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Executives

Peggy Moretti – Investor Relations

David Weinstein – President and Chief Executive Officer

Shant Koumriqian - Chief Financial Officer

Analysts

Jordan Sadler – KeyBanc Capital Markets

John Guinee – Stifel Nicolaus

Jay Hatfield – Infrastructure Capital Markets

Jed Regan – Green Street Advisory

Wilkes Graham – Compass Point

MPG Office Trust, Inc. (MPG) Q3 2011 Earnings Conference Call November 1, 2011 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 call is being recorded today, November 1, 2011.

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

Peggy Moretti – Investor Relations

Good morning. Thanks for joining us for our third quarter 2011 conference call. During the course of today’s call, management will make forward-looking statements regarding, among other things, projected 2011 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 obligation 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.

Now, I would like to turn the call over to David Weinstein, our President and CEO. David?

David Weinstein – President and Chief Executive Officer

Good morning. Thank you for joining our third quarter call. Shant Koumriqian, our Chief Financial Officer is here with me, along with Fred Chin, our Acting Chief Operating Officer; Jon Abrams, our General Counsel; Chris Norton, our Head of Transactions and Peggy Moretti, our Executive Vice President of Investor Relations.

The company continued to make progress on a number of fronts during and subsequent to the third quarter. During the third quarter, such progress included a completion of a number of transactions which allowed us to improve our liquidity position and exited non-core assets. The transactions included, we entered into a $33.75 million mortgage loan secured by our Plaza Las Fuentes office property with East West Bank, the property’s largest tenant.

We exited City Tower on Orange County, which we relieved us of $140 million of mortgage debt. We exchanged approximately 1,390,000 million shares of common stock for approximately 270,000 shares of preferred stock in two privately negotiated transactions. The exchange ratio was 5.157 shares of common stock for each share preferred stock. Progress made by the company subsequent to the third quarter included the following.

As we announced yesterday, we entered into an agreement with Charter Hall Office REIT and Beacon Capital relating to the transfer by Charter Hall that interested in a joint venture with the company to an affiliate of Beacon Capital. The agreement specified the terms under which the company will consent to the transfer as well as the terms of the new joint venture agreement with Beacon. As part of the transfer, the existing joint venture will sell its interest in Wells Fargo Center located in Denver, Colorado and San Diego Tech Center located in San Diego, California to affiliate to Beacon. The company will sell its development rights at San Diego Tech Center to an affiliate of Beacon, and the company will receive a lump-sum payment and consideration for its agreement to terminate its right to receive certainties following the closing.

The terms of the new joint venture agreement with Beacon are substantially similar to the existing joint venture terms and included three-year lock-out during which time neither partner will have the right to exercise the marketing rights under the joint venture agreement. The agreement requires the company, Charter Hall, Beacon to join the market Stadium Gateway located in Anaheim, California for sale of the third-parties. Such marketing effort is expected to commence during the next two weeks. None of the parties are obligated to sell the asset if the sale price is unacceptable.

At the closing of the transfer and related transactions, the new joint venture between the company and Beacon will continue to own interest in each of one California Plaza located in downtown Los Angles, Cerritos Corporate Center located in Cerritos, California, and Stadium Gateway unless such asset is sold pursuant to the marketing efforts. Retaining our 20% interest in one California Plaza is consistent with our strategy of maintaining a dominant market position in downtown Los Angles.

The company expects to receive approximately $45 million in total net proceeds from the transactions excluding any proceeds of the sale of Stadium Gateway which will significantly improve our liquidity position. Any proceeds will be used for general corporate purposes.

The closing of the transfer and related transactions is expected to occur in the first quarter of 2012 and subject to customary closing conditions including obtaining lender and other third-party consents. We entered into a letter of intent to obtain $11.25 million of mezzanine financing on our Plaza Las Fuentes office property. The loan will bear interest at a fixed rate of 9.875%. The loan will mature in August 2016, but it’s pre-payable after June 30, 2013 with no pre-payment penalty of any kind. This coincides with the expiration of the tax protection agreements relating to this asset. While we expect to close this transaction, there can be no assurances that this will occur.

Last week, 700 North Central and 801 North Brand both of which are located in Glendale, California were placed into receivership pursuant to an agreement with the special servicer. The agreement obligates the special servicer to expeditiously complete and trust this sale foreclosure likely in the first quarter of 2012 and deliver a complete release of any potential liability to the company when the foreclosure process is completed. The special servicers are also obligated to fully reimburse the company for all costs incurred to operate lease and maintain the assets.

