generallyneed the other joint venturer’s approval before selling or refinancing a jointventure’s property, setting an annual budget, entering into specifiedtransactions with affiliates and settling litigation above specifiedthresholds. If they do not provide their consents to actions that we believeare necessary and in the best interests of the joint ventures, our jointventure properties and our overall business may suffer. Additionally, ourco-venturer might have interests or goals that are inconsistent with ours andmay take actions that are contrary to our instructions, requests or interests,or otherwise hinder us from accomplishing our goals. Our joint venture partnerscould take actions binding on the joint venture without our consent. Actions bya joint venture partner could subject the joint venture assets to additionalrisk.

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**RisksAssociated with our Capital Stock and Units**

***The market value of TMC capital stock can be adverselyaffected by numerous factors.  ***Partnership units ofMills LP are redeemable for either cash or shares of TMC’s common stock and asa result, the value of Mills LP’s common partnership units are closely tied tothe value of TMC’s capital stock. As with any publicly traded company, the marketvalue of TMC’s capital stock may be negatively affected by a number of factors,many of which are beyond our control. These factors include the following:

·       generaldecline in the capital markets;

·       levelof institutional interest in our equity securities;

·       perceptionof REITs generally and REITs with portfolios similar to ours;

·       attractivenessof equity securities of REITs generally compared to other publicly tradedcompanies;

·       themarket’s perception of our business and dividend growth potential;

·       governmentaction or regulation;

·       ourearnings and cash distributions;

·       increasesin market interest rates, which may make our stock less attractive to investorsunless we increase our dividend rate;

·       therelatively low daily trading volume of equity securities of REITs in general;and

·       ourability to invest the proceeds of offerings of securities in a manner that willincrease earnings per share.

In addition, issuances of a substantial number ofshares of TMC capital stock, or the mere perception that such issuances mayoccur, could adversely affect the market value of TMC’s capital stock. This isparticularly true with TMC’s common stock, a substantial number of shares ofwhich we may issue in connection with the exercise of outstanding options,redemption of outstanding Mills LP partnership units and for future financingneeds. During 2004, we issued a number of shares of our common stock inconnection with the redemption of partnership units by Mills LP’s unit holdersand expect, although cannot state with certainty, that the unit holders ofMills LP will continue to redeem their partnership units in the future.

We cannot predict what effect future issuances andsales of TMC capital stock, or the mere perception that such issuance mayoccur, will have on the value of such capital stock or common units. Asignificant decrease in the market price of TMC’s capital stock would make itmore difficult for us to raise funds through future offerings of such capitalstock.

***We may not have sufficient cashflow or assets to make distributions to holders of one or more classes of ourcapital stock and/or units.***   Our ability to makedistributions to our equity holders depends on our ability first to cover ouroperating and related expenses and satisfy our obligations to our creditors. Inaddition, we have different classes of capital stock and units outstanding,some of which have a different priority as to the distribution of dividendsrelative to others. For example, holders of our outstanding preferred equityare entitled to receive their distributions prior to our common equity holders.Generally, the terms of each different class of our preferred equity prohibitsus from making distributions and all other payments to holders of our commonequity and all other equity securities junior in right to such class ofpreferred equity, unless we have paid all accrued distributions on such classof preferred equity or set apart funds for payment of the distributions due toholders of such class of preferred equity. As a result, if we do not havesufficient cash remaining for our distributions, holders of one or more classesof our capital stock and units may not receive any distributions.

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Also, in the event of abankruptcy, liquidation or reorganization or similar proceeding, our creditorswill generally be entitled to payment of their claims from our assets beforeany assets are made available for distribution to our equity holders. In everycase, the holders of capital stock and units will have the right to participatein any distribution of our assets only after the claims of our creditors andholders of our priority capital stock and units are satisfied.

**RisksAssociated with our Organization**

***A number of ourdirectors and significant stockholders may exert substantial influence over us.  ***Asof December 31, 2004, KanAm owned 1.23% of the outstanding partnershipunits of Mills LP and was our joint venture partner in eight operatingproperties and two development projects. In addition, KanAm Grund is our jointventure partner in two additional operating properties. Three of our thirteendirectors are affiliated with KanAm. These three directors may have significantinfluence over us as members of our board. The interests of these directors mayconflict with the interests of our other stockholders in connection with KanAm’sjoint ventures with Mills LP to develop, own, and operate additionalproperties, and they may use their voting influence contrary to our otherstockholders’ interests. The KanAm entities may exchange all or a substantialportion of the units that they hold for shares of our common stock. If they doso, they will increase their influence over us and over the outcome of anymatters submitted to our stockholders for approval. The influence and votingpower of our other stockholders may diminish accordingly.

***TMC is the sole general partnerof Mills LP and has fiduciary responsibilities to the other partners of Mill*** ***LP. As a result, we may be in a position where wehave duties to others whose interests conflict with those of TMC’sstockholders.***   TMC, as the sole general partner of MillsLP, may have fiduciary responsibilities to the other partners in Mills LP thatmay conflict with the interests of TMC’s stockholders, including decisionsregarding the sale or refinancing of our properties and the timing and amountof distributions from Mills LP. In addition, individuals and entities,including certain of our executive officers and our directors (including thosewho are affiliated with KanAm and their respective affiliates that hold unitsof Mills LP) may have limited rights in decisions affecting Mills LP that mayconflict with the interests of TMC’s common stockholders. In particular, aholder of Mills LP units may suffer different and/or more adverse taxconsequences than a TMC stockholder does on the sale or refinancing of some ofour properties as a result of unrealized gain attributable to such propertiesthat is allocable to such holder or the tax status of the unit holder. TheseMills LP unit holders, therefore, may have objectives different from TMC’sregarding the appropriate pricing and timing of any sale or refinancing.

***TMC’s certificateof incorporation and by-laws contain provisions that could delay or prevent achange in control.  ***In some instances, a change incontrol of TMC could give the holders of TMC common stock the opportunity torealize a premium over the then prevailing market price of those securities.Provisions in TMC’s certificate of incorporation and bylaws may have the effectof discouraging a third party from trying to acquire TMC even if a change incontrol were in the best interests of TMC’s stockholders. Under TMC’scertificate of incorporation currently in effect, TMC’s board of directors hasthe authority, without a vote of stockholders, to issue up to an additional2,938,750 shares of TMC preferred stock and to establish the rights andpreferences of any class or series of preferred stock to be issued, whichrights and preferences could delay or prevent a change in control. Further, noholder, with limited exceptions, may beneficially own more than 9.225% of TMCsecurities, which may have the effect of precluding a third party fromacquiring control of TMC even if a change in control were in the best interestsof TMC’s stockholders. In addition, TMC’s board of directors is a classifiedboard composed of three classes of directors with staggered terms. Directorsfor each class are elected for a three-year term upon the expiration of theterm of the current class. A classified board of directors makes it moredifficult to effect a change in control and may discourage an attempt by athird party even if a change in control were in TMC’s stockholders’ bestinterests.

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***A number of our joint venture partnership agreements containprovisions that could delay or prevent a change in control.  ***OurKanAm joint venture agreements contain put-call rights that may be exercisedupon a “change in control.” These rights allow KanAm to require us to purchase theirentire interest in the joint venture. We are required to pay for any purchaseof such partner’s joint venture interests, at our option, in cash or with unitsof Mills LP. The required payments may have the effect of discouraging a thirdparty from undertaking a change in control of TMC, even if a change in controlwere in the best interests of TMC’s stockholders. For the purpose ofdetermining when put-call rights may be exercised, each of the following eventsis a “change in control” unless such event is approved by the members of TMC’sboard of directors who are affiliates of KanAm:

·       weparticipate in any consolidation, merger or corporate reorganization in whichmore than 40% of TMC’s outstanding voting securities are transferred;

·       anyperson or group, other than KanAm and its affiliates, becomes the beneficialowner, directly or indirectly, of more than 40% of TMC’s then outstandingcombined voting securities; and

·       a person, whose nominationfor election as director was not recommended by the Governance and NominatingCommittee of TMC’s board of directors, is elected as a director to TMC’s boardof directors.

**RisksAssociated with Income Tax Laws and Accounting Pronouncements**

***TMC’s failure to qualify as a REIT would have adverse taxconsequences to us and our equity holders.  ***Webelieve that we have been organized and have conducted our operations in amanner so as to qualify as a REIT under Sections 856 through 860 of the Code,and we currently intend to continue to operate TMC as a REIT in the future. Wecannot assure you, however, that TMC currently qualifies as a REIT or willcontinue to qualify as a REIT. Many of the REIT requirements are highlytechnical and complex and depend on various factual matters and circumstancesthat may not be completely within our control, such as actions taken by ourjoint venture partners. If TMC fails to qualify as a REIT and any availablerelief provisions do not apply:

·       itwill not be allowed to take a deduction for distributions to stockholders incomputing its taxable income;

·       itwill be subject to federal and state income tax, including any applicablealternative minimum tax, on its taxable income at regular corporate rates; and

·       unlessentitled to relief under specific statutory provisions, it will also bedisqualified from treatment as a REIT for the four taxable years following theyear during which its qualification was lost.

Any determination that TMC does not qualify as a REITwould have a material adverse effect on our results of operations and couldreduce materially the value of TMC common stock, as the additional taxliability to us for the year or years involved would reduce our net earningsavailable for investment, debt service or distribution to our equity holders.Furthermore, we would no longer be required by the Code to make anydistributions to TMC’s stockholders as a condition to REIT qualification. Ourfailure to qualify TMC as a REIT would cause all of our distributions to TMCstockholders, to the extent of its current and accumulated earnings andprofits, to be taxable as regular corporate dividends. This means that TMCstockholders taxed as individuals currently would be taxed on those dividendsat capital gains rates and corporate stockholders generally would be entitledto the dividends received deduction with respect to such distributions,subject, in each case, to applicable limitations under the Code. If we makedistributions to TMC stockholders in reliance on its continued qualification asa REIT, we might be required to borrow funds or to liquidate some of our investmentsto pay the taxes that would result from the actual failure to 

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qualify TMC as a REIT.Even if TMC currently qualifies as a REIT, new tax rules or legislationmay affect whether it continues to qualify as a REIT or the federal income taxconsequences of its REIT qualification.

***Despite TMC’s REITstatus, we remain subject to various taxes.  ***NotwithstandingTMC’s status as a REIT, we are subject to various federal, state, local andforeign taxes on our income and property. For example, we will be subject toincome tax to the extent we distribute less than 100% of our REIT taxableincome including capital gains. Additionally, we may have to pay some state orlocal income taxes because not all states and localities treat REITs the sameas they are treated for federal income tax purposes. We may also have to paysome foreign taxes as a result of our ownership and operation of assets inforeign jurisdictions. Mills LP is obligated under its partnership agreement topay all taxes, and any related interest and penalties, incurred by us. Ourtaxable REIT subsidiaries are taxable as corporations and pay federal, stateand local income tax on their net income at the applicable corporate rates, andpay foreign taxes to the extent they own assets or conduct operations inforeign jurisdictions. In addition, our taxable REIT subsidiaries are subjectto special rules that may result in increased taxes. For example, ourtaxable REIT subsidiaries are limited in their ability to deduct interestpayments made to us. In addition, we will be required to pay a 100% penalty taxon some payments that we receive if the economic arrangements between us, ourtenants and our taxable REIT subsidiaries are not comparable to similararrangements between unrelated parties or if we receive payments for propertyheld for sale in the ordinary course of business. Under existing law, whetherproperty, including properties like the centers owned by Mills LP, is held forsale in the ordinary course of business is a question of fact that depends uponall of the facts and circumstances with respect to the particular transaction. Weintend that we will hold our properties for investment, with a view tolong-term appreciation, to engage in the business of acquiring and owningproperties that fit within our portfolio objectives and to make occasionalsales of properties as are consistent with our investment objectives. We cannotguarantee that sales of our properties, or portions of our properties, wouldnot be subject to the 100% penalty tax unless we comply with certain statutorysafe-harbor provisions. The need to avoid prohibited transactions couldcause us to forego or defer sales of our properties that we might otherwisehave sold or that might otherwise be in our best interest to sell or to own andsell such properties through a taxable REIT subsidiary. A taxable REITsubsidiary would be subject to a corporate level tax on its taxable incomeattributable to such sales. To the extent that we or our taxable REITsubsidiaries are required to pay federal, state, local or foreign taxes, wewill have less cash available for investment, debt service and distribution toour equity holders.

***If the Internal Revenue Service,or IRS, were to challenge successfully Mills LP’s status as a partnership forfederal income tax purposes, TMC would cease to qualify as a REIT and sufferother adverse consequences.***   We believe that MillsLP qualifies to be treated as a partnership for federal income tax purposes. Asa partnership, it is not subject to federal income tax on its income. Instead,each of its partners, including TMC, is required to pay tax on its allocableshare of Mills LP’s income. We cannot assure you, however, that the IRS willnot challenge Mills LP’s status as a partnership for federal income taxpurposes, or that a court would not sustain an IRS challenge. If the IRS weresuccessful in treating Mills LP as a corporation for tax purposes, TMC wouldfail to meet the income tests and some of the asset tests applicable to REITsand, accordingly, cease to qualify as a REIT. Also, the failure of Mills LP toqualify as a partnership would cause Mills LP to become subject to federal andstate corporate income tax, which would reduce significantly the amount of cashavailable for investment, debt service and distribution to Mills LP’s unitholders, including TMC.

***As a REIT, TMC issubject to limitations on our ownership of debt and equity securities.  ***Subjectto certain exceptions, including the one discussed in this paragraph, a REIT isgenerally prohibited from owning securities in any one issuer if the value ofthose securities exceeds 5% of the value of the REIT’s total assets or thesecurities owned by the REIT represent more than 10% of the issuer’soutstanding voting securities or more than 10% of the value of the issuer’soutstanding securities. A REIT is permitted to own securities of its taxableREIT subsidiaries in an amount that exceeds the 5% value test and the 10% 

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vote or value test, butthe aggregate value of such securities may not represent more than 20% of thevalue of the REIT’s total assets. Certain of our subsidiaries, includingMillsServices Corp. and each corporate subsidiary in which it owns at least 35%of the outstanding voting securities or 35% of the value of the outstandingsecurities, have elected to be treated as taxable REIT subsidiaries. While webelieve that we have satisfied these limitations on the ownership of securitiesduring each of the taxable years that each such limitation applied to us, giventhe highly complex nature of the rules governing REITs (which complexityis exacerbated when a REIT owns its properties through partnerships, as we do)and the ongoing importance of factual determinations, we cannot provide anyassurance that the IRS would agree with our determinations.

***If you redeem your units, you mayincur adverse tax consequences.  ***The exercise ofyour right to require the redemption of your units will be treated for taxpurposes as a sale of your units. This sale will be fully taxable to you, andyou will be treated as realizing for tax purposes an amount equal to the sum ofthe cash or the value of the common shares received in the exchange plus theamount of our liabilities considered allocable to the redeemed units at thetime of the redemption, including our share of the liabilities of certainentities in which we own an interest. Depending upon your particularcircumstances, it is possible that the amount of gain recognized, or even thetax liability resulting from that gain, could exceed the amount of cash and thevalue of other property, such as the TMC common shares, received upon thedisposition.

***You may be subject to adverseconsequences if you attempt to acquire shares in excess of 9.225% of TMCcapital stock, including through the redemption of units of Mills LP.***   ForTMC to protect its qualification as a REIT, ownership of its capital stock,directly or by virtue of the applicable attribution provisions of the Code, byany person or persons acting as a group is limited to 9.225% of its outstandingcapital stock. Any transfer that would cause a violation of this 9.225%ownership limit, including through the redemption of units of Mills LP, willresult in the immediate conversion of the excess shares into shares of “excessstock” that are non-voting and that may not participate in distributions(except for distributions in the event of TMC’s liquidation). The shares ofexcess stock would be immediately transferred to us as trustee of a trust forthe exclusive benefit of beneficiaries that the person acquiring such sharesmay designate, subject to our right to purchase the shares for fairconsideration.

***You may be subject to adverseconsequences if you are not a U.S. person and you attempt to acquire shares ofTMC’s capital stock, including through the redemption of our units.  ***Provisionsin TMC’s certificate of incorporation are intended to ensure that we maintainour status as a REIT by rendering void transfers of TMC shares that willjeopardize our status as a REIT and by eliminating rights of the shares oftransferred stock. Under these provisions, if you are not a U.S. person and youacquire shares of TMC’s capital stock, including through the redemption of ourunits, the acquisition of which causes less than 50% of TMC’s capital stock tobe owned by U.S. persons, the shares that you acquire will convert immediatelyinto shares of excess stock that will be non-voting and that may notparticipate in distributions (except for distributions in the event of ourliquidation). These shares of excess stock would be immediately transferred tous as trustee of a trust for the exclusive benefit of beneficiaries that youmay designate, subject to our right to purchase the shares for fairconsideration.

***Further instances of ineffectivenessin our internal controls over financial reporting could have an adverse effecton us. Failure to achieve and maintain effective internal controls overfinancial reporting could have a material adverse effect on our business,operating results and stock price.  ***We announcedthat we would restate our financial statements for the fiscal years ended December 31,2000, 2001, 2002 and 2003 and for the quarters ended March 31, June 30and September 30, 2004 to correct accounting primarily relating to ourtreatment of equity in earnings from joint ventures, the capitalization ofinterest and certain other costs, and the timing of gains on sales ofpartnership interests. In connection with our restatement, we have implementednew procedures; however, we cannot assure you that we will not discover thatthere have been further instances of ineffectiveness in our internal controlsover financial reporting.

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In the process ofdocumenting and testing our internal control procedures over financialreporting to satisfy the requirements of Section 404 of the Sarbanes-OxleyAct, we identified that the control deficiency that resulted in theinappropriate selection, application and monitoring of accounting policiesrepresented a material weakness. We have implemented additional reviewprocedures over the selection, application and monitoring of accountingpolicies. If we fail to successfully address the identified weakness andimplement an effective system of internal controls, we may not be able toaccurately report our financial results or prevent fraud. Consequently, ourfinancial results could be adversely affected causing investors to loseconfidence in our reported financial information, and the value of our stockcould drop significantly.

**Item 2.**   Properties

**Our Portfolio**

The following tablesets forth various information relating to the operating properties that wewholly and partially owned as of December 31, 2004. Please note thefollowing items when reviewing the attached summary:

·       GLAstates the square footage of the entire shopping center, including the GLAowned by our tenants;

·       Annualizedbase rent represents contractual minimum rent for tenants occupying the GLA at December 31,2004;

·       Anchorstores are those tenants that occupy 20,000 square feet or more of GLA; and

·       Thenumber of anchor stores indicates those that were open and occupied as of December 31,2004.

For information regardingencumbrances on our wholly owned properties, see “—Summary of OutstandingConsolidated Indebtedness,” “Item 15. Exhibits and Financial Statements,Schedules —Schedule III—Real Estate and Accumulated Depreciation as of December 31,2004,” and Note 6, Mortgages, Notes and Loans Payable, to our financialstatements set forth under Item 15. For information regarding encumbranceson our partially owned properties, which we refer to as our joint ventureproperties in this Form 10-K, see “—Summary of Outstanding UnconsolidatedIndebtedness.”

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| **Property—Primary Service Area   (wholly owned (w), consolidated (c), unconsolidated (u))** | ** **                                           | ** ** | ** ** | **Approximate GLA   (in thousands of square feet)** | ** **          | ** ** | ** **           |
|------------------------------------------------------------------------------------------------------------------|------------------------------------------------------|------------|------------|-----------------------------------------------------|---------------------|------------|----------------------|
| ** **                                                                                                       | **Year Opened (O)   or Acquired (A)** | ** ** | **Total**  | ** **                                          | **Anchor   Stores** | ** ** | **In-line   Stores** | ** ** | **Tenant   Owned** | ** ** | **# of   Anchor   Stores** | ** ** | **Representative Anchor Tenants** | ** ** |
| ***Mills Landmark Centers:***                                                                                    |                                                 |       |       |                                                |                |       |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Arizona Mills   - Phoenix, AZ (u)                                                                                |                                                 |       | 1997 (O)   |                                                |                | 1,234      |                 | 713 |   |   | 521 |   |   |   | — |   |   |   | 17 |   |   | Burlington Coat Factory, JC Penney, Last Call-Neiman Marcus, Off 5th—Saks Fifth  Avenue and Sega Gameworks |   |
| Arundel Mills   - Baltimore, MD (c)                                                                              |                                                 |       | 2000 (O)   |                                                |                | 1,238      |                 | 725 |   |   | 513 |   |   |   | — |   |   |   | 15 |   |   | Bass Pro Outdoor World, H&M, Medieval Times Dinner & Tournament,  Muvico Theatres and Off 5th—Saks Fifth Avenue |   |
| Cincinnati Mills   - Cincinnati , OH (w)                                                                    |                                                 |       | 2002 (A)   | (1)                                                 |                | 1,456      |                 | 1,021 |   |   | 435 |   |   |   | — |   |   |   | 13 |   |   | Bass Pro Outdoor World, Biggs, Burlington Coat Factory, Kohl’s and Off 5th—Saks Fifth  Avenue |   |
| Colorado Mills   - Denver, CO (c)                                                                                |                                                 |       | 2002 (O)   |                                                |                | 1,101      |                 | 535 |   |   | 566 |   |   |   | 181 |   |   |   | 10 |   |   | Borders Books and Music, Last Call-Neiman Marcus, Off 5th— Saks  Fifth Avenue, Target and United Artists Theatres |   |
| Concord Mills   - Charlotte, NC (c)                                                                              |                                                 |       | 1999 (O)   |                                                |                | 1,303      |                 | 757 |   |   | 546 |   |   |   | — |   |   |   | 18 |   |   | AMC Theatres, Bass Pro Outdoor World, Burlington Coat Factory, NASCAR  Speedpark and Off 5th—Saks Fifth Avenue |   |
| Discover Mills   - Atlanta, GA (c)                                                                               |                                                 |       | 2001 (O)   |                                                |                | 1,183      |                 | 669 |   |   | 514 |   |   |   | — |   |   |   | 13 |   |   | Bass Pro Outdoor World, Burlington Coat Factory, Off Broadway Shoes, Off 5th—Saks Fifth  Avenue and Sears Appliance Outlet |   |
| Franklin Mills   - Philadelphia, PA (w)                                                                     |                                                 |       | 1989 (O)   |                                                |                | 1,727      |                 | 1,140 |   |   | 587 |   |   |   | 210 |   |   |   | 19 |   |   | AMC Theatres, Burlington Coat Factory, H&M, Last Call-Neiman Marcus  and Off 5th—Saks Fifth Avenue |   |
| Grapevine Mills   - Dallas/Ft. Worth     TX (c)                                                   |                                                 |       | 1997 (O)   |                                                |                | 1,612      |                 | 1,093 |   |   | 519 |   |   |   | — |   |   |   | 20 |   |   | AMC Theatres, Bass Pro Outdoor World, Burlington Coat Factory, JC Penney and  Off 5th—Saks Fifth Avenue |   |
| Great Mall of the  Bay Area- Silicon Valley, CA (c)                                                              |                                                 |       | 2003 (A)   |                                           |                | 1,282      |                 | 642 |   |   | 640 |   |   |   | — |   |   |   | 11 |   |   | Burlington Coat Factory, Dave & Busters, Linens ‘n Things, Off 5th—Saks Fifth  Avenue and Sears Appliance Outlet |   |
| Gurnee Mills   - Chicago, IL (w)                                                                                 |                                                 |       | 1991 (O)   |                                                |                | 1,828      |                 | 1,211 |   |   | 617 |   |   |   | 251 |   |   |   | 17 |   |   | Bass Pro Outdoor World, Burlington Coat Factory, Kohl’s, Off 5th—Saks Fifth  Avenue and Sears Grand |   |

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| Katy Mills   - Houston, TX (c)                                    |       |       | 1999(O)    |   |       | 1,218      |       | 632        |   |       | 586       |   |       |       | —    |   |   |   | 14      |   |   | AMC Theatres, Bass Pro Outdoor World, Burlington Coat Factory, Marshalls and  Off 5th—Saks Fifth Avenue            |   |
|-------------------------------------------------------------------|------------|------------|------------|--------|------------|------------|------------|------------|--------|------------|-----------|--------|------------|------------|-----------|--------|--------|--------|---------|--------|--------|-------------------------------------------------------------------------------------------------------------------------|--------|
| Ontario Mills   - Los Angeles, CA (u)                        |       |       | 1996(O)    |   |       | 1,491      |       | 965        |   |       | 526       |   |       |       | 125       |   |   |   | 21      |   |   | AMC Theatres, Dave & Busters, JC Penney, Nordstrom Rack and Off 5th—Saks Fifth  Avenue                    |   |
| Opry Mills   - Nashville, TN (c)                                  |       |       | 2000 (O)   |   |       | 1,143      |       | 615        |   |       | 528       |   |       |       | —    |   |   |   | 17      |   |   | Barnes & Noble, Bass Pro Outdoor World, Gibson Guitar, Off 5th— Saks  Fifth Avenue and Regal Cinemas      |   |
| Potomac Mills   - Washington, DC (w)                         |       |       | 1985 (O)   |   |       | 1,595      |       | 969        |   |       | 626       |   |       |       | 80        |   |   |   | 20      |   |   | AMC Theatres, H&M, L.L. Bean Factory Store, Nordstrom Rack and  Steve & Barry’s University Sportswear |   |
| St. Louis Mills   - St. Louis, MO (c)                             |       |       | 2003 (O)   |   |       | 1,057      |       | 552        |   |       | 505       |   |       |       | —    |   |   |   | 12      |   |   | Bed, Bath & Beyond, Burlington Coat Factory, NASCAR Speedpark, Regal  Cinemas and Sears Appliance Outlet       |   |
| Sawgrass Mills   - Ft. Lauderdale,     FL (w) |       |       | 1990 (O)   |   |       | 2,170      |       | 1,363      |   |       | 807       |   |       |       | 282       |   |   |   | 23      |   |   | Marshalls, Nordstrom Rack, Off 5th—Saks Fifth Avenue, Regal Cinemas and  Wannado                                   |   |
| Vaughan Mills   - Toronto, Canada (u)                        |       |       | 2004 (O)   |   |       | 1,121      |       | 604        |   |       | 517       |   |       |       | —    |   |   |   | 12      |   |   | Bass Pro Outdoor World, H&M, Linens ‘n Things, Lucky Strike Lanes and  Urban Behavior                          |   |
| **Total  Mills Landmark Centers**                                 | ** ** | ** ** | ** ** |   | ** ** | **23,759** | ** ** | **14,206** |   | ** ** | **9,553** |   | ** ** | ** ** | **1,129** |   |   |   | **272** |   |   |                                                                                                                    |   |

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(1)             We closed the in-line area at CincinnatiMills after acquiring it to renovate the shopping center. The grand re-openingoccurred on August 19, 2004.

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| ** **                                                   | ** ** | ** **                                           | ** ** | **Approximate GLA   (in thousands of square feet)** | ** ** | ** **          | ** ** |
|--------------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------|------------|
| **Property   —Primary Service Area**               | ** ** | **Year Opened (O)   or Acquired (A)** | ** ** | **Total**                                           | ** ** | **Anchor   Stores** | ** ** | **In-line   Stores** | ** ** | **Tenant   Owned** | ** ** | **# of   Anchor   Stores** | ** ** | **Representative Anchor Tenants** | ** ** |
| ***21st  Century Retail and Entertainment Centers:***        |       |                                                 |       |                                                |       |                |       |   |   |   |   |   |   |   |   |   |   |   |   |
| The Block at Orange   - Los Angeles, CA (c)                  |       |                                                 | 1998 (O)   |                                                |       | 697                 |       | 423 |   | 274 |   | — |   |   | 11 |   |   | AMC Theatres, Borders Books and Music, Dave & Busters, Steve &  Barry’s University Sportswear and Off 5th—Saks Fifth Avenue |   |
| Briarwood Mall   - Ann Arbor, MI (u)                         |       |                                                 | 2004 (A)   |                                                |       | 974                 |       | 655 |   | 319 |   | 608 |   |   | 6 |   |   | JC Penney, Origins, Sears and Von Maur |   |
| Broward Mall   - Ft. Lauderdale, FL (w)                      |       |                                                 | 2003 (A)   |                                                |       | 998                 |       | 717 |   | 281 |   | 717 |   |   | 4 |   |   | Burdines, Dillards, JC Penney and Sears |   |
| Columbus City Center   - Columbus, OH (u)                    |       |                                                 | 2004 (A)   |                                                |       | 1,066               |       | 710 |   | 356 |   | 471 |   |   | 5 |   |   | Forever  21 and Kaufmann’s |   |
| Del Amo Fashion Center   - Los Angeles, CA (u)               |       |                                                 | 2003 (A)   |                                                |       | 2,095               |       | 1,389 |   | 706 |   | 785 |   |   | 11 |   |   | Barnes & Noble, JC Penney, Macy’s, Robinsons-May and  Sears |   |
| Dover Mall  - Wilmington, DE (w)                             |       |                                                 | 2003 (A)   |                                                |       | 887                 |       | 647 |   | 240 |   | 443 |   |   | 6 |   |   | Boscov’s, Carmike Cinema, Old Navy, Sears and Strawbridge’s |   |
| The Esplanade  - New Orleans, LA (w)                         |       |                                                 | 2003 (A)   |                                                |       | 901                 |       | 544 |   | 357 |   | 498 |   |   | 3 |   |   | Dillards Department Store, Dillards Home, Macy’s and Mervyns |   |
| The Falls  - Miami, FL (u)                                   |       |                                                 | 2004 (A)   |                                                |       | 826                 |       | 455 |   | 371 |   | 455 |   |   | 2 |   |   | Bloomingdale’s, Macy’s and United Artists Theatres |   |
| Galleria at White Plains   - White Plains, NY (w)            |       |                                                 | 2003 (A)   |                                                |       | 878                 |       | 582 |   | 296 |   | 329 |   |   | 3 |   |   | H&M,  Sears and Macy’s |   |
| Gwinnett Place  - Atlanta, GA (u)                            |       |                                                 | 2003 (A)   |                                                |       | 1,278               |       | 844 |   | 434 |   | 720 |   |   | 5 |   |   | JC Penney, Macy’s, Parisian, Rich’s, Sears |   |
| Hilltop Mall  - W. Contra Costa Cty,   CA (u) |       |                                                 | 2004 (A)   |                                                |       | 1,069               |       | 738 |   | 331 |   | 518 |   |   | 5 |   |   | JC Penney, Macy’s, Sears Appliance Outlet and 24 Hour Fitness Magic |   |
| Lakeforest Mall  - Gaithersburg, MD (u)                      |       |                                                 | 2004 (A)   |                                                |       | 1,086               |       | 688 |   | 398 |   | 668 |   |   | 5 |   |   | Hecht’s, JC Penney, Lord & Taylor, Mastercraft Interiors and Sears |   |
| Marley Station  - Glen Burnie, MD (u)                        |       |                                                 | 2004 (A)   |                                                |       | 1,067               |       | 761 |   | 306 |   | 524 |   |   | 6 |   |   | Hecht’s, JC Penney, Macy’s, Sears and United Artists Theatres |   |
| Meadowood Mall  - Reno, NV (u)                               |       |                                                 | 2004 (A)   |                                                |       | 893                 |       | 610 |   | 283 |   | 472 |   |   | 5 |   |   | Copeland’s Sports, JC Penney, Macy’s and Sears Appliance Outlet |   |
| Northpark Mall  - Jackson, MS (w)                            |       |                                                 | 2003 (A)   |                                                |       | 961                 |       | 647 |   | 314 |   | 647 |   |   | 4 |   |   | Dillards Department Store, Dillards Home, JC Penney and McRae’s |   |
| The Shops at Riverside Square  - Hackensack, NJ (w)          |       |                                                 | 2002 (A)   |                                                |       | 627                 |       | 425 |   | 202 |   | 293 |   |   | 3 |   |   | Bloomingdales, Pottery Barn and Saks Fifth Avenue |   |
| Southdale Center  - Minneapolis, Minnesota (w)     |       |                                                 | 2005 (A)   |                                                |       | 1,335               |       | 897 |   | 438 |   | 774 |   |   | 5 |   |   | Marshall Field’s, JC Penney, Marshall’s and AMC Theaters |   |

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| Southridge Mall  - Milwaukee, Wisconsin (w)         |       |   | 2005 (A) |   |       | 1,239      |       | 908        |       | 331        |       | 610        |       |       | 8       |   |       | Sears, JC Penney, Boston Store, Kohl’s, Steve & Barry’s                                                                      |       |
|----------------------------------------------------------|------------|--------|----------|--------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|---------|--------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| Stoneridge Mall  - Pleasanton, CA (u)                    |       |   | 2004 (A) |   |       | 1,297      |       | 842        |       | 455        |       | 842        |       |       | 5       |   |       | JC Penney, Macy’s, Nordstrom and Sears                                                                                                     |       |
| Town Center at Cobb  - Atlanta, GA (u)    |       |   | 2003 (A) |   |       | 1,273      |       | 851        |       | 422        |       | 723        |       |       | 5       |   |       | JC Penney, Macy’s, Parisian, Rich’s and Sears                                                                                         |       |
| The Mall at Tuttle Crossing  - Columbus, OH (u)          |       |   | 2004 (A) |   |       | 1,133      |       | 767        |       | 366        |       | 746        |       |       | 5       |   |       | JC Penney, Kaufmann’s and Sears                                                                                                            |       |
| Westland Mall  - Miami, FL (w)                           |       |   | 2004 (A) |   |       | 820        |       | 604        |       | 216        |       | 604        |       |       | 3       |   |       | Burdines, Lazarus, JC Penney and Sears                                                                                                          |       |
| **Total 21st Century Retail and  Entertainment Centers** | ** ** |   |     |   | ** ** | **23,400** | ** ** | **15,704** | ** ** | **7,696**  | ** ** | **12,447** | ** ** | ** ** | **115** |   |       |                                                                                                                                            |       |
| ***International  Retail and Entertainment Center:***    |       |   |     |   |       |       |       |       |       |       |       |       |       |       |    |   |       |                                                                                                                                            |       |
| Madrid Xanadú  - Madrid, Spain (w)                  |       |   | 2003 (O) |   |       | 1,393      |       | 970        |       | 423        |       | 376        |       |       | 14      |   |       | C&A/Clockhouse, Chiqui Park/Pizza Jardin, Cinesa, El Corte Inglés, Forum,  Formula O, H&M, Neverland Park, San Luis, Tazz and Zara |       |
| St. Enoch Centre  - Glasgow, Scotland (u)                |       |   | 2005 (A) |   |       | 731        |       | 438        |       | 293        |       | —     |       |       | 5       |   |       | Debenhams, BHS, TK Maxx, Boots, The Gap                                                                                                         |       |
| **Total  Portfolio**                                     | ** ** |   |     |   | ** ** | **49,283** | ** ** | **31,318** | ** ** | **17,965** | ** ** | **13,952** | ** ** | ** ** | **406** |   | ** ** | ** **                                                                                                                                      | ** ** |

 

At December 31, 2004, our overall occupancy ratefor our portfolio was 93.3%. This percentage rate includes all spaces for whichrent is being earned as of December 31, 2004, excluding leases with anoriginal term of less than one year.

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**OurJoint Venture Operating Properties**

We owna significant number of our properties through various joint ventures. Thefollowing table provides a summary of the key terms and rights of our realestate joint venture properties:
| **Operating  Property**                              | ** ** | ** **    | ** ** | **Priority  Return** | ** ** | **Our Residual  Sharing  Percentage** | ** ** | **Our Capital  Contribution  Percentage** | ** ** | **Earliest Date  When Put-Call  Right Can Be  Exercised(1)** | ** ** | **Buy-Sell  Rights(2)** | ** ** | **Principal  Joint Venture  Partners** | ** ** |
|------------------------------------------------------|------------|---------------|------------|----------------------|------------|--------------------------------------------|------------|------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|-------------------------|------------|---------------------------------------------|------------|
| ***Mills  Landmark Centers:***                       |       |          |       |                 |       |                                       |       |                                           |       |                                                                             |       |                    |       |                                        |       |   |   |   |   |   |   |
| Arizona Mills                                        |       | NA            |       |                 | 50.0       | %                                          |       |                                           | 50.0       | %                                                                                |       |                    | NA         |                                        |       |   | Yes |   |   | Taubman  Realty |   |
| Arundel Mills                                        |       | 9%            |       |                 | 59.3       | %                                          |       |                                           | 39.5       | %                                                                                |       |                    | 2011       |                                        |       |   | No |   |   | KanAm |   |
| Colorado Mills                                       |       | 9%/11%(3)     |       |                 | 56.3       | %                                          |       |                                           | 37.5       | %                                                                                |       |                    | 2007       |                                        |       |   | No |   |   | KanAm,  Stevinson |   |
| Concord Mills                                        |       | 9%            |       |                 | 59.3       | %                                          |       |                                           | 39.5       | %                                                                                |       |                    | 2009       |                                        |       |   | No |   |   | KanAm |   |
| Discover Mills                                       |       | 9%            |       |                 | 50.0       | %                                          |       |                                           | —     |                                                                             |       |                    | 2011       |                                        |       |   | No |   |   | KanAm |   |
| Grapevine Mills                                      |       | 9%            |       |                 | 59.3       | %                                          |       |                                           | 39.5       | %                                                                                |       |                    | 2007       |                                        |       |   | No |   |   | KanAm |   |
| Great Mall of the Bay Area                           |       | 9%            |       |                 | 75.0       | %                                          |       |                                           | 49.0       | %                                                                                |       |                    | NA         |                                        |       |   | Yes |   |   | KanAm  Grund |   |
| Katy Mills                                           |       | 9%            |       |                 | 62.5       | %                                          |       |                                           | 25.0       | %                                                                                |       |                    | 2009       |                                        |       |   | No |   |   | KanAm |   |
| Ontario Mills                                        |       | NA            |       |                 | 50.1       | %                                          |       |                                           | 50.1       | %                                                                                |       |                    | NA         |                                        |       |   | Yes |   |   | JP  Morgan Fleming |   |
| Opry Mills                                           |       | 9%            |       |                 | 75.0       | %                                          |       |                                           | 49.0       | %                                                                                |       |                    | NA         |                                        |       |   | Yes |   |   | KanAm  Grund |   |
| St. Louis Mills                                      |       | 11%           |       |                 | 75.0       | %                                          |       |                                           | 50.0       | %                                                                                |       |                    | 2008       |                                        |       |   | No |   |   | KanAm |   |
| Vaughan Mills                                        |       | NA            |       |                 | 50.0       | %                                          |       |                                           | 50.0       | %                                                                                |       |                    | NA         |                                        |       |   | Yes |   |   | Ivanhoe  Cambridge |   |
| ***21st  Century Retail and Entertainment Centers*** |       |          |       |                 |       |                                       |       |                                           |       |                                                                             |       |                    |       |                                        |       |   |   |   |   |   |   |
| The Block at Orange                                  |       | 9%            |       |                 | 50.0       | %                                          |       |                                           | —     |                                                                             |       |                    | 2008       |                                        |       |   | No |   |   | KanAm |   |
| Briarwood Mall                                       |       | NA            |       |                 | 50.0       | %                                          |       |                                           | 50.0       | %                                                                                |       |                    | NA         |                                        |       |   | Yes |   |   | GM  Trusts |   |
| Columbus City Center                                 |       | NA            |       |                 | 50.0       | %                                          |       |                                           | 50.0       | %                                                                                |       |                    | NA         |                                        |       |   | Yes |   |   | GM  Trusts |   |
| Del Amo Fashion Center                               |       | 6%/6.5%/7%(4) |       |                 | 75.0       | %                                          |       |                                           | 50.0       | %                                                                                |       |                    | NA         |                                        |       |   | Yes |   |   | JP  Morgan Fleming |   |
| The Falls                                            |       | NA            |       |                 | 50.0       | %                                          |       |                                           | 50.0       | %                                                                                |       |                    | NA         |                                        |       |   | Yes |   |   | GM  Trusts |   |
| Gwinnett Place                                       |       | NA            |       |                 | 50.0       | %                                          |       |                                           | 50.0       | %                                                                                |       |                    | NA         |                                        |       |   | Yes |   |   | Simon  Property Group |   |
| Hilltop Mall                                         |       | NA            |       |                 | 49.9       | %                                          |       |                                           | 49.9       | %                                                                                |       |                    | NA         |                                        |       |   | Yes |   |   | GM  Trusts |   |
| Lakeforest Mall                                      |       | NA            |       |                 | 50.0       | %                                          |       |                                           | 50.0       | %                                                                                |       |                    | NA         |                                        |       |   | Yes |   |   | GM  Trusts |   |
| Marley Station                                       |       | NA            |       |                 | 50.0       | %                                          |       |                                           | 50.0       | %                                                                                |       |                    | NA         |                                        |       |   | Yes |   |   | GM  Trusts |   |
| Meadowood Mall                                  |       | NA            |       |                 | 50.0       | %                                          |       |                                           | 50.0       | %                                                                                |       |                    | NA         |                                        |       |   | Yes |   |   | GM  Trusts |   |
| St. Enoch Centre                                |       | NA            |       |                 | 50.0       | %                                          |       |                                           | 50.0       | %                                                                                |       |                    | NA         |                                        |       |   | Yes |   |   | Ivanhoe  Cambridge |   |
| Stoneridge Mall                                      |       | NA            |       |                 | 49.9       | %                                          |       |                                           | 49.9       | %                                                                                |       |                    | NA         |                                        |       |   | Yes |   |   | GM  Trusts |   |
| Town Center at Cobb                                  |       | NA            |       |                 | 50.0       | %                                          |       |                                           | 50.0       | %                                                                                |       |                    | NA         |                                        |       |   | Yes |   |   | Simon  Property Group |   |
| The Mall at Tuttle  Crossing                         |       | NA            |       |                 | 50.0       | %                                          |       |                                           | 50.0       | %                                                                                |       |                    | NA         |                                        |       |   | Yes |   |   | GM Trusts |   |

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(1)    Put-callrights enable (a) us to require KanAm to sell its interest to us for cashor partnership units of Mills LP, the choice of consideration to be made inKanAm’s sole discretion, or (b) KanAm to require us to acquire itsinterest for cash or partnership units of Mills LP, the choice of considerationto be made in our sole discretion, but in either case, the applicable jointventure agreement provides that the purchase price for KanAm’s interest in theproperty will be calculated based on the fair market value of such property.

(2)    Upon the occurrence of specified events or passage of acertain amount of time, buy-sell rights enable any partner receiving a buy-sellnotice to elect to either purchase the other partner’s interest in the projector sell its interest in the project to the other party. The purchase price willbe based on the fair market value of the property.

(3)    We and our joint venture partners earn a 9% priorityreturn on predetermined amounts of contributed capital. Any capital required inexcess of the predetermined amounts earns an 11% priority return.

(4)    We and our joint venture partner earn a 6% priorityreturn on unrecovered contributed capital during the first year after theformation of the joint venture agreement; a 6.5% priority return on unrecoveredcontributed capital during the second year after the formation of the jointventure agreement; and a 7% priority return on unrecovered contributed capitalduring the third through fifth years after the formation of the joint ventureagreement.

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**Diversified Tenant Base**

Because our properties contain various retail formatsunder one roof, we believe that our tenant base represents one of the morediversified mixes of retailers in the industry. In fact, we actively manage ourproperties with the goal of eliminating dependence upon individual retailtenants to ensure strong, continued growth of our portfolio’s operatingperformance. As of December 31, 2004, we had an average of 122 tenants perproperty and no single tenant accounted for more than 2.44% of our base rent or3.69% of our aggregate GLA. We further believe that the overall financialstability of our tenant base is strong given the diversity of our retailers andthe large number of manufacturer outlet tenants.

Thefollowing table sets forth certain information with respect to our ten largesttenants (measured by 2004 base rent) at our properties as of December 31,2004:
| **Tenant**                            | ** ** | ** ** | ** ** | **% of Total 2004  Base Rent** | ** ** | **% of Total  Leased GLA** | ** ** | **# of  Stores** | ** ** |
|---------------------------------------|------------|------------|------------|----------------------------------------------------|------------|-------------------------------------------|------------|-----------------------|------------|
| AMC Theatre                           |       |       | 2.44       |                                               |       |                                      | 2.02       |                  |       |   | 8 |   |   |
| The Gap, Inc.(1)                 |       |       | 2.25       |                                               |       |                                      | 2.21       |                  |       |   | 59 |   |   |
| Dave and  Buster’s, Inc.(2) |       |       | 1.68       |                                               |       |                                      | 1.50       |                  |       |   | 8 |   |   |
| Foot  Locker, Inc.(3)            |       |       | 1.64       |                                               |       |                                      | 1.13       |                  |       |   | 92 |   |   |
| The TJX  Companies, Inc.(4)      |       |       | 1.44       |                                               |       |                                      | 2.44       |                  |       |   | 16 |   |   |
| Limited  Brands, Inc.(5)         |       |       | 1.35       |                                               |       |                                      | 1.24       |                  |       |   | 67 |   |   |
| Burlington Coat  Factory              |       |       | 1.32       |                                               |       |                                      | 3.69       |                  |       |   | 14 |   |   |
| Foodbrand,  L.L.C.(6)                 |       |       | 1.25       |                                               |       |                                      | 0.32       |                  |       |   | 28 |   |   |
| Bass Pro Outdoor  LP                  |       |       | 1.20       |                                               |       |                                      | 2.05       |                  |       |   | 7 |   |   |
| Rack  Room Shoes, Inc.(7)   |       |       | 1.03       |                                               |       |                                      | 0.94       |                  |       |   | 22 |   |   |
| **Total**                             |       |       | 15.60      |                                               |       |                                      | 17.54      |                  |       |   | 321 |   |   |

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(1)          Includes The Gap, GapKids, Banana Republic and Old Navy.

(2)          Includes Dave &Buster’s and Jillian’s restaurant/entertainment venues except for ColoradoMills and Katy Mills. On May 23, 2004, Jillian’s Entertainment Holdingsfiled for Chapter 11 protection with the U.S. Bankruptcy Court Western Districtof Kentucky. On November 1, 2004, Dave & Buster’s, Inc.completed the acquisition of nine Jillian’s mall-based locations and the tradename from Jillian’s Entertainment Holdings, Inc. Dave & Buster’scontinues to operate Jillian’s entertainment venues in all of our shoppingcenters where Jillian’s had operated prior to its bankruptcy, other thanColorado Mills and Katy Mills. We are currently searching for a new tenant forthe space that Jillian’s occupied at Katy Mills and have a letter of intentwith a new tenant for the Colorado Mills location.

(3)          Includes Foot Locker,Foot Action USA, Lady Foot Locker, Kids Foot Locker, Champs Sports and Just forFeet.

(4)          Includes TJ Maxx andMarshalls.

(5)          Includes The Limited,Express, Victoria’s Secret and Bath and Body Works.

(6)          Foodbrand, L.L.C. is ajoint venture 60% owned by Mills Enterprises, Inc., an indirectwholly-owned subsidiary, and 40% owned by Panda Express, Inc. The jointventure develops and operates food courts and related facilities at shoppingcenters and other commercial real estate.

(7)          IncludesOff Broadway Shoes and Rack Room Shoes.

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**Lease Expiration**

Thefollowing summarizes the expiration of leases across our portfolio assumingnone of the tenants exercise their renewal options. Annualized minimum rent isbased on the monthly contractual minimum rent in effect on December 31,2004. Ground leases totaling 2.9 million square feet and tenant owned GLA of11.7 million square feet are excluded. Square feet and annualized minimumrent are stated in thousands.
| ** **                          | ** ** | ** ** | ** ** | **Leased Area** | ** ** | **Minimum Rent** | ** ** |
|-------------------------------------|------------|------------|------------|----------------------|------------|-----------------------|------------|
| **Lease Expiration Year** | ** ** | ** ** | ** ** | **#  Expiring**      | ** ** | **Square Feet**  | ** ** | **Percent** | ** ** | **Annualized** | ** ** | **Percent** | ** ** | **Average per  Square Foot** | ** ** |
| 2005                                |       |       | 771        |                 |       |                  | 2,925      |   |   |   | 10 | % |   | $ | 67,518 |   |   | 11 | % |   |   | $ | 23.08 |   |   |
| 2006                                |       |       | 627        |                 |       |                  | 2,311      |   |   |   | 8 | % |   | 56,951 |   |   | 10 | % |   |   | 24.64 |   |   |
| 2007                                |       |       | 674        |                 |       |                  | 2,301      |   |   |   | 8 | % |   | 62,605 |   |   | 10 | % |   |   | 27.21 |   |   |
| 2008                                |       |       | 526        |                 |       |                  | 2,450      |   |   |   | 9 | % |   | 53,660 |   |   | 9 | % |   |   | 21.90 |   |   |
| 2009                                |       |       | 579        |                 |       |                  | 3,345      |   |   |   | 12 | % |   | 68,591 |   |   | 11 | % |   |   | 20.51 |   |   |
| 2010                                |       |       | 442        |                 |       |                  | 2,671      |   |   |   | 10 | % |   | 54,533 |   |   | 9 | % |   |   | 20.42 |   |   |
| 2011                                |       |       | 352        |                 |       |                  | 1,833      |   |   |   | 7 | % |   | 45,146 |   |   | 8 | % |   |   | 24.63 |   |   |
| 2012                                |       |       | 291        |                 |       |                  | 2,153      |   |   |   | 8 | % |   | 39,907 |   |   | 7 | % |   |   | 18.54 |   |   |
| 2013                                |       |       | 412        |                 |       |                  | 2,023      |   |   |   | 7 | % |   | 49,738 |   |   | 8 | % |   |   | 24.59 |   |   |
| 2014                                |       |       | 333        |                 |       |                  | 1,901      |   |   |   | 7 | % |   | 37,959 |   |   | 6 | % |   |   | 19.97 |   |   |
| 2015                                |       |       | 101        |                 |       |                  | 807        |   |   |   | 3 | % |   | 14,905 |   |   | 2 | % |   |   | 18.47 |   |   |
| After 2015                          |       |       | 100        |                 |       |                  | 3,157      |   |   |   | 11 | % |   | 46,708 |   |   | 9 | % |   |   | 14.80 |   |   |
| **Total**                           |       |       | 5,208      |                 |       |                  | 27,877     |   |   |   | 100 | % |   | $ | 598,221 |   |   | 100 | % |   |   | $ | 21.46 |   |   |
|                                     |            |            |            |                      |            |                       |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

**Development Pipeline**

Our development pipelineconsists of projects under construction and projects under development as morefully described below. A project is deemed to be under development if we have,at a minimum, performed substantive due diligence on the feasibility anddesirability of constructing the project.

***Projects Under Construction***

*PittsburghMills**—Pittsburgh, PA.*   PittsburghMills is scheduled to open during the summer of 2005. As of December 31,2004, the project was 72.8% pre-leased, including 9 anchor stores. The projectis expected to contain approximately 1.1 million square feet of GLA atfull build-out at an estimated aggregate project cost of approximately $218.3million. The project costs will be funded by construction loans and equitycontributions from us and our joint venture partners. We had contributed $57.8million through December 31, 2004 of which $31.8 million was an advance.The advance was repaid in January 2005.

Pittsburgh Mills, located on 313 acres of land inFrazer Township, Pennsylvania, is being developed by the Pittsburgh MillsLimited Partnership, a joint venture between Mills-Kan Am Pittsburgh LimitedPartnership, or Mills-Kan Am Pittsburgh, and A.V. Associates LimitedPartnership, or AV Associates. As its initial partnership contribution, AVAssociates contributed a portion of the land and the rights to acquire theremaining land for the mall. The currently agreed value of these contributionsis approximately $9.6 million, which value may be reduced under certaincircumstances. Mills-Kan Am Pittsburgh has the option to fund any additional capitalnecessary for the development of the project until the one year anniversary ofthe project’s opening. If Mills-Kan Am Pittsburgh does not elect to fundadditional capital prior to the one year anniversary of opening or ifadditional capital is required after such one year anniversary date, eachpartner will have the option, but not the obligation, to fund any suchadditional capital with Mills-Kan Am Pittsburgh funding 75% and AV Associatesfunding 25%. AV Associates will receive a construction period preference equalto 5.5% and a priority return during operations equal to 

33

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11% per annum on itsqualifying initial capital contribution and 14% per annum on its qualifyingadditional capital contributions. Mills-Kan Am Pittsburgh will receive acumulative construction period preference equal to 11%, a priority returnduring operations equal to 11% per annum on its qualifying initial capitalcontributions and 14% per annum on its qualifying additional capital contributions.In December 2004, the partnership agreement was amended to provide that10% of any distribution made to Mills-Kan Am Pittsburgh on its qualifyingadditional capital contributions above a certain threshold must be paid to AVAssociates. Any residual cash flow after preference payments and afterrepayment of all capital contributions will be distributed 75% to Mills-Kan AmPittsburgh and 25% to AV Associates.

Commencing one year after the opening and terminatingthree years after the opening, AV Associates may elect to convert a certainportion of its partnership interest in Pittsburgh Mills Limited Partnership tocash 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 AVAssociates’ conversion right described above, a dispute arises regarding a “MajorDecision,” as defined in the partnership agreement, either Mills-Kan AmPittsburgh or AV Associates can exercise a buy-sell right. Pursuant to thebuy-sell provision, the partner receiving a buy-sell notice can elect to eitherpurchase the other partner’s interest in the project or sell its interest inthe project to the other party. In addition, commencing on the five yearanniversary of opening, AV Associates may put, and Mills-Kan Am Pittsburgh maycall, all of AV Associates’ remaining partnership interest for a purchase priceto be paid in cash or limited partnership units of Mills LP, at our option. Thepurchase price will be based on the fair market value of the property.

Mills-Kan Am Pittsburgh, through which we will operateour interest in the Pittsburgh Mills project, is a limited partnership betweenus and KanAm. Each partner is required to fund 50% of Mills-Kan Am Pittsburgh’sinitial capital contribution. We anticipate that the total capital to becontributed by Mills-Kan Am Pittsburgh to Pittsburgh Mills will be $52.0million. As of December 31, 2004, we and KanAm had each contributed,including advances, $57.8 million to Mills-Kan Am Pittsburgh, of which$115.1 million had been contributed to Pittsburgh Mills LimitedPartnership.

Under the terms of the Mills-Kan Am Pittsburgh limitedpartnership agreement, each partner will receive on a pro rata basis acumulative construction period preference and a priority return duringoperations equal to 11% per annum on its unreturned capital contributions. Anyresidual cash flow after preference payments will be distributed 75% to us and25% to KanAm. Proceeds from a major capital event, such as the sale of theproperty or financing under a permanent loan, will be distributed 75% to us and25% to KanAm after the payment of any accrued but unpaid preferences and thereturn of all capital contributions. Commencing with the grand opening of theproject, we will be entitled to receive an annual asset management fee thatwill be cumulative and will be payable solely out of KanAm’s share of cash flowor proceeds received for certain capital and other events after all priorityreturns are paid.

We will guarantee KanAm’s portion of construction debtuntil qualified permanent financing is secured for the project. In addition, wewill guarantee all of KanAm’s construction period preference until the grandopening of the project but KanAm’s construction period preference that weguarantee will decrease from 11% to 9% during the period between the grandopening and the time of the qualified permanent financing.

At specified times following the fifth anniversary ofthe opening of Pittsburgh Mills, or, if earlier, upon our change in control,either we or KanAm can exercise a put-call right. Pursuant to the put-callprovision, we can require KanAm to sell to us for cash or limited partnershipunits of Mills LP, at KanAm’s election, KanAm’s entire interest in the jointventure entity. Also, pursuant to the put-call provision, KanAm can require usto acquire for cash or limited partnership units of Mills LP, at our election,KanAm’s entire interest in the joint venture entity. Only KanAm may invoke theput-call right in the event of our change in control.

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*MeadowlandsXanadu**—EastRutherford, New Jersey.  *In December 2003, we executed aredevelopment agreement with the New Jersey Sports & ExpositionAuthority (the “NJSEA”) pursuant to which we will redevelop the ContinentalArena site in East Rutherford, New Jersey. We have partnered with Mack-Cali RealtyCorporation, a leading owner and manager of class A office propertieslocated primarily in the Northeast United States, or Mack-Cali to develop thisproperty. We executed a ground lease for the site in October 2004;received the requisite approvals and permits from the NJSEA and U.S. Army Corpsof Engineers in March 2005; and began construction in March 2005. For adescription of litigation involving this project, see “Item 3. LegalProceedings.”

Upon completion, Meadowlands Xanadu is planned toinclude a family entertainment, recreation and retail complex with five themedzones, and an office and hotel component with four office buildings, a 520-roomhotel with conference and exhibition facilities totaling 4.8 millionsquare feet and a minor league baseball stadium. Each lifestyle district willfeature dynamic interactive experiences and tailored content provided byhallmark brands, including Entertainment Weekly in the Entertainment Zone; ELLEin the Fashion Zone; and Viking Culinary Arts Center in the Food &Home Zone. We expect to announce other sponsors for the remaining two zones,Sports and Children’s Education, later in 2005. The Meadowlands Xanadu proposalalso features the Snow Dome, America’s first year-round indoor Alpine skiresort.

Meadowlands Xanadu will be developed by a jointventure between affiliates of Mack-Cali and Meadowlands Mills LimitedPartnership, or Meadowlands Mills/Mack-Cali LP. Upon formation, in exchange forcertain contributions and pre-formation expenditures, Meadowlands Mills LimitedPartnership received an initial capital account credit of approximately $134million and Mack-Cali received an initial capital account credit ofapproximately $292,000. Meadowlands Mills Limited Partnership, the entitythrough which we and KanAm hold our respective interests in the project, isobligated to contribute 80% of all additional capital to MeadowlandsMills/Mack-Cali LP up to a maximum of 40% of net project costs, and Mack-Caliis obligated to contribute 20% of all additional capital (with certainexceptions) to Meadowlands Mills/Mack-Cali LP up to a maximum of $32.5 million.Each of Meadowlands Mills Limited Partnership and Mack-Cali receives a cumulativepreference equal to 9% on its capital contributions. Any residual cash flowafter preference payments and repayment of all capital contributions, will bedistributed 80% to Meadowlands Mills Limited Partnership and 20% to Mack-Cali.

Meadowlands Mills Limited Partnership is the managinggeneral partner and Mack-Cali Meadowlands Special LLC is the special generalpartner of Meadowland Mills/Mack-Cali LP, with rights to approve certain “MajorDecisions” of the partnership. All disputes arising under the partnershipagreement are required to be submitted to mediation and, if necessary aftersuch mediation, submitted to arbitration.

Commencing threeyears after the opening, either Meadowlands Mills Limited Partnership or Mack-Calimay sell its partnership interest to a third party subject to the followingprovisions:

·       MeadowlandsMills Limited Partnership has certain “drag-along” rights and Mack-Cali hascertain “tag-along rights” in connection with such sale of interest to a thirdparty; and

·       MeadowlandsMills Limited Partnership has a right of first refusal with respect to a saleby Mack-Cali of its partnership interest.

In addition, commencing onthe sixth anniversary of opening, Mack-Cali may cause Meadowlands Mills LimitedPartnership to purchase, and Meadowlands Mills Limited Partnership may causeMack-Cali to sell to Meadowlands Mills Limited Partnership, all of Mack-Cali’spartnership interests at a price based on the fair market value of the project.

The partnership agreementfor Meadowlands Mills/Mack-Cali LP contemplates that Meadowlands Mills LimitedPartnership will develop the entertainment/retail portion of the project andthat Mack-Cali may elect to develop specified hotel and office portions of theproject. If Mack-Cali so elects, then Mack-

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Cali isobligated to contribute 80% of all required equity and Meadowlands MillsLimited Partnership is obligated to contribute 20% of all required equity andMack-Cali and Meadowlands Mills Limited Partnership will have residual sharingpercentages of 80% and 20%, respectively, after payment of all preferredreturns and return of capital. If Mack-Cali does not elect to develop the hoteland office portions, Meadowlands Mills Limited Partnership may develop thehotel and office portions with or without a third party partner or sell theleasehold rights in the hotel and office land parcels. If Meadowlands MillsLimited Partnership elects to develop the hotel and office portions, thenMack-Cali may elect to participate in such development with an obligation tofund 20% of all required equity and will receive a residual sharing percentageof 20% after payment of all preferred returns and return of capital.

Meadowlands Mills LimitedPartnership is a joint venture between us and KanAm. Meadowlands Mills LimitedPartnership had agreed with Empire, Ltd., the previous owner of the “EmpireTract” and Bennett S. Lazare, Esq. pursuant to which Empire, Ltd. andMr. Lazare had the right to become limited partners in the partnershipwith a combined twenty percent (20%) limited partnership interest. On October 8,2004, an entity owned by Meadowlands Mills/Mack-Cali LP acquired the EmpireTract for approximately $17.9 million plus the payment of certain additionalfees owed to Empire, Ltd. Additionally, Meadowlands Mills/Mack-Cali LP acquiredthe rights that Mr. Lazare had to become a limited partner forapproximately $7.7 million plus the payment of a fee due to Mr. Lazare. Empire,Ltd. and Mr. Lazare released all of their rights to become limitedpartners in Meadowlands Mills Limited Partnership in consideration for thesemonies. As of December 31, 2004, we had invested $109.3 million,including capitalized interest and overhead, in Meadowlands Mills LimitedPartnership. KanAm’s invested capital in Meadowlands Mills Limited Partnershipwas $210.2 million as of December 31, 2004.

As a condition to thecommencement of work to fill wetlands on the Continental Arena site pursuant toa permit issued by the U.S. Army Corps of Engineers and pursuant to the executedredevelopment agreement with the NJSEA, the Meadowlands Mills/Mack-Cali LP conveyedthe Empire Tract to a non-profit conservation trust. Pursuant to the FirstAmendment to the Redevelopment Agreement with the NJSEA, the amount of $26.8 millionis to be paid or credited by the NJSEA upon the transfer of the Empire Tract tothe non-profit conservation trust. We executed a ground lease for the site in October 2004,under which the joint venture is required to pay an initial deposit totaling $160.0million, of which $50.0 million was paid to escrow in March 2005 afterreceiving the required approvals and permits to proceed with the project.

Pursuant to theMeadowlands Mills Limited Partnership agreement, we and KanAm each are entitledto receive a cumulative construction period preference and a priority returnduring operations equal to 9% per year. The Meadowlands Mills LimitedPartnership will raise funds to permit the current payment by the MeadowlandsMills Limited Partnership of the construction period preference prior to thecompletion of the entertainment/retail component. Payment of the constructionperiod preference to KanAm is guaranteed by us until substantial physicalcompletion of construction of the project and the closing of a permanent loan. Wemay accrue our construction period preference at our option. At specified timesfollowing the tenth anniversary of the project’s opening, either we or KanAmcan exercise a put-call provision. Pursuant to the put-call provision, we canrequire KanAm to sell to us for cash or limited partnership units of Mills LP,at KanAm’s election, KanAm’s entire interest in the partnership. Also, pursuantto the buy-sell provision, KanAm can require us to acquire for cash or limitedpartnership units of Mills LP, at our election, KanAm’s entire interest in thepartnership at a price based on the fair market value of the project.

