MPG extends credit facility

The real-estate investment trust modifies its mortgage loan in order to retain key properties.

By Jul 12, 2012 1:26PM

By Zacks Equity Research

MPG Office Trust (MPG), a real-estate investment trust (REIT) based in Los Angeles, recently announced that it has extended the maturity date of its mortgage loan worth $400 million for an additional year.

The extension of credit facility, which will mature on Oct. 9, 2013, is a part of the company's strategy to retain the KPMG Tower property in downtown Los Angeles.

To extend the maturity date and thereby retain its core market property, MPG Office Trust repaid $35 million of principal and thus reduced its outstanding loan balance to $365 million from $400 million. The reduced outstanding loan will now bear interest rates in two divisions, effective Oct. 10, 2012. The $320.8 million A-Note will bear an interest rate equivalent to the Libor plus 3% and the remaining $44.2 million B-Note will bear an interest rate equivalent to the Libor plus 5.10%. The mortgage loan amounting to $400 million previously had an interest rate equivalent to the Libor plus 1.65%.

Additionally, the company took several other restructuring measures to increase the loan period. MPG Office Trust paid $5 million for a leasing reserve and agreed to pay excess operating cash flow that will be incurred from Sept. 9, 2012. This excess operating cash flow will be used to fund $1.5 million for capital expenditure reserve, additional $5 million for leasing reserve, and the rest will be used to lower the company's outstanding principal loan balance.

The 45-story KPMG Tower is a renowned office building, spanning 1,140,000 square feet, located at the top of Bunker Hill in Los Angeles. The building is among the key market properties of MPG Office Trust. The tower is in close proximity to famous properties like The Marriott of Marriott International (MAR), Millennium Biltmore, the Hilton Checkers and The Standard hotels. Some of the major tenants of the property are Munger, Tolles & Olson, KPMG and Bingham McCutchen.

MPG Office Trust has been actively restructuring its portfolio in order to recover from the downturn of the commercial real estate during the recession. The company has disposed of various non-core properties located in Orange County, Glendale and other parts of Los Angeles to focus on the acquisition of strategic core market properties of California, like the KPMG Tower and Wells Fargo Tower.

MPG Office Trust is the largest owner and operator of Class A office properties in the Los Angeles Central Business District. The company owns, manages, acquires and develops up-scale office and real estate properties primarily in the Southern California market.

MPG Office Trust will likely release its second quarter 2012 earnings on July 23. The Zacks Consensus Estimate for the second quarter 2012 FFO (fund from operations) is pegged at negative 14 cents per share. We presently have a long-term "outperform"  recommendation on the stock. It also carries a Zacks No. 2 Rank (short-term "buy" rating).

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