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Executives

Peggy Moretti – EVP, Investor and Public Relations and Chief Administrative Officer

Nelson Rising – President and CEO

Shant Koumriqian – CFO

Analysts

Craig Mailman – KeyBanc Capital Markets

John Guinee – Stifel

Suzanne Kim – Credit Suisse

Michael Knott – Green Street Advisors

Brian Chindurly – BAM

Wilkes Graham – Compass Point

John Guinee – Stifel Nicolaus

Andrew Soul – Asopos Creek Advisors [ph]

Michael Knott – Greenstreet Advisors

MPG Office Trust, Inc. (MPG) Q3 2010 Earnings Conference Call November 2, 2010 11:00 AM ET

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the MPG Office Trust conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session.

(Operator Instructions)

As a reminder, this conference is being recorded today, November 02, 2010. I would now like to turn the conference over to Ms. Peggy Moretti of MPG Office Trust. Please proceed.

Peggy Moretti

During the course of today’s call, management will make forward-looking statements regarding, among other things, projected 2010 results of operations, leasing, competitive conditions, financing and cash. 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 projections. MPG office trust does not intend to update these prior to our next quarterly earnings release and we expressly disclaim any obligations to make any such update.

Our supplemental package along with information required under SEC Regulation G may be accessed in the Investor Relations section of the MPG Office Trust website at www.mpgoffice.com. And now I’d like to turn the call over to our Chief Executive Officer Nelson Rising.

Nelson Rising

Good morning and thank you for joining us for our conference call.

The net loss for the third quarter of 2010 was $17.9 million or $0.36 per share. This compares favorably to a net loss available to common stockholders of $46.8 million or $0.97 per share for the quarter ended September 30, 2009. As you know, MPG defaulted on six non-recourse CMDS loans amounting to $830 million in August of 2009.

In early October 2010, MPG gave notice of eminent default through the master servicer on a $140 million loan secured by City Tower in Orange County.

The company is no longer servicing the debt and is no longer paying property taxes operating shortfalls or leasing costs with respect to these seven assets. In previous calls, we have said that the assets and liabilities as well as operating results are reflected on our balance sheet and in continuing results of operations until the time the assets are sold.

In addition, we recorded default interest at 5% in addition to the contractual interest rate through the loan agreements. At the time of disposition of these default assets, the assets and liabilities of these properties are removed from our balance sheet and will record again in discontinued operations upon the extinguishment of the debt as we did in the third quarter of 2010.

In the third quarter, earnings were positively impacted by gains totaling $23.7 million from the disposition of Park Place Two. These gains were partially offset by $9.9 million of default interest on other default properties and an impairment charge of $1.4 million was recorded in connection with the writedown of 207 Goode to its estimated fair value. This asset was sold in the fourth quarter. Shant will add additional color during the Q&A portions of this call to these accounting procedures.

With respect to our liability or liquidity rather, at the end of the third quarter 2010, we had cash on hand of $180 million excluding properties and default; $120 million of this was restricted for specific purposes including swap collateral, prepaid rents, leasing commissions and tenant improvement reserves as well as property tax and insurance reserves and $60 million of this cash was unrestricted and has been available for general corporate purposes. This is $10.8 million less than the unrestricted cash balance at the end of the second quarter of 2010. These funds were used to pay for leasing cost including the release renewal of Southern California Gas Company, a gas company tower in downtown Los Angeles and Disney Corporation in Glendale.

Addressing debt maturities remains a continuing focus. Subsequent to the end of the third quarter, we extended the loan on Plaza Las Fuentes till September 29, 2011. In order to complete a one-year extension of this loan, we will require to make a $9 million paydown using a combination of $6.5 million of restricted cash that we funded on October 29, 2010 and $2.5 million of restricted cash, which was held by the lender in reserves. There are no additional maturities in 2010.

For the third quarter and through October 31st, our leasing activities have been very encouraging. In the third quarter and through October 31st, we leased 1.1 million square feet in our wholly-owned assets. In addition, we leased 230,000 square feet in properties held in a joint venture with Charter Hall.

