MPG Office Trust Inc. (MPG), a real estate investment trust (:REIT), has recently sold its 3800 Chapman office building in the city of Orange, California, to an unnamed seller. The asset sale is part of its strategic plan to own and manage a core set of high-quality assets and simultaneously increase its liquidity.
The divestiture has enabled the company to eliminate $44.4 million of mortgage debt and accrued contractual and default interest associated with the property. At the same time, MPG Office Trust was relieved of any outstanding claim under the loan documents pursuant to an in-place agreement with the special servicer of the mortgage loan.
The divested property is strategically located in the heart of the city in close proximity to several recreational and entertainment hotspots of the region. The office building also offers easy access to various transportation facilities and is located in the vicinity of a regional transportation hub.
MPG Office Trust is the largest owner and operator of Class A office properties in the Los Angeles central business district. The company specializes as a full-service real estate company focusing primarily on the Southern California market.
MPG Office Trust is currently in a defensive mode and is focusing more on shoring up its balance sheet. The company 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 third quarter of 2012, MPG Office Trust had $2.5 billion of consolidated debt, and $117.4 million of cash and cash equivalents. The debt burden of the company is a derivative of its acquisition binge. In 2007, the company bought $2.9 billion of assets at the height of the real estate bubble. The acquisition had pushed the company heavily into 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 the 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 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.
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