LOS ANGELES-Although the company hasn’t stated it directly, as GlobeSt.com previously reported in August and tweeted back in July, there is mounting evidence that MPG Office Trust could sell its office portfolio. MPG’s president and CEO David Weinstein revealed during the firm’s third-quarter earnings call yesterday that MPG has relieved itself of more than $700 million of debt during the quarter due to sales of key office properties including Glendale Center ($125 million of debt relieved), 500 Orange Tower ($110 million of debt relieved) and Two California Plaza ($470 million of debt relieved).
The dispositions have left MPG’s former CEO Rob Maguire exposed to significant taxation. As GlobeSt.com reported in August, according to a statement put out by MPG in late June, the REIT “received notices of redemption from Robert F. Maguire III and related entities requesting the redemption of 3.97 million operating partnership units. On July 24, 2012, the company issued 3.97 million shares of the company's common stock in exchange for these units. At Maguire's request, the company issued the common stock to a party not related to Maguire.
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The redemption of these units and subsequent issuance of the common stock to a party not related to Maguire causes Robert F. Maguire III and related entities to fall below the 50% ownership requirement set forth in his contribution agreement. Therefore, all tax protection in favor of him and related entities, as well as all remaining limited partners, will now expire on June 27, 2013. Therefore, pursuant to the terms of the contribution agreement, all tax protection relating to the buildings listed below will now expire on June 27, 2013: Gas Company Tower; US Bank Tower; KPMG Tower; Wells Fargo Tower; Plaza Las Fuentes.”
Weinstein also said that during the quarter, the firm received notices of redemption of 5,176,251 operating units formerly owned by Maguire, and approximately 4.5 million shares have been issued to a party not related to Maguire.
The firm did complete new leases of 362,000 square feet during the quarter, including a 10-year renewal of Wells Fargo Bank’s lease at Wells Fargo Tower. The bank now occupies 291,000 square feet, with the option of contracting the space by 89,000 square feet or expanding it by 25,000 square feet.
Weinstein added that MPG has $158.6 million of cash on hand as of September 30, with $41.2 million restricted for specific purposes and a year-end expectation of $95 million to $100 million of unrestricted cash. Suspension of the state’s 8.4% franchise tax could have “significant impact on MPG in the future,” Weinstein said.
During the call’s question-and-answer session, when asked by a listener to comment on the “process going on,” Weinstein had no comment. The listener went on to ask for clarification of the nature of liability in MPG’s tax situation, to which Weinstein replied, “It’s generated by the fact that we gave back assets to lenders and the gains from resulting give-backs. That’s the source of it, and also a little bit from asset sales.”
He added that if California suspended its use of NOLs as it has for the past two years, “we would have this issue going forward.” Weinstein had no comment to a question with respect to the firm’s debt maturing over the next year or so. “We don’t disclose what we’re working on. We’re well aware that those three buildings have debt coming due.”
Weinstein was asked what vision he has regarding MPG as a going concern and how it can prosper in the future, to which he replied, “Well, we’re not going to do that. We are a going concern and whatever we choose to do, we will continue to be a going concern. That’s all I can say about that.”
Weinstein commented that the firm has the cash and will use it prudently to lease up its assets. “The lease-up of our assets is our primary concern.” He added that during the first three quarters of the year, the firm brought 100,000 square feet of leasing to new tenants, including expansions, which accounted for 25% of that figure. “That’s 75,000 square feet to new tenants during the first three quarters coming into our buildings, which is a weak outlook. Downsizing continues to be a problem in this market, and I would describe the leasing market in Downtown L.A. now as very, very challenging.”
When asked if the 2013 tax-exemption decision for the state is up for debate, Weinstein replied, “The decision has not been made, and they need to make it by the end of the year, and it will be retroactive for the year. Hopefully, they will decide not to suspend this year, but I would be surprised if they didn’t suspend again.”
In response to a question, Weinstein clarified that $1 billion is the firm’s base, which did not include Two California Plaza. No defaulted assets were included in that amount.
GlobeSt.com will continue to monitor MPG's disposition activity and report on it as information becomes available.
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Carrie Rossenfeld
Carrie Rossenfeld is a reporter for the San Diego and Orange County markets on GlobeSt.com and a contributor to Real Estate Forum. She was a trade-magazine and newsletter editor in New York City before moving to Southern California to become a freelance writer and editor for magazines, books and websites. Rossenfeld has written extensively on topics including commercial real estate, running a medical practice, intellectual-property licensing and giftware. She has edited books about profiting from real estate and has ghostwritten a book about starting a home-based business.
