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Maguire Properties Inc. (NYSE:MPG)

Q1 2009 Earnings Call

May 6, 2009 11:00 am ET

Executives

Peggy Moretti – Senior Vice President, Investor and Public Relations

Nelson C. Rising – Chief Executive Officer, President

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 Bilerman – Citi

Michael Knott – Green Street Advisors

Gordon Watson – Ore Hill Partners

[Charles Fresher – LF Partners]

[David Szymanski] – Investor

Operator

Ladies and gentlemen, thank you for standing by. Welcome to Maguire Properties conference call. (Operator Instructions). I would now like to turn the conference over to Ms. Peggy Moretti of Maguire Properties. Please proceed.

Peggy Moretti

Good morning and thanks for joining us for our first quarter 2009 earnings conference call. During the course of today's call management will make forward-looking statement regarding among other things projected 2009 results of operations, leasing, competitive conditions and financing and acquisitions. The company's projections are affected by many factors outside of its control. For 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?

Nelson C. Rising

Good morning. These continue to be challenging times. Although there are some signs our financial system is improving after the worst financial crisis since 1929, the real estate sector is still faced with a lack of liquidity.

Commercial banks remain on the sidelines and the CMBS markets that provided over $300 billion in CMBS financing in 2007 are all but nonexistent in 2009. The economic contraction continues. Five million jobs lost through the end of March and many experts anticipate the loss of an additional 3 million jobs by year-end.

Consumer spending that provided 70% of GDP before the recession is greatly reduced and consumer confidence at an all time low in February. Against this very difficult backdrop we are keeping a clear and sharp focus on our leasing activities, our debt maturities and our liquidity.

But we announce this morning a new lease with US Bank at our 3121 Building in Park Place in Irvine. The 10-year 82,500 square foot lease commences in August of this year. US Bank's growth has included expansion in Southern California through a number of acquisitions during the last year and we're particularly pleased to expand our relationship with US Bank in Orange County.

As you know, US Bank occupies nearly 155,000 square feet in what is now known as US Bank Tower in downtown Los Angeles and we consider them a very valued tenant and partner. This transaction demonstrates that healthy business continues to grow and expand.

We're in discussions with a number of other lease transactions in Orange County and are optimistic that we will bring some if not all to fruition over the coming months. When we look at the leasing for the first quarter of 2009, note that the 291,000 square feet of leases reported represents our effective square footage and does not include the total leasing in the joint venture assets of which we own 20%. Including this, our leasing team completed overall leasing of 516,000 square feet in the quarter.

We have been very focused on controlling our leasing costs so any lower rents can be offset in part by lowering these costs. I think a positive takeaway is that our average lease cost in first quarter of 2009 were less than half the average for 2008.

Moving to downtown Los Angeles, we consider to see decent leasing across our properties. However, we have a near-term challenge with additional space available due to the four floors being vacated by Ames Financial at 2 California Plaza and to the contraction experienced by law firms that will result in additional sublease space on the market.

We are long-term believers in the health and vitality of downtown thanks in large part to it being the hub of transportation, a growing residential community, sports and cultural centers within L.A. Live and Staple Center and a new 3,000 room convention hotel opening next year. For all these reasons we continue to be strong believers in the vitality of downtown and we think it's one of the strongest submarkets – CBD markets, rather, in the country.

With respect to debt maturities we are comfortable both with 2009 and 2010 maturities. As a reminder we have three loan obligations in the aggregate of $255 million due in 2009. A $165 million construction loan secured by 3161 Michelson in Irvine matures in September of 2009. We're under a contract for sale with a respected and qualified buyer and we anticipate a closing this quarter.

We have an $80 million construction loan secured by out Lantana Entertainment Media Campus due in June 2009. We are now in active negotiations on the disposition of this property and this would enable us to retire that construction loan.

Finally we have a $200 million – excuse me, $10 million parent company debt due on Griffin Towers on June 1, of which $1.5 million has been paid and our cash flow projections for the year have allocated funds to meet this.

