- The Washington Times - Monday, November 14, 2005

The Mills Corp.’s stock slowed its decline yesterday after dropping nearly $5 last week as it released a poor third-quarter earnings report.

Shares of the Arlington real estate investment trust, which specializes in shopping centers and owns Arundel Mills, Potomac Mills, Lakeforest and Marley Station shopping malls, closed at $39.58 yesterday, up 23 cents from Friday’s close on the New York Stock Exchange.

The stock is trading at the bottom of its 52-week range of $65.85 to $39.60. Early last week it was trading at almost $45 per share.

Most Wall Street analysts downgraded the company to “sell” or “hold” after the company on Wednesday reported a third-quarter net loss of $15.1 million (61 cents per diluted share), down from net income of $62.3 million (95 cents) a year ago.

Mill’s funds from operations (FFO), a figure the real estate investment trusts (REITs) use to measure their cash flow, fell 53 percent to 45 cents per diluted share from 97 cents a year ago. Analysts predicted that figure would come in at $1.06 in the latest quarter.

The company attributed most of the decline in FFO to bad debt and two canceled building projects in Tampa, Fla., and Florence, Italy.

Analysts remain wary. The company missed FFO estimates by 60 cents, a figure they say is practically unheard of among REITs.

“The reason we downgraded is we don’t feel comfortable that they’ve given enough assurances that their accounting processes are thorough,” said Rich Moore, an analyst at KeyBanc Capital Markets in Cleveland.

“It’s an interesting dichotomy,” Mr. Moore said. “If you look at the products they build, the pipeline of development going forward, it’s exciting. But you look at this [mix-up], this accounting … it makes you nervous.”

KeyBanc, which has an investment-banking relationship with Mills Corp., downgraded the company’s stock from “buy” to “hold.”

Deutsche Bank Securities Inc. analyst Louis Taylor is worried about Mills’ management, including three top executives that left the company this year.

“It’s clear that the management team does not have full grasp of all its moving pieces and how they impact earnings,” Mr. Taylor said.

Deutsche Bank has a banking relationship with Mills Corp.

Analysts said they would feel more confident about the company if Mills’ management had provided more guidance about the future at the company’s third-quarter conference call.

“My feeling is it’s a good time to be cautious until they can give greater clarity that everything is OK. They’re not there yet,” Mr. Moore said.

Though the short-term future appears bumpy, Mills’ projects — including the addition of shopping centers in Pleasanton, Calif., and Hackensack, N.J., and a 4.8 million-square-foot entertainment complex in Bergen County, N.J. — could provide long-term success.

“We considered downgrading the shares, and still lack confidence in the short term,” Legg Mason Walker Wood Inc. analyst David M. Fick said in a report. “We are maintaining our ‘buy’ rating on Mills shares based on the underlying real estate value, and an extensive development pipeline unmatched by any of its peers.”

Mills Corp. is a client of Legg Mason, and the companies have a banking relationship.

Mills Corp. did not return calls for comment.

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