Seeing Through the Mills Mess

Given that Mills' stock is trading so low, there is speculation that a sale of the company could be coming. Fick, the Legg Mason analyst, estimates Mills could fetch $51 to $61 a share in a buyout. Malls remain popular investments, and Mills' portfolio is top-notch. Fick believes Mills' properties would sell at capitalization rates, or first-year yields on purchase prices, of 6.25% to 6.75% -- which is how he calculates the $51 to $61 per-share value of the company's assets.

However, one real estate investment banker, who asked not to be named, said an outright sale of Mills isn't likely. Instead, the banker expects Mills to do property-level joint ventures with partners outside KanAm, such as U.S. pension funds, in order to create liquidity.

"The company needs to get the Street comfortable that they can get the capital that they need to finance their development pipelines," the banker says.

If liquidity returns and confidence is restored in management, Mills could once again hold its crown as one of the great value-creators of the REIT universe. "Mills has created a lot of value over time. It's on paper, it's hard to miss," says Frankel, the portfolio manager at Urdang.

"If you've got a very long-term approach and time horizon, it's a reasonable buy right now," Frankel says.

"There's a lot of issues ... but the stock is trading at a very low price, relative to the value of assets and the development pipeline," says Keith Pauley, chief investment officer of LaSalle Investment Management, which owned 1.79 million Mills shares as of Sept. 30. Pauley declined to say if LaSalle still owns any Mills shares.

For now, Fick says Mills' dividend is covered. The dividend yield is now 6.7%, but if there's a liquidity problem, the safety of that payout comes into question.

Investors also have to grapple with an SEC inquiry into Mills' earnings reports, along with possible shareholder lawsuits. In all, it's a lot to digest. But putting faith in Mills now could pay off in the future.