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MPG Office Trust, Inc. (NYSE:MPG-OLD)

Q4 2010 Earnings Call

March 2, 2011 11:00 a.m. ET

Executives

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

David Weinstein – President and CEO

Shant Koumriqian – CFO

Analysts

Suzanne Kim – Credit Suisse

Jordan Sadler – Keybanc Capital Markets

John Guinee – Stifel Nicolaus

Michael Knott – Green Street Advisors

Brian Chindurley – BAM

Sam Martini – Omega Advisors

Andrew Sole – Espous Creek Advisors

Wilkes Graham – Compass Point

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, March 3, 2011. I would now like to turn the conference over to Ms. Peggy Moretti of MPG Office Trust. Please proceed.

Peggy Moretti

Good morning, thank you for joining us for our fourth quarter 2010 earnings conference call. 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 expectations. MPG Office Trust does not intend to update these statements 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 David Weinstein, President and CEO. David?

David Weinstein

Good morning. As I’m sure you’re all aware, I was appointed President and CEO of MPG Office Trust at the end of November 2010. I had been an Independent Director on the Board since October 2008. I’ve also served on both the Audit and Finance Committees. Therefore, I’m very familiar with the company’s collection of high-quality assets and the company’s controlling market position here in Downtown Los Angeles.

I’m also aware of the challenges faced by the company and the steps the company has taken to address those challenges. The company remains focused on these challenges and continues to work diligently and creatively to maximize value for our shareholders.

The plan this morning is to provide a review of the results we released yesterday, along with an update on a number of company initiatives, and then we’ll turn the call over to questions. Our CFO, Shant, is here as well, and is obviously well versed in answering your questions.

The company continues to work to implement a strategy that was approved by the Board of Directors and is supported by all of us here in management. The strategy includes maintaining our dominant market position in Downtown Los Angeles, preserving unrestricted cash, restructuring or exiting non-core assets, and extending debt maturities.

Let me start with our cash situation. At December 31, 2010 we had $159.7 million of cash on hand, excluding properties that are in default. About $113 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 approximately $47 million was unrestricted and available for general corporate purposes.

As you would expect, we continue to monitor our cash reserves very closely and are careful in how we deploy capital.

As highlighted in yesterday’s press release, in 2010 the company disposed of a number of non-core assets outside of Downtown Los Angeles. While those dispositions did not generate proceeds for the company, they resulted in the elimination of approximately $648 million of debt and the elimination of $20 million in repayment guarantees. And subsequent to quarter end, we were successful in disposing of a land parcel in Orange County, which resulted in net proceeds of just under $5 million to the company.

The company’s in the process of marketing the Westin Pasadena Hotel for sale. It is too early to provide color on this sale aside from the fact that we received strong interest from a creditable group of buyers.

In addition to the Westin Hotel, Plaza Las Fuentes also includes a 200,000 square foot mixed-use office project. We have recently entered the market to refinance the office project upon the sale of the Westin Hotel. The current loan on Plaza Las Fuentes project has a maturity date of September 2011.

Remaining 2011 debt maturities include loans on 1 California Plaza and our Brea complex. We continue to work with our 80% joint venture partner, Charter Hall, to refinance 1 California Plaza. We are in discussions with the current lender in regards to a short-term extension of the loan. Just as a reminder, it was previously extended from December 1, 2010 to March 1, 2011.

The $109 million loan on our Brea complex matures in May 2011. We have a one year extension option on that loan. We believe we will meet the required conditions for extension and we expect to submit an extension notice in the very near term.

Our only 2012 debt maturity is at KPMG Tower, the debt matures in October 2012. We are very focused on this debt maturity but have nothing to report at this time.

In addition, it was previously reported that the company was going to pursue a joint venture partner on KPMG Tower. As of now, the company has decided not to pursue this initiative.

As to leasing activities in the quarter and overall for the year, we leased 250,000 square feet in the fourth quarter and approximately 1.8 million square feet for 2010. The company was successful in addressing several 2011 lease expirations during the calendar year 2010, and has another approximately 400,000 square feet of renewals in various stages of lease negotiations in our core Downtown Los Angeles assets.

