To diversify its portfolio and venture into the multifamily
Mack-Cali Realty Corporation
) has penned deals to sell its 15 commercial office properties
and 3 land parcels in suburban Philadelphia through several joint
ventures. Particularly, the deal inked with a fund sponsored by
Keystone Property Group would help the company sell the assets at
approximately $233 million.
The Deal Details
These assets comprise existing office properties spanning 1.663
million square feet and land, which could house future
development of about 162,000 square feet. The selling price would
include $201 million in cash, a $10 million mortgage secured by
One Plymouth Meeting, as well as subordinated interests in the
portfolio with capital accounts totaling $22 million.
Under the agreements, Mack-Cali would take part in management
fees and 50% of value creation over certain hurdle rates. The
deal would also result in Mack-Cali gaining majority stake in a
land parcel in Bala Cynwyd, Pa. This land parcel would be used
for multi-family residential development. Further, Mack-Cali
would enjoy the privilege of subdividing and building up
multi-family residential units at 150 Monument Road in Bala
Mack-Cali - the real estate investment trust (REIT), which
previously has primary focus on office assets, aims to redeploy
the proceeds for funding other strategic growth prospects. As a
matter of fact, the suburban office portfolio lacks significant
growth prospects in the near term due to a weak demand for such
Amid a stretched macroeconomic environment with high unemployment
levels and sufficient availability of space, the demand for
office space remains moderate. This, in turn, exerts pressure on
rent and occupancies. The company has also vended a number of
office properties in New Jersey in the recent past.
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 that were acquired from a joint
venture of Prudential Insurance Company of America, an
operational arm of
Prudential Financial Inc.
We believe that such restructuring efforts will ultimately help
the company to diversify its assets and ride high on growth.
Moreover, the increase in apartments' demand driven by 'echo
boomers' - children of the baby boomer generation - makes us
positive on the company's strategy, as the particular
population's propensity to rent is significant.
Zacks Earnings ESP
Mack-Cali is slated to release second-quarter 2013 results on Jul
25, before the opening bell. The Zacks Consensus Estimate for
funds from operations (FFO) per share for the upcoming quarter is
pegged at 62 cents.
The earnings ESP (Read:
Zacks Earnings ESP: A Better Method
) for Mack-Cali is a positive 1.61% for the second quarter.
However, we are skeptical about a positive earnings surprise
owing to the company's Zacks Rank #4 (Sell).
Other REITs to Consider
Two other REITs that are performing better are
W. P. Carey Inc.
Winthrop Realty Trust
), both of which carry a Zacks Rank #1 (Strong 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
WINTHROP REALTY (FUR): Free Stock Analysis
PRUDENTIAL FINL (PRU): Free Stock Analysis
WP CAREY INC (WPC): Get Free Report
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