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Mack-Cali (CLI) Terminates Dividend Distribution for 2H20

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Mack-Cali Realty Corporation recently announced the suspension of common dividend distribution for the third and fourth quarters of 2020 in efforts to strengthen its balance sheet. Moreover, the company used total proceeds of $213.3 million from the sale of sub-urban office assets to repay the outstanding balance on its corporate line of credit.

Notably, the suspension of dividend will enhance Mack-Cali’s financial flexibility during the pandemic. It will also help preserve incremental capital that will be needed to support leasing initiatives at the company’s Harborside campus on the Jersey City waterfront.

Since Mack-Cali has satisfied the dividend obligation on taxable income expected for 2020, the move does not affect the company’s REIT status. Nonetheless, its board will likely reconsider the resumption of the quarterly dividend in first-quarter 2021.

The work-from-home trend has been undoubtedly a savior in these unprecedented times, as it kept offices operational amid the catastrophe. Nevertheless, the success of this remote working model is prompting a number of employers to consider shifting a bulk of their employees permanently to work from homes and lower the physical office-space requirements.This indicates trouble for office landlords like Mack-Cali, Highwoods Properties, Inc. (HIW - Free Report) , Cousins Properties Incorporated (CUZ - Free Report) , Corporate Office Properties Trust , among others. 

Amid these, the company’s focus on repositioning of the Harborside Campus and leasing up its vacancies at waterfront properties is a strategic fit for the long term.

Moreover, advancing on its plan to dispose the entire sub-urban New Jersey office portfolio, the company announced it has completed sales of nearly $215 million.

The REIT has, in fact, completed Phase 1 of its Parsippany and Giralda Farms portfolio sale, consisting of 11 buildings in Morris County, NJ, and the 325 Columbia Turnpike office property in Florham Park, NJ. The company has also started the second phase sales tranche of its Parsippany and Giralda Farms portfolio, with the sale of the first asset in the portfolio — 9 Campus Drive in Parsippany, NJ.

Mack-Cali noted that the combined sale proceeds of $213.3 million from such sales were used to repay unsecured corporate debt.

Markedly, as part of a strategic shift in its operations, last December, the company announced its plan to sell the entire sub-urban New Jersey office portfolio, spanning 6.6 million square feet. It plans to use proceeds from the sub-urban property sales to repay the remaining unsecured corporate debt and complete its transition to a secured borrowing strategy. Although these moves will enhance its high-leveraged balance sheet, the earnings dilution, resulting from large-scale asset dispositions, cannot be avoided.

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