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
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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.
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
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
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
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
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.
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.
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
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.