Maguire shifts IPO assets, seeks to raise up to $700 million. (Up Front).

In a bid to make the initial public offering of his real estate holding company more palatable to investors, developer Robert Maguire has shifted the assets to be included in the package.

The changes, reported in an amended registration statement filed with the Securities and Exchange Commission last week, come as the price range for the offering has been established.

Gone from the package are two Texas properties. In their place are the first two phases of Cerritos Corporate Center totaling 327,000 square feet.

Maguire's four downtown high-rises - Library, Gas Co., KPMG and Wells Fargo towers - make up more than 80 percent of the portfolio's square footage, up from 67 percent in its initial filing in November.

In the most recent filing, Maguire Properties Inc. said it would offer 33.4 million shares to the public at a price ranging from $19 to $21 a share. The offering is being underwritten by Citigroup and Credit Suisse First Boston.

With those numbers identified, Maguire Properties' initial public offering would be in the $635 million to $700 million range. By comparison, the P0 of Chicago-based Equity Office Properties Trust, the nation's largest office property real estate investment trust, came out at $525 million in 1997.

"It's a large IPO for real estate," said David Loeb, managing director at Friedman Billings Ramsey & Co. "But there's a lot of money out there looking for yield."

The increased emphasis on locality would mirror the strategy of regional office REITs like Boston Properties Inc. and Cousins, both of which Maguire has said he wanted to pattern his REIT after.

Maguire's exposure to L.A. could become even greater.

Robert Maguire, on behalf of the REIT, has been in discussions with Wells Fargo & Co. to acquire the i million-square-foot 707 Wilshire Tower, also known as the AON building, for $115 million, according to one source close to the process.

With that purchase, Maguire, who had bid for both BP and Arco Plazas last year before the buildings were sold to Beacon Capital Partners LLC and Thomas Properties Group LLC, respectively, would own 6.1 million square feet of downtown office property.

Neither officials from Maguire Partners nor Eastdil Realty, which is selling the building, would comment.

Still to be booked is the date of Maguire's road show, which has been delayed since the beginning of the year. Officials at Maguire Partners declined comment, citing securities rules governing the pending offering. But with the shares and valuation decided, a national road show could take place early next month, according to sources close to the process.

"This re-filing shows a pretty serious step," said one source. "It shows that the underwriters and Maguire finally agreed on valuation, which was the big stumbling block."

Maguire Properties is offering competitive yields, with annual dividends estimated at $1.65, putting its 8.25 percent yield (on a $20 share price) at about the midway point between EOP (7.65 percent yield) and Arden (8.6 percent).

Still, the filing raises some questions regarding both the stock price and the yield rates, according to both Loeb and Craig Silvers, principal of L.A.-based REIT money manger Bricks & Mortar Capital.

REIT investors often look at price-to-funds from operations - defined as net income exclusive of depreciation expenses, nonrecurring events and gains or losses from property sales - to gauge whether a stock is valued properly.

Using that barometer, Maguire Properties price/FFO ratio using its 2002 pro forma financial statements and a $20 stock price would be 9.8, compared with 6.9 and 8.9 for Kilroy and Arden, respectively.

Additionally, Maguire's dividend distribution is estimated at 105 percent of the cash available for distribution for the year ended Dec. 31, 2003, according to the filing. "That could be an issue," said Loeb. "The market gets uncomfortable when the payouts get over 90 percent."

Still, the strong performance of the REIT sector could work in Maguire's favor. The Morgan Stanley REF Index is up 5 percent year to date and almost 10 percent since early February.

It had taken a dip in the months after Maguire's initial filing, prompting him to pursue alternative financing options. Maguire held conversations with at least one unidentified German fund regarding an equity position in the portfolio, according to the source close to the filing process.

REIT Power

The Morgan Stanley REIT index is up nearly 10 percent since February.

April 30, 2002  450.08
April 30, 2003  450.82

Note: Table made from line graph