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Executives

Peggy Moretti – Senior Vice President, Investor and Public Relations

Nelson C. Rising – Chief Executive Officer, President

Doug Gardner – Executive Vice President of Operations

Mark T. Lammas – Executive Vice President of Investments

Shant Koumriqian – Chief Financial Officer

Analysts

Jordan Sadler – Keybanc Capital Markets

John Guinee – Stifel Nicolaus & Company

Michael Knott – Green Street Advisors

David Rodgers – RBC Capital Markets

Chris Haley – Wachovia Capital Markets

Jerome Sanzo – SBZ Select Investments

David Aubuchon – Robert W. Baird & Co.

Gordon Watson – Ore Hill Partners

Maguire Properties Inc. (MPG) Q4 2008 Earnings Call March 3, 2009 11:00 AM ET

Operator

Welcome to the Maguire Properties conference call. (Operator Instructions) As a reminder, this call is being recorded today, March 3, 2009. I would now like to turn the conference over to Ms. Peggy Moretti of Maguire Properties.

Peggy Moretti

Thank you for joining us for our fourth quarter and year end 2008 earnings conference call. During the course of today's call, management will make forward-looking statements regarding, among other things, projected 2009 results of operation, leasing, competitive conditions, financing and acquisitions.

The company's projections are affected by many factors outside of its control. For a discussion of such factors, please refer to the company's most recent annual report on Form 10-K under the caption Risk Factors.

The forward-looking statements on today’s call are based on the company’s current expectations. Maguire Properties does not intend to update these statements prior to our next quarterly earnings release and we expressly disclaim any duty to make any such updates. Our supplemental package, along with information required under SEC Regulation G, may be accessed in the Investor Relations section of the Maguire Properties website at www.maguireproperties.com.

And now I'd like to turn the call over to Nelson Rising, President and Chief Executive Officer.

Nelson C. Rising

These are certainly challenging times we’re all facing and we’re doing our best to meet these challenges by keeping a very sharp focus on our liquidity, debt maturities and leasing activities, all of which I’ll summarize in my brief opening comments.

First, with respect to liquidity, as of December 31, 2008 we had $280 million of cash, $80 million of which is unrestricted and $200 million of which had the following restrictions on its use, $81 million was restricted for interest and leasing reserves, $80 million has been set aside in various collateral accounts that will be released to us in the future, $35 million are prepaid rents, taxes and insurance, and $4 million are set aside for other purposes including CapEx.

Of the $80 million of unrestricted cash, $40 million is maintained at the property level for working capital and $40 million is available for general corporate purposes and will be supplemented by approximately $40 to $50 million that we can anticipate will be released from collateral accounting accounts during the course of the year.

In addition, at the request of our partner, Macquarie Partners, we began marketing two buildings held in our joint venture, Wells Fargo Center in Denver and Cal Plaza I in downtown Los Angeles. Successful marketing of these two properties will add to our liquidity during the course of 2009.

With respect to debt maturities, when I arrived here in May we extended it or paid off $750 million in the second quarter and third quarters of this year. Let me repeat that, we extended or paid off $750 million in the second and third quarters of 2008.

During the fourth quarter, we exercised the first year extension right on City Parkway mortgage extending this maturity to May 2010. We have additional extensions available that could extend the maturity of this loan to May 2012. We also exercised our first year extension on the mortgage loan on our Brea Campus and we have additional rights to extend this loan to May 2012.

We are now focused on the only other 2009 maturities consisting of three additional loan obligations in the aggregate of $260 million. We have a $10 million parent company debt obligation on Griffin Tower in Orange County due in May, and our cash flow projections for the year have allocated funds to meet this obligation.

We have two other loans on our Lantana property in Santa Monica, a construction loan in the amount of $80 million due in June 2009, and a mortgage loan in the amount of $98 million due in September of 2009. We are currently marketing the Lantana property, and if we receive an acceptable price for this asset, we will retire these loans with the proceeds generated from this sale.

In addition, we have a construction loan in the amount of $169 million relating to the 3161 Michelson office tower in Park Place and this is due in September. We are in the final stage of a sales process on this property and proceeds from which will be used to retire this loan.

As we look to 2010, we are very comfortable with our maturities. They consist of two construction loans, $24 million of which was for a recently completed building on Von Karman in Irvine and $14 million in our Northside project in Mission City in San Diego. In addition, there will be a second $10 million payment on parent debt on Griffin Towers.

So overall we feel comfortable with our liquidity. We feel comfortable with how we’re dealing with our maturities, and we are very optimistic about the sales activities both for the Macquarie assets, Denver, Wells Fargo Center and downtown Los Angeles Cal Plaza I, as well as the Lantana property and the 3161 Michelson property in Park Place.

