Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Maguire Properties Inc. (NYSE:MPG)

Q2 2009 Earnings Call

August 10, 2009; 11:00 am ET

Executives

Nelson Rising - President & Chief Executive Officer

Shant Koumriqian - Chief Financial Officer

Peggy Moretti - Senior Vice President, Investor and Public Relations

Analysts

Michael Bilerman - Citigroup

Gordon Watson - Ore Hill Partner

Jordan Sadler - KeyBanc Capital

Erin Aslakson - Stifel Nicolaus

Kenneth Hart - Hart Capital Management

Jordan Sadler - Keybanc Capital

Charles Fisher - LS Partners

Tory Jarmain - Captain Jack LLC

[Enrique Guttiérez] - Green Street

Operator

Welcome to the Maguire Properties conference call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions)

I would now like to turn the conference over to Ms. Peggy Moretti of Maguire Properties. Please proceed.

Peggy Moretti

Good morning. During the course of today’s call, management will make forward-looking statements regarding among other things projected 2009 results of operations, 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’s Regulation G maybe accessed in the Investor Relations section of the Maguire Properties website at www.maguireproperties.com.

Now I’d like to turn the call other to Nelson Rising, President and Chief Executive Officer. Nelson.

Nelson Rising

Thank you, Peggy and good morning and thank all of you for joining our call today. I’d like to begin my comments this morning with a brief background on the assets involved in our plan announced today. All seven of these assets were acquired by the company after the initial public offering of Maguire in June 2003.

Four were part of the acquisition of 24 EOP/Blackstone assets in April 2007. One was part of the acquisition of the common wealth portfolio in March of 2005 and Park Place I and Park Place II were acquired in 2004. The borrower for each of these loans secured by these assets is a special purpose entity formed for the purpose of owning and operating and individual property.

Prior short falls in monthly debt service and leasing costs have been mostly satisfied through property level reserves. These reserves were funded at acquisitions with mortgage proceeds. As these reserves are exhausted, capital of contributions to these special purpose entities will be required.

Six of these assets included in the plan are in cumbered by CMBS mortgage loans. The master servicers of the mortgage loans in cumber in these properties have been advised that the future operating and debt service requirements for the property will rely only on property generated revenues and as a result, the borrower expects an imminent default under the loan.

In order to expedite the master servicers review we have provided them with loan and property level information, which substantiates that a debt service payment default is imminent and will remain uncured based upon the anticipated performance of the property. We have also provided the master servicers with additional background information including market data that will help facilitate further conversation.

Once the master servicer concludes the default is imminent, the matter will be turned over to the special servicer. It is our intent to work cooperatively with the special servicers and to offer to provide management services at our costs to help facilitate a sale of the property. The indebtedness on the seventh property, Park Place I is a balance sheet loan. These ground rules for dealing with balance sheet loans are much simpler than those for dealing with CMBS loans.

On August 6 we enter into a deed in lieu of foreclosure with the balance sheet lender on this seventh asset, and we are working cooperatively with that lender to provide management services during the transition period. Projected cash flow savings for the next 18 months from the disposition of these seven assets are anticipated to be approximately $30 million.

In addition, in order to maintain occupancy at current levels over the next 18 months, we would have needed approximately $25 million to pay leasing costs including tenant improvements and leasing commissions. The remaining reserves are only $10 million and hence additional capital of $15 million would be required. Therefore, a successful implementation of our plan will result in a cash savings of approximately $45 million.

In order to provide the company with greater flexibility with respect to the implementation of the plan announced today, we entered into loan modification, to amend certain financial covenants of our Plaza Las Fuentes mortgage and Lantana Media Campus construction loan, both effective June 30, 2009. We made certain principle pay downs and agreed to other changes to the loan agreements as described on our quarterly report on Form 10-Q for the quarter ended June 30, 2009.

