Mack-Cali JV Gets 11.25% IRR on Mezzanine Note Investment

Zacks

The real estate investment trust (:REIT), Mack-Cali Realty Corporation (CLI) disclosed the collection of full repayment on the senior mezzanine note of its joint venture (:JV) with Winthrop Realty Trust (FUR). This collection from the borrower, RFR Realty, helped in achieving around 11.25% internal rate of return (IRR) on the investment.

As a matter of fact, the JV purchased this mezzanine position in the capital stack of a class A real estate portfolio, spanning 1.7 million square feet, in Stamford, CN in Feb 2012. The acquisition was accomplished at a discounted price of $40 million. The face value of the loan was $47 million.

Mack-Cali and Winthrop partnered with their respective shares being 80% and 20%, and got $37,798,600 and $9,449,640 respectively, as net proceeds after expenses.

Going forward, we believe that opportunistic investments in the real estate sector would help this REIT to reap healthy yields. Amid weakness in its core office markets, Mack-Cali is currently making concerted efforts to venture into the multifamily apartment sector. Besides making strategic investments, the company is disposing its office assets.

While the dilutive impact on earnings from such moves is unavoidable, we believe that the addition of multifamily apartment assets would help the company to boost its top line in the long term. This sector is enjoying a steady improvement in its fundamentals.

Last month, Mack-Cali 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.

Mack-Cali currently carries a Zacks Rank #3 (Hold). Investors interested in the retail REIT industry may consider better-ranked stocks like DCT Industrial Trust Inc. (DCT) and DuPont Fabros Technology, Inc. (DFT), both carrying a Zacks Rank #2 (Buy).

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

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