Staying Neutral on Mack-Cali - Analyst Blog

On Jul 11, 2013, we reiterated our long-term recommendation on Mack-Cali Realty Corporation (CLI) at Neutral. The decision is based on the company's decent leasing activity and diversifying moves. Yet, amid the current unimpressive demand for office space, we are concerned about the company's capability to hold up occupancy levels and raise rents.

Why the Neutral Stance?

Mack-Cali has a strong presence in high barrier-to-entry markets in the Northeast region in the U.S. Yet, holding occupancy and increasing rents are a concern due to the tough environment in the office sector along its footprints. Hence, Mack-Cali is on a revamp mode. It sold a number of office properties in recent times and also inked deals to expand its multifamily residential platform.

Alongside, it slashed dividend. Though discouraging for shareholders in the near term, this dividend cut would ultimately help save cash for meeting Mack-Cali's investment needs. Nevertheless, the portfolio is exposed to concentration risks while the series of acquisitions has raised upfront costs. Hence, our Neutral recommendation remains in place.

The Zacks Consensus Estimate for 2013 FFO (funds from operations) per share fell marginally to $2.47, while for 2014, it moved south nearly 2.0% to $2.50, over the last 60 days.

The Zacks Consensus Estimate for FFO (funds from operations) per share for the upcoming quarter is pegged at 62 cents per share. The earnings ESP (Read: Zacks Earnings ESP: A Better Method) for Mack-Cali is +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 Stocks to Consider

Some better performing REITs include Sunstone Hotel Investors Inc. (SHO), W. P. Carey Inc. (WPC) and Winthrop Realty Trust (FUR). All these stocks carry a Zacks Rank #1 (Strong Buy).