Mills Corp., the Arlington-based mall builder and operator, released its delayed earnings report yesterday, saying that funds from operations had decreased 54 percent and that it was significantly slashing its yearly profit forecast.
The real estate investment trust warned investors last week that its third-quarter results would be far below expectations, and yesterday the firm's senior executives offered several explanations for the disparities.
Mills had to write off $3.1 million after renegotiating the leases on three mall skateboarding parks after the operator went out of business. Rents at various properties declined nearly $1.2 million. Mills canceled mall projects in Tampa and outside Florence, Italy. And the company increased its forecast for tenants that will not fulfill their rent obligations.
The firm's funds from operations, a key performance measure of REITs, came in at $29.5 million (45 cents a share) for the quarter, down from $63.5 million (97 cents) in the comparable quarter a year earlier. The bad tenants accounted for a 10-cent loss, the company said, while the project cancellations shaved off 15 cents more.
"I think they were just too optimistic," said Louis Taylor, an analyst with Deutsche Bank Securities. "Their core business growth was just not as great as they thought it would be."
And for that, the executives also blamed themselves.
"While our external growth strategy has been successful, Mills has clearly reached the stage where top management needs to increase its focus on forecasting and planning and enhancing our performance management, accounting control and reporting functions," said chief executive Laurence C. Siegel.
Taylor said he was disappointed that Mills "didn't have the accounting systems in place to accurately measure earnings from their core business."
"Their accounting systems were not robust enough to flag these problems earlier," Taylor said.
Mills, which has 43 properties around the world, said its full-year funds from operations would be $3.55 to $3.65 a share, down from its previous estimate of $4.35 . Analysts had predicted $4.37 a share.
Mills stock closed yesterday at $41.92 a share, down $2.58. The stock price fell 15 percent after the earnings warning last week. The share price was around $60 in September.