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Mack-Cali Retorts to Bow Street's Buyout Proposal & Nomination

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Mack-Cali Realty Corporation CLI has announced its willingness to work with Bow Street, which owns around 4.5% of the company’s outstanding shares, to nominate two new independent directors. This comes as Mack-Cali’s effort to avoid expensive and protracted proxy contest.

However, Mack-Cali views Bow Street and David Werner Real Estate Investments’ (“DWREI”) proposal to acquire the suburban and waterfront office assets of the former as “grossly” undervaluing its commercial assets. It has noted that Bow Street's proposal would rather transfer value to Bow Street and DWREI and “shortchange” Mack-Cali Stockholders.

The situation heated up, with Mack-Cali grabbing headlines in recent months, as earlier this year, Bow Street proposed to purchase the office portfolio of the former, while Mack-Cali’s residential assets would be clubbed together and spun off as a newly-formed, publicly-traded residential REIT. In this process, per the proposal, Mack-Cali stockholders would get expected net cash consideration of $8-$10 per share as well as equity sharing in that new apartment REIT.

While Mack-Cali rejected this proposal, Bow Street announced nominating four independent director candidates for election to the board of the former. It opined that the acquisition proposal was “hastily and publicly” turned down by Mack-Cali before any significant review with respect to valuation, structure, tax or other implications for stockholders.

Nevertheless, Mack-Cali’s board has still got concerns and believes Bow Street's proposal is based on “unrealistic assumptions” about the post-transaction trading levels of the new residential REIT. Mack-Cali stated that the new residential entity would not have sufficient cash flows to shoulder its significant debt burden, finance multi-family development endeavors or pay reasonable dividend to shareholders. This apart, Mack-Cali also pointed out that Bow Street hasn't provided proof of its capacity to finance the proposed transaction.

Mack-Cali, thus, concluded that the proposal terms are “unlikely to deliver aggregate consideration to stockholders that would be anywhere near the hypothetical transaction value of $27.00 to $29.00 per share, as suggested by Bow Street in its letter to the Board.”

Mack-Cali’s board is, nonetheless, willing to nominate two Bow Street independent director candidates for election to the board at the upcoming 2019 annual meeting. The company also believes focus on the ongoing transformation and repositioning of its asset portfolio, as part of the REIT’s waterfront strategy, will continue. This will likely lower the difference between the NAV and the trading price of its common stock in the forthcoming period.

In fact, Mack-Cali has been making efforts for the past few years, aiming at focusing on waterfront and transit-based office holdings, and luxury multi-family portfolio growth. Yet, such plans involve significant upfront costs, which might drag down the company’s profit margins. In addition to these, the company has been disposing off assets. While such measures are a strategic fit for the long term, the dilutive impact on earnings from huge asset sales cannot be bypassed in the near term.

Mack-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

Some better-ranked stocks in the real estate industry include Alexandria Real Estate Equities, Inc. ARE, Boston Properties, Inc. BXP and PS Business Parks, Inc. PSB. Each of these stocks carries a Zacks Rank #2 (Buy), at present.

Alexandria Real Estate Equities’ Zacks Consensus Estimate for current-year funds from operations (FFO) per share remained unchanged at $6.96 in a month’s time.

Boston Properties’ Zacks Consensus Estimate for 2019 FFO per share inched up a cent over the last seven days to $6.93.

PS Business Parks’ Zacks Consensus Estimate for the ongoing year’s FFO per share remained unrevised at $6.59 in a week’s time.

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