***Projects UnderDevelopment***

In addition to the projectscurrently under construction, we are also actively pursuing the development ofother projects. These projects are in various levels of the due diligence stageduring which we determine site/demographic viability, negotiate tenantcommitments and work through third-party approval 

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processes.Generally, we will not begin construction on these projects until we havecompleted our due diligence and have obtained significant pre-leasingcommitments. While we currently believe that these projects will ultimately becompleted, we cannot assure you that they will actually be constructed or thatthey will have any particular level of operational success or ultimate value.The following is a brief description of our current development projects:

*Mercati Generali**—Rome, Italy.  *On November 19, 2004, the City ofRome announced that we were the winning bidder to develop an urban retail,entertainment and cultural center on the former site of Mercati Generali, ageneral food market near the Roman Forum and Coliseum. On January 24,2005, the City of Rome issued the Provisional Award for the proposeddevelopment. We anticipate receiving the Final Award no later than during thesecond quarter of 2005. Once the City of Rome has issued the Final Award, wehave 60 days to execute a Concession Agreement with the City, under which wewill have the right to develop and operate the property for 60 years. We intendto develop the site with two other primary partners—Lamaro Appalti S.p.a. andCogeim S.p.a. We have executed a preliminary joint venture agreement with theseparties, and expect to execute a definitive joint venture agreement before weexecute the Concession Agreement with the City of Rome. We anticipate breakingground in 2005; the project is currently expected to provide approximately830,000 square feet of leisure, cultural and retail options.

*108 North State Street**—Chicago, Illinois.  *In June 2002,we were selected by the City of Chicago to negotiate the development of 108 N.State Street, a key city block opposite the Marshall Fields department store indowntown Chicago, as a 21st Century Retail and Entertainment Centermixed-use project including retail, office, residential and hotel uses. We areproceeding with obtaining the appropriate entitlements. We continue to discussthe proposed retail portion with prospective tenants and continue to negotiatewith office and hotel developers to develop those portions of the project.

*San Francisco Piers 27-31**—San Francisco, California.  *In April 2001,the San Francisco Port Commission awarded us the exclusive right to negotiatefor a long-term lease on Piers 27-31 on the San Francisco waterfront. Weplan to develop a 21st Century Retail and Entertainment Centerfull-price mixed-use retail, office, entertainment and recreation projectthat will include a maritime focused YMCA. These negotiations began in 2003,and in the fourth quarter of 2004 the Port Commission endorsed our financialand site plan. We are proceeding with obtaining entitlements at the state andlocal level.

*Woodbridge, Virginia.  *In2004, we purchased property in northern Virginia located near Potomac Mills. Weare proceeding with obtaining entitlements at the state and local level. We andour partner Lerner Enterprises plan on developing an open air 21stCentury Retail and Entertainment Center.

**ProjectsUnder Redevelopment and Renovation**

We are also engaged invarious redevelopment and renovation projects at some of our operatingproperties. The following is a brief description of those projects:

*Sawgrass**—Ft.Lauderdale, Florida.  *In 2004, wecompleted our renovation plans to upgrade the fourteen year old shoppingcenter, which included replacing the flooring and interior graphics, introducedbrighter color schemes, added new lighting fixtures and improved the seatingareas in the food courts. We also improved the exterior of the shopping center.Finally, we began construction of a 110,000 square foot open-air promenadecalled The Colonnade, which will include additional retail and dining options.

*Del Amo**—Los Angeles, California.  *Wecontinue to pursue our plan to redevelop our Del Amo Fashion Center that willinclude the addition of new department store anchors and the introduction ofadditional tenants with higher price points than the property’s current tenants.In 2004, we demolished the vacant wing, formerly anchored by Montgomery Ward,and began to construct an open air retail and lifestyle wing, which weanticipate opening in the first half of 2006. Additionally, it is anticipatedthat a parcel of peripheral land will be sold.

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In addition to theprojects discussed above, we are also conducting due diligence on several otherproposed sites for future projects, including sites in Boston, Massachusetts;Tampa, Florida; and San Francisco, California. We are also reviewing otherpotential retail and entertainment development opportunities internationally.For example, we are exploring follow-on opportunities beyond Madrid Xanadú forsites in and around Seville, Valencia and Barcelona, Spain. In addition, we arepursuing various opportunities in the United Kingdom and Italy.

**Item 3.**                        LegalProceedings

In March 2003, HartzMountain Industries, Inc., or Hartz, filed a lawsuit in the Superior Courtof New Jersey, Law Division, for Bergen County, seeking to enjoin the NewJersey Sports and Exposition Authority, or NJSEA, from entering into a contractwith us and Mack-Cali for the redevelopment of the Continental Arena site. In May 2003,the court denied Hartz’s request for an injunction and dismissed its suit forfailure to exhaust administrative remedies. In June 2003, the NJSEA heldhearings on Hartz’s protest, and on a parallel protest filed by anotherrejected developer, Westfield, Inc., or Westfield. On September 10,2003, the NJSEA ruled against Hartz’s and Westfield’s protests. Hartz,Westfield and four taxpayers thereafter filed appeals from the NJSEA’s finaldecision. In January 2004, Hartz and Westfield also appealed the NJSEA’sapproval and execution of the formal redevelopment agreement with the Mills LP.By decision dated May 14, 2004, the Appellate Division of the SuperiorCourt of New Jersey rejected Hartz’s contention that the NJSEA lacks statutoryauthority to allow retail development of its property. The Supreme Court of NewJersey has declined to review the Appellate Division’s decision. Severalappeals filed by Hartz, Westfield and others, including certain environmentalgroups, that challenge certain approvals received by the Mills LP from theNJSEA, the New Jersey Meadowlands Commission and the New Jersey Department ofEnvironmental Protection remain pending before the Appellate Division. TheAppellate Division, in a decision rendered on November 24, 2004, completedits review of Hartz’s Open Public Records Act appeal and the remand proceedingit earlier ordered and upheld the findings of the Law Division in the remandproceeding. Hartz has petitioned the Supreme Court of New Jersey to review theAppellate Division’s decision and that petition remains pending. The NJSEA heldfurther hearings on December 15 and 16, 2004, at Hartz’s request to reviewcertain additional facts in support of its bid protest. The NJSEA conductedfurther hearings on the bid protest of Hartz and Westfield on December 16and 17, 2004. On March 4, 2005, the Hearing Officer rendered hisSupplemental Report and Recommendation to the NJSEA, finding no merit in theprotests presented by Hartz and Westfield. The NJSEA accepted the HearingOfficer’s Supplemental Report and Recommendation on March 30, 2005.  On March 30, 2005, the Sierra Club, the NewJersey Public Interest Group Citizen Lobby, Inc. and the New Jersey EnvironmentalFederation filed a lawsuit in the United States District Court for the Districtof New Jersey, challenging a permit issued by the U.S. Army Corps of Engineersin connection with the project and seeking a preliminary injunction to stopcertain fill activities on the project site. We believe that Mills LP’sproposal and the planned project fully comply with applicable laws, and intendto continue our vigorous defense of our rights under the executed RedevelopmentAgreement and recently executed Ground Lease. We do not believe that thepending appeals will have any material affect on our ability to develop theproject.

**Item 4.**                        Submissionof Matters to a Vote of Security Holders

No matters were submitted to a vote of ourstockholders during the quarter ended December 31, 2004.

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**PART II**

**Item 5.**                        Market forthe Registrant’s Common Equity, Related Stockholder Matters and IssuerPurchases of Equity Securities

**Market Information and Dividends**

TMC common stock trades on the New York Stock Exchange(“NYSE”) under the symbol “MLS”. Mills LP common partnership units are nottraded. Each partnership unit of Mills LP (other than those owned by us) isexchangeable in accordance with Mills LP’s partnership agreement for, in TMC’ssole discretion, the cash equivalent of a share of TMC’s common stock or for ashare of TMC’s common stock.

As of March 28, 2005, there were 1,078 TMCstockholders of record and 1,964 unit holders of Mills LP.

Thefollowing table sets forth, for each quarterly period during the last twoyears, the high and low closing sale prices per share of TMC’s common stock asreported on the NYSE and the dividends per share that TMC paid. Mills LP paidper unit distributions to its common unit holders equal to the dividend pershare that TMC paid. We have made consecutive quarterly distributions since ourinitial public offering in 1994.
| **2004**       | ** ** | ** ** | ** ** | **High** | ** ** | **Low** | ** ** | **Dividends** | ** ** |
|----------------|------------|------------|------------|----------|------------|---------|------------|---------------|------------|
| First Quarter  |       | $          | 53.29      |     | $          | 43.35   |       | $             | 0.5650     |   |
| Second Quarter |       | 53.54      |       | 38.48    |       | 0.5950  |       |
| Third Quarter  |       | 52.60      |       | 44.89    |       | 0.5950  |       |
| Fourth Quarter |       | 63.76      |       | 52.00    |       | 0.5950  |       |
|           |       |       |       |     |       | $       | 2.3500     |          |
|                |            |            |            |          |            |         |            |               |            |  |  |  |

 
| **2003**       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|----------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|
| First Quarter  |       | $          | 31.59      |       | $          | 27.55      |       | $          | 0.5475     |   |
| Second Quarter |       | 34.15      |       | 31.31      |       | 0.5650     |       |
| Third Quarter  |       | 39.35      |       | 33.77      |       | 0.5650     |       |
| Fourth Quarter |       | 44.00      |       | 39.58      |       | 0.5650     |       |
|           |       |       |       |       |       | $          | 2.2425     |       |
|                |            |            |            |            |            |            |            |            |            |  |  |  |

 

In February 2005, our board of directors approvedan increase in TMC’s quarterly dividend rate and Mills LP quarterlydistribution rate to $0.6275 per share of common stock or unit commencing withthe first quarter of 2005 payable in May 2005. Our ability to makedividend distributions depends on a number of factors, including net cashprovided by operating activities, financial condition, capital commitments,debt repayment schedules and other factors. Holders of TMC common stock andMills LP common partnership units are entitled to receive distributions when,as and if declared by our board of directors out of funds legally available forthat purpose.

In order to qualifyas a REIT, TMC is required to make dividend distributions to its stockholders.The amount of these distributions must equal at least:

·       thesum of (A) 90% of our “REIT taxable income” (computed without regard tothe dividends paid deduction and our net capital gain) and (B) 90% of thenet income (after tax), if any, from foreclosure property, minus

·       thesum of certain non-cash income items over 5% of our “REIT taxable income”(computed without regard to dividends paid deduction and our net capital gain).

For federal income tax purposes, dividenddistributions may consist of ordinary income, capital gains, nontaxable returnof capital or a combination of those items. Dividend distributions that exceedTMC’s 

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current and accumulatedearnings and profits (calculated for tax purposes) constitute a return ofcapital rather than a dividend, which reduces a stockholder’s basis in theshares of common stock and will not be taxable to the extent that the dividenddistribution equals or is less than the stockholder’s basis in the stock. Tothe extent a dividend distribution exceeds both current and accumulatedearnings and profits and the stockholder’s basis in the stock, that dividenddistribution will be treated as a gain from the sale or exchange of thatstockholder’s stock. Every year, we notify TMC stockholders of the taxtreatment of our dividend distributions paid during the preceding year.

Thefollowing table sets forth the approximate taxability of common stock dividenddistributions paid in 2004 and 2003 on a per share basis:
| ** **                            | ** ** | **2004** | ** ** | **2003** | ** ** |
|---------------------------------------|------------|----------|------------|----------|------------|
| Ordinary income                       |       | $        | 1.1853     |     | $          | 1.0764 |   |
| Capital gains                         |       | 0.6054   |       | 0.1569   |       |
| Unrecaptured  Section 1250 gains |       | 0.0188   |       | —   |       |
| Return of capital                     |       | 0.5405   |       | 1.0092   |       |
|                                  |       | $        | 2.3500     |     | $          | 2.2425 |   |

 

**Purchasesof Equity Securities by the Issuer and Affiliated Purchasers**

TMC does not currentlyhave in effect a plan to repurchase its common shares in the open market;however, beginning on January 1, 2005, we began to purchase sharessurrendered to us to pay withholding taxes due upon the vesting of restrictedsecurities or the exercise of a stock option by our officers. As stated above,each partnership unit of Mills LP (other then those owned by TMC) isexchangeable in accordance with Mills LP partnership agreement for, in TMC’ssole discretion, the cash equivalent of a share of TMC’s common stock or for ashare of TMC’s common stock.

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**Item 6.**                        SelectedFinancial Data

Theselected financial data that follows should be read in conjunction with theconsolidated financial statements and accompanying notes of TMC and Mills LPand the discussion set forth in the section entitled “Management’s Discussionand Analysis of Financial Condition and Results of Operations,” each includedelsewhere in this Form 10-K.
| ** **                                                                     | ** ** | **Years Ended December 31,**                                    | ** ** |
|--------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------|------------|
| ** **                                                                     | ** ** | **2004**                                                                       | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** | **2000** | ** ** |
| ** **                                                                     | ** ** | ** **                                                                     | ** ** | **(Restated)** | ** ** | **(Restated)** | ** ** | **(Restated)** | ** ** | **(Restated)** | ** ** |
| ** **                                                                     | ** ** | **(Dollars in millions, except per share data)** | ** ** |
| Operating revenues                                                             |       | $                                                                              | 684.8      |   | $ | 400.8 |   | $ | 239.3 |   | $ | 195.6 |   | $ | 190.9 |   |
| *Mills LP Components of Income:*                                               |       |                                                                           |       |   |   |   |   |   |   |   |   |
| Income from  continuing operations                                             |       | $                                                                              | 220.4      |   | $ | 146.1 |   | $ | 72.8 |   | $ | 22.9 |   | $ | 45.6 |   |
| Discontinued operations                                                        |       | —                                                                         |       | 0.1 |   | 0.4 |   | 0.4 |   | — |   |
| Cumulative effect of FIN  46 adoption(b)                                       |       | 51.4                                                                           |       | — |   | — |   | — |   | — |   |
| Mills LP net income                                                            |       | $                                                                              | 271.8      |   | $ | 146.2 |   | $ | 73.2 |   | $ | 23.3 |   | $ | 45.6 |   |
| *TMC Components of Income:*                                                    |       |                                                                           |       |   |   |   |   |   |   |   |   |
| Income before  minority interest in Mills LP                                   |       | $                                                                              | 220.4      |   | $ | 146.1 |   | $ | 72.8 |   | $ | 22.9 |   | $ | 45.6 |   |
| Minority interest in  Mills LP                                                 |       | (30.5                                                                          | )          | (31.1 | ) | (22.3 | ) | (8.9 | ) | (18.4 | ) |
| Income from  continuing operations                                             |       | 189.9                                                                          |       | 115.0 |   | 50.5 |   | 14.0 |   | 27.2 |   |
| Discontinued operations,  net of minority interest in Mills LP                 |       | —                                                                         |       | 0.1 |   | 0.3 |   | 0.2 |   | — |   |
| Cumulative effect of FIN  46 adoption, net of minority interest in Mills LP(b) |       | 42.1                                                                           |       | — |   | — |   | — |   | — |   |
| TMC net income                                                                 |       | $                                                                              | 232.0      |   | $ | 115.1 |   | $ | 50.8 |   | $ | 14.2 |   | $ | 27.2 |   |
| Earnings per common share and unit—diluted:                               |       |                                                                           |       |   |   |   |   |   |   |   |   |
| Continuing operations                                                          |       | $                                                                              | 2.71       |   | $ | 1.91 |   | $ | 1.33 |   | $ | 0.55 |   | $ | 1.17 |   |
| Discontinued operations                                                        |       | —                                                                         |       | — |   | 0.01 |   | 0.01 |   | — |   |
| Cumulative effect of FIN  46 adoption                                          |       | 0.79                                                                           |       | — |   | — |   | — |   | — |   |
| Earnings per share and  unit—diluted                                      |       | $                                                                              | 3.50       |   | $ | 1.91 |   | $ | 1.34 |   | $ | 0.56 |   | $ | 1.17 |   |
| Dividends paid per  common share and unit                                      |       | $                                                                              | 2.35       |   | $ | 2.24 |   | $ | 2.18 |   | $ | 2.12 |   | $ | 2.05 |   |
| Weighted average number of shares/units outstanding  (in thousands):           |       |                                                                           |       |   |   |   |   |   |   |   |   |
| TMC common shares—diluted                                                 |       | 54,079                                                                         |       | 45,785 |   | 36,355 |   | 25,491 |   | 23,338 |   |
| Mills LP common units—diluted                                             |       | 64,910                                                                         |       | 61,550 |   | 52,982 |   | 41,508 |   | 39,166 |   |
| Portfolio Data at end of period:                                               |       |                                                                           |       |   |   |   |   |   |   |   |   |
| Gross Leasable Area  (“GLA”) (square feet in thousands)              |       | 45,978                                                                         |       | 32,586 |   | 20,400 |   | 18,261 |   | 17,047 |   |
| Number of operating  properties                                                |       | 38                                                                             |       | 26 |   | 17 |   | 16 |   | 14 |   |
| Balance Sheet Data:                                                            |       |                                                                           |       |   |   |   |   |   |   |   |   |
| Real estate assets before  accumulated depreciation                       |       | $                                                                              | 6,192.0    |   | $ | 3,442.2 |   | $ | 2,219.5 |   | $ | 1,522.7 |   | $ | 1,337.9 |   |
| Total assets                                                                   |       | $                                                                              | 6,103.2    |   | $ | 3,276.4 |   | $ | 2,111.0 |   | $ | 1,303.5 |   | $ | 1,112.4 |   |
| Mortgages, notes and other loans payable                                       |       | $                                                                              | 3,826.6    |   | $ | 2,119.3 |   | $ | 1,236.7 |   | $ | 967.3 |   | $ | 908.9 |   |

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(a)           Restated for the impact of the mattersdiscussed below and in the notes to the consolidated financial statements ofTMC and Mills LP.

(b)          Cumulative effect on prior years of adopting FIN 46 ona prospective basis effective March 31, 2004. See below and Note 3 to theconsolidated financial statements of TMC and Mills LP.

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**Restatement**

We announced on February 16,2005, that we would restate our audited financial results for the fiscal yearsended December 31, 2003 and 2002, and our unaudited quarterly results forthe first three quarters of 2004 to correct our accounting treatment of variousitems to conform with Generally Accepted Accounting Principles, or GAAP. Thefollowing describes the significant aspects of the restatement.

·       *Equity in earnings.*We changed our method of computing ourequity in the earnings of our joint ventures and have applied the changeretroactively to the origination of our involvement in each of these jointventures. Previously, we used an estimate of our economic ownership in thejoint venture based on projected cash flows. The method reflected in therestatement, allocates income to equity participants based on the terms of therespective partnership agreements upon an assumed liquidation of the jointventure at its depreciated book value as of the end of the reporting period.

·       *Capitalized interest.*We changed our method for capitalizingthe interest on borrowings made to fund our development and other constructionprojects. Previously, we capitalized interest using computed rates on excessproceeds from refinancing various loans based on an incremental interest costapproach. The amount we now capitalize is based on the stated interest rates,including amortization of deferred financing costs. The calculation includesinterest costs that theoretically could have been avoided, based first on projectspecific borrowings then on an assumed repayment of our highest rate debt, hadthe underlying development and construction activities not been undertaken.

·       *Other capitalized costs.* We changed our accounting forleasing and financing overhead to expense these costs as incurred to the extentof our partners’ interests in the underlying entities. We previouslycapitalized these costs and expensed them as the related fees were recognized.We also corrected our accounting for lease inducements to amortize them againstrevenue over the life of the lease.

·       *Gain on sale of joint venture interests.*In the thirdquarter of 2003, we reported a sale of partial interests in three jointventures and recognized an aggregate gain of $8.5 million. Due to ourcontinuing involvement in the joint ventures, Statement of Financial AccountingStandards No. 66 “Accounting for Sales of Real Estate”, or SFAS 66,precluded us from recognizing the transactions as sales in 2003. In therestatement, we recorded the sales and related gains in the second quarter of2004 when the underlying joint venture agreements were amended to remove theterms comprising the continuing involvement.

·       *Promotion funds.* Under our lease agreements, tenants arerequired to fund costs associated with promoting the property. The restatementreflects amounts received from tenants as “Recoveries from tenants” and theassociated expenses are reflected as “Recoverable from tenants.”  These amounts had previously been presentedon a net basis. Currently, revenues in excess of expenses are deferred untilthe associated costs are incurred and promotion costs are expensed as incurred.

·       *Other.*In conjunction with the restatement, we also madeadjustments to our accounting for various other miscellaneous items, including (i) calculatingstraight-line rent from the date the tenant takes control of the space, ratherthan our previous practice of recognizing rent as of the lease commencementdate; (ii) the correction of some purchase price adjustments; and (iii) restatinggains on residual land sales from joint ventures to expense capitalizedinterest upon sale.

In addition, we havegrossed up our income statement to no longer net certain fees and the costsincurred to earn those fees.

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**Adoption of FIN 46**

In ourForm 10-Q for the period ended March 31, 2004, we adopted Financial Accounting Standards BoardInterpretation No. 46(R), “Consolidationof Variable Interest Entities” (“FIN 46”) and applied it prospectively. Atthat time, we did not include all of our joint ventures with KanAm in theconsolidation. We have since determined that our joint ventures with KanAm andits affiliates are variable interest entities and that we are the primarybeneficiary of each of these joint ventures based on a  comparison of our voting rights relative toour obligation to absorb expected losses or right to receive residual returns. Asa result, we have consolidated twelve previously excluded KanAm joint ventureseffective March 31, 2004. In total the joint ventures consolidated uponthe adoption of FIN 46 had total assets of $2,701.7 million and totalliabilities of $1,932.7 million. The FIN 46 adoption also resulted inthe recordation, as of March 31, 2004, of a cumulative effect adjustment toincrease earnings by $42.1 million, net of minority interest of $9.3 million,reflecting additional capitalized interest as if the entities had beenconsolidated during their respective construction periods, some of which beganin 1995. The following presents the pro forma impact of FIN 46 on our incomehad we adopted its provisions retroactively.
| ** **                                               | ** ** | **Years Ended December 31,** | ** ** |
|----------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                               | ** ** | **2004**                                    | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** | **2000** | ** ** |
| ** **                                               | ** ** | ** **                                  | ** ** | **(Restated)** | ** ** | **(Restated)** | ** ** | **(Restated)** | ** ** | **(Restated)** | ** ** |
| TMC income from  continuing operations              |       | $                                           | 189.9      |   |   | $ | 115.0 |   |   |   | $ | 50.5 |   |   |   | $ | 14.0 |   |   |   | $ | 27.2 |   |   |
| TMC pro forma income from continuing operations          |       | $                                           | 190.9      |   |   | $ | 119.5 |   |   |   | $ | 55.4 |   |   |   | $ | 19.2 |   |   |   | $ | 33.6 |   |   |
| Mills LP income from continuing operations               |       | $                                           | 220.4      |   |   | $ | 146.1 |   |   |   | $ | 72.8 |   |   |   | $ | 22.9 |   |   |   | $ | 45.6 |   |   |
| Mills LP pro forma income from continuing operations     |       | $                                           | 221.5      |   |   | $ | 152.1 |   |   |   | $ | 80.0 |   |   |   | $ | 31.4 |   |   |   | $ | 56.4 |   |   |
| Earnings per share and  unit from continuing operations: |       |                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Diluted:                                                 |       |                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| As reported                                              |       | $                                           | 2.71       |   |   | $ | 1.91 |   |   |   | $ | 1.33 |   |   |   | $ | 0.55 |   |   |   | $ | 1.17 |   |   |
| Pro forma                                                |       | $                                           | 2.73       |   |   | $ | 2.01 |   |   |   | $ | 1.46 |   |   |   | $ | 0.75 |   |   |   | $ | 1.44 |   |   |

 

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**Item 7.**                        Management’sDiscussion and Analysis of Financial Condition and Results of Operations

The following discussion analyzes the financialcondition and results of operations of both The Mills Corporation, or TMC, andThe Mills Limited Partnership, or Mills LP, of which TMC is the sole generalpartner and in which TMC owned a 1.00% general partner interest and a 85.12%limited partner interest as of December 31, 2004. TMC conducts all of itsbusiness and owns all of its properties through Mills LP and Mills LP’s varioussubsidiaries. As the general partner of Mills LP, TMC has the exclusive powerto manage the business of Mills LP, subject to certain limited exceptions.

Except as otherwise required by the context, togetherTMC and Mills LP are referred to as “Mills,” “we,” “us,” and “our.”

This discussion should be read in conjunction with TMC’sand Mills LP’s consolidated financial statements and related notes includedelsewhere in this report and the Critical Accounting Policies outlined at theend of this section. Forward-looking statements contained herein arebased on current expectations and assumptions that are subject to risks anduncertainties and are not guarantees of future performance. Suchforward-looking statements include, among others, statements regardingdevelopment and construction costs, lease expirations and extension of loanmaturity dates. Actual results could differ materially because of factorsdiscussed in “Risk Factors” contained elsewhere in this report.

As more fully described inthe notes to our consolidated financial statements, we have restated ourpreviously issued consolidated financial statements to correct our accountingtreatment of certain items, including the methodology we used to determine ourequity in joint venture earnings and the rates applied in our capitalizedinterest calculations. All financial information contained herein has beenrevised to reflect the restatements.

**Overview**

We are a fully integrated,self-managed real estate investment trust (“REIT”) engaging in the ownership,development, redevelopment, leasing, acquisition, expansion and management of aportfolio of retail and entertainment-oriented centers. As of March 31,2005, we owned or had an interest in 41 properties, consisting of seventeen super-regionalMills Landmark Centers, twenty-two regional 21st Century Retail andEntertainment Centers and two International Retail and Entertainment Centers.Through an indirect wholly owned subsidiary, we provide development,management, leasing and financial services to entities owned by certain of ourjoint ventures.

**Executive Summary**

We are engaged in the development, acquisition andoperation of retail and entertainment real estate. Our primary source ofrevenue is tenant leases and therefore we endeavor to provide an environmentwhere consumers are drawn to our properties providing tenants the ability toachieve success through high sales volumes. Properly defining the market area andits demographics, along with evaluating trends in where and how people shop,are key elements both in identifying properties for acquisition and sites whichcan be successfully developed.

In 2002, we articulated a three-prong strategyof expanding beyond our super-regional Mills Landmark Centers to encompassregional 21st Century Retail and Entertainment Centers andInternational Retail and Entertainment Centers. Through December 31, 2004,this strategy has resulted in the acquisition of all, or a portion, of theownership interests in nineteen 21st Century Retail andEntertainment Centers, two Mills landmark centers and the opening of Madrid Xanadú, our first international,ground-up development. At the same time, our historical development pipelineproduced two additional Mills Landmark Centers. We anticipate continuing thisstrategy of expansion through property acquisition and ground-up developmentsin the U.S. and elsewhere.

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Operating results at ourindividual operating properties are impacted by the supply and demand forretail space, the strength or weakness of consumer demand and the financialhealth of retail tenants. Key measures used in evaluating the performance ofour individual operating properties include in-line tenant sales volume,in-line tenant sales per square foot, average rents, re-leasing spreads andoccupancy rates,

Individual operatingproperty performance is also monitored and evaluated using certain non-GAAPfinancial measures, specifically funds from operations (“FFO”) and netoperating income (“NOI”). FFO is a metric widely used in our industry and isused by us both as means to evaluate the performance of our properties and asone of several criteria to determine performance based bonuses. NOI affords usthe opportunity to assess the results of an individual property beforeconsidering its unique capital structure and historical asset base. FFO and NOIare supplemental measures of operating performance and should not be consideredas measures of liquidity, alternatives to net income or any other performancemeasure determined in accordance with GAAP. Further, FFO and NOI measurespresented by us may not be comparable to other similarly titled measures ofother companies. We urge the users of our financial statements, includinginvestors and potential investors in our securities, to carefully review thereconciliations of these measures to comparable GAAP measures contained below.

Interest rates are acritical factor in all facets of our business. Consistent with the real estateindustry, we finance our projects with significant amounts of debt sofluctuations in interest rates could have a significant impact on our resultsof operations. We attempt to mitigate our exposure to interest ratefluctuations by using long-term fixed rate or hedged to maturity debt on ourstabilized properties and by hedging a portion of our floating rateconstruction debt.

In acquiring a property weevaluate the property’s historical tenant sales levels, average rents and re-leasingspreads. Our ability to finance the investment through debt and/or the sale ofpartnership interests is also a factor. Additional considerations includeexpansion and/or redevelopment opportunities afforded by the property and thepotential to add value to the existing property by enhancing the tenant mixand/or adding dining and entertainment options.

For foreign investments,we evaluate additional factors such as the ability to work with local partnersand financiers; the stability of the local economy; costs associated withforeign taxes; currency hedging strategies; statutory requirements; and localcustoms.

**Operating PortfolioData**

Asnoted above, we use a number of key measures to evaluate the performance of ourindividual operating properties. We also use these measures in reviewing theperformance of our combined portfolio of comparable properties. Comparableproperties for this purpose are defined as stabilized wholly owned and/or jointventure operating properties that we have owned and/or that have been open forat least two years. Key measures for our comparable operating portfolio in 2004relative to 2003 were as follows:

·       In-linetenant sales increased in all categories: gross sales per square foot rose $31to $368; same space sales rose 3.5% and same center tenant sales per squarefoot rose $23 to $362.

·       Totalaverage rent per square foot increased $1.86 to $22.65: average rent per squarefoot for in-line tenants rose $2.12 to $32.68 while average rent persquare foot for anchor tenants remained relatively constant increasing $0.02 to$11.64.

·       Re-leasingspreads, excluding properties in the initial lease up period, rose 13.7% forin-line spaces and 30.6% for same space anchors.

·       Comparableoccupancy rose 1.5% to 96.3%; an overall occupancy rate of 93.3% was maintainedin both periods despite redevelopment efforts at various centers.

·       ComparableNOI increased 3.1% to $349.8 million.

·       Operatingincome increased 28.3% to $185.4 million.

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The general improvement in our key operating metricsreflects a strengthening U.S. economy in 2004 and the continuing achievementsof our remerchandising efforts. Re-leasing spreads illustrate that when leasesterminate we are able to re-lease the space to retailers at higher rents buteven more importantly to tenants that may generate much higher sales volumesthereby attracting more consumers to our properties and benefiting all of theretailers at the property.

NOI isa non-GAAP measure which we believe provides us the opportunity to betterassess the results of our operating properties before considering each property’sunique capital structure and historical asset base. For our purposes, NOI iscomprised of property revenue (minimum rent, percentage rent, recoveries fromtenants and other property revenue) less recoverable expenses and otheroperating expenses. Other operating expense includes bad debt expense butexcludes interest expense, management fees and depreciation and amortization.NOI measures presented by us may not be comparable to other similarly titledmeasures of other companies. Operating income, a component of net income, isconsidered by management to be the most comparable GAAP measure relative toNOI. Reconciliations between operating income and NOI follow (in millions):
| ** **                      | ** ** | **Years Ended December 31,** | ** ** |
|---------------------------------|------------|---------------------------------------------|------------|
| ** **                      | ** ** | **2004**                                    | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                      | ** ** | ** **                                  | ** ** | **(Restated)** | ** ** | **(Restated)** | ** ** |
| Consolidated:                   |       |                                        |       |   |   |   |   |   |   |   |   |
| Operating income                |       | $                                           | 185.4      |   |   | $ | 144.5 |   |   |   | $ | 88.2 |   |   |
| Add (deduct):                   |       |                                        |       |   |   |   |   |   |   |   |   |
| General and administrative      |       | 46.5                                        |       |   | 26.1 |   |   |   | 17.4 |   |   |
| Cost of fees                    |       | 29.9                                        |       |   | 16.9 |   |   |   | 15.3 |   |   |
| Depreciation and amortization   |       | 199.5                                       |       |   | 88.7 |   |   |   | 47.9 |   |   |
| Management and other fee income |       | (15.5                                       | )          |   | (34.8 | ) |   |   | (36.3 | ) |   |
| Consolidated NOI                |       | $                                           | 445.8      |   |   | $ | 241.4 |   |   |   | $ | 132.5 |   |   |

 

**Results of Operations**

The comparability of ouroperating results over the past three years has been significantly impacted bychanges in our consolidated property portfolio. As discussed under Liquidityand Capital Resources, during this three year period, we have acquired all or aportion of 21 properties; we have sold or conveyed a portion of six properties;and we have opened or re-opened four properties. In addition, as describedunder Critical Accounting Policies, on March 31, 2004, we adopted theprovisions of FIN 46 which resulted in consolidating the results of operationsof 15 previously unconsolidated joint ventures effective April 1, 2004.Our partners’ equity in the results of these consolidated joint ventures andthe attribution to us, as primary beneficiary, of the elimination of interestand fees against the results of the consolidated joint ventures are classifiedas “Minority interest in consolidated joint ventures” in our income statement. Inevaluating our results of operations on a consolidated basis, it is importantto isolate the impact of properties opened, acquired and sold during eitherperiod. In the following discussions we focus on our comparable operationswhich we define as properties that we have owned, that are stabilized, andwhich were open during the periods being compared.

***2004 compared to 2003:***

Mills LP net income rose to $271.7 million from $146.2million in 2003. The overall increase reflects gains on the sale or conveyanceof joint venture interests ($99.3 million in 2004 versus $0.7 million in 2003);decreased interest expense due to the capitalization of interest related tojoint ventures consolidated upon adoption of FIN 46; and $21.2 million ofdevelopment fees and interest income related to our Meadowlands Xanadudevelopment project. These increases were partially offset by foreign 

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currency exchange gains of$15.2 million in 2004 compared to gains of $38.6 million in 2003. Other factorscontributing to the change are discussed below.

TMC net income increasedto $232.0 million from $115.1 million in 2003 reflecting the increase in MillsLP net income and the impact of TMC’s increased ownership of Mills LP ascompared to that as of December 31, 2003. TMC’s ownership in Mills LP increasedto 86.12% as of December 31, 2004 from 78.88% at December 31, 2003primarilly due to redemption of Mills LP units.

**Portfolio results of operations:**

Thefollowing reconciles portfolio operating results to our consolidated amounts. Ourdiscussion and analysis focuses principally on comparable operating resultswhich does not distinguish between wholly and partially owned properties. Non-comparableincludes the results of recently opened and/or acquired properties.
| ** **                     | ** ** | **Comparable** | ** ** | **Non-comparable** | ** ** | **Total** | ** ** | **Less  Unconsolidated  Joint Ventures** | ** ** | **Consolidated** | ** ** |
|--------------------------------|------------|----------------|------------|--------------------|------------|-----------|------------|-----------------------------------------------|------------|------------------|------------|
| ***2004:***                    |       |           |       |               |       |      |       |                                          |       |             |       |   |   |   |   |   |   |   |   |
| Minimum rent                   |       |           | $          | 306.7              |       |      |       | $                                             | 245.0      |             |       | $ | 551.7 |   |   | $ | 140.5 |   |   |   | $ | 411.2 |   |   |
| Other revenue                  |       |           | 195.5      |               |       |      | 164.7      |                                          |       | 360.2            |       |   | 102.1 |   |   |   | 258.1 |   |   |
| Property revenue               |       |           | 502.2      |               |       |      | 409.7      |                                          |       | 911.9            |       |   | 242.6 |   |   |   | 669.3 |   |   |
| Property operating costs       |       |           | 152.4      |               |       |      | 143.2      |                                          |       | 295.6            |       |   | 71.7 |   |   |   | 223.5 |   |   |
| **Net  operating income**      |       |           | $          | 349.8              |       |      |       | $                                             | 266.5      |             |       | $ | 616.3 |   |   | $ | 170.9 |   |   |   | $ | 445.8 |   |   |
| **Mills  proportionate share** |       |           | $          | 248.3              |       |      |       | $                                             | 202.3      |             |       | $ | 450.6 |   |   | $ | 85.8 |   |   |   | $364.8 |   |   |

 
| ***2003 (Restated):***        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|-------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Minimum rent                  |   |   | $      | 291.0  |   |   |   | $      | 146.2  |   |   | $      | 437.2  |   |   | $      | 223.9  |   |   |   | $ | 213.3 |   |   |
| Other revenue                 |   |   | 192.1  |   |   |   | 95.6   |   |   | 287.7  |   |   | 135.0  |   |   |   | 152.7  |   |   |
| Property revenue              |   |   | 483.1  |   |   |   | 241.8  |   |   | 724.9  |   |   | 358.9  |   |   |   | 366.0  |   |   |
| Property operating costs      |   |   | 143.8  |   |   |   | 80.5   |   |   | 224.3  |   |   | 99.7   |   |   |   | 124.6  |   |   |
| **Net  operating income**     |   |   | $      | 339.3  |   |   |   | $      | 161.3  |   |   | $      | 500.6  |   |   | $      | 259.2  |   |   |   | $ | 241.4 |   |   |
| **Mills proportionate share** |   |   | $      | 274.3  |   |   |   | $      | 134.4  |   |   | $408.7 |   |   | $      | 167.3  |   |   |   | $ | 241.4 |   |   |

 

Includedabove as comparable are the results of joint venture operations that wereconsolidated under FIN 46 beginning April 1, 2004, and that were owned andwhose properties were open and stabilized during the periods presented. Operatingdata for both comparable and non-comparable joint ventures consolidated underthe provisions of FIN 46 for the nine months ended December 31, 2004 wasas follows (in millions):
| Property revenue                       |   | $     | 284.1  |   |
|----------------------------------------|--------|-------|--------|--------|
| Property  operating costs              |   | (98.5 | )      |
| Depreciation and  amortization expense |   | (88.7 | )      |
| Interest expense                       |   | (75.1 | )      |
| Other income, net                      |   | 17.7  |   |
| Net income                             |   | $     | 39.5   |   |

 

Comparable NOI rose $10.5million or 3.1% in 2004 compared to 2003. Mainstreet, our pushcart operation,contributed over half of the overall increase in minimum rent while theremainder resulted principally from the increases noted in re-leasing spreadsand average rents discussed previously under Operating Portfolio. The change inother revenue was primarily due to tenant lease buy-out income.

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**Corporate:**

The followingcompares the components of our corporate operations (in millions):
| ** **                           | ** ** | **2004**       | ** ** | **2003** | ** ** | **% Change** | ** ** |
|--------------------------------------|------------|----------------|------------|----------|------------|-------------------|------------|
| ** **                           | ** ** | **(Restated)** | ** ** |
| Management and  other fee income     |       | $              | 11.6       |     | $          | 15.7              |       |   | (26.1 | )% |   |
| Cost of fee  income                  |       | $              | 29.9       |     | $          | 16.9              |       |   | 76.9 | % |   |
| General and  administrative expenses |       | $              | 46.5       |     | $          | 26.1              |       |   | 78.2 | % |   |
| Depreciation and  amortization       |       | $              | 199.5      |     | $          | 88.7              |       |   | 124.9 | % |   |

 

Management and other fee income in 2004 does notinclude fees from joint ventures that have been consolidated since March 31,2004 under the provisions of FIN 46.

Cost of fee income for 2003 includes the amounts thatwere previously netted against management and other fee income. In 2004, theassociated revenues are classified both in management and other fee income andin the attribution to Mills of the elimination of fees included in minorityinterest. Cost of fees represented approximately the same percentage of grossfee revenues in both years.

General and administrative expenses increased $20.4million to $46.5 million in 2004 which reflects the incremental costs and ourongoing efforts to recruit, retain and reward the human resources necessary tomanage a larger and more complex portfolio as well as costs incurred in 2004 toimplement the requirements of the Sarbanes-Oxley Act and the impact of changesin our capitalization of costs.

Depreciation andamortization expense increased primarily due to non-comparable operations,higher capital expenditures for space alterations for tenants whose leasescommenced during 2004 or late in 2003, and our new software systems which cameon line July 1, 2004.

**Other:**

Thefollowing compares components of other income (expense) in 2004 to 2003 (inmillions):
| ** **                                | ** ** | **2004**       | ** ** | **2003** | ** ** | **Change** | ** ** |
|-------------------------------------------|------------|----------------|------------|----------|------------|------------|------------|
| ** **                                | ** ** | **(Restated)** | ** ** |
| Interest expense                          |       | $              | (148.5     | )        | $          | (80.6      | )          | $ | (67.9 | ) |
| Foreign currency  exchange (losses) gains |       | 15.2           |       | 38.6     |       | (23.4      | )          |
| Interest income                           |       | 9.0            |       | 11.5     |       | (2.5       | )          |
| Other, net                                |       | 9.2            |       | (3.2     | )          | 12.4       |       |
| Gain on sales of joint  venture interests |       | 99.3           |       | 0.7      |       | 98.6       |       |
|                                           |            |                |            |          |            |            |            |  |  |  |

 

*Interest expense*increased84.2% on a consolidated basis. Of this, $56.9 million is attributable to thejoint ventures consolidated upon the adoption of FIN 46 offset in part by additionalcapitalized interest relating to these joint ventures. The remaining increasewas due principally to higher average balances on our line of credit.

*Minority interest in consolidatedjoint ventures*is the result of our consolidation of jointventures pursuant to the provisions of FIN 46. The results of these jointventure operations are included in our consolidated results from April 1,2004. Equity in earnings of consolidated joint ventures represents our partners’share in the results of these operations. The elimination of intercompanyinterest and fees against the results of these operations is attributed to us,as primary beneficiary, and includes development fees of $39.6 million andinterest income of $8.3 million.

*Foreign currency exchange gains*resultprincipally from re-measuring our non-U.S. investment and advance balanceswhich are denominated in local currencies into the U.S. dollar for reportingpurposes. 

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Foreign currency exchange lossesrecorded during the first half of 2004 were recovered in the second half of2004 as the U.S. dollar weakened relative to the Euro and Canadian dollar.

*Interest income*declinedby 21.7% since $8.1 million is reflected as attribution to us of theelimination of interest and fees in 2004 whereas the comparable amount of $3.4million was reflected as interest income in 2003. Additionally, there was alower advance to Madrid Xanadú in 2004 resulting in lower interest income. Thesedecreases were partially offset by $3.5 million of income earned by ourconsolidated joint ventures during the last nine months of 2004.

*Other, net*increased $12.4million primarily due to additional land sale income of $19.1 million, of which$13.2 million relates to joint ventures consolidated upon the adoption of FIN46. This increase was partially offset by additional abandoned project costs of$6.1 million.

*Gain on sales of joint venture interests*reflects gains on the sale or conveyance of joint ventureinterests in six properties during 2004 compared to one in 2003 as more fullydescribed under Liquidity and Capital Resources.

**2003 compared to 2002:**

**Results of Operations**

In evaluating our results of operations on aconsolidated basis from year-to-year, it is important to isolate the impact ofproperties opened, acquired or sold during either period. Since for ourconsolidated portfolio, over 90% of the increase in each property related lineitem is related to the growth in the portfolio, our discussion will focus onthe portion of the increase or decrease related to our stabilized propertiesthat we have owned and/or that have been open for at least two years (“ComparableOperations”). The acquisitions and developments are discussed in the Liquidityand Capital Resources portion of this discussion.

The line items shown inthe following tables are the items we think are important in understanding ouroperations and which had significant changes from year-to-year.

***Comparison of Years ended December 31, 2003 and2002***

Thefollowing table reflects key items from our audited statements of income (inmillions):
| ** **                                | ** ** | **2003**       | ** ** | **2002**       | ** ** | **% Change** | ** ** |
|-------------------------------------------|------------|----------------|------------|----------------|------------|-------------------|------------|
| ** **                                | ** ** | **(Restated)** | ** ** | **(Restated)** | ** ** | ** **        | ** ** |
| **Revenues:**                             |       |           |       |           |       |              |       |   |   |   |   |   |   |
| Property revenue                          |       |           | $          | 366.0          |       |              |       | $ | 203.0 |   |   |   | 80.3 | % |   |
| Management and  other fee income          |       |           | 34.8       |           |       |              | 36.3       |   |   |   | (4.1 | )% |   |
| **Total  operating revenues**             |       |           | $          | 400.8          |       |              |       | $ | 239.3 |   |   |   |   |   |   |
| **Operating  Expenses:**                  |       |           |       |           |       |              |       |   |   |   |   |   |   |
| Property  operating expenses              |       |           | $          | 124.8          |       |              |       | $ | 70.5 |   |   |   | 77.0 | % |   |
| General and  administrative expenses      |       |           | 26.1       |           |       |              | 17.4       |   |   |   | 50.0 | % |   |
| Cost of fee  income                       |       |           | 16.9       |           |       |              | 15.3       |   |   |   | 10.5 | % |   |
| Depreciation and  amortization            |       |           | 88.7       |           |       |              | 47.9       |   |   |   | 85.2 | % |   |
| **Total operating expenses**              |       |           | $          | 256.5          |       |              |       | $ | 151.1 |   |   |   |   |   |   |
| **Interest income**                       |       |           | $          | 11.5           |       |              |       | $ | 7.4 |   |   |   | 55.4 | % |   |
| **Interest expense, net**                 |       |           | $          | 80.6           |       |              |       | $ | 55.7 |   |   |   | 44.7 | % |   |
| **Foreign  currency exchange gains, net** |       |           | $          | 38.6           |       |              |       | $ | 11.6 |   |   |   | 232.8 | % |   |

 

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Income before minority interest in Mills LP increased$73.0 million or 100% in 2003 primarily due to properties acquired in late 2002and during 2003, properties developed and placed in service in late 2002 andduring 2003 and foreign currency exchange gains.

*Propertyrevenue*—property revenue increased $163.0 million or80.3% from 2002 to 2003. Of the increase 7.0%, or $11.4 million, wascontributed by our Comparable Operations and is attributable to a $9.2 millionincrease in minimum rent. Nearly half of the increase in minimum rent wascontributed by Mainstreet, our push cart operation. Other increases in minimumrent were due to increased occupancy, higher rents and a full year of rents fortenants that moved into centers late in 2002.

*Management and other fee income*and*Cost of fee income—*management andother fee income decreased $1.5 million or 4.1% from 2002 to 2003. Cost of feeincome increased $1.6 million or 10.5% from 2002 to 2003. While management feeincome rose from our larger portfolio of unconsolidated joint ventures,developments fees decreased $4.4 million in 2003 when compared to 2002. Development,leasing and financing fees are related to specific transactions and tend tohave higher variability between periods. Cost of fee income was a lowerpercentage of the associated revenues since development fees were higher in2002 and development fees have the highest profit margin.

*Propertyoperating expenses*—property operating expenses, whichincludes recoverable from tenants and other operating, increased $54.3 million,or 77.0%, from 2002 to 2003. Of the increase 5.3%, or $2.9 million, was relatedto our Comparable Operations.

*Generaland administrative expenses*—general and administrativeexpenses increased $8.7 million or 50.0% from 2002 to 2003. Of the increase,$6.2 million is attributable to strengthening the corporate staff in terms ofsize, experience and knowledge base to better manage the larger portfolio andthe growing complexities of property acquisitions, international operations andour multi-faceted development opportunities.

*Depreciationand amortization**—*depreciationand amortization increased 85.2%, or $40.8 million from 2002 to 2003, of which$34.1 million is attributable to recently acquired and opened centers.

*Interestincome, net*—interest income, net increased $4.1million or 55.4% from 2002 to 2003. The increase is primarily attributable tointerest earned on advances to Madrid Xanadú made late in 2002 that wereoutstanding in 2003.

*Interestexpense*—interest expense increased $24.9 million or44.7% from 2002 to 2003. New properties contributed $34.6 million of additionalinterest expense while another $3.7 million was incurred on our line of credit,which was utilized to fund advances to joint ventures and for developmentexpenditures. Partially offsetting these increases was an increase in capitalizedinterest.

*Gain on foreign currencytransactions*—gain on foreign currency transactionsincreased $27.0 million or 232.8% from 2002 to 2003. The benefit resultsprimarily from higher investment balances remeasured based on the weakening USdollar against the Euro. These gains result from re-measuring our investmentand advance balances which are denominated in local currencies into the U.S.dollar for reporting purposes.

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**Unconsolidated joint ventures**

Thefollowing table reflects key items from the combined condensed results ofoperations of our unconsolidated joint ventures (in millions):
| ** **                  | ** ** | **2003**     | ** ** | **2002**     | ** ** | **% Change** | ** ** |
|-----------------------------|------------|--------------|------------|--------------|------------|-------------------|------------|
| ** **                  | ** ** | **Restated** | ** ** | **Restated** | ** ** | ** **        | ** ** |
| **Operating  revenues**     |       | $            | 359.4      |         | $          | 288.2             |       |   | 24.7 | % |   |
| **Operating expenses**      |       | $            | 226.9      |         | $          | 187.1             |       |   | 21.3 | % |   |
| **Interest expense**        |       | $            | 107.4      |         | $          | 82.5              |       |   | 30.2 | % |   |
| **Other income (expense)**  |       | $            | 10.9       |         | $          | 25.3              |       |   | (56.9 | )% |   |
| **Our  equity in earnings** |       | $            | 34.6       |         | $          | 24.0              |       |   | 44.2 | % |   |

 

*Operatingrevenues*—operating revenues increased $71.2 million or24.7% from 2002 to 2003. The increase is primarily attributable to recentlyacquired and opened unconsolidated joint ventures.

*Operatingexpenses*—operating expenses increased $39.8 million or21.3% from 2002 to 2003. The increase is primarily attributable to recentlyacquired and opened unconsolidated joint ventures.

*Interestexpense*—interest expense increased $24.9 million or 30.2%from 2002 to 2003. Almost half of the increase is attributable to the recentlyacquired and opened unconsolidated joint ventures. The other half isattributable to two construction loans that were refinanced in late 2002 withhigher fixed rate permanent mortgage loans.

*Otherincome (expense)*—other income (expense) decreased $10.6million or 44.2% from 2002 to 2003. Higher land sales in 2002 coupled withstart up costs at our Madrid Xanadú Snow Dome venture in 2003 account for $8.0million or 55.6% of the decrease.

*Our equity in earnings*—ourequity in earnings increased $10.6 million or 44.2% from 2002 to 2003. Theincrease is primarily attributable to the changes described above.

**Funds From Operations (“FFO”)**

FFO is a recognized metric by the real estateindustry, in particular, REITs. Accounting for real estate assets usinghistorical cost accounting under GAAP assumes that the value of such assetsdiminishes predictably over time. The National Association of Real EstateInvestment Trusts (“NAREIT”) stated in its April 2002 White Paper on Fundsfrom Operations, “since real estate asset values have historically risen orfallen with market conditions, many industry investors have consideredpresentations of operating results for real estate companies that usehistorical cost accounting to be insufficient by themselves.” As a result, theconcept of FFO was created by NAREIT. As defined by NAREIT, FFO is “net income(computed in accordance with GAAP), excluding gains or losses from sales ofproperty, plus depreciation and amortization, and after adjustments forunconsolidated partnerships and joint ventures. Adjustments for unconsolidatedpartnerships and joint ventures will be calculated to reflect funds fromoperations on the same basis.”

For management analysis purposes, we adjust the NAREITdefined FFO to exclude the effects of foreign currency exchange ratefluctuations reflected in net income arising primarily through there-measurement process of translating foreign investment and advance accountsfor inclusion in our U.S. dollar financial statements. Although we believe thisadjustment presents FFO on a more comparable basis to FFO presented by otherREITs, it is important to realize that our FFO computation may be significantlydifferent from that used by other REITs and, accordingly, may, in fact, not becomparable.

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TMC conducts all of its operations through Mills LP. Inaddition, if initiated by a holder of units of Mills LP, the minority interestin Mills LP is exchangeable in specified circumstances for either, in TMC’s solediscretion, shares of its common stock on a one-for-one basis or the cashequivalent. Accordingly, we present FFO data for both TMC and Mills LP. Managementuses FFO to measure operating performance of our business and as one of severalcriteria to determine performance based bonuses. We offer this measure toassist the users of our financial statements in analyzing our performance;however, this is not a measure of financial performance under GAAP and shouldnot be considered a measure of liquidity, an alternative to net income or anindicator of any other performance measure determined in accordance with GAAP.Investors and potential investors in our securities should not rely on thismeasure as a substitute for any GAAP measure, including net income.

Thefollowing reconciles income from continuing operations, which is considered tobe the most comparable GAAP measure, to FFO. We urge the users of our financialstatements, including investors and potential investors in our securities, tocarefully review the following reconciliation (in millions).
| ** **                                                                              | ** ** | **Years Ended December 31,** | ** ** |
|-----------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                              | ** ** | **2004**                                    | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                                                              | ** ** | ** **                                  | ** ** | **(Restated)** | ** ** | **(Restated)** | ** ** |
| TMC income from  continuing operations                                                  |       | $                                           | 189.9      |   |   | $ | 115.0 |   |   |   | $ | 72.8 |   |   |
| Add (deduct):                                                                           |       |                                        |       |   |   |   |   |   |   |   |   |
| Depreciation and amortization                                                           |       | 194.7                                       |       |   | 85.3 |   |   |   | 47.9 |   |   |
| Equity in depreciation and amortization from  unconsolidated joint ventures             |       | 33.4                                        |       |   | 61.7 |   |   |   | 45.3 |   |   |
| Partners’ share of depreciation and amortization  from consolidated joint ventures |       | (47.4                                       | )          |   | 3⁄4 |   |   |   | — |   |   |
| Gain on sales of joint venture interests                                                |       | (84.0                                       | )          |   | (0.7 | ) |   |   | — |   |   |
| Foreign currency exchange gains                                                         |       | (15.2                                       | )          |   | (38.6 | ) |   |   | (11.6 | ) |   |
| Equity in foreign currency exchange gains from  unconsolidated joint ventures           |       | 3⁄4                                      |       |   | (2.1 | ) |   |   | — |   |   |
| Mills LP common unit holders’ share of above  adjustments                          |       | (10.9                                       | )          |   | (22.1 | ) |   |   | (25.9 | ) |   |
| **TMC FFO**                                                                             |       | 260.5                                       |       |   | 198.5 |   |   |   | 128.5 |   |   |
| Add minority interest reflected as equity in Mills  LP                                  |       | 41.4                                        |       |   | 53.2 |   |   |   | 26.1 |   |   |
| **Mills  LP FFO**                                                                       |       | 301.9                                       |       |   | 251.7 |   |   |   | 154.6 |   |   |
| Less preferred  unit distributions                                                      |       | (44.8                                       | )          |   | (28.5 | ) |   |   | (2.6 | ) |   |
| **FFO available to Mills LP  common unit holders**                                      |       | $                                           | 257.1      |   |   | $ | 223.2 |   |   |   | $ | 152.0 |   |   |

 

**Liquidity and Capital Resources**

Ourconsolidated cash flow was as follows (in millions):
| ** **                                                | ** ** | **Years Ended December 31,** | ** ** |
|-----------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                | ** ** | **2004**                                    | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                                | ** ** | ** **                                  | ** ** | **(Restated)** | ** ** | **(Restated)** | ** ** |
| Net cash flows provided  (used) by:                       |       |                                        |       |   |   |   |   |   |   |
| Operating activities                                      |       | $                                           | 250.0      |   | $ | 168.9 |   |   | $ | 72.7 |   |   |
| Investing activities                                      |       | (540.3)                                     |       | (1,103.5 | ) |   | (552.4 | ) |   |
| Financing activities                                      |       | 427.4                                       |       | 871.2 |   |   | 549.5 |   |   |
| **Net increase (decrease) in cash and cash  equivalents** |       | 137.1                                       |       | (63.4 | ) |   | 69.8 |   |   |
| Cash and cash equivalents at beginning of the year        |       | 15.8                                        |       | 79.2 |   |   | 9.4 |   |   |
| **Cash  and cash equivalents at the end of the year**     |       | $                                           | 152.9      |   | $ | 15.8 |   |   | $ | 79.2 |   |   |

 

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Our cash flow data for the fiscal years ended 2004 and2003 is not wholly analogous due to our prospective adoption of FIN 46, whichresulted in the consolidation of the cash flows from 15 previouslyunconsolidated joint ventures as of March 31, 2004. Included in cash flowsprovided by investing activities for 2004 is $109.7 million attributable to thecash balances of these joint ventures at March 31, 2004. Distributionsfrom our joint ventures are not subject to any significant restrictions but aregoverned by the underlying joint venture documents which specify how cash isdistributed to each partner. Distributions to us from these joint venturessubsequent to March 31, 2004, amounted to $64.9 million.

At December 31, 2004, our balance of cash andcash equivalents was $152.9 million. This amount includes $112.2 million ofconsolidated joint venture cash balances. Cash and cash equivalents excluderestricted cash of $77.0 million which is used to pay operating and capitalexpenditures of operating properties that serve as collateral for secured loanfacilities. In addition, at December 31, 2004, our unconsolidated jointventures had combined cash and cash equivalents totaling $45.7 million,excluding restricted cash balances of $6.7 million.

Our primary sources of short-term liquidity are tenantleases that generate positive net cash flow from operations and cashdistributions from our unconsolidated joint ventures. Historically the net cashprovided by operating activities and distributions from joint ventures havebeen sufficient to fund annual debt service payments, recurring capitalexpenditures and distributions to stock and unit holders. We anticipate suchfunds will continue to be available to fund these payments.

We also have a $1.0 billion unsecured line of credit,of which $731.5 million was available at December 31, 2004. Cash neededfor acquisitions, development activities and major capital improvements areoften funded initially by our line of credit facility. Initial funding of thesecapital investments has historically been repaid with the proceeds ofconstruction loans, debt refinancing, common and/or preferred equity issuancesand proceeds from the sale of partnership interests. Since December 31,2004, we have made additional draws on our line of credit aggregating $188.0million. Our ability to draw on our line of credit is subject to themaintenance of the financial ratios specified in the line of credit agreement. Whilewe believe we will be able to maintain a capital structure that will enable usto have access to the line of credit, it is possible that certain of thefinancial ratios could constrain our ability to access the entire committedamount.

Thefollowing ratios are used by us as indicators of our overall liquidity and, assuch, are computed based on our proportionate share of both consolidated andunconsolidated operations and debt:
| ** **                                                                                                         | ** ** | **Years Ended December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                                                         | ** ** | **2004**                                    | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                                                                                         | ** ** | ** **                                  | ** ** | **(Restated)** | ** ** | **(Restated)** | ** ** |
| Coverage Ratios:                                                                                                   |       |                                        |       |   |   |   |   |   |   |   |   |
| Interest coverage ratio                                                                                            |       | 4.0                                         |       |   | 3.5 |   |   |   | 3.1 |   |   |
| Fixed charge ratio                                                                                                 |       | 2.8                                         |       |   | 2.5 |   |   |   | 2.5 |   |   |
| Leverage Ratio:                                                                                                    |       |                                        |       |   |   |   |   |   |   |   |   |
| Debt to market capitalization ratio                                                                                |       | 45.5                                        | %          |   | 51.4 | % |   |   | 49.7 | % |   |
| Debt Indicators:                                                                                                   |       |                                        |       |   |   |   |   |   |   |   |   |
| Weighted average maturity (in years)                                                                               |       | 3.8                                         |       |   | 4.6 |   |   |   | 5.9 |   |   |
| Weighted average interest rate                                                                                     |       | 5.4                                         | %          |   | 5.6 | % |   |   | 6.5 | % |   |
| Fixed rate debt percentage                                                                                         |       | 56.2                                        | %          |   | 60.7 | % |   |   | 82.5 | % |   |
| Fixed rate debt  percentage, including swaps in place through December 31, 2005, 2004 and  2003, respectively |       | 59.0                                        | %          |   | 79.8 | % |   |   | 96.8 | % |   |

 

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***Financing Activities***

We use various financing vehicles to fund capitalinvestments including construction loans, debt refinancing and common and/orpreferred equity issuances. Proceeds from the sale or conveyance of partnershipinterests are also available to supplement this funding. Over the last threeyears, we and our joint ventures have completed several such transactions.

In February 2005, the Pittsburgh Mills jointventure secured a construction loan with a total commitment of $175.0 million. Theinterest only loan matures in February 2008 and provides for two one-yearextensions. The loan is fully guaranteed by us and has an interest rate ofLIBOR plus 1.65%. The LIBOR margin and our guaranty are reduced as certainperformance measures are achieved.

The following sectionsprovide greater detail of the debt and equity transactions completed by us andour joint ventures during 2004.

*Debt Transactions*

*Line of Credit.  *In December 2004,we refinanced our existing $500.0 million unsecured line of credit and $200.0million secured term loan with an unsecured $1.2 billion credit facility (the “Facility”)which includes a revolving credit commitment of $1.0 billion and a term loan of$200.0 million. Borrowings under the Facility may be used to acquire or developreal property, make various permitted investments, repay indebtedness and fundother working capital needs. At our option, borrowings under the Facility bearinterest at LIBOR or a base rate plus an applicable margin based on ourleverage ratio. The margin on LIBOR rate loans varies between 0.95% and 1.45%and between 0.15% and 0.45% on base rate loans. We also pay a facility fee,based on our leverage ratio and ranging from 20 to 25 basis points on theaggregate loans and unused commitments. At December 31, 2004 the weightedaverage interest rate on the aggregate outstanding borrowings was 5.4%. TheFacility is scheduled to expire in December 2007 and contains a one-yearextension option.

The variouscovenants in the Facility are generally consistent with the types of covenantsthat were applicable under our previous revolving credit and term loanagreements prior to amendment and restatement. These operational restrictionsinclude, among other things, customary restrictions on our ability to:

·       Incurindebtedness or grant liens;

·       Paydividends or make stock repurchases;

·       Makeinvestments, acquire businesses or assets or enter into joint ventures;

·       Makeexpenditures on construction assets that are not leased;

·       Engagein business other than those that acquire, develop, lease, re-develop or manageretail real property and business incidental thereto;

·       Enterinto transactions with partners and affiliates; and

·       Merge,consolidate or dispose of assets.

We are alsorequired to comply with various ongoing financial covenants, including withrespect to:

·       Maximumleverage and secured leverage ratios;

·       Minimumcombined equity value (determined according to the difference between ourcapitalization value and our outstanding indebtedness); and

·       Minimuminterest coverage ratio.

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If we do not comply with the various financial andother covenants and requirements in the Facility, the lenders may, subject tovarious customary cure rights, require the immediate payment of all amountsoutstanding under the Facility.

On February 16, 2005, we entered into a waiveragreement with respect to our Facility. The waiver agreement waives anypotential event of default or event of default under the Facility that weexpect would have been caused by our restatement of financial results. As aresult of the restatement, among other things, we would no longer be able tomake the representations under the Facility concerning the conformity with GAAPof our previously delivered financial statements, or confirm our priorcompliance with certain obligations concerning the maintenance of our books andrecords in accordance with GAAP. Because the restatement was not expected toresult in our having breached any of the financial covenants in the Facility,the waiver agreement did not waive or modify any such financial covenants. Contemporaneouslywith the filing of this Form 10-K, we satisfied all conditions contained in thewaiver agreement, and therefore the Facility continues to remain available andin full force and effect.

*Operational Subsidiary Debt.  *InDecember 2004, in connection with the sale of a partnership interest, theDel Amo Fashion Center mortgage was refinanced. The new $316.0 million mortgageis interest-only through maturity and provides for an additional $134.0 millionin redevelopment financing. The stated maturity is January 2008 with twoone-year extension options. We have guaranteed $25.0 million of the principalbalance.

