MLS Mills Corp

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.