Our 2010 maturities consist of two construction loans, one a $24 million loan for the former Washington Mutual Campus at 17855 von Karman in Irvine and a $14 million construction loan on our north side completed development in Mission City in San Diego. In addition, a $98 million mortgage loan on Lantana is due in January 2010 and this loan should be retired, as I mentioned, with a sale of Lantana in 2009. There's also a second payment of the $10 million obligation on Griffin Towers. All other maturities in 2010 have extension options.

With respect to liquidity, as of March 31 we had $257 million of cash, $67 million of which is restricted and $190 million had to follow in restrictions, $76 million for interest and leasing reserves, $67 million set aside in various collateral accounts that will be released in the future and $47 million are for prepaid rents, taxes and insurance.

While these are indeed challenging times, we are keeping our focus and taking care of each of our issues one at a time. I am now pleased to take your questions.

Question-and-Answer Session

Operator

We'll now open up the conference call for questions. (Operator Instructions). Your first question comes from Jordan Sadler – Keybanc Capital Markets.

Jordan Sadler – Keybanc Capital Markets

Just wanted to get some additional color on the asset sales and the expected impact on the burn rate, so maybe just in two parts, one, how big do you think these asset sales will be in terms of net proceeds back to the company above the debt? And then ultimately how did the sale of these assets affect the burn rate?

Nelson C. Rising

Well, on your first question, since these sales are in process, in one case under contract, the other case under negotiations, we are not prepared to discuss price. I will say that with respect to the two sales, one under contract, 3161, and the other Lantana, we do believe that those sales will deal with the maturities on the loans on those two respective properties.

Now, with respect to the burn rate, obviously the reduction of the ongoing cost of carrying 3161 will be helpful. I don't have a precise number for you on that because it depends on the actual closings.

Jordan Sadler – Keybanc Capital Markets

OK. What was the burn rate during the quarter?

Nelson C. Rising

Shant, will you address that?

Shant Koumriqian

If you look at 3161 alone, we do have mass release payments that we're currently making that do get trapped and are amortized against the loan. We had a $3.4 million pay down during the quarter, so that will give you an indication of the cash requirement to pay down that loan. And that will continue as long as those master lease obligations are in place, that will continue for the foreseeable future, until you lease up the project and hit certain coverage ratios. So at least from a principal pay down perspective, the current quarter hit was $3.5 million on that project. So that will give you an indication of burn.

Operator

Your next question comes from John Guinee – Stifel.

John Guinee – Stifel Nicolaus & Company

Thanks. First, the additional $23.5 million impairment on 3161 Michelson, is that essentially safe to say that was just a haircut in the last 60 or 90 days?

Nelson C. Rising

No, not exactly. What transpired was when we took the impairment in the fourth quarter of 2008 we were estimating what the sales price would be, and the costs associated with that and the additional 23 reflects, now, the transaction that we are in the process of trying to close.

John Guinee – Stifel Nicolaus & Company

And what exactly are you selling at 3161 Michelson? You've got, obviously, the core building. You've got a lot of directly associated parking. You've got some excess parking. You've got some sites. What's part of that transaction?

Nelson C. Rising

Well, the transaction includes the parking structure, PS-2, and the building. Interestingly enough, which is a very positive aspect to this, after the sale closes, it will release the mortgage on PS-5. And this parking structure, therefore, will be unencumbered and has a significant value.

John Guinee – Stifel Nicolaus & Company

Going back to liquidity, when you cut right through it, how much cash do you have available to do whatever you want to do with it, the $250 million plus? How much is what might be referred to as totally unencumbered, totally at your discretion?

Nelson C. Rising

Well, I mentioned there is $67 million that is unrestricted. Also, I mentioned that we have $67 million set aside in various collateral accounts that will be released in the future. We think about $35 million of that will be released in 2009. So that brings us to in excess of $100 million of what you would call free cash. It's important –

John Guinee – Stifel Nicolaus & Company

And then how much would have to come out of pocket when 3161 Michelson closes?

Nelson C. Rising

That number we would prefer to have that all come about when we close. There are costs associated with it, but at this point, I'm not prepared to estimate that.

John Guinee – Stifel Nicolaus & Company

Okay. Last question. Why did your interest costs go up so much Q-over-Q? Looks like it went from $67 million to $80 million.

Nelson C. Rising

Shant?