In connection withthe acquisition of the 50.0% interest in the properties from GM Trusts in October 2004,we obtained the following financings:

·       The$196.8 million Briarwood mortgage loan was amended and restated. $192.4 millionof the loan is interest only through maturity, while the remaining $4.4 millionamortizes on a 5 year amortization schedule though July 2009. The loanbears interest at a blended interest rate of 4.48% and matures November 2009.

·       The$148.2 million Falls mortgage loan was amended and restated. The interest onlyloan bears interest at a blended interest rate of 4.34% and matures November 2009.

·       The$293.8 million Stoneridge Mall mortgage loan was amended and restated. The loanbears interest at LIBOR plus 0.95% and matures November 2009. An interestrate swap fixes the interest rate at 4.63% on a notional amount of $176.3million through maturity.

·       Weassumed the $46.2 million Hilltop mortgage loan. The interest only loan bearsinterest at LIBOR plus 0.65% and matures October 2005.

·       Weassumed the $99.0 million Lakeforest mortgage loan. The interest only loanbears interest at LIBOR plus 0.65% and matures October 2005.

·       Weassumed the $75.0 million Marley Station mortgage loan. The interest only loanbears interest at LIBOR plus 0.65% and matures October 2005.

·       Weassumed the $120.0 million Mall at Tuttle Crossing mortgage loan. The loanbears interest at 5.05% and is interest only through November 2006. Thereafter,it amortizes on a 30-year schedule with a balloon payment due at maturityin November 2013.

·       Wefinanced the $182.0 million Meadowood Mall mortgage loan. The loan bearsinterest at LIBOR plus 0.87% and matures in November 2009. An interestrate swap fixes the interest rate at 4.08% on a notional amount of $109.2million through November 2007.

In October 2004, the Colorado Mills joint venturerefinanced its construction loan with a $170.0 million mortgage. The mortgagebears interest at LIBOR plus 1.78% and is interest-only through maturity. Thestated maturity date is November 2007 but we intend to exercise our twoone-year extension options.

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In April 2004, the Discover Mills joint ventureconstruction loan was amended and componentized into a $119.4 million mortgageand a $42.7 million mezzanine loan. The mortgage bears interest at LIBOR plus1.75% while the mezzanine loan bears interest at LIBOR plus 3.00%. On anotional amount of $39.5 million of the mezzanine loan, interest rate swaps fixthe interest rate at 4.69% through March 2005, 6.29% from April 2005though March 2006 and 7.53% from April 2006 through maturity. Bothhave a stated maturity of April 2007 with one-year extension options andare fully guaranteed by us. Our guaranty for the mortgage is reduced whencertain performance measures are achieved.

In February 2004, construction financing forVaughan Mills, an unconsolidated joint venture, was obtained from an affiliateof our partner in the project. The loan has a total commitment of $157.8million and a stated maturity of March 2006 with a one-year extensionoption. We guarantee 50.0% of the loan which has an interest rate of CDOR plus2.25%. The CDOR margin and our guaranty are reduced as certain performancemeasures are achieved.

In February 2004, we refinanced the CincinnatiMills construction loan and the commitment was increased to $122.0 million. Theloan is 75% guaranteed by us and matures in February 2007 although itprovides for two one-year extensions. The interest rate is LIBOR plus 2.00%. Aninterest rate swap fixes the interest rate at 5.88% through October 2006on a notional amount of $57.0 million. Our guaranty is reduced when certainperformance measures are achieved.

In January 2004, in connection with theacquisition of Westland Mall, we obtained a $58.8 million mortgage. Themortgage bears interest at 4.95% and is interest-only through February 2007.Thereafter, it amortizes on a 30-year schedule with a balloon payment duein February 2011.

In January 2004, werefinanced substantially all of the Concord Mills Marketplace construction loanwith a $16.4 million mortgage. The new mortgage bears interest at 5.76% and isamortizing on a 30-year schedule with a balloon payment due in February 2014.

*Equity Transaction*

In August 2004, wesold 316,250 shares of Series F Convertible Cumulative RedeemablePreferred Stock in an offering made under Rule 144A of the Securities Actto qualified institutional buyers generating net proceeds of $306.2 million.

***Investing Activities***

In January 2005, together with our partner inVaughan Mills, we purchased St. Enoch Centre in Glasgow, Scotland for $514.4million, excluding transaction costs. Each of us owns an undivided 50% interestin the property. The transaction was financed with a mortgage on the property,our share of which was $179.3 million, and cash. In March 2005, weacquired Southdale Center near Minneapolis, MN and Southridge Mall nearMilwaukee, WI for $451.6 million. The transaction was financed with a $186.6million mortgage for Southdale Center, a $124.0 million mortgage for SouthridgeMall, and cash.

The following sections describe ourinvesting activities during 2004.

*Acquisitions*

In October 2004, we purchased a 50% interest innine regional mall properties (the “GM Portfolio”). We paid $452.1 million incash for the equity in the underlying entities. Our proportionate share ofpre-existing property debt assumed was $170 million, and our proportionateshare of property debt incurred in connection with the transaction was $410million. The GM Portfolio has a combined GLA of 8.9 million square feet andincludes Briarwood Mall, Columbus City Center, The Falls, Hilltop Mall,Lakeforest Mall, Marley Station, Meadowood Mall, Stoneridge Mall and The Mallat Tuttle Crossing.

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In August 2004, we acquired our partner’sinterest in Madrid Xanadú and the Snow Dome venture located at the property foran initial price of $45.0 million. The price is subject to adjustment utilizinga formula based on 2003 operating results. The amount, if any, of theadjustment has not been determined.

In January 2004, weacquired Westland Mall near Miami, Florida for $78.8 million.

*Dispositions*

In December 2004, we sold a 50% joint ventureinterest in Del Amo Fashion Center for $221.8 million, including $158.0 millionof the venture’s debt. We recognized no material gain or loss on the sale. InDecember 2004, we also sold a 50% joint venture interest in a parcel ofland adjacent to the Del Amo Fashion Center for $22.8 million and recognized a$15.3 million gain.

In August 2004, we and KanAm sold a 50% jointventure interest in Ontario Mills for $170.3 million. The joint ventureinterest sold consisted of KanAm’s entire interest and a portion of ourinterest. We received proceeds of $50.7 million on our portion of the sale andrecognized a gain of $39.6 million.

In March 2004, we conveyed a 51% joint ventureinterest in Opry Mills for proceeds of $68.9 million and recognized a gain of$35.9 million. In conjunction with this transaction, we terminated a swapagreement and recorded a $5.3 million charge against the gain.

In June 2004, werecorded a gain of $8.5 million from our August 2003 conveyance to KanAmof an additional 6.375% partnership interest in each of the Arundel Mills,Concord Mills and Grapevine Mills centers for proceeds of $28.1 million. Due toour continuing involvement in the joint ventures, we were precluded fromrecognizing the transactions as sales until June 2004 when the underlyingjoint venture agreements were amended to remove the terms comprising thecontinuing involvement.

*Projects Opened*

*VaughanMills**—Toronto, Canada:  *InNovember 2004, we opened the first enclosed, regional shopping center tobe built in Canada in over 14 years opened. The $240.0 million project wasdeveloped jointly with Ivanhoe Cambridge, a shopping center developer based inMontréal, Canada and was funded by the $157.8 million construction loandescribed previously with the remainder of the funding provided equally by usand Ivanhoe Cambridge. We each own an undivided 50% interest in the project astenants in common and receive 50% of all revenues and are responsible forfunding 50% of all expenses. At any time after the fourth anniversary of theopening of the project, either co-owner may exercise a buy-sell provision.

*Cincinnati Mills**—Cincinnati, OH:  *In August 2004,we completed our $169.0 million renovation of the mall which we acquired in September 2002.The $169.0 million project was funded primarily by the $122.0 millionconstruction loan described above.

*Projects UnderConstruction*

We currently have two projects under construction,which we anticipate will have an aggregate of 3.3 million square feet ofGLA upon completion. We are currently estimating the total development cost forthese projects at $1.1 billion.

*PittsburghMills**—Pittsburgh,PA:  *This project is scheduled to open during the summer of2005. The joint venture building the center includes KanAm, AV Associates andus. We have a 37.5% capitalcontribution percentage and a 56.3% residual sharing interest in the jointventure. As of December 31, 2004, the project was 72.8% pre-leased,including 9 anchor stores. The project is expected to contain approximately1.1 million square feet of GLA at full build-out at an estimated aggregateproject cost of approximately $218.3 million. The project costs will be fundedby construction loans and equity 

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contributions from us andour joint venture partners. Our total expected equity contribution to theproject is $26.0 million. At December 31, 2004, we had contributed $57.8million which, as a result of land sales and other project recoveries, wasreduced to $26.1 million in January 2005.

*MeadowlandsXanadu**—EastRutherford, NJ:  *In December 2003, we executed aredevelopment agreement with the New Jersey Sports & ExpositionAuthority, or the NJSEA, pursuant to which we will redevelop the ContinentalArena site. The project is being developed by a joint venture that includesMills, KanAm and Mack-Cali Realty Corporation, or Mack-Cali. We executed aground lease for the site in October 2004, under which the joint ventureis required to pay an initial deposit totaling $160.0 million, of which $50.0million was paid to escrow in March 2005 after receiving the requiredapprovals and permits to proceed with the project.

Upon completion, Meadowlands Xanadu is planned toinclude a 2.2 million square feet family entertainment and recreation complexwith five themed zones and an office and hotel component with four officebuildings and a 520-room hotel with conference and exhibition facilities. As ofDecember 31, 2004, we had invested $109.3 million, includingcapitalized interest, KanAm had invested $210.2 million and Mack-Cali hadinvested $17.1 million.

In October 2004, anentity owned by Meadowlands Mills acquired a 587-acre tract of land adjacent tothe Continental Arena site, or the Empire Tract. In connection with theredevelopment agreement with NJSEA, we conveyed the Empire Tract to anon-profit conservation trust in exchange for a payment or credit of $26.8million granted by the NJSEA.

*Projects UnderDevelopment*

In addition to the projects under construction, we areactively pursuing the development of other projects. These projects are atvarious stages of the due diligence process during which we determinesite/demographic viability, negotiate tenant commitments and work through thethird-party approval processes. Generally we will not begin constructionuntil we have completed our due diligence process and obtained pre-leasingcommitments. While we currently believe these projects will ultimately becompleted, we cannot assure you that they will actually be constructed or thatthey will have any particular level of operational success or ultimate value.

We currently have a number of projects underdevelopment. The four most advanced projects are discussed below. Ourinvestment in these four projects was $59.5 million as of December 31, 2004.

*MercatiGenerali**—Rome, Italy.  *OnNovember 19, 2004, the City of Rome announced that we were the winningbidder to develop an urban retail, entertainment and cultural center on theformer site of Mercati Generali, a general food market near the Roman Forum andColiseum. On January 24, 2005, the City of Rome issued the ProvisionalAward for the proposed development. We anticipate receiving the Final Award nolater than the end of the second quarter of 2005. Once the City of Rome hasissued the Final Award, we have 60 days to execute a Concession Agreement withthe City, under which we will have the right to develop and operate theproperty for 60 years. Our development partners for the project are LamaroAppalti S.p.a. and Cogeim S.p.a. We have executed a preliminary joint ventureagreement and expect to execute a definitive joint venture agreement before weexecute the Concession Agreement with the City of Rome. We anticipate breakingground in 2005; the project is currently expected to provide approximately830,000 square feet of leisure, cultural and retail options.

*108North State Street**—Chicago,IL.  *In June 2002, we were selected by the City of Chicagoto negotiate the development of 108 N. State Street, a key city block oppositethe Marshall Fields department store in downtown Chicago, as a 21stCentury Retail and Entertainment Center mixed-use project including retail,office, residential and hotel uses. We are proceeding with obtaining theappropriate entitlements. 

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We continue to discuss theproposed retail portion with prospective tenants and continue to negotiate withan office developer to develop the office portion of the project.

*Woodbridge, VA.  *In 2004, weacquired property in northern Virginia located near Potomac Mills. We areproceeding with obtaining entitlements at the state and local level. We and ourpartner, Lerner Enterprises, plan on developing an open air 21stCentury Retail and Entertainment Center.

*SanFrancisco Piers 27-31**—SanFrancisco, CA.  *In April 2001, the San Francisco PortCommission awarded us the exclusive right to negotiate for a long-term lease onPiers 27-31 on the San Francisco waterfront on which to develop a 21stCentury Retail and Entertainment Center full-price mixed-use retail, office,entertainment and recreation project. These negotiations began in 2003 and areongoing. Concurrent with these negotiations, we are proceeding with obtainingentitlements at the state and local level.

*Projects UnderRedevelopment and Renovation*

We are also engaged in various redevelopment andrenovation projects at some of our operating properties. The following is abrief description of those projects:

*Sawgrass**—Ft. Lauderdale, FL.  *In 2004, wecompleted our renovation to upgrade the fourteen year old shopping center,which included replacing the flooring and interior graphics, introducedbrighter color schemes, added new lighting fixtures and improved the seatingareas in the food courts. We also improved the exterior of the shopping center.We also begun construction of a 110,000 square foot open-air promenade calledThe Colonnade, which will offer additional retail and dining options, and isexpected to open in the fourth quarter of 2005.

*DelAmo**—Los Angeles, CA.  *Wecontinue to pursue our plan to redevelop our Del Amo Fashion Center that willinclude the addition of new department store anchors and the introduction ofadditional tenants with higher price points than the property’s current tenants.In 2004, we demolished the vacant wing, formerly anchored by Montgomery Ward,and have begun to construct an open air retail and lifestyle wing, which weanticipate opening in the first half of 2006. Additionally, it is anticipatedthat a parcel of peripheral land will be sold.

In addition to theprojects discussed above, we are also conducting due diligence on several otherproposed sites for future projects, including sites in Boston, Massachusetts;Tampa, Florida; and San Francisco, California. We are also reviewing otherpotential retail and entertainment development opportunities internationally.For example, we are exploring follow-on opportunities beyond Madrid Xanadú forsites in and around Seville, Valencia and Barcelona, Spain. In addition, we arepursuing various opportunities in the United Kingdom and Italy.

***Strategic Relationships***

*KanAm/KanAm Grund:  *Wehave a long-standing relationship with KanAm. KanAm currently manages approximately$10 billion on behalf of private and institutional investors throughpublicly offered real estate funds and private placements. Since 1994, KanAmhas invested approximately $1.0 billion of equity in our various projects. Asof December 31, 2004, KanAm also owned 1.23% of the common partnershipunits of Mills LP.

*Ivanhoe Cambridge:  *Wehave a master agreement with Ivanhoe Cambridge, pursuant to which we haveagreed, if we both deem feasible, to jointly acquire, develop, construct, ownand operate Mills Landmark Centers in four provinces of Canada as well as oneor more Block projects throughout Canada. This agreement extends through December 31,2015.

*GM Trusts:  *InAugust 2004, we purchased an approximate 50% managing member LLC interestin nine regional mall properties from GM Trusts which is the holding companyfor certain investment 

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advisors andfiduciaries and, through its affiliates, currently manages over $148 billion intotal assets for affiliated and unaffiliated trusts.

***Future Capital Requirements***

We anticipate that futureexpenditures including operating expenses, interest expenses and recurringprincipal payments on outstanding indebtedness, recurring capital expenditures;dividends to stockholders in accordance with REIT requirements anddistributions to common unitholders, will be provided by cash generated fromoperations and potential peripheral land sales. We anticipate that futuredevelopment and non-recurring capital expenditures will be funded from cashfrom operations, proceeds from land sales, future borrowings, joint ventureequity contributions and proceeds from issuances of preferred and/or commonequity. Access to such future capital is dependent on many factors outside ofour control. We believe that we will have access to additional capitalresources sufficient to expand and develop our business and to complete theprojects currently under development. If we cannot raise the necessary capital,our immediate and long-term development plans could be curtailed.

***Off Balance Sheet Arrangements***

As of December 31,2004, our material off-balance sheet commitments were as follows:

·       Wehad provided letters of credit totaling $22.3 million, of which$10.0 million relates to Meadowlands Xanadu, $5.0 million relates toPittsburgh Mills and $5.8 million relates to Vaughan Mills. As of December 31,2004 no amounts had been drawn on the letters.

·       Wehad guaranteed $113.5 million of our unconsolidated joint venture debt,which will be reduced as certain performance criteria are met. We generallyguaranty our share of any construction loan and our joint venture partners’share of the construction loan until permanent financing is obtained.

·       Wegenerally guarantee a 9% preferred return on KanAm’s equity balance in ourconsolidated joint ventures until permanent financing is obtained.

***Contractual Obligations***

Thetable below summarizes projected payments due under our contractualobligations, in millions, as of December 31, 2004:
| ** **                         | ** ** | **Total** | ** ** | **Less Than  One Year** | ** ** | **One to  Three Years** | ** ** | **Three to  Five Years** | ** ** | **Over  Five Years** | ** ** |
|------------------------------------|------------|-----------|------------|-----------------------------------|------------|-----------------------------------|------------|------------------------------------|------------|---------------------------|------------|
| Debt obligations                   |       | $         | 3,826.1    |                              |       | $                                 | 18.2       |                               |       |                      | $          | 1,760.3 |   |   | $ | 1,043.0 |   | $ | 1,004.6 |   |
| Capital lease obligation           |       | 0.5       |       |                              | 0.5        |                              |       |                               | 3⁄4     |                      |       | 3⁄4 |   | 3⁄4 |   |
| Operating lease  obligations(1)    |       | 827.0     |       |                              | 165.1      |                              |       |                               | 9.8        |                      |       | 17.4 |   | 634.7 |   |
| Capital expenditure commitments(2) |       | 161.4     |       |                              | 132.2      |                              |       |                               | 29.2       |                      |       | 3⁄4 |   | 3⁄4 |   |
|                                    |            |           |            |                                   |            |                                   |            |                                    |            |                           |            |  |  |  |  |  |  |  |  |  |

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(1)          Includes the MeadowlandsXanadu ground lease obligation.

(2)          A substantial portion ofour capital expenditures is expected to be financed by construction loans.

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Thetable below summarizes our proportionate share of projected payments due underthe contractual obligations of our unconsolidated joint ventures, in millions,as of December 31, 2004:
| ** **                      | ** ** | **Total** | ** ** | **Less Than  One Year** | ** ** | **One to  Three Years** | ** ** | **Three to  Five Years** | ** ** | **Over  Five Years** | ** ** |
|---------------------------------|------------|-----------|------------|-----------------------------------|------------|-----------------------------------|------------|------------------------------------|------------|---------------------------|------------|
| Debt obligations:               |       |      |       |                              |       |                              |       |                               |       |                      |       |   |   |   |   |   |   |   |   |
| Total                           |       | $         | 1,073.0    |                              |       | $                                 | 117.8      |                               |       |                      | $          | 192.0 |   |   |   | $ | 638.9 |   |   |   | $ | 124.3 |   |   |
| Amount guaranteed by us         |       | 156.8     |       |                              | 3.9        |                              |       |                               | 74.0       |                      |       |   | 78.9 |   |   |   | 3⁄4 |   |   |
| Capital lease obligation        |       | 10.7      |       |                              | 3.6        |                              |       |                               | 4.9        |                      |       |   | 2.2 |   |   |   | 3⁄4 |   |   |
| Capital expenditure commitments |       | 5.9       |       |                              | 5.9        |                              |       |                               | 3⁄4     |                      |       |   | 3⁄4 |   |   |   | 3⁄4 |   |   |
|                                 |            |           |            |                                   |            |                                   |            |                                    |            |                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

**Critical Accounting Policies**

Our significant accounting policies are described indetail in Note 2 of the Notes to Consolidated Financial Statementscontained elsewhere in this report. The following briefly describes thoseaccounting policies that we believe are most critical to understanding ourbusiness and the preceding discussion and analysis:

*Consolidation*.   Weconsolidate the accounts of TMC, Mills LP and all subsidiaries that we control.We do not consider ourselves to be in control of an entity when major businessdecisions require the approval of at least one other partner. All significantintercompany transactions and balances have been eliminated in consolidation. Wealso consolidate entities that are considered to be Variable Interest Entities(VIE’s) under the provisions of FIN 46 and for which we have been determined tobe the primary beneficiary. The determination of whether an entity is a VIErequires an in-depth knowledge of the structure of the economics and governanceof the entity, and judgment is necessary in how this knowledge is applied tothe rules described by FIN 46. At March 31, 2004 the results ofapplying this judgment to our situation was to consolidate 15 joint ventureswith total assets of $2,701.7 million and total liabilities of $1,932.7million. The effects of the elimination of interest and fees revenue andexpense due to intercompany transactions with consolidated joint ventures areattributable to us as primary beneficiary.

*Revenue Recognition*.   Minimumrent from income producing properties is recognized on a straight-line basisover the terms of the respective leases and includes amortization of deferredrevenue resulting from acquired leases and the amortization of leaseinducements. Judgment is required to determine when a tenant takes control ofthe space, and accordingly when to commence the recognition of rent. As a partof the restatement of our financial statements, we revised our previouspractice of recognizing rent beginning with the lease commencement date torecognizing income from the date the tenant has control of the space. Theimpact of this on retained earnings was $6.4 million and it had an immaterialimpact on net income for the periods presented. Percentage rent is recognized whentenants’ sales have reached certain sales levels as specified in the underlyinglease. Recoveries from tenants for real estate taxes and other operatingexpenses are recognized as revenue in the period the applicable costs areincurred.

*REIT status*.   In order tomaintain our status as a REIT, we are required to distribute 90% of our taxableincome in any given year and meet certain asset and income tests in addition toother requirements. We monitor our business and transactions that maypotentially impact our REIT status. If we fail to meet our REIT status we wouldbe required to pay federal income taxes at regular corporate rates for a periodof four additional years before we could reapply for REIT status.

*Acquisition of Income Producing Real Estate*.   Thecost of acquired income producing property represents the allocation ofpurchase price to such assets based on appraisals and other valuation methodsused in accounting for the acquisition and includes, if material, an allocationto identifiable intangible assets such as above/below market leases and atmarket leases in place at date of acquisition based on their fair values.External costs directly related to acquisition opportunities we are activelypursuing are capitalized. If we are successful in completing the acquisition,such costs are allocated to the acquired 

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property as part of thepurchase price. If not, such costs are expensed in the period it becomes likelythe acquisition will not be completed.

Income producing properties are individually evaluatedfor impairment when various conditions exist that may indicate that it isprobable that the sum of expected undiscounted future cash flows from aproperty is less than its historical net cost basis. Upon determination that apermanent impairment has occurred, we record an impairment charge equal to theexcess of historical cost basis over fair value. In addition, we write offcosts related to predevelopment projects when we determine it is no longerprobable that we will develop the project. Determining the fair value of anasset, and accordingly the impairment change, if any, to record, requiresmaking judgmental estimates of the future cash flows and operations of theitem, together with the selection of an appropriate discount rate.

*Equity Method*.   Equity in the income or loss of jointventures is recorded on the equity method of accounting. We allocateincome to equity participants based on the terms of the respective partnershipagreements upon an assumed liquidation of the joint venture at its depreciatedbook value as of the end of the reporting period. This requires an in-depthunderstanding of our joint ventures, many of which are complex. It is necessaryto understand the implications of particular transactions during the year onthe calculations.

*Foreign Currency Translation*.   Thefunctional currency for entities operating or projects in development outsidethe United States is the currency of the country in which the entity or projectis located. The financial statements of such entities are translated from thefunctional currency into U.S. dollars for inclusion in our financialstatements. In addition, our foreign investment and related advances aredenominated in the foreign entity’s functional currency and re-measured to ourfunctional currency of the U.S. dollar. We expect to settle these amounts inthe foreseeable future through distributions from the foreign entity.Accordingly, gains or losses resulting from the re-measurement are included inthe determination of net income.

*Capitalization of Development and Leasing Costs*.   Wecapitalize the costs of development and leasing activities of our properties. Thesecosts are incurred both at the property location and at the regional andcorporate office level. The amount of capitalization depends, in part, on theidentification and justifiable allocation of certain activities to specificprojects and leases. Differences in methodologies of cost identification anddocumentation, as well as differing assumptions as to the time incurred onprojects, can yield significant differences in the amounts capitalized.

*Capitalization of Interest*.   Interestis capitalized on real estate and development assets, including investments injoint ventures, in accordance with the provisions of Statement of FinancialAccounting Standards, or SFAS, No. 34, “Capitalization of Interest Cost”,and SFAS No. 58, “Capitalization of Interest Cost in Financial Statementsthat include Investments Accounted for by the Equity Method.” Thecapitalization period commences when development begins and continues until theasset is ready for its intended use or is abandoned. The calculation includesinterest costs that theoretically could have been avoided, based first on projectspecific borrowings then on an assumed repayment of our highest rate debt, hadthe underlying development and construction activities not been undertaken. Judgmentis necessary to determine specifically when to commence and to ceasecapitalization, particularly in situations involving our redevelopmentprojects.

**Item 7A.**                Quantitative andQualitative Disclosures About Market Risk

In the normal course of business, we and our jointventures are exposed to the effect of interest rate changes. To limit thisexposure, we follow established risk management policies and proceduresincluding the use of a variety of derivative financial instruments to manage, orhedge, interest rate risk. We do not use derivative instruments for speculativepurposes. Derivative instruments used for hedging must be effective in reducingthe interest rate risk exposure. Changes in the hedging instrument’s fair valuerelated 

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to the effective portionof the risk being hedged are included in accumulated other comprehensive income(loss). Hedge effectiveness criteria also require that it be probable that theunderlying transaction occurs. Hedges that meet these criteria are formally designatedas cash flow hedges at the inception of the derivative contract. When the termsof an underlying transaction are modified, or when the underlying hedged itemceases to exist, the change in the fair value of the derivative instrument ismarked to market with the change included in net income in each period untilthe derivative instrument matures. Any derivative instrument used for riskmanagement that becomes ineffective is marked to market through earnings.

Depending on the underlying exposure, interest rateswaps, caps and floors, options, forwards or a combination thereof, may be usedto manage interest rate risk. Interest rate swaps and collars are contractualagreements with third parties to exchange fixed and floating interest paymentsperiodically without the exchange of the underlying principal amounts (notionalamounts). In the unlikely event that a counterparty fails to meet the terms ofan interest rate swap contract or collar agreement, the exposure is limited tothe interest rate differential on the notional amount. We do not anticipatenon-performance by any of our counterparties. Net interest differentials to bepaid or received under a swap contract and/or collar agreement are accrued asinterest expense as incurred or earned.

Interest rate hedges, designated as cash flow hedges,hedge the future cash outflows on debt. Interest rate swaps that convertvariable payments to fixed payments, interest rate caps, floors, collars andforwards are cash flow hedges. The unrealized gains or losses in the fair valueof these hedges are reported on the balance sheet and included in accountspayable and other liabilities or in investment in unconsolidated joint ventureswith a corresponding adjustment to either accumulated other comprehensiveincome or earnings depending on the hedging relationship. If the hedgingtransaction is a cash flow hedge, then the offsetting gains/losses are reportedin accumulated other comprehensive income to the extent of the effectiveportion of the risk being hedged. Some derivative instruments are associatedwith the hedge of an anticipated transaction. Over time, the unrealizedgains/losses held in accumulated other comprehensive income (loss) will be reclassifiedto earnings consistent with when the hedged items are recognized in earnings.This type of reclassification reduced net income by $5.6 million for theyear ended December 31, 2004.

As of December 31,2004, we and our joint ventures were party to interest rate swap agreementsthat hedge the impact of the variability of LIBOR on cash outflows. Under theagreements, we, or the joint venture, receive LIBOR and pay a fixed rate. Thefollowing summarizes the current and deferred start swap terms of thederivative instruments and provides a reconciliation of their fair values andadjustments to accumulated other comprehensive loss:
| ** **                                                      | ** ** | **Wholly Owned**   | ** **           | **Joint Ventures** | ** ** |
|-----------------------------------------------------------------|------------|-------------------------|----------------------|-------------------------|------------|
| Hedge type                                                      |       | Cash  Flow              |                 | Cash  Flow              |       |
| Description                                                     |       | Swap                    |                 | Swap                    |       |
| Range of notional  amounts                                      |       | $                       | 57.0 - $245.0 millio | n                       | $          | 6.5 - $176.3 million |   |
| Range of interest  rates                                        |       | 2.07%  - 3.88%          |                 | 1.69%  - 5.35%          |       |
| Range of deferred  effective start dates                        |       | 3⁄4                  |                 | 4/1/05  – 4/3/06   |       |
| Range of maturity  dates                                        |       | 2/15/05  – 10/2/06 |                 | 4/1/05  – 11/1/09  |       |
| Accumulated other comprehensive loss at  December 31, 2003 |       | $                       | (11.8)               |                    | $          | (11.0) |   |
| Change in other comprehensive loss                              |       | 7.3                     |                 | 12.6                    |       |
| Accumulated other  comprehensive loss at December 31, 2004 |       | $                       | (4.5)                |                    | $          | 1.6 |   |

 

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The following disclosures of estimated fair value offinancial instruments were determined by management, using available marketinformation and appropriate valuation methodologies based on pertinentinformation available to management at December 31, 2004 and 2003.Considerable judgment is necessary to interpret market data and developestimated fair value. Accordingly, the estimates presented are not necessarilyindicative of the amounts we could realize on disposition of the financialinstruments. The use of different market assumptions and/or estimationmethodologies could have a material effect on the estimated fair value amounts.Although management is not aware of any factors that would significantly affectthe reasonable fair value amounts, such amounts have not been comprehensivelyrevalued for purposes of these consolidated financial statements since December 31,2004, and current estimates of fair value may differ significantly from theamounts presented herein.

Thefollowing table, in millions of dollars, presents principal cash flows andrelated weighted average interest rates by expected maturity dates, includingthe effect of interest rate swaps currently in effect, for our consolidatedmortgages, notes and loans payable that may be sensitive to changes in interestrates as of December 31, 2004.
| ** **                                      | ** ** | **Fixed  Rate** | ** ** | **Average  Interest  Rate** | ** ** | **Variable  Rate** | ** ** | **Average  Interest  Rate** | ** ** |
|-------------------------------------------------|------------|-----------------|------------|-----------------------------|------------|--------------------|------------|-----------------------------|------------|
| 2005                                            |       | $               | 18.2       |                        |       | 7.02               | %          |                        | $          | 0.4 |   |   | 6.92 | % |   |
| 2006                                            |       | 412.6           |       |                        | 6.45       | %                  |       | 296.0                       |       |   | 4.15 | % |   |
| 2007                                            |       | 465.7           |       |                        | 5.26       | %                  |       | 586.0                       |       |   | 3.92 | % |   |
| 2008                                            |       | 349.1           |       |                        | 5.71       | %                  |       | 320.0                       |       |   | 4.47 | % |   |
| 2009                                            |       | 203.9           |       |                        | 6.28       | %                  |       | 170.0                       |       |   | 4.18 | % |   |
| Thereafter                                      |       | 1,004.7         |       |                        | 6.37       | %                  |       | 3⁄4                      |       |   | 3⁄4 | % |   |
| Total                                           |       | $               | 2,454.2    |                        |       |               |       |                        | $          | 1,372.4 |   |   |   |   |   |
| Estimated Fair  Value at December 31, 2004 |       | $               | 2,495.8    |                        |       |               |       |                        | $          | 1,372.4 |   |   |   |   |   |

 

At December 31, 2003we had fixed rate debt aggregating $1,071.1 million with an estimated fairvalue of $1,161.1 million and variable rate debt totaling$165.6 million which approximated its fair value.

*Foreign CurrencyRisk*

We are exposed to foreigncurrency exchange risk related to our foreign joint venture investments andadvance balances that are denominated in foreign currencies and thus requirere-measurement into the U.S. dollar. The exposure to foreign currency exchangerisk related to translating the income and expenses of our equity investmentsis minimal due to the fact that most transactions occur in the functionalcurrency of that entity. We currently have not hedged the foreign joint ventureinvestments and advance balances. Based on our investments and advances at December 31,2004, a 10% change in foreign currency exchange rates would have resulted in anapproximate impact of $6.1 million to income before minority interest.

**Item 8.**                        FinancialStatements and Supplementary Data

The financial statementsand supplementary data included in this annual report on Form 10-Kare listed under Item 15(a).

**Item 9.**                        Changes inand Disagreements with Accountants on Accounting and Financial Disclosure

None.

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**Item 9A.**                Controls andProcedures

**The Mills Corporation**

**Disclosure Controls and Procedures.  **TMCmaintains disclosure controls and procedures that are designed to ensure thatinformation required to be disclosed in TMC’s reports under the Exchange Act isrecorded, processed, summarized and reported within the time periods specifiedin the SEC’s rules and forms, and that such information is accumulated andcommunicated to management, including TMC’s Chief Executive Officer, or CEO,and Chief Financial Officer, or CFO, as appropriate, to allow timely decisionsregarding required disclosure.

In connection with the preparation of this Form 10-K,as of December 31, 2004, an evaluation was performed under the supervisionand with the participation of TMC’s management, including the CEO and CFO, ofthe effectiveness of the design and operation of TMC’s disclosure controls andprocedures as defined in Rule 13a-15(e) under the Exchange Act.In performing this evaluation, management reviewed the selection, applicationand monitoring of TMC’s historical accounting policies. In the process of thatreview, it was determined that the selection, application and monitoring ofaccounting policies in a number of areas were not in accordance with GenerallyAccepted Accounting Principles, and accordingly, TMC decided to restate certainof its previously issued financial statements to reflect the corrections.Auditing Standard Number 2 issued by the Public Company Accounting OversightBoard, or PCAOB, indicates that a restatement of previously issued financialstatements is a “strong indicator that a material weakness in internal controlover financial reporting exists.” Based on that evaluation, TMC’s CEO and CFOconcluded that TMC’s disclosure controls and procedures were not effective asof December 31, 2004.

**Management’s Annual Report on Internal Controlover Financial Reporting.  **Management of TMC isresponsible for establishing and maintaining adequate internal control overfinancial reporting as defined in Rule 13a-15(f) under theExchange Act. TMC’s internal control system is designed to provide reasonableassurance to TMC’s management and Board of Directors regarding the preparationand fair presentation of published financial statements.

Management has assessed the effectiveness of TMC’sinternal control over financial reporting as of December 31, 2004. Inmaking its assessment of internal control over financial reporting, managementused the criteria set forth by the Committee of Sponsoring Organizations (“COSO”)of the Treadway Commission in Internal Control—Integrated Framework.

In performing this assessment, management reviewed TMC’sselection, application and monitoring of accounting policies and as a result ofthis review, management concluded that TMC’s controls over the selection,application and monitoring of accounting policies were insufficient. On February 15,2005, TMC, determined to restate certain of its previously issued financialstatements to reflect the correction of errors arising from its historical useof certain accounting policies, including calculation of equity in earnings,capitalization of interest and other costs, sales of joint venture interests,promotion funds, and the income statement presentation of fees and associatedcosts. Details of the restatements are incorporated by reference to Footnote 17—Restatementto the financial statements set forth in Part IV, Item 15 (a), “FinancialStatements and Supplementary Data.”

Management evaluated the impact on TMC’s assessment ofits system of internal control and has concluded that the control deficiencythat resulted in the inappropriate selection, application and monitoring ofaccounting policies represented a material weakness. As a result of thismaterial weakness in TMC’s internal control over financial reporting,management has concluded that, as of December 31, 2004, TMC’s internalcontrol over financial reporting was not effective based on the criteria setforth by the COSO of the Treadway Commission in Internal Control—IntegratedFramework. A material weakness in internal control over financial reporting isa control deficiency (within the meaning of PCAOB Auditing Standard No. 2),or combination of control deficiencies, that results in there being more than aremote 

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likelihood that a materialmisstatement of the annual or interim financial statements will not beprevented or detected. PCAOB Auditing Standard No. 2 identifies a numberof circumstances (including the restatement of previously issued financialstatements to reflect the correction of a misstatement) that, because of theirlikely significant negative effect on internal control over financial reporting,are to be regarded as strong indicators that a material weakness exists.

TMC’sindependent registered public accounting firm, Ernst & Young LLP, hasissued an attestation report on management’s assessment of TMC’s internalcontrol over financial reporting. This report appears below.

**Remediation Steps to AddressMaterial Weakness.  **To remediate the material weaknessin TMC’s internal control over financial reporting, TMC has implementedadditional review procedures over the selection, application and monitoring ofappropriate accounting policies. We have hired additional accounting staffincluding an experienced Chief Accounting Officer. We have also identifiedexpert accounting consultants for input on financial reporting matters.

**Change in Internal Control OverFinancial Reporting.  **As previously reported, weimplemented a new general ledger system on July 1, 2004. During the remainderof the year we continued to improve and change processes surrounding thatimplementation. Also, as part of an ongoing focus on accounting policies usedby TMC, we conducted a review of the selection, application and monitoring ofour historical accounting policies, as described above. Other than these items,there were no changes in TMC’s internal control over financial reporting thatoccurred during TMC’s fiscal quarter ending December 31, 2004 that havematerially affected, or are reasonably likely to materially affect, TMC’sinternal control over financial reporting.

**The Mills LimitedPartnership**

**Disclosure Controls andProcedures.  **The Mills LP maintains disclosure controlsand procedures that are designed to ensure that information required to bedisclosed in The Mills LP’s reports under the Exchange Act is recorded,processed, summarized and reported within the time periods specified in the SEC’srules and forms, and that such information is accumulated and communicatedto management, including the Chief Executive Officer, of TMC, the generalpartner of The Mills LP, or CEO, and Chief Financial Officer, of TMC, thegeneral partner of The Mills LP, or CFO, as appropriate, to allow timelydecisions regarding required disclosure.

In connection with thepreparation of this Form 10-K, as of December 31, 2004, anevaluation was performed under the supervision and with the participation ofThe Mills LP’s management, including the CEO and CFO, of the effectiveness ofthe design and operation of The Mills LP’s disclosure controls and procedures asdefined in Rule 13a-15(e) under the Exchange Act. In performingthis evaluation, management reviewed the selection, application and monitoringof The Mills LP’s historical accounting policies. In the process of thatreview, it was determined that the selection and application of accountingpolicies in a number of areas were not in accordance with Generally AcceptedAccounting Principles, and accordingly, The Mills LP decided to restate certainof its previously issued financial statements to reflect the corrections.Auditing Standard Number 2 issued by the Public Company Accounting OversightBoard, or PCAOB, indicates that a restatement of previously issued financialstatements is a “strong indicator that a material weakness in internal controlover financial reporting exists.” Based on that evaluation, The Mills LP’s CEOand CFO concluded that The Mills LP’s disclosure controls and procedures werenot effective as of December 31, 2004.

**Management’s Annual Report onInternal Control over Financial Reporting.  **Managementof The Mills LP is responsible for establishing and maintaining adequateinternal control over financial reporting as defined in Rule 13a-15(f) underthe Exchange Act. The Mills LP’s internal control system is designed to 

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provide reasonableassurance to The Mills LP’s management and TMC’s Board of Directors regardingthe preparation and fair presentation of published financial statements.

Management has assessedthe effectiveness of The Mills LP’s internal control over financial reportingas of December 31, 2004. In making its assessment of internal control overfinancial reporting, management used the criteria set forth by the Committee ofSponsoring Organizations (“COSO”) of the Treadway Commission in Internal Control—IntegratedFramework.

In performing thisassessment, management reviewed The Mills LP’s selection, application andmonitoring of accounting policies and as a result of this review, managementconcluded that The Mills LP’s controls over the selection, application andmonitoring of accounting policies were insufficient. On February 15, 2005,TMC, as the general partner of The Mills LP, determined to restate certain ofThe Mills LP’s previously issued financial statements to reflect the correctionof errors arising from its historical use of certain accounting policies, includingcalculation of equity in earnings, capitalization of interest and other costs,sales of joint venture interests, promotion funds, and the income statementpresentation of fees and associated costs. Details of the restatements areincorporated by reference to Footnote 16—Restatement to the financialstatements set forth in Part IV, Item 15 (a), “Financial Statements andSupplementary Data.”

Management evaluated theimpact on The Mills LP’s assessment of its system of internal control and hasconcluded that the control deficiency that resulted in the inappropriateselection, application and monitoring of accounting policies represented amaterial weakness. As a result of this material weakness in The Mills LP’s internalcontrol over financial reporting, management has concluded that, as of December 31,2004, The Mills LP’s internal control over financial reporting was noteffective based on the criteria set forth by the COSO of the Treadway Commissionin Internal Control—Integrated Framework. A material weakness in internalcontrol over financial reporting is a control deficiency (within the meaning ofPCAOB Auditing Standard No. 2), or combination of control deficiencies,that results in there being more than a remote likelihood that a materialmisstatement of the annual or interim financial statements will not beprevented or detected. PCAOB Auditing Standard No. 2 identifies a numberof circumstances (including the restatement of previously issued financialstatements to reflect the correction of a misstatement) that, because of theirlikely significant negative effect on internal control over financialreporting, are to be regarded as strong indicators that a material weaknessexists.

The Mills LP’s independentregistered public accounting firm, Ernst & Young LLP, has issued anattestation report on management’s assessment of The Mills LP’s internalcontrol over financial reporting. This report appears below.

**Remediation Steps to AddressMaterial Weakness.  **To remediate the material weaknessin The Mills LP’s internal control over financial reporting, The Mills LP hasimplemented additional review procedures over the selection and monitoring ofappropriate accounting policies. TMC has hired additional accounting staffincluding an experienced Chief Accounting Officer. We have also identifiedexpert accounting consultants for input on financial reporting matters.

**Change in Internal Control OverFinancial Reporting.****  **Aspreviously reported, we implemented a new general ledger system on July 1,2004. During the remainder of the year we continued to improve and changeprocesses surrounding that implementation. Also, as part of an ongoing focus onaccounting policies used by The Mills LP, we conducted a review of theselection, application and monitoring of our historical accounting policies, asdescribed above. Other than these items, there were no changes in The Mills LP’sinternal control over financial reporting that occurred during The Mills LP’sfiscal quarter ending December 31, 2004 that have materially affected, orare reasonably likely to materially affect, The Mills LP’s internal controlover financial reporting.

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**Report of Independent Registered Public AccountingFirm on Internal Control over Financial Reporting**

**TheBoard of Directors and Shareholders of**The Mills Corporation

We have audited management’s assessment, included inthe accompanying Management’s Annual Report on Internal Control over FinancialReporting, that The Mills Corporation did not maintain effective internalcontrol over financial reporting as of December 31, 2004, because of theeffect of the Company’s insufficient controls over the appropriate selection,application and monitoring of accounting policies**,**based on criteria established inInternal Control—Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission (the COSO criteria). The MillsCorporation’s management is responsible for maintaining effective internalcontrol over financial reporting and for its assessment of the effectiveness ofinternal control over financial reporting. Our responsibility is to express anopinion on management’s assessment and an opinion on the effectiveness of thecompany’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether effective internal control over financial reporting wasmaintained in all material respects. Our audit included obtaining anunderstanding of internal control over financial reporting, evaluatingmanagement’s assessment, testing and evaluating the design and operatingeffectiveness of internal control, and performing such other procedures as weconsidered necessary in the circumstances. We believe that our audit provides areasonable basis for our opinion.

A company’s internal control over financial reportingis a process designed to provide reasonable assurance regarding the reliabilityof financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles. A company’sinternal control over financial reporting includes those policies andprocedures that (1) pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect the transactions anddispositions of the assets of the company; (2) provide reasonableassurance that transactions are recorded as necessary to permit preparation offinancial statements in accordance with generally accepted accountingprinciples, and that receipts and expenditures of the company are being madeonly in accordance with authorizations of management and directors of thecompany; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of thecompany’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal controlover financial reporting may not prevent or detect misstatements. Also,projections of any evaluation of effectiveness to future periods are subject tothe risk that controls may become inadequate because of changes in conditions,or that the degree of compliance with the policies or procedures maydeteriorate.

A material weakness is a control deficiency, orcombination of control deficiencies, that results in more than a remotelikelihood that a material misstatement of the annual or interim financialstatements will not be prevented or detected. The following material weaknesshas been identified and included in management’s assessment:  In its assessment as of December 31,2004, management identified as a material weakness the Company’s insufficientcontrols over the selection, application and monitoring of accounting policies,including calculation of equity in earnings, capitalization of interest andother costs, sales of joint venture interests, acquisition purchase priceaccounting, promotion funds, straight-line rent, lease inducements, tenantallowances and the income statement presentation of fees and associated costs. Asa result of this material weakness in internal control, The Mills Corporationconcluded the Company’s previously issued financial statements should berestated. The restatement is discussed in detail in Note 17 of the Notesto the Consolidated Financial Statements set forth in Part IV, Item 15(a), “Financial Statements and Supplementary Data.”  This material weakness was considered indetermining the nature, 

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timing, and extent ofaudit tests applied in our audit of the 2004 financial statements, and thisreport does not affect our report dated March 31, 2005 on those financialstatements.

In our opinion, management’s assessment that The MillsCorporation did not maintain effective internal control over financialreporting as of December 31, 2004, is fairly stated, in all materialrespects, based on the COSO control criteria. Also, in our opinion, because ofthe effect of the material weakness described above on the achievement of theobjectives of the control criteria, The Mills Corporation has not maintainedeffective internal control over financial reporting as of December 31,2004, based on the COSO control criteria.

Wealso have audited, in accordance with the standards of the Public CompanyAccounting Oversight Board (United States), the 2004 consolidated financialstatements of The Mills Corporation and our report dated March 31, 2005,expressed an unqualified opinion thereon.
|                     | /s/ Ernst & Young LLP |
|---------------------|--------------------------------|
| McLean, Virginia    |
| March 31, 2005 |

 

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**Report of Independent Registered Public AccountingFirm on Internal Control over Financial Reporting**

**The Partnersof**The Mills Limited Partnership

We have audited management’s assessment, included inthe accompanying Management’s Annual Report on Internal Control over FinancialReporting, that The Mills Limited Partnership did not maintain effectiveinternal control over financial reporting as of December 31, 2004, becauseof the effect of the Partnership’s insufficient controls over the appropriateselection, application and monitoring of accounting policies**,** based on criteriaestablished in Internal Control—Integrated Framework issued by the Committee ofSponsoring Organizations of the Treadway Commission (the COSO criteria).The Mills Limited Partnership’s management is responsible for maintainingeffective internal control over financial reporting and for its assessment ofthe effectiveness of internal control over financial reporting. Ourresponsibility is to express an opinion on management’s assessment and anopinion on the effectiveness of the Partnership’s internal control overfinancial reporting based on our audit.

We conducted our audit in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether effective internal control over financial reporting wasmaintained in all material respects. Our audit included obtaining anunderstanding of internal control over financial reporting, evaluatingmanagement’s assessment, testing and evaluating the design and operatingeffectiveness of internal control, and performing such other procedures as weconsidered necessary in the circumstances. We believe that our audit provides areasonable basis for our opinion.

A Partnership’s internal control over financialreporting is a process designed to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financial statementsfor external purposes in accordance with generally accepted accountingprinciples. A Partnership’s internal control over financial reporting includesthose policies and procedures that (1) pertain to the maintenance ofrecords that, in reasonable detail, accurately and fairly reflect thetransactions and dispositions of the assets of the Partnership; (2) providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally acceptedaccounting principles, and that receipts and expenditures of the company arebeing made only in accordance with authorizations of management and directorsof the company; and (3) provide reasonable assurance regarding preventionor timely detection of unauthorized acquisition, use, or disposition of the Partnership’sassets that could have a material effect on the financial statements.

Because of its inherent limitations, internal controlover financial reporting may not prevent or detect misstatements. Also,projections of any evaluation of effectiveness to future periods are subject tothe risk that controls may become inadequate because of changes in conditions,or that the degree of compliance with the policies or procedures maydeteriorate.

A material weakness is a control deficiency, orcombination of control deficiencies, that results in more than a remotelikelihood that a material misstatement of the annual or interim financialstatements will not be prevented or detected. The following material weaknesshas been identified and included in management’s assessment:  In its assessment as of December 31,2004, management identified as a material weakness the Partnership’s insufficientcontrols over the selection, application and monitoring of accounting policies,including calculation of equity in earnings, capitalization of interest andother costs, sales of joint venture interests, acquisition purchase priceaccounting, promotion funds, straight-line rent, lease inducements, tenantallowances and the income statement presentation of fees and associated costs. Asa result of this material weakness in internal control, The Mills LimitedPartnership concluded the Partnership’s previously issued financial statementsshould be restated. The restatement is discussed in detail in the Note 16 ofthe Notes to the Consolidated Financial Statements set forth in Part IV,Item 15 (a), “Financial Statements and Supplementary Data.”  This material weakness was considered in 

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determining the nature,timing, and extent of audit tests applied in our audit of the 2004 financialstatements, and this report does not affect our report dated March 31,2005 on those financial statements.

In our opinion, management’s assessment that The MillsLimited Partnership did not maintain effective internal control over financialreporting as of December 31, 2004, is fairly stated, in all materialrespects, based on the COSO control criteria. Also, in our opinion, because ofthe effect of the material weakness described above on the achievement of theobjectives of the control criteria, The Mills Limited Partnership has notmaintained effective internal control over financial reporting as of December 31,2004, based on the COSO control criteria.

Wealso have audited, in accordance with the standards of the Public CompanyAccounting Oversight Board (United States), the 2004 consolidated financialstatements of The Mills Limited Partnership and our report dated March 31,2005, expressed an unqualified opinion thereon.
|                     | /s/ Ernst & Young LLP |
|---------------------|--------------------------------|
| McLean, Virginia    |
| March 31, 2005 |

 

**Item 9B.**               Other Information

None.

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**PART III**

**Item 10.**                 Directors andExecutive Officers of the Registrant.

Information about our directors and executive officersthat is required by this item is incorporated by reference from the discussionunder “Proposal 1—Election of Directors” and “Our Executive Officers” in ourproxy statement for the 2005 annual meeting of stockholders. Information aboutcompliance with Section 16(a) of the Exchange Act that is required bythis item is incorporated by reference from the discussion under the sectionentitled “Section 16(a) Beneficial Ownership Reporting Compliance.” Informationabout our Audit Committee, including disclosure about our Audit Committeefinancial experts, that is required by this item is incorporated by referencefrom the discussion under the section entitled “Report of the Audit Committee.”

We have adopted a *Codeof Business Conduct and Ethics* that applies to all of our employees,including our principal executive officer, principal financial officer,principal accounting officer and other members of management serving similarfunctions. A copy of the *Code of BusinessConduct and Ethics* is available under the section titled “Investor-CorporateGovernance” on our website at *www.themills.com.*We intend to satisfy the disclosure requirement regarding any amendment to, orwaiver of, a provision of the *Code of Business Conductand Ethics* by posting such information on our website.

**Item 11.**                 ExecutiveCompensation.

Information about executive compensation that isrequired by this item is incorporated by reference from the discussion underthe section entitled “Our Executive Officers” in our proxy statement for the2005 annual meeting of stockholders.

**Item 12.**                 SecurityOwnership of Certain Beneficial Owners and Management and Related StockholderMatters.

Information about security ownership of certainbeneficial owners and management and our equity compensation plans that isrequired by this item is incorporated by reference from the discussions underthe sections entitled “Voting Securities and Principal Holders Thereof” and “OurExecutive Officers—Equity Compensation Plan Information” in our proxy statementfor the 2005 annual meeting of stockholders.

**Item 13.**                 CertainRelationships and Related Transactions.

Information about certain relationships and relatedtransactions that is required by this item is incorporated by reference fromthe discussion under the section entitled “Certain Relationships and RelatedTransactions” in our proxy statement for the 2005 annual meeting ofstockholders.

**Item 14.**                 PrincipalAccountant Fees and Services.

Information about principal accountant fees andservices that is required by this item is incorporated by reference from thediscussion under “Proposal 2—Disclosure of Ernst & Young LLP Feesfor the Year Ended December 31, 2004” in our proxy statement for the 2005annual meeting of stockholders.

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**PART IV**

**Item 15.**                 Exhibits andFinancial Statement Schedules. 

**(1)   Financial Statements**
| **The Mills Corporation**                                |   |
|----------------------------------------------------------|--------|
| Report  of Independent Registered Public Accounting Firm | F-1    |
| Consolidated Balance Sheets                              | F-2    |
| Consolidated  Statements of Income                       | F-3    |
| Consolidated  Statements of Total Comprehensive Income   | F-4    |
| Consolidated  Statements of Stockholders’ Equity    | F-5    |
| Consolidated  Statements of Cash Flows                   | F-6    |
| Notes to  Consolidated Financial Statements              | F-7    |
| **The  Mills Limited Partnership**                       |   |
| Report  of Independent Registered Public Accounting Firm | F-41   |
| Consolidated Balance Sheets                              | F-42   |
| Consolidated  Statements of Income                       | F-43   |
| Consolidated  Statements of Total Comprehensive Income   | F-44   |
| Consolidated  Statements of Partners’ Capital       | F-45   |
| Consolidated  Statements of Cash Flows                   | F-46   |
| Notes to  Consolidated Financial Statements              | F-47   |

 

**(2)   Financial Statement Schedules**
| **The Mills Limited Partnership**                           |   |
|-------------------------------------------------------------|--------|
| Schedule III—Real Estate and  Accumulated Depreciation | F-79   |
| Notes to Schedule III                                  | F-80   |

 

All other schedulesfor which provision is made in the applicable accounting regulations of the SECare not required under the related instructions are included in theconsolidated financial statements or are inapplicable and, therefore, areomitted. 

**(3)   Exhibits**
| Exhibit No. | ** ** | **Exhibit Item**                                                                                                                                                                                                                                                                                                                                     |
|------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1              |       | Amended and Restated Certificate of Incorporation of  The Mills Corporation, as amended by First Amendment to Amended and Restated  Certificate of Incorporation of The Mills Corporation (incorporated by  reference to Exhibit 3.1 of The Mills Corporation’s Quarterly Report on  Form 10-Q for the quarter ended March 31, 2001). |
| 3.2              |       | Amended and Restated Bylaws of The Mills Corporation  (incorporated by reference to Exhibit 3.2 of The Mills Corporation’s  Annual Report on Form 10-K for the year ended December 31,  2001).                                                                                                                                        |
| 3.3              |       | Certificate of Designations designating The Mills  Corporation’s 9.00% Series B Cumulative Redeemable Preferred Stock,  Liquidation Preference $25.00 Per Share, Par Value $.01 Per Share  (incorporated by reference to Exhibit 4.1 of The Mills Corporation’s  Current Report on Form 8-K filed on October 8, 2002).      |
| 3.4              |       | Certificate of Designations designating The Mills  Corporation’s 9.00% Series C Cumulative Redeemable Preferred Stock,  Liquidation Preference $25.00 Per Share, Par Value $.01 Per Share  (incorporated by reference to Exhibit 4.1 of The Mills Corporation’s Current  Report on Form 8-K filed on December 16, 2002).    |

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| 3.5  |   | Certificate of Increase  of Authorized Number of Shares of 9.00% Series C Cumulative Redeemable  Preferred Stock, Liquidation Preference $25.00 Per Share, Par Value $.01 Per  Share (incorporated by reference to Exhibit 4.3 of The Mills  Corporation’s Current Report on Form 8-K filed on January 22,  2003).                        |
|------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.6  |   | Certificate of  Designations designating The Mills Corporation’s 8.75% Series D  Cumulative Redeemable Preferred Stock, Liquidation Preference $25.00 Per Share,  Par Value $.01 Per Share (incorporated by reference to Exhibit 3.7 of  The Mills Corporation’s Annual Report on Form 10-K for the year  ended December 31, 2002).  |
| 3.7  |   | Certificate of Designations designating The Mills  Corporation’s 8.75% Series E Cumulative Redeemable Preferred Stock,  Liquidation Preference $25.00 Per Share, Par Value $.01 Per Share  (incorporated by reference to Exhibit 4.1 of The Mills Corporation’s  Current Report on Form 8-K filed on May 5, 2003).                   |
| 3.8  |   | Certificate of Increase of Authorized Number of  Shares of 8.75% Series E Cumulative Redeemable Preferred Stock,  Liquidation Preference $25.00 Per Share, Par Value $.01 Per Share  (incorporated by reference to Exhibit 4.1 of The Mills Corporation’s  Current Report on Form 8-K filed on October 7, 2003).                          |
| 3.9  |   | Certificate of Increase of Authorized Number of  Shares of 8.75% Series E Cumulative Redeemable Preferred Stock,  Liquidation Preference $25.00 Per Share, Par Value $.01 Per Share  (incorporated by reference to Exhibit 3.1 of The Mills Corporation’s  Current Report on Form 8-K filed on November 5, 2003).                         |
| 3.10 |   | Certificate of Decrease of Authorized Number of  Shares of 9.00% Series B Cumulative Redeemable Preferred Stock,  Liquidation Preference $25.00 Per Share, Par Value $.01 Per Share (incorporated  by reference to Exhibit 3.1 of The Mills Corporation’s Quarterly Report  on Form 10-Q for the quarter ended September 30, 2003).       |
| 3.11 |   | Certificate of Designations designating The Mills  Corporation’s 6.75% Series F Convertible Cumulative Redeemable Preferred  Stock, Liquidation Preference $1,000.00 Per Share, Par Value $0.01 Per Share  (incorporated by reference to Exhibit 3.1 of The Mills Corporation’s  Current Report on Form 8-K, filed August 27, 2004). |
| 4.1  |   | Specimen Common Stock Certificate of The Mills  Corporation (incorporated by reference to Exhibit 4.1 of The Mills  Corporation’s Registration Statement on Form S-11 (No. 33-71524),  which Registration Statement was declared effective by the SEC on  April 14, 1994).                                                                |
| 4.2  |   | Form of certificate evidencing 9.00%  Series B Cumulative Redeemable Preferred Stock, Liquidation Preference  $25.00 Per Share, Par Value $.01 Per Share (incorporated by reference to  Exhibit 4.2 of The Mills Corporation’s Current Report on Form 8-K  filed on October 8, 2002).                                                |
| 4.3  |   | Form of certificate evidencing 9.00%  Series C Cumulative Redeemable Preferred Stock, Liquidation Preference  $25.00 Per Share, Par Value $.01 Per Share (incorporated by reference to  Exhibit 4.2 of The Mills Corporation’s Current Report on Form 8-K  filed on December 16, 2002).                                              |
| 4.4  |   | Form of certificate evidencing 8.75%  Series E Cumulative Redeemable Preferred Stock, Liquidation Preference  $25.00 Per Share, Par Value $.01 Per Share (incorporated by reference to  Exhibit 4.2 of The Mills Corporation’s Current Report on Form 8-K  filed on May 5, 2003).                                                    |
| 4.5  |   | Non-affiliate Registration Rights and Lock-up  Agreement (incorporated by reference to Exhibit 4.3 of The Mills  Corporation’s Registration Statement on Form S-11 (No. 33-71524),  which Registration Statement was declared effective by the SEC on  April 14, 1994).                                                                   |
| 4.6  |   | Affiliate Registration Rights and Lock-up  Agreement (incorporated by reference to Exhibit 4.4 of The Mills  Corporation’s Registration Statement on Form S-11 (No. 33-71524),  which Registration Statement was declared effective by the SEC on  April 14, 1994).                                                                       |

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| 4.7  |   | Amendment No. 1 to the Registration Rights and  Lock-up Agreement, effective as of February 24, 2003, by and  between The Mills Corporation and the other signatories thereto (incorporated  by reference to Exhibit 4.7A of The Mills Corporation’s Annual Report on  Form 10-K for the year ended December 31, 2002).                                                                                                                                                                                                                                  |
|------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.8  |   | Registration Rights  Agreement, dated as of March 26, 2003, by and among The Mills  Corporation, Ward W. Woods and Nebris Corporation (incorporated by reference  to Exhibit 4.10 of The Mills Corporation’s Annual Report on Form 10-K  for the year ended December 31, 2002).                                                                                                                                                                                                                                                                               |
| 4.9  |   | Registration Rights Agreement, dated as of  October 31, 2001, by and among The Mills Corporation and Kan Am USA XIII  Limited Partnership (incorporated by reference to Exhibit 10.5 of The  Mills Corporation’s Quarterly Report on Form 10-Q for the quarter  ended June 30, 2003).                                                                                                                                                                                                                                                                         |
| 4.10 |   | Agreement Regarding Ownership Limit Waiver  Agreement, dated October 2, 2002, between The Mills Corporation and  Cohen & Steers Capital Management Inc. (incorporated by reference to  Exhibit 4.12 of The Mills Corporation’s Annual Report on Form 10-K  for the year ended December 31, 2002).                                                                                                                                                                                                                                                    |
| 4.11 |   | Ownership Limit Waiver Agreement, dated May 14,  2002, between The Mills Corporation, Kan Am Limited Partnership and the other  Kan Am affiliates named therein (incorporated by reference to  Exhibit 4.13 of The Mills Corporation’s Annual Report on Form 10-K  for the year ended December 31, 2002).                                                                                                                                                                                                                                                     |
| 4.12 |   | Supplemental Registration Rights Agreement, dated as  of May 24, 2004, between The Mills Corporation and Ward W. Woods  (incorporated by reference to Exhibit 4.1 of The Mills Corporation’s  Periodic Report on Form 10-Q for the period ended June 30, 2004  filed on August 5, 2004).                                                                                                                                                                                                                                                                 |
| 4.13 |   | Side Letter regarding Registration of Shares, dated  as of June 14, 2004, by and among The Mills Corporation, The A.J. Trust  1989 Trust and The Irrevocable Trust for the Benefit of the Miller Children  (incorporated by reference to Exhibit 4.2 of The Mills Corporation’s  Periodic Report on Form 10-Q for the period ended June 30, 2004  filed on August 5, 2004).                                                                                                                                                                              |
| 4.14 |   | Form of certificate evidencing 6.75%  Series F Convertible Cumulative Redeemable Preferred Stock, Liquidation  Preference $1,000.00 Per Share, Par Value $0.01 Per Share (incorporated by  reference from Exhibit A of the Certificate of Designations designating  The Mills Corporation’s 6.75% Series F Convertible Cumulative Redeemable  Preferred Stock Liquidation Preference $1,000.00 Per Share, Par Value $0.01  Per Share, filed as Exhibit 3.1 of The Mills Corporation’s Current  Report on Form 8-K, filed August 27, 2004) |
| 4.15 |   | Registration Rights Agreement, dated as of  August 23, 2004, by and among The Mills Corporation, Morgan  Stanley & Co., Incorporated and Goldman, Sachs & Co.  (incorporated by reference to Exhibit 4.2 of the The Mills Corporation’s  Current Report on Form 8-K, filed August 27, 2004)                                                                                                                                                                                                                                                 |
| 10.1 |   | Limited Partnership Agreement of The Mills Limited  Partnership, dated as of April 21, 1994 (incorporated by reference to  Exhibit 10.1 of The Mills Corporation’s Registration Statement on  Form S-3 (No. 333-109331), which Registration Statement  was declared effective by the SEC on January 9, 2004).                                                                                                                                                                                                                                            |
| 10.2 |   | First Amendment to Limited Partnership Agreement of  The Mills Limited Partnership, dated as of April 27, 2001 (incorporated  by reference to Exhibit 10.3A of The Mills Corporation’s Quarterly  Report on Form 10-Q for the quarter ended March 31, 2001).                                                                                                                                                                                                                                                                                                  |
| 10.3 |   | Second Amendment to Limited Partnership Agreement of  The Mills Limited Partnership, dated as of May 11, 2001, (incorporated  by reference to Exhibit 10.3B of The Mills Corporation’s Quarterly  Report on Form 10-Q for the quarter ended March 31, 2001).                                                                                                                                                                                                                                                                                                  |