We are very pleased also with the leasing activity. The press release pointed out that during the fourth quarter we leased over 600,000 square feet. The Orange County market has been extremely fertile for us with leasing. We entered into a 55,000 square foot lease at our 3161 Michelson office with Jones Day a major international law firm.

We have renewed our leases with State Farm totaling 126,000 square feet and we are in serious lease negotiations with a number of other tenants at Park Place. In San Diego, we were able to lease 45,000 square feet of our Mission City Corporate Center new Northside development, the construction loan for which I referred to a few moments ago. For the whole year 2008, we were able to lease over 2 million square feet in our total portfolio.

As we look at the downtown Los Angeles market, we have 9.15 million square feet. We have 12.65% direct vacancy, but very encouragingly we have five of our eight buildings with single-digit occupancy led by Cal Plaza at 95.1% occupancy. These are very good numbers and reflect the strength of the overall downtown market.

Another very encouraging note is that we have less than 3% of our downtown Los Angeles portfolio expiring in 2009. With respect to our Tri-City properties, we have 1.6 million square feet and that’s the Glendale Burbank Pasadena market and that 1.6 million square feet is currently 96.2% occupied. So with the high degree of occupancy in downtown Los Angeles and in the Tri-Cities, we feel very comfortable about the resulting cash flow from those assets.

With that, I will be pleased to answer any questions you may have.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Jordan Sadler – Keybanc Capital Markets.

Jordan Sadler – Keybanc Capital Markets

I just wanted to get a little bit more color on the asset sales. You quickly went through the two within the Macquarie JV but I was more focused on Lantana and what all is being marketed for sale there if it’s the Legacy plus the development. And then I noticed in the supplemental you’re holding 3161 for sale and any progress update you can give us there.

Nelson C. Rising

I’ll take the last one first, 3161 we’re in the advanced stages of a marketing process for this building. We are optimistic about prospects on that. We have a very qualified buyer and they are now completing their due diligence process.

With respect to Lantana, yes, the Legacy, as well as the newly constructed buildings, is involved in this offering. Again, as I said, if we receive satisfactory pricing on this, this will enable us to retire those loans, and in addition to that, add significantly to our cash reserves.

Jordan Sadler – Keybanc Capital Markets

How deep are you into the process at Lantana?

Nelson C. Rising

We have engaged a broker, we have packages on the street, we have been giving many, many tours and we have obviously beginning the process with confidentiality letters from a significant number of interested buyers and we’re hoping to have some better feeling for pricing as we move into the month of March.

Jordan Sadler – Keybanc Capital Markets

Was the mark that you took on 3161 during the quarter reflective of a P&S agreement?

Nelson C. Rising

It was reflective of marking the price from the book value to what we think the sales price will be.

Jordan Sadler – Keybanc Capital Markets

So you don’t have necessarily money hard there yet.

Nelson C. Rising

We have a deposit but the due diligence period is not quite completed.

Jordan Sadler – Keybanc Capital Markets

Last question is just on the burn rate. I don’t know, Shant, do you want to take this one, curious where you are in the burn rate on maybe a quarterly basis if you could update us.

Shant Koumriqian

If you look at our unrestricted cash balance, there was a fairly significant drop and there are a couple of things that I’ll discuss that caused that, but from a property perspective, if you recall last quarter, we said that cash NOI was marginally exceeding cash interest expense. This quarter we’ve continued to improve on that margin.

While last quarter was marginally positive, this quarter it’s starting to track up towards $3 to $5 million positive cash flow after paying cash interest expense and that’s eliminating the effect of any capitalization of interest or any of those GAAP adjustments so pure cash-on-cash.

We’re still not covering our G&A however some of the excess that the properties are generating at this point are now starting to contribute to our G&A. During the quarter we had approximately $8 million of G&A down from almost $10 million a year ago. Going forward, we expect to be able to maintain that level of G&A, hopefully, and maybe work on it a little bit as well.

We are still not, obviously, covering our preferred dividend. We did pay a preferred dividend during the fourth quarter and during the first quarter our board elected to defer payment of the first quarter dividend. So as far as first quarter is concerned, that’s not a cash requirement that we’re going to have to fund. So from a property operating perspective, we’re starting to come close to covering our interest obligations and our G&A.

Then when it comes to other obligations, we have to pay for leasing costs, property capital expenditures, and principal payments on some of our debts. From a leasing cost perspective, we do have leasing reserves. This is restricted cash as well as available debt proceeds under some of our construction loans.

And as Nelson referred to in his opening remarks, those leasing reserves, as well as interest reserves that we have that will be released to us during 2009, should pay for substantially all of our leasing costs in 2009.

