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On Apr 18, 2013, we reiterated our long-term recommendation on Mack-Cali Realty Corp. (CLI - Analyst Report), an Edison, NJ-based real estate investment trust (REIT), at Neutral. This is based on the company’s decent leasing activity and diversifying moves. Yet, holding occupancy and increasing rents are a concern due to the current unimpressive demand for office space. Also, disclosure of the dividend cut plan serves as a negative catalyst in the short term.
Mack-Cali has a strong presence in high barrier-to-entry markets in the Northeast and Mid-Atlantic regions in the U.S. However, holding occupancy and increasing rents are a concern due to the tough environment in the office sector. Hence, Mack-Cali has been focusing on expanding its multifamily apartment portfolio.
The company also disclosed its plan of slashing its second-quarter common stock dividend by a third to 30 cents from 45 cents per share paid earlier. The move comes as the company plans to retain its cash for meeting investment needs that would help expand its multi-family residential platform.
In the recent months, Mack-Cali acquired both Alterra IA and Alterra IB at Overlook Ridge – in Metro Boston from a joint venture of Prudential Insurance Company of America, an operational arm of Prudential Financial Inc. (PRU - Analyst Report). Also, the company entered the DC multifamily market, through the buyout of Crystal House. The property was acquired through a joint venture (JV) with a fund advised by UBS Global Asset Management of UBS AG (UBS - Analyst Report).
We believe that though the news of the dividend cut is discouraging for the shareholders in the near term, it will ultimately help Mack-Cali diversify its business and stay on the growth trajectory in the long term.
Mack-Cali reported fourth-quarter 2012 FFO of 66 cents per share, beating the Zacks Consensus Estimate by 3 cents. This fell short of the prior-year quarter figure by 2 cents. Total revenue during the reported quarter was $177.0 million. Though the figure marginally missed the Zacks Consensus Estimate of $178 million, it was slightly ahead of the prior-year quarter’s revenues of $175.5 million.
Over the last 60 days, the Zacks Consensus Estimate for full-year 2013 dipped marginally by a cent to $2.55 per share while the Zacks Consensus Estimate for full-year 2014 stood at $2.60 per share. In addition, Highwoods has now delivered positive earnings surprises in the past 4 consecutive quarters with an average beat of 5.42%. Hence, Mack-Cali now has a Zacks Rank #3 (Hold).
Other Stocks to Consider
Another REIT stock that is currently performing well and deserves a look is Simon Property Group Inc. (SPG - Analyst Report) that carries a Zacks Rank #2 (Buy).
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.