Mack-Cali's (CLI) Q3 FFO Misses Estimates, Revenues Fall Y/Y

Mack-Cali Realty Corp’s (NYSE:CLI) third-quarter 2019 core funds from operations (FFO) per share of 38 cents missed the Zacks Consensus Estimate by a whisker. The figure also compares unfavorably with the year-ago quarter’s reported tally of 43 cents.

The company’s results indicate a slowdown in leasing activity in its office portfolio. Further, same-store cash net operating income (NOI) for the office portfolio declined year over year.

Though quarterly revenues of $131.9 million surpassed the Zacks Consensus Estimate of $129.3 million, the reported figure came in lower than the prior-year quarter’s tally of $132.1 million.

Q3 Highlights

As of Sep 30, 2019, Mack-Cali’s consolidated core office properties were 80.8% leased, reflecting a decline from 84.2% as of Sep 30, 2018. Notably, Class A suburban portfolio was leased 90%, while Suburban and Waterfront portfolios were leased 79.1% and 77.9%, respectively, as of end the reported quarter.

Same-store cash revenues for the office portfolio descended 2.2%, and the same-store cash NOI was down 4.4% year over year.

During the reported quarter, Mack-Cali executed 14 lease deals, spanning 69,650 square feet, in the company’s consolidated in-service commercial portfolio. This comprised 62.1% for new leases, and 37.9% for lease renewals and other tenant-retention deals.

In addition, for the core portfolio, rental rate roll up for third-quarter 2019 deals was 10.9% on a cash basis. For new transactions, rental rate roll up was 21.6% on a cash basis, while for renewals and other tenant retention deals, it was 5.7% on a cash basis.

Moreover, Roseland's multifamily stabilized operating portfolio was 97% leased at the end of the quarter, down 70 basis points (bps) from the prior quarter’s end. Also, same-store NOI climbed 2.7% year over year.

Mack-Cali completed the acquisition of Liberty Towers Apartments, a 648-unit residential community in Jersey City, NJ, for $409 million during the third quarter. This deal was partly funded by a five-year $232-million financing.

Balance Sheet Position

As of Sep 30, 2019, Mack-Cali’s net debt to adjusted EBITDA was 11.40X compared with 9.30X as of Dec 31, 2018.

Finally, the company exited the third quarter with $34.8 million in cash compared with approximately $29.6 million as of Dec 31, 2018.

Guidance

The company narrowed its 2019 core FFO per share guidance to $1.59-$1.64 as compared with the $1.58-$1.66 estimated earlier. The Zacks Consensus Estimate for the same is currently pegged at $1.61.

Additionally, the company projects office occupancy (year-end % leased) of 79-81% and dispositions (excluding flex) of $190-$240 million for the ongoing year.

Our Take

Mack-Cali’s third-quarter results are not impressive. Further, softness in the waterfront office holdings of New Jersey market resulted in low leasing activity in the office portfolio. Admittedly, the company's strategic measures of transforming itself by focusing on waterfront and transit-based office holdings, and luxury multi-family portfolio are encouraging. However, the dilutive impact on earnings from huge asset sales is likely to restrain profit margins in the near term.

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.

Performance of Other REITs

Cousins Properties Incorporated (NYSE:CUZ) reported third-quarter 2019 FFO per share (before TIER transaction costs) of 72 cents, outpacing the Zacks Consensus Estimate of 69 cents. Further, the figure came in higher than the prior-year quarter’s reported tally of 63 cents.

Boston Properties Inc.’s (NYSE:BXP) third-quarter 2019 FFO per share of $1.64 surpassed the Zacks Consensus Estimate of $1.62. Nonetheless, the reported tally remained flat year over year.

Ventas, Inc. (NYSE:VTR) delivered third-quarter 2019 normalized FFO per share of 96 cents, beating the Zacks Consensus Estimate of 94 cents. However, the figure came in lower than the year-ago tally of 99 cents.

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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