The total leasing through October 31st was 1.3 million square feet of lease renewals and new tenants and our total leasing year-to-date is in excess of 2 million square feet. Our occupancy in downtown Los Angeles is 82% as follows: Wells Fargo Center, 94.4%; KPMG Tower, 93.4%, Gas Company Tower, 92.6%; two Cal Plaza, 82%; the 777 Tower, 77.4%; One Californian Plaza, 76.5%; and US Bank Tower, 57.5%. The vacancy in US Bank Tower is due in large part to Latham & Watkins moving from there to the KPMG Tower and the exploration of the Pacific Enterprise lease on June 30, 2010.

We are encouraged by the level of interest we have seen recently for the available space in this tower. We lettered into direct leases with 74% of the Pacific Enterprises subtenants and we are in renewal negotiations with tenants for approximately 75,000 square feet within the Tower.

We are also very encouraged by the fact that approximately 403,000 square feet is currently the subject of lease negotiations.

That concludes my initial comments. I will be happy to turn it over to question and answers.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Your first question comes from the line of Jordan Sadler of KeyBanc Capital Markets.

Craig Mailman – KeyBanc Capital Markets

Good morning, it’s Craig Mailman here with Jordan. Shant, can you just give us an update on where you think the cash position will be by year end and maybe an update also on the burn rate?

Shant Koumriqian

Sure. I’ll start with the burn rate for the current quarter. Again for the current quarter our cash NOI less debt service, less G&A exceeded – was slightly positive, let’s say it was a few million dollars positive. During the current quarter, we had quite a bit of leasing activity as Nelson referred to in his remarks. We leased a million square feet and you will notice if you look at our AFFO schedule, you will see quite a bit more leasing cost in the AFFO schedule. In total, we incurred approximately 10 million square feet in leasing cost during the quarter that we funded, a big component of that were leasing commissions including leasing commissions paid on The Gas Company renewal of 350,000 square feet at The Gas Company and the Disney renewal of 160,000 square feet in Glendale.

So from a burn perspective, the majority of the burn during the quarter was driven by leasing cost, which is what we’ve talked about in the past to the extent that we’re more successful in leasing space, we will be incurring leasing costs.

Craig Mailman – KeyBanc Capital Markets

So on a normalized basis, you guys are basically positive now ex any big Tis?

Shant Koumriqian

At this point, the majority of the – all the costs that we’re incurring are TIs and as Nelson said in the call, excuse me, in his remarks unrestricted cash decreased by $10.8 million during the quarter, we had over $10 million of leasing cost that we incurred. So that was the main use of cash of unrestricted cash during the quarter. In terms of where we expect our unrestricted cash balances to be at the end of the year, again, we will get a range of $40 million to $45 million. The major uses of that cash are two components; number one, the paydown that we had to make and principle payments that we will continue to make in the fourth quarter on our PLF loan. Previously, we had expected a $7 million to $15 million paydown. The actual cash paydown from unrestricted cash will be about $6.5 million, as Nelson referred, and then we have another $1 million of amortization per quarter. We will several million dollars of disposition costs associated with our properties and default as we’re working through those, and then the rest of the costs will be related to leasing activity. As Nelson referred to, we have signed several leases after quarter end and we have several leases in various stages where we expect to incur leasing commissions primarily in 2010, it will start (inaudible) tenant improvement costs as well. So, the two major components between now and the end of the year would be the PLF paydown and then the rest of any unrestricted cash use would go towards leasing costs.

Craig Mailman – KeyBanc Capital Markets

Okay, then is restricted a little bit tougher to forecast?

Shant Koumriqian

No, our unrestricted cash forecast towards the end of the year excluding properties and default – our expectation is that we would be somewhere in –

Nelson Rising

$180 million through the third quarter.

Shant Koumriqian

So the $180 million in total. We had $120 million of restricted cash excluding properties and default. Our expectation is that restricted cash flow range between $115 million and $125 million at the end of the year again excluding properties and default. Major variables there will be swap collateral and prepaid rents typically towards the end of the year some of our tenants will prepay rent so those are the two big variables on that range.

Craig Mailman – KeyBanc Capital Markets

Great thanks.