Shant Koumriqian

John, we have a forward-starting interest rate swap that was required in connection with the Lantana construction loan. And now that we are in the process of selling that asset, we no longer qualify for hedge accounting. So previously we were marking that hedge to market through OCI. And now, since we no longer qualify for hedge accounting, we had to take the mark-to-market to earnings this quarter. So that's why interest increased.

The charge there was about $15.3 million, so if you back that out, interest expense actually decreased approximately $3 million compared to last quarter.

Operator

Your next question comes from Michael Bilerman – Citi.

Michael Bilerman – Citi

Good morning. [Irwin Gus] is with me as well. Nelson, you talked in your press release, you know a pretty strong statement of if you're unable to generate the additional cash from a bunch of different sources, that you'll have liquidity related problems, and may be opposed to significant risks, which I assume is similar to in the 10-K, a Chapter 11 filing. Can you be very specific of really what your sources and uses, from a cash perspective are, in order for that not to occur?

Nelson C. Rising

Well, first of all, you're referring to the K. That was a list of things that could happen, not a list of what will happen. So it's important to understand that. I'm one who believes in robust and full disclosure, and that is what was contained in the K.

With respect to the amounts of cash we have, as I just went through with John a moment ago, we're looking at in excess of $100 million this year. We think that's comfortable to get us through, and that is with existing resources. It does not rely on any additional sales.

Michael Bilerman – Citi

But at the same time, you're still in a cash burn anywhere from $20 million or so a quarter in terms of a negative cash flow, let alone some of the loans that you need to refinance. And at least, looking at the impairment charge on 3161, maybe there's some depreciation in there, but you've marked it down to below where the debt is, let alone a lot of the closing costs that you were talking about.

Nelson C. Rising

Yes, well, the amount of the debt is very close to the purchase price. But again, I'm not going to get into those specifics at this time, until the transaction closes.

Michael Bilerman – Citi

Okay. And just the last one for me, the extension options for all the 2010 loans are all subject to certain conditions. Can you talk a little about, I mean, you've said it as a matter of fact that all those loans will be able to be extended next year. I mean is there a certain thing or certain conditions that would make that not possible?

Nelson C. Rising

Actually what I said was that there are extension options for those. We can go through them in detail for you. Shant?

Shant Koumriqian

Yes, if you look at our 2010 maturities, which we had outlined in our K as well, we do have two construction loans that come due, von Karman and Northside, with no further extension options. On a combined basis, that's about $40 million. So those do mature with no further extension options.

Then we do have a currently $40 million construction loan on 207 Goode, with an extension option. Tests would need to be met, which we currently do not meet, and that would likely be a discussion with the lender to extend that loan.

Then if you look at our mortgage loans, we have four PLF, Griffin Towers, City Parkway and Brea. All four of those have extension rights, two of them, effectively outright, Griffin and City Parkway. I believe we have to deliver an interest rate cap. There are some other conditions as well, but none of them with financial metrics.

PLF has tests which we believe we currently meet and we'll have to continue to meet those tests, and then Brea, as well, as a test that needs to be met. We're currently close to meeting it, but again, that loan comes due next year, and we'll have to deal with it at that time. And to the extent that we don't meet a test on both PLF and Brea, there is the ability to do a pay down on the loan. So the entire loan would not come due. So those are our maturities through 2010.

Operator

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

Michael Knott – Green Street Advisors

Hey, Nelson, can you just clarify your comments on the potential sale of Lantana? I sort of missed what you'd said about it.

Nelson C. Rising

Mike, we're in serious discussion with – let's go back and do a little bit of background. We did a very serious marketing effort. We are in very serious discussions at this point for the sale. We are optimistic that there will be a sale of that property, I think in this quarter or maybe the very early part of the third quarter.

Michael Knott – Green Street Advisors

Okay. And then can you talk about downtown L.A.? It looks like the leasing fundamentals continue to hold up, and rental rates continue to be higher than your expiring leases there on a cash basis. The expiring rents go up dramatically in '10, and then in '11 as well, if I recall. Can you talk about your prospects for rolling down significantly in downtown L.A. in 2010?

Nelson C. Rising

Could you repeat the last part, rolling down?