It is our intent to continue to be prudent in spending capital on leasing cost. We of course will continue to use existing leasing reserves where available.

That concludes my prepared comments and we will now open the lines for any questions you might have.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). One moment please for the first question. Our first question comes from Suzanne Kim from Credit Suisse. Please go ahead.

Suzanne Kim – Credit Suisse

Hi, just a quick question about the preferred? Has there been any dialog since the shareholders were added to the Board? And what’s the status on that? Has there been any dialog as to what’s going to happen to the preferred?

David Weinstein

So as most people know, we added two new Board members that were elected by the preferred shareholders and we welcome them to the board. But aside from that, nothing has happened in regard to the preferred’s.

Suzanne Kim – Credit Suisse

Okay, and then also, is there any other assets that are currently being marketed, land assets or other property hard property assets?

David Weinstein

No, there are no assets being marketed at this time.

Suzanne Kim – Credit Suisse

Okay. And, typically you provide cash balance guidance, do you have an idea what you should have anticipate your burn rate will be for the year?

Shant Koumriqian

Yes. For the remainder of the year, let me start with the first quarter of 2011 where we expect our cash to be. As of today we’re at $47 million. We would expect our cash to be in the mid-$40 million range so $45 million plus or minus towards the end of the year. And let me qualify what our assumptions are, we’re assuming no sales proceeds and no other refinancing. So although we have the Westin in the market, this cash guidance that I’m providing you does not reflect the sale of that asset.

We would expect our cash at the end of 2011 to be in the 20 to $25 million range. The components of that cash are from an operating perspective, cash on lie less debt service, less G&A will be marginally positive for all of 2011.

The utilization of cash will be primarily related to one, the term loan that we have that is $15 million. It matures in May of 2010. About 20 to $25 million of capital expenditures. And then about 5 to $10 million of cost associated with exiting non-core assets and other working capital-type adjustments.

Positive sources of cash for the rest of the year will be approximately $20 million return of swap collateral and a $5 million approximately that we receive from the sale of 500 Orange Tower. So that will get us to about a 20 to $25 million balance towards the end of the year. If we’re successful in selling the Westin Hotel and refinancing the PLF Office component, that cash balance will be higher at the end of the year.

Suzanne Kim – Credit Suisse

Okay, great. Thank you so much.

Operator

Our next question comes from Jordan Sadler, from Keybanc Capital. Please proceed.

Jordan Sadler – Keybanc Capital Markets

Thank you. I wanted to follow up first on the preferred and what your thoughts are, David, in terms of how to approach that level of the cap structure in order to sort of maximize shareholder value.

David Weinstein

Yeah. As I said before, there is nothing planned at this time with the preferred. There’s not much more we can say about that.

Jordan Sadler – Keybanc Capital Markets

Is there something you could elaborate on in terms of the – sort of the tick or the accumulation of preferred dividends which haven’t been paid on a quarterly basis; sort of what that’s doing? I mean, is …

David Weinstein

I’m not sure what you mean by that – if the preferred stock is picking every quarter? I’m not sure what else to add.

Jordan Sadler – Keybanc Capital Markets

I guess, have there been any other personnel changes besides Nelson, since you’ve come on board? Are there any other plans?

David Weinstein

Actually, there are no major personnel changes planned. We actually did hire one more person just to assist us at the company, and I think their title’s Senior Vice President of Transactions. He’s a former Latham & Watkins attorney. But aside from that, there’s been no changes, and none planned.

Jordan Sadler – Keybanc Capital Markets

Shant, can you maybe elaborate on what’s embedded in the G&A line for in the quarter?

Shant Koumriqian

Yes. What we have in the quarter is primarily reversals of unvested stock compensation for Nelson Rising, and then the reversal of bonus accruals during the quarter. So you have a number of non-recurring reversals in the current quarter and then you’re comparing that to the third quarter of 2010 where we had terminations of a couple senior executives. In the third quarter of 2010, our G&A number was higher because of severance payments and acceleration of stock compensation. So we’re probably a little bit more comparable to the second quarter in terms of run rate G&A.

Jordan Sadler – Keybanc Capital Markets

On a go-forward basis?

