Investcraft – The Art of Investing

At today’s share price, Maguire Properties (NYSE: MPG) stock is priced for a bankruptcy. They closed at $1.33 per share which gives MPG a market cap of about $63 million. This means that the investors think MPG is almost worthless…why? Because MPG actually has more cash on hand than their market cap. Last reported, they had about $64 million cash on hand. That means, just with the cash they have, they can buy back everyone’s shares at today’s price and go private.

That’s not to say MPG doesn’t have a rough road ahead. They have a ton of debt and a lot of properties that are worth less than the amount of debt they carry. That’s all bad news which is probably why the company is being valued at a mere $63 million.

However, there are signs of hope.

* Unloading Toxic Assets / Debt Reduction – If MPG can keep unloading their toxic properties — properties that they can’t lease out or are not generating enough cash to cover the interest on the debt, that would greatly help their results. And it appears they have been doing just that. They recently unloaded (and plan to unload) a few properties which are negative to their earnings — I believe these properties were layered with $1.1 billion in debt.

* Lower Costs – Their SGA is down drastically this recent quarter which means they are cost-conscious and trying to scale down and be more efficient with their operation.

* Cutting Losses – MPG has shown that they’re not afraid to walk away from a bad investment. The single biggest mistake that ANY investor (not just in real estate but in any kind of investment) is admitting you made a bad investment. I think with the recent announcements of disposal/sale of properties at a loss by MPG, they’re willing to admit “Hey, we made a bad investment.” Getting rid of these assets will help MPG’s balance sheets drastically.

* Re-Negotiating Loans – This is kind of related to the point above. But since MPG has shown they’re not afraid to walk away from a bad investment and default on properties, it makes it much easier for them to re-negotiate terms with their lenders. I believe this will help them get much sweeter deals on the loans since the banks aren’t property owners and don’t want another non-performing asset on their books.

* Bankruptcy Not Likely – Management has stated that they were “comfortable” with their liquidity position during their last conference call and that they may also get a 3rd party investment injection into MPG at either the property or corporate level. Multiple times during the conference call, they were asked if they are considering bankruptcy. The CEO stated each time, confidently, that they were not nor does he feel they are on a course for bankruptcy.

* Filling Building with Tenants – MPG must keep their buildings filled with tenants. As the economy recovers, this should get easier for MPG. As this is a major source of their income, they must continue to do this aggressively and efficiently.

In any case, if MPG can continue to execute on all the bullet points above, then it’s likely they will survive this economic downturn and maybe see their stock trading in the double-digits again. The upside on MPG is tremendous because they have such a small market cap and the price of their stock has been beaten down to this penny-stock level. However, they are landlords of and own some of the most prestigious buildings in LA and all over California. I picked up some shares of MPG today in hopes that they deliver on their promises.