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 2600 Michelson office building in Orange County, California to an unnamed entity for an undisclosed amount.
The asset sale has enabled the company to eliminate $110.0 million of mortgage loan secured by the property. At the same time, MPG Office Trust refinanced the mortgage loan collateralized by its One California Plaza building in Downtown Los Angeles. The refinanced loan facility comprises of a $140.0 million mortgage loan at a fixed-rated interest of 4.8%, and an up to $20.0 million mortgage loan at a floating rate interest equal to one month LIBOR plus 3.0%.
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 $171.3 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.
Currently, we have a ‘Neutral’ recommendation and a Zacks #3 Rank on MPG Office Trust that translates into a short-term ‘Hold’ rating. We also have a ‘Neutral’ recommendation and a Zacks #3 Rank for Duke Realty Corp. (DRE), one of the peers of MPG Office Trust.