Shant Koumriqian

Yes, and over time, like we said in the past, that will trend its way down slightly as we dispose of assets.

Jordan Sadler – Keybanc Capital Markets

Okay. I guess lastly, just coming back to the burn rate question. It’s unlike cash/debt service coverage, G&A slightly positive, cash NOI that is. What are sort of cash NOI expectations toward the end of the year given sort of embedded leasing, leasing assumptions.

David Weinstein

From a perspective on NOI, as we get into the middle half of the year, we do have lease expirations that are planned. And as we get to the latter half of the year, we do have the Gas Company Tower lease that resets. Our expectation is that occupancy would trend down likely 150 to 200 basis points between now and the end of the year. That is net of additional leasing that we expect to do during the quarter. So quarter-over-quarter NOI will relatively be flat over the next four quarters. Looking into 2012, you know we would have a drop-off in NOI in the first quarter of 2012 compared to the fourth quarter of 2011. But at least for the rest of 2011, it’s going to be relatively consistence.

Jordan Sadler – Keybanc Capital Markets

You lose about 150 basis points of occupancy. What’s sort of good placeholder for a mark-to-market on the rents that are rolling in 2011 on that $21 million of renters?

David Weinstein

The mark-to-market is pretty significant. A big chunk of that is the 225,000 square feet of Gas Company Tower space that comes back in the fourth quarter. That’s somewhere in the $37 net range and we’re executing leases, like we said in the past, in the low-20s so from a 20 to $24 range. So you’ve got a pretty significant mark-to-market coming on 225,000 square feet in the fourth quarter.

Jordan Sadler – Keybanc Capital Markets

Is it feasible that the – sort of, the roll would look similar? I mean, I know it’s a small number that rolled in the fourth quarter, but those are outside of sort of Gas Company Tower, that the roll would look similar to what we saw in the fourth quarter?

David Weinstein

I’m sorry, can you repeat your question? I didn’t understand that.

Jordan Sadler – Keybanc Capital Markets

Orange Counties was down I think 40% in the cash basis?

David Weinstein

Yes, I would expect your roll to be consistent, your mark-to-market to be consistent. Orange County will continue to be significant, the Tri-Cities will continue to be in the 20% range. Downtown L.A. for the most part is blending out to even to slightly positive.

Jordan Sadler – Keybanc Capital Markets

Okay, thank you.

Operator

Our next question comes from John Guinee with Stifel. Please go ahead.

John Guinee – Stifel Nicolaus

Hey, some sort of press release in early December about delivering notice of imminent default on 2 Cal Plaza, what’s the status there? It still shows, I think, as an operating asset.

David Weinstein

Correct, we did deliver an imminent default notice and we expect to go into default on that asset in the near term.

John Guinee – Stifel Nicolaus

And what would, just out of curiosity, what’s the lag, in terms of why it didn’t go into default as of yearend?

Shant Koumriqian

When we sent the imminent default notice, the asset itself was generating cash flow to cover debt service. We – as far as status is concerned, we’ve been transferred to special service where we’re in the preliminary stages of talking to them. And as David said, at some point, it does go negative. The cause of the asset turning, were termination of a couple of floors from a tenant and then general roll that’s occurring in 2011. So, it’s just a matter of time.

John Guinee – Stifel Nicolaus

Okay, got you. And then what happened on your joint venture portfolio, I didn’t catch it. Is there – was there a asset that was sold or went into default? It looked like – on Page 11, your investments in real estate went down about 85 million quarter-over-quarter for the JV.

David Weinstein

Yes, that’s the Quinta asset, that was a former Washington Mutual headquarters. That asset went into default in the prior year. We negotiated an agreement with the servicer. That asset ultimately sold in the fourth quarter of 2010 and it came off the books of the joint venture.

John Guinee – Stifel Nicolaus

Okay, so that’s basically old news?

David Weinstein

That’s old news.

John Guinee – Stifel Nicolaus

Okay, how was – you realized 4.7 million on a development site at 500 Orange, that’s up in Central Orange County. How was that valued on a per acre, per foot, per FAR basis?

David Weinstein

I don’t know the answer to that off hand.