Since I assumed the role of President and CEO of Maguire Properties in late May of 2008, I’ve been focused on debt service burdens and maturities of our massive debt and the impact this has on our liquidity. Today announcement of board approval of management’s plan to dispose of the seven assets in cooperation with lenders is the next step in our efforts over the last 14 months to manage our liquidity.

These efforts have included the following: In May of 2008, the board of directors suspended the company’s common stock dividend saving the company $27.7 million per quarter in cash outflow.

In August of 2008, the company sold the Main Plaza office towers in Irvine and generated $48 million in cash proceeds. In September of 2008, the company entered into a $100 million working capital loan with Wells Fargo Bank in Eurohypo in the lead and Allied Irish Bank participating. The loan was secured by Plaza Las Fuentes and the proceeds provided liquidity for operations and to pay down project level debt and extend maturities on three loans. We were extremely fortunate to close this loan on September 30, during the midst of the financial crisis.

BethLehman filed bankruptcy on September 15, and Wachovia rejected the offer from Citicorp in favor of acquisition by Wells Fargo on October, 3. Certainly, very uncertain times and difficult times to close any loan and we’re very appreciative of the fact that we were able to do that. September of 2008, we completed a cooperative sale with the lender of Citi Plaza and then in November of 2008, we extent maturities on Brea in Citi Parkway.

In December of 2008, the Board of Directors were to suspend payment of the dividend on our preferred stock and this saved $4.8 million per quarter in cash outlook. In March of 2009, we completed the sale to a tenant of a building in Irvine for $22 million eliminating the full obligation of a $20 million mortgage loan anticipating a 2011 lease rollover. To illustrate the sluggishness of the Orange County market conditions, $22 million sale this was reported as the largest sale in 2009 in the first quarter of 2009 in Orange County by the Orange County Business Journal.

In June of this year, a sale of City Parkway was structured in a cooperative arrangement with the project lender and the company facilitated the conveyance of the property to the buyer. This allowed company to eliminate project level debt that was scheduled to mature in 2010 and to eliminate a master lease obligation with a potential exposure of up to $12 million.

Also in June of 2009, we completed the sale of 3161 Michelson, this eliminated project level debt schedule to mature in September of this year and in addition, it eliminated the New Century master lease obligation with the potential exposure of $16 million, eliminated a $24 million principal repayment guarantee.

Eliminated a master lease parking obligation with potential exposures of approximately $50 million and released a 1380 space parking structure from the encumberness of the then existing mortgage. This sale resulted in an increase in cash flow of approximately $11.5 million by eliminating the negative carry on this property.

On August 6, 2009, last Thursday, the is company entered into an agreement just sale a parking structure, certain surface parking areas with related development rights at Park Place under, which we have received a non-refundable deposit. It was possible to include the parking structure in this transaction because of the earlier sale of 3161 Michelson releases parking structure from the encumberence of the existing mortgage, this illustrates again just how interrelated so many of our transactions have been.

During the quarter, we also reached agreement with our counterparty to terminate a forward starting interest rate swap on the Lantana construction loan or $11.3 million. A substantial savings over the $23 million estimated termination cost contained in our first quarter 10-Q. We also extended the 345 maturity date of our Lantana Media Campus construction loan to September 30, 2009, with an option to extend maturity of this loan to June 13, 2010.

We are also very pleased that during the second quarter we completed new leases and renewals for approximately 452,000 square feet. That includes our pro rata share of our joint venture properties. In earlier conversation we mentioned that we had focused our efforts to reduce our leasing costs to illustrate the average leasing cost per square foot per year for 2006 to 2008 range from 450 to 550 per square foot per year. For the first six months of 2009, leasing costs have averaged $3.50 per square foot per year.

With those opening comments, I am delighted to turn the call over to questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Erin Aslakson – Stifel Nicolaus

Erin Aslakson – Stifel Nicolaus

I wanted to ask if you could provide a little bit more detail regarding Maguire’s current liquidity position, its cash burn rate, and highlight those items and any covenant issues you are currently facing helpful. Thank you.

