- The Washington Times - Tuesday, January 9, 2007

Local mall developer Mills Corp. said yesterday its executives may have engaged in misconduct, creating four years worth of earnings restatements, and that it doesn’t have enough money to operate beyond March 31.

The Chevy Chase company will have to file for bankruptcy protection, and its shareholders will lose their investments, unless it can repay a $1.1 billion loan in less than three months, the company said in a filing with the U.S. Securities and Exchange Commission (SEC) yesterday.

Mills owns 38 shopping centers nationwide, including Lakeforest Mall in Gaithersburg, Potomac Mills and Potomac Town Center in Prince William County, Marley Station in Glen Burnie, Md., and Arundel Mills in Hanover, Md.

The report was the culmination of an 11-month company investigation into its accounting practices. The SEC also is investigating the company.

Many of the company’s problems centered on its massive Xanadu mixed-use project in New Jersey, which went so far over budget that Mills eventually had to pull out of it.

In addition to excessive debt, Mills’ culture of “aggressive” accounting practices, according to the filing, quickly caught up with the company.

The report said that “the company’s overall culture and ‘tone at the top’ were heavily focused on meeting external and internal financial expectations” and that Mills didn’t have accounting systems in place to catch errors.

The company’s “rapid growth,” until of late, exacerbated accounting errors, the report said. Then, earnings filings were delayed and the SEC began investigating the company.

Mills said that when it refiles its earnings statements, going back to 2001, the accounting corrections likely will total about $350 million in shareholder equity, but warned it won’t know the actual figures until the statements are finished.

The company blamed the errors on some “good faith, but nonetheless erroneous judgments” as well as “errors caused by possible misconduct by former accounting and asset management personnel.”

The news sent Mills’ stock price down nearly 22 percent to close at $14.82 on the New York Stock Exchange (NYSE). The stock’s price was as high as $42.22 in February.

The report said Mills has taken several steps to improve the company’s structure, including an almost complete overhaul of the company’s top management, including naming former chief operating officer Mark Ordan to chief executive officer. Mills’ former CEO, Laurence Siegel, resigned in October after 11 years as the top officer. More than two dozen top executives have left the company over the past two years.

To help pay down the debt, Mills plans to refinance four malls — in Cincinnati, Plantation, Fla., and two in Philadelphia. It already has sold malls in Canada, Spain and Scotland and abandoned its Xanadu project.

With those funds, plus some existing capital, Mills says it will remain in business through March 31.

But if Mills can’t pay down its $1.1 billion debt by then, or negotiate another extension, “there is a risk that the company and Mills LP could be forced to seek protection under the U.S. Bankruptcy Code and that security holders of the company and Mills LP could lose their entire investment.”

The company said that even selling additional malls would not bring in the required amount of capital.

So Mills is seeking a buyer. Tel Aviv-based Gazit Globe Ltd., Mills’ second-largest investor, has put up $1.2 billion to restore the company. Gazit-Globe’s U.S. office did not return a call for comment yesterday.

Under the terms of its loan, Mills is required to file its 2005 financial statements by Jan. 31 and its 2006 statements by March 1, though that deadline may be extended to March 31. And it has to maintain its NYSE listing through April 2. The company said late yesterday that it thinks it will remain in compliance with the terms of the loan.

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