Mills REIT Shares Sink
On Accounting Concerns

Mills Corp. shares fell 12% yesterday on new accounting woes disclosed late Friday and an analyst's downgrade, continuing a string of bad news for the Arlington, Va., shopping-mall real-estate investment trust.

In a Securities and Exchange Commission filing after the markets closed Friday, Mills disclosed that new areas of its accounting are under scrutiny, including revenue recognition, cost capitalization and lease accounting. The company also confirmed that it wouldn't meet a deadline to file its annual report because of the accounting problems and said it couldn't estimate when it would be ready.

Mills's problems over the last 13 months have included accounting restatements, earnings-report delays and project write-offs, shareholder lawsuits and an informal SEC inquiry. Its shares have dropped about 51% from their peak in August. Mills fell $4.33 to $32.40 a share as of 4 p.m. in New York Stock Exchange composite trading.

In a research note yesterday, Ross Nussbaum of Banc of Americas Securities downgraded Mills shares to "sell" because the disclosure raises the possibility that the company "overbooked revenues and/or under-reported expenses." In an interview, he said the news "confirms our worst fears -- that historical property [income] may have been overstated."

Mr. Nussbaum said that a major dividend cut could be coming in the next couple of weeks and that the company faces a cash crunch and may have to issue preferred stock again to finance its developments.

Work on a Mills development in Chicago halted last week after contractors demanded prepayment because of concerns about the company's viability. Citigroup analyst Jonathan Litt downgraded Mills shares to "sell" on Friday morning, sending the stock down 5.1%. He wrote that although the company may be bought out -- Vornado Realty Trust has had informal talks with Mills -- its shares were too risky.

Mills declined to comment on its filing.

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