Mills (NYSE:MLS)
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The Mills Corporation:
-- Colony To Invest as Much as $500 Million in Equity Capital and
Arrange for Construction Financing
-- The Mills To Have No Obligations Post Closing To Finance
Meadowlands Xanadu
-- The Mills' Equity Capital to be Subordinated; Will Incur Charge
and Impairment
-- LOI is Further Step in The Mills' Strategic Alternatives Process
The Mills Corporation (NYSE:MLS) announced today that it has
signed a non-binding letter of intent with Colony Capital
Acquisitions, LLC and Kan Am USA Management XXII Limited Partnership
under which Colony would arrange for construction financing for the
Meadowlands Xanadu development project (the "Project") and make a
significant equity infusion into the joint venture for the Project
that currently includes The Mills and Kan Am. Meadowlands Xanadu,
located in Northern New Jersey, is planned to be a unique sports,
leisure, shopping and family entertainment destination.
While the recapitalized partnership will continue to have the same
obligations to the New Jersey Sports and Exposition Authority, The
Mills will not have any financial obligations post closing. Kan Am has
been The Mills' partner on the Project since its inception in 1997.
The transaction is expected to close on or prior to September 21,
2006.
"Our transaction with Kan Am and Colony would allow The Mills to
achieve its goals of reducing the Company's financial obligations and
facilitating our exploration of strategic alternatives. Colony is an
experienced and well respected real estate investor and its
participation attests to the potential long-term economic benefits of
the Meadowlands Xanadu development. This transaction, when completed,
will enable the realization of Meadowlands Xanadu for the people of
New Jersey and the metropolitan area. The Mills will continue to
explore strategic alternatives and to take aggressive actions in the
interests of enhancing value for its shareholders," said Larry Siegel,
Chairman and Chief Executive Officer of The Mills.
"We are happy to be working with Colony. We believe they share our
commitment to this unique entertainment and retail destination. We
continue to believe that, upon completion, Meadowlands Xanadu will be
a world class project," said Kan Am President James Braithwaite.
"This is the culmination of our long-standing relationship with
senior management of The Mills Corporation and Kan Am. We are thrilled
to be joining the Meadowlands Xanadu partnership and look forward to
the completion and success of this landmark entertainment and retail
development project," said Richard Saltzman, President of Colony
Capital.
As consideration for the transaction, The Mills would issue at
closing, at its election, either 4,500,000 shares of The Mills common
stock or 4,500,000 units of The Mills Limited Partnership, redeemable
for the same number of shares of The Mills common stock. The Mills
would also provide resale registration rights with respect to such
shares of common stock. The shares or units would be allocated between
Colony and Kan Am as they determine (but Kan Am would not receive more
than 1% of the outstanding shares of TMC common stock).
In addition, upon consummation of the transaction, The Mills would
become a limited partner in the Project with a total partner capital
account of approximately $485 million, which includes incremental
project funding of $90 million from July 31, 2006, to be funded under
The Mills' existing term loan. Colony is anticipated to provide up to
$500 million of equity financing and arrange for construction loan
financing that will fund the remaining balance of the expected $2
billion of total project costs. In addition to Colony's and The Mills'
investments, Kan Am's current partner capital account is $342 million.
Furthermore, Mack-Cali Realty Corporation has invested an additional
$32.5 million in the Project through a separate partnership. The
arrangement contemplates that Colony and Kan Am would be entitled to
certain specified preferred returns on their capital that will result
in substantial accruals senior to The Mills' capital investment. As a
result, it is unlikely that The Mills will be able to recoup any of
its invested capital unless and until the Project has been completed
and stabilized and one or more significant capital events has
occurred.
Certain obligations under the letter of intent are legally
binding, including that The Mills, Colony and Kan Am are obligated to
negotiate in good faith the terms of the transactions in a manner
consistent with the terms set forth in the letter of intent and use
commercially reasonable efforts to consummate the transactions by
September 21, 2006, and that, until then, Colony will have the
exclusive right to negotiate and endeavor to close the transaction
with The Mills and Kan Am (without prejudice to The Mills continuing
its exploration of strategic alternatives with respect to all or
substantially all of The Mills and its subsidiaries). The Mills will
also be required in certain circumstances to reimburse Colony for
legal and due diligence costs up to a cap of $4 million. In addition,
in certain circumstances where Colony stands ready to proceed under
the letter of intent but the transaction does not proceed, The Mills
will be required to pay Colony a termination fee of up to $25 million.