Shant Koumriqian

Yeah, John, I don’t have that answer off hand.

John Guinee – Stifel Nicolaus

How many acres was there? How many square feet of land was it?

David Weinstein

You know, we’ll have to get back to you on that one. I’ll have to look it up.

John Guinee – Stifel Nicolaus

And then, when do you think you’ll be – you basically decided not to bring in a JV partner on KPMG, which is still 18 months away but that’s the one with big tax protection interest for your former, former CEO. When are you going to be in a position to sort of walk through – walk through with people the potential liability associated with the tax protection, vis-a-vis imminent default on the asset?

David Weinstein

I don’t think we have plans right now to walk through people – walk that issue through with people.

Shant Koumriqian

So John, I think we’ve – you know, in the past we’ve talked about the tax protection obligations, there’s obviously significant. It’s not something that we would talk about externally. A part of it is, you know – part of it is based off of an agreement. I guess the calculation has some sensitivity to it, is a better way to put it.

What we do disclose I believe on some of the larger assets, are the tax basis of the assets, so you can go back and take a look at where the current tax basis is. And I believe we’ll record that again when the K is filed. So you can take a look at that and kind of determine what the sensitivity is but it’s a material transaction, we’ve disclosed it since the IPO. I’s not something that we would discuss external.

David Weinstein

And then John, to answer your question on the land, there was about 900,000 square feet, and this is an estimate of the company’s developable office entitlements on that piece of land. So we sold it for $5 million and there was about 900,000 square feet of estimated entitlements on that land; 20 to $25 per FAR.

John Guinee – Stifel Nicolaus

Okay, will there be a situation where your accountants will say, look, the KPMG of maturity is a significant issue and we ought to go ahead and send out a 8-K on it or is that something that you think you can continue to sort kick down the block?

Shant Koumrqian

From the perspective of KPMG Tower, as we’ve said in the past, there are various options. David did refer to the fact that the company’s not interested in bringing in a joint venture partner, but in terms of dealing with that, financing that, that is one option that’s available. We don’t think that’s something the company’s interested in pursuing at this time. From an auditor perspective, we continue to go through our annual audits. We’ll have our 10-K here, filed shortly, and at that time you’ll see what type of opinion the audits will provide.

David Weinstein

Listen, I think it’s important to note that while we’re very focused on it, we have a significant amount of time before this becomes an issue.

John Guinee – Stifel Nicolaus

Agreed, okay, thank you.

Operator

Our next question comes from Michael Knott from Green Street Advisors. Please go ahead.

Michael Knott – Green Street Advisors

Hey guys. Are you willing to give any color on the write down’s and where those took place?

David Weinstein

Sure, what we ended up impairing during the quarter was 2 Cal Plaza, and assets in our Glendale portfolio. And then cleaned up or trued up a couple of our estimates in a few of the Orange County assets. The largest component of that impairment is in 2 Cal Plaza.

Michael Knott – Green Street Advisors

And then, David, can you just talk about your perspective on Downtown L.A. office fundamentals over the next 12, 18, 24 months; and kind of your perception of MPG’s ability to compete for tenants given limited cash that you have on hand, etcetera?

David Weinstein

Well, let me address the first question. So we’ve seen and as we said, we’re in significant conversations about renewals, so the L.A. office market seems to be stabilizing. I would say that tenants are not – I don’t want to say in any cases, but for the majority tenants are stable, there is some downsizing going on. But as you would expect, there is a flight back to our quality buildings. So there’s a distinction that needs to be made between our assets and the market as a whole and the market surrounding Downtown because as other areas of the market have issues and rents have overall come down, people are actually coming to our buildings. So from our perspective, we think it’s stabilizing. I’m not sure you’re going to see a big jump in this year, but we’re hopeful in 2012 we’ll see some positive growth.

Michael Knott – Green Street Advisors

Okay, and then you don’t feel that there’s any diminished ability to compete for tenants given the financial profile?

David Weinstein

No, we actually have enough cash available to lease our assets for at least the next two years, and that’s based on Shant’s projections without sales of assets or refinancing. So we actually don’t think it’s an issue.

