German fund manager KanAm has said that it is not affected by the financial troubles at its US joint venture partner, the Mills Corporation.
Yesterday, rating agency Scope downgraded KanAm to “sell” as it believes the two companies are closely intertwined.
But Hans-Joachim Kleinert, managing director at KanAm, told EuroProperty on Friday, prior to the Scope downgrade: “We are not invested in the [Mills] REIT….. Mills is just managing our projects.”
On January 6, the Mills Corporation said it would restate its financial accounts for the years 2000 to 2004 and the first nine months of 2005 in order to correct “accounting errors” related to investments by its Mills Enterprises subsidiary and changes in the accrual of the compensation expense related to its incentive plan.
It also wrote off 10 predevelopment projects; six in the US, two in Spain, one in Italy and one in Singapore.
“We’re in a joint venture with Mills for two shopping malls and they’re not on the list,” said Kleinert, adding “it’s very transparent and Mills works together with the SEC.”
The Mills Corporation, the listed entity, conducts all its business and owns all its properties through Mills LP and a number of subsidiaries.
KanAm has directly invested in joint ventures with Mills LP to develop and manage shopping centres for a number of closed-end funds and an open-ended fund.
In addition, the Mills Corporation generally guarantees a 9% preferred return on KanAm’s equity balance in unconsolidated joint ventures until permanent financing has been obtained, according to documents filed with the U.S. Securities and Exchange Commission (SEC) in 2003.
However, rating agency Scope is not convinced that the troubles at Mills won’t have repercussions for KanAm.
On Sunday, Scope downgraded KanAm to “sell.” The rating agency pointed out that KanAm has invested $1bn of equity in various Mills projects and that both directors from both companies sit on each other’s boards.
It also warned that KanAm’s fund are highly leveraged, which could make it difficult to take back shares in case private investors wanted to return shares in light of the negative reports regarding the Mills Corporation.
Last Tuesday, Scope put KanAm on Watchlist with negative outlook as it did not receive sufficient financial information to give it a credit rating.
At the end of 2004, Mills bought the St Enoch shopping centre in Glasgow in a joint venture with Canadian developer Ivanhoe Cambridge from German fund Deka.
References: EGi News 16/01/06
