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Maguire Properties (MPG) Rocketing 15% Higher

August 10, 2009 12:23 PM EDT
Maguire Properties (NYSE: MPG) is up some 15% today after it reported a wider than expected loss this morning and over the weekend the WSJ said creditors may take 7 building with $1.06 billion of debt. Although, this sounds like negative news, it does help free up Maguire's balance sheet.

Maguire borrowed heavily during the bull market in real estate and made disastrous top-of-the-market investments, mostly in Orange County, notified the buildings' mortgage holders Friday that it expected "imminent default" on the loans. The buildings are all worth less then their mortgages and aren't generating enough cash to pay debt service and finance leasing expenses.

Maguire's problems are showing that falling rents and rising vacancies are causing landlords to run out of cash.

Robert Maguire, the developer who founded the company and took it public as a real-estate investment trust in 2003, bought properties during the years before the bust on the assumption that rents would continue rising. But just the opposite has happened in Orange County, where the vacancy rate hovers around 20%, up from 6% three years ago, according to Maguire.

The seven buildings, with 4.2 million square feet, make up about 20% of Maguire's portfolio. The new CEO has succeeded in reducing Maguire's debt by about $1.6 billion. His plan has been to sell or give back to lenders troubled properties and shore up Maguire's balance sheet to the point that it is able to raise capital like other real-estate investment trusts have been doing.

The CEO acknowledged that Maguire is encumbered by properties that are cash-flow negative, including three recently constructed buildings, but he was optimismistic that the company would be able to dig out of its problems. "With this particular initiative we've made a big step," according to the WSJ.

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