Nelson Rising

I want to have Shant answer the question about our current and projected liquidity. I would say this is an introduction to that response. The efforts that we have made over the course of the last year have put us in a position where we are comfortable with our liquidity as we look forward for the next 12 months. Shant want to you get some color to that.

Shant Koumriqian

Our cash position as of June 30 unrestricted cash is $64 million our restricted cash is approximately $160 million. If you compare cash on a combined basis to where we were last quarter you will notice that our total cash restricted and unrestricted decrease by $44 million. That includes $11 million included in assets held for sale which is 3161 that was restricted cash associated with 3161.

If you look at the $44 million decrease, the main reasons for the decrease are a number of transactions that occurred during the quarter. The larger ones are 3161, to close that, the sale of that asset we had to contribute approximately $12 million of cash more than half of that came from restricted cash that was held by the lender that would not have been released for years.

$10million was utilized to make an annual bullet payment under our Griffin Tower repurchase facility and $6 million was used to break the Lantana swap in Nelson referred to broke it swap for about $11.3 million half of that was paid prior to quarter end, the remaining payment was paid after quarter end. In addition we had about $3 million of principle amortization that we paid during the quarter some of which is gone away with asset sales.

City Parkway and asset that Nelson referred to you that we saw during the quarter we had to contribute just under $2 million to dispose of that asset, but in return we were, we extinguished a mass release obligation that could have cost up to $12 million at some point in the future and it would have started at some point in the future looking at the economics of that asset.

Then from a capital expenditure perspective we incurred approximately $8 million during the quarter in cash to fund tenant improvements and lease commissions. We incurred a few million dollars to pay for building capital expenditures, and then we had approximately $3 million of other uses, so if you track through all of that, our cash burn during the quarter was $44 million.

If you look at the operations of the assets, as we have discussed each quarter that the operating results of the properties have improved slightly. Again this quarter, cash NOI at the entire portfolio level exceeded cash interest expense and for the first time covered all of our G&A. So, what was not covered during the quarter was principle payments on various loans, which on a combined basis were about $4 million, and capital expenditures tenant improvements and leasing cost and again, historically the majorities of these capital expenditures have been funded with our restricted cash.

So if you track through from an operating perspective, a cash use from operations primarily to fund capital expenditure and principle payments was approximately $13.5 million during the quarter. With the sale of 3161 City Parkway which were reflected in the quarters cash use, the burn would have reduced by about $4 million for the quarter and then when you look at this next group of assets, the seven assets that Nelson referred to during the quarter, those assets for the quarter had approximately a $4 million impact cash NOI less that service and then probably had another a million dollar plus of capital expenditure.

So, on a pro forma basis if you exclude this group of seven assets that is we announced this morning, you would have an additional $4 million to $5 million improvement on the cash burn. We have been making progress, made some progress during the quarter on 3161 at City Parkway as we look forward to the rest of the year, as we dispose of these assets that we talked about this morning the cash burn will decrease.

Looking forward to cash, earned towards the end of the year, we’re projecting somewhere in the range of $140 million to $150 million of total cash by the end of the year, that assumes these seven assets are no longer a part of that cash, and we’ll have approximately somewhere in the range of $40 million of unrestricted cash with the remainder being in restricted cash comprised that leasing interest reserves and various collateral accounts.

Operator

Your next question comes from Jordan Sadler - KeyBanc Capital.

Jordan Sadler - KeyBanc Capital

Can you give us an update from here, sort of the direction you’ll be headed or there more asset giveback opportunities and then I’ll have a follow up after that.

Nelson Rising

We continue to evaluate, what I call non-core assets in the portfolio. The core being of course our downtown Los Angeles assets, which dominate the LA Skyline and I think present us with a great asset base for our future plans. At this point, we have nothing else to announce as to how we are going address other assets which will have the same goal in mind of increasing liquidity, but I can assure you that there will be others.

