On Nov 26, we reaffirmed our Underperform recommendation on Mack-Cali Realty Corp. (CLI) owing to the continued weakness in the company’s core office markets with rent on the renewals rolling down. Also, its aggressive disposition efforts are having a dilutive impact on its financials in the near-to-medium term.
Mack-Cali Realty Corp. — a real estate investment trust (:REIT) that declared its third-quarter 2013 results on Oct 24 — reported funds from operations (:FFO) of 57 cents per share, in line with the Zacks Consensus Estimate. However, this came below the year-ago quarter figure by 8 cents.
The quarterly results reflected the impact of tough operating environment and declining occupancy rate. Though total revenue increased 3.6% year over year to $162.5 million, it fell short of the Zacks Consensus Estimate of $169.0 million.
With rental rates declining over the last few years in the company’s markets, we anticipate the company to experience lower rental rates at these commercial properties on new leases than the current rates with leases expiring in the quarters ahead.
Moreover, though the company is aiming at strengthening its portfolio base through multifamily apartment buyouts and office assets divestiture, its aggressive disposition efforts are continuing to have a dilutive impact on its financials in the near-to-medium term.
Consequently, over the last 30 days, the Zacks Consensus Estimate for 2013 moved up only 0.4% to $2.38 per share while that for 2014 declined 0.9% to $2.28 per share. Hence, Mack-Cali currently has a Zacks Rank #4 (Sell).
Other Stocks to Consider
While we prefer to avoid Mack-Cali, investors interested in the REIT industry may consider stocks like Getty Realty Corp. (GTY), National Health Investors Inc. (NHI) and Sabra Health Care REIT, Inc. (SBRA). All these stocks carry a Zacks Rank #1 (Strong 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.