Sell Maguire Properties, Near-Term

Maguire Properties (MPG - Snapshot Report) finished its strategic review process and no buyer materialized, thus we expect the company to try to sell assets to pay down debt. MPG missed our first quarter fund from operations (FFO) estimates by $0.14 per share.

We are again lowering our full-year estimate by 30% due to the miss. Interest expense has increased substantially due to the $2.8 billion EOP portfolio purchase. MPG is highly levered, is cash flow negative, and we expect a significant dividend cut in the coming quarters. Office building owners are struggling in a sagging US economy.

Maguire reported first quarter 2008 results. FFO was $4.9 million or $0.10 per share excluding costs incurred for the company’s strategic review. FFO in first quarter 2007 was $0.38 per share. The company incurred costs of $6.4 million ($0.11 per share) reviewing strategic alternatives in which the company was put up for sale but found no buyer. MPG again badly missed our first quarter estimates of $0.24 per share due to higher expenses, particularly interest.

The company is struggling due to a high debt load and declining office market fundamentals. In addition, portfolio vacancy is increasing as MPG had exposure to now bankrupt sub-prime lenders who vacated large blocks of space. Due to share price declines, the company trades at a significant discount to NAV, although we are changing our near-term recommendation to Sell and our six-month price target to $14.

Read the analyst note on MPG.