Mack-Cali Beats on FFO & Revenues, Guides Up, Shares Rise

Zacks

Mack-Cali Realty Corp. (CLI) reported second-quarter 2014 funds from operations (:FFO) of 50 cents per share, beating the Zacks Consensus Estimate by 3 cents. The company’s total revenue of $160.3 million also comfortably surpassed the Zacks Consensus Estimate of $154.0 million.

This real estate investment trust (:REIT) increased its 2014 FFO per guidance. Reflecting the positive sentiment, Mack-Cali's shares gained 1.44% during yesterday's regular session on the NYSE.

Quarter in Details

However, on a year over year basis, FFO per share were down by 15 cents, while revenues fell 4.8% and expenses moved up 1% year over year.

During the quarter, Mack-Cali executed 120 lease deals, spanning 876,273 square feet, at its consolidated in-service portfolio. Of the total leased space, 353,595 square feet were for new lease deals and 522,678 square feet were related to lease renewals and other tenant retention deals.

As of Jun 30, 2014, the consolidated commercial in-service portfolio of the company was 83.7% leased, slightly up from 83.6% at the end of the prior quarter.

During the quarter under review, Mack-Cali bought a 220-unit multi-family property – Andover Place at 650 Bulfinch Drive – in Massachusetts for around $37.7 million. Also, the company along with the affiliates of Keystone Property Group acquired an iconic class A office and retail building – Curtis Center – in Philadelphia for $125 million.

On the other hand, the company sold Parsippany, NJ-based and Montebello, NY-based office assets for about $96.6 million and $28.3 million, respectively, during the quarter. Additionally, Mack-Cali closed the divestiture of seven office buildings in New Jersey for approximately $117 million.

Liquidity

As of Jun 30, 2014, Mack-Cali had cash and cash equivalents of $80.9 million, up from $58.7 million at the end of the prior quarter. Also, the company had total debt of $2.2 billion, same as the earlier quarter.

Moreover, Mack-Cali’s debt-to-undepreciated assets ratio was 38.4% as of Jun 30, 2014, compared with 38.8% as of the end of the last quarter. Interest coverage ratio was 2.8 times for the reported quarter, compared to 2.0 times in the prior quarter.

Guides High

For full-year 2014, Mack-Cali increased its FFO per share guidance and now expects it in the range of $1.70 – $1.78 compared to its previous outlook of $1.62 – $1.72. The Zacks Consensus Estimate of $1.70 for the same is within the new range.

Our Take

Although FFO per share and revenues came above the Zacks Consensus Estimate and the company raised its outlook for the year, the year-over-year decline is not so impressive for this Zacks Rank #4 (sell) stock. Though the company’s move to curtail its office assets and focus on strengthening its multifamily apartment portfolio is a strategic fit for the long term, a dilutive impact on earnings from such moves is unavoidable in the near term.

We now look forward to the results of other REITs such as UDR Inc. (UDR), Cousins Properties Incorporated (CUZ) and General Growth Properties Inc. (GGP) that are scheduled to report next week. All these stocks carry a Zacks Rank #2 (Buy).

Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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