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Mack-Cali's Earnings In Line, Rev Tops

Zacks Equity Research

Real estate investment trust (:REIT) Mack-Cali Realty Corp.’s (CLI) first-quarter 2013 FFO (funds from operations) came in at 63 cents per share, in line with the Zacks Consensus Estimate. However, it came below the prior-year quarter figure of 74 cents. While the company experienced a rise in revenues, elevated expenses acted as the headwind.

Total revenue during the quarter reached $181.8 million, beating the Zacks Consensus Estimate of $171.0 million and rising 2.3% year over year. However, total expenses increased 11.6% year over year to $139.0 million. As a result, operating income declined 19.5% from the prior-year quarter to $42.8 million.

Leasing Activity

Mack-Cali executed strong leasing activities during the quarter. The company executed 153 leases at its consolidated in-service portfolio spanning over 1.0 million square feet. This included over 0.7 million square feet of office space, 0.2 million square feet of office/flex space and 0.01 million square feet of industrial/warehouse space.

Of the total leased space, 0.2 million square feet were for new leases and 0.8 million square feet were for lease renewals and other tenant retention transactions. The consolidated in-service portfolio of the company was 86.0% leased at quarter end compared with 87.2% in the previous quarter.

Acquisitions and Developments

In Jan 2013, Mack-Cali acquired Alterra at Overlook Ridge IA (a 310-unit multi-family rental property) in Revere, Mass. for approximately $61.3 million. Moreover, in April, the company acquired Alterra at Overlook Ridge 1B (a 412-unit multi-family property) in Revere, Mass., for around $88 million.

The properties were acquired from a joint venture of Prudential Insurance Company of America, an operational arm of Prudential Financial Inc. (PRU). The deals were financed mainly with borrowings under its unsecured revolving credit facility.

Also, in March, Mack-Cali entered the DC multifamily market, through the buyout of Crystal House. The property was acquired for approximately $262.5 million through a joint venture (:JV) with a fund advised by UBS Global Asset Management of UBS AG (UBS).

The 828-unit multi-family property, Crystal House is strategically positioned in the Crystal City section of Arlington and is in proximity with Metro, Reagan National Airport and upscale retail shops at Pentagon City.

The purchase included vacant land to accommodate the development of around 295 additional units of which 252 are currently approved. Notably, the company has a 25% interest in the Crystal House property and a 50% interest in the vacant land. The property comprises 2 twelve-story towers with garage and surface parking.

Subsequent to the quarter end, Mack-Cali sold a Hawthorne-based property – 19 Skyline Drive – to New York Medical College for approximately $16 million. It is a five-story vacant property spanning 248,400 square feet.


As of Mar 31, 2013, Mack-Cali’s cash and cash equivalents stood at $24.2 million, down from $58.2 million at the end of the prior quarter. The company had total debt of $2.3 billion, with a weighted average annual interest rate of 5.68%. This was slightly above the $2.2 billion of debt reported as of Dec 31, 2012.

Moreover, Mack-Cali’s debt-to-undepreciated assets ratio was 38.1% as of Mar 31, 2013, compared with 34.2% as of the end of the prior-year quarter. Interest coverage ratio was 3.1 times for the reported quarter, compared with 3.4 times for the prior-year quarter.


For full-year 2013, Mack-Cali expects FFO per share in the range of $2.37–$2.53 per share. This is lower than the prior guidance of $2.40–$2.60 per share.

Dividend Update

Recently, Mack-Cali disclosed its plan of slashing its second-quarter common stock dividend by a third to 30 cents from 45 cents per share paid earlier. The move comes as the company plans to retain its cash for meeting investment needs that would help expand its multi-family residential platform. Notably, the declaration of the company’s dividend is expected to take place at the board of directors’ meet on May 15, 2013.

Our Take

Mack-Cali enjoys a strong presence in high barrier-to-entry markets in the Northeast and Mid-Atlantic regions in the U.S. However, holding occupancy and increasing rents are a concern due to the tough environment in the office sector. Hence, Mack-Cali has been focusing on expanding its multifamily apartment portfolio.

We believe that though the news of the dividend cut is discouraging for the shareholders in the near term, it will ultimately help Mack-Cali diversify its business and stay on the growth trajectory in the long term.

Mack-Cali currently carries a Zacks Rank #3 (Hold). Another REIT stock that is scheduled to release today after market closes is CBRE Group Inc. (CBG).

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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