Michael Knott – Green Street Advisors

And then can you give us an update on the restructuring expert that you sort of brought along when you were brought on board?

David Weinstein

I’m not sure what you mean by an update. He’s fully integrative with the company. He’s involved in helping us analyze all of our assets and determining a plan going forward. He’s also been very helpful just in the running of the company day to day. So he’s actually turned out to be a great addition.

Michael Knott – Green Street Advisors

Okay, thank you.

Operator

Our next question comes from the line of Brian Chindurley from BAM. Please go ahead.

Brian Chindurley – BAM

Hey, guys. In the past you have had the ability to minimize some of your contingent obligations, which you had restricted cash held against and have been able to free up some of the restricted cash balance or in fact convert it from restricted to unrestricted cash. I’m just curious, you know, where those initiatives may stand. Are there any returns from the restricted to the unrestricted column that are encompassed in the numbers that Shant provided us through year-end guidance on potential cash balances? Or are there, you know in fact, opportunities to supplement cash given careful management of some of those continued obligations?

David Weinstein

In terms of the contingent obligations, I think we have worked through the majority of them. What we continue to have is a Dutch service guarantee on an asset called 3800 Chapman. We’re focused on leasing that asset and we do have plenty of restricted cash, leasing reserves in order to help us lease up the asset. That’s really the way to eliminate that contingent obligation.

Other than that, we have I believe a couple of master leases on our Plaza Las Fuentes office asset for Fannie Mae and East West Bank. Those are contingent obligations that will stay in place until the debt has been eliminated. Those are really our material contingent obligations at this point.

In terms of restricted cash, what we do have is about $31 million of swap collateral in our restricted cash balances. In the guidance that I gave, we’re expecting to receive about 20 million of that back during 2011. We do continue to have access to leasing reserves that we do utilize in our business. The majority of those are really in our Orange County assets [inaudible] and 3800 Chapman. We do have several million dollars in our Downtown L.A. assets that we do have access to.

But again, at this point, we’re primarily relying on unrestricted cash and cash generated from operations to fund leasing costs going forward.

Brian Chindurley – BAM

Got it. Now, in the numbers that you provided, Shant, are you also budgeting tenant improvement dollars associated with leases that are rolling where you’ve got to in fact bring in new lease and spend money to get those people in place? So you know, you’ve effectively made some assumptions as to what the outlays will like in order to release space that’s rolling over?

David Weinstein

Yes. We – I think I said we had somewhere in the 20 to $25 million range for leasing costs, leasing commissions, tenant improvements and building-related capital in our 2011 plan. So we’ve got a healthy amount of capital in order to lease space. And again, we’re focused on leasing space where it creates value for the organization.

Brian Chindurley – BAM

Got it. And I guess on the broader issues – one of the previous questioners asked about the KPMG joint venture issues. It’s been implied in past conference calls and disclosures by the company that the company’s been looking at various capital-raising opportunities including joint venturing at various project levels or bringing cash in at various levels. Are you able – I know you’re not able to get specific, but could you give us a better feel for the – what the priorities might be, or what some timelines might look like as to what you’re expecting as far as being able to communicate a broader plan to the investors?

David Weinstein

Unfortunately, we can’t discuss that. We are very focused on it and we have a plan internally, but we can’t disclose it. There are a lot of moving pieces, as you can imagine. Let’s just focus on KPMG Tower. We do have the flexibility still if we wanted to, to bring in a joint venture partner. However, it’s our feeling that it’s a very valuable asset for us and we want to retain 100% ownership. So we continue to evaluate our options and we’ll do so as situations evolve, but unfortunately, we can’t give more color on that.

Brian Chindurley – BAM

Would you consider yourself still in the early innings, middle innings? How do you characterize sort of where you’re at as far as working through some of your options?

David Weinstein

I don’t know how to answer that. We’re working through them. We’re in discussions with a lot of people about a lot of things. I’m not sure what inning we’re in.

Brian Chindurley – BAM

Is it fair to say that the – at least from our perch we’re seeing more activity within the investor community as far as people either looking for ways to deploy capital, etcetera. Is it fair to say that you’re getting – that some of your options have expanded vis-a-vis six to eight months ago, or how do you view all that?

