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Mack-Cali Realty Corporation CLI has a dominant presence in high barrier-to-entry markets and a diversified tenant base. However, elevated expenses and the dilutive impact on earnings from huge asset sales remain concerns for the company. Rate hikes also add to its woes.
The company has been focusing on improving its office portfolio in a bid to maximize pricing and generate higher revenues. Recently, the company revamped one of its properties, which was then leased to Plymouth Rock for 12 years. This enabled the company to achieve full occupancy in the property.
Furthermore, Mack-Cali has been repositioning its portfolio to include more residential and geographically-focused office spaces. The three-year strategic initiative, undertaken in September 2015, has helped the company concentrate on the New Jersey Hudson River waterfront and transit-oriented office properties. The company is also aiming at becoming a regional owner of luxury multi-family residential properties.
Moreover, the company enjoys debt-free ownership for the bulk of its portfolio. As of Jun 30, 2018, the company had 113 unencumbered properties, with a carrying value of $2.2 billion.
Also, shares of Mack-Cali have outperformed the industry it belongs to in the past three months. Its shares have gained 23.9% compared with 8.4% growth recorded by the industry. Additionally, its 2018 Zacks Consensus Estimate for funds from operations (FFO) per share moved up marginally in a month’s time.
Mack-Cali has been selling its assets as part of its disposition program. The company completed $528-million property sales in 2017, and sold assets worth $232 million in first-half 2018. Furthermore, the company expects additional dispositions of $170 million in second-half 2018. Though this looks promising for the long run, it will have a dilutive impact on earnings in the near term.
Moreover, Mack-Cali’s strategy to pursue multi-family residential investments involves significant upfront operating expenses and hence, limits the company’s growth momentum.
Also, interest-rate hike is a concern for the company. Rising rates imply higher borrowing cost for the company, which, in turn, affects its ability to purchase or develop real estate.
Mark-Cali currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Stocks to Consider
A few better-ranked stocks from the Real Estate Investment Trust (REIT) space include NorthStar Realty Europe Corp. NRE, Whitestone REIT WSR and PS Business Parks, Inc. PSB. NorthStar Realty and Whitestone REIT flaunt a Zacks Rank of 1, while PS Business Parks carries a Zacks rank of 2 (Buy).
NorthStar Realty’s Zacks Consensus Estimate for 2018 funds from operations (FFO) per share has been revised 5.5% upward over the past 60 days. Its shares have returned 30.1% in the past six months.
Whitestone REIT’s FFO per share estimates for 2018 have inched up 0.8% over the past 60 days. Its shares have appreciated 7.3% over the past six months.
PS Business Parks’ FFO per share estimates for the current year increased slightly in the past 60 days. Its shares have gained 14.3% in the past six months.
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PS Business Parks, Inc. (PSB) : Free Stock Analysis Report
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