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The Mills Corporation to Sell Partnership Interest in the Great Mall of the Bay Area and to Issue Preferred Stock.

Business Editors


The Mills Corporation (NYSE:MLS) announced today that it had reached an agreement in principle to sell approximately a 50% partnership interest in the Great Mall of the Bay Area to Kan Am Grund Kapitalanlagegesellschaft mbH, a Kan Am affiliate for $136.4 million, including $89.3 million of allocable partnership debt.

Under the terms of the proposed partnership arrangement, both parties will receive an unguaranteed 9% preference on equity. Mills' equity interest and cash flows in the Great Mall will be increased disproportionately after payment of the 9% preference. This structure is expected to provide Mills with a higher first year return on its equity versus a sale of a straight up 50% partnership interest in a structure priced to provide an unleveraged first year yield of 7.75%.

Kan Am Grund has substantially completed their due diligence and the transaction is subject to customary closing conditions with an expected closing in November 2003. Additionally, Mills and Kan Am Grund are currently negotiating a similar transaction for a second stabilized Mills Landmark asset.

Kan Am Grund will fund this transaction through Germany's first U.S. Dollar-denominated open end real estate fund. Together with its other fund, which is Euro-denominated, Kan Am Grund has raised an equivalent of over $1 billion in 2003.

This transaction marks the first partnership between Mills and one of Kan Am Grund's open end funds. German open end real estate funds typically invest in operating assets as opposed to development projects. All of the eleven prior joint ventures between Mills and Kan Am have been in ground up development projects, and were funded through Kan Am's closed end funds. Both Kan Am's closed end funds and Kan Am Grund's open end funds currently make retail real estate investments in the United States exclusively through Mills by written agreement. BVI German Performance Lists rated Kan Am Grund's Euro-denominated open end fund as the most successful open end fund in Germany in 2002, based on total returns. The total size of the open end real estate fund market in Germany is 85 billion Euros held in 24 open end funds.

Separately, Mills announced that it has agreed to sell an additional 1.72 million shares of its 8.75% Series E Cumulative Redeemable Preferred Stock to Scudder RREEF Real Estate Funds II, Inc. The closing is expected to occur on or about October 7, 2003 and is subject to final documentation. These shares were priced to yield 8.25%. Net proceeds from the sale are expected to be approximately $45 million.

Mills expects to use the proceeds from the sale of the interest in the Great Mall and the preferred stock issuance to fund its development pipeline and to reduce the balance on its outstanding line of credit.

"We are excited to have Kan Am Grund as a partner at the Great Mall. The transaction will provide tremendous benefits to both Mills and Kan Am Grund," said Chairman and CEO of The Mills Corporation, Laurence C. Siegel. "Kan Am Grund's open end fund is expected to become an important source of future equity capital for the Company's Mills Landmark assets and our traditional regional malls. Kan Am Grund's open end funds' investments in our stabilized properties will not impact their closed end funds' investments in our development projects."

The Great Mall of the Bay Area, which is located in Milpitas, CA, is the largest value-oriented retail and entertainment property in Northern California, with 1.3 million square feet of gross leaseable area. Mills acquired the property from the Swerdlow Real Estate Group on August 6, 2003 for $265.5 million. Opened as a retail center in 1994, it features a Mills' signature racetrack layout, themed neighborhoods, value-retail tenants and family entertainment venues.

Hans-Joachim Kleinert, President of Kan Am Grund, stated, "Our open end real estate funds are planning to allocate a substantial portion of their equity capital towards investments in stabilized U.S. retail assets, where Mills is our exclusive joint venture partner. We consider this to be a great opportunity for a long-term investment strategy directed towards an attractive yield and secure cash flows for our investors."

James C. Braithwaite, President of Kan Am USA, stated, "Kan Am and Mills have worked together on numerous development projects in the past, and Mills has never failed to deliver on its business plan. Our investments in Mills projects have always provided our investors with steady returns. Going forward we anticipate that our closed end funds will continue to invest in Mills development projects, and we see our relationship with Mills being enhanced through investments with Kan Am Grund's open end funds."

The Kan Am Group is among Germany's leading syndicators of real estate funds. Since 1978, Kan Am has been active in designing and implementing investments in commercial real estate in the United States and in Europe. Kan Am has invested over five billion Euros on behalf of private and institutional investors through publicly offered closed-end real estate funds, open-end real estate funds and specialty funds.

The Mills Corporation is a self-managed real estate investment trust (REIT) based in Arlington, Va., that owns, develops, leases, manages and markets a portfolio of 25 retail and entertainment destinations totaling approximately 32 million square feet. Currently, The Mills has seven projects under construction and/or development around the world. The Mills' Internet address is

Statements in this press release that are not historical may be deemed forward-looking statements within the meaning of the federal securities laws. Although the Mills Corporation believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, the Company can give no assurance that its expectations will be attained and it is possible that our actual results may differ materially from those indicated by these forward-looking statements due to a variety of risks and uncertainties. The Mills Corporation undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The reader is directed to the Company's various filings with the Securities and Exchange Commission, including quarterly reports on Form 10-Q, reports on Form 8-K and annual reports on Form 10-K for a discussion of such risks and uncertainties.
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Publication:Business Wire
Geographic Code:1USA
Date:Oct 7, 2003
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