David Weinstein

I’ll answer the question a little bit differently. I agree that there’s a tremendous amount of capital out there and there are a lot of folks interested in our portfolio. I’m not sure our options have expanded or decreased. You know, they could have been the same eight months ago, but if your point is that there’re a lot of people looking to deploy capital out there, I would agree.

Brian Chindurley – BAM

Got it. Thanks, guys.

Operator

Our next question comes from Sam Martini from Omega. Please go ahead.

Sam Martini – Omega Advisors

Hi, guys. Good morning.

David Weinstein

Good morning.

Sam Martini – Omega Advisors

A couple of questions: There appears to me to be a lot of consternation about the preferred. I just wanted to just ask a few factual questions. First of all, the guys who have been put on the Board, they have a fiduciary obligation to the common shareholders, not the preferred shareholders. Is that accurate?

David Weinstein

Yes, that’s accurate.

Sam Martini – Omega Advisors

Fine. And would I be wrong in viewing the preferred as in-place financing with a cost and a coupon that accrues, it doesn’t pick, it accrues and it’s in-place capital and that you will pay the dividend when you have less than 8% returns to spend your existing unrestricted cash on. And you’re aware of compounding the accrual and it is what it is but it’s not like there’s teeth, it’s not like there’s a gun in your mouth to deal with and you have a fiduciary obligation to the common shareholders. Is that accurate?

David Weinstein

Well, correct. It’s a perpetual preferred, it can stay outstanding forever. There’s no obligation to pay it currently.

Sam Martini – Omega Advisors

Is there something else that I’m missing that everyone on these calls just asks endlessly about the preferred?

David Weinstein

Ask the other folks on the call.

Sam Martini – Omega Advisors

Okay, fine.

David Weinstein

But you know, you’re right. It is preferred.

Sam Martini – Omega Advisors

It’s perpetual, in-place capital.

David Weinstein

It’s in-place capital. We have no obligation to remove the preferred if that’s the question.

Sam Martini – Omega Advisors

So my next question is on Plaza Las Fuentes. When you think about the 81 million mortgage that’s in place, and you think about the office tower that is alongside it or nearby, would you – assuming you could take out or satisfy the majority of the mortgage that’s on the complex today, what would you feel comfortable with adding onto the office tower in isolation? What do you think that officer tower – how do you think about the range of debt that you’d feel comfortable putting on that in isolation?

David Weinstein

I'm just checking. I’m not sure what we’re allowed to say about this.

Shant Koumriqian

I think in terms of the…

Sam Martini – Omega Advisors

I guess it’s an academic question. Would you like it to be debt free? Would you like it to have some leverage on it going forward to be efficient?

Shant Koumriqian

Well, as we said, we’re out in the market to put financing on the office buildings. So that would suggest that we want to lever up the asset and we want to have the cash on the balance sheet.

Sam Martini – Omega Advisors

And that would be – and the market for that in your opinion has changed meaningfully? It’s still difficult? How do you think about the market for financing an asset of that size?

David Weinstein

I think the financing markets have changed dramatically. A lot of folks have re-entered the market. The CMBS market seems to be very open again so there’s a lot of interest in financing that asset. It’s a very high-quality asset with stable cash flow for us.

Sam Martini – Omega Advisors

So the answer to the sale was you ultimately decide to sell and you sell it for a price more than or equal to the existing mortgage, the total transaction proceeds would be satisfying that mortgage and then taking cash out of the existing office tower going forward and that would go into the unrestricted bucket.

David Weinstein

Correct.

Sam Martini – Omega Advisors

Okay. And then finally on the – just maybe some overview on how the TI tradeoff versus per square foot new signings. How do you think about that? I was a little surprised at the step down in the OC [inaudible] tiny and – not irrelevant, but the amount that’s coming up for renewal really doesn’t move the needle. But I was just – I was curious more for Downtown, what you’ve seen on the TI requirements to bring folks in. Are they going up? Are they staying flat? How are you seeing that develop?