Michael Knott – Green Street Advisors

Your leases that expire in 2010 in L.A. look like they're in the high 20s but you've been signing leases in the low 20s it looks like.

Nelson C. Rising

I know what you mean. You mean rolling down the rents? Shant?

Shant Koumriqian

Yes, in future years in '10 and '11 that's primarily driven by two leases at two separate buildings that have been above market since our IPO. So in 2010 the big driver is at US Bank Tower. There's about 218,000 square feet which was an original lease in the building with Pacific Enterprises. And that will be expiring.

In place rents there are in mid $37 range so clearly those will roll down, but that's been expected. And we've disclosed that previously as well. And then in 2011 the big driver is the Southern California Gas Company lease that's 576,000 square feet in the Gas Company Tower again with net rents in the $37 range, original lease that was signed when the building was built. And again it's been above market and that will roll down as well. Those are really the two drivers that are skewing the numbers up.

Michael Knott – Green Street Advisors

Do you expect renewals there?

Nelson C. Rising

At this point it would be premature to say. We don't expect renewal for Pacific Enterprises, that's actually Sempra now. And we are not sure what's going to happen with the gas company.

Operator

(Operator Instructions) Your next question comes from Gordon Watson – Ore Hill Partners.

Gordon Watson – Ore Hill Partners

I asked this question last quarter and there was good disclosure in the case so thank you. But in terms of the different guarantees from the holding company on different payments, I know there are these master lease payments but I'm just having a little difficulty on the construction loans. Presumably there is some form of recourse.

I'm just having trouble figuring out what the exact cash sort of minimum that is guaranteed by the holding company that you need to make in the next couple of years because it seems to me like there's enough equity in certain of your buildings that add to valuations currently out there of your preferred and your common stock.

There's plenty of equity there to cover both of those valuations that a lot of the stuff that's underwater you could get out of. So I think really the only pertinent thing to me is what, are there holding company allocations that you think could cause you serious problems in the next two years or not?

Nelson C. Rising

Well we do have holding company obligations. I wouldn't characterize them as causing us serious problems, but they can't be denied. For example, on the construction loans, on von Karman construction loan there is a $6 million guarantee, on Mission there's a $4 million guarantee. Of course having guarantees on construction loans is a common practice.

There is the guarantee that I alluded to in my comments on Griffin Towers. It's an unusual one. It's a $35 million, unusual in the real estate transactions, it's a $35 million repurchase obligation, $10 million this year which I mentioned we've already paid down $1.5 million and we have $8.5 million due. Next year there is a similar payment of $10 million and then the following year there's a $15 million bringing the total to $35 million.

With respect to other obligations we have many buildings master leases which are expiring, they roll. Shant, you can give them more detail on that. But basically there's no question that the guarantees are an issue we have to address but we think that they're manageable. Shant?

Shant Koumriqian

Just to touch upon a couple more I mean in order of magnitude 3161 has the most significant recourse obligations, followed by Griffin as Nelson referred to. Going down a couple more construction loans, Lantana currently has a $22 million repayment guarantee as tenants move in and we meet tests, that guarantee can burn down, or will burn down eventually to zero.

And then the 207 Goode construction loan currently has a repayment guarantee on 100% of the debt until you complete the building which again is customary for a construction loan. At that point it burns down to just under $10 million and there's the ability for it to burn down further as you lease up space. But in its current unleased condition, once we complete the project the recourse on that would burn down to just under $10 million.

Gordon Watson – Ore Hill Partners

What's the number on 3161?

Shant Koumriqian

It's currently $24 million.

Gordon Watson – Ore Hill Partners

It seems from those numbers and the total available cash number that you gave earlier, so sort of worst case scenario it looks like you can have these, I mean plus the master lease payments are not huge over the next two years. It seems like you should be pretty comfortable with that just leaving out other stuff, just the recourse stuff to the whole income thing.

Nelson C. Rising

Particularly with the sale of Lantana, but you're correct to point out that's obviously an issue and we tried to be as robust as we can be on the disclosure.

Gordon Watson – Ore Hill Partners

And then just one final question, could you maybe go into a little bit on what you were thinking with the Winthrop Realty denying their waiver on the preferreds, what the process there and what your thought process was?

