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Feldman's Foibles

The smallest regional mall REIT is suddenly raising a lot of eyebrows.

When Feldman Mall Properties Inc., a regional mall REIT with seven malls totaling about 7 million square feet, postponed its year-end earnings release for a second time on Mar. 30, it set off alarms with investors, dropping the stock below $12 per share (though above its 52-week low of $10.10). Later, it announced that it was receiving a cash infusion of $75 million from Kimco Capital Corp. and Inland American Real Estate Trust Inc.

Chairman & CEO Larry Feldman says that neither the filing delay nor financing deals should be cause for concern. Feldman explains the 10-K is being held back by “normal accounting issues.” Feldman blames the late SEC filing on the increasing demands for detailed reporting by public firms. “Being public today in the post-Enron era requires a level of scrutiny that few companies have ever seen,” he says. One source familiar with the situation indicated that it came down to choosing between lining up the financing or getting the filings out on time and the company chose the former. As of September 30, 2006 — its last filing — Feldman had $36 million cash on hand.

Late filings are one reason that shareholder Mercury Real Estate Advisors LLC of Greenwich, Conn., which owns 9.8 percent of Feldman's stock, has pushed for a sale of the company. It has submitted a proposal to be voted on at this year's annual meeting to hire an investment banker to investigate selling the company. Feldman has not yet announced the date of its annual meeting, but last year's occurred at the end of May.

Rich Moore, a REIT analyst with RBC Capital Markets, questions why Feldman — a relative midget in the mall business, with just $55.2 million in annual revenue in 2005, is unable to close its books on time, when much larger mall operators can. “Feldman only has seven malls; Simon has hundreds, and they had no problem,” he points out. As of press time, Feldman says that the 10-K will be filed “soon” and the company does not expect to be late with its first-quarter 10-Q report, which is due on May 10.

On the financing front, Feldman received a $25 million loan with an interest rate of 7 percent from Kimco Capital (a subsidiary of strip center giant Kimco Realty Corp.) and plans to issue up to $50 million of convertible preferred stock in a private placement to Inland American, a REIT sponsored by Oak Brook, Ill.-based Inland Real Estate Group of Companies Inc. Feldman will issue 2 million shares at $25 per share, of which Inland American intends to purchase $15 million in preferred stock by April 30 and the remaining $35 million within 12 months of the first stock purchase.

Both Kimco and Inland have had previous relationships with Feldman. Inland, in fact, is Feldman's fifth-largest shareholder, owning 9.1 percent of Feldman's stock. Kimco, meanwhile, formed a joint venture with Feldman in February 2006 under which Kimco took a stake in Feldman's Foothill Mall property and also provided a $17.2 million bridge loan to Feldman. Feldman says the company will use the funds to invest more than $200 million on renovation and construction at its existing properties.

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