In early October, Glendale Center was transferred to special servicer. We expect to commence discussions with the special servicer in the coming weeks. On behalf of CWCapital, the East West secured has commenced marketing at Stadium Towers and 500 Orange Tower in Orange County. We continue to cooperate with the special servicer in this process. As a remainder, we have an agreement with a special servicer, that if the properties are not sold within the period specifying agreements, the special servicer is obligated to acquire the properties either by foreclosure or deed-in-lieu of foreclosure and deliver a general lease through us.

We will be relieved of approximately $210 million of debt when the properties are either sold or disposed of by foreclosure or deed-in-lieu. These still successful in marketing efforts, we expect these transactions to close in the first quarter of 2012. We continue to have discussions for CWCapital, the special servicer for Two California Plaza. We have nothing to report at this time with respect to such discussions.

Switching now to leasing, during the third quarter, we completed new leases and renewals for approximately 176,000 square feet including our pro rata share of our joint venture properties. We previously announced that the law firm Akin Gump leased approximately 25,000 square feet at U.S. Bank Tower. Additionally, CIT Group renewed approximately 24,000 square feet One California Plaza and o3 capital expanded its occupancy with an additional 26,000 square feet at Wells Fargo Tower in downtown, Los Angeles.

Turning to our cash position, as of September 30, 2011, we had $176.7 million of cash on hand, excluding assets in the fall. $106.8 million was unrestricted and available for general corporate purposes, $69.9 million, of which $15.8 million is swap collateral was restricted for specific purposes such as reserves for leasing commissions, tenant improvements, property taxes, and insurance.

Finally, as you all know, Shant Koumriqian will be leading the company on March 31, 2012. We once again thank him for his contribution and for agreeing to continue to work with us over the next five months. Shant will assist us with the transition. This concludes my prepared remarks. We will now open up the lines for any questions.

Question-and-Answer Session

Operator

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

Jordan Sadler – KeyBanc Capital Markets

Thank you and good morning.

David Weinstein

Good morning.

Jordan Sadler – KeyBanc Capital Markets

Just like to pickup where you left off there on, Shant, moving on, was there a plan for replacement and maybe could you this sort of how you are filling the role that was being played by Shant?

David Weinstein

Sure. So, first of all, we are filling the role being played by Shant right now by Shant. So Shant is here and he will be here for another five months, which we are very grateful for. We are actually evaluating our needs going forward. We have not decided yet whether we are going to hire a new CFO, where we are going hire more of a Treasurer/Chief Accounting Officer. So, the good news is that Shant is here for another five months, so we have some time to work on this and Shant is helping us figure this out.

Jordan Sadler – KeyBanc Capital Markets

Okay. Shant, have you worked – figured out the burn rate number, the latest burn number in the quarter and then respectively?

Shant Koumriqian

Yes, for the current quarter, again, we had cash NOI less debt service plus G&A which was positive. That was offset by capital expenditures, which again was about marginally positive. If you look at our unrestricted cash, unrestricted cash increased by $41 million during the quarter. That was comprised of $33 million of proceeds from the PLF refinancing, about $6 million of collateral that was released primarily swap collateral, and then the remaining $3 million is primarily release of reserves – leasing reserves.

In terms of the fourth quarter, the cash NOI less debt service plus G&A again will be positive that will be a slight decrease, because we do have the Gas Company Tower lease expiring in the fourth quarter. And then in terms of capital expenditures, we will continue to have capital expenditures in the fourth quarter, primarily leasing costs which will result in a net negative in the fourth quarter.

Jordan Sadler – KeyBanc Capital Markets

So, year end cash is roughly where?

Shant Koumriqian

Year end cash roughly somewhere in the $100 million to $105 million range to right about $107 million dollars today we would expect $5 million to $6 million of swap collateral and then that would be offset by leasing costs and disposition costs associated with the default assets.

Jordan Sadler – KeyBanc Capital Markets

Helpful. Any progress or color surrounding the KPMG Tower mortgage debt maturing in October of next year?

David Weinstein

No, there has been no progress on that front. And just as a reminder, we have the swap in place, so we really can’t refinance it without substantial cost until very close to October next year, but there has been no progress to-date.