Nelson C. Rising

Thank you for that question. We have a standing policy that the maximum any one person can own, one entity can own is 9.8%. The reason for that is the five and 50 rule. No fewer than five people can own 50% in order to meet the retest. So that's been a long-standing policy of Maguire and when we receive the request, each time we evaluate the request. I take these requests seriously. We have board confirmation before we reject them, but we're in a situation where if we accepted one, we would then – what would we do about the others? Again it's the retest of no fewer than five can own 50%.

Operator

(Operator Instructions) Your next question comes from [Charles Fresher – LF Partners].

[Charles Fresher – LF Partners]

Nelson, a couple things, Northside Drive, am I accurate in saying that when the Innova lease kicks in that property's going to be 100% occupied or close to it?

Mark T. Lammas

This is Mark speaking. That building is roughly 92,000 feet and the Innova lease takes up a bit more than half of that footage, so slightly under half sorry, 45,000 feet.

[Charles Fresher – LF Partners]

So when you show it in your supplemental as being 51% occupied, that's the Innova lease?

Mark T. Lammas

Yes.

[Charles Fresher – LF Partners]

Is there a release price on the Westin Hotel? I know the Westin is cross, is part of the PLF loan.

Mark T. Lammas

There's one – this is Mark again speaking – there's just one loan on both the office and hotel component of PLF with no separate stated release price.

[Charles Fresher – LF Partners]

Do you have cash flow currently at US Bank Tower considering where your occupancy is right now? You have a low debt. Your debt per square foot is $184 a square foot.

Mark T. Lammas

Yes, that asset is currently generating positive cash flow. That was put in place many, many years ago and as you noted I think the per square foot debt value is below $200 a foot.

[Charles Fresher – LF Partners]

Is that asset somehow permanently impaired due to terrorism fears of people wanting to be in that building?

Nelson C. Rising

No.

[Charles Fresher – LF Partners]

If you could, my next question is your plans for 130 State? It looks like it's unleveraged. Is your plan to sell the asset, refinance it or maybe just use it as collateral if you need to in the future?

Nelson C. Rising

Are you referring to the property at Brea?

[Charles Fresher – LF Partners]

Yes, 130 State College.

Nelson C. Rising

And again your question?

[Charles Fresher – LF Partners]

Well there's no debt on the asset and I was wondering if your plan is either to keep it unleveraged, try to finance it or use it possibly as additional collateral if you have to with one of your other lenders?

Nelson C. Rising

It could be all of the above. It's a nice option to have.

[Charles Fresher – LF Partners]

Regarding Park Place retail, was there one retail tenant that caused the drop in occupancies?

Mark T. Lammas

No, there were a few. That project has a number of 1,000 square foot to 2,000 square foot tenants so it's probably two 2,500 footers.

[Charles Fresher – LF Partners]

What do you think the prospects are for releasing the space?

Mark T. Lammas

Good.

Nelson C. Rising

Well one has to keep in mind that it's a great location, and that really is the important asset that we have there. The other question is, of course, in today's market retail is not the hottest commodity because of consumer spending so while it's a great location and a great center I think it's important to just acknowledge that reality and as consumer confidence comes back and consumer spending comes back that location in Orange County is going to continue to be an extraordinary one for retail.

[Charles Fresher – LF Partners]

By the way, congratulations on the lease to US Bank in Park Place. Is there an allocation on the retail portion on Park Place or is that just part of the $269 million in debt?

Nelson C. Rising

There is – the phase II of Park Place has two components. It has the retail, is has the 150,000 square foot office building and it has two parking structures and so now Shant, is there any specific allocation?

Shant Koumriqian

No.

Nelson C. Rising

No.

Shant Koumriqian

And those four components are the collateral for an original $100 million loan which is amortizing down?

[Charles Fresher – LF Partners]

And if you could bear with me, one or two more quick questions, I know there are tax indemnification issues regarding the Bunker Hill assets would you consider selling those or doing a trade for somebody for maybe other REIT shares in another REIT or is that completely off table due to the tax indemnification issues?