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| 10.4   |   | Third Amendment to  Limited Partnership Agreement of The Mills Limited Partnership, dated as of  October 9, 2002 (incorporated by reference to Exhibit 10.1 of The  Mills Corporation’s Quarterly Report on Form 10-Q for the quarter  ended September 20, 2002).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.5   |   | Fourth Amendment to Limited Partnership Agreement of  The Mills Limited Partnership, dated as of December 17, 2002  (incorporated by reference to Exhibit 10.1D of The Mills Corporation’s  Annual Report on Form 10-K for the year ended December 31,  2002).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.6   |   | Fifth Amendment to  Limited Partnership Agreement of The Mills Limited Partnership, dated as of  March 26, 2003 (incorporated by reference to Exhibit 10.1E of The  Mills Corporation’s Annual Report on Form 10-K for the year ended  December 31, 2002).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.7   |   | Sixth Amendment to Limited Partnership Agreement of  The Mills Limited Partnership, dated as of May 5, 2003 (incorporated by  reference to Exhibit 10.1 of The Mills Corporation’s Quarterly Report on  Form 10-Q for the quarter ended March 31, 2003).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.7   |   | Form of Employee Non-Compete/Employment Agreements  (incorporated by reference to Exhibit 10.1 of The Mills Corporation’s  Registration Statement on Form S-11 (No. 33-71524),  which Registration Statement was declared effective by the SEC on  April 14, 1994).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.8   |   | Form of Noncompetition Agreement between The  Mills Corporation, The Mills Limited Partnership and each of Kan Am and the  Kan Am Partnerships (incorporated by reference to Exhibit 10.5 of The  Mills Corporation’s Registration Statement on Form S-11  (No. 33-71524), which Registration Statement was declared  effective by the SEC on April 14, 1994).                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.9   |   | Form of Noncompetition Agreement with Kan Am  Directors (incorporated by reference to Exhibit 10.6 of The Mills  Corporation’s Registration Statement on Form S-11 (No. 33-71524),  which Registration Statement was declared effective by the SEC on  April 14, 1994).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.10  |   | Form of Indemnification Agreement between The  Mills Corporation and each of its Directors (incorporated by reference to  Exhibit 10.23 of The Mills Corporation’s Registration Statement on  Form S-11 (No. 33-71524), which Registration Statement  was declared effective by the SEC on April 14, 1994).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.11  |   | Purchase and Sale Agreement, dated as of  April 29, 2002, by and among The Mills Limited Partnership, Simon  Property Group, L.P., M.S. Management Associates, Inc. Simon Property  Group (Texas), L.P., and SPG Realty Consultants, L.P. (incorporated by  reference to Exhibit 10.1 of The Mills Corporation’s Current Report on  Form 8-K filed on May 1, 2002).                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.12  |   | Purchase and Sale Agreement, dated as of  December 6, 2002, by and among The Cadillac Fairview Corporation  Limited,; Cadillac Fairview U.S., Inc.; CF Broward Mall, Inc., CF  Dover Mall L.P., CF Esplanade L.P., CF Northpark L.P., CF Galleria at White  Plains, L.P., CF Cobb Associates, CF Gwinnett Associates, CFN, Inc.,  Cadillac Fairview Shopping Center Properties (Mississippi) Inc., Cadillac  Fairview Shopping Center Properties (Louisiana) Inc., Cadillac Fairview  Shopping Center Properties (New York) Inc., Cadillac Fairview Shopping Center  Properties (Georgia) Inc. and The Mills Limited Partnership (the”Cadillac  Purchase and Sale Agreement”) (incorporated by reference to Exhibit 10.1  of The Mills Corporation’s Current Report on Form 8-K filed on  February 11, 2003). |
| 10.13  |   | Amendment to the Cadillac Purchase and Sale  Agreement, dated as of January 31, 2003 (incorporated by reference to  Exhibit 10.2 of The Mills Corporation’s Current Report on Form 8-K  filed on February 11, 2003).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.14# |   | The Mills Corporation Amended and Restated 1994  Executive Equity Incentive Plan (incorporated by reference to  Exhibit 99.1 of The Mills Corporation’s Registration Statement on  Form S-8 (no. 333-81863), which Registration Statement was  filed with the SEC and automatically declared effective on June 29,  1999).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |

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| 10.15# |   | The Mills Corporation  1999 Stock Option Plan (incorporated by reference to Exhibit 99.3 of The  Mills Corporation’s Registration Statement on Form S-8 (no. 333-81865),  which Registration Statement was filed with the SEC and automatically  declared effective on June 29, 1999).                                                                     |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.16# |   | Amendment No. 1 to The Mills Corporation  Amended and Restated 1994 Executive Equity Incentive Plan (incorporated by  reference to Exhibit 10.18 of The Mills Corporation’s Annual Report on  Form 10-K filed on March 15, 2004).                                                                                                                     |
| 10.17# |   | Amendment No. 2 to The Mills Corporation  Amended and Restated 1994 Executive Equity Incentive Plan (incorporated by  reference to Exhibit 10.19 of The Mills Corporation’s Annual Report on  Form 10-K filed on March 15, 2004).                                                                                                                     |
| 10.18# |   | Amendment No. 1 to  The Mills Corporation 1999 Stock Option Plan (incorporated by reference to  Exhibit 10.20 of The Mills Corporation’s Annual Report on Form 10-K  filed on March 15, 2004).                                                                                                                                                        |
| 10.19  |   | Purchase Agreement, dated January 22, 2003,  between The Mills Corporation and Scudder RREEF Real Estate Fund, Inc.  (incorporated by reference to Exhibit 1 of The Mills Corporation’s  Current Report on Form 8-K filed on January 22, 2003).                                                                                                  |
| 10.20  |   | Purchase Agreement, dated October 7, 2003,  between The Mills Corporation and Scudder RREEF Real Estate Fund  II, Inc. (incorporated by reference to Exhibit 10.1 of The Mills  Corporation’s Current Report on Form 8-K filed on October 7,  2003).                                                                                             |
| 10.21  |   | Purchase Agreement, dated November 4, 2003,  between The Mills Corporation, ING Clarion Real Estate Income Fund and  Clarion CRA Securities, L.P. (incorporated by reference to Exhibit 10.1  of The Mills Corporation’s Current Report on Form 8-K filed on  November 5, 2003).                                                                      |
| 10.22  |   | Purchase and Sale Agreement, dated as of May 1,  2003, among The Torrance Company, Carson-Madrona Co., The Guilford  Glazer Trust of 1984 and The Mills Limited Partnership (the “Del Amo Purchase  Agreement”) (incorporated by reference to Exhibit 99.2 of The Mills  Corporation’s Current Report on Form 8-K filed on July 14,  2003). |
| 10.23  |   | First Amendment to the Del Amo Purchase and Sale  Agreement, dated as of June 30, 2003 (incorporated by reference to  Exhibit 99.3 of The Mills Corporation’s Current Report on Form 8-K  filed on July 14, 2003).                                                                                                                                    |
| 10.24  |   | Agreement of Purchase and Sale, dated as of  May 8, 2003, between Great Mall of the Bay Area Associates, L.P., and  The Mills Limited Partnership (the “Great Mall Purchase Agreement”)  (incorporated by reference to Exhibit 10.1 of The Mills Corporation’s  Current Report on Form 8-K filed on August 19, 2003).                       |
| 10.25  |   | Amendment to the Great Mall Purchase Agreement,  dated as of June 10, 2003 (incorporated by reference to  Exhibit 10.2 of The Mills Corporation’s Current Report on Form 8-K  filed on August 19, 2003).                                                                                                                                              |
| 10.26  |   | Second Amendment to the Great Mall Purchase  Agreement, dated as of June 20, 2003 (incorporated by reference to  Exhibit 10.3 of The Mills Corporation’s Current Report on Form 8-K  filed on August 19, 2003).                                                                                                                                       |
| 10.27  |   | Third Amendment to the Great Mall Purchase  Agreement, dated as of June 25, 2003 (incorporated by reference to  Exhibit 10.4 of The Mills Corporation’s Current Report on Form 8-K  filed on August 19, 2003).                                                                                                                                        |
| 10.28  |   | Fourth Amendment to the Great Mall Purchase  Agreement, dated as of July 18, 2003 (incorporated by reference to  Exhibit 10.5 of The Mills Corporation’s Current Report on Form 8-K  filed on August 19, 2003).                                                                                                                                       |
| 10.29  |   | Fifth Amendment to the Great Mall Purchase  Agreement, dated as of July 23, 2003 (incorporated by reference to  Exhibit 10.6 of The Mills Corporation’s Current Report on Form 8-K  filed on August 19, 2003).                                                                                                                                        |

77

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| 10.30  |   | Sixth Amendment to the Great Mall Purchase  Agreement, dated as of July 25, 2003 (incorporated by reference to  Exhibit 10.7 of The Mills Corporation’s Current Report on Form 8-K  filed on August 19, 2003).                                                                                                                                                                                   |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.31  |   | Seventh Amendment to the Great Mall Purchase  Agreement e, dated as of July 31, 2003 (incorporated by reference to  Exhibit 10.8 of The Mills Corporation’s Current Report on Form 8-K  filed on August 19, 2003).                                                                                                                                                                               |
| 10.32  |   | Eighth Amendment to the Great Mall Purchase  Agreement, dated as of August 1, 2003 (incorporated by reference to  Exhibit 10.9 of The Mills Corporation’s Current Report on Form 8-K  filed on August 19, 2003).                                                                                                                                                                                 |
| 10.33  |   | Ninth Amendment to the Great Mall Purchase  Agreement, dated as of August 4, 2003 (incorporated by reference to  Exhibit 10.10 of The Mills Corporation’s Current Report on Form 8-K  filed on August 19, 2003).                                                                                                                                                                                 |
| 10.34  |   | Assignment, assumption and acceptance, dated as of  August 5, 2003, by and among The Mills Limited Partnership and the  Milpitas Mills Limited Partnership (incorporated by reference to  Exhibit 10.11 of The Mills Corporation’s Current Report on Form 8-K  filed on August 19, 2003).                                                                                                        |
| 10.35  |   | Redevelopment Agreement by and between the New  Jersey Sports and Exposition Authority and Meadowlands Mills/Mack-Cali  Limited Partnership dated December 3, 2003 (incorporated by reference to  Exhibit 10.1 of The Mills Corporation’s Current Report on Form 8-K  filed on December 16, 2003).                                                                                               |
| 10.36# |   | Employment Agreement, made and entered into as of  April 1, 2004, between The Mills Corporation and Laurence C. Siegel  (incorporated by reference to Exhibit 10.1 of The Mills Corporation’s  Current Report on Form 8-K filed on May 10, 2004).                                                                                                                                                |
| 10.37# |   | Employment Agreement, made and entered into as of  February 2, 2004, between The Mills Corporation and Mark D. Ettenger  (incorporated by reference to Exhibit 10.2 of The Mills Corporation’s  Current Report on Form 8-K filed on May 10, 2004).                                                                                                                                               |
| 10.38# |   | The Mills Corporation’s 2004 Stock Incentive Plan,  effective as of April 22, 2004 (incorporated by reference from Appendix  A of the Registrant’s Definitive Proxy Statement filed on April 26, 2004  (No. 1-12994)).                                                                                                                                                                           |
| 10.39# |   | The Mills Corporation’s Non-Qualified Deferred  Compensation Plan, amended and restated as of January 1, 2003  (incorporated by reference to Exhibit 99.2 of The Mills Corporation’s  Form S-8 filed on July 26, 2004 (333-117669)).                                                                                                                                                        |
| 10.40# |   | Amendment Number One to The Mills Corporation’s  Non-Qualified Deferred Compensation Plan, effective as of March 14, 2003  (incorporated by reference to Exhibit 99.3 of The Mills Corporation’s  Form S-8 filed on July 26, 2004 (333-117669)).                                                                                                                                            |
| 10.41# |   | Memorandum of Understanding, executed and effective  as of May 10, 2004 between The Mills Corporation and Mark D. Ettenger  (incorporated by reference to Exhibit 10.1 of The Mills Corporation’s  Periodic Report on Form 10-Q for the period ended June 30, 2004  filed on August 5, 2004).                                                                                               |
| 10.42  |   | Contribution, Purchase and Sale Agreement dated as  of August 16, 2004 by and between Super Regional Holdings I LLC and  Super Regional Holdings II LLC, as Seller, and The Mills Limited Partnership,  as Purchaser (incorporated by reference to Exhibit 10.1 of The Mills  Corporation’s Period Report on Form 10-Q for the period ended September 30,  2004 filed on November 9, 2004). |
| 10.43# |   | Restricted Stock Unit Agreement dated as of  September 9, 2004 by and between The Mills Corporation and Mark D.  Ettenger (incorporated by reference to Exhibit 10.2 of The Mills  Corporation’s Period Report on Form 10-Q for the period ended  September 30, 2004 filed on November 9, 2004).                                                                                            |

78

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| 10.44#  |   | Form of Stock  Appreciation Right Award (incorporated by reference to Exhibit 10.3 of  The Mills Corporation’s Period Report on Form 10-Q for the period ended  September 30, 2004 filed on November 9, 2004).                                                                                                                                                                                                                                                                                                       |
|---------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.45#  |   | Form of Stock Option Agreement for Outside  Directors Pursuant to 2004 Stock Incentive Plan (incorporated by reference to  Exhibit 10.4 of The Mills Corporation’s Period Report on Form 10-Q  for the period ended September 30, 2004 filed on November 9, 2004).                                                                                                                                                                                                                                                   |
| 10.46#  |   | Form of Restricted Stock Agreement for Outside  Directors Pursuant to 2004 Stock Incentive Plan (incorporated by reference to  Exhibit 10.5 of The Mills Corporation’s Period Report on Form 10-Q  for the period ended September 30, 2004 filed on November 9, 2004).                                                                                                                                                                                                                                               |
| 10.47*  |   | Services Agreement effective as of December 1,  2004 by and among Kan Am Grundbesitz GmBH, Kan Am Services Limited  Partnership and The Mills Limited Partnership.                                                                                                                                                                                                                                                                                                                                                                            |
| 10.48#  |   | Summary of Oral Agreement regarding Compensation to  be Paid to Non-Employee Directors for Fiscal Year 2005 effective  December 1, 2004 (incorporated by reference to Item 1.01 of The Mills  Corporation’s Current Report on Form 8-K filed on December 8,  2004).                                                                                                                                                                                                                                                            |
| 10.49*  |   | Second Amended & Restated Revolving Credit  and Term Loan Agreement dated as of December 17, 2004 among various  Lenders, The Mills Limited Partnership, as Borrower, JPMorgan Chase Bank NA,  as Administrative Agent and Banc of America Securities LLC and J.P. Morgan  Securities Inc., as Co-lead Arrangers and Joint Bookrunners and Bank of  America, N.A. and Eurohypo AG, New York Branch as Co-Syndication Agents and  Keybank, National Association and Wachovia Bank, National Association, as  Co-Documentation Agents. |
| 10.50*# |   | Form of Restricted Stock Agreement Pursuant to  the 2004 Stock Incentive Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 12.1*   |   | Computation of Ratio of Earnings to Combined Fixed  Charges and Preferred Stock Dividends for The Mills Corporation.                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 12.2*   |   | Computation of Ratio of Earnings to Combined Fixed  Charges and Preferred Unit Distributions for The Mills Limited Partnership.                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 21.1*   |   | List of Subsidiaries of The Mills Corporation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 23*     |   | Consent of Ernst & Young LLP, The Mills  Corporation’s independent registered public accounting firm                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 31.1*   |   | Section 302 Certification from Laurence C.  Siegel, The Mills Corporation’s Chief Executive Officer, dated March 31,  2005.                                                                                                                                                                                                                                                                                                                                                                                                         |
| 31.2*   |   | Section 302 Certification from Mary Jane  Morrow, The Mills Corporation’s Chief Financial Officer, dated March 31,  2005.                                                                                                                                                                                                                                                                                                                                                                                                           |
| 31.3*   |   | Section 302 Certification from Laurence C.  Siegel, The Mills Corporation’s Chief Executive Officer, in his capacity as  the Chief Executive Officer of the general partner of The Mills Limited  Partnership, dated March 31, 2005.                                                                                                                                                                                                                                                                                                |
| 31.4*   |   | Section 302 Certification from Mary Jane  Morrow, The Mills Corporation’s Chief Financial Officer, in her capacity as  the Chief Financial Officer of the general partner of The Mills Limited  Partnership, dated March 31, 2005.                                                                                                                                                                                                                                                                                                  |
| 32.1*   |   | Section 906 Certification  from Laurence C. Siegel and Mary Jane Morrow, the Chief Executive  Officer and the Chief Financial Officer of The Mills Corporation,  respectively, dated March 31, 2005.                                                                                                                                                                                                                                                                                                                                     |
| 32.2*   |   | Section 906 Certification  from Laurence C. Siegel and Mary Jane Morrow, the Chief Executive  Officer and the Chief Financial Officer of The Mills Corporation,  respectively, in their capacity as officers of the general partner of The  Mills Limited Partnership, dated  March 31, 2005.                                                                                                                                                                                                                                            |

----

*                    Filedherewith.

#                 Represents amanagement contract or compensation plan, contract or arrangement.

79

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**SIGNATURES**

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the registrants have duly caused this report to be signed on theirbehalf by the undersigned, thereunto duly authorized, on March 31, 2005.
|        | THE MILLS CORPORATION,  a Delaware Corporation                  |
|--------|-----------------------------------------------------------------|
|   | By:                                                             | /s/ LAURENCE C. SIEGEL |   |
|   |                                                            | Laurence C. Siegel |
|   |                                                            | *Chairman  of the Board of Directors and Chief Executive Officer* |
|   | THE  MILLS LIMITED PARTNERSHIP,  a Delaware Limited Partnership |
|   | By:                                                             | The Mills Corporation,  its general partner |
|   |                                                            | By: | /s/ LAURENCE C. SIEGEL |   |
|   |                                                            |   | Laurence C. Siegel |
|   |                                                            |   | *Chairman  of the Board of Directors and Chief Executive Officer* |
|        |                                                                 |  |  |  |  |

 

Pursuantto the requirements of the Securities Exchange Act of 1934, this report hasbeen signed below by the following persons on behalf of the registrants and inthe capacities indicated below on March 31, 2005:
|                              | **Signature** | ** **                                                   | ** ** | ** ** | **Title** | ** ** |
|------------------------------|---------------|--------------------------------------------------------------|------------|------------|-----------|------------|
| /s/  LAURENCE C. SIEGEL      |          | Chairman of the Board of  Directors, Chief Executive Officer |
| Laurence C.  Siegel          |          | (principal executive officer) and Director                   |
| /s/  MARK D. ETTENGER        |          | President                                                    |
| Mark D. Ettenger             |          |                                                         |
| /s/  MARY JANE MORROW        |          | Chief Financial Officer  (principal financial officer)       |
| Mary Jane Morrow             |          |                                                         |
| /s/  MICHAEL J. GREEN        |          | Senior Vice President, Chief  Accounting Officer             |
| Michael J. Green             |          | (principal accounting officer)                               |
| /s/  DIETRICH VON BOETTICHER |          | Vice Chairman and  Director                                  |
| Dietrich von  Boetticher     |          |                                                         |
| /s/  JOHN M. INGRAM          |          | Vice Chairman and  Director                                  |
| John M. Ingram               |          |                                                         |

80

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| /s/ CHARLES  R. BLACK, JR. |   | Director |
|---------------------------------|--------|----------|
| Charles R.  Black, Jr.     |   |     |
| /s/  JAMES C. BRAITHWAITE       |   | Director |
| James C.  Braithwaite           |   |     |
| /s/  JOSEPH B. GILDENHORN       |   | Director |
| Joseph B.  Gildenhorn           |   |     |
| /s/  HARRY H. NICK              |   | Director |
| Harry H. Nick                   |   |     |
| /s/  FRANZ VON PERFALL          |   | Director |
| Franz von Perfall               |   |     |
| /s/  ROBERT P. PINCUS           |   | Director |
| Robert P. Pincus                |   |     |
| /s/  CRISTINA L. ROSE           |   | Director |
| Cristina L. Rose                |   |     |
| /s/  S. JOSEPH BRUNO            |   | Director |
| S. Joseph Bruno                 |   |     |
| /s/  COLOMBE M. NICHOLAS        |   | Director |
| Colombe M.  Nicholas            |   |     |
| /s/  FRANK W. LAMPL             |   | Director |
| Frank W. Lampl                  |   |     |

 

 

81

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**Report of Independent Registered Public AccountingFirm**

**BOARDOF DIRECTORSTHE MILLS CORPORATION**

We have audited the accompanying consolidated balancesheets of The Mills Corporation as of December 31, 2004 and 2003, and therelated consolidated statements of income, total comprehensive income,stockholders’ equity and cash flows for each of the three years in the periodended December 31, 2004. Our audits also included the financial statementschedule listed in the Index at Item 15(a). These consolidated financialstatements and schedule are the responsibility of the management of The MillsCorporation. Our responsibility is to express an opinion on these consolidatedfinancial statements and schedule based on our audits.

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation.We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statementsreferred to above present fairly, in all material respects, the consolidatedfinancial position of The Mills Corporation as of December 31, 2004 and2003, and the consolidated results of its operations and its cash flows foreach of the three years in the period ended December 31, 2004, inconformity with U.S. generally accepted accounting principles. Also, in ouropinion, the related financial statement schedule, when considered in relationto the basic financial statements taken as a whole, presents fairly in allmaterial respects the information set forth therein.

As discussed in Note 17 of the Notes to theConsolidated Financial Statements, the accompanying consolidated balance sheetas of December 31, 2003 and the related consolidated statements of income,total comprehensive income, stockholders’ equity, and cash flows for the yearsended December 31, 2003 and 2002 and the financial statement schedulelisted in the Index at Item 15(a) have been restated.

In 2004, as discussed in Note 3 of the Notes to theConsolidated Financial Statements, The Mills Corporation adopted the provisionsof FIN No. 46(R), “Consolidation ofVariable Interest Entities.”  In2002, as discussed in Note 3 of the Notes to the Consolidated FinancialStatements, The Mills Corporation changed its method of accounting forstock-based compensation plans.

Wealso have audited, in accordance with the standards of the Public CompanyAccounting Oversight Board (United States), the effectiveness of The MillsCorporation’s internal control over financial reporting as of December 31,2004, based on criteria established in Internal Control—Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commissionand our report dated March 31, 2005 expressed an unqualified opinion onmanagement’s assessment and an adverse opinion on the effectiveness of internalcontrol over financial reporting.
|                     | /s/ ERNST & YOUNG  LLP |
|---------------------|--------------------------------------|
| McLean, Virginia    |
| March 31, 2005 |

 

F-1

----

**THE MILLS CORPORATIONCONSOLIDATED BALANCE SHEETS(Dollars in millions, except per share data)**
| ** **                                                                                                                                                  | ** ** | **December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                  | ** ** | **2004**              | ** ** | **2003** | ** ** |
| ** **                                                                                                                                                  | ** ** | ** **            | ** ** | **(Restated)** | ** ** |
| **ASSETS**                                                                                                                                                  |       |                  |       |   |   |
| Income producing  property:                                                                                                                                 |       |                  |       |   |   |
| Land and land improvements                                                                                                                                  |       | $                     | 819.3      |   | $ | 420.2 |   |
| Building and improvements                                                                                                                                   |       | 3,780.2               |       | 1,857.0 |   |
| Furniture, fixtures and equipment                                                                                                                           |       | 131.1                 |       | 60.7 |   |
| Less accumulated depreciation and amortization                                                                                                              |       | (811.8                | )          | (400.7 | ) |
| **Net income producing property**                                                                                                                           |       | 3,918.8               |       | 1,937.2 |   |
| Construction in  progress                                                                                                                                   |       | 732.9                 |       | 298.4 |   |
| Investment in  unconsolidated joint ventures                                                                                                                |       | 728.5                 |       | 805.9 |   |
| **Net real estate and development assets**                                                                                                                  |       | 5,380.2               |       | 3,041.5 |   |
| Cash and cash  equivalents                                                                                                                                  |       | 152.9                 |       | 15.8 |   |
| Restricted cash                                                                                                                                             |       | 77.0                  |       | 37.5 |   |
| Accounts  receivable, net                                                                                                                                   |       | 246.5                 |       | 81.4 |   |
| Notes receivable,  net                                                                                                                                      |       | 62.1                  |       | 25.7 |   |
| Deferred costs  and other intangibles, net                                                                                                                  |       | 157.1                 |       | 63.5 |   |
| Other assets                                                                                                                                                |       | 27.4                  |       | 11.0 |   |
| **Total Assets**                                                                                                                                            |       | $6,103.2              |       | $ | 3,276.4 |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                               |       |                  |       |   |   |
| Mortgages, notes,  and loans payable                                                                                                                        |       | $                     | 3,826.6    |   | $ | 2,119.3 |   |
| Accounts payable  and other liabilities                                                                                                                     |       | 338.5                 |       | 226.8 |   |
|                                                                                                                                                        |       | 4,165.1               |       | 2,346.1 |   |
| Minority interests:                                                                                                                                         |       |                  |       |   |   |
| Mills LP                                                                                                                                                    |       | 95.7                  |       | 118.2 |   |
| Consolidated joint ventures                                                                                                                                 |       | 587.9                 |       | 3⁄4 |   |
| Series B Cumulative Redeemable Preferred Stock,  par value $0.01, 4,300,000 shares authorized, issued and outstanding                                  |       | 107.5                 |       | 107.5 |   |
| Series C  Cumulative Redeemable Preferred Stock, par value $0.01, 3,500,000 shares  authorized, issued and outstanding                                 |       | 87.5                  |       | 87.5 |   |
| Series E  Cumulative Redeemable Preferred Stock, par value $0.01, 8,545,000 shares  authorized, issued and outstanding                            |       | 213.6                 |       | 213.6 |   |
| Series F  Convertible Cumulative Redeemable Preferred Stock, par value $0.01,  316,250 shares authorized, issued and outstanding                  |       | 316.3                 |       | — |   |
| Common stock, par  value $0.01, 100,000,000 shares authorized, 55,654,194 and  50,297,623 shares issued and outstanding in 2004 and 2003, respectively |       | 0.6                   |       | 0.5 |   |
| Additional paid-in  capital                                                                                                                                 |       | 970.5                 |       | 915.5 |   |
| Accumulated  deficit                                                                                                                                        |       | (439.1                | )          | (497.7 | ) |
| Accumulated other  comprehensive loss                                                                                                                       |       | (2.4                  | )          | (14.8 | ) |
| **Total stockholders’ equity**                                                                                                                         |       | 1,254.5               |       | 812.1 |   |
| **Total  Liabilities and Stockholders’ Equity**                                                                                                        |       | $6,103.2              |       | $ | 3,276.4 |   |

 

See Accompanying Notes to Consolidated Financial Statements

F-2

----

**THE MILLS CORPORATIONCONSOLIDATED STATEMENTS OFINCOME(Dollars in millions, except per share data)**
| ** **                                                                                      | ** ** | **Years Ended December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                                      | ** ** | **2004**                                    | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                                                                      | ** ** | ** **                                  | ** ** | **(Restated)** | ** ** | **(Restated)** | ** ** |
| **Revenues:**                                                                                   |       |                                        |       |   |   |   |   |   |   |   |   |
| Minimum rent                                                                                    |       | $                                           | 411.2      |   |   | $ | 213.3 |   |   |   | $ | 119.0 |   |   |
| Percentage rent                                                                                 |       | 9.3                                         |       |   | 5.6 |   |   |   | 2.3 |   |   |
| Recoveries from  tenants                                                                        |       | 202.3                                       |       |   | 119.3 |   |   |   | 66.0 |   |   |
| Other property  revenue                                                                         |       | 46.5                                        |       |   | 27.8 |   |   |   | 15.7 |   |   |
| Management fee  income                                                                          |       | 11.6                                        |       |   | 15.7 |   |   |   | 14.7 |   |   |
| Other fee income                                                                                |       | 3.9                                         |       |   | 19.1 |   |   |   | 21.6 |   |   |
| Total operating  revenues                                                                       |       | 684.8                                       |       |   | 400.8 |   |   |   | 239.3 |   |   |
| **Expenses:**                                                                                   |       |                                        |       |   |   |   |   |   |   |   |   |
| Recoverable from  tenants                                                                       |       | 193.5                                       |       |   | 112.4 |   |   |   | 64.2 |   |   |
| Other operating  expenses                                                                       |       | 30.0                                        |       |   | 12.2 |   |   |   | 6.3 |   |   |
| General and  administrative                                                                     |       | 46.5                                        |       |   | 26.1 |   |   |   | 17.4 |   |   |
| Cost of fee income                                                                              |       | 29.9                                        |       |   | 16.9 |   |   |   | 15.3 |   |   |
| Depreciation and  amortization                                                                  |       | 199.5                                       |       |   | 88.7 |   |   |   | 47.9 |   |   |
| Total operating  expenses                                                                       |       | 499.4                                       |       |   | 256.3 |   |   |   | 151.1 |   |   |
| **Operating income**                                                                            |       | 185.4                                       |       |   | 144.5 |   |   |   | 88.2 |   |   |
| **Other income (expense):**                                                                     |       |                                        |       |   |   |   |   |   |   |   |   |
| Interest expense,  net                                                                          |       | (148.5                                      | )          |   | (80.6 | ) |   |   | (55.7 | ) |   |
| Equity in earnings  of unconsolidated joint ventures                                            |       | 15.3                                        |       |   | 34.6 |   |   |   | 24.0 |   |   |
| Minority interest  in consolidated joint ventures                                               |       |                                        |       |   |   |   |   |   |   |   |   |
| Minority interest  in earnings                                                                  |       | (12.4                                       | )          |   | — |   |   |   | — |   |   |
| Attribution to  Mills of the elimination of interest and fees                                   |       | 47.9                                        |       |   | — |   |   |   | — |   |   |
| Foreign currency  exchange gains, net                                                           |       | 15.2                                        |       |   | 38.6 |   |   |   | 11.6 |   |   |
| Interest income                                                                                 |       | 9.0                                         |       |   | 11.5 |   |   |   | 7.4 |   |   |
| Other income  (expense), net                                                                    |       | 9.2                                         |       |   | (3.2 | ) |   |   | (2.7 | ) |   |
| **Income before gain on sales of  joint venture interests and minority interest in Mills LP**   |       | 121.1                                       |       |   | 145.4 |   |   |   | 72.8 |   |   |
| Gain on sales of  joint venture interests                                                       |       | 99.3                                        |       |   | 0.7 |   |   |   | — |   |   |
| **Income before minority interest  in Mills LP**                                                |       | 220.4                                       |       |   | 146.1 |   |   |   | 72.8 |   |   |
| Minority interest  in Mills LP net income, including Series D preferred unit distributions |       | (30.5                                       | )          |   | (31.1 | ) |   |   | (22.3 | ) |   |
| **Income from continuing  operations**                                                          |       | 189.9                                       |       |   | 115.0 |   |   |   | 50.5 |   |   |
| Discontinued  operations, net of minority interest in Mills LP                                  |       | —                                      |       |   | 0.1 |   |   |   | 0.3 |   |   |
| Cumulative effect  of FIN 46 adoption, net of minority interest in Mills LP                     |       | 42.1                                        |       |   | — |   |   |   | — |   |   |
| **Net income**                                                                                  |       | 232.0                                       |       |   | 115.1 |   |   |   | 50.8 |   |   |
| Preferred stock  dividends                                                                      |       | (43.9                                       | )          |   | (27.8 | ) |   |   | (2.6 | ) |   |
| **Income available to common  stockholders**                                                    |       | $                                           | 188.1      |   |   | $ | 87.3 |   |   |   | $ | 48.2 |   |   |
| **Earnings per common share—basic:**                                                       |       |                                        |       |   |   |   |   |   |   |   |   |
| Continuing  operations                                                                          |       | $                                           | 2.75       |   |   | $ | 1.94 |   |   |   | $ | 1.35 |   |   |
| Discontinued  operations                                                                        |       | —                                      |       |   | — |   |   |   | 0.01 |   |   |
| Cumulative effect  of FIN 46 adoption                                                           |       | 0.80                                        |       |   | — |   |   |   | — |   |   |
| Earning per common  share**—**basic                                                        |       | $                                           | 3.55       |   |   | $ | 1.94 |   |   |   | $ | 1.36 |   |   |
| **Earnings per common share—diluted:**                                                     |       |                                        |       |   |   |   |   |   |   |   |   |
| Continuing  operations                                                                          |       | $                                           | 2.71       |   |   | $ | 1.91 |   |   |   | $ | 1.33 |   |   |
| Discontinued  operations                                                                        |       | —                                      |       |   | — |   |   |   | 0.01 |   |   |
| Cumulative effect  of FIN 46 adoption                                                           |       | 0.79                                        |       |   | — |   |   |   | — |   |   |
| Earning per common  share**—**diluted                                                      |       | $                                           | 3.50       |   |   | $ | 1.91 |   |   |   | $ | 1.34 |   |   |
| **Weighted average shares  outstanding (in thousands):**                                        |       |                                        |       |   |   |   |   |   |   |   |   |
| Basic                                                                                           |       | 53,055                                      |       |   | 44,864 |   |   |   | 35,491 |   |   |
| Diluted                                                                                         |       | 54,079                                      |       |   | 45,785 |   |   |   | 36,355 |   |   |
| **Dividends paid per common share**                                                             |       | $                                           | 2.35       |   |   | $ | 2.24 |   |   |   | $ | 2.18 |   |   |

 

See Accompanying Notes to Consolidated Financial Statements

F-3

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**THE MILLS CORPORATIONCONSOLIDATED STATEMENTS OFTOTAL COMPREHENSIVE INCOME(In millions)**
| ** **                                | ** ** | **Years Ended December 31,** | ** ** |
|-------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                | ** ** | **2004**                                    | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                | ** ** | ** **                                  | ** ** | **(Restated)** | ** ** | **(Restated)** | ** ** |
| Net income                                |       | $                                           | 232.0      |   |   | $ | 115.1 |   |   |   | $ | 50.8 |   |   |
| Change in fair  value of cash flow hedges |       | 12.4                                        |       |   | (0.5 | ) |   |   | (9.2 | ) |   |
| Total Comprehensive  Income               |       | $                                           | 244.4      |   |   | $ | 114.6 |   |   |   | $ | 41.6 |   |   |

 

F-4

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**THE MILLS CORPORATIONCONSOLIDATED STATEMENTS OFSTOCKHOLDERS’ EQUITY(In millions)**
| ** **                                                            | ** ** | **Preferred** | ** ** | **Common Stock** | ** ** | **Additional  Paid in** | ** ** | **Accumulated** | ** ** | **Accumulated  Other  Comprehensive ** | ** ** | ** ** | ** ** |
|-----------------------------------------------------------------------|------------|---------------|------------|-----------------------|------------|------------------------------|------------|-----------------|------------|---------------------------------------------|------------|------------|------------|
| ** **                                                            | ** ** | **Stock**     | ** ** | **Shares**            | ** ** | **Amount**                   | ** ** | **Capital**     | ** ** | **Deficit**                                 | ** ** | **Loss**   | ** ** | **Total** | ** ** |
| Balances, December 31, 2001                                      |       |          |       |                  |       |                         |       |            |       |                                        |       |       |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| As previously  reported                                               |       |          | $          | —                |       |                         |       | 28.5            |       |                                        |       | $          | 0.3        |   |   |   | $ | 526.2 |   |   |   | $ | (424.6 | ) |   |   | $ | (5.1 | ) |   | $ | 96.8 |   |
| Cumulative effect  of restatement                                     |       |          | —     |                  |       |                         | —     |            |       |                                        | —     |       |       |   | — |   |   |   | (17.1 | ) |   |   | — |   |   | (17.1 | ) |
| As restated                                                           |       |          | —     |                  |       |                         | 28.5       |            |       |                                        | 0.3        |       |       |   | 526.2 |   |   |   | (441.7 | ) |   |   | (5.1 | ) |   | 79.7 |   |
| Sale of capital  stock                                                |       |          | 192.5      |                  |       |                         | 13.3       |            |       |                                        | 0.1        |       |       |   | 357.4 |   |   |   |   |   |   |   |   |   |   | 550.0 |   |
| Employee benefit  plans                                               |       |          | —     |                  |       |                         | 0.8        |            |       |                                        | —     |       |       |   | 19.8 |   |   |   |   |   |   |   |   |   |   | 19.8 |   |
| Mills LP units  exchanged                                             |       |          | 3⁄4     |                  |       |                         | 0.6        |            |       |                                        | —     |       |       |   | 16.3 |   |   |   | 3⁄4 |   |   |   | 3⁄4 |   |   | 16.3 |   |
| Change in fair  value of cash flow hedges                        |       |          | 3⁄4     |                  |       |                         | 3⁄4     |            |       |                                        | 3⁄4     |       |       |   | 3⁄4 |   |   |   | 3⁄4 |   |   |   | (9.2 | ) |   | (9.2 | ) |
| Dividends declared:                                                   |       |          |       |                  |       |                         |       |            |       |                                        |       |       |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common stock                                                          |       |          | 3⁄4     |                  |       |                         | 3⁄4     |            |       |                                        | 3⁄4     |       |       |   | 3⁄4 |   |   |   | (86.1 | ) |   |   | 3⁄4 |   |   | (86.1 | ) |
| Preferred stock                                                       |       |          | 3⁄4     |                  |       |                         | 3⁄4     |            |       |                                        | 3⁄4     |       |       |   | 3⁄4 |   |   |   | (2.6 | ) |   |   | 3⁄4 |   |   | (2.6 | ) |
| Adjustment to  minority interest from increased ownership in Mills LP |       |          | 3⁄4     |                  |       |                         | 3⁄4     |            |       |                                        | 3⁄4     |       |       |   | (106.5 | ) |   |   | 3⁄4 |   |   |   | 3⁄4 |   |   | (106.5 | ) |
| Net income                                                            |       |          | 3⁄4     |                  |       |                         | 3⁄4     |            |       |                                        | 3⁄4     |       |       |   | 3⁄4 |   |   |   | 50.8 |   |   |   | 3⁄4 |   |   | 50.8 |   |
| Balances,  December 31, 2002                                     |       |          | 192.5      |                  |       |                         | 43.2       |            |       |                                        | 0.4        |       |       |   | 813.2 |   |   |   | (479.6 | ) |   |   | (14.3 | ) |   | 512.2 |   |
| Sale of capital  stock                                                |       |          | 216.1      |                  |       |                         | —     |            |       |                                        | —     |       |       |   | (3.4 | ) |   |   |   |   |   |   |   |   |   | 212.7 |   |
| Employee benefit  plans                                               |       |          | —     |                  |       |                         | 1.2        |            |       |                                        | —     |       |       |   | 23.3 |   |   |   |   |   |   |   |   |   |   | 23.3 |   |
| Series A  preferred stock conversion                             |       |          | 3⁄4     |                  |       |                         | 3.1        |            |       |                                        | 0.1        |       |       |   | 74.9 |   |   |   | 3⁄4 |   |   |   | 3⁄4 |   |   | 75.0 |   |
| Mills LP units  exchanged                                             |       |          | 3⁄4     |                  |       |                         | 2.8        |            |       |                                        | —     |       |       |   | 22.6 |   |   |   | 3⁄4 |   |   |   | 3⁄4 |   |   | 22.6 |   |
| Change in fair  value of cash flow hedges                        |       |          | 3⁄4     |                  |       |                         | 3⁄4     |            |       |                                        | 3⁄4     |       |       |   | 3⁄4 |   |   |   | 3⁄4 |   |   |   | (0.5 | ) |   | (0.5 | ) |
| Dividends declared:                                                   |       |          |       |                  |       |                         |       |            |       |                                        |       |       |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common stock                                                          |       |          | 3⁄4     |                  |       |                         | 3⁄4     |            |       |                                        | 3⁄4     |       |       |   | 3⁄4 |   |   |   | (105.4 | ) |   |   | 3⁄4 |   |   | (105.4 | ) |
| Preferred stock                                                       |       |          | 3⁄4     |                  |       |                         | 3⁄4     |            |       |                                        | 3⁄4     |       |       |   | 3⁄4 |   |   |   | (27.8 | ) |   |   | 3⁄4 |   |   | (27.8 | ) |
| Adjustment to  minority interest from increased ownership in Mills LP |       |          | 3⁄4     |                  |       |                         | 3⁄4     |            |       |                                        | 3⁄4     |       |       |   | (15.1 | ) |   |   | 3⁄4 |   |   |   | 3⁄4 |   |   | (15.1 | ) |
| Net income                                                            |       |          | 3⁄4     |                  |       |                         | 3⁄4     |            |       |                                        | 3⁄4     |       |       |   | 3⁄4 |   |   |   | 115.1 |   |   |   | 3⁄4 |   |   | 115.1 |   |
| Balances,  December 31, 2003                                     |       |          | 408.6      |                  |       |                         | 50.3       |            |       |                                        | 0.5        |       |       |   | 915.5 |   |   |   | (497.7 | ) |   |   | (14.8 | ) |   | 812.1 |   |
| Sale of capital  stock                                                |       |          | 316.3      |                  |       |                         | 3⁄4     |            |       |                                        | 3⁄4     |       |       |   | (10.1 | ) |   |   | 3⁄4 |   |   |   | 3⁄4 |   |   | 306.2 |   |
| Employee benefit  plans                                               |       |          | —     |                  |       |                         | 0.7        |            |       |                                        | 0.1        |       |       |   | 19.7 |   |   |   | — |   |   |   | — |   |   | 19.8 |   |
| Mills LP units  exchanged                                             |       |          | 3⁄4     |                  |       |                         | 4.7        |            |       |                                        |       |       |       |   | 38.0 |   |   |   | 3⁄4 |   |   |   | 3⁄4 |   |   | 38.0 |   |
| Change in fair  value of cash flow hedges                        |       |          | 3⁄4     |                  |       |                         | 3⁄4     |            |       |                                        | 3⁄4     |       |       |   | 3⁄4 |   |   |   | 3⁄4 |   |   |   | 12.4 |   |   | 12.4 |   |
| Dividends declared:                                                   |       |          |       |                  |       |                         |       |            |       |                                        |       |       |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common stock                                                          |       |          | 3⁄4     |                  |       |                         | 3⁄4     |            |       |                                        | 3⁄4     |       |       |   | 3⁄4 |   |   |   | (129.5 | ) |   |   | 3⁄4 |   |   | (129.5 | ) |
| Preferred stock                                                       |       |          | 3⁄4     |                  |       |                         | 3⁄4     |            |       |                                        | 3⁄4     |       |       |   | 3⁄4 |   |   |   | (43.9 | ) |   |   | 3⁄4 |   |   | (43.9 | ) |
| Adjustment to  minority interest from increased ownership in Mills LP |       |          | 3⁄4     |                  |       |                         | 3⁄4     |            |       |                                        | 3⁄4     |       |       |   | 7.4 |   |   |   | 3⁄4 |   |   |   | 3⁄4 |   |   | 7.4 |   |
| Net income                                                            |       |          | 3⁄4     |                  |       |                         | 3⁄4     |            |       |                                        | 3⁄4     |       |       |   | 3⁄4 |   |   |   | 232.0 |   |   |   | 3⁄4 |   |   | 232.0 |   |
| Balances,  December 31, 2004                                     |       |          | $          | 724.9                 |       |                         |       | 55.7            |       |                                        |       | $          | 0.6        |   |   |   | $ | 970.5 |   |   |   | $ | (439.1 | ) |   |   | $ | (2.4 | ) |   | $ | 1,254.5 |   |

 

See Accompanying Notes to Consolidated Financial Statements

F-5

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**THE MILLS CORPORATIONCONSOLIDATED STATEMENTS OFCASH FLOWS(In millions)**
| ** **                                                                              | ** ** | **Years Ended December 31,** | ** ** |
|-----------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                              | ** ** | **2004**                                    | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                                                              | ** ** | ** **                                  | ** ** | **(Restated)** | ** ** | **(Restated)** | ** ** |
| **Cash Flows From Operating Activities:**                                               |       |                                        |       |   |   |   |   |   |   |
| Net income                                                                              |       | $                                           | 232.0      |   | $ | 115.1 |   |   | $ | 50.8 |   |   |
| Adjustments to reconcile  net income to net cash provided by operating activities: |       |                                        |       |   |   |   |   |   |   |
| Cumulative effect  of accounting change                                                 |       | (51.4                                       | )          | — |   |   | — |   |   |
| Mills LP minority  interest                                                             |       | 39.7                                        |       | 31.1 |   |   | 22.3 |   |   |
| Depreciation and  amortization                                                          |       | 199.5                                       |       | 88.7 |   |   | 47.9 |   |   |
| Amortization of  financing costs                                                        |       | 10.2                                        |       | 7.2 |   |   | 5.3 |   |   |
| Amortization of  restricted stock incentive program                                     |       | 4.1                                         |       | 6.2 |   |   | 6.0 |   |   |
| Equity in earnings  of unconsolidated joint ventures                                    |       | (15.3                                       | )          | (34.6 | ) |   | (24.0 | ) |   |
| Minority interest  in consolidated joint ventures                                       |       | (35.5                                       | )          | — |   |   | — |   |   |
| Gain on sales of  joint venture interests                                               |       | (99.3                                       | )          | (0.7 | ) |   | — |   |   |
| Foreign currency  exchange gains                                                        |       | (15.2                                       | )          | (38.6 | ) |   | (11.6 | ) |   |
| Gain on land sales                                                                      |       | (20.1                                       | )          | (1.0 | ) |   | (2.1 | ) |   |
| Abandoned project  costs                                                                |       | 8.3                                         |       | 2.2 |   |   | 2.7 |   |   |
| Changes in assets and  liabilities:                                                     |       |                                        |       |   |   |   |   |   |   |
| Accounts  receivable, net                                                               |       | (70.0                                       | )          | (37.0 | ) |   | 0.1 |   |   |
| Notes receivable                                                                        |       | (11.7                                       | )          | (5.1 | ) |   | (7.9 | ) |   |
| Other assets                                                                            |       | 9.4                                         |       | (1.7 | ) |   | (1.2 | ) |   |
| Accounts payable  and other liabilities                                                 |       | 65.3                                        |       | 37.1 |   |   | (15.6 | ) |   |
| **Net cash  provided by operating activities**                                          |       | 250.0                                       |       | 168.9 |   |   | 72.7 |   |   |
| **Cash Flows From Investing Activities:**                                               |       |                                        |       |   |   |   |   |   |   |
| Consolidation of joint  ventures under FIN 46                                           |       | 109.7                                       |       | — |   |   | — |   |   |
| Minority interest  investment in consolidated joint ventures, net                       |       | 169.8                                       |       | — |   |   | — |   |   |
| Distributions from  unconsolidated joint ventures                                       |       | 33.1                                        |       | 64.6 |   |   | 42.2 |   |   |
| Proceeds from sales of  joint venture interests                                         |       | 206.1                                       |       | 75.3 |   |   | — |   |   |
| Acquisitions of operating  properties                                                   |       | (78.8                                       | )          | (1,059.3 | ) |   | (330.7 | ) |   |
| Purchase of partnership  interests                                                      |       | (497.4                                      | )          | — |   |   | — |   |   |
| Investments in real  estate and development assets                                      |       | (539.6                                      | )          | (167.5 | ) |   | (266.6 | ) |   |
| Proceeds from land sales                                                                |       | 34.5                                        |       | 2.8 |   |   | 5.0 |   |   |
| Deferred costs and other  intangibles, net                                              |       | 22.3                                        |       | (19.4 | ) |   | (2.3 | ) |   |
| **Net cash  used in investing activities**                                              |       | (540.3                                      | )          | (1,103.5 | ) |   | (552.4 | ) |   |
| **Cash Flows From Financing  Activities:**                                              |       |                                        |       |   |   |   |   |   |   |
| Proceeds from mortgages,  notes and loans payable                                       |       | 1,081.1                                     |       | 1,086.2 |   |   | 480.9 |   |   |
| Repayments of mortgages,  notes and loans payable                                       |       | (759.0                                      | )          | (269.7 | ) |   | (378.9 | ) |   |
| Financing costs                                                                         |       | (3.1                                        | )          | (14.4 | ) |   | (5.3 | ) |   |
| Change in restricted cash                                                               |       | (20.4                                       | )          | (8.9 | ) |   | 0.5 |   |   |
| Proceeds from sale of  common stock, net                                                |       | —                                      |       | — |   |   | 364.4 |   |   |
| Proceeds from sale of  preferred stock and units, net                                   |       | 306.2                                       |       | 222.7 |   |   | 185.6 |   |   |
| Proceeds from stock option  exercises                                                   |       | 15.7                                        |       | 17.2 |   |   | 13.8 |   |   |
| Common and preferred  dividends paid                                                    |       | (169.0                                      | )          | (126.1 | ) |   | (75.2 | ) |   |
| Common and preferred  distributions to Mills LP unit holders                            |       | (24.1                                       | )          | (35.8 | ) |   | (36.3 | ) |   |
| **Net cash  provided by financing activities**                                          |       | 427.4                                       |       | 871.2 |   |   | 549.5 |   |   |
| Net (decrease)  increase in cash and cash equivalents                                   |       | 137.1                                       |       | (63.4 | ) |   | 69.8 |   |   |
| Cash and cash  equivalents, beginning of year                                           |       | 15.8                                        |       | 79.2 |   |   | 9.4 |   |   |
| Cash and cash  equivalents, end of year                                                 |       | $                                           | 152.9      |   | $ | 15.8 |   |   | $ | 79.2 |   |   |
| **Supplemental Cash Flow Information:**                                                 |       |                                        |       |   |   |   |   |   |   |
| Cash paid for interest,  net of amounts capitalized                                     |       | $                                           | 202.3      |   | $ | 99.4 |   |   | $ | 48.2 |   |   |
| **Non-cash investing and financing  information provided in Note 14**              |       |                                        |       |   |   |   |   |   |   |

 

See Accompanying Notes to Consolidated Financial Statements

F-6

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**THE MILLS CORPORATIONNOTES TO CONSOLIDATEDFINANCIAL STATEMENTS(Dollars in millions except per share data)**

**1.**   ORGANIZATION

The Mills Corporation, orTMC, is a fully integrated, self-managed real estate investment trust (“REIT”)that provides development, redevelopment, leasing, financing, management andmarketing services to its properties. TMC conducts all of its business and ownsall of its properties through The Mills Limited Partnership, or Mills LP, andits various subsidiaries. TMC is the sole general partner of Mills LP and owneda 1.00% general partner interest and an 85.12% limited partner interest as of December 31,2004.

As of December 31,2004, we owned or had an interest in 38 retail and entertainment-orientedcenters comprised of 17 Mills Landmark Centers, 20 regional 21stCentury Retail and Entertainment Centers and one International Retail andEntertainment Center. Of these, five Mills Landmark Centers, seven 21stCentury Retail and Entertainment Centers and the International Retail and EntertainmentCenter were wholly owned by us. We also owned three community shopping centers,a portfolio of 19 single tenant properties and other related commercialdevelopment.

**2.   SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES**

*BASIS OF PRESENTATION*

We consolidate theaccounts of TMC, Mills LP and all subsidiaries that we control. We do notconsider ourselves to be in control of an entity when major business decisionsrequire the approval of at least one other partner. All significantintercompany transactions and balances have been eliminated in consolidation.

We also consolidateentities that are considered to be variable interest entities (VIE’s) and forwhich we have been determined to be the primary beneficiary. The determinationof whether an entity is a VIE requires knowledge of the structure of theeconomics and the governance of the entity, and judgment is necessary in howthis knowledge is applied to the underlying rules. The effects of theelimination of interest and fee revenue and expense due to intercompanytransactions between entities that are less than 100% owned are attributable tous as primary beneficiary.

Equity in the income orloss of joint ventures is recorded on the equity method of accounting. Weallocate income to equity participants based on the terms of the respectivepartnership agreements upon an assumed liquidation of the joint venture at itsdepreciated book value as of the end of the reporting period. Partnerdistributions are defined by the individual joint venture agreements.Generally, net ordinary cash flow is distributed to each partner first to paypreferences on unreturned capital balances, including cumulative unpaidpreferences, and thereafter in accordance with specified residual sharingpercentages. Cash flow from capital events, including refinancing and assetsales, is generally allotted first to partners in an amount equal to theirunreturned capital account and thereafter in accordance with residual sharingpercentages.

Basis differences in ourinvestments in joint ventures primarily result from the acquisition ofpartnership interests which are not reflected at the joint venture level;capitalized interest on the investment balance; and capitalized development andleasing costs recovered by us through fees earned during project developmentand construction. Basis differences in unconsolidated joint ventures were $678.8million at December 31, 2004 and are amortized over 25 years.

*REAL ESTATE ANDDEVELOPMENT ASSETS*

Income producing propertyis stated at cost and includes all costs related to acquisition, development,leasing and construction, including tenant improvements, interest incurredduring construction, costs of 

F-7

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predevelopmentand certain direct and indirect costs of development. Cost incurred during thepredevelopment stage are capitalized once management has determined that theproject and the acquisition of a site is feasible and it is probable thatmanagement will be able to proceed. Land held for sale is carried at the lowerof cost or fair value less costs to sell. Expenditures for ordinary maintenanceand repairs are expensed to operations as they are incurred. Significantrenovations and improvements which improve or extend the useful life of theasset are capitalized.

Operating properties areevaluated on an individual basis for impairment when conditions exist that mayindicate that it is probable that the sum of expected undiscounted future cashflows from a property is less than the historical net cost basis. Upondetermination that a permanent impairment has occurred, an impairment chargeequal to the excess of historical cost basis over fair value is recorded. Costsrelated to predevelopment projects are expensed when it is determined that itis no longer probable we will develop the project and could be material.

The cost of acquiredoperating properties represents the allocation of purchase price to theunderlying assets and liabilities, including identifiable intangible assetssuch as above/below market leases and at market leases, based on appraisals andother valuation methods. Amortization expense related to such intangibles forthe years ended December 31, 2004 and 2003 was $8.6 million and $4.7million, respectively. The estimated aggregate amortization expense for 2005,2006, 2007, 2008 and 2009 is $4.7 million, $3.6 million, $2.8 million,$2.2 million and $1.7 million, respectively. External costs directly related toacquisition opportunities being actively pursued by us are capitalized. If weare successful in completing the acquisition, such costs are allocated to theacquired property as part of the purchase price. If not, such costs areexpensed in the period it becomes likely the acquisition will not be completed.

Interest is capitalized onreal estate and development assets, including investments in joint ventures, inaccordance with the provisions of Statement of Financial Accounting Standards (“SFAS”)No. 34, “Capitalization of Interest Cost,” and SFAS No. 58, “Capitalizationof Interest Cost in Financial Statements that include Investments Accounted forby the Equity Method.” The capitalization period commences when developmentbegins and continues until the asset is ready for its intended use or isabandoned. The amount capitalized is based on the stated interest rates,including amortization of deferred financing costs. The calculation includesinterest costs that theoretically could have been avoided, based on eitherproject specific borrowings or an assumed repayment of our highest rate debt,had the underlying development and construction activities not been undertaken.For the years ended December 31, 2004, 2003 and 2002, interest wascapitalized at an average rate of 7.8%, 8.6% and 9.4%, respectively, andamounted to $56.8 million, $48.0 million and $34.3 million, respectively.

Depreciationexpense amounting to $158.4 million, $70.0 million and $38.8 million for theyears ended December 31, 2004, 2003 and 2002, respectively, was computedusing the straight-line method over the estimated useful lives of the assets,as follows:
| Building and  improvements        |   | 10 - 40 years                  |
|-----------------------------------|--------|------------------------------------------|
| Land improvements                 |   | 20 years                                 |
| Furniture, fixtures and equipment |   | 5 - 10 years                   |
| Tenant improvements               |   | Lesser of life of asset or term of lease |

 

*CASH AND CASH EQUIVALENTS*

Highly liquid investmentswith an original maturity of three months or less are considered to be cashequivalents.

*RESTRICTED CASH*

Restricted cash iscomprised primarily of funds on deposit in cash collateral accounts controlledby the lenders. Proceeds from certain transactions are held in such accounts tofund maintenance reserves, interest, taxes and debt payments for the propertyassociated with the loan.

F-8

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*ACCOUNTS RECEIVABLE, NET*

Accounts receivableinclude amounts billed to tenants, deferred rent resulting from thestraight-line recognition of rental income and accrued recoveries.Collectibility of these receivables is evaluated on a regular basis and theallowance for doubtful accounts is adjusted accordingly. At December 31,2004 and 2003 the allowance for doubtful accounts was $15.2 million and $4.3million, respectively.

*DEFERRED COSTS AND OTHER INTANGIBLES, NET*

Deferred costs and otherintangibles include loan fees, leasing costs and the value of in-place leasesrelated to operating property acquisitions. Loan fees, including relatedexpenses, are amortized on a straight-line basis which approximates theinterest method over the terms of the related notes. Leasing costs areamortized on a straight-line basis over the term of the related leases. Thevalues of leases in-place at the date an operating property was acquired areamortized on a straight-line basis over the terms of the underlying leases. Forthe years ended December 31, 2004, 2003 and 2002, amortization expense was$54.5 million, $25.8 million and $14.4 million, respectively. Accumulatedamortization was $115.8 million and $61.3 million, at December 31,2004 and 2003, respectively.

*REVENUE RECOGNITION*

As lessor, we retainsubstantially all the risks and benefits of property ownership and accounts forour leases as operating leases. Minimum rent from income producing propertiesis recognized on a straight-line basis over the terms of the respective leasesand includes amortization of deferred revenue resulting from acquired leasesand the amortization of lease inducements. The term of each lease is based onthe period during which a tenant has control of the space. Judgment is requiredto determine when a tenant takes control of the space, and accordingly when tocommence the recognition of rent. As a part of the restatement of our financialstatements we revised our previous practice of recognizing rent beginning withthe lease commencement date to recognizing income from the date the tenant hascontrol of the space. The cumulative impact of this was an adjustment toretained earnings of $6.4 million and an immaterial impact on net income forthe periods presented. Percentage rent is recognized when tenants’ sales havereached certain sales levels as specified in the underlying lease. Recoveriesfrom tenants for real estate taxes and other operating expenses are recognizedas revenue in the period the applicable costs are incurred.

We provide management,leasing, development and financing services to most of our joint ventureproperties, for which we earn various fees. Management fees are a percentage ofthe monthly rental revenue received by the joint venture and recognized whensuch revenue is received by the property. Leasing fees are recognized upon executionof the lease and represent an agreed-upon rate per square foot of space leased.Development fees are recognized on the percentage completion method based onthe proportion of our costs incurred to our expected total costs to beincurred. Financial service fees are a stated percentage of the loan commitmentobtained and recognized when the loan agreement is executed by the lender. Weexpense leasing and financing overhead costs to the extent of our partners’interests in the underlying entities. Other fee income reflects leasing,development and financing fees from unconsolidated joint ventures after theelimination of intercompany profit.

*OTHER PROPERTY REVENUE*

Other property revenueincludes rent from tenants with original leases of one year or less, temporaryin-line space, kiosks and ATM space. It also includes lease termination feesand recoveries of previously deemed uncollectible receivables.

*DERIVATIVES AND HEDGING*

A variety of derivativefinancial instruments are used to manage, or hedge, our exposure to the impactof changing interest rates. Derivative contracts are designated and qualify ascash flow hedges because, at 

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inception,it is expected that the instrument will be effective in reducing interest rateexposure and that the underlying transaction will occur. Derivative instrumentsare not used for speculative purposes.

Derivative instruments arestated at fair value. Fair value is determined using various methods andassumptions based on market conditions and risks existing at each balance sheetdate. In most cases, standard market conventions and techniques, such asdiscounted cash flow analysis, option pricing models, replacement cost andtermination cost, are used to determine fair value. All methods of assessingfair value result in a value which may never be realized.

The fair value ofderivative instruments are included in accounts payable and other liabilitiesand changes are charged to accumulated other comprehensive loss. In the eventthe instrument is determined to be no longer effective, the item being hedgedno longer exists or the terms of the underlying transaction are modified, thefair value adjustment is charged to earnings as interest expense. Unrealizedgains or losses charged to accumulated other comprehensive income are eventuallyrecognized in earnings as the underlying hedged item is recognized.

*INCOME TAXES*

Wehave elected for TMC to be taxed as a REIT under Sections 856-860 of theInternal Revenue Code (the “Code”). As a REIT, we will generally not be subjectto federal and state income taxes on our net taxable income that we currentlydistribute to stockholders. In order to maintain REIT status, we are requiredto distribute at least 90% of our taxable income to our stockholders and aresubject to various other requirements including meeting certain asset andincome tests. Because we believe we will maintain our REIT status anddistribute in excess of our taxable income, U.S. federal income taxes may notapply. Differences between net income available to common stockholders forfinancial reporting purposes and taxable income before dividend deductionsrelate primarily to real estate depreciation, recognition of gains and lossesfrom asset transactions and foreign currency exchange gains and losses. The taxtreatment of dividends paid per common share was as follows:
| ** **                            | ** ** | **Years Ended December 31,** | ** ** |
|---------------------------------------|------------|---------------------------------------------|------------|
| ** **                            | ** ** | **2004**                                    | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                            | ** ** | **(unaudited)**                             | ** ** |
| Ordinary income  per common share     |       | $                                           | 1.19       |   | $ | 1.08 |   | $ | .75 |   |
| Capital gain per  common share        |       | 0.60                                        |       | .15 |   | .12 |   |
| Unrecaptured  Section 1250 gains |       | 0.02                                        |       | — |   | — |   |
| Return of capital  per common share   |       | 0.54                                        |       | 1.01 |   | 1.31 |   |
| Dividends paid  per common share      |       | $                                           | 2.35       |   | $ | 2.24 |   | $ | 2.18 |   |

 

The Code provides that a REIT may own stock insubsidiaries engaged in businesses which generate nonqualifying income, whichare referred to herein as taxable REIT subsidiaries. The stock value of thesebusinesses are subject to certain limitations and both the REIT and the taxableREIT subsidiaries are subject to strict rules governing ownership,operation and taxation. MillsServices Corp., or MSC, and its subsidiaries havemade elections to be treated as taxable REIT subsidiaries.

MSC, a subchapter Ccorporation, is subject to federal and state income taxes at the prevailing taxrates. As of December 31, 2004, MSC had an estimated federal net operatingloss carry forward of $42.5 million. Deferred tax assets relatingprimarily to the loss carry forward have been offset in their entirety by avaluation allowance since there is no assurance MSC will generate taxableincome in the future.

*FOREIGN OPERATIONS*

The functional currencyfor entities operating or projects in development outside the United States isthe currency of the country in which the entity or project is located. Thefinancial statements of such 

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entitiesare translated from the functional currency into U.S. dollars for inclusion inour financial statements. Gains or losses resulting from translation areaccounted for as a component of other comprehensive income or loss.

Our non-U.S. investmentand related advances are denominated in the non-U.S. entity’s functionalcurrency and re-measured to our functional currency of the U.S. dollar. Weexpect to settle these amounts in the foreseeable future through distributionsfrom the entities. Accordingly, gains or losses resulting from there-measurement are included in the determination of net income. Foreigncurrency exchange losses and gains for the periods presented arose primarily asa result of this re-measurement.

