Mack-Cali on the Road to Recovery - Analyst Blog

On May 16, 2014, we issued an updated research report on the real estate investment trust (REIT) – Mack-Cali Realty Corp. CLI.

Mack-Cali is currently focusing on expanding its holdings in the multi-family residential sector that has traditionally been more of a stable product type. Notably, the rise in demand for apartments driven by ‘echo boomers' – children of the baby boomer generation – promises bright prospects for Mack-Cali in this sector.

Also, while weakness in its core office markets remains a concern and asset dispositions have a dilutive effect on earnings, we believe that the negatives have already been factored in the current valuation.

However, on Apr 24, Mack-Cali reported first-quarter 2014 funds from operations (FFO) of 46 cents per share, a penny short of the Zacks Consensus Estimate. Higher expenses, especially related to cold winters, dampened the quarterly results of Mack-Cali and the company trimmed its 2014 FFO per share outlook.

Nevertheless, we believe that the company's strong presence in high barrier-to-entry markets in the Northeast region and the improving fundamentals in the apartment sector would drive its top line in the subsequent years.

Over the past 7 days, the Zacks Consensus Estimate remained stable at $1.72 and $1.83 per share for 2014 and 2015, respectively. Mack-Cali currently carries a Zacks Rank #3 (Hold).

Stocks That Warrant a Look

Investors interested in the REIT sector may consider stocks like The GEO Group, Inc. GEO, Terreno Realty Corp. TRNO and W. P. Carey Inc. WPC. All three stocks have a Zacks Rank #1 (Strong Buy).

Note: FFO, a widely used metric to gauge the performance of REITs, are obtained after adding depreciation, amortization and other non-cash expenses to net income.