Jordan Sadler – KeyBanc Capital Markets

Okay. And just thought process on doing the mail today on PLF, I know you guys are accumulating your cash balances for leasing and perhaps maybe with some other debt pay-down, just curious, I mean, there is obviously not the cheap money just curious about the rate, I mean, sort of thought process on raising that cash?

Shant Koumriqian

Yeah. I think just given the company’s current stage, we view it as advantageous out as much cash as possible that extends on runway obviously. We did think about the rate. I would say it’s a high rate relative to the current interest rate environment, but it’s not a really high rate relative to mass traditionally. Also, the money is not going to be out for very long time. So, we decided as more important net cash on our balance sheet and say a little bit of the higher writing than not having.

Jordan Sadler – KeyBanc Capital Markets

I’ll hop back in the queue. Thank you.

Operator

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

John Guinee – Stifel Nicolaus

Hi there. Couple of questions. First, the good news is you’ve got a lot of cash on hand. And then I guess the sort of the question is where do you plan to use it, perhaps an oversimplified question, but on KPMG is the expected loan rebalancing or loan pay-down, how is that compared to the tax protection liability with Rob Mcguire and are you better off just writing Rob a check and defaulting on the assets?

David Weinstein

Yeah, well, that’s a good question. First of all, we think there is a lot of value at KPMG, so we have no intention of defaulting on the asset at this time. We were to protect our equity. I don’t know exactly what the tax payments of Rob would be on net asset. I know, the overall portfolio is very large. We are not going to be writing any checks to Rob. So, we are going use this sort of our cash, I imagine, at the time, we accomplish on refinancing that asset it’s going to require an amount of cash. I don’t know what that number is right now, but that certainly will be used for some of our cash.

John Guinee – Stifel Nicolaus

Okay. And then second question as I recall is it right about now when the Gas Company lease goes from mid 30 net down to sub 20 net. What are the exact terms and timing of the Gas Company least square footage and rental rate reduction and what does that mean for the loan of roughly $340 a foot on Gas Company Tower?

Shant Koumriqian

John, this is Shant. In terms of when that lease reset, it resets on November 8 and there is about 350,000 square foot renewal that takes into effect at that point. Yes, it does roll down from the high 30s to our market rate I don’t think we disclosed what that is. Clearly, the asset itself will have a sizable reduction in NOI as a result of that lease, no comment in terms of covering debt service.

David Weinstein

Yeah. I think the bigger impact, our downtown portfolio somewhere around 82% occupied. A lot of that is pulled down by U.S. Bank Tower. When Gas Company rolls down, we probably go from 82% around to about 79%. So, while we have been some tenants have been downsizing and we have been backfilling that space which is very positive. We are going take a hit to the occupancy of overall downtown portfolio in November when Gas Company downsizes.

John Guinee – Stifel Nicolaus

I am just running through some back of the envelope rebalancing numbers. And if you assume that you have the rebalance down to say 300 bucks a square foot, that’s a $72 million number on Two Cal Plaza, a $56 million number on KPMG, and it’s a $52 million number on Gas Company Tower is rebalancing down to 300 of the right analysis or should we look at it more down to say 250 a square?

David Weinstein

I don’t know how to answer that, I mean, we are going to rebalance any loan until we have to rebalance the loan and we don’t have to rebalance not only get to rebalance Two Cal, obligated to rebalance Gas Company Tower. So, I can’t say whether the amount is right or not we are just not doing those things. And on the KPMG Tower, we are going to have to wait and see. It’s a little bit of ways off with the Capital Markets in line when we got to rebalance that loan.

John Guinee – Stifel Nicolaus

Okay. Thank you very much.

David Weinstein

You’re welcome.

Operator

(Operator Instructions) Your next question comes from the line of Jay Hatfield with Infrastructure Capital Markets.

Jay Hatfield – Infrastructure Capital Markets

Good morning.

David Weinstein

Good morning.

Jay Hatfield – Infrastructure Capital Markets

I wanted to just ask a question about the use of cash, particularly in light of the latest two transactions that you announced, where I guess that pro forma you’d get up to like almost $160 million of cash at the end of the year, pro forma from closing. I was wondering whether you have considered at the board level looking at a small tender for the preferred. And specifically whether you’ve looked at what Gramercy Capital did, they did a small tender of I think $20 million around 18, which improved the coverage for the preferred, but also is very accretive for the common. And now that preferred is trading at like $25 even though it still have not gone cash pay, is that something you consider, we’re recognizing not going to take the entire substantial portion, but what about a small cash repurchase, particularly if you put in a common components, they have made a 50% cash, 50% common, was that something you at least to take a look at?