So that includes both existing obligations on signed leases so these are leases that are in place, they are signed. We’re in the process of building out space but tenants have not yet moved in and rents have not yet commenced, and it will also pay for renewals of 2009 expirations, as well as nay new leasing we do within the portfolio.

We also have capital expenditures, building capital expenditures, furniture and equipment and those types of purchases that we are also currently not covering but, as Nelson referred to, we have collateral accounts, restricted cash of $81 million, which will be released to us during 2009. That source of funds is then available to pay for some of these building expenditures and other corporate uses.

So from a cash burn perspective, one of the big drives of the decrease in unrestricted cash in a quarter was funding of some of these collateral accounts that we talked about. We do have a swap agreement on our KPMG tower loan.

We have a $425 million swap agreement while we are required to post collateral and with what happened with LIBOR rates during the quarter, we had to transfer approximately $30 million of collateral over to our counterparty. As of 12/31/09, our counterparty is holding $54 million of collateral, which will be released to us during 2009 as we make our payments under the swap.

Our projection is that we could have anywhere between $15 to $20 million of that collateral released to us. We have various other collateral posting requirements under various agreements that will be released to us as well. We expect approximately $20 million of that cash to be released to us during 2009 as well.

And again, some of the unrestricted cash utilized during the quarter was to fund some of those collateral accounts. So from a cash burn perspective, we’ve seen some improvements from the prior quarter. As we look to 2009, as we stated last time, we do have leases that have been signed where tenants are not paying rents yet.

So on a pro forma basis before taking into consideration any expirations in 2009, we do have $3 to $4 million of leases that will be commencing next quarter, so that’s $3 to $4 million of gross rents, tracking up to $5 to $6 million in the fourth quarter of 2009. And like we said last time as well there are additional leases that will start in 2010.

Operator

Your next question comes from John Guinee – Stifel.

John Guinee – Stifel Nicolaus & Company

Clearly Nelson, I think you’ve got a handful of assets, mostly in Orange County, that are value is under water relative to the debt and the reserves are going to be burning off in the next couple of quarters. Can you address where you are on any of those assets?

Nelson C. Rising

Well, we’ve dealt with 3161, and with respect to Griffin, which is another one of those, we have a parent guarantee in the aggregate amount of $35 million, $10 million of which will be paid in May of this year, an additional $10 million in 2010, and a follow-up payment of $15 million in 2011.

Obviously because of that guarantee, our flexibility on the underlying loans, which would be additional $20 million mezzanine piece and $125 million first, is somewhat limited. We have a number of other loans in Orange County where we have CMBS loans. We are current. We have interest reserves.

In some cases, the loan balance is slightly less than the value of the building, other cases it’s more significantly higher than the buildings. But in those cases we’re not in default. The interest payments and interest reserves are keeping us current.

As I said, there are CMBS and the way one deals with the CMBS obligation is tricky if you’re not in default. You have a special servicer, you have a master servicer, and the special servicer doesn’t come in until it’s under default.

But the vast majority of our loans in Orange County are in fact CMBSs. We are in discussions with the lender on City Parkway. They are going through an evaluation process of that loan. As you know, we were successful earlier in the year in dealing with City Plaza.

So in general, without going through them one by one, we do feel comfortable with our position, given the fact that we have interest reserves. I note your comment that these will be burning off over a period of time and when they do, that ripens the conversation we can have with the lender.

John Guinee – Stifel Nicolaus & Company

Next question on 316 Michelson, as I recall a lot of parking was built there. How much on a number of spaces or on a ratio basis, how much parking will you sell with 3161 Michelson to the current person who has an LLC out there, or a purchase and sale agreement out there?

Nelson C. Rising

Well the purchaser would be purchasing garage #2 and would be purchasing the 3161 Michelson building itself. The amount of parking that would be required by the building is less than the number of spaces that are available in that structure, which would be made available at market rates to other users on the property.

John Guinee – Stifel Nicolaus & Company

Is that the garage where you have the big master lease requirement?

Nelson C. Rising

Yes. We do face a master lease requirement on that garage, that’s correct.

Operator

Your next question comes from Michael Knott – Green Street Advisors.

Michael Knott – Green Street Advisors

My question is how would you deflect criticism or comments that you guys have not done enough to try to survive this storm by either putting properties back where you can or maybe writing checks in some cases to get out of some of these loans? How would you address that?

Nelson C. Rising

How would I deflect the criticism? Well first of all, we have been doing that to the extent that our cash resources permit. We’re on a course where we’re focused on maintaining liquidity, at the same time dealing with our loan maturities.

As I mentioned in response to an earlier question, we have a number of loans at our CMBSs that are not in default, that the interest is current and that dealing with those is very tricky, as I mentioned in response to the last question. That discussion ripens when there are no longer interest reserves to pay the mortgage currently.

