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Mack-Cali (CLI) to Dispose Entire Sub-urban Office Portfolio

Zacks Equity Research

Mack-Cali Realty Corporation CLI announced that as recommended by the Shareholder Value Committee, the company’s board of directorshas determined to dispose its entire 6.6 million square-foot suburban office portfolio. It plans to complete the sale of this entire portfolio in 2020.  

As part of this decision, the board has approved the sale of two sub-urban office portfolios, aggregating around 2.4 million square feet of office space in New Jersey, Parsippany and Madison, NJ, to Onyx Equities, LLC, in partnership with Axonic Capital LLC and Taconic Capital Advisors, L.P.

This portfolio represents nearly 36% of the square footage of Mack-Cali’s sub-urban holdings, and will be sold for $285 million in cash and roughly $3.5 million of assumed lease obligations.

The company intends to redeploy asset sales proceeds to repay outstanding corporate-level, unsecured debt. This effort to reduce leverage will strengthen its balance-sheet position.

Post the sub-urban portfolio sale, Mack-Cali's entire holdings will consist of its waterfront Class-A office portfolio, spanning 5 million square feet of space and the multi-family residential real estate operations through its subsidiary Roseland Residential Trust.

In fact, the company has made concerted efforts in recent years to transform from a sub-urban office REIT to a residential and geographically-focused office REIT. Through a three-year strategic initiative beginning September 2015, it has transformed itself into a more concentrated owner of the New Jersey Hudson River waterfront and transit-oriented office properties, as well as a regional owner of luxury multi-family residential properties.

Further, as part of portfolio-streamlining efforts, Mack-Cali has been aggressively disposing its assets for the past few years. This has enabled the company to exit non-core markets and shed non-core assets. In addition, it has largely completed the disposition program that entails exodus from non-core suburban markets.

Moreover, for full-year 2019, Mack-Cali estimates $190-$240 million of asset sale, excluding its flex properties. While the measures are a strategic fit for the long run, the dilutive impact on earnings from such huge asset sales cannot be bypassed in the near term.

Shares of this Zacks Rank #3 (Hold) company have gained 7.6% in the past three months, as against the industry’s loss of 1.5%.

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