Operator

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

John Guinee – Stifel

Hi, nice job, Peggy et al. Swap related costs or swap related possible available cash, which won’t be known until sometime in 2011. I have in my notes was maybe as high as $38 million, do you have any sense there, Shant, in terms of restricted cash that may free up as your swaps mature?

Shant Koumriqian

Yes, so the current balance as of September 30th is now $36.8 million. It was $38.7 million as of June 30th, we had a return of collateral of about $1.9 million. We will update our forecast in the Q that we will file next week. Our expectation is that we would receive a return of somewhere between $4 million and $6 million this year. As we get into 2011 and 2012, the rest of that cash will come back. The swap itself expires in September of 2012, we’re posting collateral for determination value of that swap, so the net present value of future expected payments plus a $5 million credit. So as we get into 2011 and 2012, it becomes mathematically impossible for the cash to not come back. So, $4 million to $6 million is our expectation between now and the end of the year and then the rest of the cash will come back in 2011 and 2012.

John Guinee – Stifel

So your $40 million to $45 million cash on hand at year end assumes $4 million to $6 million coming back from the swap this year?

Shant Koumriqian

That’s correct.

John Guinee – Stifel

Then what are you expecting to be able to obtain I guess is the right word in 2011 and is that just $30 million to $32 million?

Shant Koumriqian

Well, in 2011 and 2012 the rest of it will come back. It is hard to predict exactly but somewhere in the lines of probably $20 million coming back in 2011 and the rest in 2012 and to the extent that LIBOR moves in the opposite direction, you will potentially receive a little bit less next year in 2011, whatever we do not receive in 2011 will be returned in 2012.

John Guinee – Stifel

I guess I am not allowed to ask a second question, but the obvious question is what is going on with the preferred shares?

Nelson Rising

Well, at this point we have not had any official request for the exercise of the right they have. As you know John, we went for six successive quarters without paying a dividend and that triggered the right for the preferred holders to elect two members to the Board of Directors. Like, we have not received, as I said, any official notice from them that there is a move to exercise that right.

John Guinee – Stifel

Good thank you.

Operator

Your next question comes from the line of Suzanne Kim of Credit Suisse.

Suzanne Kim – Credit Suisse

Hi, I have a question regarding – what is currently in LOI right now, do you have anything else in LOI whether it’s parcels of land or actual assets or properties in default? And yes, if you can go into detail about that that will be great.

Shant Koumriqian

In regards to actual property asset transactions, we do have an asset in Orange County land parcel that’s under contract. We continue to work through closing conditions and we’ll report the results once we finally close. In regards to properties and default, we have cut deals with a number of our servicers; those servicers have the right to take the assets to market. Currently Packard’s Plaza is in the market as is our Quintana Campus, which is a joint venture asset and our expectation is that several other assets will go to markets shortly, but again those are the special servicers working through receivers that they put in place to market those assets. We are not directly involved in that process.

Suzanne Kim – Credit Suisse

I also didn’t catch the leases that were in LOI. I think there was – you said something about $140,000 in LOI, is that correct or did I mishear that?

Shant Koumriqian

No, what Nelson did say was in October we signed about 100,000 square feet of leases in our wholly owned assets. The comment was 1.1 million square feet of leasing. In the third quarter and through October 31st, a million of that square footage was signed during the quarter a 100,000 square feet after the quarter. In addition, we signed leases in our joint venture assets for 230,000 square feet and then we have several 100,000 square feet of activity on primarily our downtown LA assets, which Nelson referred to that we’re very optimistic about as well.

Nelson Rising

That was 403,000 square feet under various stages of negotiation of the lease, the letters of intent have been signed and we are hoping to have those leases all signed by the end of the year.

Suzanne Kim – Credit Suisse

Are they for this year or are they for next year, expirations?

Shant Koumriqian

A lot of them are renewals for 2011 and then there are some positive new leasing as well not necessarily positive absorption because again we have other leases that are expiring in 2011 that we are currently working on as well, but a lot of renewals and some new blood as well.

Suzanne Kim – Credit Suisse

Okay, thank you so much.

Operator

Your next question comes from the line of Michael Knott of Green Street Advisors.

