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MPG Office Trust, Inc. Message Board

  • bamboo7431 bamboo7431 Jul 25, 2012 10:17 PM Flag

    Tax protection

    Could somebody explain me what do they mean by "tax protection"?

    In the conference call:
    John Guinee: ...you are down to four downtown LA assets, four of which have tax protection, Pasadena which has tax protection, One Cal Plaza which doesn’t have tax protection, your debt stabilized, you’ve got plenty of cash. Are the next assets to be addressed Plaza Las Fuentes and Wells Fargo Tower in 2Q ’13 when the tax protection burns off or are there any assets we are missing?

    David Weinstein: Well, first, I don’t think we are missing assets. We only have seven assets. We have a few more assets that are selling our books that obviously won’t be here by year end. But aside from that, we don’t comment on what’s next as I said. So I don’t really have a comment on I think you are talking about Plaza Las Fuentes. But you are right, the tax protection does burn off on Plaza Las Fuentes and Wells Fargo Tower June 2013.

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    • This means that the preferred stock will begin receiving dividend payments when cash flows are stable, perhaps in the next year or two. The gain in common is unwarranted because Maguire is going to sell his new common shares, depressing the price, and common equity is so far out of the money that a dividend will not be coming within five years, if ever.

    • You can get more info from the company's quarterly or year end filing but here is what I understand.

      Since Mr. Maguire (Robert Maguire), still own a piece of the properties (MPG only owns 88% of every property, although I thought the remaining 12% was exchanged for shares in MPG a few months ago), he would incur a capital gains tax if the building is sold, foreclosed, or disposed of in any way. Before taking MPG public he made an agreement with the company, in which MPG will pay his tax bill on the gain from certain assets. The bill could be pretty large since his basis is probably very low, especially if he depreciated them before going public.

      However, the agreements on these assets expire between 2013 and 2015. You need to understand this concept before comprehending the company's situation. MPG needs to not loose these assets otherwise they will owe Mr. Maguire money which will further decrease the company's free cash or even create a liability. WIth the extension of MPG, the company may now be in a position where it can "kick the can down the road" far enough to where the agreements burn off, at which point it can sell certain assets to right its balance sheet.

 

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