On several of the loans, I think the most challenging situation we face is with Griffin, and that’s property where we have a parent company guarantee of $35 million, soon to be reduced to $25 million. There are many other assets where we have master lease obligations. In one case, we have an outright guarantee in the form of City Parkway. Our disclosure and you’ll see it again in our K, will be a very detailed list of where these impediments to early solution are more clearly outlined. Shant do you have a…

Shant Koumriqian

Michael, when you look at various assets, like Nelson said, we do have interest reserves on some of these and a number of these do have various forms of recourse, whether they’re master leases, whether they’re debt service guarantees, some of them burn off over a period of time. So it’s very simple to look at just an asset and say it would make a lot of sense to hand it back.

I think each asset has individual characteristics that anyone would have to take into consideration when determining a holding strategy for an asset. So in a lot of cases it’s complicated. You can take a look at our Q and we’ll definitely expand on our disclosure in our K as well. But there are various considerations that you need to take into account when looking at each of these assets that have problems.

Michael Knott – Green Street Advisors

That previous disclosure is appreciated by the way. The other question I would have is could you just give us a brief recap of what happened with Park Place, because as I remember you were attempting to sell the entire campus because of complexities of selling individual pieces. Can you just give us a little recap of what happened there, or any lessons learned for the future?

Nelson C. Rising

I’d be happy to and I’m glad you asked the question. I should have mentioned that in my opening comments. If you recall, one of the first things we did when my tenure began was to engage a broker [inaudible] to secure to market the property. They did a very extensive marketing job. They contacted many, many potential buyers.

I think the number was about 70 if I’m not mistaken. We received a large number of confidentiality agreements and we had considerable interest. The reason we decided to market the property as a whole was in fact that indication of interest that we have received. That was May, June, and July. The world has changed radically since that period of time.

It became clear to us that as we work through the discussions with those who had signed confidentiality agreements and were very interested, there continued to be price erosion to the point where it did not appear to us that it made sense to look for one buyer for all three phases.

If you recall, Phase I is retail and an office building, Phase II is 3121 and retail, Phase I is the atrium and the four buildings, and then Phase III is 3161. Many buyers who would be buyers for the other two phases were not interested in 3161. We therefore decided to market 3161 decided to market 3161 separately because we had buyers that were interested in it, but not the entire property.

With respect to the Phase I and Phase II, a number of things have happened. First of all and most encouraging, we’ve had some various meaningful successes with leasing. As I mentioned in my opening comments, State Farm has extended their lease of 120 some odd thousand square feet. We are in lease preparations for a tenant of 175,000 square feet, also a renewal, this is in Phase I, and we have considerable activity for several hundred thousand more square feet in that Phase.

In Phase I, the retail is doing quite well and it’s a great location for that. We have a very keen interest by a major tenant in 3121 and we’re in the process of lease negotiations there. So if you look at those two phases, the loan situation, our debt service coverage from the income to be generated by these leases makes us less concerned about having a sale transaction on pages 1 and 2.

Basically in a very simple way, facts changed. They changed, like the rest of us have found in other parts of the economy, things that were apparently viable rather in July, certainly aren’t viable in January of 2009.

Operator

Your next question comes from David Rodgers – RBC Capital Markets

David Rodgers – RBC Capital Markets

First question for you, in terms of assets likely to move into the discontinued pool in the first quarter that you’re listing for sale, have you calculated any impairments on that that we should expect or will that be done at closing?

Shant Koumriqian

In regards to Lantana, if the pricing that we would be willing to accept would result in a gain, so we don’t have an impairment issue there. And then the other two assets that Nelson referred to are in our joint venture, those are assets that we acquired years ago that have fairly low basis and, again, we wouldn’t expect impairment issues on those two.

David Rodgers – RBC Capital Markets

With relation to those sales, the assets that you just mentioned, as well as 3161, do you have a broad expectation for the net cash inflows on aggregate of that pool?

Nelson C. Rising

It’s too early in the process to comment on that and we would view what happens in our joint venture assets as a different process and not as far along as we are in the 3161. I don’t think it would be appropriate to venture what that number would be.

David Rodgers – RBC Capital Markets

Given the demand today, do you expect all of those to close in 2009?

Nelson C. Rising

It would be our expectation that assuming pricing is satisfactory, yes. We’re not in a position where we’re going to sit and take pricing that we don’t think is acceptable. Macquarie is the 80% partner in that joint venture, and obviously, we’ll take their lead on what their expectations are. We’re a 20% partner and we’re going to do the best we can to market it for them. It’s too early for us to comment on potential pricing.

David Rodgers – RBC Capital Markets

Shant, thank you for the discussion on cash flows earlier. My final question would be excluding any asset sales proceeds in this particular case given your comment just now, do you have a sense of where restricted or unrestricted cash balances would be at the end of 2009 and just kind of given that scenario you ran through?

