After Mills Corp. announced that it was getting rid of its ill-fated Xanadu Meadowlands project in late August, in a $2 billion financing deal with Colony Capital Acquisitions, REIT analysts sighed with relief. Many expected the deal to improve Mills’ flagging fortunes and make the company more attractive to potential buyers.

But if Mills has proven anything over the past year, it’s that it has a tendency to offer up more plot reversals than a telenovella. On Sept. 20, the company postponed the closing of the Colony Capital transaction, as well as the sale of three international properties to its Canadian partner Ivanhoe Cambridge, citing “complex issues” inherent in the deals.

This week, the company’s CEO Laurence (Larry) C. Siegel—the man who has presided over Mills for 11 years and was expected to exit when the new owners materialized—announced plans to relinquish the CEO title, but remain as non-executive chairman of the board until the deal with Colony Capital is completed. When the deal takes place, Siegel indicated that he plans to work for the joint venture with Colony Capital. He will resign his post as non-executive chairman of Mills, but will remain on the firm’s board as a non-employee director until his term runs out in 2008.

If Colony goes ahead with its previously announced plans to invest $500 million of equity and $1.5 billion in loans in Xanadu Meadowlands, Mills will become a minor partner in the venture.

Mr. Siegel declined to comment, referring calls to the company’s public relations department, which did not return calls from Retail Traffic.

As part of the move, Siegel, 53, has written an attractive exit scenario for himself. According to a Securities and Exchange Commission filing by Mills on Oct. 2, Siegel will receive a $2.5 million severance package, a $10.5 million payment if there is a change of control at Mills on or before Dec. 31, 2007 and $50,000 to cover the lawyer’s bills he incurred in negotiating his retirement agreement. He will also be able to vest 10,952 shares of restricted Mills stock. In addition, Siegel will continue to provide consulting services to the Mills Corp., for $5,000 a day, until the end of this year.

Replacing Siegel as CEO is Mark S. Ordan, former chairman of Federal Realty Investment Trust and Balducci’s. Ordan joined Mills as COO in March of 2006. As part of his promotion, he will receive up to $1.7 million in bonuses.

Barry Vinocur, editor of Realty Stock Review, says that granting Siegel such a generous exit package, after Mills’ problems—including an ongoing SEC investigation—indicates that the Mills board is still not looking out for shareholders. “This just makes no sense, this is Alice in Wonderland,” Vinocur says. “We argued for a long time that Larry should be let go. Unfortunately, he isn’t being fired; he’s being set-up for life by the company. Mills investors have lost somewhere between $2 billion and $3 billion between now and August of 2005 and the CEO is getting a huge severance payment.”

And, Vinocur says, Siegel’s plan to work for the joint venture with Colony Capital once the transaction for Xanadu Meadowlands is completed creates a conflict of interest. “One has to assume that Larry’s compensation at Colony will be partly incentive-based and the better the deal Colony gets, the better position Larry will be in,” says Vinocur. “Larry has an obvious conflict of interest and he shouldn’t be on the board.”

Banc of America Securities analyst Ross Nussbaum has similar concerns about Siegel’s remaining influence over the board’s decisions. In his Oct. 2 note, Nussbaum points out that, aside from Siegel’s involvement in the Colony negotiations, the terms of his retirement make him likely to approve a sale of the company regardless of the offered price.

“While the [change in control] provision obviously incentivizes Mr. Siegel to vote for a deal, we believe that it creates a serious conflict of interest, as it could incentivize him to vote for a sale of the company at a lower price than if he were receiving a stock payment,” Nussbaum writes.

According to Vinocur, the good news at this point isn’t so much that Siegel is leaving, but that on Sept. 28 the New York Stock Exchange has asked Mills to disclose some of its operating metrics for this year in exchange for a three-month trading period extension. NYSE expects Mills to comply with the request by the end of October, at which point the extension will be re-evaluated. If Mills fails to fulfill requests for financial records for 2005 and 2006, the NYSE will suspend its listing privileges by Jan. 2, 2007. Mills has been a subject of an SEC investigation since last fall and has yet to file its annual report for 2005.

“The Mills board has obviously not acted as a fiduciary for the shareholders here and at least somebody in a regulatory position is asking for more from Mills,” Vinocur says. “This is a very sad chapter in the story of REIT land. Hopefully, it will end in the not-too-distant future, but there are no great outcomes here, only less bad ones.”