Mack-Cali (CLI) Q2 FFO Beats Estimates, Revenues Fall Short

Mack-Cali Realty Corp. CLI reported second-quarter 2016 core funds from operations ("FFO") per share of 55 cents, beating the Zacks Consensus Estimate of 53 cents and up from the year-ago tally of 45 cents.

The year over year increase reflects higher base rents and lower net property expense.

Total revenue edged up 0.4% year over year to $149.2 million but missed the Zacks Consensus Estimate of $155.4 million.

Quarter in Detail

During the quarter, Mack-Cali executed 74 lease deals, spanning around 0.7 million square feet, at its consolidated in-service commercial portfolio. This included 270,199 square feet of core properties, 127,745 square feet of Waterfront properties, 150,786 square feet of flex space and 111,643 square feet of non-core properties. Of the total leased space, 154,069 square feet pertained to new lease deals; while 506,304 square feet consisted of lease renewals and other tenant-retention deals.

The company's consolidated commercial in-service portfolio was 86.7% leased as of Jun 30, 2016, down from 87.2% at the end of the prior quarter but a 4.4% improvement from a year ago. Core/Waterfront/Flex properties were 89.8% leased at quarter end.

Liquidity

Mack-Cali exited second-quarter 2016 with cash and cash equivalents of $29.5 million, down from $37.1 million recorded at the end of the prior year. The company had total debt of around $2.3 billion as of Jun 30, 2016, with a weighted average annual interest rate of about 4.79%. Its interest coverage ratio was 3.4 times for the second quarter.

Guidance

Mack-Cali expects 2016 core FFO within $2.07–$2.13 per share. The Zacks Consensus Estimate for the same is currently pegged at $2.08.

Our Take

Mack-Cali's focus on the New Jersey Hudson River waterfront and transit-oriented office properties as well as luxury multi-family residential properties is expected to drive growth.

As part of its portfolio-repositioning efforts, Mack-Cali is aggressively disposing its assets. The company had earlier revealed its plan for non-core asset sales of $750 million. It has already completed $400 million worth of dispositions year to date and has contracts out for an additional $250 million of dispositions currently.

Of this, $200 million is expected to close in the third quarter or early fourth quarter, and the residual in early 2017. Further, the company is marketing for sale $200 million worth in assets aimed at raking total potential sale proceeds of $850 million.

Though the earnings-dilutive effects of huge asset sales cannot be bypassed, but with the sale proceeds, the company plans to repay debt and finance development and acquisition moves and are hence a strategic fit for the long term. In fact, the company's selective acquisitions have bolstered its position in the Waterfront and Metropark submarkets, which is encouraging.

Mack-Cali currently carries a Zacks Rank #2 (Buy).

Some better-ranked stocks in the REIT industry include CoreSite Realty Corporation COR, CubeSmart CUBE and W. P. Carey Inc. WPC. All these stocks hold the same Zacks Rank as Mack-Cali. 

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. All EPS numbers presented in this write up represent FFO per share.

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