Michael Knott – Green Street Advisors

Question for you Nelson on the KPMG loan in 2012, when that matures $400 million about $350 a foot, seems like you guys are in a little bit of stuck between a rock and a hard place there between trying to refinance a high balance and then on the other hand the tax protection on a potential sale. What guidance can you provide on how you are thinking about that, what the alternatives are, just anything you can offer on that would be helpful, thanks.

Nelson Rising

Well, we certainly are aware of the issue. We are looking at a variety of alternatives including the raising of third party equity in order to restructure and extend that loan, but we haven’t made any final decisions but that is certainly the direction in which we are focused.

Michael Knott – Green Street Advisors

Just to clarify you are talking about equity as in a JV partner on that specific asset or are you talking about raising equity at the corporate level?

Shant Koumriqian

I was referring to a JV on that particular asset.

Michael Knott – Green Street Advisors

Okay, thanks.

Operator

Your next question comes from the line of Brian Chindurly of BAM.

Brian Chindurly – BAM

Most of my questions have been answered but curious you have some supplemental assets. You get some land held for development, you have got potentially the hotel at Plaza Las Fuentes that has been mentioned as a potential sale candidate. Just curious what your thoughts are on potentially monetizing some assets in order to help supplement the cash balance while you examine some of your other options.

Nelson Rising

Well, as Shant, mentioned we do have property under contract for sale in Orange County that we hope we would be able to work through that by the end of the year, if not first quarter of next. We are currently marketing the land at 755 Figueroa. There have been some issues there with respect to the entitlements. We have now extended those entitlements for nine years, and so that gives them very encouraging development. And then there is the question of what Brookfield was intending to do with the retail component, and they have – I don’t think they’ve announced a new tenant yet but I think that will be announced shortly and that will also clarify the overall situation that I think to make that 755 parcel more marketable. Yet we are very focused on whether or not we bring to market Plaza Las Fuentes Hotel.

We are in the process of looking at – there is tax protection on the opposite portion, there is not tax protection on the hotel portion. We are in the process of separating. It’s all on the airspace lease over the parking structure and so we are working through the issues that would make it possible to consider the sale of Plaza Las Fuentes, but no definitive decision has been made on this as yet.

Well those would be the assets that would be available to assist us with our cash situation going forward in 2011 and 2012.

Brian Chindurly – BAM

On the ones that you have got formally out there, any cuff as to what that might represent in ultimate proceeds?

Nelson Rising

It’s too early in the process for me to give a number there.

Brian Chindurly – BAM

Okay. Now, I wanted to make sure that I understood the answer to one of the previous questions as to the roll off of the hedge collateral. Sounds like, if I understood Shant’s response, they’re roughly $20 million of the restricted balance would roll off, meaning convert from restricted cash to unrestricted cash during 2011 and the remainder in 2012, is that a proper interpretation?

Nelson Rising

Approximately, we’ll spend a couple of million dollars either way, because the expectation is for LIBOR to increase into the extent that it doesn’t. Whatever cash does not come back in ‘11 will be returned in ‘12.

Brian Chindurly – BAM

Right. So if – and just thinking through sort of a starting point for sources in uses for 2011, as you mentioned, the cash balance is going to end the year at I believe you said sort of $35 million to $45 million, is that fair?

Nelson Rising

We said $40 million to $45 million.

Brian Chindurly – BAM

Okay, $40 million to $45 million starting point. You’ll possibly be getting some incremental asset sales, but too early to tell what those might represent should get roughly about $20 million freed up from restricted cash in association with the pledge – with the pledged collateral on the swaps. And then on a run rate basis, quarter-to-quarter absent TI and other leasing related costs, sounds like you expect to remain roughly neutral to slightly cash positive.

Shant Koumriqian

Well, in addition – so just to repeat $40 million to $45 million of unrestricted cash, swap collateral that will come back, and again it’s a short-term timing difference. So if it doesn’t come back in one month it will in another. And then we have close to $20 million of restricted cash for leasing reserves and capital expenditure reserves.

