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Mack-Cali Continues Divestitures

Zacks Equity Research

Consistent with its ongoing non-strategic assets disposition activity, Mack-Cali Realty Corporation (CLI) recently sold a N.J.-based property to The Silverman Group for about $18.0 million. This real estate investment trust (:REIT), which previously focused on mainly office assets, aims to redeploy the proceeds for funding other strategic growth prospects.

The 4-story commercial office property spans 133,684 square feet. The 54% leased asset is situated at Liberty Corner Corporate Center on 106 Allen Road in Bernards Township. Notably, a tough office market environment in many states such as New Jersey is leading to a decline in occupancies and average asking rents. Consequently, amid the weak demand for office space at present, Mack-Cali has been focusing on expanding its multifamily apartment portfolio.

Last month, the company offloaded another N.J.-based property for around $6.2 million. Moreover, in May, Mack-Cali divested 2 other N.J-based assets, 1 in Clifton for $5.8 million and another in Little Ferry for about $32.3 million.

As a matter of fact, the New Jersey office market is still recovering from the impact of Hurricane Sandy as well as statewide corporate consolidations. According to Jones Lang LaSalle Inc. (JLL), the overall average asking rental rates rose merely 3.5% to $24.47 per square foot in first-quarter 2013 from $23.65 in fourth-quarter 2012. This justifies Mack-Cali’s decision to dispose several non-core assets, especially those in New Jersey.

At the same time, Mack-Cali has been inking various acquisition deals to expand its multifamily apartment portfolio. Among the recent acquisitions, Alterra IA and Alterra IB at Overlook Ridge in Metro Boston are noteworthy. Mack-Cali acquired the properties from a joint venture of Prudential Insurance Company of America, an operational arm of Prudential Financial Inc. (PRU). We believe that such restructuring efforts will ultimately help the company to diversify its assets and ride high on growth.

Mack-Cali is slated to release second-quarter 2013 results on Jul 25, before the opening bell. The Zacks Consensus Estimate for FFO per share for the upcoming quarter is pegged at 62 cents per share.

The earnings ESP (Read: Zacks Earnings ESP: A Better Method) for Mack-Cali is positive 1.61% for the second quarter. This, along with its Zacks Rank #4 (Sell), reduces the chances of a positive earnings surprise.

Another REIT that is performing better is CubeSmart (CUBE) which has a Zacks Rank #2 (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.

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