David Weinstein

Yeah, we’ll tell you that unfortunately we are not to comment on how we are going to use our cash. As of right now, the preferred is outstanding has not been paid and we have no intention of paying the preferred and we have no specific plans right now to do anything with the preferred.

Operator

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

Jed Regan – Green Street Advisory

Good morning guys. It’s Jed Regan here with Michael. Question about I was interested to see Cerritos remain in the JV portfolio, does that suggest that this is a core holding for you guys going forward?

David Weinstein

No, it doesn’t. I believe that hasn’t over-levered, so there is really not much to do with it right now. Shant when does that loan due, two or three years?

Shant Koumriqian

It’s due in 2016. It’s a 100% lease currently.

David Weinstein

So, it’s a 80% leased, there is nothing to do with it. It’s my guess that I am not positive as we sold it today, we would be able to sell it for the debt. So, it’s just sort of sitting. I would argue there is probably not a lot of equity value in that asset for us.

Jed Regan – Green Street Advisory

Okay, it makes sense. Do you have an estimate on unrestricted cash levels for any periods on 2012 say June 30 or year end ‘12?

David Weinstein

On restricted cash was that question?

Jed Regan – Green Street Advisory

Yes.

David Weinstein

No, not at this time, we are not projecting 2012.

Jed Regan – Green Street Advisory

Okay. As far as sort of the fundamental downtown LA, it seems to me anecdotal evidence include our quote from a tenant there easily moved into the 777 tower that the center of downtown is sort of shifting a little bit down towards the LA Live and (Staples 710 fig area) are you seeing any evidence of this trend in the market and the way what impacts on your portfolio of an area you anticipating?

David Weinstein

I don’t think we are seeing that at all. So, I think there were certain tenants that like specific buildings. The good news is we have buildings in (indiscernible) and we have buildings on Bunker Hill, but I don’t think we have seen a shifting in all of our tenants leading Bunker Hill going to 777.

Jed Regan – Green Street Advisory

Okay. And just last question how are you seeing downtown fundamentals trending at the moment and when do you think you could start seeing meaningful improvement in rents and occupancy?

David Weinstein

I would say that we, as I said, earlier we are renewing most of our major tenants, a lot of them are downside and just because they are using more efficiently. There is no space more efficiently. We have been successful in backfilling. The majority of that space is it downsizes. The problem is that leases are sort of flat from an occupancy perspective. So, I think the market is okay. There are some tenants coming into the market from other market, but not a lot. The disparity between the west side is shrunk, I don’t know if it’s really 10% or 15% now. So, I think we are sort of just in a stable period. I don’t know when – I wish I know the answer, but I don’t know when rents are going to shoot up and occupancy is going to go up.

We do have some major tenants kicking the tires downtown at our buildings and our competitors building. I don’t know whether they are going to come downtown or not, I think if we landed one or two of them, they would have dramatic changes in the market. I just don’t know the probability that coming down here.

Jed Regan – Green Street Advisory

Okay, thank you very much.

David Weinstein

You’re welcome.

Operator

Your next question comes from the line of Evan Hutto with Compass Point.

Wilkes Graham – Compass Point

Hi, guys. It’s actually Wilkes Graham. I was going to ask a question about fundamentals, but maybe I will just follow-up on that, have you seen any change, you talked about some major tenants kicking tires down there, have you seen any change at all and the attitude of tenants or potential tenants over the past two to three months?

David Weinstein

You’re talking about in response to what’s happening in the overall economy?

Wilkes Graham – Compass Point

Yes.

David Weinstein

I don’t think so. Most of our tenants solely from renewal base is they have to renew and they are signing long-term leases. So, we haven’t seen an impact. This market is really we have smaller tenants with a lot of major tenants with a lot of space. So, I think they have to make decision they can’t wait.

Wilkes Graham – Compass Point

Hey, you talked specifically about maybe what the leasing prospects look like in U.S. Bank?

David Weinstein

We can’t talk specifically about leasing prospects at any of our buildings.

Wilkes Graham – Compass Point

Okay.

David Weinstein

I can tell you that we are focused on and we very much like to lease up that asset.

Operator

Your next question comes from the line of Jordan Sadler with KeyBanc Capital Markets.