Colony's obligations under the transaction are subject to, among
other things, its completion of due diligence and its obtaining of
construction financing for the Project on terms satisfactory to the
partners. The transactions contemplated by the letter of intent are
subject to the approval of lenders under The Mills' term loan with
Goldman Sachs as administrative agent. Under certain conditions after
closing, Colony would have the right to appoint a director to The
Mills Corporation's Board of Directors.
The Mills has not yet completed its review of the impact of this
transaction on its financial statements. However, The Mills will
record a charge relating to the issuance of the 4,500,000 units or
shares during the quarter in which the closing occurs in an amount
equal to the value of such units or shares. In addition, The Mills
currently expects to record an impairment charge during the quarter in
which the closing occurs on its $485 million partner capital account.
The amount of the expected impairment charge will be determined after
The Mills has completed its analysis of the transaction. Other
financial statement impacts include the possible de-consolidation of
The Mills' investment in the Project.
There can be no assurance that the conditions to the transactions
contemplated by the letter of intent will be satisfied or that those
transactions will be completed or, if completed, that The Mills will
recover its invested capital.
About The Mills Corporation
The Mills Corporation, based in Chevy Chase, MD, is a developer,
owner and manager of a diversified global portfolio of retail
destinations including regional shopping malls, market dominant retail
and entertainment centers, and international retail and leisure
destinations. It currently owns 42 properties in the U.S., Canada and
Europe, totaling 51 million square feet. In addition, The Mills has
various projects in development, redevelopment or under construction.
The Mills is traded on the New York Stock Exchange under the ticker:
MLS. For more information, visit the Company's website at
www.themills.com.
About Colony Capital
Founded in 1991 by Chairman and Chief Executive Officer Thomas J.
Barrack Jr., Colony is a private, international investment firm
focusing primarily on real estate-related assets, securities and
operating companies. The firm has invested approximately $20 billion
in over 8,000 assets through various corporate, portfolio and complex
property transactions. Colony has a staff of more than 160 and is
headquartered in Los Angeles, with offices in Beirut, Boston, Hawaii,
Hong Kong, London, Madrid, New York, Paris, Rome, Seoul, Shanghai,
Taipei, and Tokyo. For more information visit www.colonyinc.com.
About Kan Am
Kan Am is one of Germany's leading private syndicators and asset
managers of international real estate investments. Since its inception
in 1978 the group has invested and managed a portfolio valued at
approximately $10 billion in the US and Europe on behalf of private
and institutional investors through publicly offered real estate funds
and private placements. Since 1994, Kan Am has invested approximately
$1 billion in equity in various projects with The Mills. Kan Am
currently has three representatives on The Mills' Board of Directors:
James Braithwaite, Dietrich von Boetticher and Franz von Perfall.
Statements in this press release that are not historical -
including, among other things, as to The Mills' completion of the
transaction with Colony and Kan Am relating to The Mills' Meadowlands
development project subject to the parties' letter of intent, on the
expected terms or in the expected time frames or at all, the consent
of The Mills' lenders to the transaction, the financial implications
of the transaction, the ability of The Mills' to recover its invested
capital and the exploration of strategic alternatives - may be deemed
forward-looking statements within the meaning of the federal
securities laws. Although The Mills believes the expectations
reflected in any forward-looking statements are based on reasonable
assumptions, The Mills can give no assurance that its expectations
will be attained and it is possible that our actual circumstances and
results may differ materially from those indicated by these
forward-looking statements due to a variety of risks and
uncertainties, including The Mills' ability to obtain the necessary
consents from The Mills' lenders and The Mills' and the other parties'
ability to satisfy the other conditions to closing the transaction
subject to the letter of intent. The Mills 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 Mills' various filings with the SEC, including
quarterly reports on Form 10-Q, reports on Form 8-K and its annual
reports on Form 10-K, for a discussion of such risks and
uncertainties.