Shant Koumriqian

Yes. There’s a portion of restricted cash that’s really tough to gage, which is pre-gain insurance and taxes and those types of things, so putting that aside, that’s approximately $35 to $40 million today. So assuming that number stays consistent, you’re looking at maybe restricted cash in the $100 million range if we’re successful in leasing and we’re spending leasing reserves, it could be obviously a little bit higher or a little bit lower depending on the amount of leasing that we do.

Unrestricted cash absent any sales transactions will probably be approaching $50 million-ish to $60 million by the end of the year, somewhere in that range. So you’re looking at total cash probably in the $150 to $160 million range by the end of the year.

Nelson C. Rising

That’s not counting asset sales?

Shant Koumriqian

That’s not counting asset sales, correct.

Operator

Your next question comes from Chris Haley – Wachovia Capital Markets

Chris Haley – Wachovia Capital Markets

I just want to make sure that I have the numbers correct on the Denver asset and the Cal Plaza asset, looking at AP NOI, the neighborhood of $22 million for Denver and approximately $16 million for Cal Plaza, is that correct?

Mark T. Lammas

We want to be sensitive obviously to the NOI numbers because we have those who have signed confidentiality agreements, we obviously have full Argus runs out to those buyers and I will say, Chris that both those numbers are below the numbers that we’re showing as first year fiscal year NOI numbers in place, but I don’t want to get into any greater detail than that.

Chris Haley – Wachovia Capital Markets

So the $22 and approximately $16 million are below the first year cash NOI numbers that are in your selling documents?

Mark T. Lammas

That’s right.

Shant Koumriqian

Chris, this is Shant, I don’t know if you are looking at the supplemental, I’m assuming you are looking at pages 25 and 26, but as you may recall, I’m not sure if we’ve had this discussion before, those aren’t necessarily NOIs, those are meant to be net rent numbers on in place leases.

Chris Haley – Wachovia Capital Markets

You’re 20% position in those assets does raise, as with any venture, the conflicts on pricing and the efforts that you want to achieve versus what your partner wants to achieve, can you give us a little color on how you expect a transaction to go down regarding handling the conflicts and whether you or they might be more motivated to monetize the asset?

Mark T. Lammas

Yes, we’ve not experienced any conflict, Chris. When we were approached by Macquarie, we heard their goals on the assets and we responded accordingly and we’ve moved forward in optimizing and working as hard and as diligently as we can as the managing agent of the venture.

We’ve done so throughout the marketing effort and expect to do so, and we’ll, I think both of us, respond to whatever the level of interest is and pricing indications are as they come in and we’ll make a decision jointly about it. Thus far, the process has not involved conflict and I think we here at Maguire are optimistic it won’t.

Chris Haley – Wachovia Capital Markets

The last question, on these assets when or if we receive pricing information, if you are able to monetize these assets, is there anything specific to the assets structure, taxes, leasing, parking, etc. that we should consider as pro or con when or if you offer the final pricing?

Mark T. Lammas

Just a couple of high level points, on the Denver asset, one major aspect of the asset that is probably worth noting apart from its status within the market and it's high leased. It's 96% leased and it’s got a quite a nice roll schedule and very high credit tenancy, but it also has assumable debt which is very attractive. Beyond that it’s probably, if you can get your hands on one, better to look at helm.

On One Cal Plaza, it’s obviously a trophy quality asset, highly regarded within the market. The market, I think has been one of the bright spots nationally. One of the aspects that are worth noting is sits on a ground lease very favorable ground lease but a ground lease none the less. And, so that's something that buyers will obviously be paying close attention to.

Operator

Your next question comes from Michael Knott – Green Street Advisors.

Michael Knott – Green Street Advisors

I may have missed this earlier but to the extent that the venture is successful in selling these two assets and the proceeds exceed the underlying debt will your provider share come to you or would it somehow sit in the venture? What's the outlook for that?

Nelson C. Rising

It's our expectation that the cash would go to the respective parties on the same basis of their ownership of the venture.

Michael Knott – Green Street Advisors

Okay. Then could you give us a little color now that we're in March what is sort of the first couple months of '09 has looked like maybe on the occupancy front or the leasing front. And then also some color perhaps on where your lease expirations are located in 2009 and are they at better quality assets in Orange County and downtown L.A. or more challenged assets? Thank you.

Nelson C. Rising

Let me start with that, Michael, and then Shant and Doug Gardner will be able to add a lot more color to it. As I mentioned, our rollovers in downtown Los Angeles in our 9 million plus square feet are very, very favorably 3%. So it's a good time given the overall economy to have that kind of a rollover profile.