Going to the next step, in our plan, is that it is apparent to us that as we solve the problems that we’ve been solving. We increase the likelihood that will be able to attract third party capital either at the asset level or at the company level. I know that’s going to be a challenge, but I think that after the 14 months since I’ve been here, as we’ve cleaned up so many of the problems alike that I alluded to in my prepared remarks, I am optimistic that that’s a real likely possibility.

So it’s a combination of continuing what we’ve been doing to focus on cash flow, focus on our debt burden at the same time now start looking to the future over the prospect of perhaps injecting third party capital as I said either at the property level or at the company level.

Operator

Your next question comes from Gordon Watson - Ore Hill Partner.

Gordon Watson - Ore Hill Partner

I am wondering, what was the total value of the say the parking development you sold in Orange County? You said you got a deposit on that. What was the total value of the sale?

Nelson Rising

The sale, we hope to close very shortly and once we do, we will announce that. We have a policy not to announce or raise specific expectations of cash coming in until what has. It’s a substantial nominate fund we’ll deposit, and we’re anticipating a close in the next couple of days and at which time we will put out a revised filing to illustrate that.

Gordon Watson - Ore Hill Partner

Also in subsequent events that the cash pay downs in Lantana and in Pasadena, what was the number on that?

Nelson Rising

There were two, the cash pay down on Lantana was $6 million, and that came in the form of $4.8 million check in the return of a $1.2 million interest reserve, for Pasadena, the Plaza Las Fuentes loan that was $7 million as well as, which was a principal pay down as well as the increase of amortization by 100,000 per month. Those were the financial implications of those two covenants.

Operator

Your next question comes from Michael Bilerman - Citigroup.

Michael Bilerman - Citigroup

Can you just walk through the asset that is you’re giving back to the banks or defaulting under the CMBS? Just what the GAAP NOI, the cash NOI, your debt service I know you talked about this $4 million to $5 million, but if you can walk through the components of that it would be helpful just to understand the dynamics of the buildings.

Shant Koumriqian

The seven assets that we’re talking might here are Stadium Tower at 2600 Michelson, 550 South Pac Arts Plaza, Park Place Campus, which is comprised of the original acquisition of the four Daniels headquarters and in the subsequent acquisition of 3121 office building in retail and 500 Orange Tower. So, seven projects in total comprised about $4.2 million square feet of office, a little bit of retail Park Place II has about 100,000 square feet of retail.

The total debt on the seven assets is 1.059 billion of debt. The debt was maturing at various dates a significant component of that was the original EOP in 2016 that was maturing 2017 Park place I Phase I debt was a 2014 maturity, and Pac Arts Plaza in the Park Place II portion of the campus was April and March maturity. The interest rate was on a weighted average basis for all of these assets is about 5.54%.

From a NOI perspective, if you were to look at the cash NOI, versus the debt you are looking at a low floor cap rate, unfortunately I don’t have the gap NOI number here in front of me and on combined basis you are looking at about $15 million of interest expense on a quarterly basis for these assets, so $60 million of interest expense. The assets had approximately $15 million in leasing reserves that we are being depleted. So, as the leasing reserves were depleted we would have to contribute cash the assets as well.

Operator

Your next question comes from Tory Jarmain– Captain Jack LLC.

Tory Jarmain– Captain Jack LLC

I think walking away from the Orange county properties is definitely a positive, but I am wondering how long do you think it will be until you burn through remaining cash and are you considering bankruptcy and what are the advantages to that?

Nelson Rising

We are not considering bankruptcy and we feel that of course we are on is for better that course of action. I forgot the first part of the question.

Tory Jarmain– Captain Jack LLC

I think one of the question was just cash burn, and like I stated earlier, from an operating perspective, the cash burn during the quarter from operations, so that’s cash NOI less debt service, less funding of capital expenditures and principle was about $13.5 million, 3161 City Parkway are in those number, so you get a $3 million improvement there.

