MPG Office Trust Inc. (MPG), a real estate investment trust (REIT), has recently sold a non-core asset as part of its strategic plan to own and manage a core set of assets and increase its liquidity. The company sold its 701 N. Brand office building in Glendale, California to the project’s lender and largest tenant, California Credit Union – one of the largest credit unions in Southern California, with more than 70,000 members and nearly $1.3 billion in assets.

The asset sale has enabled the company to eliminate $33.8 million of debt associated with the property. Post-sale, California Credit Union retained MPG Office Trust as the property manager of the asset for a period of up to 18 months.

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 $3.6 billion of consolidated debt, and $189.7 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. If the company can tide over the present liquidity crisis, it can expect a reversal of fortunes in future.

Currently, we have an ‘Underperform’ recommendation and a Zacks #5 Rank on MPG Office Trust that translates into a short-term ‘Strong Sell’ rating. On the contrary, we have a ‘Neutral’ recommendation and a Zacks #2 Rank (short-term ‘Hold’) for Duke Realty Corp. (DRE), one of the peers of MPG Office Trust.

 
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