With respect to Orange County, as I mentioned, we have been experiencing a very, very significant amount of leasing interest in our Park Place properties Phases I and II, which is encouraging, and gives more flexibility as to what to expect to of the ultimate of the disposition of one and two.

Now for more detail, Doug or Shant?

Shant Koumriqian

On the expirations in the supplemental on page 33 we've disclosed just under 800 square feet of expirations in 2009. That's portfolio wide in 2009 on the wholly owned assets. About 400,000 of that footage is in Orange County spread throughout various assets, so there's no one individual asset that has significant expirations. I think maybe the biggest one might be 40,000 square feet in individual project.

There's about 360,000 square feet expiring in L.A. County. The majority of that is in downtown L.A. and again that's fairly spread out among most of the buildings, I think with the biggest expiration, again, might be under 40,000 to 50,000 square feet in one individual building. So that's fairly spread out. The remaining expirations are in our San Diego project, and that's really towards the end of the year and that's one building in Mission City.

So that's the break out of our expirations in 2009. One thing to note as well as some of the downtown L.A. expirations in 2009 includes month-to-month space as well. Not a significant component of it but month-to-months space that's tied to long-term leases so we report it in 2009, but historically it's been extended on a month-to-month basis with leases that are expiring five and ten years out.

Michael Knott – Green Street Advisors

Lastly, I thought I heard Nelson mention a cash number or cash balance at the end of the year and perhaps it was you Shant I forget, but can you just clarify whether that was including restricted cash items or was it purely under certain?

Shant Koumriqian

Well, I think the way to look at it is just total cash with restricted and unrestricted somewhere in the $150 million range because depending on timing and what we're doing from a leasing perspective and when collateral accounts are released to us. In total, we've got $280 million of cash today, all else being equal it will probably be in the $150 to $160 million range combined restricted and unrestricted.

Nelson C. Rising

And the big consumer of that cash is going to be leasing activities, leasing commissions, and tenant improvements. It's our hope that we're more successful on that than not and that therefore that number from restricted cash is lower.

Operator

Your next question comes from the Jerome Sanzo – SBZ Select Investments.

Jerome Sanzo – SBZ Select Investments

If you intend to be, I think I understood the number about a $150, $160 million unrestricted cash at the end of the year, why would you not want to at that point reinstate the preferred dividends since it's accumulative anyway?

Also, a follow up question is the cash that will go from restricted to unrestricted this year out of various collateral accounts are there various triggers that you can describe that would help us understand how that becomes free or frees up for you?

Nelson C. Rising

Let me take the first question Shant will take the second. At the end of the year we were saying total cash of 150 of which about 100 would be unrestricted. So we would be in a situation with $50 million of unrestricted cash and that's what we would like to keep as a minimum for the operations of the businesses. Shant, on the second question.

Shant Koumriqian

The question was on the collateral accounts? So the biggest component of the collateral account is swap collateral with our counterparty as rates move up or down we either post collateral or get collateral back. And our projection is just looking where LIBOR expectations are, is that we would get somewhere between $15 and $20 million of that swap collateral back as LIBOR expectations move up during 2009. So that's one big component of it.

Then the remainder of the collateral accounts or various obligations that were tied to leases or takeover obligations or things of that nature where we had to post cash with another party, and that cash then comes back to us. So it's cash that had to be posted to secure an obligation that we have funded that is in our projections next year.

So as we fund for that obligation that money comes back to us and that's the remaining component of that $80 million. So $54 to $55 million is swap collateral, which will come back to us as make payments under our swap to our counterparty. And then the remainder of it is various collateral accounts to get released to us as we satisfy certain obligations during 2009.

Operator

Your next question comes from David Aubuchon – Baird.

David Aubuchon – Robert W. Baird & Co.

Thanks I wanted to ask a question about the JP Morgan lease, which is assumed by the Washington Mutual acquisition and you have it in the footnote, but can you just kind of summarize at the end of the day what's your exposure to JP Morgan, and I am assuming it's not the 126,000 square feet that you have listed as the eighth largest tenant?

Nelson C. Rising

Shant's going to get the total exposure in other buildings. If you recall, when the FDIC took over the leases were all rejected and then JP Morgan on a short-term basis is leasing 125,000 square feet. So that's the factual basis there.

David Aubuchon – Robert W. Baird & Co.

And that ends March 31st?

Shant Koumriqian

Yes, approximately. It’s an estimated date but in our supplemental on page 30 that is our exposure to JP Morgan. So this schedule is on an effective basis. That 126,000 square feet includes our 20% share of the WAM Campus and then remainder of the space is in one or two buildings in the rest of our portfolio.

So the exposure to the joint venture is significantly higher than that but that is our net exposure. The entire $3 million that’s disclosed there and I think in the footnotes we said we're loosing $2.5 to $2.6 of that so effectively our remaining exposure is $500,000.