Jordan Sadler – KeyBanc Capital Markets

Sorry, I just wanted to get the color if I could on the deal with Beacon in the joint venture, you had some breakout in the 8-K of the valuation will take 6 million bucks for the fees, 15 million bucks for the land. Can you give us the rest – how the rest of the valuation on the WFC, Wells Fargo Center and San Diego Tech Center breakup?

David Weinstein

Sure. I think maybe I have to dig, but I think all of that is actually disclosed in the 8-K, but I mean how to share with you, but I will tell you that while these numbers are important individually, we obviously look to the transaction as a whole when we decided to do this and we are not as focused on individual aspects of this. So, Wells Fargo Center in Denver, the purchase of sell contract was for $387.5 million.

Jordan Sadler – KeyBanc Capital Markets

Okay.

David Weinstein

San Diego Tech Center was for $152.5 million. We actually sold development rights for $14 million and the fees were $6 million.

Jordan Sadler – KeyBanc Capital Markets

If cap rates on the Wells Fargo and Tech Center still…

David Weinstein

I don’t have them actually.

Jordan Sadler – KeyBanc Capital Markets

Okay, trading back into them. That’s helpful. Any expectations you could give us for the Stadium Gateway?

David Weinstein

No, we haven’t even commenced marketing it. So, I really don’t know, I really don’t know.

Jordan Sadler – KeyBanc Capital Markets

Safe to assume that’s one of the ones you think there is some measure of equity value as opposed to Cerritos that you gone to the effort?

David Weinstein

Yeah. There is definitely some measure of equity. I think we just have to remember that whatever equity is there we only have 20% up.

Jordan Sadler – KeyBanc Capital Markets

Yes.

David Weinstein

But there is definitely some equity, I don’t know at what level it’s going to trade. And if we don’t like the level where it trades we are going to continue to hold them.

Jordan Sadler – KeyBanc Capital Markets

Helpful. And then just on these requirements you are seeing in the market, you mentioned some bigger tenants kicking some tires, can you just give us a little bit more color around that in terms of the nature of these tenants how long they have been looking and maybe what our magnitude – what kind of size tenants and how many of them are there?

David Weinstein

I really don’t want to comment too much on leasing. I will tell you some of them are the small size, some of them very large, because it’s very large to tell how realities are going come downtown. So, I don’t want to give too much information on them.

Jordan Sadler – KeyBanc Capital Markets

Is there a change, I mean, is this sort of new news to you over the course of the next last few months or so or is it most that have been kicking tires for?

David Weinstein

It’s not new news and people are doing long-term planning.

Jordan Sadler – KeyBanc Capital Markets

Okay, thank you.

David Weinstein

You’re welcome.

Operator

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

John Guinee – Stifel Nicolaus

Back again. With this transaction, David, you have any land left on the balance sheet or development rights left on the balance sheet and if so what are they?

David Weinstein

We do. We own a piece of land in City Tower, that land is somewhat restricted by a parking easement, for the majority of the parking of the property. I don’t think we have any – 755 which is next to our 777 Tower we own a piece of land.

John Guinee – Stifel Nicolaus

Okay. Any idea of development rights on 755 and feasibility of developing those that side?

David Weinstein

I don’t know, we had a lot of work has been done over the years. We have no intention to be developing a new office building down here right now. So, we are really not focused on it. I am not sure if it’s disclosed in any of the units.

Unidentified Company Speaker

(indiscernible) for office up about 800,000 square feet (indiscernible) term, but we don’t intend to solve this.

Unidentified Company Speaker

(indiscernible) for up to additional nine years.

John Guinee – Stifel Nicolaus

For office only or is there an alternative use down there?

David Weinstein

It’s for office and hotel use.

John Guinee – Stifel Nicolaus

Got it, okay. And then when you look at the back when you look at the portfolio now it’s essentially the value above the debt clearly there some value above the data U.S. Bank Tower kind of question whether is value above the data 777 question of whether is value above the data new (indiscernible) 260 or put for the debt including the math it’s clearly to value at (indiscernible) is there anything one listing any other locations where there is value above the debt.

David Weinstein

Common what I agree with were you just had. So we are not (indiscernible).

John Guinee – Stifel Nicolaus

Okay, thank you.

David Weinstein

You’re welcome.

Operator

Thank you, that concludes our question and answer session today. I will now turn the call over to the MPG Office Trust management team for any closing comments they may have. Gentlemen?

David Weinstein – President and Chief Executive Officer

Thank you for your participation and we will continue to keep you apprised of our efforts. 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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