Mills Tanks After Cost Disclosures

The REIT announces a series of writedowns and added expenses for its Meadowlands project.
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Shares of troubled mall owner

Mills Corp.

(MLS)

sank 23% Friday after the company announced a series of asset writedowns and additional construction costs at its massive Meadowlands retail development in New Jersey.

Mills, which is currently restating its financials and trying to sell itself, said in a

Securities and Exchange Commission

filing Thursday that it will record several impairment charges for certain of its malls that have had disappointing operating results.

The company also added some details about its accounting errors and announced a $2 billion projected development budget for its Meadowlands Xanadu project. Costs at the site seem to be spiraling well beyond expectations; analysts previously forecast the project would cost $1.2 billion to $1.5 billion to complete.

The Meadowlands project continues to be a

sticking point in sales negotiations.

The company also said it has yet to secure a construction loan for the Meadowlands project, "and it is likely that significant remaining leasing activity will be required before a construction loan can be obtained."

Because of these disclosures, Bank of America analyst Ross Nussbaum cut Mills to sell and reduced his price target on the stock to $16 from $28.

"While this value could be achieved through a sale of the company, we also see a reasonable probability that Mills may need to undertake a $1b (plus) equity recapitalization in order to satisfy the terms of its $1.9b term loan that matures at year-end," Nussbaum wrote in a research note.

"Under a recap scenario, we believe the common equity value could potentially be reduced to $12-15/shr," he wrote.

Mills shares recently were down $5.24, or 23%, to $17.35.

The reduced stock price could now make the company an even more tempting takeover target for the likes of

Simon Property Group

(SPG) - Get Report

or

Vornado Realty Trust

(VNO) - Get Report

, two large-cap REITs that are rumored to be involved in deal discussions.