One of the things that we focused on has been our leasing program. We renewed a significant amount of lease that’s here in the current quarter, and number of those leases are 2011 expirations that expire in the latter half of 2011, we’re currently talking to and in various stages of lease negotiations with the remainder of the large leases that are expiring in 2011. A lot of those leasing costs will be incurred in ‘12 and we have a fairly light lease expiration scheduled in 2012, as well if you look at our supplemental package in LA County, which is where everyone is focused on.

So, our cash flows are very predictable in 2011, where we will start to have a deterioration in cash flows will be the fourth quarter of 2011 on the gas company lease that we just renewed actually kicks in. Their renewal does not go into effect on 500,000 square feet until November of 2011.

So as we look into next year, we think we have a fairly predictable cash flow stream, and the majority our unrestricted cash will go towards leasing costs, and then we do have a $15 million debt maturity in May of 2011 at a term loan that we have from our Griffin Tower transaction, which is our only principal payment that’s due in 2011.

Brian Chindurly – BAM

Right, got it. And is there – on the other restricted cash items, there are – obviously you guys have done a very, very good job of trying to minimize and get some of that money back from the restricted column into the unrestricted column. Are there other opportunities out there as far as that pot of money that could come back if you’re good at mitigating some of those expenses?

Shant Koumriqian

There is always the ability to flush out a little bit more liquidity from those reserves, but again where we sit today, we do not count on it. But there is always the ability to potentially reduce, for example, property tax [inaudible] should be reassessment of assets, which we’re actively pursuing.

Brian Chindurly – BAM

And then I know I’m well over my limit on questions, so if we can mop up after the call. But the last one is I just want to make sure I understand the bulk of the tax indemnifications roll off between 2013 and 2015 or do some of those begin in 2011, 2012?

Shant Koumriqian

So the way those work they have original expirations and then three one-year extension options. If you look at the Q that we filed last quarter I think we have it in detail, so I can ask for you to go back and take a look. But in summary, Wells Fargo Tower and PLF, the original expiration occurred and we are in the first extension period. If all three extension periods are met, June 2013 is the date that goes roll off. KPMG Tower, US Bank Tower and Gas Company Tower, the original expiration is June 2012, again there are three one-year extensions. Fully extended those obligations or contingent obligations expire in June of 2015.

Brian Chindurly – BAM

Got it. Thank you very much.

Shant Koumriqian

Thank you.

Operator

Your next question comes from the line of Wilkes Graham of Compass Point.

Wilkes Graham – Compass Point

Hi, good morning. Just to clarify on that last question. I mean should we really just assume that all of the one-year extensions on the tax indemnification expiration days will be extended?

Nelson Rising

I would think that is a very good assumption.

Wilkes Graham – Compass Point

Okay. Also another clarification. You’re talking about there’s no asset out there for sale that may still in the fourth quarter, perhaps early next year. I just wanted to clarify is that – that’s a non-default asset.

Nelson Rising

Yes that’s a non-default asset, that’s the land partial in Orange County.

Wilkes Graham – Compass Point

So, is that the – okay, so fair enough. And you mentioned also that the only principal payment you expect in 2011 is on that $15 million term loan. Are there on the Brea Financial Commons or Corporate Place loan and on the PLF those have more extensions. Are there any – do you expect any principal pay downs on those to be able to further extend them into 2012 and 2013?

Nelson Rising

So, for Brea, we have a one-year extension option. We need to meet a 1.1 debt service coverage ratio passed on trailing 12, and we need it today. Our risk obviously is in increase in interest rates, but we already have several quarters behind us of actual results, we’re well in excess of the one-one.

On PLF we have two more one year extension options. There are debt service coverage ratio and LTV test that we would need to meet. The pay down that we have to made this quarter was due to an LTV test. It’s possible that there might be another pay down next year in order to extend it. From our perspective what drove the majority of that pay down was the decreased evaluation of the hotel since the price of value at origination. As the hotel started to perform better our expectation is that the value of the hotel could be higher next year. The fact we made it such a significant pay down this year diminishes the potential requirement for a pay down next year, but again there is an LTV test that we would have to meet.

Wilkes Graham – Compass Point

Okay. And then just finally back to the KPMG loan, I know you guys have mentioned in the past that this is kind of the number one priority along with leasing, and you mentioned that you could potentially JV that asset. Are you also looking at JV-ing some of the other tax indemnified assets that have equity like US Bank which I know you have mentioned earlier this year? Are you getting appetite for those assets as well?

