MPG Office Trust Inc. (MPG), a real estate investment trust (“REIT”), has recently sold Park Place II in the Irvine submarket of Orange County, California, for an undisclosed amount. With the asset sale, the company was able to mitigate the risk of default on the mortgage loan of the property and was relieved of the obligation to repay $98.5 million, the outstanding principal of the loan as well as accrued contractual and default interests.
 
At the same time, MPG Office Trust also sold Mission City Corporate Center in the Mission Valley submarket of San Diego, California, for an undisclosed amount. Mission City Corporate Center is widely recognized as one of the finest Class ‘A’ office properties in the San Diego County.
 
The sale of this non-core asset has enabled the company to eliminate $52.0 million of debt associated with the property. In addition, MPG Office Trust utilized proceeds from the transaction to repay a construction loan of $17.6 million besides eliminating a $4.0 million repayment guaranty.
 
MPG Office Trust is the largest owner and operator of Class A office properties in the Los Angeles central business district, and specializes as a full-service real estate company focusing primarily on the Southern California market. The company is currently in a defensive mode and is focusing more on shoring up its balance sheet. MPG Office Trust has suspended its common and preferred dividends in an effort to save cash. In addition, the company continues to successfully extend its debt maturities.
 
By the end of the last reported quarter, MPG Office Trust had $4.0 billion of consolidated debt, and $91.2 million of cash and cash equivalents. The debt burden of the company is a derivative of its acquisition binge. In 2007, the company bought $2.875 billion of assets at the height of the real estate bubble. The acquisition pushed the company heavily in debt and it is now trying to de-leverage its balance sheet.
 
However, MPG Office Trust has assets in some of the best long-term, supply-constrained office markets in the country. Rents continue to increase as leases roll, which is a positive sign. In addition, new construction in the company’s core markets has virtually come to a halt, which is encouraging for long-term prospects. We maintain our Neutral rating on MPG Office Trust with a Zacks #1 Rank, which translates into a short-term ‘Strong Buy’ recommendation.
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