Mack-Cali (CLI) Q1 FFO & Revenues Beat Estimates, Stock Up

On May 2, Mack-Cali Realty Corp. (NYSE:CLI) reported first-quarter 2018 core funds from operations (FFO) per share of 50 cents, beating the Zacks Consensus Estimate of 48 cents. Results reflect better-than-expected revenue numbers for the quarter. The company also reaffirmed its 2018 guidance.

Reflecting positive sentiments, shares of Mack-Cali climbed nearly 4.4% to $18.10 during regular trading session on May 3.

In fact, total revenues of around $139 million comfortably exceeded the Zacks Consensus Estimate of $130.2 million.

However, on a year-over-year basis, core FFO per share fell 10.7%, while revenues declined 7.3%.

Quarter in Detail

As of Mar 31, 2018, Mack-Cali’s consolidated core office properties were 85.2% leased, which shrunk 240 basis points (bps) from the prior-quarter end. Same-store cash revenues for the office portfolio descended 2.8%, while same-store cash net operating income (NOI) fell 8.7%.

During the reported quarter, Mack-Cali executed 41 lease deals, spanning around 265,885 square feet of space, at the company’s consolidated in-service commercial portfolio. This comprised 21% for new leases, and 79% for lease renewals and other tenant-retention deals.

Further, for the core portfolio, rental rate roll up for first-quarter 2018 deals was 5.1% on a cash basis. For new transactions, rental rate roll up was 4% on a cash basis, while for renewals and other tenant retention deals, it was 5.3% on a cash basis.

Moreover, for the company’s residential same-store portfolio, which comprised 3,156 units and 97.3% leased at the quarter’s end, NOI inched up 1.3% in the quarter.

Portfolio Activity

Mack-Cali completed dispositions of 20 properties, comprising 1.7 million square feet of space, for $232 million. Further, the company expects additional dispositions of $170 million to be accomplished by year end.

Liquidity

Mack-Cali exited first-quarter 2018 with cash and cash equivalents of $25.3 million, down from $28.2 million recorded at the end of the prior quarter.

In addition, as of Mar 31, 2018, the company had a debt-to-undepreciated assets ratio of 44.5% compared with 46.5% as of Dec 31, 2017.

Guidance

Mack-Cali projects core FFO per share of $1.80-$1.90. The Zacks Consensus Estimate for the same is currently pegged at $1.84.

The company projects office occupancy (year-end % leased) of 84-86% and dispositions of $375-$425 million for full-year 2018. This will mark completion of the company’s major disposition program. Sales in future will occur on a select one-off basis.

Our Take

We are encouraged with the better-than-expected performance of Mack-Cali in Q1. The company has been making solid progress with respect to the 2015 strategic plan, aimed at focusing on waterfront and transit-based office holdings, and luxury multi-family portfolio growth. Nevertheless, such plans involve significant upfront costs, which might drag down the company’s profit margins. In addition to these, it has been aggressively disposing assets. While such measures are a strategic fit for the long term, the dilutive impact on earnings from huge asset sales cannot be bypassed in the near term. Rate hike also remains another concern.

Mack-Cali currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

We now look forward to the earnings releases of other REITs like Apartment Investment and Management Company (NYSE:AIV) , EPR Properties (NYSE:EPR) and Realty Income Corporation (NYSE:O) . While Apartment Investment and Management Company is scheduled to release earnings on May 7, EPR Properties and Realty Income are slated to report quarterly numbers on May 8.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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