Then in addition for this group of asset, the cash burn associated with this group of assets during the quarter was approximately $6 million so as you can see one these assets are dispose we’re still slightly negative primarily due to capital expenditure but again we are still utilizing restricted cash on our balance to fund the majority of our leasing cost, those are funds that will be defeated overtime and need to replace but from a near term liquidity perspective , that’s a major source of cash that we have to lease of our portfolio.

Operator

Your next question comes from Kenneth Hart - Hart Capital Management.

Kenneth Hart - Hart Capital Management

I was wondering if you have a pro forma NAV taken into account these position of these properties in Orange County and also can you speak to the preferred shares in terms of their situation, both in terms of the dividend as well as their safety.

Nelson Rising

Let me take the first part the in December, the Board voted to suspend the payment of the dividend. Under the terms of the preferred stockholders agreement, we can suspend the dividends and for a period of six quarters.

At that point, the holders of preferred shares have the right to have two Board members. We do not have projection, how much longer we would be suspending the dividend again the reason for do it was to preserve corporate cash so, can handle the liquidities as we go through, and walk our way through the burdened some debt we had, with respect to NAV, Shant, your response to that?

Shant Koumriqian

We haven’t historically put out a net asset value, we don’t intend to at this time.

Operator

Your next question comes from [Enrique Guttiérez] – Green Street.

Enrique Guttiérez – Green Street

I want to know you guys talk about leasing trends you’re seeing in your LA portfolio, that droves the assets a thought whereas it came down quite a bit this quarter and want to see, where you think you might see it stabilize and what trends you’re seeing for rest of the year there?

Nelson Rising

We’ve been very fortunate in the downtown market that 2009 was not a year of major rollover. So there have not been a large number of transactions in the marketplace. If we look at our downtown portfolio, we have four buildings that are in occupancy ranging from 92 to 93.8. Those four buildings are KPMG Tower, Wells Towers, 777 Figueroa and Gas Company Tower.

Two Cal Plaza is 84% occupancy; our biggest vacancy in downtown right now is the U.S. Bank Tower, largely because Latham & Watkins moved from the tower, that tower to KPMG last year. We have not yet founded tenant or tenants to occupy that space. The over vacancy in the marketplace is in the 15% to 16% range, which is better than most in the CBDs in the country.

Our occupancy right now is 84.8 for these buildings, and also may I add that two of the buildings one Cal Plaza, which is a joint venture asset with Macquarie, on which we own 20%. Macquarie is marketing that asset, and 550 South Hope is an asset that’s included in group of seven that we talked about today. I think that these rates are in the $22 to $23 net level.

As I mentioned in another portion of my comments, that we are focused on reducing our leasing cost by focusing on the net rep numbers rather than trying by a higher net rep by giving more cash to the tenant in terms of debt improvements, or at least takeovers. We feel that’s a prudent thing for us to do given our cash positions is to be realistic with our proposals as it relates to base rent and not incur the big capital costs.

Operator

Your next question comes from Jordan Sadler - Keybanc Capital.

Jordan Sadler - Keybanc Capital

Can you maybe give us some color on what the remaining assets are with the biggest cash burn rates?

Shant Koumriqian

If you were to look at the portfolio, basically in Orange Country, probably an asset that has got the largest cash burn would be an asset called Griffin towers. It also has associated with it a repurchase facility that is recourse to the company. So there’s a $23.2 million, I believe recourse facility. Though upon Karman Campus, which is 151,000 square foot building in Irvine, it’s a building that we constructed that’s currently empty, that’s obviously has cash burn from interest expense. Again it has a recourse obligation associated with it approximately $7 million.

Going down to Central Orange County, we have City Tower, which is an asset we acquired from the EOP acquisition. It’s coming close to covering that service. It has an interest reserve currently, which is pretty much making the difference. We have some good leasing activity at that asset. We recently did a full floor, which is going to make a big chunk of that difference as the Tech moves in later on in the quarter.