David Weinstein

It’s fairly competitive. The rental rates have been holding. In order to get absorption you have to provide a fairly healthy tenant improvement allowance. And as we’ve said in the past, we expect our costs per square foot per year, which we disclose in our supplemental to increase. The last year and a half we’ve been focused on renewing our existing tenants and here shortly in the first quarter we will have addressed the majority or the rest of our role for 2011 that we expect to keep. Now we’re focused more on increasing occupancy in the portfolio and it’s expensive to move. So from a conception package, historically over the last year we’ve seen TIs in the $4 to $6 per square foot range depending on the tenant, depending on the space, depending on how competitive the situation is for the tenant. Our expectation is if TI costs would go up, we’d plan for it.

Sam Martini – Omega Advisors

Thank you, guys, very much. Good luck.

David Weinstein

Thank you.

Operator

Our next question comes from Andrew Sole from Espous Creek.

Andrew Sole – Espous Creek Advisors

Thank you for taking my question. Good morning. I have just one comment. It’s my understanding, and I assume the company would confirm that the preferred essentially have a contract and they’re entitled to no more than their contract rights. Is that correct?

David Weinstein

That’s correct.

Andrew Sole – Espous Creek Advisors

Okay, great. So just two quick questions. One is to the extent you’re able to – could you talk a little bit about where you are in the process with the Westin, if you haven’t already answered that earlier. And the second one is the – your view about whether you see any migration of office tenants from the West side of Los Angeles towards Downtown?

David Weinstein

Okay. The first question, we’ve said as much as we can say right now about the sale of the Westin Hotel. We’re in the market right now and we’re receiving bids and they’re credible. Aside from that, we can’t say much more.

Migration into the market, I would say we’ve seen minimal migration to date so it really hasn’t started. We’ve seen some migration in from Tri-Cities or Glendale.

Andrew Sole – Espous Creek Advisors

Okay, great. Thanks very much.

Operator

Our next question comes from Suzanne Kim from Credit Suisse. Please go ahead.

Suzanne Kim – Credit Suisse

Hi. I was wondering if you could address – Charter Hall has been getting some flak from their shareholders to get out of the JV. I’m just wondering where you are in the discussions with Charter Hall at this point and what sort of options you have?

David Weinstein

Charter has announced that they want to exit the joint venture. Aside from that, there’s nothing more we can say at this point.

Suzanne Kim – Credit Suisse

And then I know you briefly touched on it, but could you possibly go through how your vision is similar and different from the previous CEO for the company?

David Weinstein

I can’t touch on that. I’m not sure it is different. I think you’d have to talk to the former CEO too. I can tell you that I was on the Board for two years and nothing’s changed. The management and the Board are completely in sync. And our vision, as I told you about, are to maintain our position, dominate position in L.A.; preserve cash and exit or restructure our non-core assets. And that was occurring and the former CEO did a good job with that and we will continue to put that plan in place going forward.

Suzanne Kim – Credit Suisse

Okay, great. Thank you.

Operator

Our next question comes from Wilkes Graham from Compass Point. Please go ahead.

Wilkes Graham – Compass Point

Hey, thanks guys. I thought I was in the queue before. Shant, you touched on this briefly on a couple of these questions I have. On the land that you sold, am I right, it was sold for a $4.7 million gain?

Shant Koumriqian

Yes. Yes, net proceeds was 4.7 million, and not a gain, it’s just net proceeds.

Wilkes Graham – Compass Point

Oh, just net proceeds. Okay. And on the impairments, can you say how much of the 210 million was related to California Plaza?

Shant Koumriqian

No. We don’t want to get into specifics; a very large component of it.

Wilkes Graham – Compass Point

Okay. But it will be in the 10-K?

Shant Koumriqian

I’m not sure if we disclosed it separately in the 10-K to the extent that there’s a requirement it will be, if not it will be combined.

Wilkes Graham – Compass Point

Okay. And then do you know when the 10-K will be out?

Peggy Moretti

Well, it says here we’ll file it on March 17.

Wilkes Graham – Compass Point

There you go. Thanks a lot. Thanks, guys.

Peggy Moretti

Thanks.

Operator

Our next question comes from John Guinee from Stifel.