As of December 31,2004 and 2003, our overall investment in non-U.S. operations approximated$270.0 million and $210.9 million, respectively. Each of our non-U.S.operations is subject to certain foreign corporate-level income taxes.

*SEGMENT REPORTING*

We consider each of ourproperties a separate operating segment that are aggregated and reported as asingle segment. Discrete financial information is available and each property’soperating results are reviewed by the chief operating decision maker in thedetermination of resource allocation and performance. This single reportablesegment represents over 90% of our assets, revenues and income for each of theyears presented. Future prospects for each property are similar and all haveessentially the same economic characteristics with similar returns, occupancy andtenants and are sited near a metropolitan area with similar demographics andsite characteristics.

*EARNINGS PER COMMON SHARE*

Basic earnings per commonshare is calculated by dividing income available to common stockholders by theweighted average number of common shares outstanding during the period. Dilutedearnings per common share reflects the dilutive impact of the assumedconversion of stock issued pursuant to our restricted stock and stock optionincentive plans using the treasury stock method and the if-converted method forour convertible preferred stock.

*TAX INCREMENT FINANCING*

Tax increment financing isa common form of project infrastructure financing expected to be repaid throughfuture tax assessments. In determining if such financing should be recorded,factors including whether the assessment is fixed or variable and theprobability we will become obligated for such financing is considered.

*USE OF ESTIMATES*

The preparation ofconsolidated financial statements in conformity with U.S. generally acceptedaccounting principles (“GAAP”) requires management to make estimates andassumptions that affect the amounts reported in the consolidated financialstatements and accompanying notes. Actual results could differ from thoseestimates.

*RECLASSIFICATIONS*

Certain amounts in the 2003and 2002 consolidated financial statements have been reclassified to conform tothe current year presentation.

**3.**   NEW AND PENDING ACCOUNTINGPRONOUNCEMENTS

*STANDARDS IMPLEMENTED AND TRANSITION ADJUSTMENT*

FIN 45—Effective October 1,2003, we adopted the disclosure provisions of Financial Accounting StandardsBoard Interpretation (“FIN”) No. 45, “Guarantor’s Accounting andDisclosure Requirements 

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forGuarantees, including Direct Guarantees of Indebtedness of Others.” Initialrecognition and measurement provisions of FIN 45 were adopted on a prospectivebasis for guarantees issued after December 31, 2002. Under FIN 45, thefair value of a guarantee is recorded as a liability at its inception, with theoffsetting entry recorded based on the circumstances in which the guarantee wasissued. The adoption of this pronouncement did not have a material impact onour financial condition or results of operations.

FIN 46—Effective March 31,2004, we adopted the provisions of FIN 46(R),“Consolidation of Variable Interest Entities,” which requires a primarybeneficiary to consolidate variable interest entities (“VIE”). Under this new model for consolidation, an entity isdeemed to be a VIE when: (a) the equity investors (if any) do not have acontrolling financial interest or lack adequate decision making ability; or (b) theequity investment at risk is insufficient to finance that entity’s activitieswithout receiving additional financial support from other parties.

A number of our joint ventureentities are with affiliates of KanAm. Three of our thirteen Board members arealso affiliated with KanAm, which, combined with our residual sharingpercentages in the economics of the ventures (see Footnote 5, “Joint Ventures”)result in those ventures being viewed as VIE’s. In all cases, we weredetermined to be the primary beneficiary. Subsequent changes in the entity’spartnership, financing and/or other certain events trigger a re-determinationof the venture’s status as a VIE. As a result of such re-determination, two ofthe operating properties no longer meet the VIE criteria. Historically, the VIEjoint ventures have been accounted for on the equity method because theunderlying partnership agreements require major business decisions be approvedby at least one other partner.

Pursuantto the transition provisions of FIN 46, we consolidated the assets andliabilities of the VIEs on March 31, 2004, and the operating resultsbeginning April 1, 2004. VIE operating results were accounted for underthe equity method through March 31, 2004. The impact of the adoption at March 31,2004, was to consolidate joint ventures with total assets of$2,701.7 million and total liabilities of $1,932.7 million and torecord a cumulative effect adjustment to increase earnings by $42.1 million,net of minority interest of $9.3 million, reflecting additional capitalizedinterest as if the entities had been consolidated during their respectiveconstruction periods. Our partners’ equity interests in the VIEs are classifiedas minority interest in consolidated jointventures in our consolidated financial statements. The following presents theimpact on our earnings had we adopted FIN 46 retroactively.
| ** **                                      | ** ** | **Years Ended December 31,** | ** ** |
|-------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                      | ** ** | **2004**                                    | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                      | ** ** | ** **                                  | ** ** | **(Restated)** | ** ** | **(Restated)** | ** ** |
| Income from continuing  operations              |       | $                                           | 189.9      |   |   | $ | 115.0 |   |   |   | $ | 50.5 |   |   |
| Pro forma income from  continuing operations    |       | $                                           | 190.9      |   |   | $ | 119.5 |   |   |   | $ | 55.4 |   |   |
| Earnings per share from  continuing operations: |       |                                        |       |   |   |   |   |   |   |   |   |
| Basic:                                          |       |                                        |       |   |   |   |   |   |   |   |   |
| As reported                                     |       | $                                           | 2.75       |   |   | $ | 1.94 |   |   |   | $ | 1.35 |   |   |
| Pro forma                                       |       | $                                           | 2.77       |   |   | $ | 2.07 |   |   |   | $ | 1.55 |   |   |
| Diluted:                                        |       |                                        |       |   |   |   |   |   |   |   |   |
| As reported                                     |       | $                                           | 2.71       |   |   | $ | 1.91 |   |   |   | $ | 1.33 |   |   |
| Pro forma                                       |       | $                                           | 2.73       |   |   | $ | 2.01 |   |   |   | $ | 1.46 |   |   |

 

*PENDING ADOPTION OFAN ACCOUNTING PRONOUNCEMENT*

SFAS 123R—In December 2004,the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123R, “Share-BasedPayments”. SFAS 123R is similar in its approach to share-based payments as theapproach described in SFAS 123 except that SFAS 123R requires all share-basedpayments to employees, including stock options, be recognized in the incomestatement based on their fair values. SFAS 123R must be adopted no later thanthe first quarter beginning after June 15, 2005. We do not expect SFAS123R to 

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have asignificant impact our results of operations and expect to adopt its provisionseffective July 1, 2005. Had we adopted SFAS 123R in prior period periodsits impact would have approximated that of SFAS 123 as more fully described inNote 13.

**4.**   ACQUISITIONS

Thefollowing summarizes acquisitions completed during 2004, 2003 and 2002. Thepurchase price below does not include transaction costs. 
| ** **                                       | ** ** | **Acquisition Date** | ** ** | **Purchase Price** | ** ** |
|--------------------------------------------------|------------|---------------------------|------------|-------------------------|------------|
| *100%  Interest Acquired:*                       |       |                      |       |                    |       |   |   |
| Westland Mall                                    |       | January 2004         |       |                    | $          | 78.8 |   |   |
| Great Mall of the Bay Area                       |       | August 2003          |       |                    | 265.5      |   |   |
| Del Amo Fashion Center                           |       | June 2003            |       |                    | 442.0      |   |   |
| Cadillac Fairview Portfolio(1)                   |       | January 2003         |       |                    | 539.9      |   |   |
| The Shops at Riverside Square                    |       | December 2002        |       |                    | 86.5       |   |   |
| Cincinnati Mills (formerly known as Forest Fair) |       | September 2002       |       |                    | 68.8       |   |   |
| *Partial Interests Acquired:*                    |       |                      |       |                    |       |   |   |
| GM Portfolio(2)                                  |       | October 2004         |       |                    | 452.1      |   |   |
| Madrid Xanadú(3)                            |       | August 2004          |       |                    | 45.0       |   |   |
| Cadillac Fairview Portfolio(4)                   |       | May 2003             |       |                    | 62.5       |   |   |
| Opry Mills(5)                                    |       | June 2002            |       |                    | 30.9       |   |   |
|                                                  |            |                           |            |                         |            |  |  |  |

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(1)          BrowardMall, Dover Mall, The Esplanade, Galleria at White Plains, Northpark Mall andapproximately 110 acres of developable land adjacent to the properties.

(2)          InOctober 2004, we purchased a 50% interest in nine regional mall properties(the “GM Portfolio”). We paid $452.1 million in cash for the equity in theunderlying entities. Our proportionate share of pre-existing property debtassumed was $170 million, an our proportionate share of property debt incurredin connection with the transaction was $410 million. The GM Portfolio has acombined GLA of 8.9 million square feet and includes Briarwood Mall, ColumbusCity Center, The Falls, Hilltop Mall, Lakeforest Mall, Marley Station,Meadowood Mall, Stoneridge Mall and The Mall at Tuttle Crossing.

(3)          Acquisition of joint venture interests not owned by us for $45.0million subject to a potential adjustment over the next two years based on aformula.

(4)          50%interest in Gwinnett Place and Town Center at Cobb.

(5)          Acquisitionof the joint venture interest not owned by us.

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Acquiredproperties are included in our results of operations from their respective dateof acquisition. The following unaudited pro forma results of operations reflectthese transactions as if each had occurred on January 1 of the yearpresented. In our opinion, all significant adjustments necessary to reflect theeffects of the acquisitions, the equity offerings and use of the line of credithave been made.
| ** **                            | ** ** | **Unaudited Pro Forma**           | ** ** |
|---------------------------------------|------------|---------------------------------------------|------------|
| ** **                            | ** ** | **Years Ended December 31,** | ** ** |
| ** **                            | ** ** | **2004**                                    | ** ** | **2003** | ** ** |
| ** **                            | ** ** | ** **                                  | ** ** | **(Restated)** | ** ** |
| Operating revenues                    |       |                                        | $          | 688.1 |   |   |   | $ | 419.6 |   |   |
| Net income                            |       |                                        | $          | 227.9 |   |   |   | $ | 128.8 |   |   |
| Income per common  share—basic   |       |                                        | $          | 3.57 |   |   |   | $ | 2.12 |   |   |
| Income per common  share—diluted |       |                                        | $          | 3.51 |   |   |   | $ | 2.09 |   |   |

 

Thefollowing summarizes the purchase price allocation for the 2004 and 2003 acquisitions:
| ** **                                   | ** ** | **2004** | ** ** | **2003** | ** ** |
|----------------------------------------------|------------|----------|------------|----------|------------|
| Income producing  property                   |       | $        | 76.6       |     | $          | 1,206.6 |   |
| Investment in  unconsolidated joint ventures |       | 452.1    |       | 62.5     |       |
| Deferred costs  and other intangibles, net   |       | 2.7      |       | 71.4     |       |
| Mortgages, notes  and loans payable assumed  |       | 3⁄4   |       | (65.9    | )          |
| Accounts payable  and other liabilities      |       | (0.5     | )          | (20.4    | )          |
| Net assets  acquired                         |       | $        | 530.9      |     | $          | 1,254.2 |   |

 

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**5.   JOINT VENTURES**

Jointventures are commonly used in the real estate industry to fund developmentand/or expansion and to diversify risk in a particular property or area. Weheld joint venture interests in 27 properties as of December 31, 2004 and17 as of December 31, 2003, as well as interests in various predevelopmentprojects. Joint venture interests are accounted for under the equity methodwhile the venture is unconsolidated. Consolidation occurs when we gainunilateral control of the entity through the acquisition of additionalpartnership interests or when the entity becomes a variable interest entity forwhich we are determined to be the primary beneficiary. The following summarizesour residual sharing and capital contribution percentages in our consolidatedand unconsolidated real estate joint ventures at December 31, 2004:
| ** **                                               | ** ** | **Residual  Sharing  Percentage** | ** ** | **Capital  Contribution  Percentage** | ** ** |
|----------------------------------------------------------|------------|-----------------------------------|------------|---------------------------------------|------------|
| ***Consolidated Joint Ventures:***                       |       |                              |       |                                  |       |   |   |   |   |
| *Operating properties:*                                  |       |                              |       |                                  |       |   |   |   |   |
| Arundel Mills                                            |       |                              | 59.3       | %                                     |       |   | 39.5 | % |   |
| The Block at Orange                                      |       |                              | 50.0       | %                                     |       |   | — |   |   |
| Colorado Mills                                           |       |                              | 56.3       | %                                     |       |   | 37.5 | % |   |
| Concord Mills                                            |       |                              | 59.3       | %                                     |       |   | 39.5 | % |   |
| Discover Mills                                           |       |                              | 50.0       | %                                     |       |   | — |   |   |
| Grapevine Mills                                          |       |                              | 59.3       | %                                     |       |   | 39.5 | % |   |
| Great Mall of the Bay  Area                              |       |                              | 75.0       | %                                     |       |   | 49.0 | % |   |
| Katy Mills                                               |       |                              | 62.5       | %                                     |       |   | 25.0 | % |   |
| Opry Mills                                               |       |                              | 75.0       | %                                     |       |   | 49.0 | % |   |
| St. Louis Mills                                          |       |                              | 75.0       | %                                     |       |   | 50.0 | % |   |
| Arundel Mills  Marketplace                               |       |                              | 59.3       | %                                     |       |   | 39.5 | % |   |
| *Properties under development:*                          |       |                              |       |                                  |       |   |   |   |   |
| Meadowlands Xanadu(1)                                    |       |                              | 53.3       | %                                     |       |   | 26.67 | % |   |
| Pittsburgh Mills                                         |       |                              | 56.3       | %                                     |       |   | 37.5 | % |   |
| ***Unconsolidated Operating  Property Joint Ventures:*** |       |                              |       |                                  |       |   |   |   |   |
| Arizona Mills                                            |       |                              | 50.0       | %                                     |       |   | 50.0 | % |   |
| Ontario Mills                                            |       |                              | 50.1       | %                                     |       |   | 50.1 | % |   |
| Briarwood Mall(2)                                        |       |                              | 50.0       | %                                     |       |   | 50.0 | % |   |
| Columbus City Center(2)                                  |       |                              | 50.0       | %                                     |       |   | 50.0 | % |   |
| Del Amo Fashion Center                                   |       |                              | 75.0       | %                                     |       |   | 50.0 | % |   |
| The Falls(2)                                             |       |                              | 50.0       | %                                     |       |   | 50.0 | % |   |
| Gwinnett Place(3)                                        |       |                              | 50.0       | %                                     |       |   | 50.0 | % |   |
| Hilltop Mall(2)                                          |       |                              | 49.9       | %                                     |       |   | 49.9 | % |   |
| Lakeforest Mall(2)                                       |       |                              | 50.0       | %                                     |       |   | 50.0 | % |   |
| Marley Station(2)                                        |       |                              | 50.0       | %                                     |       |   | 50.0 | % |   |
| Meadowood Mall(2)                                        |       |                              | 50.0       | %                                     |       |   | 50.0 | % |   |
| Stoneridge Mall(2)                                       |       |                              | 49.9       | %                                     |       |   | 49.9 | % |   |
| Town Center at Cobb(3)                                   |       |                              | 50.0       | %                                     |       |   | 50.0 | % |   |
| The Mall at Tuttle  Crossing(2)                          |       |                              | 50.0       | %                                     |       |   | 50.0 | % |   |
| Vaughan Mills                                            |       |                              | 50.0       | %                                     |       |   | 50.0 | % |   |

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(1)          Percentages are subjectto change based upon project scope and required contributions

(2)          GM Portfolio propertiesacquired in October 2004

(3)          CadillacFairview portfolio acquired in May 2003

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*AGREEMENTS*

We are committed to providing additional equity tocertain of our joint ventures under development pursuant to the relevant jointventure agreements and we guarantee certain joint venture partners’ preferencereturns and the repayment of construction debt. Guarantees generally remain ineffect until certain debt service coverage tests are met or a permanent loan isobtained, which generally occurs within two to four years after a property’sgrand opening. We would be liable under the guarantees if the proceeds areinsufficient to fund preference payments, the project’s construction is notcompleted or the construction loan is not refinanced at or before maturity.Most of our joint venture agreements with KanAm contain provisions whereby weor KanAm can require the purchase or sale of KanAm’s ownership interests.

The following summarizescertain significant joint venture agreement provisions and activities:

*Meadowlands Xanadu*

Meadowlands Xanadu isbeing developed on the site of the Continental Arena in New Jersey pursuant toan agreement with the New Jersey Sports and Exposition Authority, or the NJSEA.It is being developed through a joint venture between Meadowlands Mills LimitedPartnership, or Meadowlands Mills, and affiliates of Mack-Cali RealtyCorporation, or Mack-Cali. Meadowlands Mills is obligated to contribute capitalup to a maximum 40% of net project costs while Mack-Cali is obligated tocontribute capital up to a maximum $32.5 million. Commencing on the sixthanniversary of opening, the agreement provides that either party may put theirinterest in the partnership to the other for a price based on the fair value ofthe project at that time.

Meadowlands Mills is apartnership between us and KanAm. In October 2004, an entity owned byMeadowlands Mills acquired a 587-acre tract of land adjacent to the ContinentalArena site, or the Empire Tract. In connection with the redevelopment agreementwith NJSEA, we conveyed the Empire Tract to a non-profit conservation trust inexchange for a payment or credit of $26.8 million granted by the NJSEA. As of December 31,2004, we had invested approximately $109.3 million in Meadowlands Mills andKanAm had invested $210.2 million.

*Pittsburgh Mills*

PittsburghMills is expected to open during the summer of 2005 and is beingdeveloped by Pittsburgh Mills Limited Partnership, a joint venture betweenMills-KanAm Pittsburgh Limited Partnership (“Mills-KanAm Pittsburgh”) and AVAssociates Limited Partnership. Mills-KanAm Pittsburgh, through which we ownour interest in the Pittsburgh Mills project, is a joint venture with KanAm.For one to three years following the opening of the project, AV Associates mayelect to convert a portion of its interest in the partnership to, at ouroption, cash or units of Mills LP. Commencing on the fifth anniversary of theproject’s opening, AV Associates may put, and we may call, all of AV Associates’remaining partnership interest for a purchase price based on the fair marketvalue of the property and paid, at our option, in cash or units of Mills LP. Asof December 31, 2004, we and KanAm had each invested $57.8 million.

*Vaughan Mills*

We and Ivanhoe Cambridgeeach own an undivided 50% interest, as tenants in common, in Vaughan Mills,which opened in November 2004. At any time following the fourthanniversary of the opening of the project, either party may exercise a buy-sellprovision pursuant to which the offering party can require that the other partyeither purchase for cash the offering party’s entire interest in the project orsell to the offering party the interest of the other party.

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*SALE OR CONVEYANCEOF PARTNERSHIP INTERESTS*

In December 2004, we sold a 50% joint ventureinterest in Del Amo Fashion Center for $221.8 million, including $158.0 millionof the venture’s debt. We recognized no material gain or loss on the sale. Weincluded it in our consolidated results of operations from its date ofacquisition in June 2003 through the date the interest was sold and havesince accounted for it on the equity method as an unconsolidated joint venture.

Also in December 2004, we sold a 50% jointventure interest in a parcel of land adjacent to the Del Amo Fashion Center for$22.8 million in cash and recognized a $15.3 million gain.

In August 2004, we and KanAm sold a 50% jointventure interest in Ontario Mills for $170.3 million. The joint ventureinterest sold consisted of KanAm’s entire interest and a portion of theinterest held by us. We received proceeds of $50.7 million and recognized again of $39.6 million on our portion of the sale. Ontario Mills was anunconsolidated joint venture through March 31, 2004; was consolidatedunder FIN 46 from April 1, 2004, through August 27, 2004, and hassince been accounted for on the equity method as an unconsolidated jointventure.

In June 2004, we recorded a gain of $8.5 millionfrom our August 2003 conveyance to KanAm of an additional 6.375%partnership interest in each of the Arundel Mills, Concord Mills and GrapevineMills centers for proceeds of $28.1 million. Due to our continuing involvementin the joint ventures, we were precluded from recognizing the transactions assales until June 2004 when the underlying joint venture agreements wereamended to remove the terms comprising the continuing involvement.

In March 2004, we conveyed an approximately 50%joint venture interest in Opry Mills to KanAm Grund KapitalanlagegesellshaftmbH (“KanAm Grund”) for $68.9 million and a gain of $35.9 million wasrecognized. KanAm Grund is an affiliate of KanAm, a German syndicator of realestate funds with whom we have had a long standing relationship. In connectionwith this transaction, we terminated a swap agreement and recorded a $5.3million charge against the gain. Opry Mills was an unconsolidated joint venturethrough June 2002 when we acquired our then partner’s remaining interest.It was a wholly owned entity from June 2002 through March 23,2004, and has since been accounted for as a consolidated joint venture.

In December 2003, weconveyed a 50% joint venture interest in the Great Mall of the Bay Area toKanAm Grund for $47.2 million and recognized a $0.7 million gain. The GreatMall of the Bay Area was consolidated as a wholly owned entity from August 2003through December 17, 2003; was accounted for as an unconsolidated jointventure through March 31, 2004; and was consolidated under FIN 46effective March 31, 2004.

*MINORITY INTERESTIN CONSOLIDATED JOINT VENTURES*

Upon the adoption of FIN 46 we consolidated 15 jointventure properties which were previously accounted for under equity method. Onesuch property (Ontario Mills) was deconsolidated subsequently as a result ofthe sale of equity interests. We have since acquired our partner’s interest ina second property (Madrid Xanadú).

Our consolidated joint ventures are variable interestentities (“VIE”) for which we have been determined to be the primarybeneficiary. Pursuant to the transition provisions of FIN 46, we consolidatedthe assets and liabilities of these entities on March 31, 2004, and theoperating results beginning April 1, 2004. The impact of the adoption at March 31,2004, was to consolidate joint ventures with total assets of$2,701.7 million and total liabilities of $1,932.7 million and torecord a cumulative effect adjustment to earnings of $42.1 million, net ofminority interest of $9.3 million, reflecting additional capitalized interestas if the entities had been consolidated during their respective constructionperiods. For the three months ended March 31, 2004 equity in the earningsof these ventures amounted to $8.2 million.

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Equity interests in these joint ventures not owned byus are classified as minority interest inconsolidated joint ventures in our consolidated financial statements. Includedin our net income is the attribution to us, as primary beneficiary, ofthe effects of the elimination ofinterest and fees. For the period April 1, 2004 through December 31,2004, such amount included development fees of $39.6 million and interestincome of $8.3 million. Distributions paid to or contributions received fromour consolidated joint ventures are reflected as minority interest, net in ourconsolidated statement of cash flows.

Our consolidated operatingproperty joint ventures are primarily financed through third party mortgagescollateralized by their respective operating property. The creditors of suchventures do not have recourse to our general credit except when we haveprovided a guaranty. At December 31, 2004, such mortgages aggregated $1.6billion and are included in mortgages, notes and other loans payable in ourconsolidated balances sheet. The carrying value of the related collateralaggregated $2.1 billion and is classified in the net real estate anddevelopment assets section of our consolidated balance sheet at December 31,2004.

*UNCONSOLIDATEDJOINT VENTURES*

As of December 31, 2004, preference returns tothe joint venture partners were current and we had guaranteed repayment of$113.5 million of joint venture debt and joint venture letters of credit of$5.8 million. We would be required to guarantee an additional $5.6 million ifthe joint ventures borrow up to the total construction loan commitments. We arealso contingently liable for property taxes and assessments levied againstOntario Mills Limited Partnership by the City of Ontario Special AssessmentDistrict (“City”). The remaining aggregate amount of the special tax assessmentis $10.6 million and will be collected through 2020 to fund debt service onbonds issued by the City.

Condensedcombined financial statements of our unconsolidated joint ventures follow:
| ** **                                            | ** ** | **December 31,** | ** ** |
|-------------------------------------------------------|------------|-----------------------|------------|
| **CONDENSED COMBINED BALANCE SHEETS:** | ** ** | ** **            | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                            | ** ** | ** **            | ** ** | **(Restated)** | ** ** |
| **Assets:**                                           |       |                  |       |   |   |
| Net income producing property                         |       | $                     | 2,379.2    |   | $ | 2,167.5 |   |
| Construction in progress                              |       | 138.9                 |       | 481.5 |   |
| Cash and cash equivalents                             |       | 45.7                  |       | 119.2 |   |
| Restricted cash                                       |       | 6.7                   |       | 40.5 |   |
| Accounts and notes receivable, net                    |       | 74.1                  |       | 135.2 |   |
| Deferred costs, net                                   |       | 53.8                  |       | 122.1 |   |
| Other                                                 |       | 68.7                  |       | 103.7 |   |
| Total assets                                          |       | $                     | 2,767.1    |   | $ | 3,169.7 |   |
| **Liabilities and Equity:**                           |       |                  |       |   |   |
| Debt                                                  |       | $                     | 2,162.6    |   | $ | 2,204.9 |   |
| Other liabilities*                                    |       | 132.1                 |       | 246.6 |   |
| Equity                                                |       | 472.4                 |       | 718.2 |   |
| Total liabilities  and equity                         |       | $                     | 2,767.1    |   | $ | 3,169.7 |   |
|                                                       |            |                       |            |  |  |  |  |  |  |

----

*       Includes amounts due to Mills.

F-18

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| ** **                                                        | ** ** | **Year Ended December 31,** | ** ** |
|-------------------------------------------------------------------|------------|--------------------------------------------|------------|
| **CONDENSED COMBINED RESULTS OF OPERATIONS:** | ** ** | ** **                                 | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                                        | ** ** | ** **                                 | ** ** | **(Restated)** | ** ** | **(Restated)** | ** ** |
| **Revenue:**                                                      |       |                                       |       |   |   |   |   |   |   |   |   |
| Minimum rent                                                      |       | $                                          | 142.7      |   |   | $ | 223.9 |   |   |   | $ | 181.4 |   |   |
| Other property  revenue                                           |       | 102.8                                      |       |   | 135.5 |   |   |   | 106.8 |   |   |
| Total operating revenues                                          |       | 245.5                                      |       |   | 359.4 |   |   |   | 288.2 |   |   |
| **Expenses:**                                                     |       |                                       |       |   |   |   |   |   |   |   |   |
| Property  operating expenses                                      |       | 79.3                                       |       |   | 117.1 |   |   |   | 92.6 |   |   |
| Depreciation and  amortization                                    |       | 63.5                                       |       |   | 109.8 |   |   |   | 94.5 |   |   |
| Total operating expenses                                          |       | 142.8                                      |       |   | 226.9 |   |   |   | 187.1 |   |   |
| **Operating  income**                                             |       | 102.7                                      |       |   | 132.5 |   |   |   | 101.1 |   |   |
| **Other income (expense):**                                       |       |                                       |       |   |   |   |   |   |   |   |   |
| Interest expense                                                  |       | (77.0                                      | )          |   | (107.4 | ) |   |   | (82.5 | ) |   |
| Foreign currency  exchange gains, net                             |       | 3⁄4                                     |       |   | 1.9 |   |   |   | 3⁄4 |   |   |
| Other income  (expense), net                                      |       | (5.7                                       | )          |   | 9.0 |   |   |   | 25.3 |   |   |
| **Net  income**                                                   |       | $                                          | 20.0       |   |   | $ | 36.0 |   |   |   | $ | 43.9 |   |   |
| **Mills equity in earnings**                                      |       | $                                          | 15.3       |   |   | $ | 34.6 |   |   |   | $ | 24.0 |   |   |
|                                                                   |            |                                            |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Significant accounting policies used by ourunconsolidated joint ventures are consistent with ours.

Effective March 31, 2004, 15 previouslyunconsolidated joint ventures were consolidated upon adoption of FIN 46. Alsoduring 2004, we increased our interests in unconsolidated joint ventures withthe GM Portfolio purchase in October 2004 and the sale of joint ventureinterests in Del Amo Fashion Center in December 2004 and Ontario Mills in August 2004.In November 2004, the Vaughan Mills which is owned by a joint venture, opened.During 2003, operating unconsolidated joint ventures increased by fiveproperties: (1) the December 2003 conveyance of an interest in theGreat Mall of the Bay Area; (2) and (3) the May 2003 acquisitionof interests in Gwinnett Place and Town Center at Cobb in connection with theCadillac Fairview Portfolio acquisition; (4) and (5) openings of theSt. Louis Mills and Madrid Xanadú developments.

During 2004, thefollowing financing transactions were completed on behalf of our unconsolidatedjoint venture properties:

·       InDecember 2004, in connection with the sale of a partnership interest, theDel Amo Fashion Center mortgage was refinanced. The new $316.0 million mortgageis interest-only through maturity and provides for an additional $134.0 millionin redevelopment financing. The stated maturity is January 2008 with twoone-year extension options. We have guaranteed $25.0 million of principal.

·       InMarch 2004, construction financing for Vaughan Mills, an unconsolidatedjoint venture, was obtained from an affiliate of our partner in the project.The construction loan has a total commitment of $157.8 million and a statedmaturity of March 2006 with a one-year extension option. The loan bearsinterest at CDOR plus 2.25%. The CDOR margin is reduced as the project meetsspecified completion, occupancy and leasing requirements are met and debtservice coverage ratios are achieved. Our guaranty of 50% of the constructionborrowings is reduced when certain performance measures are achieved.

Advances to unconsolidated joint ventures were $19.6 million,$114.9 million and $127.6 million as of December 31, 2004, 2003 and 2002,respectively. We earned interest on such advances of $11.1 million, $8.2million and $4.3 million for the years ended December 31, 2004, 2003 and2002, respectively.

F-19

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**6.   MORTGAGES,NOTES AND LOANS PAYABLE**

Mortgages, notes and loans payable, consist of thefollowing:
| ** **                                                                                                                                                                                                                                                                                                                                                                                            | ** ** | **December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                                                                                                                                                                                                                            | ** ** | **2004**              | ** ** | **2003** | ** ** |
| Wholly Owned Property Debt:                                                                                                                                                                                                                                                                                                                                                                           |       |                  |       |   |   |
| Broward Mall—Interest  is payable monthly and principal payments are due in March with $1.5  million due in 2005; $2.0 million due annually from 2006 through 2008; and a  balloon payment due in 2009. Mortgage was adjusted to fair value in the  allocation of purchase price resulting in an effective interest rate of  5.34%.                                                    |       | $                     | 62.1       |   | $ | 64.4 |   |
| Cincinnati Mills(a)—Principal  is due December 2006; interest rate at LIBOR plus 2.00%. An  interest rate swap fixes interest at 5.88% through October 2006 on  a notional amount of $57.0 million. Mills guarantees 75% of the balance.                                                                                                                                     |       | 122.0                 |       | 58.4 |   |
| Concord Mills  Marketplace(b)—Balloon payment is due in February 2014; interest rate is  5.76%.                                                                                                                                                                                                                                                                                             |       | 14.3                  |       | — |   |
| Concord Mills  Marketplace—Refinanced in January 2004                                                                                                                                                                                                                                                                                                                                       |       | —                |       | 17.8 |   |
| Del Amo Fashion  Center—deconsolidated in December 2004 upon sale of partnership interest                                                                                                                                                                                                                                                                                                   |       | —                |       | 287.0 |   |
| Dover Mall, The  Esplanade, Galleria at White Plains and Northpark Mall Cross Collateralized(a)—Principal  is due February 2008, including two one-year extension options;  interest rate is LIBOR plus 2.10%. The LIBOR floor is 1.75% on a notional  amount of $75.0. An interest rate swap fixes the interest rate at 4.17% on  the remaining $245.0 million through February 2005. |       | 320.0                 |       | 320.0 |   |
| Franklin  Mills/Liberty Plaza(b)—Balloon payment is due May 2007; blended interest  rate is 7.67%                                                                                                                                                                                                                                                                                           |       | 130.8                 |       | 132.9 |   |
| Madrid Xanadú(a)—Loan  is denominated in Euros and has a total commitment of $240.5 million.  Interest rate is EURIBOR plus 1.55%. Principal is due May 2006 but may  be extended under two one-year options subject to certain conditions. Mills  guarantees 2% of the balance, consolidated in 2004.                                                                            |       | 239.5                 |       | — |   |
| Potomac  Mills/Gurnee Mills(b)—Balloon payment is due March 2011; interest rate  is 7.46%.                                                                                                                                                                                                                                                                                                  |       | 343.0                 |       | 346.5 |   |
| The Shops at  Riverside Square—Interest is payable monthly through January 2005;  principal and interest payments are due thereafter based on 30-year amortization  with a balloon payment due January 2013; interest rate is 5.77%.                                                                                                                                                   |       | 65.0                  |       | 65.0 |   |
| Sawgrass Mills(b)—Balloon  payment is due July 2006; interest rate is 7.18% per annum.                                                                                                                                                                                                                                                                                                      |       | 290.3                 |       | 293.4 |   |
| Sawgrass Mills(b) (mezzanine  loan)—Balloon payment is due in July 2006; interest rate is LIBOR  plus 4.50%.                                                                                                                                                                                                                                                                      |       | 35.7                  |       | 36.1 |   |
| Westland Mall—Interest  is payable monthly through February 2007; principal and interest  payments are due thereafter based on 30-year amortization with a balloon payment due  February 2011; interest rate is 4.95%.                                                                                                                                                       |       | 58.8                  |       | — |   |
| Net Leased  Properties(a)—Principal maturity dates range from October 2010 to  January 2023; weighted average interest rate is 8.57%.                                                                                                                                                                                                                                                  |       | 47.4                  |       | 47.4 |   |
| Consolidated Joint Venture Property Debt                                                                                                                                                                                                                                                                                                                                                              |       |                  |       |   |   |
| Arundel Mills(a)—Principal  is due June 2010; interest rate is 4.61%. Provided certain conditions  are met, an additional $40.0 million may be borrowed.                                                                                                                                                                                                                                    |       | 187.0                 |       | — |   |
|                                                                                                                                                                                                                                                                                                                                                                                                       |            |                       |            |  |  |  |  |

F-20

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| Arundel Marketplace(b)—Balloon payment is due  January 2014; interest rate is 5.92%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | 12.3     |   | — |    |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|--------|--------|---------|
| The Block at  Orange(a)—Balloon payment is due January 2009. Through April 2006  two interest rate swaps fix the rate at 6.67% and 5.69% on varying notional  amounts which total the outstanding balance of the mortgage. From  May 2006 through the extended maturity an interest rate swap fixes the  interest rate at 5.69% on a notional amount of $135.0 million.                                                                                                                                                                                                                                                                  |   | 135.0    |   | — |    |
| Colorado Mills(a)—Principal  is due November 2009, including two one-year extension options; interest  rate is LIBOR plus 1.78%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | 170.0    |   | — |    |
| Concord Mills(b)—Balloon  payment is due December 2012; interest rate  is 6.13%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | 176.9    |   | — |    |
| Discover Mills(a)—Principal  is due April 2007 and has a one-year extension option. On a notional  amount of $110.5 million of the $119.4 million mortgage loan, interest rate  swaps fix the interest rate at 3.44% through March 2005, 5.04% from  April 2005 through March 2006, and 6.28% from April 2006  through maturity. On a notional amount of $39.5 million of the $42.6 million  mezzanine loan, interest rate swaps fix the interest rate at 4.69% through  March 2005, 6.29% from April 2005 through March 2006, and  7.53% from April 2006 through maturity. Mills guarantees 100% of the  loan. |   | 162.0    |   | — |    |
| Grapevine Mills(b)—Balloon  payment is due October 2008; interest rate  is 6.47%                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | 151.3    |   | — |    |
| Grapevine Mills  II(b)—Balloon payment is due November 2008; interest rate is 8.39%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | 14.1     |   | — |    |
| Great Mall of the  Bay Area(a)—Principal is due September 2008; interest rate is 4.80%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | 175.0    |   | — |    |
| Katy Mills(a)—Principal  is due January 2013; interest rate is 6.69%. Mills guarantees 10% of the  balance.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | 148.0    |   | — |    |
| Opry Mills(a)—Principal  is due October 2007, including two one-year extensions; interest  rate is LIBOR plus 1.18%. An interest rate swap fixes LIBOR at 2.50% on the  balance through maturity fixing interest at 3.68%. Provided certain terms and  conditions are met, an additional $25.0 million may be borrowed.                                                                                                                                                                                                                                                                                                                       |   | 175.0    |   | 175.0  |    |
| St. Louis Mills(a)—Principal  is due May 2006; interest rate is LIBOR plus 1.95%. Interest rate  swaps fix the interest rate at 4.36% and 4.15% on notional amounts of $55.0  million and $55.0 million, respectively, through October 2005 and  5.80% from November 2005 through April 2006 on a notional amount  of $110.0 million.                                                                                                                                                                                                                                                                                     |   | 131.1    |   | — |    |
| Other                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | 8.0      |   | 13.4   |    |
| Other:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |     |   |   |    |
| Line of credit(a)—see  description below                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | 252.0    |   | 227.0  |    |
| Term loan(a)—see  description below                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | 200.0    |   | 35.0   |    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   | $3,826.6 |   | $      | 2,119.3 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |        |          |        |        |         |  |

----

(a)           Requires monthlyinterest only payments through maturity.

(b)          Monthly interest andprincipal payments based on a 30 year amortization schedule with a balloonpayment due at maturity.

F-21

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The weighted average interest rate on our debt was5.38% and 5.59% at December 31, 2004 and 2003, respectively. Of the totaloutstanding debt, $2.5 billion and $1.1 billion was fixed rate at December 31,2004 and 2003, respectively. The revolving line of credit and term loan are ouronly unsecured borrowings ($452.0 million at December 31, 2004). At December 31,2004, we had total recourse debt of $3.4 billion.

Certain mortgages, notes and loans payable agreementscontain restrictive covenants relating to the maintenance of specifiedfinancial performance ratios such as minimum net worth, debt service coverageratio, loan to value and restriction on future dividend and distributionpayments. As of December 31, 2004, we were in compliance with thesecovenants. We have reviewed the restatement adjustments with our lenders andhave received the required waivers of certain representations and non-financialcovenants that are affected by the restatement adjustments described in Note17. Contemporaneously with the filing of this Form 10-K, we satisfied allconditions contained in the waiver agreement, and therefore the Facilitycontinues to remain available and in full force and effect.

Aggregateannual maturities at December 31, 2004 are as follows:
| 2005       |   | $       | 18.7    |   |
|------------|--------|---------|---------|--------|
| 2006       |   | 708.6   |    |
| 2007       |   | 1,051.7 |    |
| 2009       |   | 669.1   |    |
| 2010       |   | 373.9   |    |
| Thereafter |   | 1,004.6 |    |
|       |   | $       | 3,826.6 |   |

 

In December 2004, werefinanced our existing $500.0 million unsecured line of credit and $200.0million secured term loan with an unsecured $1.2 billion credit facility (the “Facility”)which includes a revolving credit commitment of $1.0 billion and a term loan of$200.0 million. Borrowings under the Facility may be used to acquire or developreal property, make various permitted investments, repay indebtedness and fundother working capital needs. The ability to draw on the line of credit issubject to the maintenance of certain financial ratios as specified in the lineof credit agreement. At our option, borrowings under the Facility bear interestat LIBOR, EURIBOR or a base rate plus an applicable margin based on ourleverage ratio. The margin on LIBOR rate loans varies between 0.95% and 1.45%(1.18% at December 31, 2004) and between 0.15% and 0.45% on base rateloans (0.15% at December 31, 2004). A facility fee, based on our leverageratio and ranging from 20 to 25 base points on the aggregate loans and unusedcommitments is also required. At December 31, 2004 the weighted averageinterest rate on the aggregate outstanding borrowings was 5.4%. The Facility isscheduled to expire in December 2007 and contains a one-year extensionoption.

**7.   FINANCIALINSTRUMENTS—DERIVATIVES AND HEDGING**

In the normal course of business, we and our jointventures are exposed to the effect of interest rate changes. To limit thisexposure, established risk management policies and procedures including the useof a variety of derivative financial instruments to manage, or hedge, interestrate risk are followed. Derivative instruments are not used for speculativepurposes. Derivative instruments used for hedging must be effective in reducingthe interest rate risk exposure. Changes in the hedging instrument’s fair valuerelated to the effective portion of the risk being hedged are included inaccumulated other comprehensive income (loss). Hedge effectiveness criteriaalso require that it be probable that the underlying transaction occurs. Hedgesthat meet these criteria are formally designated as cash flow hedges at theinception of the derivative contract. When the terms of an underlyingtransaction are modified, or when the underlying hedged item ceases to exist, thechange in the fair value of the derivative instrument is marked to market withthe change included in net income in each period until the derivativeinstrument matures. Any 

F-22

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derivative instrument usedfor risk management that becomes ineffective is marked to market throughearnings.

Depending on the underlying exposure, interest rateswaps, caps and floors, options, forwards or a combination thereof, may be usedto manage interest rate risk. Interest rate swaps and collars are contractualagreements with third parties to exchange fixed and floating interest paymentsperiodically without the exchange of the underlying principal amounts (notionalamounts). In the unlikely event that a counterparty fails to meet the terms ofan interest rate swap contract or collar agreement, the exposure is limited tothe interest rate differential on the notional amount. We do not anticipatenon-performance by any of our counterparties. Net interest differentials to bepaid or received under a swap contract and/or collar agreement are accrued asinterest expense as incurred or earned.

Interest rate hedges, designated as cash flow hedges,hedge the future cash outflows on debt. Interest rate swaps that convertvariable payments to fixed payments, interest rate caps, floors, collars andforwards are cash flow hedges. The unrealized gains or losses in the fair valueof these hedges are reported on the balance sheet and included in accountspayable and other liabilities or in investment in unconsolidated joint ventureswith a corresponding adjustment to either accumulated other comprehensiveincome or earnings depending on the hedging relationship. If the hedgingtransaction is a cash flow hedge, then the offsetting gains/losses are reportedin accumulated other comprehensive income to the extent of the effectiveportion of the risk being hedged. Changes in the fair value of the hedginginstrument related to the effective portion of the risk being hedged areincluded in accumulated other comprehensive income (loss). Changes in fair valuerepresenting (1) the ineffectiveness of the hedging relationship and (2) anyother component of fair value not related to the risk being hedged are recordedas interest expense through earnings. Changes in fair value representingineffectiveness of the hedging relationship are minimal for all periodspresented. Some derivative instruments are associated with the hedge of ananticipated transaction. Over time, the unrealized gains/losses held inaccumulated other comprehensive income (loss) will be reclassified to earningsconsistent with when the hedged items are recognized in earnings. This type ofreclassification reduced net income by $5.6 million for the year ended December 31,2004.

As of December 31,2004, we and our joint ventures were party to interest rate swap agreementsthat hedge the impact of the variability of LIBOR on cash outflows. Under theagreements, we, or the joint venture, receive LIBOR and pay a fixed rate. Thefollowing summarizes the current and deferred start swap terms of thederivative instruments and provides a reconciliation of their fair values andadjustments to accumulated other comprehensive (loss) income:
| ** **                                                               | ** ** | **Wholly Owned** | ** **             | **Joint Ventures** | ** ** |
|--------------------------------------------------------------------------|------------|-----------------------|------------------------|-------------------------|------------|
| Hedge type                                                               |       | Cash Flow             |                   | Cash Flow               |       |
| Description                                                              |       | Swap                  |                   | Swap                    |       |
| Range of notional  amounts                                               |       | $                     | 57.0 - $245.0  million |                    | $          | 6.5 - $176.3  million |   |
| Range of interest rate                                                   |       | 2.07% - 3.88%         |                   | 1.69% - 5.35%           |       |
| Range of deferred  effective start dates                                 |       | 3⁄4                |                   | 4/1/05 - 4/3/06         |       |
| Range of maturity dates                                                  |       | 2/15/05 - 10/2/06     |                   | 4/1/05 - 11/1/09        |       |
| Accumulated other  comprehensive loss at December 31, 2003          |       | $                     | (11.8                  | )                       | $          | (11.0 | ) |
| Change in fair value                                                     |       | 7.3                   |                   | 12.6                    |       |
| Accumulated other comprehensive (loss) income at  December 31, 2004 |       | $                     | (4.5                   | )                       | $          | 1.6 |   |

 

Within the next twelvemonths, we expect to recognize interest expense of $1.7 million currentlyunrealized in accumulated other comprehensive loss while our unconsolidatedjoint ventures expect to recognize $2.0 million, of which our share is $(0.6)million. Other comprehensive loss, including our 

F-23

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proportionateshare of our joint venture balances, at December 31, 2004 and 2003 was $2.4million and $14.7 million, respectively. Comprehensive income for the yearsended December 31, 2004, 2003 and 2002 was $244.4 million, $114.6 millionand $41.6 million, respectively.

**8.   FAIRVALUE OF FINANCIAL INSTRUMENTS**

The following disclosures of estimated fair value offinancial instruments were determined by management, using available marketinformation and appropriate valuation methodologies. Considerable judgment isnecessary to interpret market data and develop estimated fair value.Accordingly, the estimates presented herein are not necessarily indicative ofthe amounts the Company could realize on disposition of the financial instruments.The use of different market assumptions and/or estimation methodologies couldhave a material effect on the estimated fair value amounts.

Cash equivalents, restricted cash, accounts and notesreceivable, accounts payable and other liabilities are carried at amounts whichreasonably approximate their fair values.

Fixed rate debt with an aggregate carrying value of $2,454.2million and $1,135.1 million had an estimated aggregate fair value of $2,495.8million and $1,210.4 million at December 31, 2004 and 2003, respectively.Estimated fair value of fixed rate debt is based on interest rates currentlyavailable to us for issuance of debt with similar terms, credit risk andremaining maturities. The estimated fair value of our variable rate debt isestimated to be approximately equal to its carrying value of $1,372.4 millionand $984.2 million at December 31, 2004 and 2003, respectively.

Disclosure about fairvalue of financial instruments is based on pertinent information available tomanagement at December 31, 2004 and 2003. Although management is not awareof any factors that would significantly affect the reasonableness of the fairvalue amounts, such amounts have not been comprehensively revalued for purposesof these consolidated financial statements since December 31, 2004, andcurrent estimates of fair value may differ significantly from the amountspresented herein.

**9.   LEASING ACTIVITIES**

Wehave noncancellable tenant leases with remaining terms ranging from one to20 years which require payment of specified minimum rent amounts. Amajority of these leases also require the tenants to reimburse substantiallyall of the operating expenses of the properties. Minimum rent commitments undertenant leases at December 31, 2004, are as follows:
| 2005       |   | $        | 359.1  |   |
|------------|--------|----------|--------|--------|
| 2006       |   | 329.1    |   |
| 2007       |   | 307.0    |   |
| 2008       |   | 277.8    |   |
| 2009       |   | 240.9    |   |
| Thereafter |   | 985.6    |   |
|       |   | $2,499.5 |   |

 

We are also subject to a noncancellable operatinglease for our corporate headquarters in Arlington, VA which expires in April 2006and requires minimum payments of $3.7 million and $1.8 million for the yearsending December 31, 2005 and 2006, respectively. Rent expense amounted to$4.3 million, $3.2 million and $3.1 million for the years ended December 31,2004, 2003 and 2002, respectively.

In 2004, we entered intoan agreement to lease new headquarters space beginning in April 2006. Thelease is noncancellable with a term of 13 years. Minimum annual payments underour new lease total $7.4 million, $9.2 million, $9.4 million and $100.0 millionfor the years ending December 31, 2007, 2008, 2009 and thereafter,respectively.

F-24

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Also in 2004, the groundlease with NJSEA for the Meadowlands Xanadu site was signed. The 75 year leaseterm is expected to commence during mid-2005. The lease requires a deposit of$160.0 million, $50.0 million of which was placed in escrow whenconstruction began in March 2005. On the third anniversary of the lease termcommencement, a one time payment of $15.0 million is due. Beginning on the16th anniversary of the lease term commencement annual rent payments begin. Thepayments for years 16 to 75 of the lease term total $547.8 million.

**10.   SERIESA CUMULATIVE CONVERTIBLE PREFERRED STOCK**

In October and November 2003,750,000 shares of Series A Cumulative Convertible Preferred Stock wereconverted into 3,153,368 shares of TMC common stock. Series A dividendswere accounted for as interest expense due to the stock’s redemption features.

**11.   MINORITY INTEREST IN MILLS LP**

TMC is the sole general partner of Mills LP and owneda 1.00% general partner interest and an 85.12% limited partner interest as of December 31,2004. Minority interest in Mills LP is comprised of Mills LP common andpreferred units after eliminating TMC’s ownership units. Common minorityinterest is increased and decreased, respectively, for income and distributionsallocated to common units not held by TMC. Periodically, TMC raises additionalequity through the issuance of common or preferred stock and contributes theproceeds to Mills LP for an equivalent number of common or preferred units. Inthe event of other changes in common equity, an adjustment to minority interestin Mills LP and stockholders’ equity is recorded to reflect TMC’s increased ordecreased ownership in Mills LP.

At December 31, 2004 and 2003, there were8,967,494 and 13,464,161 common limited partnership units of Mills LP,representing ownership of 13.88% and 21.12%, respectively, not held by TMC. Ifinitiated by the unitholder these units are exchangeable in specifiedcircumstances for either, at our option, shares of TMC common stock on a onefor one basis or the cash equivalent. This exchange right has not beenconsidered in TMC’s computation of per share data, as it does not have adilutive effect.

In March 2003, Mills LP sold 400,000 of 8.75% Series DCumulative Redeemable Preferred Units in a private placement to two investorsat a purchase price of $25.00 per unit. The net proceeds of $10.0 million wereused to reduce borrowings under our line of credit. Series D preferredunits are exchangeable for TMC’s Series D Cumulative Redeemable PreferredStock on a one-for-one basis at any time after a registration statementcovering the Series D preferred shares is declared effective by theSecurities and Exchange Commission. Distributions on Series D preferredunits are payable quarterly in arrears at 8.75% of the liquidation preferenceof $25.00 per unit. On or after March 26, 2008, Series D preferredunits and Series D preferred stock may be redeemed by Mills LP or TMC, asappropriate, at $25.00 per unit or share, as applicable. Holders of Series Dpreferred stock, if any shares are outstanding, will have limited voting rightsif dividends are not paid for six or more quarterly periods and in certainevents. Series D preferred units are included in minority interest on theconsolidated balance sheet at a value of $25 per share plus accrued dividends,if any. Dividends paid or accrued are included in minority interest on theconsolidated statements of income.

In June 2004, MillsLP issued 170,482 common partnership units to purchase a parcel of land with a$7.5 million agreed value.

F-25

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**12.   CAPITAL STOCK**

Thenumber of shares authorized and outstanding was as follows:
| ** **                                                        | ** ** | **December 31, 2004**     | ** ** | **December 31, 2003** | ** ** |
|-------------------------------------------------------------------|------------|-------------------------------------|------------|---------------------------------|------------|
| ** **                                                        | ** ** | **Authorized**                      | ** ** | **Outstanding**                 | ** ** | **Authorized** | ** ** | **Outstanding** | ** ** |
| ** **                                                        | ** ** | **(Shares in thousands)** | ** ** |
| Common stock,  $0.01 par value                                    |       |                                | 100,000    |                            |       |   | 55,654 |   |   |   | 100,000 |   |   |   | 50,298 |   |   |
| Non-voting  common stock, $0.01 par value                         |       |                                | 50,000     |                            |       |   | — |   |   |   | 50,000 |   |   |   | — |   |   |
| Preferred stock:                                                  |       |                                |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Series A Cumulative Convertible, $0.01 par  value            |       |                                | —     |                            |       |   | — |   |   |   | 750 |   |   |   | — |   |   |
| Series B Cumulative Redeemable, $0.01 par value              |       |                                | 4,300      |                            |       |   | 4,300 |   |   |   | 4,300 |   |   |   | 4,300 |   |   |
| Series C Cumulative Redeemable, $0.01 par value              |       |                                | 3,500      |                            |       |   | 3,500 |   |   |   | 3,500 |   |   |   | 3,500 |   |   |
| Series D Cumulative Redeemable, $0.01 par value              |       |                                | 400        |                            |       |   | — |   |   |   | 400 |   |   |   | — |   |   |
| Series E Cumulative Redeemable, $0.01 par value              |       |                                | 8,545      |                            |       |   | 8,545 |   |   |   | 8,545 |   |   |   | 8,545 |   |   |
| Series F Convertible Cumulative Redeemable, $0.01  par value |       |                                | 316        |                            |       |   | 316 |   |   |   | — |   |   |   | — |   |   |
| Undesignated                                                      |       |                                | 2,939      |                            |       |   | — |   |   |   | 3,255 |   |   |   | — |   |   |

 

*SERIES B AND CCUMULATIVE REDEEMABLE PREFERRED STOCK*

In October and December 2002,TMC sold a total of 4,300,000 shares of 9% Series B Cumulative RedeemablePreferred Stock and 3,400,000 of 9% Series C Cumulative RedeemablePreferred Stock, both with a par value of $0.01 per share, for $25.00 per sharein an underwritten public offering. In January 2003, an additional 100,000shares of Series C preferred stock were sold in a public offering at aninitial price of $25.23 per share. The aggregate net proceeds of $187.9 millionand were contributed to Mills LP in exchange for preferred units which haveeconomic terms substantially identical to the Series B and C preferredstock. Net proceeds from the Series B preferred stock sale were used toreduce borrowings under our line of credit, to fund development efforts and asworking capital. Net proceeds from the Series C preferred stock were usedto fund acquisitions in 2003. Dividends on the Series B and Series Cpreferred stock are payable quarterly at 9% of the liquidation preference of$25.00 per share. Holders of the stock will have limited voting rights only ifdividends are not paid for six or more quarterly periods.

*SERIES E CUMULATIVEREDEEMABLE PREFERRED STOCK*

In May 2003, TMC solda total of 6,440,000 shares of 8.75% Series E Cumulative RedeemablePreferred Stock, par value $0.01 per share, for $25.00 per share in anunderwritten public offering. In October and November 2003, TMC soldan additional 2,105,000 shares of Series E preferred stock for $26.24per share in two public offerings. The aggregate net proceeds of $210.5 millionwere contributed to Mills LP in exchange for preferred units having economicterms substantially identical to the Series E preferred stock. The net proceedswere used to reduce our line of credit and certain other indebtedness.Dividends on the Series E preferred stock are payable quarterly at 8.75% ofthe liquidation preference of $25.00 per share. On or after May 5,2008, the Series E preferred stock may be redeemed by TMC at $25.00per share. Holders of the Series E preferred stock will have limitedvoting rights if dividends are not paid for six or more quarterly periods andin certain other events.

*SERIES F CUMULATIVEREDEEMABLE PREFERRED STOCK*

In August 2004, TMC sold 316,250 shares of 6.75% Series FConvertible Cumulative Redeemable Preferred Stock, par value $0.01 per shareand a liquidation preference of $1,000 per share, in an offering made under Rule 144Aof the Securities Act to qualified institutional buyers. Net proceeds of $306.2million were contributed to Mills LP in exchange for preferred units witheconomic terms substantially identical to the Series F preferred stock.The net proceeds were used to reduce borrowings under our line 

F-26

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of credit. Each share of Series Fpreferred stock is convertible into 16.6529 shares of TMC common stock, subjectto specified adjustments, if the closing sale price of TMC common stockreaches, or the trading price of Series F preferred stock falls belowspecified thresholds or under certain other circumstances. On or after August 5,2009, the Series F preferred stock may be redeemed by us at itsliquidation value only if the closing price of TMC common stock has exceeded130% of the conversion price for at least 20 of 30 consecutive trading daysimmediately prior to notice of redemption. Holders of the Series Fpreferred stock will have limited voting rights if dividends are not paid forsix or more quarterly periods and in certain other events.

Pursuant to a registrationrights agreement, we had agreed to use our reasonable best efforts to cause ashelf registration statement with respect to the resale of the Series Fpreferred stock and the TMC common stock issuable upon conversion of suchpreferred stock to become effective within 180 days after the original issuanceof the Series F preferred stock. To date, we have not filed the shelfregistration statement, and, as such, we are required to pay liquidated damagesat a rate of 0.25% per annum for the first 90 days and 0.50% per annum untilthe registration default is cured.

*EARNINGS PER SHARE*

Thefollowing table sets forth the computation of basic and diluted earnings percommon share:
| ** **                                                                          | ** ** | **Years Ended December 31,** | ** ** |
|-------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                          | ** ** | **2004**                                    | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                                                          | ** ** | ** **                                  | ** ** | **(Restated)** | ** ** | **(Restated)** | ** ** |
| Numerator:                                                                          |       |                                        |       |   |   |   |   |
| Net income                                                                          |       | $                                           | 232.0      |   | $ | 115.1 |   | $ | 50.8 |   |
| Less preferred stock dividends                                                      |       | (43.9                                       | )          | (27.8 | ) | (2.6 | ) |
| Adjustment to minority interest                                                     |       | 0.4                                         |       | (0.2 | ) | (0.1 | ) |
| Numerator for  basic earnings per common share                                      |       | 188.5                                       |       | 87.1 |   | 48.1 |   |
| Adjustment to minority interest                                                     |       | 0.6                                         |       | 0.5 |   | 0.4 |   |
| Numerator for  diluted earnings per common share                                    |       | $                                           | 189.1      |   | $ | 87.6 |   | $ | 48.5 |   |
| Denominator (shares in  thousands):                                                 |       |                                        |       |   |   |   |   |
| Weighted average shares                                                             |       | 53,480                                      |       | 45,149 |   | 35,726 |   |
| Unvested restricted stock awards                                                    |       | (425                                        | )          | (285 | ) | (235 | ) |
| Denominator for  basic earnings per share                                           |       | 53,055                                      |       | 44,864 |   | 35,491 |   |
| Effect of dilutive securities (employee stock  options and restricted stock awards) |       | 1,024                                       |       | 921 |   | 864 |   |
| Denominator for  diluted earnings per share                                         |       | 54,079                                      |       | 45,785 |   | 36,355 |   |
| Basic earnings  per common share                                                    |       | $                                           | 3.55       |   | $ | 1.94 |   | $ | 1.36 |   |
| Diluted earnings per  common share                                                  |       | $                                           | 3.50       |   | $ | 1.91 |   | $ | 1.34 |   |

 

Our Series F Convertible Cumulative Redeemable PreferredStock and certain stock options are excluded from the computation of basic anddiluted earnings per common share as their impact is anti-dilutive.

F-27

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*STOCK OPTION PLANS*

EffectiveJanuary 1, 2002, we adopted the fair value recognition provisions of SFAS No. 123“Accounting for Stock-Based Compensation,” on a prospective basis to allemployee awards granted, modified or settled after the effective date. Becauseour awards vest over periods ranging from three to ten years, the cost relatedto stock-based employee compensation is less than would have beenrecognized had the fair value method been applied to all outstanding andunvested awards in each period. The following presents the pro forma effect ofthis on net income available to common stockholders.
| ** **                                                                                       | ** ** | **Years Ended December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                                       | ** ** | **2004**                                    | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                                                                       | ** ** | ** **                                  | ** ** | **(Restated)** | ** ** | **(Restated)** | ** ** |
| Net income as  reported                                                                          |       | $                                           | 232.0      |   |   | $ | 115.1 |   |   |   | $ | 50.8 |   |   |
| Add stock-based  compensation expense included in reported net income                            |       | 9.6                                         |       |   | 7.9 |   |   |   | 3.6 |   |   |
| Deduct stock-based  compensation expense determined under fair value based method for all awards |       | (9.7                                        | )          |   | (8.2 | ) |   |   | (4.1 | ) |   |
| Pro forma net  income                                                                            |       | $                                           | 231.9      |   |   | $ | 114.8 |   |   |   | $ | 50.3 |   |   |
| Basic earnings per  common share:                                                                |       |                                        |       |   |   |   |   |   |   |   |   |
| As reported                                                                                      |       | $                                           | 3.55       |   |   | $ | 1.94 |   |   |   | $ | 1.36 |   |   |
| Pro forma                                                                                        |       | $                                           | 3.55       |   |   | $ | 1.94 |   |   |   | $ | 1.34 |   |   |
| Diluted earnings per  common share:                                                              |       |                                        |       |   |   |   |   |   |   |   |   |
| As reported                                                                                      |       | $                                           | 3.50       |   |   | $ | 1.91 |   |   |   | $ | 1.34 |   |   |
| Pro forma                                                                                        |       | $                                           | 3.50       |   |   | $ | 1.91 |   |   |   | $ | 1.32 |   |   |

 

We had an Executive Equity Incentive Plan for thepurpose of attracting and retaining directors, executive officers and other keypersonnel. Pursuant to the Plan, 4,500,000 shares of TMC common stock have beenreserved for issuance of stock options and restricted stock. Options andrestricted stock are issued at a price not less than 100% of fair market valueat the date of grant, options expire ten years from the date of grant andcontain such other terms and conditions (including, without limitation,conditions to vesting) as may be determined by our Executive CompensationCommittee. In 1999, we adopted a broad based 1999 Stock Option Plan for thepurpose of advancing our company interests. Pursuant to the plan, 2,500,000shares of TMC common stock have been reserved for issuance of stock options andrestricted stock. Options and restricted stock are issued at a price not lessthan 100% of fair market value at the date of grant, options expire ten yearsfrom the date of grant and contain such other terms and conditions (including,without limitation, conditions to vesting) as may be determined by ourExecutive Compensation Committee. We also have a 2004 Stock Incentive Plan(“Incentive Plan”) for the purpose of attracting and retaining highly qualifiedofficers, directors, key employees, and other key employees. Pursuant to theIncentive Plan, 6,000,000 shares of TMC common stock have been reserved forissuance of common stock and common partnership units. The aggregate number ofshares of common stock and common partnership units that cumulatively may beavailable for issuance pursuant to awards, other than options or SARs, cannotexceed 1,800,000. Options and restricted stock are issued at a price not lessthan 100% of fair market value at the date of grant, options expire ten yearsfrom the date of grant and contain such other terms and conditions (including,without limitation, conditions to vesting) as may be determined by ourExecutive Compensation Committee. 

F-28

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Thefollowing summarizes stock option activity and related information regardingour three equity compensation plans.
| ** **                                                                     | ** ** | **Years Ended December 31,** | ** ** |
|--------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                     | ** ** | **2004**                                    | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                                                     | ** ** | **Options**                                 | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Options** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Options** | ** ** | **Weighted  Average  Exercise  Price** | ** ** |
| ** **                                                                     | ** ** | **(Shares in thousands)**         | ** ** |
| Outstanding at  beginning of year                                              |       |                                        | 1,794      |   |   |   | $ | 21.53 |   |   |   | 2,747 |   |   |   | $ | 20.90 |   |   |   | 3,496 |   |   |   | $ | 20.79 |   |   |
| Granted                                                                        |       |                                        | 6          |   |   |   | 47.03 |   |   |   | 3 |   |   |   | 34.05 |   |   |   | 2 |   |   |   | 26.14 |   |   |
| Exercised                                                                      |       |                                        | (540       | ) |   |   | 20.35 |   |   |   | (878 | ) |   |   | 19.85 |   |   |   | (683 | ) |   |   | 20.43 |   |   |
| Forfeited and  expired                                                         |       |                                        | —     |   |   |   | — |   |   |   | (78 | ) |   |   | 18.43 |   |   |   | (68 | ) |   |   | 18.15 |   |   |
| Outstanding at  end of year                                                    |       |                                        | 1,260      |   |   |   | $ | 22.13 |   |   |   | 1,794 |   |   |   | $ | 21.53 |   |   |   | 2,747 |   |   |   | $ | 20.90 |   |   |
| Exercisable at  end of year                                                    |       |                                        | 1,247      |   |   |   | $ | 21.98 |   |   |   | 1,573 |   |   |   | $ | 22.05 |   |   |   | 2,015 |   |   |   | $ | 21.66 |   |   |
| Weighted average fair  value of options per share granted during the year |       |                                        |       |   |   |   | $ | 4.80 |   |   |   |   |   |   |   | $ | 0.81 |   |   |   |   |   |   |   | $ | 0.58 |   |   |

 

Exercise prices of options outstanding at December 31,2004 ranged from $17.31 to $56.45. The weighted average remaining contractuallife of options outstanding at December 31, 2004 was 3.2 years.