Then in Central Orange, we also having that, it’s called 3800 Chapman. It’s about 63% vacant, so it is not covering debt service. However, it has a debt service guarantee until maturity for 100% of the debt service. So, our focus there is to lease-up that asset if we can achieve a one-one debt service coverage ratio for two consecutive quarters. We can eliminate the recourse and that has been our strategy for that assets.

Then in San Diego, we have an asset called 2385 Northside, which was a construction asset, was 52% leased. That tenant will start paying rent later on in the year. So, it’ll make a debt into the short fall. Currently, we have no rent coming in and we are very close to signing another lease that will take that asset to 72% occupied.

Our strategy there has been to focus on leasing because again, that asset has a repayment guarantee that can be eliminated, as you achieve certain debt service coverage ratio. So, for the rest of our portfolio, it’s really concentrated in Orange County, Two Cal Plaza as an asset also that is closed. It’s got quite a bit of done on it as you know and it’s now 84% lease I believe, because we got three floors back this quarter from a credited.

So, those were the remaining assets that I would say are challenged. Some of the other ones are definitely positive and some of them are close as well, but the once that I just went through are the biggest problems that we are facing today.

Jordan Sadler - Keybanc Capital

The US Bank Tower is covering.

Nelson Rising

Yes it is. The debt on that is pretty low from a per square foot basis. I think the debt was put in place in 2002. We have not refinanced that asset. So, even at 62% leased there’s significant cash flow and plenty of upside of course, as you can lease it up.

Jordan Sadler - Keybanc Capital

Can you just give us an update on the asset sales that are away from the ones you discussed like Lantana or any others that may be ongoing?

Shant Koumriqian

Well, the Lantana sales process continues. We are still negotiating on that transaction. I can’t give you an estimate on the close, but we have alternatives in mind as a back up to the person with whom we are now negotiating, should they decide not to proceed.

With respect to Cal Plaza, that’s a process that is being basically driven by Maguire. There has been a significant interest in the asset. Again, it’s under contract, and the person who has it under contract with the entity is in the process of raising, trying to put together a final financing on that property.

With respect to the other asset sale, the one I mentioned the transaction which we entered in to last Thursday. We’re optimistic it’ll close and we’ll be very happy to make that announcement as the sales price once it does. There are other assets that we are looking at selling, 130 State College, perhaps is one in Orange County or rather in Brea, but the asset sales we’ve been talking about are the Lantana, our Cal Plaza one and the transaction we just described this morning with the parking structure that the land and development rights in Orange County.

Jordan Sadler - Keybanc Capital

Then can you give us any update on occupancy expectations? How should we expect the occupancy to trend throughout the rest of this year and maybe into early next year?

Nelson Rising

From an occupancy perspective, we have a pretty manageable lease expression scheduled through the end of the year. In the fourth quarter of the year, we typically include. When you look at our expiration schedule, I need to restate this; we have a few short term leases as well that typically get rolled over month-to-month.

Typically associated with a larger tenant that has rolled month-to-month for years now, so therefore through the end of year, we’ve got a very little explorations coming up, where look into the end of year maybe a slight roll down in occupancy to flat. Our focus at this point now is leasing for 2010. So we don’t expect significant amount of absorption either positive or negative between now and the end of year.

Looking into 2010, again the lease expirations schedule is fairly manageable for the couple of quarter. The latter half of 2010, we do have a large lease specific enterprise that US Bank Tower. It’s an original tenant in the building, when the building was built, they have left and have sublease most of their space and we are in discussion with some of the subtenants. We’ll keep some, but not all. So looking into the latter half of 2010, you’ll see some negative absorption specifically at US Bank Tower.

Jordan Sadler - Keybanc Capital

How much of the occupancy are they? How many square feet?

Shant Koumriqian

It’s a little over 200,000 square feet, so about 15% of the building.

Jordan Sadler - Keybanc Capital

Is that comparable to the amount of rent roughly?