John Guinee – Stifel Nicolaus

Hi, sorry. Hey, just to clarify, the gas company tower lease – a couple quarters ago you said it was 576,000 square feet, 16 months remaining. Last quarter the supplemental said 500,000 square feet, 56 months remaining. This quarter it says 528,000 square feet, 142 months remaining. Did the gas company end up taking a full 528,00 square feet?

Shant Koumriqian

No, that’s a blended. Their original lease is 575,000 square feet. They retained 350, 225 is coming back. There was a sub-tenant for about 100 of it, which we went direct with. And this quarter they took another floor.

John Guinee – Stifel Nicolaus

They being the sub-tenant?

Shant Koumriqian

No, the gas company.

John Guinee – Stifel Nicolaus

Okay. So when we’re thinking about the gas company, we should think about it as a 380,000 square foot lease maybe?

Shant Koumriqian

Yeah, think about it going forward as – that’s right, 380,000 square foot lease; 125,000 square feet coming back from the gas company from their original lease and then the 100,000 square feet of their sub-tenant coming back. So when I refer to the 225, it was the 225,000 square feet of the original gas company lease, 125 of it is still with the gas company that will come back in November of ’11. And then 100,000 square feet the sub-tenant will vacate and that will come back to us as well.

John Guinee – Stifel Nicolaus

Okay. And then David, or whomever, can you guys give us the details on the 550 South Hope transaction that just concluded in Downtown L.A.?

David Weinstein

We actually can’t. It’s not concluded, so we can’t at this time.

John Guinee – Stifel Nicolaus

Well, what’s the general market talk on the deal?

David Weinstein

I just – I don’t want to get into it at this point. The transaction is still going on.

John Guinee – Stifel Nicolaus

Okay. And then what’s your run rate on G&A for 2011?

Shant Koumriqian

Run rates somewhere in the mid-$20 million range. I would look at where our G&A is in the second quarter of 2010, expect that as a run rate and then hopefully it will trend down as we’re dealing with problems and eliminating problems.

John Guinee – Stifel Nicolaus

Got you. Okay. Thanks a lot.

Operator

Our next question comes from Jordan Sadler from Keybanc Capital. Please go ahead.

Jordan Sadler – Keybanc Capital

Thank you. I had a follow up from one of the earlier questions, David. It sounds like you said everything’s kind of been consistent in terms of the view of management and the Board. Yet when just referencing Nelson’s resignation letter, it suggests that the Board and he did not share a common vision for the strategic direction of the company and the capital structure necessary to achieve it. So I’m kind of curious, given your response to a previous question, what’s changed, or where are you more aligned with the Board as it relates to the strategy and the capital structure to achieve it?

David Weinstein

You know, I understand the confusion in regards to the letter. Unfortunately, you’re going to have to discuss that letter with the former CEO. I can tell you I was on the Board and now I’m part of management and nothing’s changed. So unfortunately, I can’t comment on that. He’s going to have to.

Jordan Sadler – Keybanc Capital

Okay. And then just a separate question just for you is, do you have a view on the NOL carry-foward position and the ability to realize the value?

David Weinstein

I’ll add a little and then Shant can join. I’m not sure we believe there’s a way to capture the value at this point.

Shant Koumriqian

Yeah, I mean, to capture it to [inaudible] monetize, no. The NOLs obviously do provide us with flexibility going forward in terms of maintaining re compliance where we don’t have to distribute cash because of the NOLs. So it provides the company value to be able to separately monetize it. I’m not sure that that’s possible.

Jordan Sadler – Keybanc Capital

Is there a benefit to maintaining sort of a restructure in the intermediate term? Have you thought about that?

Shant Koumriqian

I think currently it doesn’t – again, we’re not obligated to make distributions because of our NOLs, it provides us with flexibility.

David Weinstein

I think that’s right. I don’t think it causes any harm at this point and it potentially creates value in the future.

Jordan Sadler – Keybanc Capital

Okay. Thank you.

Operator

Thank you. That concludes our question-and-answer session today. I’ll now turn the call over to the MPG Office Trust management team for any closing comments they might have. Gentlemen.

Peggy Moretti

On behalf of David and Shant, thank you for participating in this morning’s call. We will continue to keep you posted of our progress. Thank you.

Operator

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

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