David Aubuchon – Robert W. Baird & Co.

And then one last question regarding Sempra their lease expires in a year and a half and I know you have a lot of stuff to work on between now and then, but as your second largest tenant any initial read there of what they plan to do with their space?

Nelson C. Rising

Well the first thing to keep in mind is that a significant portion of that space is already subleased under longer term subleases. With respect to what their ultimate moves are going to be or desires are going to be with respect to staying or moving, I have no visibility on that at this point. We are obviously focused on that.

David Aubuchon – Robert W. Baird & Co.

How much is subleased? Nothing?

Nelson C. Rising

One hundred and fifty of the 500.

Operator

Your next question comes from Gordon Watson – Ore Hill Partners.

Gordon Watson – Ore Hill Partners

My question is you were talking about parent company guarantees of master leases and different mortgages and construction loans. Do you have a number for what the total amount of the guarantees are at the holding company?

Nelson C. Rising

Let me go back to where Shant is getting that number. The one I referred to as a parent company guarantee was the $35 million refill facility, which was put in when that loan was extended in the spring of this year and that’s a $35 million obligation. It is a parent company guarantee, as I said $10 million this year, $10 million next and $15 million the following and that’s a guarantee.

With respect to Park Place, there’s a parent guarantee the maximum amount would be $12 million on that, or not Park Place, Parkway. And then with respect to the balance, there are a series of master lease obligations and Shant, would you point to the disclosure on that?

Shant Koumriqian

This will be again repeated in our K but I suggest you look at pages 44, 45, 46, 47 in our Q from last quarter, but we have various types of recourse on various loans that are disclosed. Some are fixed obligations through a point in time.

So it’s a master lease of someone’s space where that tenant defaulted, vacated, terminated and we then step into their shoes and are responsible for the rental payments until we can release the space. In some instances, we also have to fund the tenant improvements associated with releasing that space instead of being able to utilize lease and reserves to the extent that they exist. So there are a number of those.

Then we have a number of loans that have debt to service guarantees and these are purely a guarantee of the debt service so interest, taxes, insurance, capital expenditure, monthly funding to the extent that they exist. We do get credit for in place NOI but any difference between the debt service and the in place cash NOI we’re on the hook for. The good news is a number of these burn off by 12/31/09, but again, the point is its debt service including default interest.

So our disclosure is in the 10-Q show our best estimate of what the obligations are assuming the underlying borrower does not default. If the underlying borrower were to default, default interest would kick in and the parent would be responsible for that also.

Gordon Watson – Ore Hill Partners

So you’re saying they roll off by the end of ’09.

Shant Koumriqian

A lot of them roll off at the end of ’09. There’s one that extends out further. In all cases, you can mitigate the exposure by leasing and hitting a debt service coverage ratio, which I believe we have disclosed in the Q as well. The good news is a number of them do roll off by the end of ’09.

Those that don’t, there’s one or two that don’t, as we lease up vacant space and we have a number of quarters, I think it’s two consecutive quarters of a certain debt service coverage ratio, we can go back to the lender and get it released. So in the meantime, our strategy would be to try to lease up space and minimize that exposure.

Gordon Watson – Ore Hill Partners

And once those roll off, you’re no longer on the hook for the mortgage? So if those expire and then for some reason you can’t pay the interest on that going forward the year after that, then theoretically you could just turn over the building and there wouldn’t be a recourse?

Mark T. Lammas

That’s right. Those bring in interest guarantees, which Shant refers to, are the only form of recourse to the parent entity and so it’s a point in time that they either expire on their natural term, or because you’ve met the two consecutive quarter tests at a 1:1 coverage ratio, then there’s no further recourse on the asset, so the underlying debts both are fully non-recourse.

Gordon Watson – Ore Hill Partners

So assuming those things happen and the $35 million plus the $12 million, those are going to be the only obligations? So presumably you have a bunch of other underwater buildings that those were, for some reason if you were to turn those over, they would not be able to come after the holding company?

Mark T. Lammas

Certainly in any instance where there’s no form of recourse, yes there would be nothing to come after the holding company for. But I encourage you, as Shant mentioned in the earlier part of this call, to read those three or four pages of the quarterly in the 10-Q and the 10-K. They really do, I think a complete job of outlining the instances where we have some form of recourse or another.

Nelson C. Rising

And that will be, again as Shant said on the K coming out in another week or so, will be brought up to date and when you read those, you will see that certainly they’ve been a driving force in how we operate.

Operator

Your next question comes from Jordan Sadler – Keybanc Capital.