Shant Koumriqian

It’s a little bit more of the rent, because as we disclosed in the past that’s an about market lease, but it’s about 15% of the occupancy of the building.

Operator

Your next question comes from Michael Bilerman - Citigroup.

Michael Bilerman - Citigroup

As you walk through those seven building, how much of the restricted cash that’s sitting on the balance sheet today gets released effectively in the transaction and then maybe if you can also review the existing master lease and other sort of debt service guarantees, because I had thought some of the buildings had some master lease and debt service guarantees on the ones you’re handing back.

Nelson Rising

On those seven buildings, there is a small master lease obligation on 2600 Michelson. The master lease obligations and other guarantees that we have are on some of the remaining assets in Orange County. Shant mentioned briefly, there is the Griffin Towers, which has a repositioning loan that was put on, which is full recourse. It was $33 million. We paid it down to $23 million.

Then there’s a guarantee on the three construction loans individual guarantee the highest of which is $9.8 million for 207 Goode in Glendale and then the Von Karman construction loan, it’s about $6 million and then there’s a $4 million guarantee on that construction loan in San Diego at Northside.

As Shant pointed out, as we lease, we’ll be able to have that guarantee disappear at certain levels of leasing. We have considerable interest in the Von Karman asset with nothing to report at this point and construction is not quite finished on 207 Goode, but that Glendale market is not as robust as we would like it to be for a building of that size.

Michael Bilerman - Citigroup

Then on in terms of the restricted cash from the balance sheet today, how much is actively released, when you hand the keys back?

Nelson Rising

Shant has got the answer to that.

Shant Koumriqian

Michael, to answer one of the other questions, I think that’s what you would have cash cap rates on a GAAP cap rate you’re looking it about 5%. That’s on the assets we’re taking about.

Michael Bilerman - Citigroup

That’s on the debt balance you’re talking about?

Shant Koumriqian

Yes, on the debt. Assuming 5% cap rate, assuming you dispose of the assets for the debt and these are mostly non-recourse of months. The restricted cash, it includes approximately $22.5 million for these assets. So $15 million is leasing reserves, about $2.5 million are interest reserves and then $5 million are other reserves property taxes and prepaid rents, and things of that nature.

On the recourse obligations as Nelson pointed out, we have these disclosed in our Q on pages 49 and 50, but effectively $23 million under the Griffin Towers loan. Our three construction loans will have $20 million of recourse. If you look at the Q, the 207 Goode loan is currently listed at $45 million.

Once we get the certificate of occupancy, which we will here in the next month, the recourse burns down and then beyond that we have a couple of debt service guarantees, the largest of which would be 3800 Chapman, which again is disclosed in the Q, so.

Michael Bilerman - Citigroup

Then just a last question, you talked a little about that you’re not considering bankruptcy. I want if you just qualify your comps little bit, obviously the public filings, specifically in the 10-K, made that reference at, obviously one of the alternatives that you could have to face. If you continue to have cash shortfalls and can’t come up with the cash to meet the other refinancing that you have over the next two years.

You’re still in somewhat of the negative cash burn even once you give off these assets. So can you qualify why that’s not an alternative to solving some of the debt burden that you have?

Nelson Rising

The statements that are in the Q and were in the K, are into a section of risk factors and risk factors are could recover a whole range of things that could, but not necessarily will happen. So that referenced was to put the investor our notice, but this is something that it could happen, not that it will or should happen. So I wouldn’t read more into what’s in our risk factors statements than that. We are on the course, which I outlined earlier today for the last 14 months to one by one to take on the challenges with each individual asset and it’s just old fashioned blocking and tackling.

We’ve got a number of more that we’ve got in our sites and at this point, to answer the question was asked me, are we considering bankruptcy. The answer is, no. We are focused on the alternatives to that which is to move the company forward and be able to position it to get access to third party capital either at the project level or building level or at the corporate level. So that’s a course we’re on and I feel that given the progress we’ve made.

