Maguire Properties Inc. (NYSE: MPG)

Maguire Properties Inc. (MPG) is a self-administered and self-managed real estate investment trust (REIT), with the majority of the Company’s portfolio located in Southern California’s Tri-City market of Pasadena, Glendale and Burbank. As of June 30, 2009, the Company owns or has partial interest in 33 office and retail properties, a 350-room hotel and various parking garages.

Founded in 1965, the Company is headquartered in Los Angeles, California.

Source: Reuters.com, SEC Filings.

Financial Summary

Analyst Consensus

Six analysts polled by Thomson Reuters rate shares of MPG an “Underperform.”

Analyst Recommendations and Revisions

Source: Reuters.com

Investment Highlights

A poor U.S. economy, high unemployment and corporate bankruptcies have raised commercial vacancies in the California’s Tri-City area of Pasadena, Glendale and Burbank, leaving property owners with continuing shrinkage of rental income and deteriorating balance sheets.

In late 2007, the commercial real estate industry in California took a decisive turn down, accelerating in the third quarter as the U.S. recession steepened in severity. As job losses mounted, corporate bankruptcies increased and rental income declined, creating a reinforcing death-spiral for the industry. Even companies not defaulting on its obligations decided to downsize its space requirement when lease agreements expired, adding to the vacancy rates.

Statistics in the Tri-City reveal that vacancies have doubled to 17% in the third quarter of 2009, compared with 8.5% for the same quarter of 2008. Correlation analysis between unemployment and vacancy rates shows a high connection, not boding well for the immediate future of vacancy rates given the stark outlook for more layoffs in the United States (especially California, Arizona and Florida) by both private and public economists, including members of the U.S. Federal Reserve, Bank of International Settlements, World Bank and the IMF.

Company Outlook

As stated in the latest 10-Q ended June 30, management’s outlook for the Company centers on the ability to raise cash to fund operations. The economic climate in California is critical to the Company’s access to needed sources of cash, which is expected to be “challenging” for the foreseeable future.

The Company’s cash and working capital position are dependent upon three factors: the occupancy rate of its portfolio; rental rates of its leases; and the ability to collect rent from its tenants. Net available cash will also be dependent on the Company’s ability to cut operating and administrative costs.

Occupancy Rates: The Company experienced a steady drop in occupancy in 2008 and the first two quarters of 2009, and may continue to decline due to overall soft business conditions in the Tri-City area; limited capital financing from the banking industry available to tenants; a cautionary disposition of tenants who look to consolidation, cost cut (including smaller space requirements at lease expirations) and freeze hiring to maintain solvency; as well as increased business failures. Moreover, the Company’s well-know financial troubles have impacted present and potential tenants’ decision to enter into lease agreements with it.

Rental Rates: As a result of the U.S. economic crisis, average asking rental rates during the last several quarters have dropped along with shorter lease extensions. Management doesn’t foresee a turnaround in this business climate in the near to intermediate term.

Collectible Rents: The Company’s ability to collect rents from tenants, especially major tenants, may negatively impact the Company’s total revenue. As of the close of the second quarter ended June 30, the Company’s 20 largest tenants represented 37.9% of total rental revenue, with many of these tenants engaged in the primary sectors precipitating and worst affected by the economic crisis, such as the mortgage, financial, insurance and related sectors.

The Company’s board of directors has approved the sale of the following assets to raise working capital, including Stadium Towers Plaza located in Central Orange County, California; Park Place I located in Irvine, California; Park Place II located in Irvine, California; 2600 Michelson located in Irvine, California; Pacific Arts Plaza located in Costa Mesa, California; 550 South Hope located in Los Angeles, California; and 500 Orange Tower located in Central Orange County, California. The servicing of these properties’ debt covenants have been halted.

Continued unemployment and bankruptcies in the United States is expected to materially impair the Company’s ability to service its debt. Moreover, financing may be unavailable to the Company or its tenants, increasing the likelihood of further revenue and balance sheet deterioration until clear evidence of an overall economic rebound in employment, consumer credit and commercial lending emerges.

Technical Analysis

Source: http://stockcharts.com/h-sc/ui?s=mpg

MPG trades above its 13-day moving average. This bullish sign is more significant because the 13-day moving average is trending up as well.

The MACD for MPG currently indicates a bullish signal. The MACD is above the signal line, a 9-day moving average. The MACD is above the critical level of 0, which implies that the underlying moving averages are trending higher. Overall, the chart is bullish.

Comparative Analysis

Source: Thomson Financial

Insider Trading Activity

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