Jordan Sadler – Keybanc Capital Markets

I just wanted to follow up on something. You mentioned in the release, other efforts to generate cash, I guess you mentioned were potential new joint ventures or raising institutional capital and I don’t know if that’s other things that are other potential opportunities or do you actually have anything brewing there?

Nelson C. Rising

No. At this point, there’s no plan to do that. It was just a catchall phrase.

Jordan Sadler – Keybanc Capital Markets

Anything on the non-income producing assets, on the land that you’re, have you put any of that up for sale?

Nelson C. Rising

No. Not at this point.

Jordan Sadler – Keybanc Capital Markets

Lastly just on this topic. The leasing of the projects under development, I guess specifically Lantana and 207 Goode?

Nelson C. Rising

Now Lantana, there has been a lease consummated on one of the new buildings but with [inaudible]. That was the last building completed and the other was also, it’s what 35,000?

Shant Koumriqian

Yes, of the recently completed 198,000 feet, all but 35,000 feet of that was leased upon delivery of those two buildings.

Nelson C. Rising

And then the building at the Mission City, that building under construction.

Shant Koumriqian

I think the other building you’re referring to is 207 Goode in Glendale and that building remains on schedule for completion late June, early July this year, and we are encouraged. The market is obviously difficult, that goes without saying, but we are encouraged by interest that we’ve seen there by at least a couple of significant tenants that have looked at the entire asset for possible relocation.

Jordan Sadler – Keybanc Capital Markets

And then is there an expected stabilized yield on Lantana versus cost, the 198,000 square feet at least that you just completed?

Shant Koumriqian

I’m sorry, I missed the question.

Jordan Sadler – Keybanc Capital Markets

Expected stabilized yield on Lantana, the 198,000 portion.

Shant Koumriqian

On the 198,000, you’re saying what do we expect the cash-on-cash return to be?

Jordan Sadler – Keybanc Capital Markets

Bingo.

Shant Koumriqian

On cost, you know, I’d rather get back to you on it to get specifics but we’d expect it to be north of our development criteria of a ten and it’s probably significantly north of that.

Jordan Sadler – Keybanc Capital Markets

Does that include land?

Shant Koumriqian

Yes.

Jordan Sadler – Keybanc Capital Markets

And then lastly, Shant, on the variable rate mortgage loans expiring in 2010, I know you have various extension options, any conditions to extend there?

Shant Koumriqian

You said on the 2010 expirations?

Jordan Sadler – Keybanc Capital Markets

Yes, Griffin Towers Plaza.

Shant Koumriqian

So if you look at those, well first I’m on page 20 of our supplemental, the 10 million repurchase facility Nelson referred to that, that’s a principal payment so we have to make that. We have no further extension options on the Von Karman or the Northside loan.

On 207 Goode, we have a one-year extension. It will require meeting a debt service coverage ratio test one-o coverage, so to the extent we don’t meet that, we would have to negotiate with the lender, however, it’s the same lender with Von Karman, Northside who did extend, if you recall early, these loans.

So it’s a lender we’ve had a long standing relationship with and we’ve had a long standing relationship with and we were successful in extending the first two loans, even though we didn’t meet the tests. Griffin Towers has a one-year extension. The only requirement literally is to deliver an interest rate cap that could have been a three-year financing, but we structured it as a two with a one-year extension.

PLF, we have to meet a test, which at this point, we do meet and we can extend that for one year. And then extensions four and five have additional tests with a little bit stricter coverage requirements. Then if we go down to City Parkway, that’s similar to Griffin.

Our sole requirement there, I believe, is to provide an interest rate cap and as you recall, there’s 12 million of recourse there so that’s effectively one of the motivators to the lender. We just were required to provide a cap.

Brea, which is Brea Corporate and Brea Financial, I believe there’s a debt service coverage ratio test. We currently don’t meet, however, we’ve had really good leasing at this project, and to the extent that we don’t meet it, I think we have options like paying down the debt or providing a letter of credit. So there is some flexibility there.

And then if you go down all the way to Lantana Media Campus, down at the bottom that’s the mortgage on the original phase. That’s a CMBS piece of debt that comes due.

Jordan Sadler – Keybanc Capital Markets

On Brea, the month of maturity there?

Shant Koumriqian

May 2010.

Operator

That concludes our question and answer session today. I will now turn the call over to the Maguire Properties management team for any closing comments they might have.

Nelson C. Rising

Thank you all for your interest and your questions today. As we look at where our focus is, as I mentioned in my opening comments, liquidity and on debt maturities and on leasing activity, we are very pleased with the results so far this year and hopefully when we speak next after the next quarter, that optimism will continue. Thanks so much and have a good day.

Operator

Ladies and gentlemen, that concludes our conference call for today. You may all disconnect and thank you for participating.

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Source: Maguire Properties Inc. Q4 2008 Earnings Call Transcript
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