Nelson C. Rising

The tax indemnification issue is there. There are a variety of ways to deal with that. But I think for other reasons we are – have those assets off the table in the sense that they're among the best assets in my view and any CBD in the country and we're strong believers in the future of downtown in that we think those – the core assets downtown are the core assets of Maguire and for those reasons we are not considering a sale.

[Charles Fresher – LF Partners]

Is there any update on One California or the Wells Fargo Tower in Denver?

Nelson C. Rising

Oh, thank you for asking that question. For those who are unfamiliar with this our partner Macquarie Partners came to us and asked us to assist them in the sale. They own 80% of One Cal and the Wells Fargo building in Denver. And we agreed as a trusted partner of Macquarie to go ahead and market those assets.

As of this point I have no color that we can give other than the fact that we are actively marketing them and there is market interest. The ultimate decision on this position will be made by Macquarie but they are being actively marketed and that's about all I can say at this point.

[Charles Fresher – LF Partners]

Now if you could bear with me I have one last question. Lantana obviously we're all hoping and keeping our fingers crossed that there is a lot of equity. That's probably one of the best office building assets in the whole state of California. In addition to Lantana are there other assets – now when I think about the company 777 Tower and Plaza La Fuentes are two of the assets that Maguire that look like they have – there is still a significant amount of equity even in this world. Are there any other assets that you think of that really are sort of contain some real equity that I am missing?

Mark T. Lammas

This is Mark Lammas speaking, I mean yes, there are other assets that contain significant equity I don't this phone call is the right forum to delve into to great specifics over it but yes there is other assets that we view as containing material amounts of equity.

Operator

Your next question comes from the line of [David Szymanski] – Investor.

[David Szymanski] – Investor

… That's for issuing additional preferred or common stock for long term debt by the corporation if so what the arguments for and against taking such action and what the corporation's intentions are in this regard?

Nelson C. Rising

At this point we have no intention of doing that and, so there – I guess that answers it. We have no intention at this point of issuing more preferred or other types of financial obligations.

[David Szymanski] – Investor

Well could you elaborate on your thinking about the pluses and minuses of doing that?

Nelson C. Rising

I don't really think that is appropriate at this point on this call. We have a thought process that goes on, on many issues and I don't think at this point I'm prepared to address that.

[David Szymanski] – Investor

Regarding the hotel note it is generating positive income although the amount is dribbling in in comparison to other assets. Is there any consideration of selling the hotel? What is its equity value at the moment or is it being kept as kind of a prestige property by the corporation?

Nelson C. Rising

Well certainly it is a prestige property but the fact of the matter is that it is a very good asset and it – like all hotels there has been a reduction in RevPAR and reduction in the occupancy because of the downturn in the economy. But we think it's a very favorable asset and it over the years has been a very, very attractive one, provides cash flow to the company.

It is secured by a $100 million mortgage and until we address that issue our ability to sell it would be not limited but it would have to be a situation where that loan would have to be retired with the sale.

[David Szymanski] – Investor

Okay and finally perhaps this is a general question but what is the main driver in your intent to return to a profitable condition? In other words what is the overall – say the five year strategy, five or ten -ear strategy to accomplish this objective? I realize this is a general question but perhaps you can give us some overview?

Nelson C. Rising

That certainly is a general question. I'd rather go back to my opening comments and focus on the issues at hand and that's the first thing we've got to deal with. As I mentioned these are very challenging economic times. We're facing it, everybody else facing them, everybody else in our economy is facing them, and particularly everybody in the real estate economy is facing them.

So that's – our goal is to do the blocking and tackling necessary to allow the company to work our way through the challenges of liquidity the challenges of debt maturity and the challenges of leasing our buildings. Beyond that we don't have a grand vision. I don't think anybody has visibility today of a five-year view of what the economy is going to look like.

My view it's certainly going to be stronger than it is today but we've gone through a complete change and in the underlying fundamentals of our economy and as we deleverage as an economy and as we look at what the overall U.S. economy is going to look like in that context one could have a five or ten-year plan but it requires speculation. So at this point what we're doing is we're focusing on the near term and the issues that will get us to a point where the economy improves and the value of our assets can be realized.

Operator

Your next question comes from the line of John Guinee – Stifel.

