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Tuesday, January 23, 2007

Maguire Properties (MPG) May Get A Bid

Vornado Realty Trust (VNO) recently topped private equity firm the Blackstone Group's bid for Equity Office Properties Trust (EOP). There is only a finite amount of prime commercial real estate and VNO sees value in EOP. From a fundamental standpoint REITS look overvalued. Many housing and commercial REITS are trading at upwards of 18-22 times forward earnings. I don't believe Blackstone will make another bid for EOP. Instead I believe they will go after Maguire Properties (MPG).


Why should you buy MPG? & Why would a private equity firm want to buy MPG?

  • MPG has listed itself for sale and estimated a sale price of $50 per share
  • FBR added it to their "Top Picks" on 12/11/06 $47.50 price target, $51 buyout price
  • High G&A Expense ($34mm). "...exceedingly high...on a percentage of NOI, it is the highest office REIT [Stifel Nicolaus] covers." (Stifel Nicolaus 12/11/06) There is room for cost cutting if taken private.
  • Owns highly desirable office space (15.4mm square feet) in downtown LA, Orange County, & San Diego, as well as a Westin Hotel and 32,000 parking spaces
  • Possible occupancy gains as space is currently less than 90% occupied
  • Industry best development pipeline according to Stifel Nicolaus
  • Can develop up to 1mm square feet of land in downtown LA
MPG is now trading at $42 a share. I see it fairly valued at $42 with a target price of $48-$50.

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