On Aug 28, 2013, we downgraded our long-term recommendation on
Mack-Cali Realty Corp.
) - a real estate investment trust (REIT) - to Underperform from
Neutral based on the continued weakness in the company's core
office markets and reduction in rent on the renewals.
Why the Downgrade?
With rental rates declining over the last few years in the
company's markets, we anticipate that following lease expirations
in 2013, the company would experience lower rental rates at these
commercial properties on new leases than the current ones.
Moreover, rising interest rates raise its funding cost. Mack-Cali
also slashed its dividend in the first half of 2013.
Mack-Cali reported second-quarter 2013 funds from operations
(FFO) of 65 cents per share, surpassing the Zacks Consensus
Estimate as well as the year-ago quarter figure by 3 cents. The
rise in overall revenues as well as leasing activity helped the
company's results in the quarter.
Though the company posted better-than-expected results in
second-quarter 2013 and continues to diversify in the growing
multifamily apartment sector, we believe that its aggressive
disposition efforts would have a dilutive impact on its
financials in the near-to-medium term. Moreover, for full-year
2013, Mack-Cali expects FFO per share in the range of
$2.32-$2.42. This reflects a cut in the outlook for the second
time in the year.
Over the last 30 days, the Zacks Consensus Estimate for 2013 FFO
per share moved south 0.4% to $2.41 while the Zacks Consensus
Estimate for 2014 fell 4.5% to $2.35 per share. The stock
currently has a Zacks Rank #4 (Sell).
Other Stocks to Consider
Other REIT stocks that are worth considering include
Douglas Emmett Inc.
Highwoods Properties Inc.
SL Green Realty Corp.
), all carrying a Zacks Rank #2 (Buy).
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.
MACK CALI CORP (CLI): Free Stock Analysis
DOUGLAS EMMETT (DEI): Free Stock Analysis
HIGHWOODS PPTYS (HIW): Free Stock Analysis
SL GREEN REALTY (SLG): Free Stock Analysis
To read this article on Zacks.com click here.