Seemingly every week reveals another crack in Mills Corp.'s armor, and now most observers are simply counting the days until the company's demise.

Most recently, Mills missed a deadline to file its 2005 10-K, instigating a formal SEC probe into the company.

Meanwhile shareholder lawsuits continue to mount and the company's stock keeps sinking to new 52-week lows, plummeting to $28 per share (down from its 52-week high of $66.44 per share.) Now the consensus among analysts and industry observers is that it's just a matter of time before the company is sold wholesale or broken up.

“My view is that I don't think Mills has any future as a public company,” says Barry Vinocur, editor of Realty Stock Review. “If the Board of Directors made a clean break with current management and brought in a highly regarded team, maybe. But in order to run Mills, you've got to have real experience running Mills projects, which are complicated. But even those are a walk in the park compared to some of the development deals the company has under way.”

Another big factor impacting the company's direction will be its continuing liability as lawsuits against the firm go through. Moreover, new questions are arising about the true quality of the portfolio and many of Mills' assets given that the company is in the process of restating earnings for the past five years. Observers suspect that many of its properties will end up looking weaker when all is said and done.

“There are real questions about the quality of income on its portfolio,” Vinocur says. “You just don't really know how some of the projects are performing.”

Matters have not been helped by the fact that Mills executives have adopted a bunker mentality and said little to analysts or investors beyond press releases and SEC filings. In the last week of March, company executives had their first meeting with an analyst — David Fick of Stifel Nicolaus — indicating the REIT may be opening the lines of communication in coming weeks. Company executives said they would begin providing property-level information to help allay concerns about the underlying value of its assets.The meeting prompted Fick to upgrade the company's stock, which he thinks should be trading in the $40 per share range.

Hedge funds move in

Behind the scenes, potential buyers are forming clubs, evaluating the company and preparing proposals to buy all or part of the company. Most vocal by far has been Vornado Realty Trust, which has admitted that it has talked to Mills executives about a deal. Other companies rumored to be interested include the usual suspects like Simon Property Group, General Growth Properties and Westfield Group.

More surprising has been that several hedge funds and institutional investors have made moves to buy up Mills stock on the cheap, leading to speculation that the company won't be bought out by an existing REIT.

Fidelity Management & Research Co. has acquired 5,726,700 Mills Corp. shares — 10.2 percent of its common stock — making it the second largest institutional stockholder in the firm. Also, Michael Roth and Brian Stark, through Shepherd Investments International Ltd. and Stark International, spent $145.6 million to acquire 3.6 million shares, about 6.4 percent of its stock. Meanwhile, since Mills Corp. first started hitting troubles, major holders including Cohen & Steers Capital Management Inc. and Barclays Global Investors UK Holdings Ltd., each have upped their stakes in the company. Cohen & Steers upped its stake from just over 6 million shares to nearly 7.5 million shares while Barclays went from about 2.5 million shares to 4.1 million shares.

In the end, it seems to be a matter of when, not if, a buyout will occur.