Nelson Rising

Well, at this point, our focus is really on the KPMG Tower with respect to a joint venture partner, because of the maturity and because of the size of the loan. On US Bank Tower maturity is further out and the amount of the loan is much less. So that – I would just say the focus is on the KPMG Tower. And as mentioned in response to an earlier question, there is a considerable amount of focus on the possibility of the sale of Plaza Las Fuentes Hotel.

Operator

Your next question is a follow up from the line of John Guinee of Stifel.

John Guinee – Stifel Nicolaus

Regarding corporate recourse on your individual asset specific loans, by our records we show at one time there was some corporate recourse on the Plaza Las Fuentes loan and then some diminimous on corporate 3800 Chapman. Can you go through those two specifically and then any other corporate recourse that there may be?

Nelson Rising

3800 Chapman is a debt service guarantee and it expires when we have leasing with, I think the prescribed coverage ratio is 1.1 and for a prescribed number of quarters. We are very close to getting to that level of leasing and obviously we’re focusing our attentions to getting there.

With respect to the PLF loan, there is a corporate liability in the amount, what’s the total amount, gross contingent liability of $18 million and the obligation is triggered if there is a default by the two office tenants. That’s East/West Bank and Fannie Mae, and these are both very strong entities from the standpoint of the paying the obligations. Their leases are below market and so we feel a great deal of risk about that, but there is that exposure.

John Guinee – Stifel Nicolaus

Any other corporate or liability or recourse on asset specific loans?

Shant Koumriqian

The rest of them are all your standard non-recourse (inaudible) guarantees for any typical non-recourse loan.

Nelson Rising

But just to underscore something Shant mentioned earlier, we do have remaining principle payment as part of the overall guarantee that was existent on the Brooklyn Tower loan and when that payment is made next year that eliminates the obligations we had for corporate guarantees.

John Guinee – Stifel Nicolaus

Great. Thank you.

Nelson Rising

Thank you.

Operator

Your next question is a follow up from the line of Jordan Sadler of KeyBanc Capital Markets.

Craig Mailman – KeyBanc Capital Markets

Hi It’s Craig Mellon here again for Jordan. Have you guys looked at possibly monetizing the NOL’s you have? Has there been any discussion on those type of transaction to kind of monetize those in the near term?

Nelson Rising

I’m not aware of any transactions where we can monetize the NOL’s.

Craig Mellon – KeyBanc Capital Markets

And then just moving to leasing, Nelson, a couple quarters ago I think you had mentioned that Orange County was maybe getting towards the bottom or starting to stabilize, but when you look at the new leasing, it’s still mostly downtown LA where the majority of your activity has been. Could you just maybe talk about the prospects for Orange County?

Nelson Rising

Yes, I will. In an overview standpoint, one of the reasons we’ve had so little Orange County leasing is we have very few assets left. One asset we do have is Brea and there we do have terrific success with leasing. It was 100,000 square feet so far this year.

Shant Koumriqian

We’ve done quite a bit of leasing. Occupancy is at 80%.

Nelson Rising

And I think we’ve got some other activity on that property which we might be able to talk about at the end of the fourth quarter. Orange County has bottomed I believe. There was – it was hit very hard by the whole subprime tenancy that caused a lot of speculative building but overall, it’s coming back. I really do feel it’s hit bottom. I think you’re going to see rents get back to where they were by 2013. I don’t think much before that. But certainly the downturn seems to have stabilized and it’s starting to come back.

Craig Mellon – KeyBanc Capital Markets

Great. Thank you.

Operator

Your next question comes from the line of Joe Bishop.

Joe Bishop

Yes, good morning. Thank you very much for taking or questions. I would like to – I’m a preferred shareholder and I would like to see us represented on the Board. What is the procedure for getting that procedure started?

Nelson Rising

Well, the process is that we get official notification from the holders of 5% of the preferred shares, and then based on that a meeting is set up and proxies would be solicited by those who have that percentage of the preferred. And then there would be an election held and there would be two directors first proposed to the preferred holders, and then of those that were proposed, it would be the two highest recipients would be entitled to seats on the Board.

