Mills Chief Retires But Must Repay Costs for Jet Travel
Tuesday, October 3, 2006
Laurence C. Siegel, who ran one of the most successful mall empires in America before a series of operational and accounting blunders cost his investors billions of dollars, retired as Mills Corp. chief executive Friday and is being asked to repay more than $360,000 in personal travel on a company-chartered jet.
Mills, which has lost nearly $2.2 billion of its market value in the past 12 months, will pay Siegel $2.5 million in severance pay and $10.5 million if the company is sold by the end of next year, a likely event because Mills is actively trying to find a buyer for a 42-mall portfolio that includes Potomac Mills in Virginia and Arundel Mills in Maryland.
The Chevy Chase company described the departure of Siegel, 53, as a retirement and said its timing was not related to the personal travel expenses he is being asked to repay or to a soon-to-be completed investigation by the company's independent directors into Mills management and accounting failures.
"They're unrelated," said Mark S. Ordan, a veteran retail real estate executive who was appointed chief operating officer of Mills earlier this year and then was named to succeed Siegel as president and chief executive. "He felt this was a good time to leave, a natural time to leave, given everything that is going on with the company. It had nothing to do" with the travel expenses.
Siegel did not respond to requests for comment. Both he and the company signed agreements not to disparage each other.
Siegel, who became chief executive of Mills in 1996, expanded the concept of the regional mega-mall to spectacular size and ostentation, and shoppers flocked to the company's properties in the 1990s. Mills, fueled by a bull market in real estate stocks and billions in investment from the German real estate fund company Kan Am, planned, built and bought dozens of malls in the last decade to become a rival to such mall companies as Indianapolis-based Simon Property Group Inc., Australia's Westfield Group and New York's Vornado Realty Trust.
The rapid growth masked underlying problems in Mills' operations, which surfaced in a series of accounting errors. As the nature and extent of the problems became clear over the past nine months, Siegel rapidly lost credibility with the investors that had provided Mills with capital to keep its costly developments afloat.
The company's biggest construction project, a $2 billion retail and entertainment complex called Xanadu in northern New Jersey, became emblematic of Siegel's ambitions. Plans include an indoor ski slope and a 30-story Ferris wheel tall enough to be seen in Manhattan, eight miles away. Siegel held a $2 million party at the site two years ago to celebrate the signing of a lease with New Jersey officials. The project is now over budget and under increasingly skeptical scrutiny from its lenders and financial backers, and Mills is negotiating to sell its interest.
Ordan defended the $10.5 million Siegel could receive if Mills is sold.
"Larry has been the CEO of this company for a very long time, and the portfolio of assets that we have were developed and bought under his guidance," Ordan said. "And most of the payments we're talking about are contractual obligations."
Nonetheless, two Wall Street analysts were critical.
"The award seems somewhat excessive given the company's fall from grace," RBC Capital Markets analyst Rich Moore told investors in a research note yesterday.
Bank of America analyst Ross Nussbaum said the $10.5 million in cash Siegel will be paid if the company is sold presents a conflict because Siegel will remain on Mills' board of directors and would vote on any deal. Nussbaum said the sales-related bonus gives Siegel an incentive "to vote for a sale of the company at a lower price than if he were receiving a stock payment."
Siegel agreed to remain non-executive chairman of Mills. If Xanadu is sold, Mills said he might "join the new joint venture" that would acquire the mall and resign his chairmanship, while remaining on the board. Mills is currently in a protracted negotiation with Kan Am and Colony Capital, which would take over the project and agree to fund its remaining construction costs. The closing of the deal has been delayed twice, however, because of the complexities of the transaction, Ordan said. The deal is considered by Wall Street as a vital step in the ultimate sale of Mills. Further complicating matters: Kan Am has three of Mills' 14 board seats and is a large shareholder in Mills.
Siegel's personal use of the company aircraft was left largely unexplained by the company in a Securities and Exchange Commission filing yesterday. Ordan declined to comment on it. Personal use of jets by chief executives has been a controversial corporate governance issue for years. SEC and Internal Revenue Service rules regarding what makes a trip personal and not business, and whether it should be disclosed, have been toughened in the last two years.
Siegel would have had ample opportunity to use a jet, personally tending to business all over the country and in European capitals where Mills owned or was building malls. While the company did not own such a plane, it had access to several, including a Gulfstream G-III, from a chartering company.
In yesterday's SEC filing, Mills said Siegel must repay "any non-business related perquisites that may have been provided to (him), including $362,156 for personal use of the company chartered aircraft and personal flights paid by the company."
Siegel has two weeks to make the payment, documents said.
Mills has never before disclosed in SEC documents that Siegel or any other executive used corporate aircraft for any purpose. Siegel was paid more than $5 million in cash in 2004, the last year for which Mills reported executive compensation.