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Mack-Cali Reports $160M Office Portfolio Sale in New Jersey

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Advancing with its New Jersey office portfolio sale, Mack-Cali Realty Corporation (CLI - Free Report) announced the disposition of a 10-building commercial portfolio, spanning 1.5 million square feet in Morris County, NJ. The portfolio is being sold to a joint venture group of Onyx Equities, Taconic Capital Advisors, L.P., Axonic Capital LLC, and Machine Investment Group for nearly $160 million.

The portfolio consists of nine buildings situated in Parsippany, NJ, and another one in Madison, NJ.

Notably, as part of a strategic shift in its operations, in December 2019, the company announced its plan to sell the entire suburban New Jersey office portfolio, spanning 6.6 million square feet. Through second-quarter 2020, it disposed of three of such suburban office properties, aggregating 697,000 square feet, for net sales proceeds of $87.2 million.

As of the second-quarter end, the company had 34 office properties remaining in the Suburban Office Portfolio, totaling 5.9 million square feet. In July, it sold another office property — 3 Giralda Farms — spanning 141,000 square feet for gross proceeds of $7.8 million.

Moreover, the sale will facilitate the company to increase focus on its Hudson County Waterfront portfolio. Notably, with a significant presence in the high barrier-to-entry Hudson River waterfront region, it is well-positioned to benefit from de-densification trends. Hence, the company’s aim to revitalize leasing and improve occupancy on the back of repositioning and rebranding is a strategic fit.

Further, it intends to use the proceeds from suburban property sales to repay remaining unsecured corporate debt and complete its transition to a secured borrowing strategy. Although moves will enhance its high-leveraged balance sheet, the earnings dilution, resulting from large-scale asset dispositions, cannot be avoided.

In fact, Mack-Cali has high financial leverage. Particularly, net debt to adjusted EBITDA for second-quarter 2020 was 13X, up from 9.5X for the prior-year quarter. Further, total debt/total market capitalization ratio and interest coverage ratio have been deteriorating over the past three quarters.

Additionally, the interest rate on outstanding borrowings under the company’s current $600-million unsecured revolving credit facility has been increased due to downgrades on its senior unsecured debt in the past years.

Moreover, amid the challenging macroeconomic and capital market environment in the light of the coronavirus pandemic and investors’ cautious approach, there are apprehensions regarding the company’s ability to complete the remaining planned dispositions of assets on expected terms or timelines.

Mack-Cali carries a Zacks Rank of 5 (Strong Sell) at present. Shares of the company have depreciated 33.3% compared with the industry’s decline of 6% over the past year.

 

 

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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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