Spending Spree Boosts Outlook For Maguire After a Slow Start

0

Wall Street has been a bumpy ride for Maguire Properties Inc.


When it issued $250 million in preferred stock in January, the real estate investment trust and major downtown L.A. landlord set an aggressive acquisition target of $420 million in purchases to be made by mid-year.


As mid-year approached with zero deals, analysts had to roll back their earnings estimates. They also began to question whether they could take management at its word.


“We were concerned the company’s credibility would take a hit coming out and missing targets so early on as a public company,” said John N. Perry, an analyst with Deutsche Bank Securities who dropped his rating on Maguire to a hold in August.


He has since raised it back to buy, partly because Maguire has been on a spending spree, paying nearly $367 million for two properties near John Wayne Airport in Orange County the 90-acre Park Place office complex and the adjacent Washington Mutual campus.


As of Oct. 20, the stock was trading at $24.89 a share, up 10.6 percent from a near-term low of $22.50 set in August.


“We believe (Maguire’s) lackluster 2004 stock performance can be attributed to its slow use of proceeds” from the January offering, wrote Banc of America Securities real estate analyst Ross Nussbaum in an Oct. 13 report.


In an e-mail, Maguire Chairman and co-Chief Executive Robert Maguire wrote that some recent sales of high-profile buildings, such as downtown’s Bank of America Plaza and Santa Monica’s Colorado Center, carried too high a price tag.


While the company now has an estimated 12 percent market share near John Wayne, he said its focus remains on acquiring properties downtown. “The exuberance over downtown is valid given that residential development continues to experience explosive growth, transportation infrastructure improves and the ongoing investment climate remains very strong,” Maguire wrote.


On the horizon are a number of high-profile leases coming up for expiration in its downtown buildings, where the company collects more than 77 percent of its annual rents, according to Nussbaum’s report.


Rival Thomas Properties Group Inc., run by Maguire’s former partner Jim Thomas, is aggressively trying to fill more than half a million square feet in City National Plaza, formerly Arco Plaza. This has kept rents relatively low throughout downtown.


“Arco will continue to wreak havoc on the market until Thomas fills it up,” Perry said. “Any tenant with an expiring lease is going to take a close look at that space.”


Law firm Jones Day is already departing its 160,000-square-foot lease in Maguire’s Gas Company tower for City National Plaza. And three weeks ago, the Los Angeles Unified School District notified Maguire officials it may cease leasing 260,000 square feet in KPMG Tower to consolidate into the Beaudry Avenue headquarters building the district purchased three years ago.


In his e-mail, Maguire wrote that he isn’t overly concerned about losing Jones Day, or the possible loss of the School District.


The Jones Day deal, he wrote, “just got too pricey for us.” And the School District’s tenancy in the gleaming KPMG building belies the fiscal restraint that has been a goal of School Board President Jose Huizar.


“It’s kind of hard to predict what LAUSD will do,” Maguire wrote. “We understand the image of the building has been in conflict with the image they are trying to portray.”


He noted that the School District’s annual $5 million rent is below market rates, and the company has already received interest in the space. “We’d hate to lose them,” he wrote, “but (we) certainly understand if they need to leave.”


All the while, the Service Employees International Union has made Maguire the bull’s-eye in its efforts to unionize downtown security officers, picketing the company’s shareholder meetings and creating a Web site to wage an information campaign.


As for that other threat competition from Thomas Properties Maguire wrote that Arco Plaza’s effect on the market will be short-lived. He believes vacancy rates will continue to fall for premier office buildings on Bunker Hill, and Thomas shouldn’t take long to fill its vacant space.


“We think the market has tightened up,” Maguire wrote. “Arco will have an impact in the near-term until they get more comfortably leased up which given the size of the overall market really isn’t that much (space). It’s an issue in the near-term, but not the long-term.”

No posts to display