Mills Corp. shares plunged to a 5 1/2 -year low yesterday after the developer said earnings restatements are likely to reduce net income by $210 million, and the cost of a New Jersey project has soared to $2 billion.
Mills shares fell $6.68, or 29 percent, to $15.91. Shares of the Chevy Chase-based company, which owns Arundel Mills and other very large malls, have dropped 62 percent this year, compared with an 11 percent increase in the Bloomberg Real Estate Investment Trust Index.
Mills, the subject of a Securities and Exchange Commission accounting investigation, said in a filing yesterday that cost overruns at its Xanadu entertainment development at the New Jersey Meadowlands Sports Complex would push the price to $2 billion from its earlier $1.3 billion estimate.
Mills also said it has no financing for the 4.8 million-square-foot retail-and-entertainment complex in which it has invested about $380 million.
There had been hope among investors that Mills might announce it was selling itself, Rich Moore, an RBC Capital Markets Corp. analyst who has a "market perform" rating on Mills shares, said in an interview.
"Instead the next piece of information is that things are not very pretty right now," Moore said.
Mills said in its SEC filing that the restatements relate to how Mills accounts for costs and interest for projects it's developing, translation of foreign currencies, and other items.
The restatements likely will cut 2003 net income by $55 million, 2004 earnings by $95 million and net income in the nine months that ended Sept. 30, 2005, by $60 million, Mills said.
Mills said in January that it would restate results for 2000 through 2005 because of errors, its second restatement in less than a year.
The company said in June that it was contacted by "a variety of parties" as it considers a sale or other options to boost its stock price.
In yesterday's filing, made after the close of regular U.S. trading, Mills said it would have to find tenants for Xanadu, which it's developing with German real estate investor Kan Am, before it would be able to get the financing it needs to complete the project.
Meadowlands Xanadu would include ribbons of digital screen showing music videos and movie trailers, sound and light displays, runway fashion shows and a snow dome for indoor skiing, a company Web site says.
"At this time, construction financing for the Meadowlands Xanadu project has not been obtained and it is likely that significant remaining leasing activity will be required before a construction loan can be obtained," Mills said in the filing.
"We do not believe that a total asset write-off is likely, but the possibility remains," David Fick of Stifel, Nicolaus & Co., said in a note to investors. "We believe that Mills may be actively looking for a buyer for the Meadowlands project to make the sale of the rest of the company more palatable," said Fick, who has a "buy" rating on Mills shares.