Mack-Cali (CLI) Q2 FFO Beats, Guides Up, Shares Rise - Analyst Blog
Shares of Mack-Cali Realty Corp. CLI climbed 5.52% yesterday following its announcement of better-than-expected results for second-quarter 2015. The company also raised its full year 2015 guidance.
Mack-Cali’s funds from operations (“FFO”) per share of 46 cents exceeded the Zacks Consensus Estimate of 42 cents. Total revenue came in at $148.6 million and beat the Zacks Consensus Estimate of $144 million.
However, FFO per share declined 8% from 50 cents, while total revenue decreased 7.3% from $160.3 million reported a year ago. The year-over-year decrease in FFO per share was primarily due to lower net operating income (NOI) as a result of assets sold, lower revenues from decreased percentage leased, partly mitigated by increased net real estate tax appeal proceeds as well as a decrease in acquisition-related general and administrative costs, and interest expenses.
Quarter in Detail
During the quarter, Mack-Cali executed 138 lease deals spanning 1,377,100 square feet at its consolidated in-service commercial portfolio. This included 970,472 square feet of office space, 391,328 square feet of office/flex space and 15,300 square feet of industrial/warehouse space. Of the total leased space, 214,577 square feet pertained to new lease deals, while 1,162,523 square feet consisted of lease renewals and other tenant retention deals.
As of Jun 30, 2015, the company’s consolidated commercial in-service portfolio was 82.3% leased, slipping from 84.3% at the end of the previous quarter.
Notably, during the quarter, Mack-Cali sold a 203,000 square-foot office property in Parsippany, NJ, for $80 million. The company also disposed off its interest in a multi-family joint-venture property – The Highlands at Morristown Station in Morristown, NJ – realizing net proceeds of around $6.4 million.
Liquidity
Mack-Cali exited the quarter with cash and cash equivalents of $19.8 million, marginally ahead of $19.3 million at the end of the prior quarter. The company had total debt of $2.0 billion as of Jun 30, 2015, slightly below the $2.1 billion at the end of the prior quarter. Its weighted-average annual interest rate stood at 5.67%.
2015 Guidance Raised
For full-year 2015, Mack-Cali raised its FFO per share guidance. The company now expects FFO per share in the range of $1.70–$1.80, up from $1.66–$1.78 guided earlier. The Zacks Consensus Estimate of $1.72 for the same lies well within this range.
Our Take
Mack-Cali’s earnings beat comes as encouraging, and has led to price appreciation as expected. We believe the company has adequate scope for improvement, given its strong presence in high barrier-to-entry markets in the Northeast region, as well as diversification in the multi-family apartment sector. Yet, earnings-dilutive effects of disposition and an expected rise in interest rate are potential headwinds.
Mack-Cali currently carries a Zacks Rank #4 (Sell). We presently await the results of other REITs like Avalonbay Communities Inc. AVB, Boston Properties Inc. BXP and PS Business Parks Inc. PSB, all of which are scheduled to release in the next week.
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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