It’s important to note that under the documents that when a preferred shareholder is on the Board, they have a duty of loyalty to all the shareholders, but at this point we have not had any official contact. We’ve had many conversations with preferred holders over the last couple of years, but no official notification of the desire to move forward.

And if you’d like more detail on that, please give Peggy Moretti a call and we’ll give you all the material that you would need.

Joe Bishop

Good. Just a follow up, what would we be looking for in the way of encouragement for the resumption of the preferred dividends. We’d need to see you returning to profitability each quarter?

Nelson Rising

Yes.

Joe Bishop

OK. Thank you very much.

Operator

Your next question comes from the line of Andrew Soul of Asopos [ph] Creek Advisors.

Andrew Soul – Asopos Creek Advisors

Good morning Nelson. Thank you very much for taking my question. I just wanted to talk a little bit about Plaza Las Fuentes and the Westin Hotel. The loan that you have against those properties, is any part of that loan just by the hotel? In other words, is it segregated or is it $90 million against both of the properties?

Nelson Rising

It is against both the properties, and so it is not segregated. It was a blanket loan. We put that loan on September 29, 2008 and three participants, EuroHypo [ph], Wells Fargo and Allied Irish, but it’s not segregated. It applies across the board.

So if we were to do something with PLF, we would need to have a split of the properties and then finance – and then sell – if we did that, sell the hotel and the remaining debt would be on the office building.

Andrew Soul – Asopos Creek Advisors

The hotel market, as I’m sure you’re aware in terms of, is very hot right now in terms of getting to be able market hotels, the quality properties. Do you see that there’s any likelihood of getting any cash on the sale of that hotel or just really go to paying down debt?

Nelson Rising

I think that there would be a significant amount of cash. Once the amount of the value of the office building, we would finance that and then the other cash would be freed up. And the proceeds – I can’t give you a number yet, but I share your view of what’s happening in the hotel business today, and that’s one of the reasons we are positioning ourselves to take advantage of that sometime in the beginning of next year.

Andrew Soul – Asopos Creek Advisors

Well thank you very much.

Nelson Rising

Thank you.

Operator

Your next question is a follow up from the line of Brian Chindurly of BAM.

Brian Chindurly – BAM

Hey guys. I just wanted to follow up on something you mentioned during your prepared remarks. You mentioned that you either were in negotiations or had signed sub leases with a percentage of the sub lessees under the gas company and I just missed the number. I was wondering if you could give that to me.

Nelson Rising

That was a sub lessees of the Civic Enterprises, which as one point was the parent of the gas company. We think the number is about 74% of those, it is 74% of those sub lessees to be entering into direct leases with us.

In addition to that, we have two major lease transactions which in the aggregate would be about 74,000 square feet that we’re now negotiating. These are existing tenants negotiating renewals.

Brian Chindurly – BAM

So just so I understand, so the original gas company lease was roughly 500,000 square feet, is that right, and they renewed for 350,000?

Nelson Rising

The original gas company lease was 575.

Brian Chindurly – BAM

575. OK.

Nelson Rising

And they renewed for 350,000 and we are now in the process of negotiating another, one more floor with. It hasn’t been completed yet.

Brian Chindurly – BAM

One more floor with the gas company?

Nelson Rising

Yes.

Brian Chindurly – BAM

So that would take them above 350?

Nelson Rising

375.

Brian Chindurly – BAM

OK. And then of remainder, they had brought in sub lessees for most of that unused space that they were not fully using. You’ve now worked directly with those sub lessees to convert them to direct lessees to the tune of 74%. You’re still negotiating with a few others?

Nelson Rising

Again, what I was referring to the 74% that was the specific enterprises tenants in U.S. Bank Tower. I wasn’t focused on what was happening at gas company tower.

With respect to gas company tower, there is as Shant pointed out, we are receiving the existing rent through November of 2011. At the end of November 2011, we will go from having Gas Company paying rent of 575,000 square feet to paying rent on what will be 375,000 square feet.