Thefair value for options was estimated at the date of grant using a Black-Scholesoption pricing model with the following assumptions:
| ** **               | ** ** | **Year Ended December 31,** | ** ** |
|--------------------------|------------|--------------------------------------------|------------|
| ** **               | ** ** | **2004**                                   | ** ** | **2003** | ** ** | **2002** | ** ** |
| Risk-free  interest rate |       |                                       | 4.8        | % |   |   | 5.2 | % |   |   | 5.3 | % |   |
| Dividend yield           |       |                                       | 8.3        | % |   |   | 8.9 | % |   |   | 9.2 | % |   |
| Volatility factor        |       |                                       | 24.6       | % |   |   | 12.7 | % |   |   | 10.8 | % |   |
| Life (years)             |       |                                       | 4.2        |   |   |   | 4.4 |   |   |   | 5.4 |   |   |

 

The Black-Scholes optionvaluation model was developed for use in estimating the fair value of tradedoptions which have no vesting restrictions and are fully transferable. Inaddition, option valuation models require the input of highly subjectiveassumptions, including the expected stock price volatility. Because ouremployee stock options have characteristics significantly different from thoseof traded options, and because changes in the subjective input assumptions canmaterially affect the fair value estimate, in management’s opinion, theexisting models do not necessarily provide a reliable single measure of thefair value of its employee stock options. For purposes of pro forma disclosuresand, subsequent to January 1, 2002, for recording the fair value, theestimated fair value of the options granted is amortized to expense over theoptions’ vesting period.

*RESTRICTED STOCKGRANTS*

Under our equity plans, we grant restricted TMC stockto our directors, officers and other key employees. Compensation expenserelated to grants is amortized on a straight-line basis over the vestingperiod. Vesting periods for restricted stock are determined by our ExecutiveCompensation Committee. As of December 31, 2004, we had grants of 592,077shares of non-vested restricted stock outstanding pursuant to such plans, whichshares vest 276,165 in 2005, 157,660 in 2006, 121,252 in 2007 and 37,000 in2008.

F-29

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Thenumber and weighted average market value per share of restricted shares grantedduring each year is as follows:
| ** **                                                            | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|-----------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Restricted shares  granted during year                                |       | 221,497  |       | 231,090  |       | 273,163  |       |
| Weighted average market  value per share of restricted shares granted |       | $        | 43.46      |     | $          | 32.62    |       | $ | 27.85 |   |
|                                                                       |            |          |            |          |            |          |            |  |  |  |

 

An additional 29,737shares of TMC common stock would be issued and vest only upon a change incontrol of TMC.

*RESTRICTED STOCKUNITS*

In connection with anemployee inducement grant, we issued 110,000 restricted stock units which vestin two equal installments in 2005 and 2006. Upon vesting, the stock units areconverted on a one-for-one basis into shares of TMC common stock and issued tothe employee.

**13.   COMMITMENTS AND CONTINGENCIES**

We are subject to the risks inherent in the ownershipand operation of commercial real estate. These risks include, among others,those normally associated with changes in the general economic climate, trendsin the retail industry, including creditworthiness of retailers, competitionfor retailers, changes in tax laws, interest rate levels, availability offinancing and potential liability under environmental and other laws. Inaddition, while we believe our projects under construction and development willultimately be completed, there can be no assurance that they will actually becompleted, either on schedule or on budget, or, in the case of development,constructed or financed, or that they will have any particular level of successor ultimate value.

During 2003, Hartz MountainIndustries, Inc., or Hartz, filed a lawsuit seeking to enjoin theNJSEA from entering into a contract with us and Mack-Cali for the redevelopmentof the Continental Airlines Arena site. In May 2004, Hartz’s contentionthat the NJSEA lacks statutory authority to allow retail development of itsproperty was rejected, but the claim that the NJSEA has failed to producerequested public records was remanded to the lower court for further review. Hartzhas requested the Supreme Court of New Jersey to review the decision. Severalother appeals filed by Hartz and other parties remain pending, as does thelower court proceeding on Hartz’s request for public documents. In March 2005,various public and environmental interest groups filed suit in the U.S.District Court to challenge the fill permit issued by the U.S. Army Corps ofEngineers. We believe that our proposal and the planned project fully complywith applicable laws, and intend to continue vigorous defense of our rightsunder the executed redevelopment agreement. We do not believe the pendingappeals will have any material affect on the joint venture’s ability to developthe project.

We are currently neithersubject to any material litigation nor, to management’s knowledge, is anymaterial litigation currently threatened against us, other than routinelitigation and administrative proceedings arising in the ordinary course ofbusiness.

F-30

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**14.   NON-CASHINVESTING AND FINANCING INFORMATION**

Theassets and liabilities of joint venture properties consolidated upon theadoption of FIN 46 were as follows: 
| Net income  producing properties            |   | $        | 2,011.1 |   |
|---------------------------------------------|--------|----------|---------|--------|
| Construction in  process                    |   | 311.8    |    |
| Cash                                        |   | 109.7    |    |
| Restricted Cash                             |   | 22.5     |    |
| Accounts, notes  and other receivables, net |   | 111.0    |    |
| Deferred costs  and other assets, net       |   | 135.6    |    |
| Mortgages, notes  and loans payable         |   | (1,818.1 | )       |
| Accounts payable  and other liabilities     |   | (114.6   | )       |
| Net assets at  date of consolidation        |   | $        | 769.0   |   |

 

During 2004, Mills LPcommon units totaling 4.7 million were redeemed on a one-for-one basis forshares of TMC common stock. In June 2004, Mills LP issued 170,482 commonunits to purchase a parcel of land with a $7.5 million agreed value.

**15.   SUBSEQUENT EVENTS**

In January 2005, through a joint venture withIvanhoe Cambridge, we acquired a 50% joint venture interest in St. Enoch Centrelocated in Glasgow, Scotland for $257.2 million, excluding transaction costs. Thetransaction was financed with a mortgage on the property of $358.7 million, ofwhich our share was $179.3 million, and cash. The interest only loan bearsinterest at 5.53% and matures in April 2012.

In February 2005, the Pittsburgh Mills jointventure secured a construction loan with a total commitment of $175.0 million. Theinterest only loan matures in February 2008 and provides for two one-yearextensions. The loan bears interest at LIBOR plus 1.65% and is fully guaranteedby us. The LIBOR margin and our guaranty are reduced as certain performancemeasures are achieved.

In March 2005, in connection with the $451.6 millionacquisition of Southdale Center in Minneapolis, MN and Southridge Mall inMilwaukee, WI, we secured two mortgage loans. The $186.6 million Southdale loanis interest only through maturity, bears interest at 5.18%, and matures in April 2010.The $124.0 million Southridge loan is interest only through maturity, bearsinterest at 5.23%, and matures in April 2012.

In March 2005, werefinanced the Sawgrass mezzanine mortgage loan with an initial advance of$40.0 million that paid off the existing loan. The new loan has a totalcommitment of $73.8 million. The interest rate on the initial advance of $40.0million is LIBOR plus 3.50%, while any additional proceeds bear interest atLIBOR plus 2.00%. The interest only loan matures in July 2006 and is fullyguaranteed by us.

F-31

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**16.   UNAUDITEDQUARTERLY RESULTS OF OPERATIONS**

Oursummarized results of operations by quarter for 2004 and 2003 were as follows:
| ** **                                                  | ** ** | **Three Months Ended,** | ** ** |
|-------------------------------------------------------------|------------|-----------------------------------|------------|
| **2004:**                                                   | ** ** | ** **                        | ** ** | **December 31** | ** ** | **September 30** | ** ** | **June 30** | ** ** | **March 31** | ** ** |
| ** **                                                  | ** ** | ** **                        | ** ** | **(Restated)** | ** ** | **(Restated)** | ** ** | **(Restated)** | ** ** |
| Operating revenues                                          |       |                              | $          | 209.1 |   |   |   | $ | 190.2 |   |   |   | $ | 186.9 |   |   |   | $ | 98.6 |   |   |
| Income from continuing operations                           |       |                              | 54.0       |   |   |   | 62.4 |   |   |   | 29.3 |   |   |   | 44.2 |   |   |
| Net income                                                  |       |                              | 54.0       |   |   |   | 62.4 |   |   |   | 29.3 |   |   |   | 86.3 |   |   |
| Income from  continuing operations per share:          |       |                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                       |       |                              | 0.72       |   |   |   | 0.97 |   |   |   | 0.38 |   |   |   | 0.67 |   |   |
| Diluted                                                     |       |                              | 0.71       |   |   |   | 0.95 |   |   |   | 0.38 |   |   |   | 0.66 |   |   |
| Net earnings per  share:                                    |       |                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                       |       |                              | 0.72       |   |   |   | 0.97 |   |   |   | 0.38 |   |   |   | 1.48 |   |   |
| Diluted                                                     |       |                              | 0.71       |   |   |   | 0.95 |   |   |   | 0.38 |   |   |   | 1.45 |   |   |
| Weighted average  common shares outstanding (in thousands): |       |                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                       |       |                              | 54,721     |   |   |   | 54,079 |   |   |   | 53,489 |   |   |   | 50,384 |   |   |
| Diluted                                                     |       |                              | 55,948     |   |   |   | 55,120 |   |   |   | 54,332 |   |   |   | 51,356 |   |   |
|                                                             |            |                                   |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                         | ** ** | **Three Months Ended,** | ** ** |
|----------------------------------------------------|------------|-----------------------------------|------------|
| **2003:**                                          | ** ** | ** **                        | ** ** | **December 31** | ** ** | **September 30** | ** ** | **June 30** | ** ** | **March 31** | ** ** |
| ** **                                         | ** ** | **(Restated)**                    | ** ** | **(Restated)** | ** ** | **(Restated)** | ** ** | **(Restated)** | ** ** |
| Operating revenues                                 |       |                              | $          | 130.0 |   |   |   | $ | 105.4 |   |   |   | $ | 88.6 |   |   |   | $ | 76.8 |   |   |
| Income from continuing operations                  |       |                              | 33.9       |   |   |   | 22.9 |   |   |   | 37.9 |   |   |   | 20.3 |   |   |
| Net income                                         |       |                              | 33.9       |   |   |   | 22.9 |   |   |   | 37.9 |   |   |   | 20.4 |   |   |
| Income from  continuing operations per share: |       |                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                              |       |                              | 0.31       |   |   |   | 0.66 |   |   |   | 0.71 |   |   |   | 0.37 |   |   |
| Diluted                                            |       |                              | 0.30       |   |   |   | 0.65 |   |   |   | 0.70 |   |   |   | 0.36 |   |   |
| Net earnings per share:                            |       |                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                              |       |                              | 0.31       |   |   |   | 0.66 |   |   |   | 0.71 |   |   |   | 0.37 |   |   |
| Diluted                                            |       |                              | 0.30       |   |   |   | 0.65 |   |   |   | 0.70 |   |   |   | 0.36 |   |   |
| Weighted average  common shares outstanding:       |       |                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                              |       |                              | 48,221     |   |   |   | 44,094 |   |   |   | 43,562 |   |   |   | 43,173 |   |   |
| Diluted                                            |       |                              | 49,318     |   |   |   | 45,051 |   |   |   | 44,441 |   |   |   | 43,924 |   |   |
|                                                    |            |                                   |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

----

*                    Results ofoperations for the seven quarterly periods ended September 30, 2004, wererestated for the matters discussed in Note 17. The impact of the restatement onthe data presented above is summarized below.

F-32

----

Thequarterly impact of the restatement adjustments were as follows:
| ** **                                                                                  | ** ** | **Three Months Ended**                                               | ** ** |
|---------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------|------------|
| ** **                                                                                  | ** ** | ** September 30,   2004**                                       | ** ** | ** June 30,   2004** | ** ** | ** March 31,   2004** | ** ** |
| ** **                                                                                  | ** ** | **(Dollars in millions, except per share data)** | ** ** |
| ** **                                                                                  | ** ** | **(unaudited)**                                                                | ** ** |
| ***Increase  (decrease) in income from continuing operations:***                            |       |                                                                           |       |   |   |   |   |   |   |   |   |   |   |
| Equity in earnings                                                                          |       |                                                                           | $          | (1.8 | ) |   |   | $ | 3.9 |   |   |   | $ | 2.9 |   |   |
| Capitalized interest                                                                        |       |                                                                           | 1.4        |   |   |   | 1.5 |   |   |   | (0.2 | ) |   |
| Other capitalized costs                                                                     |       |                                                                           | (0.2       | ) |   |   | (1.8 | ) |   |   | (1.7 | ) |   |
| Gain on sales of joint venture interests                                                    |       |                                                                           | (2.2       | ) |   |   | 8.5 |   |   |   | 0.6 |   |   |
| Promotion funds                                                                             |       |                                                                           | (0.4       | ) |   |   | (0.4 | ) |   |   | (0.3 | ) |   |
| Other                                                                                       |       |                                                                           | 2.1        |   |   |   | (0.5 | ) |   |   | 0.1 |   |   |
| Increase  (decrease) in Mills LP income from continuing operations                          |       |                                                                           | (1.1       | ) |   |   | 11.2 |   |   |   | 1.4 |   |   |
| Mills LP minority interest’s share of the  restatement adjustments                     |       |                                                                           | 0.2        |   |   |   | (2.0 | ) |   |   | (0.3 | ) |   |
| Increase  (decrease) in TMC net income from continuing operations                           |       |                                                                           | $          | (0.9 | ) |   |   | $ | 9.2 |   |   |   | $ | 1.1 |   |   |
| ***Increase (decrease) in diluted  earnings per common share from continuing operations:*** |       |                                                                           |       |   |   |   |   |   |   |   |   |   |   |
| Equity in earnings                                                                          |       |                                                                           | $          | (0.03 | ) |   |   | $ | 0.06 |   |   |   | $ | 0.04 |   |   |
| Capitalized interest                                                                        |       |                                                                           | 0.02       |   |   |   | 0.03 |   |   |   | 3⁄4 |   |   |
| Other capitalized costs                                                                     |       |                                                                           | 3⁄4     |   |   |   | (0.03 | ) |   |   | (0.02 | ) |   |
| Gain on sales of joint venture interests                                                    |       |                                                                           | (0.03      | ) |   |   | 0.13 |   |   |   | 0.01 |   |   |
| Promotion funds                                                                             |       |                                                                           | (0.01      | ) |   |   | (0.01 | ) |   |   | (0.01 | ) |   |
| Other                                                                                       |       |                                                                           | 0.03       |   |   |   | (0.01 | ) |   |   | 3⁄4 |   |   |
| Increase (decrease) in  diluted earnings per common share from continuing operations        |       |                                                                           | $          | (0.02 | ) |   |   | $ | 0.17 |   |   |   | $ | 0.02 |   |   |

 

F-33

----

 
| ** **                                                                                  | ** ** | **Three Months Ended**                  | ** ** |
|---------------------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                                  | ** ** | **December 31,  2003**                       | ** ** | **September 30,  2003** | ** ** | **June 30,  2003** | ** ** | **March 31,  2003** | ** ** |
| ** **                                                                                  | ** ** | **(Dollars in millions, except per share  data)** | ** ** |
| ** **                                                                                  | ** ** | **(unaudited)**                                   | ** ** |
| ***Increase  (decrease) in income from continuing operations:***                            |       |                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Equity in earnings                                                                          |       |                                              | $          | 0.2 |   |   |   | $ | 1.6 |   |   | $ | 3.6 |   |   | $ | 1.4 |   |   |
| Capitalized interest                                                                        |       |                                              | (0.1       | ) |   |   | (0.9 | ) |   | (1.5 | ) |   | (1.4 | ) |   |
| Other capitalized costs                                                                     |       |                                              | 0.1        |   |   |   | (1.1 | ) |   | 3⁄4 |   |   | (0.4 | ) |   |
| Gain on sales of joint venture interests                                                    |       |                                              | 3⁄4     |   |   |   | (8.5 | ) |   | 3⁄4 |   |   | 3⁄4 |   |   |
| Promotion funds                                                                             |       |                                              | (0.1       | ) |   |   | (0.1 | ) |   | (0.1 | ) |   | (0.1 | ) |   |
| Other                                                                                       |       |                                              | (0.8       | ) |   |   | (0.1 | ) |   | (1.4 | ) |   | 3⁄4 |   |   |
| Increase  (decrease) in Mills LP income from continuing operations                          |       |                                              | (0.7       | ) |   |   | (9.1 | ) |   | 0.6 |   |   | (0.5 | ) |   |
| Mills LP minority interest’s share of the  restatement adjustments                     |       |                                              | 0.2        |   |   |   | 2.3 |   |   | (0.1 | ) |   | 0.1 |   |   |
| Increase  (decrease) in TMC net income from continuing operations                           |       |                                              | $          | (0.5 | ) |   |   | $ | (6.8 | ) |   | $ | 0.5 |   |   | $ | (0.4 | ) |   |
| ***Increase  (decrease) in diluted earnings per common share from continuing operations:*** |       |                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Equity in earnings                                                                          |       |                                              | $          | 3⁄4 |   |   |   | $ | 0.03 |   |   | $ | 0.06 |   |   | $ | 0.02 |   |   |
| Capitalized interest                                                                        |       |                                              | 3⁄4     |   |   |   | (0.02 | ) |   | (0.03 | ) |   | (0.02 | ) |   |
| Other capitalized costs                                                                     |       |                                              | 3⁄4     |   |   |   | (0.02 | ) |   | 3⁄4 |   |   | (0.01 | ) |   |
| Gain on sales of joint venture interests                                                    |       |                                              | 3⁄4     |   |   |   | (0.14 | ) |   | 3⁄4 |   |   | 3⁄4 |   |   |
| Promotion funds                                                                             |       |                                              | 3⁄4     |   |   |   | 3⁄4 |   |   | 3⁄4 |   |   | 3⁄4 |   |   |
| Other                                                                                       |       |                                              | (0.02      | ) |   |   | 3⁄4 |   |   | (0.02 | ) |   | 3⁄4 |   |   |
| Increase (decrease) in  diluted earnings per common share from continuing operations        |       |                                              | $          | (0.02 | ) |   |   | $ | (0.15 | ) |   | $ | 0.01 |   |   | $ | (0.01 | ) |   |

 

Refer to Note 17 for adescription of the significant aspects of the restatement.

**17.   RESTATEMENT**

We announced on February 16,2005, that we would restate our audited financial results for the fiscal yearsended December 31, 2003 and 2002, and our unaudited quarterly results forthe first three quarters of 2004 to correct our accounting treatment of variousitems to conform with Generally Accepted Accounting Principles, or GAAP. Thefollowing describes the significant aspects of the restatement.

·       *Equity in earnings.  *We changed our method of computingour equity in the earnings of our joint ventures and have applied the changeretroactively to the origination of our involvement in each of these jointventures. Previously, we used an estimate of our economic ownership in thejoint venture based on projected cash flows. The method reflected in therestatement allocates income to equity participants based on the terms of therespective partnership agreements upon an assumed liquidation of the jointventure at its depreciated book value as of the end of the reporting period.

·       *Capitalized interest.  *We changed our method forcapitalizing the interest on borrowings made to fund our development and otherconstruction projects. Previously, we capitalized interest using computed rateson excess proceeds from refinancing various loans based on an incrementalinterest cost approach. The amount we now capitalize is based on the statedinterest rates, including amortization of deferred financing costs. Thecalculation includes interest costs that theoretically 

F-34

----

could have been avoided,based first on project specific borrowings then on an assumed repayment of ourhighest rate debt, had the underlying development and construction activitiesnot been undertaken.

·       *Other capitalized costs.*   We changed our accounting forleasing and financing overhead to expense these costs as incurred to the extentof our partners’ interests in the underlying entities. We previouslycapitalized these costs and expensed them as the related fees were recognized.We also corrected our accounting for lease inducements to amortize them againstrevenue over the life of the lease.

·       *Gain on sale of joint venture interests.  *In the thirdquarter of 2003, we reported a sale of partial interests in three jointventures and recognized an aggregate gain of $8.5 million. Due to ourcontinuing involvement in the joint ventures, SFAS 66 precluded us fromrecognizing the transactions as sales in 2003. In the restatement, we recordedthe sales and related gains in the second quarter of 2004 when the underlyingjoint venture agreements were amended to remove the terms comprising thecontinuing involvement.

·       *Promotion funds.  *Under our lease agreements, tenantsare required to fund costs associated with promoting the property. Therestatement reflects amounts received from tenants as “Recoveries from tenants”and the associated expenses are reflected as “Recoverable from tenants.” Theseamounts had previously been presented on a net basis. Currently, revenues inexcess of expenses are deferred until the associated costs are incurred and promotioncosts are expensed as incurred.

·       *Other.  *In conjunction with the restatement, we alsomade adjustments to our accounting for various other miscellaneous items,including (i) calculating straight-line rent from the date the tenanttakes control of the space, rather than our previous practice of recognizingrent as of lease commencement date; (ii) the correction of some purchaseprice adjustments; and (iii) restating gains on residual land sales fromjoint ventures to expense capitalized interest upon sale.

In addition, we have grossed up our income statementto no longer net certain fees and the costs incurred to earn those fees.

F-35

----

Thefollowing summarizes the restatement adjustments made to our condensedconsolidated statements of income that were reflected in the selected financialdata above, in millions, except per share amounts.For periods prior to 2002 the restatements were effectuated through acumulative adjustment as of January 1, 2002, of $17.1 million to TMC’saccumulated deficit and $26.7 million to Mills LP’s partners’ capital, with thedifference attributable to the minority interests of Mills LP.
| ** **                                                                                  | ** ** | **Years Ended  December 31,**                                    | ** ** |
|---------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------|------------|
| ** **                                                                                  | ** ** | **    2003    **                   | ** ** | **    2002    ** | ** ** |
| ** **                                                                                  | ** ** | **(Dollars in millions,  except per share data)** | ** ** |
| ***Increase  (decrease) in income from continuing operations:***                            |       |                                                                       |       |   |   |   |   |   |   |
| Equity in earnings                                                                          |       |                                                                       | $          | 6.8 |   |   |   | $ | (6.5 | ) |   |
| Capitalized interest                                                                        |       |                                                                       | (3.9       | ) |   |   | (7.6 | ) |   |
| Other capitalized costs                                                                     |       |                                                                       | (1.4       | ) |   |   | (2.2 | ) |   |
| Gain on sales of joint venture interests                                                    |       |                                                                       | (8.5       | ) |   |   | 3⁄4 |   |   |
| Promotion funds                                                                             |       |                                                                       | (0.4       | ) |   |   | (0.5 | ) |   |
| Other                                                                                       |       |                                                                       | (2.3       | ) |   |   | (0.4 | ) |   |
| Decrease in Mills LP income from continuing  operations                                     |       |                                                                       | (9.7       | ) |   |   | (17.2 | ) |   |
| Mills LP minority interest’s share of the  restatement adjustments                     |       |                                                                       | 2.5        |   |   |   | 5.4 |   |   |
| Decrease in TMC  net income from continuing operations                                      |       |                                                                       | $          | (7.2 | ) |   |   | $ | (11.8 | ) |   |
| ***Increase  (decrease) in diluted earnings per common share from continuing operations:*** |       |                                                                       |       |   |   |   |   |   |   |
| Equity in earnings                                                                          |       |                                                                       | $          | 0.10 |   |   |   | $ | (0.12 | ) |   |
| Capitalized interest                                                                        |       |                                                                       | (0.06      | ) |   |   | (0.14 | ) |   |
| Other capitalized costs                                                                     |       |                                                                       | (0.02      | ) |   |   | (0.04 | ) |   |
| Gain on sales of joint venture interests                                                    |       |                                                                       | (0.14      | ) |   |   | 3⁄4 |   |   |
| Promotion funds                                                                             |       |                                                                       | 3⁄4     |   |   |   | (0.01 | ) |   |
| Other                                                                                       |       |                                                                       | (0.04      | ) |   |   | (0.01 | ) |   |
| Decrease in  diluted earnings per common share from continuing operations                   |       |                                                                       | $          | (0.16 | ) |   |   | $ | (0.32 | ) |   |

 

F-36

----

Thefollowing summarizes the impact of the restatement on the individual componentsof our consolidated statements of income and the consolidated balance sheet forthe periods presented.
| ** **                                                                | ** ** | **Years Ended December 31,** | ** ** |
|---------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                | ** ** | **2003**                                    | ** ** | **2002** | ** ** |
| Property revenues                                                         |       |                                        |       |   |   |   |   |   |   |
| Minimum rent                                                              |       |                                        | $          | (0.4 | ) |   |   | $ | (0.6 | ) c |   |
| Recoveries from tenants                                                   |       |                                        | 11.7       |   |   |   | 7.9 |  e |   |
| Management fees                                                           |       |                                        | 3.8        |   |   |   | 3.7 |  f |   |
| Other fee income                                                          |       |                                        | 14.6       |   |   |   | 12.8 |  c, f |   |
| Total operating expenses                                                  |       |                                        | 29.7       |   |   |   | 23.8 |   |   |
| Property operating  expenses                                              |       |                                        |       |   |   |   |   |   |   |
| Recoverable from tenants                                                  |       |                                        | 15.9       |   |   |   | 11.7 |  e, f |   |
| Other operating expenses                                                  |       |                                        | (0.5       | ) |   |   | 3⁄4 |  g |   |
| General and administrative expenses                                       |       |                                        | 1.4        |   |   |   | (0.4 | ) g |   |
| Cost of fee income                                                        |       |                                        | 16.9       |   |   |   | 15.3 |  c, f |   |
| Depreciation and amortization                                             |       |                                        | (1.0       | ) |   |   | (0.5 | ) c |   |
| Total operating expenses                                                  |       |                                        | 32.7       |   |   |   | 26.1 |   |   |
| Operating income                                                          |       |                                        | (3.0       | ) |   |   | (2.3 | ) |   |
| Interest expense                                                          |       |                                        | (3.9       | ) |   |   | (7.6 | ) b |   |
| Other income, net                                                         |       |                                        | (1.1       | ) |   |   | (0.8 | ) g |   |
| Income before  joint venture operations and minority interest in Mills LP |       |                                        | (8.0       | ) |   |   | (10.7 | ) |   |
| Sales of joint venture interests                                          |       |                                        | (8.5       | ) |   |   | 3⁄4 |  d |   |
| Equity in earnings of unconsolidated joint ventures                       |       |                                        | 6.8        |   |   |   | (6.5 | ) a |   |
| Mills LP net  income                                                      |       |                                        | (9.7       | ) |   |   | (17.2 | ) |   |
| Minority interest in Mills LP                                             |       |                                        | 2.5        |   |   |   | 5.4 |   |   |
| TMC net income                                                            |       |                                        | $          | (7.2 | ) |   |   | $ | (11.8 | ) |   |

----

a.                  Equity inearnings

b.                 Capitalizedinterest

c.                  Othercapitalized costs

d.                 Gain on sale ofjoint venture interests

e.                  Promotion funds

f.                    Incomestatement gross-up of fees and costs to earn those fees

g.                  Other

F-37

----

 

**THEMILLS CORPORATIONSCHEDULE III—REAL ESTATE ANDACCUMULATED DEPRECIATIONDECEMBER 31, 2004(Dollars in millions)**
| ** **                                             | ** ** | ** ** | ** ** | ** **                 | ** ** | ** ** | ** ** | **GROSS AMOUNT AT**                  | ** ** | ** **                             | ** ** | ** **                         | ** ** | ** **                                        | ** ** |
|--------------------------------------------------------|------------|------------|------------|----------------------------|------------|------------|------------|------------------------------------------------|------------|----------------------------------------|------------|------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                             | ** ** | ** ** | ** ** | **INITIAL COST**      | ** ** | ** ** | ** ** | **WHICH CARRIED AT**                 | ** ** | ** **                             | ** ** | ** **                         | ** ** | ** **                                        | ** ** |
| ** **                                             | ** ** | ** ** | ** ** | **TO PARTNERSHIP(3)** | ** ** | ** ** | ** ** | **CLOSE OF PERIOD**                  | ** ** | ** **                             | ** ** | ** **                         | ** ** | ** **                                        | ** ** |
| **DESCRIPTION(1)**                                     | ** ** | ** ** | ** ** | **ENCUMBER-  ANCES(2)**    | ** ** | **LAND**   | ** ** | **BUILDING,  EQUIPMENT  AND  IMPROVE-  MENTS** | ** ** | **COST  CAPITALIZED  SUB-  SEQUENTLY** | ** ** | **LAND AND  IMPROVE-  MENTS** | ** ** | **BUILDING,  EQUIPMENT  AND  IMPROVE-  MENTS(4)** | ** ** | **TOTAL(5)(6)** | ** ** | **ACCUMU-  LATED  DEPRECIATION(7)** | ** ** | **YEAR  ACQUIRED** | ** ** |
| Landmark Mills                                         |       |       |       |                       |       |       |       |                                           |       |                                   |       |                               |       |                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Arundel Mills*                                         |       |       | 187.0      |                       |       | 39.9       |       |                                           | 116.7      |                                   |       |                               | 114.1      |                                              |       |   | 48.2 |   |   |   | 222.5 |   |   |   | 270.7 |   |   |   | 48.4 |   |   |   | 2000 |   |   |
| Colorado Mills*                                        |       |       | 122.0      |                       |       | 6.5        |       |                                           | 24.7       |                                   |       |                               | 116.4      |                                              |       |   | 18.8 |   |   |   | 128.8 |   |   |   | 147.6 |   |   |   | 2.5 |   |   |   | 2002 |   |   |
| Concord Mills*                                         |       |       | 170.0      |                       |       | 24.6       |       |                                           | 152.9      |                                   |       |                               | 27.8       |                                              |       |   | 27.5 |   |   |   | 177.8 |   |   |   | 205.3 |   |   |   | 16.6 |   |   |   | 1999 |   |   |
| Cincinnati Mills                                       |       |       | 176.9      |                       |       | 44.9       |       |                                           | 140.7      |                                   |       |                               | 64.0       |                                              |       |   | 49.7 |   |   |   | 199.9 |   |   |   | 249.6 |   |   |   | 55.5 |   |   |   | 2002 |   |   |
| Discover Mills                                         |       |       | 162.0      |                       |       | 47.1       |       |                                           | 142.8      |                                   |       |                               | 53.4       |                                              |       |   | 52.2 |   |   |   | 191.1 |   |   |   | 243.3 |   |   |   | 27.3 |   |   |   | 2001 |   |   |
| Franklin Mills                                         |       |       | 121.7      |                       |       | 20.1       |       |                                           | —     |                                   |       |                               | 198.1      |                                              |       |   | 31.4 |   |   |   | 186.8 |   |   |   | 218.2 |   |   |   | 83.4 |   |   |   | 1986 |   |   |
| Grapevine Mills*                                       |       |       | 165.3      |                       |       | 24.0       |       |                                           | 108.6      |                                   |       |                               | 114.5      |                                              |       |   | 32.9 |   |   |   | 214.2 |   |   |   | 247.1 |   |   |   | 55.4 |   |   |   | 1997 |   |   |
| Great Mall of the  Bay Area*                           |       |       | 175.0      |                       |       | 91.1       |       |                                           | 156.3      |                                   |       |                               | 15.4       |                                              |       |   | 105.7 |   |   |   | 157.1 |   |   |   | 262.8 |   |   |   | 7.6 |   |   |   | 2003 |   |   |
| Gurnee Mills                                           |       |       | 159.4      |                       |       | 23.8       |       |                                           | —     |                                   |       |                               | 219.2      |                                              |       |   | 44.8 |   |   |   | 198.2 |   |   |   | 243.0 |   |   |   | 87.7 |   |   |   | 1988 |   |   |
| Katy Mills*                                            |       |       | 148.3      |                       |       | 27.2       |       |                                           | 57.8       |                                   |       |                               | 123.1      |                                              |       |   | 27.8 |   |   |   | 180.3 |   |   |   | 208.1 |   |   |   | 48.6 |   |   |   | 1999 |   |   |
| Opry Mills                                             |       |       | 175.0      |                       |       | 57.3       |       |                                           | 162.8      |                                   |       |                               | 108.5      |                                              |       |   | 57.4 |   |   |   | 271.2 |   |   |   | 328.6 |   |   |   | 48.2 |   |   |   | 2002 |   |   |
| Potomac Mills                                          |       |       | 183.6      |                       |       | 8.5        |       |                                           | —     |                                   |       |                               | 206.0      |                                              |       |   | 43.4 |   |   |   | 171.1 |   |   |   | 214.5 |   |   |   | 86.5 |   |   |   | 1983 |   |   |
| St. Louis Mills*                                       |       |       | 131.1      |                       |       | 33.7       |       |                                           | 13.8       |                                   |       |                               | 129.9      |                                              |       |   | 21.5 |   |   |   | 155.9 |   |   |   | 177.4 |   |   |   | 6.5 |   |   |   | 2003 |   |   |
| Sawgrass Mills                                         |       |       | 326.0      |                       |       | 23.2       |       |                                           | 52.8       |                                   |       |                               | 241.4      |                                              |       |   | 28.2 |   |   |   | 289.2 |   |   |   | 317.4 |   |   |   | 92.5 |   |   |   | 1986/2001 |   |   |
| 21st Century                                      |       |       |       |                       |       |       |       |                                           |       |                                   |       |                               |       |                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| The Block at  Orange*                                  |       |       | 135.0      |                       |       | 14.2       |       |                                           | 110.3      |                                   |       |                               | 73.1       |                                              |       |   | 25.6 |   |   |   | 172.0 |   |   |   | 197.6 |   |   |   | 42.9 |   |   |   | 1998 |   |   |
| Broward Mall                                           |       |       | 62.1       |                       |       | 13.1       |       |                                           | 78.3       |                                   |       |                               | 8.7        |                                              |       |   | 13.1 |   |   |   | 87.0 |   |   |   | 100.1 |   |   |   | 6.7 |   |   |   | 2003 |   |   |
| Dover Mall                                             |       |       | 59.8       |                       |       | 24.6       |       |                                           | 55.5       |                                   |       |                               | 7.1        |                                              |       |   | 24.7 |   |   |   | 62.5 |   |   |   | 87.2 |   |   |   | 5.9 |   |   |   | 2003 |   |   |
| Esplanade                                              |       |       | 76.2       |                       |       | 11.9       |       |                                           | 81.2       |                                   |       |                               | 7.6        |                                              |       |   | 12.0 |   |   |   | 88.7 |   |   |   | 100.7 |   |   |   | 6.6 |   |   |   | 2003 |   |   |
| Galleria at White  Plains                              |       |       | 99.3       |                       |       | 13.0       |       |                                           | 110.3      |                                   |       |                               | 10.7       |                                              |       |   | 13.0 |   |   |   | 121.0 |   |   |   | 134.0 |   |   |   | 8.3 |   |   |   | 2003 |   |   |
| Northpark Mall                                         |       |       | 84.7       |                       |       | 9.2        |       |                                           | 94.2       |                                   |       |                               | 7.9        |                                              |       |   | 9.4 |   |   |   | 101.9 |   |   |   | 111.3 |   |   |   | 7.6 |   |   |   | 2003 |   |   |
| The Shops at  Riverside Square                         |       |       | 65.0       |                       |       | 10.4       |       |                                           | 77.2       |                                   |       |                               | 2.4        |                                              |       |   | 21.4 |   |   |   | 68.6 |   |   |   | 90.0 |   |   |   | 5.6 |   |   |   | 2002 |   |   |
| Westland Mall                                          |       |       | 58.8       |                       |       | 7.1        |       |                                           | 72.3       |                                   |       |                               | (1.1       | )                                                 |       |   | 9.1 |   |   |   | 69.2 |   |   |   | 78.3 |   |   |   | 2.0 |   |   |   | 2004 |   |   |
| International                                          |       |       |       |                       |       |       |       |                                           |       |                                   |       |                               |       |                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Madrid Xanadú                                     |       |       | 239.4      |                       |       | 36.6       |       |                                           | 224.3      |                                   |       |                               | 79.2       |                                              |       |   | 42.4 |   |   |   | 297.7 |   |   |   | 340.1 |   |   |   | 18.7 |   |   |   | 2004 |   |   |
| Community Centers                                      |       |       |       |                       |       |       |       |                                           |       |                                   |       |                               |       |                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Arundel Mills  Marketplace*                            |       |       | 12.3       |                       |       | 5.8        |       |                                           | 5.1        |                                   |       |                               | 1.3        |                                              |       |   | 5.8 |   |   |   | 6.4 |   |   |   | 12.2 |   |   |   | 1.0 |   |   |   | 2003 |   |   |
| Concord Mills  Marketplace                             |       |       | 14.3       |                       |       | 4.4        |       |                                           | 0.7        |                                   |       |                               | 13.3       |                                              |       |   | 9.3 |   |   |   | 9.1 |   |   |   | 18.4 |   |   |   | 1.7 |   |   |   | 2001 |   |   |
| Liberty Plaza                                          |       |       | 9.2        |                       |       | 9.3        |       |                                           | 14.5       |                                   |       |                               | 10.8       |                                              |       |   | 6.9 |   |   |   | 27.7 |   |   |   | 34.6 |   |   |   | 8.0 |   |   |   | 1994 |   |   |
| Net Lease Properties                                   |       |       | 33.0       |                       |       | 32.9       |       |                                           | 81.1       |                                   |       |                               | (56.6      | )                                                 |       |   | 14.7 |   |   |   | 42.7 |   |   |   | 57.4 |   |   |   | 6.3 |   |   |   | 2000 |   |   |
| Construction,  development, and pre-construction costs |       |       | —     |                       |       | —     |       |                                           | —     |                                   |       |                               | 741.4      |                                              |       |   | — |   |   |   | 741.4 |   |   |   | 741.4 |   |   |   | — |   |   |   | Various |   |   |
| Corporate                                              |       |       | 467.0      |                       |       | 28.4       |       |                                           | 2.8        |                                   |       |                               | 36.7       |                                              |       |   | 22.3 |   |   |   | 45.6 |   |   |   | 67.9 |   |   |   | 22.8 |   |   |   | Various |   |   |
| Mainstreet Retail                                      |       |       | 7.5        |                       |       | —     |       |                                           | 0.5        |                                   |       |                               | 0.4        |                                              |       |   | — |   |   |   | 0.9 |   |   |   | 0.9 |   |   |   | 0.9 |   |   |   | 1995 |   |   |
| Totals                                                 |       |       | 3,826.9    |                       |       | 692.8      |       |                                           | 2,109.4    |                                   |       |                               | 1,933.3    |                                              |       |   | 819.2 |   |   |   | 4,686.5 |   |   |   | 5,505.7 |   |   |   | 811.7 |   |   |   |   |   |   |
|                                                        |            |            |            |                            |            |            |            |                                                |            |                                        |            |                                    |            |                                                   |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

----

*       *Joint venture properties consolidated upon adoption of FIN 46*

F-38

 

----

**THE MILLS CORPORATIONNOTES TO SCHEDULE IIIDecember 31, 2004(Dollars in millions)**

(1)          Weown super-regional, retail and entertainment-oriented centers (“LandmarkMills”), regional retail and entertainment oriented centers (“21stCentury”), international retail and entertainment oriented centers (“International”),community shopping centers (“Community Centers”) and a portfolio of 19 singletenant net lease properties (“Net Lease Properties”) at various locationsthroughout the United States.
| **Property Name**             | ** ** | ** **                                     | ** ** | **Metropolitan Area Served** |
|-------------------------------|------------|------------------------------------------------|------------|------------------------------|
| **Mills  Landmark:**          |       |                                           |
| Arundel Mills                 |       | Baltimore, MD                                  |
| Colorado Mills                |       | Denver, CO                                     |
| Concord Mills                 |       | Charlotte, NC                                  |
| Cincinnati Mills              |       | Cincinnati, OH                                 |
| Discover Mills                |       | Atlanta, GA                                    |
| Franklin Mills                |       | Philadelphia, PA                               |
| Grapevine Mills               |       | Dallas/Ft. Worth, TX                           |
| Great Mall of the Bay Area    |       | Silicon Valley, CA                             |
| Gurnee Mills                  |       | Gurnee, IL                                     |
| Katy Mills                    |       | Houston, TX                                    |
| Opry Mills                    |       | Nashville, TN                                  |
| Potomac Mills                 |       | Woodbridge, VA                                 |
| St. Louis Mills               |       | St. Louis, MO                                  |
| Sawgrass Mills                |       | Ft. Lauderdale, FL                             |
| **21st  Century:**            |       |                                           |
| The Block at Orange           |       | Los Angeles, CA                                |
| Broward Mall                  |       | Fort Lauderdale, FL                            |
| Dover Mall                    |       | Dover, DE                                      |
| The Esplanade                 |       | New Orleans, LA                                |
| Galleria at White Plains      |       | White Plains, NY                               |
| Northpark Mall                |       | Jackson, MS                                    |
| The Shops at Riverside Square |       | Hackensack, NJ                                 |
| **International:**            |       |                                           |
| Madrid Xanadú            |       | Madrid, Spain                                  |
| **Community  Centers:**       |       |                                           |
| Arundel Mills Marketplace     |       | Baltimore, MD                                  |
| Concord Mills Marketplace     |       | Concord, NC                                    |
| Liberty Plaza                 |       | Philadelphia, PA                               |
| **Net  Lease Properties**     |       | Various locations throughout the United States |

 

(2)          See description ofmortgages, notes and loans payable in Note 6 of the Notes to theConsolidated Financial Statements.

F-39

----

(3)          Initial cost ofproperties is the cost basis at the end of the calendar year for the year theasset was placed in service or, in the case of an operating property, thepurchase price of the property on the date it was acquired.

(4)          Depreciationis computed based upon the following estimated lives:
| Building and  improvements |   | 10 - 40 years                            |
|----------------------------|--------|------------------------------------------|
| Land improvements          |   | 20 years                                 |
| Equipment                  |   | 5 - 7 years                              |
| Tenant improvements        |   | Lesser of life of asset or term of lease |

 

(5)          The aggregate federaltax basis of land and improvements and building, equipment and improvements isapproximately $4,969.6 at December 31, 2004 (unaudited).

(6)          In2004, we adopted the provisions of FIN 46 and consolidated 15 previouslyunconsolidated joint ventures. In 2003, the Company reclassified its tenantallowances to building improvements from deferred costs and has included suchamounts in Cost Capitalized Subsequent to Acquisition. At December 31,2002, the Company reclassified 27 of its Net Lease Properties totaling $61.7 toReal estate assets held for disposition and associated encumbrances of $55.6 toLiabilities on real estate held for disposition. Accordingly, these 27 NetLease properties have not been included in Schedule III. The propertieswere disposed in March 2003. These reclassifications are reflected in thefollowing reconciliation of real estate and development assets, excludinginvestment in unconsolidated joint ventures and accumulated depreciation:
| ** **                       | ** ** | **2004**   | ** ** | **2003**       | ** ** | **2002**       | ** ** |
|----------------------------------|------------|------------|------------|----------------|------------|----------------|------------|
| ** **                       | ** ** | ** ** | ** ** | **(Restated)** | ** ** | **(Restated)** | ** ** |
| Balance at  January 1       |       | $          | 2,636.3    |           | $          | 1,521.0        |       | $ | 1,070.6 |   |
| Acquisitions                     |       | 625.1      |       | 1,101.1        |       | 417.0          |       |
| Retirements/Disposed  Properties |       | (13.3      | )          | (7.7           | )          | (1.8           | )          |
| Transfers, net                   |       | (614.9     | )          | —         |       | —         |       |
| Adoption of FIN  46              |       | 2,597.4    |       | —         |       | —         |       |
| Other                            |       | 275.1      |       | 21.9           |       | 35.2           |       |
| Balance at  December 31     |       | $          | 5,505.7    |           | $          | 2,636.3        |       | $ | 1,521.0 |   |

 

(7)          Thereclassifications described in (6) above are also reflected in thefollowing reconciliation of accumulated depreciation:
| ** **                               | ** ** | **2004**   | ** ** | **2003**       | ** ** | **2002**       | ** ** |
|------------------------------------------|------------|------------|------------|----------------|------------|----------------|------------|
| ** **                               | ** ** | ** ** | ** ** | **(Restated)** | ** ** | **(Restated)** | ** ** |
| Balance at  January 1               |       | $          | 400.8      |           |       | $              | 336.4      |   |   |   | $ | 251.3 |   |   |
| Additions charged  to costs and expenses |       | 174.9      |       |           | 65.2       |           |       |   | 74.7 |   |   |
| Acquisitions                             |       | —     |       |           | —     |           |       |   | 10.7 |   |   |
| Transfers, net                           |       | (58.1      | )          |           | —     |           |       |   | — |   |   |
| Adoption of FIN  46                      |       | 301.0      |       |           | —     |           |       |   | — |   |   |
| Removal of  accumulated depreciation     |       | (6.8       | )          |           | (0.8       | )              |       |   | (0.3 | ) |   |
| Balance at  December 31             |       | $          | 811.8      |           |       | $              | 400.8      |   |   |   | $ | 336.4 |   |   |

 

(8)          The transfers reflectedin the above reconciliations, represent the net transfer of assets betweenconsolidated and unconsolidated joint venture entities. These transfers are aresult of property ownership changes throughout the year.

F-40

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**Report of Independent Registered Public AccountingFirm**

**THE PARTNERS**

**THE MILLS LIMITED PARTNERSHIP**

We have audited the accompanying consolidated balancesheets of The Mills Limited Partnership as of December 31, 2004 and 2003,and the related consolidated statements of income, total comprehensive income,partners’ capital and cash flows for each of the three years in the periodended December 31, 2004. Our audits also included the financialstatement schedule listed in the Index at Item 15(a). These consolidatedfinancial statements and schedule are the responsibility of the management ofThe Mills Limited Partnership. Our responsibility is to express an opinion onthese consolidated financial statements and schedule based on our audits.

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of material misstatement.An audit includes examining, on a test basis, evidence supporting the amountsand disclosures in the financial statements. An audit also includes assessingthe accounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation. We believethat our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statementsreferred to above present fairly, in all material respects, the consolidatedfinancial position of The Mills Limited Partnership as of December 31,2004 and 2003, and the consolidated results of its operations and its cashflows for each of the three years in the period ended December 31, 2004,in conformity with U.S. generally accepted accounting principles. Also, in ouropinion, the related financial statement schedule, when considered in relationto the basic financial statements taken as a whole, presents fairly in allmaterial respects the information set forth therein.

As discussed in Note 16 of the Notes to theConsolidated Financial Statements, the accompanying consolidated balance sheetas of December 31, 2003 and the related consolidated statements of income,total comprehensive income, partners’ equity, and cash flows for the yearsended December 31, 2003 and 2002 and the financial statement schedulelisted in the Index at Item 15(a) have been restated.

In 2004, as discussed in Note 3 of the Notes to theConsolidated Financial Statements, The Mills Limited Partnership adopted theprovisions of FIN No. 46(R), “Consolidationof Variable Interest Entities.” In 2002, as discussed in Note 3 of the Notes to the ConsolidatedFinancial Statements, The Mills Limited Partnership changed its method ofaccounting for stock-based compensation plans.

Wealso have audited, in accordance with the standards of the Public CompanyAccounting Oversight Board (United States), the effectiveness of The MillsLimited Partnership’s internal control over financial reporting as of December 31,2004, based on criteria established in Internal Control—Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commissionand our report dated March 31, 2005 expressed an unqualified opinion onmanagement’s assessment and an adverse opinion on the effectiveness of internalcontrol over financial reporting.
|                     | /s/ ERNST & YOUNG LLP |
|---------------------|--------------------------------|
| McLean, Virginia    |                           |
| March 31, 2005 |                           |

 

F-41

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**THE MILLS LIMITED PARTNERSHIPCONSOLIDATED BALANCE SHEETS(Dollars in millions, except per share data)**
| ** **                                                                                                                                 | ** ** | **December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                 | ** ** | **2004**              | ** ** | **2003** | ** ** |
| ** **                                                                                                                                 | ** ** | ** **            | ** ** | **  (Restated)  ** | ** ** |
| **Assets**                                                                                                                                 |       |                  |       |   |   |   |   |
| Income producing  property:                                                                                                                |       |                  |       |   |   |   |   |
| Land and land improvements                                                                                                                 |       | $                     | 819.3      |   |   | $ | 420.2 |   |   |
| Building and improvements                                                                                                                  |       | 3,780.2               |       |   | 1,857.0 |   |   |
| Furniture, fixtures and equipment                                                                                                          |       | 131.1                 |       |   | 60.7 |   |   |
| Less accumulated depreciation and amortization                                                                                             |       | (811.8                | )          |   | (400.7 | ) |   |
| **Net income producing property**                                                                                                          |       | 3,918.8               |       |   | 1,937.2 |   |   |
| Construction in  progress                                                                                                                  |       | 732.9                 |       |   | 298.4 |   |   |
| Investment in  unconsolidated joint ventures                                                                                               |       | 728.5                 |       |   | 805.9 |   |   |
| **Net real estate and development assets**                                                                                                 |       | 5,380.2               |       |   | 3,041.5 |   |   |
| Cash and cash  equivalents                                                                                                                 |       | 152.9                 |       |   | 15.8 |   |   |
| Restricted cash                                                                                                                            |       | 77.0                  |       |   | 37.5 |   |   |
| Accounts receivable,  net                                                                                                                  |       | 246.5                 |       |   | 81.4 |   |   |
| Notes receivable                                                                                                                           |       | 62.1                  |       |   | 25.7 |   |   |
| Deferred costs  and other intangibles, net                                                                                                 |       | 157.1                 |       |   | 63.5 |   |   |
| Other assets                                                                                                                               |       | 27.4                  |       |   | 11.0 |   |   |
| **Total Assets**                                                                                                                           |       | $                     | 6,103.2    |   |   | $ | 3,276.4 |   |   |
| **Liabilities and Partners’  Capital**                                                                                                |       |                  |       |   |   |   |   |
| Mortgages, notes,  and loans payable                                                                                                       |       | $                     | 3,826.6    |   |   | $ | 2,119.3 |   |   |
| Accounts payable  and other liabilities                                                                                                    |       | 338.5                 |       |   | 226.8 |   |   |
|                                                                                                                                       |       | 4,165.1               |       |   | 2,346.1 |   |   |
| Minority interest:                                                                                                                         |       |                  |       |   |   |   |   |
| Consolidated joint ventures                                                                                                                |       | 587.9                 |       |   | 3⁄4 |   |   |
| Series B Cumulative Redeemable Preferred Units,  liquidation value $25.00 per unit, 4,300,000 units issued and outstanding            |       | 107.5                 |       |   | 107.5 |   |   |
| Series C  Cumulative Redeemable Preferred Units, liquidation value $25.00 per unit,  3,500,000 units issued and outstanding           |       | 87.5                  |       |   | 87.5 |   |   |
| Series D  Cumulative Redeemable Preferred Units, liquidation value $25.00 per unit,  400,000 units issued and outstanding             |       | 10.0                  |       |   | 10.0 |   |   |
| Series E  Cumulative Redeemable Preferred Units, liquidation value $25.00 per unit,  8,545,000 units issued and outstanding           |       | 213.6                 |       |   | 213.6 |   |   |
| Series F  Convertible Cumulative Redeemable Preferred Units, liquidation value $1,000  per unit, 316,250 units issued and outstanding |       | 316.3                 |       |   | — |   |   |
| General Partner’s  capital                                                                                                            |       | 6.3                   |       |   | 5.3 |   |   |
| Limited Partners’  capital                                                                                                            |       | 611.4                 |       |   | 521.2 |   |   |
| Accumulated other  comprehensive loss                                                                                                      |       | (2.4                  | )          |   | (14.8 | ) |   |
| **Total partners’ capital**                                                                                                           |       | 1,350.2               |       |   | 930.3 |   |   |
| **Total  Liabilities and Partners’ Capital**                                                                                          |       | $                     | 6,103.2    |   |   | $ | 3,276.4 |   |   |

 

See Accompanying Notes to Consolidated Financial Statements

F-42

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**THE MILLS LIMITED PARTNERSHIPCONSOLIDATED STATEMENTS OFINCOME(Dollars in millions, except per share data)**
| ** **                                                    | ** ** | **Years Ended December 31,** | ** ** |
|---------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                    | ** ** | **2004**                                    | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                                    | ** ** | ** **                                  | ** ** | **(Restated)** | ** ** | **(Restated)** | ** ** |
| **Revenues:**                                                 |       |                                        |       |   |   |   |   |   |   |   |   |
| Minimum rent                                                  |       | $                                           | 411.2      |   |   | $ | 213.3 |   |   |   | $ | 119.0 |   |   |
| Percentage rent                                               |       | 9.3                                         |       |   | 5.6 |   |   |   | 2.3 |   |   |
| Recoveries from tenants                                       |       | 202.3                                       |       |   | 119.3 |   |   |   | 66.0 |   |   |
| Other property revenue                                        |       | 46.5                                        |       |   | 27.8 |   |   |   | 15.7 |   |   |
| Management fee income                                         |       | 11.6                                        |       |   | 15.7 |   |   |   | 14.7 |   |   |
| Other fee income                                              |       | 3.9                                         |       |   | 19.1 |   |   |   | 21.6 |   |   |
| Total operating revenues                                      |       | 684.8                                       |       |   | 400.8 |   |   |   | 239.3 |   |   |
| **Expenses:**                                                 |       |                                        |       |   |   |   |   |   |   |   |   |
| Recoverable from tenants                                      |       | 193.5                                       |       |   | 112.4 |   |   |   | 64.2 |   |   |
| Other operating expenses                                      |       | 30.0                                        |       |   | 12.2 |   |   |   | 6.3 |   |   |
| General and  administrative                                   |       | 46.5                                        |       |   | 26.1 |   |   |   | 17.4 |   |   |
| Cost of fee income                                            |       | 29.9                                        |       |   | 16.9 |   |   |   | 15.3 |   |   |
| Depreciation and  amortization                                |       | 199.5                                       |       |   | 88.7 |   |   |   | 47.9 |   |   |
| Total operating expenses                                      |       | 499.4                                       |       |   | 256.3 |   |   |   | 151.1 |   |   |
| **Operating  income**                                         |       | 185.4                                       |       |   | 144.5 |   |   |   | 88.2 |   |   |
| **Other income (expense):**                                   |       |                                        |       |   |   |   |   |   |   |   |   |
| Interest expense, net                                         |       | (148.5                                      | )          |   | (80.6 | ) |   |   | (55.7 | ) |   |
| Equity in earnings of  unconsolidated joint ventures          |       | 15.3                                        |       |   | 34.6 |   |   |   | 24.0 |   |   |
| Minority interest in consolidated joint ventures              |       |                                        |       |   |   |   |   |   |   |   |   |
| Minority interest in  earnings                                |       | (12.4                                       | )          |   | — |   |   |   | — |   |   |
| Attribution to Mills of  the elimination of interest and fees |       | 47.9                                        |       |   | — |   |   |   | — |   |   |
| Foreign currency exchange  gains, net                         |       | 15.2                                        |       |   | 38.6 |   |   |   | 11.6 |   |   |
| Interest income                                               |       | 9.0                                         |       |   | 11.5 |   |   |   | 7.4 |   |   |
| Other income (expense),  net                                  |       | 9.2                                         |       |   | (3.2 | ) |   |   | (2.7 | ) |   |
| **Income  before gain on sales of joint venture interests**   |       | 121.1                                       |       |   | 145.4 |   |   |   | 72.8 |   |   |
| Gain on sales of joint  venture interests                     |       | 99.3                                        |       |   | 0.7 |   |   |   | — |   |   |
| **Income  from continuing operations**                        |       | 220.4                                       |       |   | 146.1 |   |   |   | 72.8 |   |   |
| Discontinued operations                                       |       | —                                      |       |   | 0.1 |   |   |   | 0.3 |   |   |
| Cumulative effect of FIN  46 adoption                         |       | 51.4                                        |       |   | — |   |   |   | — |   |   |
| **Net  income**                                               |       | 271.8                                       |       |   | 146.2 |   |   |   | 73.1 |   |   |
| Preferred unit  distributions                                 |       | (44.8                                       | )          |   | (28.4 | ) |   |   | (2.6 | ) |   |
| **Income  available to common unitholders**                   |       | $                                           | 227.0      |   |   | $ | 117.8 |   |   |   | $ | 70.5 |   |   |
| **Earnings per common unit—basic:**                      |       |                                        |       |   |   |   |   |   |   |   |   |
| Continuing operations                                         |       | $                                           | 2.75       |   |   | $ | 1.94 |   |   |   | $ | 1.35 |   |   |
| Discontinued operations                                       |       | —                                      |       |   | — |   |   |   | 0.01 |   |   |
| Cumulative effect of FIN  46 adoption                         |       | 0.80                                        |       |   | — |   |   |   | — |   |   |
| Earning per common unit**—**basic                        |       | $                                           | 3.55       |   |   | $ | 1.94 |   |   |   | $ | 1.36 |   |   |
| **Earnings per common unit—diluted:**                    |       |                                        |       |   |   |   |   |   |   |   |   |
| Continuing operations                                         |       | $                                           | 2.71       |   |   | $ | 1.91 |   |   |   | $ | 1.33 |   |   |
| Discontinued operations                                       |       | —                                      |       |   | — |   |   |   | 0.01 |   |   |
| Cumulative effect of FIN  46 adoption                         |       | 0.79                                        |       |   | — |   |   |   | — |   |   |
| Earning per common unit**—**diluted                      |       | $                                           | 3.50       |   |   | $ | 1.91 |   |   |   | $ | 1.34 |   |   |
| **Weighted average units outstanding (in  thousands):**       |       |                                        |       |   |   |   |   |   |   |   |   |
| Basic                                                         |       | 63,885                                      |       |   | 60,628 |   |   |   | 52,118 |   |   |
| Diluted                                                       |       | 64,910                                      |       |   | 61,550 |   |   |   | 52,982 |   |   |
| **Distributions  paid per common unit**                       |       | $                                           | 2.35       |   |   | $ | 2.24 |   |   |   | $ | 2.18 |   |   |

 

See Accompanying Notes to Consolidated Financial Statements

F-43

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**THE MILLS LIMITED PARTNERSHIPCONSOLIDATED STATEMENTS OFTOTAL COMPREHENSIVE INCOME(In millions)**
| ** **                                | ** ** | **Years Ended December 31,** | ** ** |
|-------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                | ** ** | **2004**                                    | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                | ** ** | ** **                                  | ** ** | **(Restated)** | ** ** | **(Restated)** | ** ** |
| Net income                                |       | $                                           | 271.8      |   |   | $146.2 |   |   |   | $73.1 |   |   |
| Change in fair  value of cash flow hedges |       | 12.4                                        |       |   | (0.5 | ) |   |   | (9.2 | ) |   |
| Total Comprehensive  Income               |       | $                                           | 284.2      |   |   | $ | 145.7 |   |   |   | $ | 63.9 |   |   |
|                                           |            |                                             |            |  |  |  |  |  |  |  |  |  |  |  |

 

F-44

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**THE MILLS LIMITED PARTNERSHIPCONSOLIDATED STATEMENTS OFPARTNERS’ CAPITAL(In millions)**
| ** **                                          | ** ** | **Preferred  Units** | ** ** | **General  Partner** | ** ** | **Limited  Partners** | ** ** | **Accumulated  Other  Comprehensive  Loss** | ** ** | **Total**  | ** ** |
|-----------------------------------------------------|------------|----------------------|------------|----------------------|------------|-----------------------|------------|---------------------------------------------|------------|------------|------------|
| Balances, December 31, 2001                    | ** ** |                 | ** ** | ** **           |       |                  | ** ** | ** **                                  |       | ** ** | ** ** |   | ** ** | ** ** |   | ** ** | ** ** |
| As previously reported                              |       |                 | $          | —               | ** ** |                  |       | $                                           | 1.6        | ** ** |       | $ | 157.3 |   |   | $ | (5.1 | ) |   | $ | 153.8 |   |
| Cumulative effect of  restatement                   |       |                 | —     | ** **           |       |                  | (0.2       | )                                           |       | (26.5      | )          |   | — | ** ** |   | (26.7 | ) |
| As restated                                         |       |                 | —     | ** **           |       |                  | 1.4        |                                        |       | 130.8      |       |   | (5.1 | ) |   | 127.1 |   |
| Issued to TMC for:                                  |       |                 |       | ** **           |       |                  |       |                                        |       |       |       |   |   | ** ** |   |   |   |
| Preferred stock sale  proceeds                      |       |                 | 192.5      | ** **           |       |                  | (0.1       | )                                           |       | (6.8       | )          |   | — | ** ** |   | 185.6 |   |
| Common stock sale  proceeds                         |       |                 | 3⁄4     | ** **           |       |                  | 3.6        |                                        |       | 360.8      |       |   | — | ** ** |   | 364.4 |   |
| Change in fair value of  cash flow hedges           |       |                 | 3⁄4     | ** **           |       |                  | 3⁄4     |                                        |       | 3⁄4     |       |   | (9.2 | ) |   | (9.2 | ) |
| Amortization of  restricted stock incentive program |       |                 | 3⁄4     | ** **           |       |                  | 0.2        |                                        |       | 19.6       |       |   | 3⁄4 | ** ** |   | 19.8 |   |
| Distributions:                                      |       |                 |       | ** **           |       |                  |       |                                        |       |       |       |   |   | ** ** |   |   |   |
| Common                                              |       |                 | 3⁄4     | ** **           |       |                  | (1.3       | )                                           |       | (124.4     | )          |   | 3⁄4 | ** ** |   | (125.7 | ) |
| Preferred                                           |       |                 | 3⁄4     | ** **           |       |                  | 3⁄4     |                                        |       | (2.6       | )          |   | 3⁄4 | ** ** |   | (2.6 | ) |
| Net income                                          |       |                 | 3⁄4     | ** **           |       |                  | 0.7        |                                        |       | 72.4       |       |   | 3⁄4 | ** ** |   | 73.1 |   |
| Balances,  December 31, 2002                   |       |                 | 192.5      | ** **           |       |                  | 4.5        |                                        |       | 449.8      |       |   | (14.3 | ) |   | 632.5 |   |
| Issued to TMC for:                                  |       |                 |       | ** **           |       |                  |       |                                        |       |       |       |   |   |   |   |   |   |
| Preferred stock sale  proceeds                      |       |                 | 226.1      | ** **           |       |                  |       |                                        |       | (3.4       | )          |   |   | ** ** |   | 222.7 |   |
| Series A preferred  stock conversion           |       |                 | 3⁄4     | ** **           |       |                  | 0.8        |                                        |       | 74.3       |       |   | 3⁄4 | ** ** |   | 75.1 |   |
| Change in fair value of  cash flow hedges           |       |                 | 3⁄4     | ** **           |       |                  | 3⁄4     |                                        |       | 3⁄4     |       |   | (0.5 | ) |   | (0.5 | ) |
| Employee benefit plans                              |       |                 | —     | ** **           |       |                  | 0.2        |                                        |       | 23.1       |       |   | 3⁄4 | ** ** |   | 23.3 |   |
| Distributions:                                      |       |                 |       | ** **           |       |                  |       |                                        |       |       |       |   |   | ** ** |   |   |   |
| Common                                              |       |                 | 3⁄4     | ** **           |       |                  | (1.4       | )                                           |       | (139.1     | )          |   | 3⁄4 | ** ** |   | (140.5 | ) |
| Preferred                                           |       |                 | 3⁄4     | ** **           |       |                  | (0.3       | )                                           |       | (28.2      | )          |   | 3⁄4 | ** ** |   | (28.5 | ) |
| Net income                                          |       |                 | 3⁄4     | ** **           |       |                  | 1.5        |                                        |       | 144.7      |       |   | 3⁄4 | ** ** |   | 146.2 |   |
| Balances,  December 31, 2003                   |       |                 | 418.6      | ** **           |       |                  | 5.3        |                                        |       | 521.2      |       |   | (14.8 | ) |   | 930.3 |   |
| Issued to TMC for:                                  |       |                 |       | ** **           |       |                  |       |                                        |       |       |       |   |   | ** ** |   |   |   |
| Preferred stock sale  proceeds                      |       |                 | 316.3      | ** **           |       |                  | (0.1       | )                                           |       | (10.0      | )          |   | — | ** ** |   | 306.2 |   |
| Change in fair value of  cash flow hedges           |       |                 | 3⁄4     | ** **           |       |                  | 3⁄4     |                                        |       | 3⁄4     |       |   | 12.4 | ** ** |   | 12.4 |   |
| Units issued                                        |       |                 | 3⁄4     | ** **           |       |                  | 0.1        |                                        |       | 7.4        |       |   | 3⁄4 | ** ** |   | 7.5 |   |
| Employee benefit plans                              |       |                 | 3⁄4     | ** **           |       |                  | 0.2        |                                        |       | 19.5       |       |   | 3⁄4 | ** ** |   | 19.7 |   |
| Distributions:                                      |       |                 |       | ** **           |       |                  |       |                                        |       |       |       |   |   | ** ** |   |   |   |
| Common                                              |       |                 | 3⁄4     | ** **           |       |                  | (1.5       | )                                           |       | (151.5     | )          |   | 3⁄4 | ** ** |   | (153.0 | ) |
| Preferred                                           |       |                 | 3⁄4     | ** **           |       |                  | (0.4       | )                                           |       | (44.3      | )          |   | 3⁄4 | ** ** |   | (44.7 | ) |
| Net income                                          |       |                 | 3⁄4     | ** **           |       |                  | 2.7        |                                        |       | 269.1      |       |   | 3⁄4 | ** ** |   | 271.8 |   |
| Balances, December 31, 2004                    |       |                 | $          | 734.9                | ** ** |                  |       | $                                           | 6.3        |       |       | $ | 611.4 |   |   | $ | (2.4 | ) |   | $ | 1,350.2 |   |

