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Mills Wild Ride

August was another wacky month on the Mills Corp. roller coaster. First, another vertiginous dip as the company disclosed more problems with its massive Xanadu project in New Jersey's Meadowlands. Then things turned up — briefly — as the cash-strapped developer announced a deal to raise $500 million by selling three international assets. Investors took another scary plunge when the company revealed the departure of several top executives.

Mills shares dropped to a new 52-week low of $12.27 — an 80 percent drop from its high of $59.98 reached last September, before Mills first revealed accounting troubles and an SEC investigation. As of press time, the company's stock had rallied up more than $4 per share to $16.80.

In an SEC filing in late August, Mills disclosed that “effective August 11, Mark Ettenger's services as president have been terminated.” Ettenger, president since January 2004, is still employed, though Mills did not say in what capacity. The company also said James A. Napoli, vice president of leasing, notified the company on July 31 that he is resigning and will leave on October 27. That leaves an executive team of Laurence Siegel as chairman and CEO; Mark Ordan as COO and Richard Nadeu as CFO.

Analysts were troubled by both departures, citing Ettenger's track record in selling malls. As managing director at Goldman Sachs overseeing its Real Estate Asset Sale business. Given Mills' need to sell assets, Ettenger's loss is a major blow. Moreover, the departure of its top leasing executive in Napoli is troubling given that the massive Meadowlands Xanadu project still needs to line up tenants in order to get the project built.

The announced changes at the top came just one day after Mills had announced some good news in that it intends to sell the Vaughan Mills in Ontario, the St. Enoch Centre in Glasgow, Scotland and Madrid Xanadu in Spain to its Canadian development partner Ivanhoe Cambridge for a combined $981 million. Overall, the deal will result in $500 million in net proceeds.

The proposed transaction is only a mild salve, coming on the heels of a Mills SEC filing divulging some details of the accounting missteps that have gotten the REIT into hot water. The company reduced the stated value of its assets by up to $315 million.

Probably the worst news was the fresh details about the troubled Xanadu project, which Mills says will cost $2 billion, about $800 million more than the company had said previously. “The Meadowlands Xanadu is more of a dead weight than anything else — it has potential, but there's no one who wants to take on that much risk and it would be better for Mills if somehow they could get rid of it,” says Richard Moore, a REIT analyst with RBC Capital Markets.

At press time it appeared that Mills may very well have done that. Colony Capital Acquisitions has signed an agreement with Mills and its partner, Kan Am USA Management XXII to finance construction of Meadowlands Xanadu, potentially finally opening the door for Mills to be bought.

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