John Guinee – Stifel Nicolaus & Company

I just need to clarify something, the Park Place retail, 122,000 square feet, is that security for Park Place I, Park Place II, or is it unsecured?

Nelson C. Rising

It's – not that's security for Park Place II.

John Guinee – Stifel Nicolaus & Company

Got you, okay, second you've got 3161 Michelson, Lantana, One Cal, Denver on the market. Anything else on the market for now?

Nelson C. Rising

Yes, we have active discussions on City Parkway and that's very encouraging. We have other assets that we are contemplating putting on the market but we are at this point – you listed to the ones that are on the market plus Park, City Parkway.

John Guinee – Stifel Nicolaus & Company

Yes. Safe to assume that you're under discussion with virtually every lender?

Nelson C. Rising

Well, it's –

John Guinee – Stifel Nicolaus & Company

Every Orange County lender, sorry?

Nelson C. Rising

It's safe to assume that we are focused on our debt maturities and our debt coverages. That's a very safe assumption.

Operator

Your next question comes from Jordan Sadler – Keybanc Capital Markets.

Jordan Sadler – Keybanc Capital Markets

Thanks, just a follow-up to John's last question, any examples of constructive conversations with master servicers or lenders where properties are clearly underwater relative to the debt that's on them?

Nelson C. Rising

I appreciate the question but any such conversations are best kept with the people who are having them.

Jordan Sadler – Keybanc Capital Markets

Is it safe to say you're making progress and feel optimistic about some of those discussions or is it more challenging than you anticipated?

Mark T. Lammas

You'll recall that we closed last year a sale of a property called City Plaza. I think that stands as a very good example of a successful transaction involving an asset which at the time was below the debt level and resulted in a successful transaction for all parties, the lender and us.

Nelson C. Rising

And I think it's going back to what I said about City Parkway, that's an example of another such transaction. But I think given the delicacy of these issues it's best that we keep the conversations between ourselves and the lenders at this point.

Jordan Sadler – Keybanc Capital Markets

I appreciate the color. Just one for Shant on the $16 million of the swap payment that came due this quarter, was that cash?

Shant Koumriqian

No. Oh, the payment or the charge in interest expense? Is that what you're referring to?

Jordan Sadler – Keybanc Capital Markets

Yes.

Shant Koumriqian

No and we disclosed this in our liquidity section under the Lantana forward starting swap. We do have this swap. We do have to break it later on in the year. This was just marking that breakage value to market through earnings in this point in time, so at this point it's non-cash. It will become cash at some point later on in the year. I think we have to break it sometime in September.

Jordan Sadler – Keybanc Capital Markets

And what is the anticipated cash settlement charge today?

Shant Koumriqian

It's moving because – it's moving up and down. It's fairly volatile. I think we had said in our K that it would be somewhere in the $20 million range and we'll update that when we file our Q next week.

Jordan Sadler – Keybanc Capital Markets

And is that –

Shant Koumriqian

And so this quarter we took 15 of it to earnings. Our projection at year end was somewhere in the low $20 million range.

Jordan Sadler – Keybanc Capital Markets

To be clear that cash will come out of the unrestricted pool.

Shant Koumriqian

That cash will come out of our various sources of cash that we disclosed in our K and we've got it planned in our '09 plan to fund that.

Jordan Sadler – Keybanc Capital Markets

Is there anything in the interest reserves that could be –

Shant Koumriqian

Oh yes, there's definitely – we'll update those as well but we still have money in interest reserves and money and leasing reserves and –

Jordan Sadler – Keybanc Capital Markets

No, that can be accessed –

Nelson C. Rising

He's asking if the – I think what you're asking is is there money available in the interest reserve to pay that swap?

Shant Koumriqian

Under the construction loan, no. It's a free-standing derivative with another party. It's not with the same party that has issued the construction loan.

Operator

Thank you. That concludes our question-and-answer session today. I'll turn the call over to the Maguire Properties management team for any closing comments they might have. Gentlemen?

Nelson C. Rising

Well, I want to thank you all for participating in the call and we are looking forward to our next one with results that will continue to show progress on the goals which we've set for ourselves. Thank you all.

Operator

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

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Source: Maguire Properties Inc. Q1 2009 Earnings Call Transcript
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