 

See Accompanying Notes to Consolidated Financial Statements

F-45

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**THE MILLS LIMITED PARTNERSHIPCONSOLIDATED STATEMENTS OFCASH FLOWS(In millions)**
| ** **                                                                              | ** ** | **Years Ended December 31,** | ** ** |
|-----------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                              | ** ** | **2004**                                    | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                                                              | ** ** | ** **                                  | ** ** | **(Restated)** | ** ** | **(Restated)** | ** ** |
| **Cash Flows From Operating Activities:**                                               |       |                                        |       |   |   |   |   |   |   |
| Net income                                                                              |       | $                                           | 271.8      |   | $ | 146.2 |   |   | $ | 73.1 |   |   |
| Adjustments to reconcile  net income to net cash provided by operating activities: |       |                                        |       |   |   |   |   |   |   |
| Cumulative effect  of accounting change                                                 |       | (51.4                                       | )          | — |   |   | — |   |   |
| Depreciation and  amortization                                                          |       | 199.5                                       |       | 88.7 |   |   | 47.9 |   |   |
| Amortization of  financing costs                                                        |       | 10.2                                        |       | 7.2 |   |   | 5.3 |   |   |
| Amortization of TMC  restricted stock incentive program                                 |       | 4.1                                         |       | 6.2 |   |   | 6.0 |   |   |
| Equity in earnings  of unconsolidated joint ventures                                    |       | (15.4                                       | )          | (34.6 | ) |   | (24.0 | ) |   |
| Minority interest  in consolidated joint ventures                                       |       | (35.5                                       | )          | — |   |   | — |   |   |
| Sales of joint  venture interests                                                       |       | (99.3                                       | )          | (0.7 | ) |   | — |   |   |
| Foreign currency  exchange gains                                                        |       | (15.2                                       | )          | (38.6 | ) |   | (11.6 | ) |   |
| Gain on land sales                                                                      |       | (20.1                                       | )          | (1.0 | ) |   | (2.1 | ) |   |
| Abandoned project  costs                                                                |       | 8.3                                         |       | 2.2 |   |   | 2.7 |   |   |
| Changes in assets and  liabilities:                                                     |       |                                        |       |   |   |   |   |   |   |
| Accounts  receivable, net                                                               |       | (70.0                                       | )          | (37.0 | ) |   | 0.1 |   |   |
| Notes receivable                                                                        |       | (11.7                                       | )          | (5.1 | ) |   | (7.9 | ) |   |
| Other assets                                                                            |       | 9.4                                         |       | (1.7 | ) |   | (1.2 | ) |   |
| Accounts payable  and other liabilities                                                 |       | 65.3                                        |       | 37.1 |   |   | (15.6 | ) |   |
| **Net cash  provided by operating activities**                                          |       | 250.0                                       |       | 168.9 |   |   | 72.7 |   |   |
| **Cash Flows From Investing Activities:**                                               |       |                                        |       |   |   |   |   |   |   |
| Consolidation of  joint ventures under FIN 46                                           |       | 109.7                                       |       | — |   |   | — |   |   |
| Minority interest  investment in consolidated joint ventures, net                       |       | 169.8                                       |       | — |   |   | — |   |   |
| Distributions from  unconsolidated joint ventures                                       |       | 33.1                                        |       | 64.6 |   |   | 42.2 |   |   |
| Proceeds from  sales of joint venture interests                                         |       | 206.1                                       |       | 75.3 |   |   | — |   |   |
| Acquisitions of  operating properties                                                   |       | (78.8                                       | )          | (1,059.3 | ) |   | (330.7 | ) |   |
| Purchase of  partnership interests                                                      |       | (497.4                                      | )          | — |   |   | — |   |   |
| Investments in  real estate and development assets                                      |       | (539.6                                      | )          | (167.5 | ) |   | (266.6 | ) |   |
| Proceeds from land  sales                                                               |       | 34.5                                        |       | 2.8 |   |   | 5.0 |   |   |
| Deferred costs and  other intangibles, net                                              |       | 22.3                                        |       | (19.4 | ) |   | (2.3 | ) |   |
| **Net cash  used in investing activities**                                              |       | (540.3                                      | )          | (1,103.5 | ) |   | (552.4 | ) |   |
| **Cash Flows From Financing Activities:**                                               |       |                                        |       |   |   |   |   |   |   |
| Proceeds from  mortgages, notes and loans payable                                       |       | 1,081.1                                     |       | 1,086.2 |   |   | 480.9 |   |   |
| Repayments of  mortgages, notes and loans payable                                       |       | (759.0                                      | )          | (269.7 | ) |   | (378.9 | ) |   |
| Financing costs                                                                         |       | (3.1                                        | )          | (14.4 | ) |   | (5.3 | ) |   |
| Change in  restricted cash                                                              |       | (20.4                                       | )          | (8.9 | ) |   | 0.5 |   |   |
| Proceeds from  issuance of common units, net                                            |       | —                                      |       | — |   |   | 364.4 |   |   |
| Proceeds from  issuance of preferred units, net                                         |       | 306.2                                       |       | 222.7 |   |   | 185.6 |   |   |
| Proceeds from TMC stock  option exercises                                               |       | 15.7                                        |       | 17.2 |   |   | 13.8 |   |   |
| Common and  preferred distributions paid                                                |       | (193.1                                      | )          | (161.9 | ) |   | (111.5 | ) |   |
| **Net cash  provided by financing activities**                                          |       | 427.4                                       |       | 871.2 |   |   | 549.5 |   |   |
| Net (decrease)  increase in cash and cash equivalents                                   |       | 137.1                                       |       | (63.4 | ) |   | 69.8 |   |   |
| Cash and cash equivalents,  beginning of year                                           |       | 15.8                                        |       | 79.2 |   |   | 9.4 |   |   |
| Cash and cash  equivalents, end of year                                                 |       | $                                           | 152.9      |   | $ | 15.8 |   |   | $ | 79.2 |   |   |
| **Supplemental Cash Flow  Information:**                                                |       |                                        |       |   |   |   |   |   |   |
| Cash paid for  interest, net of amounts capitalized                                     |       | $                                           | 202.3      |   | $ | 99.4 |   |   | $ | 48.2 |   |   |
| **Non-cash investing and financing  information provided in Note 14**              |       |                                        |       |   |   |   |   |   |   |

 

See Accompanying Notes to Consolidated Financial Statements

F-46

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**THE MILLS LIMITED PARTNERSHIPNOTES TO CONSOLIDATEDFINANCIAL STATEMENTS(Dollars in millions except per share data)**

**1.   ORGANIZATION**

The Mills Limited Partnership, or Mills LP, is aDelaware limited partnership. The partnership will continue until December 2093,unless sooner dissolved and terminated. The partnership will be dissolved priorto the expiration of its term and its affairs wound up upon the occurrence ofthe earliest of the following: (a) an election to dissolve the partnershipis made in writing by the general partner; (b) withdrawal of the generalpartner without the permitted transfer of its interest to a successor generalpartner (except in certain limited circumstances); (c) the sale or otherdisposition of all or substantially all of the partnership’s assets andproperties; or (d) the entry of a decree of judicial dissolution of thepartnership.

The Mills LP’s general partner is The MillsCorporation (“TMC”), a fully integrated, self-managed real estate investmenttrust (“REIT”) that provides development, redevelopment, leasing, financing,management and marketing services to its properties. TMC conducts all of itsbusiness and owns all of its properties through Mills LP and its varioussubsidiaries (collectively referred to as the “Company”). At December 31,2004, TMC owned a 1% general partner interest and an 85.12% limited partnershipinterest in Mills LP.

As of December 31,2004, we owned or had an interest in 38 retail and entertainment-orientedcenters comprised of 17 Mills Landmark Centers, 20 regional 21stCentury Retail and Entertainment Centers and one International Retail andEntertainment Center. Of these, five Mills Landmark Centers, seven 21stCentury Retail and Entertainment Centers and the International Retail andEntertainment Center were wholly owned by us. We also owned three communityshopping centers, a portfolio of 19 single tenant properties and other relatedcommercial development.

**2.   SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES**

*BASIS OFPRESENTATION*

We consolidate the accounts of Mills LP and allsubsidiaries that we control. We do not consider ourselves to be in control ofan entity when major business decisions require the approval of at least oneother partner. All significant intercompany transactions and balances have beeneliminated in consolidation.

We also consolidate entities that are considered to bevariable interest entities (VIE’s) and for which we have been determined to bethe primary beneficiary. The determination of whether an entity is a VIErequires knowledge of the structure of the economics and the governance of theentity, and judgment is necessary in how this knowledge is applied to theunderlying rules. The effects of the elimination of interest and fee revenueand expense due to intercompany transactions between entities that are lessthan 100% owned are attributable to us as primary beneficiary.

Equity in the income or loss of joint ventures isrecorded on the equity method of accounting. We allocate income to equityparticipants based on the terms of the respective partnership agreements uponan assumed liquidation of the joint venture at its depreciated book value as ofthe end of the reporting period. Partner distributions are defined by theindividual joint venture agreements. Generally, net ordinary cash flow isdistributed to each partner first to pay preferences on unreturned capitalbalances, including cumulative unpaid preferences, and thereafter in accordancewith specified residual sharing percentages. Cash flow from capital events,including refinancing and asset sales, is generally allotted first 

F-47

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to partners in an amountequal to their unreturned capital account and thereafter in accordance withresidual sharing percentages.

Basis differences in ourinvestments in joint ventures primarily result from the acquisition ofpartnership interests which are not reflected at the joint venture level;capitalized interest on the investment balance; and capitalized development andleasing costs recovered by us through fees earned during project developmentand construction. Basis differences in unconsolidated joint ventures were $678.8 millionat December 31, 2004 and are amortized over 25 years.

*REAL ESTATE ANDDEVELOPMENT ASSETS*

Income producing property is stated at cost andincludes all costs related to acquisition, development, leasing andconstruction, including tenant improvements, interest incurred duringconstruction, costs of predevelopment and certain direct and indirect costs ofdevelopment. Cost incurred during the predevelopment stage are capitalized oncemanagement has determined that the project and the acquisition of a site isfeasible and it is probable that management will be able to proceed. Land heldfor 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 asthey are incurred. Significant renovations and improvements which improve orextend the useful life of the asset are capitalized.

Operating properties are evaluated on an individualbasis for impairment when conditions exist that may indicate that it isprobable that the sum of expected undiscounted future cash flows from aproperty is less than the historical net cost basis. Upon determination that apermanent impairment has occurred, an impairment charge equal to the excess ofhistorical cost basis over fair value is recorded. Costs related topredevelopment projects are expensed when it is determined that it is no longerprobable we will develop the project and could be material.

The cost of acquired operating properties representsthe allocation of purchase price to the underlying assets and liabilities,including identifiable intangible assets such as above/below market leases andat market leases, based on appraisals and other valuation methods. Amortizationexpense related to such intangibles for the years ended December 31, 2004and 2003 was $8.6 million and $4.7 million, respectively. The estimatedaggregate amortization expense for 2005, 2006, 2007, 2008 and 2009 is $4.7million, $3.6 million, $2.8 million, $2.2 million and $1.7 million,respectively. External costs directly related to acquisition opportunitiesbeing actively pursued by us are capitalized. If we are successful incompleting the acquisition, such costs are allocated to the acquired propertyas part of the purchase price. If not, such costs are expensed in the period itbecomes likely the acquisition will not be completed.

Interest is capitalized on real estate and developmentassets, including investments in joint ventures, in accordance with theprovisions of Statement of Financial Accounting Standards (“SFAS”) No. 34,“Capitalization of Interest Cost,” and SFAS No. 58, “Capitalization ofInterest Cost in Financial Statements that include Investments Accounted for bythe Equity Method.” The capitalization period commences when development beginsand continues until the asset is ready for its intended use or is abandoned.The amount capitalized is based on the stated interest rates, includingamortization of deferred financing costs. The calculation includes interestcosts that theoretically could have been avoided, based on either projectspecific borrowings or an assumed repayment of our highest rate debt, had theunderlying development and construction activities not been undertaken. For theyears ended December 31, 2004, 2003 and 2002, interest was capitalized atan average rate of 7.8%, 8.6% and 9.4%, respectively, and amounted to $56.8million, $48.0 million and $34.3 million, respectively.

F-48

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Depreciationexpense amounting to $158.4 million, $70.0 million and $38.8 million for theyears ended December 31, 2004, 2003 and 2002, respectively, was computedusing the straight-line method over the estimated useful lives of the assets,as follows:
| Building and  improvements         |   | 10 - 40  years                  |   |
|------------------------------------|--------|-------------------------------------------|--------|
| Land improvements                  |   | 20  years                                 |   |
| Furniture, fixtures and  equipment |   | 5 - 10 years                    |   |
| Tenant improvements                |   | Lesser of life of asset  or term of lease |   |

 

*CASH AND CASHEQUIVALENTS*

Highly liquid investmentswith an original maturity of three months or less are considered to be cashequivalents.

*RESTRICTED CASH*

Restricted cash iscomprised primarily of funds on deposit in cash collateral accounts controlledby the lenders. Proceeds from certain transactions are held in such accounts tofund maintenance reserves, interest, taxes and debt payments for the propertyassociated with the loan.

*ACCOUNTSRECEIVABLE, NET*

Accounts receivableinclude amounts billed to tenants, deferred rent resulting from thestraight-line recognition of rental income and accrued recoveries.Collectibility of these receivables is evaluated on a regular basis and theallowance for doubtful accounts is adjusted accordingly. At December 31,2004 and 2003 the allowance for doubtful accounts was $15.2 million and $4.3million, respectively.

*DEFERRED COSTS ANDOTHER INTANGIBLES, NET*

Deferred costs and otherintangibles include loan fees, leasing costs and the value of in-place leasesrelated to operating property acquisitions. Loan fees, including relatedexpenses, are amortized on a straight-line basis which approximates theinterest method over the terms of the related notes. Leasing costs areamortized on a straight-line basis over the term of the related leases. Thevalues of leases in-place at the date an operating property was acquired areamortized on a straight-line basis over the terms of the underlying leases. Forthe years ended December 31, 2004, 2003 and 2002, amortization expense was$54.5 million, $25.8 million and $14.4 million, respectively. Accumulatedamortization was $115.8 million and $61.3 million, at December 31, 2004and 2003, respectively.

*REVENUE RECOGNITION*

As lessor, we retain substantially all the risks andbenefits of property ownership and accounts for our leases as operating leases.Minimum rent from income producing properties is recognized on a straight-linebasis over the terms of the respective leases and includes amortization ofdeferred revenue resulting from acquired leases and the amortization of leaseinducements. The term of each lease is based on the period during which atenant has control of the space. Judgment is required to determine when atenant takes control of the space, and accordingly when to commence therecognition of rent. As a part of the restatement of our financial statementswe revised our previous practice of recognizing rent beginning with the leasecommencement date to recognizing income from the date the tenant has control ofthe space. The cumulative impact of this was an adjustment to retained earningsof $6.4 million and an immaterial impact on net income for the periodspresented. Percentage rent is recognized when tenants’ sales have reachedcertain sales levels as specified in the underlying lease. Recoveries fromtenants for real estate 

F-49

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taxes and other operatingexpenses are recognized as revenue in the period the applicable costs areincurred.

We provide management,leasing, development and financing services to most of our joint ventureproperties, for which we earn various fees. Management fees are a percentage ofthe monthly rental revenue received by the joint venture and recognized whensuch revenue is received by the property. Leasing fees are recognized upon executionof the lease and represent an agreed-upon rate per square foot of space leased.Development fees are recognized on the percentage completion method based onthe proportion of our costs incurred to our expected total costs to beincurred. Financial service fees are a stated percentage of the loan commitmentobtained and recognized when the loan agreement is executed by the lender. Weexpense leasing and financing overhead costs to the extent of our partners’interests in the underlying entities. Other fee income reflects leasing,development and financing fees from unconsolidated joint ventures after theelimination of intercompany profit.

*OTHER PROPERTYREVENUE*

Other property revenueincludes rent from tenants with original leases of one year or less, temporaryin-line space, kiosks and ATM space. It also includes lease termination feesand recoveries of previously deemed uncollectible receivables.

*DERIVATIVES ANDHEDGING*

A variety of derivative financial instruments are usedto manage, or hedge, our exposure to the impact of changing interest rates.Derivative contracts are designated and qualify as cash flow hedges because, atinception, it is expected that the instrument will be effective in reducinginterest rate exposure and that the underlying transaction will occur.Derivative instruments are not used for speculative purposes.

Derivative instruments are stated at fair value. Fairvalue is determined using various methods and assumptions based on marketconditions and risks existing at each balance sheet date. In most cases,standard market conventions and techniques, such as discounted cash flowanalysis, option pricing models, replacement cost and termination cost, areused to determine fair value. All methods of assessing fair value result in avalue which may never be realized.

The fair value ofderivative instruments are included in accounts payable and other liabilitiesand changes are charged to accumulated other comprehensive loss. In the eventthe instrument is determined to be no longer effective, the item being hedgedno longer exists or the terms of the underlying transaction are modified, thefair value adjustment is charged to earnings as interest expense. Unrealizedgains or losses charged to accumulated other comprehensive income are eventuallyrecognized in earnings as the underlying hedged item is recognized.

*INCOME TAXES*

As a partnership, our taxable income or loss is passedthrough to our partners and, therefore, no income tax provision is made in ourfinancial statements. Our general partner, TMC, elected to be taxed as a REITunder Sections 856-860 of the Internal Revenue Code (the “Code”). As a REIT,TMC will generally not be subject to federal and state income taxes on our nettaxable income that TMC currently distribute to stockholders. In order tomaintain REIT status, TMC is required to distribute at least 90% of our taxableincome to its stockholders and is subject to various other requirementsincluding meeting certain asset and income tests. Because TMC believes it willmaintain its REIT status and distribute in excess of its taxable income, U.S.federal income taxes may not apply. Differences between net income available tocommon stockholders for financial reporting purposes and taxable income beforedividend deductions relate primarily to real estate depreciation, recognitionof gains and losses from asset transactions and foreign currency exchange gainsand losses.

F-50

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The Code provides that a REIT may own stock insubsidiaries engaged in businesses which generate nonqualifying income, whichare referred to herein as taxable REIT subsidiaries. The stock value of thesebusinesses are subject to certain limitations and both the REIT and the taxableREIT subsidiaries are subject to strict rules governing ownership,operation and taxation. MillsServices Corp., or MSC, and its subsidiaries havemade elections to be treated as taxable REIT subsidiaries.

MSC, a subchapter Ccorporation, is subject to federal and state income taxes at the prevailing taxrates. As of December 31, 2004, MSC had an estimated federal net operatingloss carry forward of $42.5 million. Deferred tax assets relating primarily tothe loss carry forward have been offset in their entirety by a valuationallowance since there is no assurance MSC will generate taxable income in thefuture.

*FOREIGN OPERATIONS*

The functional currency for entities operating orprojects in development outside the United States is the currency of thecountry in which the entity or project is located. The financial statements ofsuch entities are translated from the functional currency into U.S. dollars forinclusion in our financial statements. Gains or losses resulting fromtranslation are accounted for as a component of other comprehensive income orloss.

Our non-U.S. investment and related advances aredenominated in the non-U.S. entity’s functional currency and re-measured to ourfunctional currency of the U.S. dollar. We expect to settle these amounts inthe foreseeable future through distributions from the entities. Accordingly,gains or losses resulting from the re-measurement are included in thedetermination of net income. Foreign currency exchange losses and gains for theperiods presented arose primarily as a result of this re-measurement.

As of December 31,2004 and 2003, our overall investment in non-U.S. operations approximated$270.0 million and $210.9 million, respectively. Each of our non-U.S.operations is subject to certain foreign corporate-level income taxes.

*SEGMENT REPORTING*

We consider each of ourproperties a separate operating segment that are aggregated and reported as asingle segment. Discrete financial information is available and each property’soperating results are reviewed by the chief operating decision maker in thedetermination of resource allocation and performance. This single reportablesegment represents over 90% of our assets, revenues and income for each of theyears presented. Future prospects for each property are similar and all haveessentially the same economic characteristics with similar returns, occupancyand tenants and are sited near a metropolitan area with similar demographicsand site characteristics.

*EARNINGS PER COMMONUNIT*

Basic earnings per commonunit is calculated by dividing income available to common unitholders by theweighted average number of common units outstanding during the period. Dilutedearnings per common unit reflects the dilutive impact of the assumed conversionof units issued pursuant to TMC’s restricted stock and stock option incentiveplans using the treasury stock method and the if-converted method for ourconvertible preferred units.

*TAX INCREMENTFINANCING*

Tax increment financing isa common form of project infrastructure financing expected to be repaid throughfuture tax assessments. In determining if such financing should be recorded,factors including whether the assessment is fixed or variable and theprobability we will become obligated for such financing is considered.

F-51

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*USE OF ESTIMATES*

The preparation ofconsolidated financial statements in conformity with U.S. generally acceptedaccounting principles (“GAAP”) requires management to make estimates andassumptions that affect the amounts reported in the consolidated financialstatements and accompanying notes. Actual results could differ from thoseestimates.

*RECLASSIFICATIONS*

Certain amounts in the 2003and 2002 consolidated financial statements have been reclassified to conform tothe current year presentation.

**3.   NEWAND PENDING ACCOUNTING PRONOUNCEMENTS**

*STANDARDSIMPLEMENTED AND TRANSITION ADJUSTMENT*

FIN 45—Effective October 1, 2003, we adopted thedisclosure provisions of Financial Accounting Standards Board Interpretation (“FIN”)No. 45, “Guarantor’s Accounting and Disclosure Requirements forGuarantees, including Direct Guarantees of Indebtedness of Others.” Initialrecognition and measurement provisions of FIN 45 were adopted on a prospectivebasis for guarantees issued after December 31, 2002. Under FIN 45, thefair value of a guarantee is recorded as a liability at its inception, with theoffsetting entry recorded based on the circumstances in which the guarantee wasissued. The adoption of this pronouncement did not have a material impact onour financial condition or results of operations.

FIN 46—Effective March 31, 2004, we adopted theprovisions of FIN 46(R), “Consolidation ofVariable Interest Entities,” which requires a primary beneficiary toconsolidate variable interest entities (“VIE”). Under this new model for consolidation, an entity is deemed to be a VIE when: (a) theequity investors (if any) do not have a controlling financial interest or lackadequate decision making ability; or (b) the equity investment at risk isinsufficient to finance that entity’s activities without receiving additionalfinancial support from other parties.

A number of our joint venture entities are withaffiliates of KanAm. Three of TMC’s Board members are also affiliated withKanAm, which, combined with our residual sharing percentages in the economicsof the ventures (see Footnote 5, “Joint Ventures”) result in those venturesbeing viewed as VIE’s. In all cases, we were determined to be the primarybeneficiary. Subsequent changes in the entity’s partnership, financing and/orother certain events trigger a re-determination of the venture’s status as aVIE. As a result of such re-determination, two of the operating properties nolonger meet the VIE criteria. Historically, the VIE joint ventures have beenaccounted for on the equity method because the underlying partnershipagreements require major business decisions be approved by at least one otherpartner.

Pursuant to the transitionprovisions of FIN 46, we consolidated the assets and liabilities of the VIEs onMarch 31, 2004, and the operating results beginning April 1, 2004.VIE operating results were accounted for under the equity method through March 31,2004. The impact of the adoption at March 31, 2004, was to consolidate jointventures with total assets of $2,701.7 million and total liabilities of$1,932.7 million and to record a cumulative effect adjustment to increase earningsby $51.4 million, reflecting additional capitalized interest as if the entitieshad been consolidated during their respective construction periods. Ourpartners’ equity interests in the VIEs are classified as minority interest in consolidated joint ventures in our consolidated financialstatements. The following presents the impact on our earnings had weadopted FIN 46 retroactively.

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| ** **                                     | ** ** | **Years Ended December 31,** | ** ** |
|------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                     | ** ** | **2004**                                    | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                     | ** ** | ** **                                  | ** ** | **(Restated)** | ** ** | **(Restated)** | ** ** |
| Income from  continuing operations             |       | $                                           | 220.4      |   |   | $ | 146.1 |   |   |   | $ | 72.8 |   |   |
| Pro forma income from continuing operations    |       | $                                           | 221.5      |   |   | $ | 152.1 |   |   |   | $ | 80.0 |   |   |
| Earnings per unit  from continuing operations: |       |                                        |       |   |   |   |   |   |   |   |   |
| Basic:                                         |       |                                        |       |   |   |   |   |   |   |   |   |
| As reported                                    |       | $                                           | 2.75       |   |   | $ | 1.94 |   |   |   | $ | 1.35 |   |   |
| Pro forma                                      |       | $                                           | 2.77       |   |   | $ | 2.07 |   |   |   | $ | 1.55 |   |   |
| Diluted:                                       |       |                                        |       |   |   |   |   |   |   |   |   |
| As reported                                    |       | $                                           | 2.71       |   |   | $ | 1.91 |   |   |   | $ | 1.33 |   |   |
| Pro forma                                      |       | $                                           | 2.73       |   |   | $ | 2.01 |   |   |   | $ | 1.46 |   |   |

 

*PENDING ADOPTION OFAN ACCOUNTING PRONOUNCEMENT*

SFAS 123R—In December 2004,the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123R, “Share-BasedPayments”. SFAS 123R is similar in its approach to share-based payments as theapproach described in SFAS 123 except that SFAS 123R requires all share-basedpayments to employees, including stock options, be recognized in the incomestatement based on their fair values. SFAS 123R must be adopted no later thanthe first quarter beginning after June 15, 2005. We do not expect SFAS123R to have a significant impact our results of operations and expect to adoptits provisions effective July 1, 2005. Had we adopted SFAS 123R in priorperiod periods its impact would have approximated that of SFAS 123 as morefully described in Note 13.

**4.   ACQUISITIONS**

Thefollowing summarizes acquisitions completed during 2004, 2003 and 2002. Thepurchase price below does not include transaction costs. 
| ** **                                       | ** ** | **Acquisition Date** | ** ** | **Purchase  Price** | ** ** |
|--------------------------------------------------|------------|---------------------------|------------|---------------------|------------|
| *100%  Interest Acquired:*                       |       |                      |       |                |       |   |   |
| Westland Mall                                    |       | January 2004         |       |                | $          | 78.8 |   |   |
| Great Mall of the Bay Area                       |       | August 2003          |       |                | 265.5      |   |   |
| Del Amo Fashion Center                           |       | June 2003            |       |                | 442.0      |   |   |
| Cadillac Fairview Portfolio(1)                   |       | January 2003         |       |                | 539.9      |   |   |
| The Shops at Riverside Square                    |       | December 2002        |       |                | 86.5       |   |   |
| Cincinnati Mills (formerly known as Forest Fair) |       | September 2002       |       |                | 68.8       |   |   |
| *Partial  Interests Acquired:*                   |       |                      |       |                |       |   |   |
| GM Portfolio(2)                                  |       | October 2004         |       |                | 452.1      |   |   |
| Madrid Xanadú(3)                            |       | August 2004          |       |                | 45.0       |   |   |
| Cadillac Fairview Portfolio(4)                   |       | May 2003             |       |                | 62.5       |   |   |
| Opry Mills(5)                                    |       | June 2002            |       |                | 30.9       |   |   |
|                                                  |            |                           |            |                     |            |  |  |  |

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(1)          Broward Mall, DoverMall, The Esplanade, Galleria at White Plains, Northpark Mall and approximately110 acres of developable land adjacent to the properties.

(2)          In October 2004, wepurchased a 50% interest in nine regional mall properties (the “GM Portfolio”).We paid $452.1 million in cash for the equity in the underlying entities. Ourproportionate share of pre-existing property debt assumed was $170 million, andour proportionate share of property debt incurred in connection with thetransaction was $410 million. The GM Portfolio has a combined GLA 

F-53

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of 8.9 million square feetand includes Briarwood Mall, Columbus City Center, The Falls, Hilltop Mall,Lakeforest Mall, Marley Station, Meadowood Mall, Stoneridge Mall and The Mallat Tuttle Crossing.

(3)          Acquisitionof joint venture interests not owned by us for $45.0 million subject to apotential adjustment over the next two years based on a formula.

(4)          50% interest in GwinnettPlace and Town Center at Cobb.

(5)          Acquisition of the jointventure interest not owned by us.

Acquiredproperties are included in our results of operations from their respective dateof acquisition. The following unaudited pro forma results of operations reflectthese transactions as if each had occurred on January 1 of the yearpresented. In our opinion, all significant adjustments necessary to reflect theeffects of the acquisitions, the equity offerings and use of the line of credithave been made.
| ** **                           | ** ** | **Unaudited Pro Forma**           | ** ** |
|--------------------------------------|------------|---------------------------------------------|------------|
| ** **                           | ** ** | **Years Ended December 31,** | ** ** |
| ** **                           | ** ** | **2004**                                    | ** ** | **2003** | ** ** |
| ** **                           | ** ** | ** **                                  | ** ** | **(Restated)** | ** ** |
| Operating  revenues                  |       |                                        | $          | 688.1 |   |   |   | $ | 419.6 |   |   |
| Net income                           |       |                                        | $          | 271.8 |   |   |   | $ | 146.2 |   |   |
| Income per common  share—basic  |       |                                        | $          | 3.57 |   |   |   | $ | 2.12 |   |   |
| Income per common share—diluted |       |                                        | $          | 3.51 |   |   |   | $ | 2.09 |   |   |

 

Thefollowing summarizes the purchase price allocation for the 2004 and 2003acquisitions:
| ** **                                   | ** ** | **2004** | ** ** | **2003** | ** ** |
|----------------------------------------------|------------|----------|------------|----------|------------|
| Income producing  property                   |       | $        | 76.6       |     | $          | 1,206.6 |   |
| Investment in  unconsolidated joint ventures |       | 452.1    |       | 62.5     |       |
| Deferred costs  and other intangibles, net   |       | 2.7      |       | 71.4     |       |
| Mortgages, notes  and loans payable assumed  |       | 3⁄4   |       | (65.9    | )          |
| Accounts payable  and other liabilities      |       | (0.5     | )          | (20.4    | )          |
| Net assets  acquired                         |       | $        | 530.9      |     | $          | 1,254.2 |   |

 

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**5.   JOINTVENTURES**

Jointventures are commonly used in the real estate industry to fund developmentand/or expansion and to diversify risk in a particular property or area. Weheld joint venture interests in 27 properties as of December 31, 2004 and17 as of December 31, 2003, as well as interests in various predevelopmentprojects. Joint venture interests are accounted for under the equity methodwhile the venture is unconsolidated. Consolidation occurs when we gainunilateral control of the entity through the acquisition of additionalpartnership interests or when the entity becomes a variable interest entity forwhich we are determined to be the primary beneficiary. The following summarizesour residual sharing and capital contribution percentages in our consolidatedand unconsolidated real estate joint ventures at December 31, 2004:
| ** **                                               | ** ** | **Residual  Sharing  Percentage** | ** ** | **Capital  Contribution  Percentage** | ** ** |
|----------------------------------------------------------|------------|-----------------------------------|------------|---------------------------------------|------------|
| ***Consolidated  Joint Ventures:***                      |       |                              |       |                                  |       |   |   |   |   |
| *Operating  properties:*                                 |       |                              |       |                                  |       |   |   |   |   |
| Arundel Mills                                            |       |                              | 59.3       | %                                     |       |   | 39.5 | % |   |
| The Block at Orange                                      |       |                              | 50.0       | %                                     |       |   | — |   |   |
| Colorado Mills                                           |       |                              | 56.3       | %                                     |       |   | 37.5 | % |   |
| Concord Mills                                            |       |                              | 59.3       | %                                     |       |   | 39.5 | % |   |
| Discover Mills                                           |       |                              | 50.0       | %                                     |       |   | — |   |   |
| Grapevine Mills                                          |       |                              | 59.3       | %                                     |       |   | 39.5 | % |   |
| Great Mall of the Bay Area                               |       |                              | 75.0       | %                                     |       |   | 49.0 | % |   |
| Katy Mills                                               |       |                              | 62.5       | %                                     |       |   | 25.0 | % |   |
| Opry Mills                                               |       |                              | 75.0       | %                                     |       |   | 49.0 | % |   |
| St. Louis Mills                                          |       |                              | 75.0       | %                                     |       |   | 50.0 | % |   |
| Arundel Mills Marketplace                                |       |                              | 59.3       | %                                     |       |   | 39.5 | % |   |
| *Properties  under development:*                         |       |                              |       |                                  |       |   |   |   |   |
| Meadowlands Xanadu(1)                                    |       |                              | 53.3       | %                                     |       |   | 26.67 | % |   |
| Pittsburgh Mills                                         |       |                              | 56.3       | %                                     |       |   | 37.5 | % |   |
| ***Unconsolidated Operating  Property Joint Ventures:*** |       |                              |       |                                  |       |   |   |   |   |
| Arizona Mills                                            |       |                              | 50.0       | %                                     |       |   | 50.0 | % |   |
| Ontario Mills                                            |       |                              | 50.1       | %                                     |       |   | 50.1 | % |   |
| Briarwood Mall(2)                                        |       |                              | 50.0       | %                                     |       |   | 50.0 | % |   |
| Columbus City  Center(2)                                 |       |                              | 50.0       | %                                     |       |   | 50.0 | % |   |
| Del Amo Fashion  Center                                  |       |                              | 75.0       | %                                     |       |   | 50.0 | % |   |
| The Falls(2)                                             |       |                              | 50.0       | %                                     |       |   | 50.0 | % |   |
| Gwinnett Place(3)                                        |       |                              | 50.0       | %                                     |       |   | 50.0 | % |   |
| Hilltop Mall(2)                                          |       |                              | 49.9       | %                                     |       |   | 49.9 | % |   |
| Lakeforest Mall(2)                                       |       |                              | 50.0       | %                                     |       |   | 50.0 | % |   |
| Marley Station(2)                                        |       |                              | 50.0       | %                                     |       |   | 50.0 | % |   |
| Meadowood Mall(2)                                        |       |                              | 50.0       | %                                     |       |   | 50.0 | % |   |
| Stoneridge Mall(2)                                       |       |                              | 49.9       | %                                     |       |   | 49.9 | % |   |
| Town Center at  Cobb(3)                                  |       |                              | 50.0       | %                                     |       |   | 50.0 | % |   |
| The Mall at  Tuttle Crossing(2)                          |       |                              | 50.0       | %                                     |       |   | 50.0 | % |   |
| Vaughan Mills                                            |       |                              | 50.0       | %                                     |       |   | 50.0 | % |   |

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(1)          Percentagesare subject to change based upon project scope and required contributions

(2)          GMPortfolio properties acquired in October 2004

(3)          CadillacFairview portfolio acquired in May 2003

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*AGREEMENTS*

We are committed to providing additional equity tocertain of our joint ventures under development pursuant to the relevant jointventure agreements and we guarantee certain joint venture partners’ preferencereturns and the repayment of construction debt. Guarantees generally remain ineffect until certain debt service coverage tests are met or a permanent loan isobtained, which generally occurs within two to four years after a property’sgrand opening. We would be liable under the guarantees if the proceeds areinsufficient to fund preference payments, the project’s construction is notcompleted or the construction loan is not refinanced at or before maturity.Most of our joint venture agreements with KanAm contain provisions whereby weor KanAm can require the purchase or sale of KanAm’s ownership interests.

The following summarizescertain significant joint venture agreement provisions and activities:

*Meadowlands Xanadu*

Meadowlands Xanadu isbeing developed on the site of the Continental Arena in New Jersey pursuant toan agreement with the New Jersey Sports and Exposition Authority, or the NJSEA.It is being developed through a joint venture between Meadowlands Mills LimitedPartnership, or Meadowlands Mills, and affiliates of Mack-Cali RealtyCorporation, or Mack-Cali. Meadowlands Mills is obligated to contribute capitalup to a maximum 40% of net project costs while Mack-Cali is obligated tocontribute capital up to a maximum $32.5 million. Commencing on the sixthanniversary of opening, the agreement provides that either party may put theirinterest in the partnership to the other for a price based on the fair value ofthe project at that time.

Meadowlands Mills is apartnership between us and KanAm. In October 2004, an entity owned byMeadowlands Mills acquired a 587-acre tract of land adjacent to the ContinentalArena site, or the Empire Tract. In connection with the redevelopment agreementwith NJSEA, we conveyed the Empire Tract to a non-profit conservation trust inexchange for a payment or credit of $26.8 million granted by the NJSEA. As of December 31,2004, we had invested approximately $109.3 million in Meadowlands Mills andKanAm had invested $210.2 million.

*Pittsburgh Mills*

PittsburghMills is expected to open during the summer of 2005 and is beingdeveloped by Pittsburgh Mills Limited Partnership, a joint venture betweenMills-KanAm Pittsburgh Limited Partnership (“Mills-KanAm Pittsburgh”) and AVAssociates Limited Partnership. Mills-KanAm Pittsburgh, through which we ownour interest in the Pittsburgh Mills project, is a joint venture with KanAm.For one to three years following the opening of the project, AV Associates mayelect to convert a portion of its interest in the partnership to, at ouroption, cash or units of Mills LP. Commencing on the fifth anniversary of theproject’s opening, AV Associates may put, and we may call, all of AV Associates’remaining partnership interest for a purchase price based on the fair marketvalue of the property and paid, at our option, in cash or units in Mills LP. Asof December 31, 2004, we and KanAm had each invested $57.8 million.

*Vaughan Mills*

We and Ivanhoe Cambridgeeach own an undivided 50% interest, as tenants in common, in Vaughan Mills,which opened in November 2004. At any time following the fourthanniversary of the opening of the project, either party may exercise a buy-sellprovision pursuant to which the offering party can require that the other partyeither purchase for cash the offering party’s entire interest in the project orsell to the offering party the interest of the other party.

F-56

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*SALE OR CONVEYANCEOF PARTNERSHIP INTERESTS*

In December 2004, we sold a 50% joint ventureinterest in Del Amo Fashion Center for $221.8 million, including $158.0 millionof the venture’s debt. We recognized no material gain or loss on the sale. Weincluded it in our consolidated results of operations from its date ofacquisition in June 2003 through the date the interest was sold and havesince accounted for it on the equity method as an unconsolidated joint venture.

Also in December 2004, we sold a 50% jointventure interest in a parcel of land adjacent to the Del Amo Fashion Center for$22.8 million in cash and recognized a $15.3 million gain.

In August 2004, we and KanAm sold a 50% jointventure interest in Ontario Mills for $170.3 million. The joint ventureinterest sold consisted of KanAm’s entire interest and a portion of theinterest held by us. We received proceeds of $50.7 million and recognized again of $39.6 million on our portion of the sale. Ontario Mills was anunconsolidated joint venture through March 31, 2004; was consolidatedunder FIN 46 from April 1, 2004, through August 27, 2004, and hassince been accounted for on the equity method as an unconsolidated jointventure.

In June 2004, we recorded a gain of $8.5 millionfrom our August 2003 conveyance to KanAm of an additional 6.375%partnership interest in each of the Arundel Mills, Concord Mills and GrapevineMills centers for proceeds of $28.1 million. Due to our continuing involvementin the joint ventures, we were precluded from recognizing the transactions assales until June 2004 when the underlying joint venture agreements wereamended to remove the terms comprising the continuing involvement.

In March 2004, we conveyed an approximately 50%joint venture interest in Opry Mills to KanAm Grund KapitalanlagegesellshaftmbH (“KanAm Grund”) for $68.9 million and a gain of $35.9 million wasrecognized. KanAm Grund is an affiliate of KanAm, a German syndicator of realestate funds with whom we have had a long standing relationship. In connectionwith this transaction, we terminated a swap agreement and recorded a $5.3million charge against the gain. Opry Mills was an unconsolidated joint venturethrough June 2002 when we acquired our then partner’s remaining interest.It was a wholly owned entity from June 2002 through March 23,2004, and has since been accounted for as a consolidated joint venture.

In December 2003, weconveyed a 50% joint venture interest in the Great Mall of the Bay Area toKanAm Grund for $47.2 million and recognized a $0.7 million gain. The Great Mallof the Bay Area was consolidated as a wholly owned entity from August 2003through December 17, 2003; was accounted for as an unconsolidated jointventure through March 31, 2004; and was consolidated under FIN 46effective March 31, 2004.

*MINORITY INTERESTIN CONSOLIDATED JOINT VENTURES*

Upon the adoption of FIN 46 we consolidated 15 jointventure properties which were previously accounted for under the equity method.One such property (Ontario Mills) was deconsolidated subsequently as a resultof the sale of equity interests. We have since acquired our partner’s interestin a second property (Madrid Xanadú).

Our consolidated joint ventures are variable interestentities (“VIE”) for which we have been determined to be the primarybeneficiary. Pursuant to the transition provisions of FIN 46, we consolidatedthe assets and liabilities of these entities on March 31, 2004, and theoperating results beginning April 1, 2004. The impact of the adoption at March 31,2004, was to consolidate joint ventures with total assets of $2,701.7 millionand total liabilities of $1,932.7 million and to record a cumulative effectadjustment to earnings of $51.4 million, reflecting additional capitalizedinterest as if the entities had been consolidated during their respectiveconstruction periods. For the three months ended March 31, 2004 equity inthe earnings of these ventures amounted to $8.2 million.

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Equity interests in these joint ventures not owned byus are classified as minority interest inconsolidated joint ventures in our consolidated financial statements. Includedin our net income is the attribution to us, as primary beneficiary, ofthe effects of the elimination ofinterest and fees. For the period April 1, 2004 through December 31,2004, such amount included development fees of $39.6 million and interestincome of $8.3 million. Distributions paid to or contributions received fromour consolidated joint ventures are reflected as minority interest, net in ourconsolidated statement of cash flows.

Our consolidated operatingproperty joint ventures are primarily financed through third party mortgagescollateralized by their respective operating property. The creditors of suchventures do not have recourse to our general credit except when we have provideda guaranty. At December 31, 2004, such mortgages aggregated $1.6 billionand are included in mortgages, notes and other loans payable in ourconsolidated balances sheet. The carrying value of the related collateralaggregated $2.1 billion and is classified in the net real estate anddevelopment assets section of our consolidated balance sheet at December 31,2004.

*UNCONSOLIDATEDJOINT VENTURES*

As of December 31, 2004, preference returns tothe joint venture partners were current and we had guaranteed repayment of$113.5 million of joint venture debt and joint venture letters of credit of$5.8 million. We would be required to guarantee an additional $5.6 million ifthe joint ventures borrow up to the total construction loan commitments. We arealso contingently liable for property taxes and assessments levied againstOntario Mills Limited Partnership by the City of Ontario Special AssessmentDistrict (“City”). The remaining aggregate amount of the special tax assessmentis $10.6 million and will be collected through 2020 to fund debt service onbonds issued by the City.

Condensedcombined financial statements of our unconsolidated joint ventures follow:
| ** **                                  | ** ** | **December 31,** | ** ** |
|---------------------------------------------|------------|-----------------------|------------|
| ** **                                  | ** ** | **2004**              | ** ** | **2003** | ** ** |
| ** **                                  | ** ** | ** **            | ** ** | **(Restated)** | ** ** |
| **CONDENSED COMBINED BALANCE  SHEETS:**     | ** ** | ** **            | ** ** | ** ** | ** ** |
| **Assets:**                                 |       |                  |       |   |   |
| Net income producing property               |       | $                     | 2,379.2    |   | $ | 2,167.5 |   |
| Construction in progress                    |       | 138.9                 |       | 481.5 |   |
| Cash and cash equivalents                   |       | 45.7                  |       | 119.2 |   |
| Restricted cash                             |       | 6.7                   |       | 40.5 |   |
| Accounts and notes receivable, net          |       | 74.1                  |       | 135.2 |   |
| Deferred costs, net                         |       | 53.8                  |       | 122.1 |   |
| Other                                       |       | 68.7                  |       | 103.7 |   |
| Total assets                                |       | $                     | 2,767.1    |   | $ | 3,169.7 |   |
| **Liabilities  and Partners’ Equity:** |       |                  |       |   |   |
| Debt                                        |       | $                     | 2,162.6    |   | $ | 2,204.9 |   |
| Other liabilities*                          |       | 132.1                 |       | 246.6 |   |
| Equity capital                              |       | 472.4                 |       | 718.2 |   |
| Total liabilities  and equity               |       | $                     | 2,767.1    |   | $ | 3,169.7 |   |

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*                    Includesamounts due to Mills.

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| ** **                                     | ** ** | **Year Ended December 31,** | ** ** |
|------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                     | ** ** | **2004**                                   | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                     | ** ** | ** **                                 | ** ** | **(Restated)** | ** ** | **(Restated)** | ** ** |
| **CONDENSED COMBINED RESULTS OF  OPERATIONS:** |       |                                       |       |   |   |   |   |   |   |   |   |
| **Revenue:**                                   |       |                                       |       |   |   |   |   |   |   |   |   |
| Minimum rent                                   |       | $                                          | 142.7      |   |   | $ | 223.9 |   |   |   | $ | 181.4 |   |   |
| Other property  revenue                        |       | 102.8                                      |       |   | 135.5 |   |   |   | 106.8 |   |   |
| Total operating revenues                       |       | 245.5                                      |       |   | 359.4 |   |   |   | 288.2 |   |   |
| **Expenses:**                                  |       |                                       |       |   |   |   |   |   |   |   |   |
| Property  operating expenses                   |       | 79.3                                       |       |   | 117.1 |   |   |   | 92.6 |   |   |
| Depreciation and  amortization                 |       | 63.5                                       |       |   | 109.8 |   |   |   | 94.5 |   |   |
| Total operating expenses                       |       | 142.8                                      |       |   | 226.9 |   |   |   | 187.1 |   |   |
| **Operating  income**                          |       | 102.7                                      |       |   | 132.5 |   |   |   | 101.1 |   |   |
| **Other income (expense):**                    |       |                                       |       |   |   |   |   |   |   |   |   |
| Interest expense                               |       | (77.0                                      | )          |   | (107.4 | ) |   |   | (82.5 | ) |   |
| Foreign currency  exchange gains, net          |       | 3⁄4                                     |       |   | 1.9 |   |   |   | 3⁄4 |   |   |
| Other income  (expense), net                   |       | (5.7                                       | )          |   | 9.0 |   |   |   | 25.3 |   |   |
| **Net  income**                                |       | $                                          | 20.0       |   |   | $ | 36.0 |   |   |   | $ | 43.9 |   |   |
| **Mills equity in earnings**                   |       | $                                          | 15.3       |   |   | $ | 34.6 |   |   |   | $ | 24.0 |   |   |

 

Significant accounting policies used by ourunconsolidated joint ventures are consistent with ours.

Effective March 31, 2004, 15 previouslyunconsolidated joint ventures were consolidated upon adoption of FIN 46. Alsoduring 2004, we increased our interests in unconsolidated joint ventures withthe GM Portfolio purchase in October 2004 and the sale of joint ventureinterests in Del Amo Fashion Center in December 2004 and Ontario Mills in August 2004.In November 2004, the Vaughan Mills which is owned by a joint venture, opened.During 2003, operating unconsolidated joint ventures increased by fiveproperties: (1) the December 2003 conveyance of an interest in theGreat Mall of the Bay Area; (2) and (3) the May 2003 acquisitionof interests in Gwinnett Place and Town Center at Cobb in connection with theCadillac Fairview Portfolio acquisition; (4) and (5) openings of theSt. Louis Mills and Madrid Xanadú developments.

During 2004, thefollowing financing transactions were completed on behalf of our unconsolidatedjoint venture properties:

·       InDecember 2004, in connection with the sale of a partnership interest, theDel Amo Fashion Center mortgage was refinanced. The new $316.0 million mortgageis interest-only through maturity and provides for an additional $134.0 millionin redevelopment financing. The stated maturity is January 2008 with twoone-year extension options. We have guaranteed $25.0 million of principal.

·       InMarch 2004, construction financing for Vaughan Mills, an unconsolidatedjoint venture, was obtained from an affiliate of our partner in the project.The construction loan has a total commitment of $157.8 million and a statedmaturity of March 2006 with a one-year extension option. The loan bearsinterest at CDOR plus 2.25%. The CDOR margin is reduced as the project meetsspecified completion, occupancy and leasing requirements are met and debtservice coverage ratios are achieved. Our guaranty of 50% of the constructionborrowings is reduced when certain performance measures are achieved.

Advances to unconsolidated joint ventures were $19.6million, $114.9 million and $127.6 million as of December 31, 2004, 2003and 2002, respectively. We earned interest on such advances of $11.1 million,$8.2 million and $4.3 million for the years ended December 31, 2004, 2003and 2002, respectively.

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**6.**   **MORTGAGES, NOTES AND LOANS PAYABLE**

Mortgages, notes and loanspayable, consist of the following: 
| ** **                                                                                                                                                                                                                                                                                                                                                                                             | ** ** | **December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                                                                                                                                                                                                                             | ** ** | **2004**              | ** ** | **    2003    ** | ** ** |
| Wholly Owned Property  Debt:                                                                                                                                                                                                                                                                                                                                                                           |       |                  |       |   |   |
| Broward Mall—Interest is payable monthly and  principal payments are due in March with $1.5 million due in 2005; $2.0  million due annually from 2006 through 2008; and a balloon payment due in  2009. Mortgage was adjusted to fair value in the allocation of purchase price  resulting in an effective interest rate of 5.34%.                                                           |       | $                     | 62.1       |   | $ | 64.4 |   |
| Cincinnati Mills (a)—Principal is due  December 2006; interest rate at LIBOR plus 2.00%. An interest rate swap  fixes interest at 5.88% through October 2006 on a notional amount of  $57.0 million. Mills guarantees 75% of the balance.                                                                                                                                               |       | 122.0                 |       | 58.4 |   |
| Concord Mills Marketplace (b)—Balloon payment is due  in February 2014; interest rate is 5.76%.                                                                                                                                                                                                                                                                                              |       | 14.3                  |       | — |   |
| Concord Mills Marketplace—Refinanced in  January 2004                                                                                                                                                                                                                                                                                                                                        |       | —                |       | 17.8 |   |
| Del Amo Fashion Center—deconsolidated in  December 2004 upon sale of partnership interest                                                                                                                                                                                                                                                                                                    |       | —                |       | 287.0 |   |
| Dover Mall, The Esplanade, Galleria at White Plains  and Northpark Mall Cross Collateralized (a)—Principal is due  February 2008, including two one-year extension options; interest rate is LIBOR plus  2.10%. The LIBOR floor is 1.75% on a notional amount of $75.0. An interest  rate swap fixes the interest rate at 4.17% on the remaining $245.0 million  through February 2005. |       | 320.0                 |       | 320.0 |   |
| Franklin Mills/Liberty Plaza (b)—Balloon payment is  due May 2007; blended interest rate is 7.67%                                                                                                                                                                                                                                                                                            |       | 130.8                 |       | 132.9 |   |
| Madrid Xanadú (a)—Loan is denominated in Euros and  has a total commitment of $240.5 million. Interest rate is EURIBOR plus  1.55%. Principal is due May 2006 but may be extended under two one-year  options subject to certain conditions. Mills guarantees 2% of the balance—consolidated  in 2004.                                                                             |       | 239.5                 |       | — |   |
| Potomac Mills/Gurnee Mills (b)—Balloon payment is  due March 2011; interest rate is 7.46%.                                                                                                                                                                                                                                                                                                   |       | 343.0                 |       | 346.5 |   |
| The Shops at Riverside Square—Interest is payable  monthly through January 2005; principal and interest payments are due  thereafter based on 30-year amortization with a balloon payment due  January 2013; interest rate is 5.77%.                                                                                                                                                    |       | 65.0                  |       | 65.0 |   |
| Sawgrass Mills (b)—Balloon payment is due  July 2006; interest rate is 7.18% per annum.                                                                                                                                                                                                                                                                                                      |       | 290.3                 |       | 293.4 |   |
| Sawgrass Mills (b) (mezzanine loan)—Balloon  payment is due in July 2006; interest rate is LIBOR plus 4.50%.                                                                                                                                                                                                                                                                            |       | 35.7                  |       | 36.1 |   |
| Westland Mall—Interest is payable monthly through  February 2007; principal and interest payments are due thereafter based  on 30-year  amortization with a balloon payment due February 2011; interest rate is  4.95%.                                                                                                                                                                 |       | 58.8                  |       | — |   |
| Net Leased Properties (a)—Principal maturity dates  range from October 2010 to January 2023; weighted average interest  rate is 8.57%.                                                                                                                                                                                                                                                  |       | 47.4                  |       | 47.4 |   |
| Consolidated Joint  Venture Property Debt                                                                                                                                                                                                                                                                                                                                                              |       |                  |       |   |   |
| Arundel Mills—(a)Principal is due June 2010;  interest rate is 4.61%. Provided certain conditions are met, an additional  $40.0 million may be borrowed.                                                                                                                                                                                                                                     |       | 187.0                 |       | — |   |
| Arundel Marketplace (b)—Balloon payment is due  January 2014; interest rate is 5.92%.                                                                                                                                                                                                                                                                                                        |       | 12.3                  |       | — |   |
|                                                                                                                                                                                                                                                                                                                                                                                                        |            |                       |            |  |  |  |  |

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| The Block at Orange (a)—Balloon payment is due  January 2009. Through April 2006 two interest rate swaps fix the  rate at 6.67% and 5.69% on varying notional amounts which total the  outstanding balance of the mortgage. From May 2006 through the extended  maturity an interest rate swap fixes the interest rate at 5.69% on a notional  amount of $135.0 million.                                                                                                                                                                                                                                                                      |   | 135.0    |   | — |    |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|--------|--------|---------|
| Colorado Mills (a)—Principal is due  November 2009, including two one-year extension options; interest rate  is LIBOR plus 1.78%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | 170.0    |   | — |    |
| Concord Mills (b)—Balloon payment is due  December 2012; interest rate is 6.13%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | 176.9    |   | — |    |
| Discover Mills (a)—Principal is due April 2007  and has a one-year extension option. On a notional amount of $110.5 million  of the $119.4 million mortgage loan, interest rate swaps fix the interest  rate at 3.44% through March 2005, 5.04% from April 2005 through  March 2006, and 6.28% from April 2006 through maturity. On a  notional amount of $39.5 million of the $42.6 million mezzanine loan,  interest rate swaps fix the interest rate at 4.69% through March 2005,  6.29% from April 2005 through March 2006, and 7.53% from  April 2006 through maturity. Mills guarantees 100% of the loan. |   | 162.0    |   | — |    |
| Grapevine Mills (b)—Balloon payment is due  October 2008; interest rate is  6.47%                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | 151.3    |   | — |    |
| Grapevine Mills II (b)—Balloon payment is due  November 2008; interest rate is 8.39%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | 14.1     |   | — |    |
| Great Mall of the Bay Area (a)—Principal is due  September 2008; interest rate is 4.80%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | 175.0    |   | — |    |
| Katy Mills (a)—Principal is due January 2013;  interest rate is 6.69%. Mills guarantees 10% of the balance.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | 148.0    |   | — |    |
| Opry Mills (a)—Principal is due October 2007,  including two one-year  extensions; interest rate is LIBOR plus 1.18%. An interest rate swap fixes  LIBOR at 2.50% on the balance through maturity fixing interest at 3.68%.  Provided certain terms and conditions are met, an additional $25.0 million  may be borrowed.                                                                                                                                                                                                                                                                                                                               |   | 175.0    |   | 175.0  |    |
| St. Louis Mills (a)—Principal is due May 2006;  interest rate is LIBOR plus 1.95%. Interest rate swaps fix the interest rate  at 4.36% and 4.15% on notional amounts of $55.0 million and $55.0 million,  respectively, through October 2005 and 5.80% from November 2005  through April 2006 on a notional amount of $110.0 million.                                                                                                                                                                                                                                                                                               |   | 131.1    |   | — |    |
| Other                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | 8.0      |   | 13.4   |    |
| Other:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |     |   |   |    |
| Line of credit (a)—see description below                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | 252.0    |   | 227.0  |    |
| Term loan (a)—see description below                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | 200.0    |   | 35.0   |    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   | $3,826.6 |   | $      | 2,119.3 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |        |          |        |        |         |  |

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(a)           Requires monthly interestonly payments through maturity.

(b)          Monthly interest andprincipal payments based on a 30 year amortization schedule with a balloonpayment due at maturity.

The weighted average interest rate on our debt was5.38% and 5.59% at December 31, 2004 and 2003, respectively. Of the totaloutstanding debt, $2.5 billion and $1.1 billion was fixed rate at December 31,2004 and 2003, respectively. The revolving line of credit and term loan are ouronly unsecured borrowings ($452.0 million at December 31, 2004). At December 31,2004, we had total recourse debt of $3.4 billion.

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Certain mortgages, notes and loans payable agreementscontain restrictive covenants relating to the maintenance of specifiedfinancial performance ratios such as minimum net worth, debt service coverageratio, loan to value and restriction on future dividend and distributionpayments. As of December 31, 2004, we were in compliance with thesecovenants. We have reviewed the restatement adjustments with our lenders andhave received the required waivers of certain representations and non-financialcovenants that are affected by the restatement adjustments described in Note 16.Contemporaneously with the filing of this Form 10-K, we satisfied allconditions contained in the waiver agreement, and therefore the Facilitycontinues to remain available and in full force and effect.

Aggregate annualmaturities at December 31, 2004 are as follows:
| 2005       |   | $       | 18.7    |   |
|------------|--------|---------|---------|--------|
| 2006       |   | 708.6   |    |
| 2007       |   | 1,051.7 |    |
| 2009       |   | 669.1   |    |
| 2010       |   | 373.9   |    |
| Thereafter |   | 1,004.6 |    |
|       |   | $       | 3,826.6 |   |

 

In December 2004, werefinanced our existing $500.0 million unsecured line of credit and $200.0million secured term loan with an unsecured $1.2 billion credit facility (the “Facility”)which includes a revolving credit commitment of $1.0 billion and a term loan of$200.0 million. Borrowings under the Facility may be used to acquire or developreal property, make various permitted investments, repay indebtedness and fundother working capital needs. The ability to draw on the line of credit is subjectto the maintenance of certain financial ratios specified in the line of credit agreement.At our option, borrowings under the Facility bear interest at LIBOR, EURIBOR ora base rate plus an applicable margin based on our leverage ratio. The marginon LIBOR rate loans varies between 0.95% and 1.45% (1.18% at December 31,2004) and between 0.15% and 0.45% on base rate loans (0.15% at December 31,2004). A facility fee, based on our leverage ratio and ranging from 20 to 25base points on the aggregate loans and unused commitments is also required. At December 31,2004 the weighted average interest rate on the aggregate outstanding borrowingswas 5.4%. The Facility is scheduled to expire in December 2007 andcontains a one-year extension option.

**7.   FINANCIALINSTRUMENTS—DERIVATIVES AND HEDGING**

In the normal course of business, we and our jointventures are exposed to the effect of interest rate changes. To limit thisexposure, established risk management policies and procedures including the useof a variety of derivative financial instruments to manage, or hedge, interestrate risk are followed. Derivative instruments are not used for speculativepurposes. Derivative instruments used for hedging must be effective in reducingthe interest rate risk exposure. Changes in the hedging instrument’s fair valuerelated to the effective portion of the risk being hedged are included inaccumulated other comprehensive income (loss). Hedge effectiveness criteriaalso require that it be probable that the underlying transaction occurs. Hedgesthat meet these criteria are formally designated as cash flow hedges at theinception of the derivative contract. When the terms of an underlyingtransaction are modified, or when the underlying hedged item ceases to exist, thechange in the fair value of the derivative instrument is marked to market withthe change included in net income in each period until the derivativeinstrument matures. Any derivative instrument used for risk management thatbecomes ineffective is marked to market through earnings.

Depending on the underlying exposure, interest rateswaps, caps and floors, options, forwards or a combination thereof, may be usedto manage interest rate risk. Interest rate swaps and collars are contractualagreements with third parties to exchange fixed and floating interest paymentsperiodically 

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without the exchange ofthe underlying principal amounts (notional amounts). In the unlikely event thata counterparty fails to meet the terms of an interest rate swap contract or collaragreement, the exposure is limited to the interest rate differential on thenotional amount. We do not anticipate non-performance by any of ourcounterparties. Net interest differentials to be paid or received under a swapcontract and/or collar agreement are accrued as interest expense as incurred orearned.