Now they weren’t occupying the 575. There were sub tenants. So as it relates to those sub tenants, Shant, what is the latest there?

Shant Koumriqian

So we did as part of that renewal, and you’ll see (inaudible) kind of stable that the gas company now shows only 500,000 square feet. We did go direct with a sub tenant. Our expectation is that tenant will be leaving the building, but for a period of time we went direct to the tenant as a concession in connection with the renewal of 350,000 square feet for the gas company.

Brian Chindurly – BAM

Got it. Appreciate it.

Operator

Your next question is a follow up from the line of Michael Knott of Greenstreet Advisors.

Michael Knott – Greenstreet Advisors

I have two questions for you. One is, can you just give us some commentary on what your strategic thinking is with respect to the Glendale asset? I think those had been on and off the market a couple of times at least and maybe kind of close to a deal at least once, so just give us your thoughts there. And two, what do you think about the downtown LA leasing market? Do you feel like it’s bottomed? What are you seeing in terms of leasing velocity, tenant demand, interest from other sub markets, etc.?

Nelson Rising

Well going to Glendale first, we had five properties there. We now have four. 207 Good was a property that was built at the high point of the market and completed at the low point of the market, and so we went through a default process with DBBA, who was the successor interest to Guarantee Bank, and we were able to get out of that building for the amount of our guarantee which is 15% of loan balance.

The other assets, the occupancy is quite good in Glendale. As I mentioned earlier, we did enter into a 163,000 square foot lease with Disney and that was very important over that the BofA tower. And we do not think that the Glendale assets are part of our strategic long term direction.

On the other hand as speak today, we are receiving positive cash flow from them. So right now, we have no current plans to market those, but I think in the intermediate term, we will probably be looking at the sale of Glendale. We haven’t made that decision yet. As long as it’s positive cash flow, it doesn’t seem to be a high level of priority.

With respect to downtown leasing market, it is my perception that things have bottomed out. I think the amount of leasing we’ve done illustrates that. We had three of the four biggest leases done in downtown Los Angeles over the last four months, and where the tenants are coming from, one of the tenants for 777 came from the west side, which is something that’s encouraging.

The west side rents did not drop as far as they did downtown, so we think that’s going to continue to provide a source of tenants for being downtown.

One of the major sources of tenancy in downtown has been the relocation, or rather the location of national law firms, and when the national law firms have moved into Southern California, all of them have focused on downtown Los Angeles, so I think that’s very important.

Another source is that given where rents are today, there are tenants in B plus and A minus buildings who are moving up to the institutional quality buildings. We’ve had several tenants involved in that category and overall there’s between 5 to 600 million square feet of tenants that fall into that category.

One of the things about the downtown market is supply constraint. I don’t think there’s going to be any new building in office space and so I’m optimistic about where it’s headed. I think the amount of leasing we’ve done this year, year to date, over two million square feet, and over 400,000 square feet on direct space under negotiations, lease negotiations, so these are people who have signed letters of intent.

So it’s a much more encouraging situation than it was a year ago, I can say for sure.

Michael Knott – Greenstreet Advisors

Thank you.

Operator

Your next question is a follow up from Wilkes Graham of Compass Point.

Wilkes Graham – Compass Point

Hey, thanks for the follow up. You know, given the high valuation of the loan at KPMG, do you guys – I’m just trying to see if I can clarify that your strategy is to JV that asset and sell the Plaza Las Fuentes Hotel, and that the proceeds from those two transactions would be enough to take care of that maturity.

Nelson Rising

I would say that the JV would be enough to take care of that maturity. The sale, should we go ahead with the sale of PLF Hotel, the Westin Hotel, those funds would be used for a variety of corporate purposed including our leasing and including dealing with other maturities.

Wilkes Graham – Compass Point

OK, great. Thank you.

Operator

Thank you. That concludes our question and answer session today. I’ll now turn the call over to the MPB Office Trust management team or any closing remarks they may have. Gentlemen.

Nelson Rising

I just want to thank you all for participating in the call and for your interest in MPG Office Trust. I have a very positive view about what’s happening. The economy seems to be turning around and certainly it seems to be reflecting itself in the activity we’ve experienced over the last quarter, and 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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