Given the fact that we began to see the economy come close to bottoming out, and we are looking maybe that the headwinds from the economy will not be as stiff as they have been. Therefore optimistic that stay in this course is the way to go.

Michael Bilerman - Citigroup

Do you have a sense of how much capital you would need to on that you talk about either at the asset level or the corporate level in terms of an injection? Have you sort of circled what that amount may be in order to delever and continue on as they compete?

Nelson Rising

I don’t have a number at this point in mind, but again, if you go through all the things that we’ve accomplished in these last four months to have that become a realistic conversation. Our focus has been on where we’ve been now going forward with this new initiative announced and something we’ll probably be announcing later this year with respect to other assets that are negative. Then we’ll have a better handle on what that number would be, but it’s very much now in our, in our thinking by ball process that is a very real option for us.

Operator

Your next question comes from Charles Fisher - LS Partners.

Charles Fisher - LS Partners

Could you give us a little bit of color on Lantana, in terms of what the cash flow is currently and maybe what you expect that with the next 12 months versus debt service?

Shant Koumriqian

We don’t disclose specific cash flow numbers on an asset by asset basis, but Lantana’s broken out between two components, the original component we acquired and the 200,000 square feet that we developed. The original component is generating sufficient cash flow, on healthy debt service coverage. We expect it to continue in the normal course we have lease expirations that are coming up that we’ll fund pro rata project cash flows.

On the development side, the cash flow is starting to commence. We had a number of leases that commenced in the first and second quarter just like with any development asset, you have a free period that will burn off. Currently, we’re utilizing interest reserves under the construction loan to fund the debt service short fall, looking to the latter half of the year the project will start generating sufficient cash flow to cover debt service, and then as additional leasing is done.

Additional spaces come on line with any development, you might have some space coming front with additional space of the tenants growing to once we have full rent payment from in place tenants it will be more than enough cash flow to cover debt service on that project. So looking forward the projects is help sustaining and of course if we sale the asset it will generate we hope will generate cash proceeds for us, but of course you will lose some of that NOI.

Charles Fisher - LS Partners

One last question on Park Place, the retail, would that likely go away in a transaction or would we keep it?

Nelson Rising

No, the retail in Park Place II there’s an office building parking structure and 3121 office building in the retail and that’s all one, one asset and that would go.

Operator

Your next question comes from Tory Jarmain– Captain Jack LLC.

Tory Jarmain– Captain Jack LLC

Which three properties have the most equity and can you give me specific amounts?

Nelson Rising

I’m sorry which three properties? Are you talking about.

Tory Jarmain– Captain Jack LLC

Yes, out of your portfolio?

Nelson Rising

We have not been, had the practice of disclosing any of the project level, which you have to do in order to get to that conclusion. So, that’s information we have not been and don’t intend to provide.

Operator

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

Gordon Watson – Ore Hill Partners

You talk about when you eventually will get raise some capital third party capital, I know its a little premature, but you could must have, tough ideas, what sort of ideas would you have in terms of what might be your options in terms of raising capital.

Nelson Rising

We’re there in the formation, and plans in the formation, it would be premature to throw ideas out of, until they were fully betted and we see if there’s variable opportunity there. Just to, say this, we are very focused on it now as we get through this next phase, and we hope to come up with something that would work at either a project level or at a company level or maybe both and we have been thinking about it, we have not focus something to discuss.

Operator

Thank you. That concludes our question-and-answer session today. I will now turn the call back over to Maguire Properties Management Team for any closing remarks they may have. Gentlemen.

Nelson Rising

Thank you everybody for your interest in the company and being on the call today. We feel really pleased with the process we have made over the last 14 months and we’re going to continue our efforts to deal with the issues that we have to confront which before disclosed in all of our public documents, look forward to talking with you all in another three months. Thank you very much.

Operator

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

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Maguire Properties Inc. Q2 2009 Earnings Call Transcript
This Transcript
All Transcripts