Interest rate hedges, designated as cash flow hedges,hedge the future cash outflows on debt. Interest rate swaps that convertvariable payments to fixed payments, interest rate caps, floors, collars andforwards are cash flow hedges. The unrealized gains or losses in the fair valueof these hedges are reported on the balance sheet and included in accountspayable and other liabilities or in investment in unconsolidated joint ventureswith a corresponding adjustment to either accumulated other comprehensiveincome or earnings depending on the hedging relationship. If the hedgingtransaction is a cash flow hedge, then the offsetting gains/losses are reportedin accumulated other comprehensive income to the extent of the effectiveportion of the risk being hedged. Changes in the fair value of the hedginginstrument related to the effective portion of the risk being hedged areincluded in accumulated other comprehensive income (loss). Changes in fair valuerepresenting (1) the ineffectiveness of the hedging relationship and (2) anyother component of fair value not related to the risk being hedged are recordedas interest expense through earnings. Changes in fair value representingineffectiveness of the hedging relationship are minimal for all periodspresented. Some derivative instruments are associated with the hedge of ananticipated transaction. Over time, the unrealized gains/losses held inaccumulated other comprehensive income (loss) will be reclassified to earningsconsistent with when the hedged items are recognized in earnings. This type ofreclassification reduced net income by $5.6 million for the year endedDecember 31, 2004.

As of December 31,2004, we and our joint ventures were party to interest rate swap agreementsthat hedge the impact of the variability of LIBOR on cash outflows. Under theagreements, we, or the joint venture, receive LIBOR and pay a fixed rate. Thefollowing summarizes the current and deferred start swap terms of thederivative instruments and provides a reconciliation of their fair values andadjustments to accumulated other comprehensive income (loss):
| ** **                                                               | ** ** | **Wholly Owned**            | ** ** | **Joint Ventures**         | ** ** |
|--------------------------------------------------------------------------|------------|-----------------------------|------------|----------------------------|------------|
| Hedge type                                                               |       | Cash Flow                   |       | Cash Flow                  |       |
| Description                                                              |       | Swap                        |       | Swap                       |       |
| Range of notional  amounts                                               |       | $57.0 - $245.0 million      |       | $6.5 - $176.3 million      |       |
| Range of interest rate                                                   |       | 2.07% - 3.88%               |       | 1.69% - 5.35%              |       |
| Range of deferred  effective start dates                                 |       | 3⁄4                      |       | 4/1/05 - 4/3/06  |       |
| Range of maturity dates                                                  |       | 2/15/05 - 10/2/06 |       | 4/1/05 - 11/1/09 |       |
| Accumulated other  comprehensive income (loss) at December 31, 2003 |       | $                           | (11.8      | )                          | $          | (11.0 | ) |
| Change in fair value                                                     |       | 7.3                         |       | 12.6                       |       |
| Accumulated other comprehensive income (loss) at  December 31, 2004 |       | $                           | (4.5       | )                          | $          | 1.6 |   |

 

Within the next twelvemonths, we expect to recognize interest expense of $1.7 million currentlyunrealized in accumulated other comprehensive loss while our unconsolidatedjoint ventures expect to recognize $2.0 million, of which our share is $(0.6) million.Other comprehensive loss, including our proportionate share of our jointventure balances, at December 31, 2004 and 2003 was $1.0 million and $14.8million, respectively. Comprehensive income for the years ended December 31,2004, 2003 and 2002 was $289.2 million, $145.7 million and $63.9 million,respectively.

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**8.   FAIRVALUE OF FINANCIAL INSTRUMENTS**

The following disclosures of estimated fair value offinancial instruments were determined by management, using available marketinformation and appropriate valuation methodologies. Considerable judgment isnecessary to interpret market data and develop estimated fair value.Accordingly, the estimates presented herein are not necessarily indicative ofthe amounts the partnership could realize on disposition of the financialinstruments. The use of different market assumptions and/or estimationmethodologies could have a material effect on the estimated fair value amounts.

Cash equivalents, restricted cash, accounts and notesreceivable, accounts payable and other liabilities are carried at amounts whichreasonably approximate their fair values.

Fixed rate debt with an aggregate carrying value of $2,454.2million and $1,135.1 million had an estimated aggregate fair value of $2,495.8million and $1,210.4 million at December 31, 2004 and 2003, respectively.Estimated fair value of fixed rate debt is based on interest rates currentlyavailable to us for issuance of debt with similar terms, credit risk andremaining maturities. The estimated fair value of our variable rate debt isestimated to be approximately equal to its carrying value of $1,372.4 millionand $984.2 million at December 31, 2004 and 2003, respectively.

Disclosure about fair value of financial instrumentsis based on pertinent information available to management at December 31,2004 and 2003. Although management is not aware of any factors that wouldsignificantly affect the reasonableness of the fair value amounts, such amountshave not been comprehensively revalued for purposes of these consolidatedfinancial statements since December 31, 2004, and current estimates offair value may differ significantly from the amounts presented herein.

**9.   LEASING ACTIVITIES**

Wehave noncancellable tenant leases with remaining terms ranging from one to20 years which require payment of specified minimum rent amounts. Amajority of these leases also require the tenants to reimburse substantiallyall of the operating expenses of the properties. Minimum rent commitments undertenant leases at December 31, 2004, are as follows:
| 2005       |   | $     | 359.1   |   |
|------------|--------|-------|---------|--------|
| 2006       |   | 329.1 |    |
| 2007       |   | 307.0 |    |
| 2008       |   | 277.8 |    |
| 2009       |   | 240.9 |    |
| Thereafter |   | 985.6 |    |
|       |   | $     | 2,499.5 |   |

 

We are also subject to a noncancellable operatinglease for our corporate headquarters in Arlington, VA which expires in April 2006and requires minimum payments of $3.7 million and $1.8 million for the yearsending December 31, 2005 and 2006, respectively. Rent expense amounted to$4.3 million, $3.2 million and $3.1 million for the years ended December 31,2004, 2003 and 2002, respectively.

In 2004, we entered intoan agreement to lease new headquarters space beginning in April 2006. Thelease is noncancellable with a term of 13 years. Minimum annual payments underour new lease total $7.4 million, $9.2 million, $9.4 million and $100.0 millionfor the years ending December 31, 2007, 2008, 2009 and thereafter,respectively. Also in 2004, the ground lease with NJSEA for the MeadowlandsXanadu site was signed. The 75 year lease term is expected to commence duringmid-2005. The lease requires a deposit of $160.0 million, $50.0 million ofwhich was placed in escrow when construction began in March 2005. On the thirdanniversary of the lease term commencement, a one time payment of$15.0 million is due. Beginning on the 16th anniversary of the lease termcommencement annual rent payments begin. The payments for years 16 to 75 of thelease term total $547.8 million.

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**10.   SERIESA CUMULATIVE CONVERTIBLE PREFERRED UNITS**

In October and November 2003,750,000 shares of TMC’s Series A Cumulative Convertible Preferred Stockwere converted into 3,153,368 shares of TMC common stock. Simultaneously, TMCconverted its Series A Preferred Units into an equal number of our commonunits. Series A dividends were accounted for as interest expense due tothe stock’s redemption features.

**11.   PARTNERS’CAPITAL**

In October and December 2002,TMC sold a total of 4,300,000 shares of 9% Series B Cumulative RedeemablePreferred Stock and 3,400,000 of 9% Series C Cumulative RedeemablePreferred Stock, both with a par value of $0.01 per share, for $25.00 per sharein an underwritten public offering. In January 2003, TMC sold anadditional 100,000 shares of Series C preferred stock in a public offeringat an initial price of $25.23 per share. The aggregate net proceeds of $187.9million and were contributed to us in exchange for preferred units which haveeconomic terms substantially identical to the Series B and C preferredstock. Net proceeds from the Series B preferred stock sale were used toreduce borrowings under our line of credit, to fund development efforts and asworking capital. Net proceeds from the Series C preferred stock were usedto fund the January 2003 Cadillac Fairview Portfolio acquisition. Distributionsare payable quarterly at 9% of the liquidation preference of $25.00 per share.Holders of the units will have limited voting rights only if dividends are notpaid for six or more quarterly periods.

In March 2003, wesold 400,000 units of 8.75% Series D Cumulative Redeemable PreferredUnits, or Series D, in a private placement to two investors at a purchaseprice of $25.00 per unit. The net proceeds of $10.0 million were used to reduceborrowings under our line of credit. Series D preferred units areexchangeable for TMC’s Series D Cumulative Redeemable Preferred Stock on aone-for-one basis. Distributions on Series D preferred units are payablequarterly in arrears at 8.75% of the liquidation preference of $25.00 per unit.

In May 2003, TMC solda total of 6,440,000 shares of 8.75% Series E Cumulative RedeemablePreferred Stock, par value $0.01 per share, for $25.00 per share in anunderwritten public offering. In October and November 2003, TMC soldan additional 2,105,000 shares of Series E preferred stock for $26.24 pershare in two public offerings. The aggregate net proceeds of $210.5 millionwere contributed to us in exchange for preferred units having economic termssubstantially identical to the Series E preferred stock. The net proceedswere used to reduce our line of credit and certain other indebtedness. Distributionson the Series E preferred units are payable quarterly at 8.75% of theliquidation preference of $25.00 per share. Holders of the Series Epreferred stock will have limited voting rights if dividends are not paid forsix or more quarterly periods and in certain other events.

In August 2004, TMCsold 316,250 shares of 6.75% Series F Convertible Cumulative RedeemablePreferred Stock, each with a par value of $.01 and a liquidation preference of$1,000, in an offering made under Rule 144A of the Securities Act toqualified institutional buyers. Net proceeds of $306.2 million werecontributed to us in exchange for preferred units with economic termssubstantially identical to the Series F preferred stock. The net proceedswere used to reduce borrowings under our line of credit. Each share of Series Fpreferred stock is convertible into 16.6529 shares of TMC common stock, subjectto specified adjustments, if the closing sale price of TMC common stockreaches, or the trading price of Series F preferred stock falls belowspecified thresholds or under certain other circumstances. Upon conversion ofTMC’s Series F preferred stock, an equal number of Mills LP Series Fpreferred units will be converted into Mills LP common units in the same ratio.On or after August 5, 2009, Series F preferred stock may be redeemedby TMC at its liquidation value only if the closing price of TMC common stockhas exceeded 130% of the conversion price for at least 20 of 30 consecutivetrading days immediately prior to notice of redemption. In the event TMC redeemsSeries F preferred stock, Mills LP will redeem an equal number of Series Fpreferred units at the same liquidation value. Holders of Series Fpreferred stock will have limited voting rights if dividends are not paid forsix or more quarterly periods and in certain other events.

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Pursuant to a registration rights agreement, we hadagreed to use our reasonable best efforts to cause a shelf registrationstatement with respect to the resale of the Series F preferred stock andthe TMC common stock issuable upon conversion of such preferred stock to becomeeffective within 180 days after the original issuance of the Series Fpreferred stock. To date, we have not filed the shelf registration statement,and, as such, we are required to pay liquidated damages at a rate of 0.25% perannum for the first 90 days and 0.50% per annum until the registration defaultis cured.

Thefollowing table, in thousands, presents the changes in the issued andoutstanding common units since January 1, 2003:
| ** **                                              | ** ** | **Year Ended December 31,**               | ** ** |
|---------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                              | ** ** | **    2004    ** | ** ** | **2003** | ** ** |
| Outstanding at  January 1,                         |       | 63,762                                                   |       | 59,434 |   |
| Issuance of Mills LP common units                       |       | 170                                                      |       | — |   |
| Issued to TMC in  exchange for:                         |       |                                                     |       |   |   |
| Preferred unit conversion                               |       | —                                                   |       | 3,153 |   |
| Proceeds from the exercise of TMC stock options         |       | 538                                                      |       | 878 |   |
| Issuance of TMC restricted stock, net of  cancellations |       | 152                                                      |       | 297 |   |
| Outstanding at  December 31,                       |       | 64,622                                                   |       | 63,762 |   |

 

*EARNINGS PER UNIT*

Thefollowing table sets forth the computation of basic and diluted earnings percommon unit:
| ** **                                                                          | ** ** | **Years Ended December 31,** | ** ** |
|-------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                          | ** ** | **2004**                                    | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                                                          | ** ** | ** **                                  | ** ** | **(Restated)** | ** ** | **(Restated)** | ** ** |
| Numerator:                                                                          |       |                                        |       |   |   |   |   |
| Net income                                                                          |       | $                                           | 271.8      |   | $ | 146.2 |   | $ | 73.1 |   |
| Less preferred unit distributions                                                   |       | (44.8                                       | )          | (28.4 | ) | (2.6 | ) |
| Numerator for  basic and diluted earnings per common unit                           |       | $                                           | 227.0      |   | $ | 117.8 |   | $ | 70.5 |   |
| Denominator (units in  thousands):                                                  |       |                                        |       |   |   |   |   |
| Weighted average units                                                              |       | 64,310                                      |       | 60,913 |   | 52,353 |   |
| Unvested TMC restricted stock awards                                                |       | (425                                        | )          | (285 | ) | (235 | ) |
| Denominator for  basic earnings per unit                                            |       | 63,885                                      |       | 60,628 |   | 52,118 |   |
| Effect of dilutive securities (employee stock  options and restricted stock awards) |       | 1,025                                       |       | 922 |   | 864 |   |
| Denominator for  diluted earnings per unit                                          |       | 64,910                                      |       | 61,550 |   | 52,982 |   |
| Basic earnings  per common unit                                                     |       | $                                           | 3.55       |   | $ | 1.94 |   | $ | 1.36 |   |
| Diluted earnings per  common unit                                                   |       | $                                           | 3.50       |   | $ | 1.91 |   | $ | 1.34 |   |

 

Our Series FConvertible Cumulative Redeemable Preferred Stock and certain TMC stock optionsare excluded from the computation of basic and diluted earnings per common unitas their impact is anti-dilutive.

*STOCK OPTION PLANS*

Commonstock issued pursuant to the TMC plans described below resulted in Mills LPissuing common units to TMC on a one-for-on basis. Effective January 1,2002, we adopted the fair value recognition provisions of SFAS No. 123 “Accountingfor Stock-Based Compensation,” on a prospective basis to all employeeawards granted, modified or settled after the effective date. Because ourawards vest over periods ranging from three to ten years, the cost related tostock-based employee compensation is less 

F-66

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than would have been recognized had the fair valuemethod been applied to all outstanding and unvested awards in each period. Thefollowing presents the pro forma effect of this on net income available tocommon unitholders.
| ** **                                                                                       | ** ** | **Years Ended December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                                       | ** ** | **2004**                                    | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                                                                       | ** ** | ** **                                  | ** ** | **(Restated)** | ** ** | **(Restated)** | ** ** |
| Net income as  reported                                                                          |       | $                                           | 271.8      |   |   | $ | 146.2 |   |   |   | $ | 73.1 |   |   |
| Add stock-based  compensation expense included in reported net income                            |       | 9.6                                         |       |   | 7.9 |   |   |   | 3.6 |   |   |
| Deduct stock-based  compensation expense determined under fair value based method for all awards |       | (9.7                                        | )          |   | (8.2 | ) |   |   | (4.1 | ) |   |
| Pro forma net  income                                                                            |       | $                                           | 271.7      |   |   | $ | 145.9 |   |   |   | $ | 72.6 |   |   |
| Basic earnings  per common unit:                                                                 |       |                                        |       |   |   |   |   |   |   |   |   |
| As reported                                                                                      |       | $                                           | 3.55       |   |   | $ | 1.94 |   |   |   | $ | 1.36 |   |   |
| Pro forma                                                                                        |       | $                                           | 3.55       |   |   | $ | 1.94 |   |   |   | $ | 1.34 |   |   |
| Diluted earnings  per common unit:                                                               |       |                                        |       |   |   |   |   |   |   |   |   |
| As reported                                                                                      |       | $                                           | 3.50       |   |   | $ | 1.91 |   |   |   | $ | 1.34 |   |   |
| Pro forma                                                                                        |       | $                                           | 3.50       |   |   | $ | 1.91 |   |   |   | $ | 1.32 |   |   |

 

TMC had an Executive Equity Incentive Plan for thepurpose of attracting and retaining directors, executive officers and other keypersonnel. Pursuant to the Plan, 4,500,000 shares of TMC common stock have beenreserved for issuance of stock options and restricted stock. Options andrestricted stock are issued at a price not less than 100% of fair market valueat the date of grant, options expire ten years from the date of grant andcontain such other terms and conditions (including, without limitation,conditions to vesting) as may be determined by our Executive CompensationCommittee. In 1999, TMC adopted a broad based 1999 Stock Option Plan for thepurpose of advancing our company interests. Pursuant to the plan, 2,500,000shares of TMC common stock have been reserved for issuance of stock options andrestricted stock. Options and restricted stock are issued at a price not lessthan 100% of fair market value at the date of grant, options expire ten yearsfrom the date of grant and contain such other terms and conditions (including,without limitation, conditions to vesting) as may be determined by ourExecutive Compensation Committee. We also have a 2004 Stock Incentive Plan(“Incentive Plan”) for the purpose of attracting and retaining highly qualifiedofficers, directors, key employees, and other key employees. Pursuant to theIncentive Plan, 6,000,000 shares of TMC common stock have been reserved forissuance of common stock and common partnership units. The aggregate number ofshares of common stock and common partnership units that cumulatively may beavailable for issuance pursuant to awards, other than options or SARs, cannotexceed 1,800,000. Options and restricted stock are issued at a price not lessthan 100% of fair market value at the date of grant, options expire ten yearsfrom the date of grant and contain such other terms and conditions (including,without limitation, conditions to vesting) as may be determined by ourExecutive Compensation Committee. 

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Thefollowing summarizes stock option activity and related information regardingour three equity compensation plans that have been approved by our stockholders.
| ** **                                                                     | ** ** | **Years Ended December 31,** | ** ** |                                   |
|--------------------------------------------------------------------------------|------------|---------------------------------------------|------------|----------------------------------------|
| ** **                                                                     | ** ** | **2004**                                    | ** ** | **2003**                               | ** ** | **2002** | ** ** |   |
| ** **                                                                     | ** ** | **Options**                                 | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Options** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Options** | ** ** | **Weighted  Average  Exercise  Price** | ** ** |   |
| ** **                                                                     | ** ** | **(Shares in thousands)**         | ** ** |                                   |
| Outstanding at  beginning of year                                              |       | 1,794                                       |       |                                   | $ | 21.53 |   |   | 2,747 |   |   | $ | 20.90 |   |   |   | 3,496 |   |   |   | $ | 20.79 |   |   |
| Granted                                                                        |       | 6                                           |       |                                   | 47.03 |   |   | 3 |   |   | 34.05 |   |   |   | 2 |   |   |   | 26.14 |   |   |
| Exercised                                                                      |       | (540                                        | )          |                                   | 20.35 |   |   | (878 | ) |   | 19.85 |   |   |   | (683 | ) |   |   | 20.43 |   |   |
| Forfeited and  expired                                                         |       | —                                      |       |                                   | — |   |   | (78 | ) |   | 18.43 |   |   |   | (68 | ) |   |   | 18.15 |   |   |
| Outstanding at  end of year                                                    |       | 1,260                                       |       |                                   | $ | 22.13 |   |   | 1,794 |   |   | $ | 21.53 |   |   |   | 2,747 |   |   |   | $ | 20.90 |   |   |
| Exercisable at  end of year                                                    |       | 1,247                                       |       |                                   | $ | 21.98 |   |   | 1,573 |   |   | $ | 22.05 |   |   |   | 2,015 |   |   |   | $ | 21.66 |   |   |
| Weighted average fair  value of options per share granted during the year |       |                                        |       |                                   | $ | 4.80 |   |   |   |   |   | $ | 0.81 |   |   |   |   |   |   |   | $ | 0.58 |   |   |
|                                                                                |            |                                             |            |                                        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Exercise prices of options outstanding at December 31,2004 ranged from $17.31 to $56.45. The weighted average remaining contractuallife of options outstanding at December 31, 2004 was 3.2 years.

Thefair value for options was estimated at the date of grant using a Black-Scholesoption pricing model with the following assumptions:
| ** **               | ** ** | **Year Ended December 31,** | ** ** |
|--------------------------|------------|--------------------------------------------|------------|
| ** **               | ** ** | **2004**                                   | ** ** | **2003** | ** ** | **2002** | ** ** |
| Risk-free  interest rate |       |                                       | 4.8        | % |   |   | 5.2 | % |   |   | 5.3 | % |   |
| Dividend yield           |       |                                       | 8.3        | % |   |   | 8.9 | % |   |   | 9.2 | % |   |
| Volatility factor        |       |                                       | 24.6       | % |   |   | 12.7 | % |   |   | 10.8 | % |   |
| Life (years)             |       |                                       | 4.2        |   |   |   | 4.4 |   |   |   | 5.4 |   |   |

 

The Black-Scholes optionvaluation model was developed for use in estimating the fair value of traded optionswhich have no vesting restrictions and are fully transferable. In addition,option valuation models require the input of highly subjective assumptions,including the expected stock price volatility. Because our employee stockoptions have characteristics significantly different from those of tradedoptions, and because changes in the subjective input assumptions can materiallyaffect the fair value estimate, in management’s opinion, the existing models donot necessarily provide a reliable single measure of the fair value of itsemployee stock options. For purposes of pro forma disclosures and, subsequentto January 1, 2002, for recording the fair value, the estimated fair valueof the options granted is amortized to expense over the options’ vestingperiod.

*RESTRICTED STOCKGRANTS*

Under our equity plans, we grant restricted TMC stockto our directors, officers and other key employees. Compensation expenserelated to grants is amortized on a straight-line basis over the vestingperiod. Vesting periods for restricted stock are determined by our ExecutiveCompensation Committee. As of December 31, 2004, we had grants of 592,077shares of non-vested restricted stock outstanding pursuant to such plans, whichshares vest 276,165 in 2005, 157,660 in 2006, 121,252 in 2007 and 37,000 in2008.

F-68

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Thenumber and weighted average market value per share of restricted shares grantedduring each year is as follows:
| ** **                                                            | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|-----------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Restricted shares  granted during year                                |       | 221,497  |       | 231,090  |       | 273,163  |       |
| Weighted average market  value per share of restricted shares granted |       | $        | 43.46      |     | $          | 32.62    |       | $ | 27.85 |   |
|                                                                       |            |          |            |          |            |          |            |  |  |  |

 

An additional 29,737shares of TMC common stock would be issued and vest only upon a change incontrol of TMC.

*RESTRICTED STOCKUNITS*

In connection with anemployee inducement grant, we issued 110,000 restricted stock units which vestin two equal installments in 2005 and 2006. Upon vesting, the stock units areconverted on a one-for-one basis into shares of TMC common stock and issued tothe employee.

**12.   COMMITMENTS AND CONTINGENCIES**

We are subject to the risks inherent in the ownershipand operation of commercial real estate. These risks include, among others,those normally associated with changes in the general economic climate, trendsin the retail industry, including creditworthiness of retailers, competitionfor retailers, changes in tax laws, interest rate levels, availability offinancing and potential liability under environmental and other laws. Inaddition, while we believe our projects under construction and development willultimately be completed, there can be no assurance that they will actually becompleted, either on schedule or on budget, or, in the case of development,constructed or financed, or that they will have any particular level of successor ultimate value.

During 2003, Hartz MountainIndustries, Inc., or Hartz, filed a lawsuit seeking to enjoin theNJSEA from entering into a contract with us and Mack-Cali for the redevelopmentof the Continental Airlines Arena site. In May 2004, Hartz’s contentionthat the NJSEA lacks statutory authority to allow retail development of itsproperty was rejected, but the claim that the NJSEA has failed to producerequested public records was remanded to the lower court for further review. Hartzhas requested the Supreme Court of New Jersey to review the decision. Severalother appeals filed by Hartz and other parties remain pending, as does thelower court proceeding on Hartz’s request for public documents. In March 2005,various public and environmental interest groups filed suit in the U.S.District Court to challenge the fill permit issued by the U.S. Army Corps ofEngineers. We believe that our proposal and the planned project fully complywith applicable laws, and intend to continue vigorous defense of our rightsunder the executed redevelopment agreement. We do not believe the pendingappeals will have any material affect on the joint venture’s ability to developthe project.

We are currently neithersubject to any material litigation nor, to management’s knowledge, is anymaterial litigation currently threatened against us, other than routinelitigation and administrative proceedings arising in the ordinary course ofbusiness.

F-69

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**13.   NON-CASHINVESTING AND FINANCING INFORMATION**

Theassets and liabilities of joint venture properties consolidated upon theadoption of FIN 46 were as follows: 
| Net income  producing properties           |   | $        | 2,011.1 |   |
|--------------------------------------------|--------|----------|---------|--------|
| Construction in  process                   |   | 311.8    |    |
| Cash                                       |   | 109.7    |    |
| Restricted Cash                            |   | 22.5     |    |
| Accounts notes  and other receivables, net |   | 111.0    |    |
| Deferred costs  and other assets, net      |   | 135.6    |    |
| Mortgages, notes  and loans payable        |   | (1,818.1 | )       |
| Accounts payable  and other liabilities    |   | (114.6   | )       |
| Net assets at  date of consolidation       |   | $        | 769.0   |   |

 

During 2004, Mills LPcommon units totaling 4.7 million were redeemed on a one-for-one basis forshares of TMC common stock. In June 2004, Mills LP issued 170,482 commonunits to purchase a parcel of land with a $7.5 million agreed value.

**14.   SUBSEQUENT EVENTS**

In January 2005, through a joint venture withIvanhoe Cambridge, we acquired a 50% joint venture interest in St. Enoch Centrelocated in Glasgow, Scotland for $257.2 million, excluding transaction costs. Thetransaction was financed with a mortgage on the property of $358.7 million, ofwhich our share was $179.3 million, and cash. The interest only loan bearsinterest at 5.53% and matures in April 2012.

In February 2005, the Pittsburgh Mills jointventure secured a construction loan with a total commitment of $175.0 million. Theinterest only loan matures in February 2008 and provides for two one-yearextensions. The loan bears interest at LIBOR plus 1.65% and is fully guaranteedby us. The LIBOR margin and our guaranty are reduced as certain performancemeasures are achieved. (Add advance repay)

In March 2005, in connection with the $451.6 millionacquisition of Southdale Center in Minneapolis, MN and Southridge Mall inMilwaukee, WI, we secured two mortgage loans. The $186.6 million Southdale loanis interest only through maturity, bears interest at 5.18%, and matures in April 2010.The $124.0 million Southridge loan is interest only through maturity, bearsinterest at 5.23%, and matures in April 2012.

In March 2005, we refinanced the Sawgrassmezzanine mortgage loan with an initial advance of $40.0 million that paid offthe existing loan. The new loan has a total commitment of $73.8 million. Theinterest rate on the initial advance of $40.0 million is LIBOR plus 3.50%,while any additional proceeds bear interest at LIBOR plus 2.00%. The interestonly loan matures in July 2006 and is fully guaranteed by us.

F-70

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**15.   UNAUDITEDQUARTERLY RESULTS OF OPERATIONS**

Oursummarized results of operations by quarter for 2004 and 2003 were as follows:
| ** **                                                 | ** ** | **Three Months Ended,** | ** ** |
|------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                 | ** ** | **December 31**              | ** ** | **September 30** | ** ** | **June 30** | ** ** | **March 31** | ** ** |
| ** **                                                 | ** ** | ** **                        | ** ** | **(Restated)** | ** ** | **(Restated)** | ** ** | **(Restated)** | ** ** |
| ***2004:***                                                |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Operating revenues                                         |       |                              | $          | 209.1 |   |   |   | $ | 190.2 |   |   | $ | 186.9 |   | $ | 98.6 |   |
| Income from continuing operations                          |       |                              | 61.1       |   |   |   | 73.5 |   |   | 33.9 |   | 51.9 |   |
| Net income                                                 |       |                              | 61.1       |   |   |   | 73.5 |   |   | 33.9 |   | 103.3 |   |
| Income from continuing operations per unit:                |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Basic                                                      |       |                              | 0.72       |   |   |   | 0.97 |   |   | 0.38 |   | 0.67 |   |
| Diluted                                                    |       |                              | 0.71       |   |   |   | 0.95 |   |   | 0.38 |   | 0.66 |   |
| Net earnings per unit:                                     |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Basic                                                      |       |                              | 0.72       |   |   |   | 0.97 |   |   | 0.38 |   | 1.48 |   |
| Diluted                                                    |       |                              | 0.71       |   |   |   | 0.95 |   |   | 0.38 |   | 1.45 |   |
| Weighted average common units outstanding (in  thousands): |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Basic                                                      |       |                              | 64,240     |   |   |   | 64,109 |   |   | 63,972 |   | 63,692 |   |
| Diluted                                                    |       |                              | 65,462     |   |   |   | 65,150 |   |   | 64,815 |   | 64,664 |   |
|                                                            |            |                                   |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                  | ** ** | **Three Months Ended,** | ** ** |
|---------------------------------------------|------------|-----------------------------------|------------|
| ** **                                  | ** ** | **December 31**              | ** ** | **September 30** | ** ** | **June 30** | ** ** | **March 31** | ** ** |
| ** **                                  | ** ** | **(Restated)**                    | ** ** | **(Restated)** | ** ** | **(Restated)** | ** ** | **(Restated)** | ** ** |
| ***2003:***                                 |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Operating revenues                          |       |                              | $          | 130.0 |   |   |   | $ | 105.4 |   |   | $ | 88.6 |   | $ | 76.8 |   |
| Income from continuing operations           |       |                              | 47.9       |   |   |   | 22.6 |   |   | 49.4 |   | 26.2 |   |
| Net income                                  |       |                              | 47.9       |   |   |   | 22.6 |   |   | 49.4 |   | 26.3 |   |
| Income from continuing operations per unit: |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Basic                                       |       |                              | 0.31       |   |   |   | 0.66 |   |   | 0.71 |   | 0.37 |   |
| Diluted                                     |       |                              | 0.30       |   |   |   | 0.65 |   |   | 0.70 |   | 0.36 |   |
| Net earnings per unit:                      |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Basic                                       |       |                              | 0.31       |   |   |   | 0.66 |   |   | 0.71 |   | 0.37 |   |
| Diluted                                     |       |                              | 0.30       |   |   |   | 0.65 |   |   | 0.70 |   | 0.36 |   |
| Weighted average common units outstanding:  |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Basic                                       |       |                              | 62,959     |   |   |   | 59,992 |   |   | 59,774 |   | 59,397 |   |
| Diluted                                     |       |                              | 64,056     |   |   |   | 60,945 |   |   | 60,653 |   | 60,148 |   |
|                                             |            |                                   |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

----

*                    Results ofoperations for the seven quarterly periods ended September 30, 2004, wererestated for the matters discussed in Note 16. The impact of the restatementon the data presented above is summarized below.

F-71

----

Thequarterly impact of the restatement adjustments were as follows:
| ** **                                                                                 | ** ** | **Three Months Ended (unaudited)**                             | ** ** |
|--------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------|------------|
| ** **                                                                                 | ** ** | **September 30,  2004**                                                  | ** ** | **June 30,  2004** | ** ** | **March 31,  2004** | ** ** |
| ** **                                                                                 | ** ** | **(Dollars in millions, except per unit data)** | ** ** |
| ***Increase  (decrease) in income from continuing operations:***                           |       |                                                                          |       |   |   |   |   |   |   |   |   |
| Equity in earnings                                                                         |       |                                                                          | $          | (1.8  | ) |   | $ | 3.9     |   |   | $ | 2.9    |   |   |
| Capitalized interest                                                                       |       |                                                                          | 1.4        |   |   | 1.5 |   |   | (0.2 | ) |   |
| Other capitalized costs                                                                    |       |                                                                          | (0.2       | ) |   | (1.8 | ) |   | (1.7 | ) |   |
| Gain on sales of joint venture interests                                                   |       |                                                                          | (2.2       | ) |   | 8.5 |   |   | 0.6 |   |   |
| Promotion funds                                                                            |       |                                                                          | (0.4       | ) |   | (0.4 | ) |   | (0.3 | ) |   |
| Other                                                                                      |       |                                                                          | 2.1        |   |   | (0.5 | ) |   | 0.1 |   |   |
| Decrease in Mills  LP income from continuing operations                                    |       |                                                                          | $          | (1.1 | ) |   | $ | 11.2 |   |   | $ | 1.4 |   |   |
| ***Increase  (decrease) in diluted earnings per common unit from continuing operations:*** |       |                                                                          |       |   |   |   |   |   |   |   |   |
| Equity in earnings                                                                         |       |                                                                          | $          | (0.03 | ) |   | $ | 0.06 |   |   | $ | 0.04 |   |   |
| Capitalized interest                                                                       |       |                                                                          | 0.02       |   |   | 0.03 |   |   | 3⁄4 |   |   |
| Other capitalized costs                                                                    |       |                                                                          | 3⁄4     |   |   | (0.03 | ) |   | (0.02 | ) |   |
| Gain on sales of joint venture interests                                                   |       |                                                                          | (0.03      | ) |   | 0.13 |   |   | 0.01 |   |   |
| Promotion funds                                                                            |       |                                                                          | (0.01      | ) |   | (0.01 | ) |   | (0.01 | ) |   |
| Other                                                                                      |       |                                                                          | 0.03       |   |   | (0.01 | ) |   | 3⁄4 |   |   |
| Decrease in diluted  earnings per common unit from continuing operations                   |       |                                                                          | $          | (0.02 | ) |   | $ | 0.17 |   |   | $ | 0.02 |   |   |

 
| ** **                                                                                 | ** ** | **Three Months Ended (unaudited)** | ** ** |
|--------------------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                                 | ** ** | **December 31,  2003**                       | ** ** | **September 30,  2003** | ** ** | **June 30,  2003** | ** ** | **March 31,  2003** | ** ** |
| ** **                                                                                 | ** ** | **(Dollars in millions, except per unit data)**   | ** ** |
| ***Increase  (decrease) in income from continuing operations:***                           |       |                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Equity in earnings                                                                         |       |                                              | $          | 0.1 |   |   |   | $ | 1.6 |   |   | $ | 3.6 |   |   | $ | 1.4 |   |   |
| Capitalized interest                                                                       |       |                                              | (0.1       | ) |   |   | (0.9 | ) |   | (1.5 | ) |   | (1.4 | ) |   |
| Other capitalized costs                                                                    |       |                                              | 0.1        |   |   |   | (1.1 | ) |   | 3⁄4 |   |   | (0.4 | ) |   |
| Gain on sales of joint venture interests                                                   |       |                                              | 3⁄4     |   |   |   | (8.5 | ) |   | 3⁄4 |   |   | 3⁄4 |   |   |
| Promotion funds                                                                            |       |                                              | (0.1       | ) |   |   | (0.1 | ) |   | (0.1 | ) |   | (0.1 | ) |   |
| Other                                                                                      |       |                                              | (0.7       | ) |   |   | (0.1 | ) |   | (1.4 | ) |   | 3⁄4 |   |   |
| Decrease in Mills  LP income from continuing operations                                    |       |                                              | $          | (0.7 | ) |   |   | $ | (9.1 | ) |   | $ | 0.6 |   |   | $ | (0.5 | ) |   |
| ***Increase (decrease) in diluted  earnings per common unit from continuing operations:*** |       |                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Equity in earnings                                                                         |       |                                              | $          | 3⁄4 |   |   |   | $ | 0.03 |   |   | $ | 0.06 |   |   | $ | 0.02 |   |   |
| Capitalized interest                                                                       |       |                                              | 3⁄4     |   |   |   | (0.02 | ) |   | (0.03 | ) |   | (0.02 | ) |   |
| Other capitalized costs                                                                    |       |                                              | 3⁄4     |   |   |   | (0.02 | ) |   | 3⁄4 |   |   | (0.01 | ) |   |
| Gain on sales of joint venture interests                                                   |       |                                              | 3⁄4     |   |   |   | (0.14 | ) |   | 3⁄4 |   |   | 3⁄4 |   |   |
| Promotion funds                                                                            |       |                                              | 3⁄4     |   |   |   | 3⁄4 |   |   | 3⁄4 |   |   | 3⁄4 |   |   |
| Other                                                                                      |       |                                              | (0.02      | ) |   |   | 3⁄4 |   |   | (0.02 | ) |   | 3⁄4 |   |   |
| Decrease in diluted  earnings per common unit from continuing operations                   |       |                                              | $          | (0.02 | ) |   |   | $ | (0.15 | ) |   | $ | 0.01 |   |   | $ | (0.01 | ) |   |

 

Refer to footnote 16Restatement for a description of the significant aspects of the restatement.

F-72

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**16.**   RESTATEMENT

We announced on February 16,2005, that we would restate our audited financial results for the fiscal yearsended December 31, 2003 and 2002, and our unaudited quarterly results forthe first three quarters of 2004 to correct our accounting treatment of variousitems to conform with Generally Accepted Accounting Principles, or GAAP. Thefollowing describes the significant aspects of the restatement.

·       *Equity in earnings.  *We changed our method of computingour equity in the earnings of our joint ventures and have applied the changeretroactively to the origination of our involvement in each of these jointventures. Previously, we used an estimate of our economic ownership in thejoint venture based on projected cash flows. The method reflected in therestatement allocates income to equity participants based on the terms of therespective partnership agreements upon an assumed liquidation of the jointventure at its depreciated book value as of the end of the reporting period.

·       *Capitalized interest.  *We changed our method forcapitalizing the interest on borrowings made to fund our development and otherconstruction projects. Previously, we capitalized interest using computed rateson excess proceeds from refinancing various loans based on an incrementalinterest cost approach. The amount we now capitalize is based on the statedinterest rates, including amortization of deferred financing costs. Thecalculation includes interest costs that theoretically could have been avoided,based first on project specific borrowings then on an assumed repayment of ourhighest rate debt, had the underlying development and construction activitiesnot been undertaken.

·       *Other capitalized costs.*   We changed our accounting forleasing and financing overhead to expense these costs as incurred to the extentof our partners’ interests in the underlying entities. We previouslycapitalized these costs and expensed them as the related fees were recognized.We also corrected our accounting for lease inducements to amortize them againstrevenue over the life of the lease.

·       *Gain on sale of joint venture interests.  *In the thirdquarter of 2003, we reported a sale of partial interests in three jointventures and recognized an aggregate gain of $8.5 million. Due to ourcontinuing involvement in the joint ventures, SFAS 66 precluded us fromrecognizing the transactions as sales in 2003. In the restatement, we recordedthe sales and related gains in the second quarter of 2004 when the underlyingjoint venture agreements were amended to remove the terms comprising thecontinuing involvement.

·       *Promotion funds.  *Under our lease agreements, tenantsare required to fund costs associated with promoting the property. Therestatement reflects amounts received from tenants as “Recoveries from tenants”and the associated expenses are reflected as “Recoverable from tenants.”  These amounts had previously been presentedon a net basis. Currently, revenues in excess of expenses are deferred untilthe associated costs are incurred and promotion costs are expensed as incurred.

·       *Other.  *In conjunction with the restatement, we alsomade adjustments to our accounting for various other miscellaneous items,including (i) calculating straight-line rent from the date the tenanttakes control of the space, rather than our previous practice of recognizingrent as of lease commencement date; (ii) the correction of some purchaseprice adjustments; and (iii) restating gains on residual land sales fromjoint ventures to expense capitalized interest upon sale.

In addition, we have grossed up our income statementto no longer net certain fees and the costs incurred to earn those fees.

F-73

----

The following summarizesthe restatement adjustments made to our condensed consolidated statements ofincome that were reflected in the selected financial data above, in millions, except per unit amounts. For periodsprior to 2000 the restatements were effectuated through a cumulativeadjustment as of January 1, 2000, of $17.1 million to TMC’saccumulated deficit and $27.0 million to Mills LP’s partners’ capital,with the difference attributable to the minority interests of Mills LP.
| ** **                                                                                 | ** ** | **Years Ended  December 31,**                                   | ** ** |
|--------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------|------------|
| ** **                                                                                 | ** ** | **2003**                                                                  | ** ** | **2002** | ** ** |
| ** **                                                                                 | ** ** | **(Dollars in millions,  except per unit data)** | ** ** |
| ***Increase  (decrease) in income from continuing operations:***                           |       |                                                                      |       |   |   |
| Equity in earnings                                                                         |       | $                                                                         | 6.8        |   | $ | (6.5 | ) |
| Capitalized interest                                                                       |       | (3.9                                                                      | )          | (7.6 | ) |
| Other capitalized costs                                                                    |       | (1.4                                                                      | )          | (2.2 | ) |
| Gain on sale of joint venture interests                                                    |       | (8.5                                                                      | )          | 3⁄4 |   |
| Promotion funds                                                                            |       | (0.4                                                                      | )          | (0.5 | ) |
| Other                                                                                      |       | (2.3                                                                      | )          | (0.4 | ) |
| Decrease in Mills  LP income from continuing operations                                    |       | (9.7                                                                      | )          | (17.2 | ) |
| ***Increase  (decrease) in diluted earnings per common unit from continuing operations:*** |       |                                                                      |       |   |   |
| Equity in earnings                                                                         |       | $                                                                         | 0.10       |   | $ | (0.12 | ) |
| Capitalized interest                                                                       |       | (0.06                                                                     | )          | (0.14 | ) |
| Other capitalized costs                                                                    |       | (0.02                                                                     | )          | (0.04 | ) |
| Gain on sale of joint venture interests                                                    |       | (0.14                                                                     | )          | 3⁄4 |   |
| Promotion funds                                                                            |       | 3⁄4                                                                    |       | (0.01 | ) |
| Other                                                                                      |       | (0.04                                                                     | )          | (0.01 | ) |
| Decrease in diluted  earnings per common unit from continuing operations                   |       | $                                                                         | (0.16      | ) | $ | (0.32 | ) |

 

F-74

----

Thefollowing summarizes the impact of the restatement on the individual componentsof our consolidated statements of income and the consolidated balance sheet forthe periods presented.
| ** **                                                                | ** ** | **Years Ended December 31,**                                      | ** ** |
|---------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|
| ** **                                                                | ** ** | **      2003      ** | ** ** | **       2002       ** | ** ** |
| Property revenues                                                         |       |                                                                             |       |   |   |   |   |   |   |
| Minimum rent                                                              |       |                                                                             | $          | (0.4 | ) |   |   | $ | (0.6 | ) (c) |   |
| Recoveries from tenants                                                   |       |                                                                             | 11.7       |   |   |   | 7.9 |  (e) |   |
| Management fees                                                           |       |                                                                             | 3.8        |   |   |   | 3.7 |  (f) |   |
| Other fee income                                                          |       |                                                                             | 14.6       |   |   |   | 12.8 |  (c)(f) |   |
| Total operating revenues                                                  |       |                                                                             | 29.7       |   |   |   | 23.8 |   |   |
| Property  operating expenses                                              |       |                                                                             |       |   |   |   |   |   |   |
| Recoverable from tenants                                                  |       |                                                                             | 15.9       |   |   |   | 11.7 |  (e)(f) |   |
| Other operating expenses                                                  |       |                                                                             | (0.5       | ) |   |   | 3⁄4 |  (g) |   |
| General and administrative expenses                                       |       |                                                                             | 1.4        |   |   |   | (0.4 | ) (g) |   |
| Cost of fee income                                                        |       |                                                                             | 16.9       |   |   |   | 15.3 |  (c)(f) |   |
| Depreciation and amortization                                             |       |                                                                             | (1.0       | ) |   |   | (0.5 | ) (c) |   |
| Total operating expenses                                                  |       |                                                                             | 32.7       |   |   |   | 26.1 |   |   |
| Operating income                                                          |       |                                                                             | (3.0       | ) |   |   | (2.3 | ) |   |
| Interest expense                                                          |       |                                                                             | (3.9       | ) |   |   | (7.6 | ) (b) |   |
| Other income, net                                                         |       |                                                                             | (1.1       | ) |   |   | (0.8 | ) (g) |   |
| Income before  joint venture operations and minority interest in Mills LP |       |                                                                             | (8.0       | ) |   |   | (10.7 | ) |   |
| Gain on sales of joint venture interests                                  |       |                                                                             | (8.5       | ) |   |   | 3⁄4 |  (d) |   |
| Equity in earnings of unconsolidated joint ventures                       |       |                                                                             | 6.8        |   |   |   | (6.5 | ) (a) |   |
| Mills LP net income                                                       |       |                                                                             | $          | (9.7 | ) |   |   | $ | (17.2 | ) |   |

----

a.                  Equity in earnings

b.                 Capitalizedinterest

c.                  Othercapitalized costs

d.                 Gain on sale ofjoint venture interests

e.                  Promotion funds

f.                    Incomestatement gross-up of fees and costs to earn those fees

g.                  Other

F-75

----

 

**THE MILLSLIMITED PARTNERSHIPSCHEDULE III—REAL ESTATE AND ACCUMULATEDDEPRECIATIONDECEMBER 31, 2004(Dollars in millions)**
| ** **                                             | ** ** | ** ** | ** ** | **INITIAL COST** | ** ** | ** **                 | ** ** | **GROSS AMOUNT AT  WHICH CARRIED AT  CLOSE OF PERIOD** | ** ** | ** **                          | ** ** | ** **                      | ** ** | ** **                                | ** ** |
|--------------------------------------------------------|------------|------------|------------|-----------------------|------------|----------------------------|------------|--------------------------------------------------------------------------------------|------------|-------------------------------------|------------|---------------------------------|------------|-------------------------------------------|------------|
| ** **                                             | ** ** | ** ** | ** ** | ** **            | ** ** | **TO PARTNERSHIP(3)** | ** ** | ** **                                                                           | ** ** | ** **                          | ** ** | **BUILDING,**                   | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| **DESCRIPTION(1)**                                     | ** ** | ** ** | ** ** | **ENCUMBRANCES  (2)** | ** ** | ** LAND **       | ** ** | **BUILDING,  EQUIPMENT AND  IMPROVEMENTS**                                      | ** ** | **COST  CAPITALIZED  SUBSEQUENTLY** | ** ** | **LAND AND  IMPROVEMENTS** | ** ** | **EQUIPMENT AND  IMPROVEMENTS  (4)** | ** ** | **TOTAL  (5)(6)** | ** ** | **ACCUMULATED  DEPRECIATION  (7)** | ** ** | **YEAR  ACQUIRED** | ** ** |
| Landmark Mills                                         |       |       |       |                  |       |                       |       |                                                                                 |       |                                |       |                            |       |                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Arundel Mills*                                         |       |       | 187.0      |                  |       |                       | 39.9       |                                                                                 |       |                                | 116.7      |                            |       |                                      | 117.4      |   |   |   | 48.2 |   |   |   | 225.8 |   |   | 274.0 |   |   | 48.4 |   |   |   | 2000 |   |   |
| Cincinnati Mills                                       |       |       | 122.0      |                  |       |                       | 6.5        |                                                                                 |       |                                | 24.7       |                            |       |                                      | 116.4      |   |   |   | 18.8 |   |   |   | 128.8 |   |   | 147.6 |   |   | 2.5 |   |   |   | 2002 |   |   |
| Colorado Mills*                                        |       |       | 170.0      |                  |       |                       | 24.6       |                                                                                 |       |                                | 152.9      |                            |       |                                      | 29.6       |   |   |   | 27.5 |   |   |   | 179.6 |   |   | 207.1 |   |   | 16.6 |   |   |   | 1999 |   |   |
| Concord Mills*                                         |       |       | 176.9      |                  |       |                       | 44.9       |                                                                                 |       |                                | 140.7      |                            |       |                                      | 60.8       |   |   |   | 49.7 |   |   |   | 196.7 |   |   | 246.4 |   |   | 55.5 |   |   |   | 2002 |   |   |
| Discover Mills                                         |       |       | 162.0      |                  |       |                       | 47.1       |                                                                                 |       |                                | 142.8      |                            |       |                                      | 56.3       |   |   |   | 52.2 |   |   |   | 194.0 |   |   | 246.2 |   |   | 27.3 |   |   |   | 2001 |   |   |
| Franklin Mills                                         |       |       | 121.7      |                  |       |                       | 20.1       |                                                                                 |       |                                | —     |                            |       |                                      | 198.1      |   |   |   | 31.4 |   |   |   | 186.8 |   |   | 218.2 |   |   | 83.4 |   |   |   | 1986 |   |   |
| Grapevine Mills*                                       |       |       | 165.3      |                  |       |                       | 24.0       |                                                                                 |       |                                | 108.6      |                            |       |                                      | 108.4      |   |   |   | 32.9 |   |   |   | 208.1 |   |   | 241.0 |   |   | 55.4 |   |   |   | 1997 |   |   |
| Great Mall of the  Bay Area*                           |       |       | 175.0      |                  |       |                       | 91.1       |                                                                                 |       |                                | 156.3      |                            |       |                                      | 16.2       |   |   |   | 105.7 |   |   |   | 157.9 |   |   | 263.6 |   |   | 7.6 |   |   |   | 2003 |   |   |
| Gurnee Mills                                           |       |       | 159.4      |                  |       |                       | 23.8       |                                                                                 |       |                                | —     |                            |       |                                      | 219.2      |   |   |   | 44.8 |   |   |   | 198.2 |   |   | 243.0 |   |   | 87.7 |   |   |   | 1988 |   |   |
| Katy Mills*                                            |       |       | 148.3      |                  |       |                       | 27.2       |                                                                                 |       |                                | 57.8       |                            |       |                                      | 124.5      |   |   |   | 27.8 |   |   |   | 181.7 |   |   | 209.5 |   |   | 48.6 |   |   |   | 1999 |   |   |
| Opry Mills                                             |       |       | 175.0      |                  |       |                       | 57.3       |                                                                                 |       |                                | 162.8      |                            |       |                                      | 98.9       |   |   |   | 57.4 |   |   |   | 261.6 |   |   | 319.0 |   |   | 48.2 |   |   |   | 2002 |   |   |
| Potomac Mills                                          |       |       | 183.6      |                  |       |                       | 8.5        |                                                                                 |       |                                | —     |                            |       |                                      | 206.0      |   |   |   | 43.4 |   |   |   | 171.1 |   |   | 214.5 |   |   | 86.5 |   |   |   | 1983 |   |   |
| St. Louis Mills*                                       |       |       | 131.1      |                  |       |                       | 33.7       |                                                                                 |       |                                | 13.8       |                            |       |                                      | 127.3      |   |   |   | 21.5 |   |   |   | 153.3 |   |   | 174.8 |   |   | 6.5 |   |   |   | 2003 |   |   |
| Sawgrass Mills                                         |       |       | 326.0      |                  |       |                       | 23.2       |                                                                                 |       |                                | 52.8       |                            |       |                                      | 241.4      |   |   |   | 28.2 |   |   |   | 289.2 |   |   | 317.4 |   |   | 92.5 |   |   |   | 1986/2001 |   |   |
| 21st Century                                           |       |       |       |                  |       |                       |       |                                                                                 |       |                                |       |                            |       |                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| The Block at  Orange*                                  |       |       | 135.0      |                  |       |                       | 14.2       |                                                                                 |       |                                | 110.3      |                            |       |                                      | 45.6       |   |   |   | 25.6 |   |   |   | 144.5 |   |   | 170.1 |   |   | 42.9 |   |   |   | 1998 |   |   |
| Broward Mall                                           |       |       | 62.1       |                  |       |                       | 13.1       |                                                                                 |       |                                | 78.3       |                            |       |                                      | 8.7        |   |   |   | 13.1 |   |   |   | 87.0 |   |   | 100.1 |   |   | 6.7 |   |   |   | 2003 |   |   |
| Dover Mall                                             |       |       | 59.8       |                  |       |                       | 24.6       |                                                                                 |       |                                | 55.5       |                            |       |                                      | 7.1        |   |   |   | 24.7 |   |   |   | 62.5 |   |   | 87.2 |   |   | 5.9 |   |   |   | 2003 |   |   |
| Esplanade                                              |       |       | 76.2       |                  |       |                       | 11.9       |                                                                                 |       |                                | 81.2       |                            |       |                                      | 7.6        |   |   |   | 12.0 |   |   |   | 88.7 |   |   | 100.7 |   |   | 6.6 |   |   |   | 2003 |   |   |
| Galleria at White  Plains                              |       |       | 99.3       |                  |       |                       | 13.0       |                                                                                 |       |                                | 110.3      |                            |       |                                      | 10.7       |   |   |   | 13.0 |   |   |   | 121.0 |   |   | 134.0 |   |   | 8.3 |   |   |   | 2003 |   |   |
| Northpark Mall                                         |       |       | 84.7       |                  |       |                       | 9.2        |                                                                                 |       |                                | 94.2       |                            |       |                                      | 7.9        |   |   |   | 9.4 |   |   |   | 101.9 |   |   | 111.3 |   |   | 7.6 |   |   |   | 2003 |   |   |
| The Shops at  Riverside Square                         |       |       | 65.0       |                  |       |                       | 10.4       |                                                                                 |       |                                | 77.2       |                            |       |                                      | 2.4        |   |   |   | 21.4 |   |   |   | 68.6 |   |   | 90.0 |   |   | 5.6 |   |   |   | 2002 |   |   |
| Westland Mall                                          |       |       | 58.8       |                  |       |                       | 7.1        |                                                                                 |       |                                | 72.3       |                            |       |                                      | (1.1       | ) |   |   | 9.1 |   |   |   | 69.2 |   |   | 78.3 |   |   | 2.0 |   |   |   | 2004 |   |   |
| International                                          |       |       |       |                  |       |                       |       |                                                                                 |       |                                |       |                            |       |                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Madrid Xanadú                                     |       |       | 239.4      |                  |       |                       | 36.6       |                                                                                 |       |                                | 224.3      |                            |       |                                      | 79.2       |   |   |   | 42.4 |   |   |   | 297.7 |   |   | 340.1 |   |   | 18.7 |   |   |   | 2003 |   |   |
| Community Centers                                      |       |       |       |                  |       |                       |       |                                                                                 |       |                                |       |                            |       |                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Arundel Mills  Marketplace*                            |       |       | 12.3       |                  |       |                       | 5.8        |                                                                                 |       |                                | 5.1        |                            |       |                                      | 1.3        |   |   |   | 5.8 |   |   |   | 6.4 |   |   | 12.2 |   |   | 1.0 |   |   |   | 2003 |   |   |
| Concord Mills  Marketplace                             |       |       | 14.3       |                  |       |                       | 4.4        |                                                                                 |       |                                | 0.7        |                            |       |                                      | 13.3       |   |   |   | 9.3 |   |   |   | 9.1 |   |   | 18.4 |   |   | 1.7 |   |   |   | 2001 |   |   |
| Liberty Plaza                                          |       |       | 9.2        |                  |       |                       | 9.3        |                                                                                 |       |                                | 14.5       |                            |       |                                      | 10.8       |   |   |   | 6.9 |   |   |   | 27.7 |   |   | 34.6 |   |   | 8.0 |   |   |   | 1994 |   |   |
| Net Lease  Properties                                  |       |       | 33.0       |                  |       |                       | 32.9       |                                                                                 |       |                                | 81.1       |                            |       |                                      | (56.6      | ) |   |   | 14.7 |   |   |   | 42.7 |   |   | 57.4 |   |   | 6.3 |   |   |   | 2000 |   |   |
| Construction,  development, and pre-construction costs |       |       | —     |                  |       |                       | —     |                                                                                 |       |                                | —     |                            |       |                                      | 713.9      |   |   |   | — |   |   |   | 713.9 |   |   | 713.9 |   |   | — |   |   |   | Various |   |   |
| Corporate                                              |       |       | 466.7      |                  |       |                       | 28.4       |                                                                                 |       |                                | 2.8        |                            |       |                                      | 39.8       |   |   |   | 22.4 |   |   |   | 48.6 |   |   | 71.0 |   |   | 22.9 |   |   |   | Various |   |   |
| Mainstreet Retail                                      |       |       | 7.5        |                  |       |                       | —     |                                                                                 |       |                                | 0.5        |                            |       |                                      | 0.4        |   |   |   | — |   |   |   | 0.9 |   |   | 0.9 |   |   | 0.9 |   |   |   | 1995 |   |   |
| Totals                                                 |       |       | 3,826.6    |                  |       |                       | 692.8      |                                                                                 |       |                                | 2,138.2    |                            |       |                                      | 2,611.5    |   |   |   | 819.3 |   |   |   | 4,623.2 |   |   | 5,442.5 |   |   | 811.8 |   |   |   |   |   |   |

----

*   *Joint venture properties consolidated upon adoption of FIN 46*

 

F-79

----

**THEMILLS CORPORATIONTHE MILLS LIMITED PARTNERSHIPNOTES TO SCHEDULE IIIDecember 31, 2004(Dollars in millions)**

(1)   We own super-regional, retail andentertainment-oriented centers (“Landmark Mills”), regional retail andentertainment oriented centers (“21st Century”), internationalretail and entertainment oriented centers (“International”), community shoppingcenters (“Community Centers”) and a portfolio of 19 single tenant net leaseproperties (“Net Lease Properties”) at various locations throughout the UnitedStates.
| **Property Name**              | ** ** | ** **                                     | ** ** | **Metropolitan Area Served** |
|--------------------------------|------------|------------------------------------------------|------------|------------------------------|
| **Mills Landmark:**            |       |                                           |
| Arundel Mills                  |       | Baltimore, MD                                  |
| Colorado Mills                 |       | Denver, CO                                     |
| Concord Mills                  |       | Charlotte, NC                                  |
| Cincinnati Mills               |       | Cincinnati, OH                                 |
| Discover Mills                 |       | Atlanta, GA                                    |
| Franklin Mills                 |       | Philadelphia, PA                               |
| Grapevine Mills                |       | Dallas/Ft. Worth, TX                           |
| Great Mall of the Bay  Area    |       | Silicon Valley, CA                             |
| Gurnee Mills                   |       | Gurnee, IL                                     |
| Katy Mills                     |       | Houston, TX                                    |
| Opry Mills                     |       | Nashville, TN                                  |
| Potomac Mills                  |       | Woodbridge, VA                                 |
| St. Louis Mills                |       | St. Louis, MO                                  |
| Sawgrass Mills                 |       | Ft. Lauderdale, FL                             |
| **21st Century:**              |       |                                           |
| The Block at Orange            |       | Los Angeles, CA                                |
| Broward Mall                   |       | Fort Lauderdale, FL                            |
| Dover Mall                     |       | Dover, DE                                      |
| The Esplanade                  |       | New Orleans, LA                                |
| Galleria at White Plains       |       | White Plains, NY                               |
| Northpark Mall                 |       | Jackson, MS                                    |
| The Shops at Riverside  Square |       | Hackensack, NJ                                 |
| **International:**             |       |                                           |
| Madrid Xanadú             |       | Madrid, Spain                                  |
| **Community Centers:**         |       |                                           |
| Arundel Mills  Marketplace     |       | Baltimore, MD                                  |
| Concord Mills  Marketplace     |       | Concord, NC                                    |
| Liberty Plaza                  |       | Philadelphia, PA                               |
| **Net Lease Properties**       |       | Various locations throughout the United States |

 

(2)   Seedescription of mortgages, notes and loans payable in Note 6 of the Notesto the Consolidated Financial Statements.

F-80

----

(3)   Initialcost of properties is the cost basis at the end of the calendar year for theyear the asset was placed in service or, in the case of an operating property,the purchase price of the property on the date it was acquired.

(4)   Depreciation is computed based upon thefollowing estimated lives:
| Building and  improvements |   | 10 -  40 years                            |   |
|----------------------------|--------|-------------------------------------------|--------|
| Land improvements          |   | 20  years                                 |   |
| Equipments                 |   | 5 -  7 years                              |   |
| Tenant improvements        |   | Lesser of life of asset  or term of lease |   |

 

(5)   Theaggregate federal tax basis of land and improvements and building, equipmentand improvements is approximately $4,969.6 million at December 31,2004 (unaudited).

(6)   In 2004, we adopted the provisions of FIN 46and consolidated 15 previously unconsolidated joint ventures. In 2003, theCompany reclassified its tenant allowances to building improvements fromdeferred costs and has included such amounts in Cost Capitalized Subsequent toAcquisition. At December 31, 2002, the Company reclassified 27 of its NetLease Properties totaling $61.7 to Real estate assets held for disposition andassociated encumbrances of $55.6 to Liabilities on real estate held fordisposition. Accordingly, these 27 Net Lease properties have not been includedin Schedule III. The properties were disposed in March 2003. Thesereclassifications are reflected in the following reconciliation of real estateand development assets, excluding investment in unconsolidated joint venturesand accumulated depreciation:
| ** **                       | ** ** | **2004**   | ** ** | **2003**                   | ** ** | **2002**                   | ** ** |
|----------------------------------|------------|------------|------------|----------------------------|------------|----------------------------|------------|
| ** **                       | ** ** | ** ** | ** ** | ** (Restated) ** | ** ** | ** (Restated) ** | ** ** |
| Balance at  January 1       |       | $          | 2,636.3    |                       |       | $                          | 1,521.0    |   |   |   | $ | 1,070.6 |   |   |
| Acquisitions                     |       | 625.1      |       |                       | 1,101.1    |                       |       |   | 417.0 |   |   |
| Retirements/Disposed  Properties |       | (13.3      | )          |                       | (7.7       | )                          |       |   | (1.8 | ) |   |
| Transfers, net                   |       | (614.8     | )          |                       | —     |                       |       |   | — |   |   |
| Adoption of FIN  46              |       | 2,597.4    |       |                       | —     |                       |       |   | — |   |   |
| Other                            |       | 211.8      |       |                       | 21.9       |                       |       |   | 35.2 |   |   |
| Balance at  December 31     |       | $          | 5,442.5    |                       |       | $                          | 2,636.3    |   |   |   | $ | 1,521.0 |   |   |

 

(7)   The reclassifications described in (6) aboveare also reflected in the following reconciliation of accumulated depreciation:
| ** **                               | ** ** | **2004**   | ** ** | **2003**       | ** ** | **2002**       | ** ** |
|------------------------------------------|------------|------------|------------|----------------|------------|----------------|------------|
| ** **                               | ** ** | ** ** | ** ** | **(Restated)** | ** ** | **(Restated)** | ** ** |
| Balance at  January 1               |       | $          | 400.8      |           |       | $              | 336.4      |   |   |   | $ | 251.3 |   |   |
| Additions charged  to costs and expenses |       | 174.8      |       |           | 65.2       |           |       |   | 74.7 |   |   |
| Acquisitions                             |       | —     |       |           | —     |           |       |   | 10.7 |   |   |
| Transfers, net                           |       | (58.0      | )          |           | —     |           |       |   | — |   |   |
| Adoption of FIN  46                      |       | 301.0      |       |           | —     |           |       |   | — |   |   |
| Removal of  accumulated depreciation     |       | (6.8       | )          |           | (0.8       | )              |       |   | (0.3 | ) |   |
| Balance at  December 31             |       | $          | 811.8      |           |       | $              | 400.8      |   |   |   | $ | 336.4 |   |   |

 

(8)   Thetransfers reflected in the above reconciliations, represent the net transfer ofassets between consolidated and unconsolidated joint venture entities. Thesetransfers are a result of property ownership changes throughout the year.

F-81

----