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Mack-Cali's New Project in Boston

Zacks Equity Research

Yesterday, Mack-Cali Realty Corp. (CLI) stated that its Roseland subsidiary has initiated the construction of “Portside at Pier One” in East Boston. The strategic move is in line with the execution of the company’s most awaited project, which will strengthen its footprints in Massachusetts.  

Mack-Cali has formed a joint venture with The Prudential Insurance Company of America – an operational arm of Prudential Financial Inc. (PRU) – to work on the project. The company also took a construction loan from Citizens Bank and Salem Five to fund the project. Mack-Cali expects the total project cost to be around $67 million, which includes an anticipated initial stabilized unleveraged return on a pro forma basis of roughly 7.11%.

Notably, Portside at Pier One is one of the four East Boston waterfront projects – including Winn Development’s Clippership Wharf, DeNormandie’s Hodge Boiler Works and New Street industrial redevelopment – that are slated to be completed in coming years.  

This five-story project, comprising 176-unit luxury apartment, is a part of mixed-use development of three parcels – Pier 1, Pier 5 & the East Boston Shipyard. The overall site spans 26 acres and is owned by Massachusetts Port Authority (Massport). The site facades the East Boston waterfront and provides splendid view of Downtown Boston. The site is also well connected to Boston's financial district via newly renovated Maverick Blue Line T-station.

We expect this project to be a quality addition to the company’s multi-family properties portfolio and accretive to its earnings upon completion. Mack-Cali has been actively commencing multi-family community development projects lately. Earlier in this week, the company started constructing two key communities in the Northeast – RiverParc at Port Imperial in New Jersey and The Highlands at Overlook Ridge in Mass.  

Notably, Mass. remains the main market for expansions and developments for Mack-Cali this week. In this respect, the acquisition of master planned community – Alterra at Overlook Ridge – in Revere, Mass., on Jan 22, is worth mentioning.

Mass.’s multi-family real estate market is recovering at a steady pace. According to RE/MAX of New England, multi-family home sales were up 5.3% year over year driven by low interest rates. Moreover, the firm expects the momentum to continue in 2013. Thus, we appreciate Mack-Cali decision of choosing Mass. for expansions.

Mack-Cali is scheduled to release its fourth-quarter 2012 results on Feb 7, 2013 before the opening bell. The Zacks Consensus Estimate for the company’s fourth-quarter FFO (funds from operations) is currently pegged at 63 cents per share.

Zacks Earnings ESP (Read: ZACKS EARNINGS ESP: A BETTER METHOD) for Mack-Cali is -1.59% for the fourth quarter. This reduces the chance for a positive earnings surprise, in spite of the fact that the company carries a Zacks Rank #3 (Hold).

Two of Mack-Cali’ peers – DiamondRock Hospitality Co. (DRH) and Brandywine Realty Trust (BDN) – are performing impressively and are currently holding a Zacks Rank #2 (Buy).

Note: FFO, a widely accepted and reported measure of the performance of REITs is derived by adding depreciation, amortization and other non-cash expenses to net income.

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