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Mack-Cali (CLI) Strides Ahead With Suburban Office Sale Plan

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Mack-Cali Realty Corporation (CLI - Free Report) continues to make solid strides with its sub-urban office portfolio sale. Recently, the company announced the disposition of its Metropark portfolio, in Edison and Iselin NJ, for $254 million to Opal Holdings. This also marks one of the largest sub-urban office transactions of the year.

The portfolio comprises four office buildings and encompasses 945,906 square feet of space. Presently, the portfolio is more than 90% leased to blue chip tenants. With the proceeds from the sale, the company intends to pay down its unsecured corporate debt during the second quarter of 2021.

As part of a strategic shift in its operations, in December 2019, the company announced its plan to sell the entire sub-urban New Jersey office portfolio, spanning 6.6 million square feet. It intends to use the sales proceeds to repay corporate-level, unsecured debt.

Since late December 2019 through fourth-quarter 2020 end, Mack-Cali disposed 20 of such sub-urban office properties, aggregating 3.2 million square feet, for net sales proceeds of $377.4 million. As of 2020 end, the company had 16 office properties remaining in the sub-urban office portfolio, totaling 3 million square feet.

In addition to the above-mentioned recent Metropark portfolio disposition, this January, the company sold 100 Overlook Center, a 149,600-square-foot office building situated in Parsippany, NJ, for $38 million. The sale of its remaining sub-urban office portfolio properties is expected to close by second-quarter 2021.

After the completion of the sub-urban office portfolio sale, Mack Cali’s holdings will comprise waterfront class A office portfolio and multi-family rental portfolio, as well as related development projects and land holdings.

Particularly, post the sub-urban office portfolio sale, the company expects to derive around 55% of its net operating income (NOI) from multi-family portfolio, and 45% from its office portfolio. Though such non-core asset dispositions are a strategic fit for the long term, the dilutive impact on earnings in the near term cannot be bypassed.

Mack-Cali has made concerted efforts in recent years to transform from a sub-urban office REIT to a residential and geographically-focused office REIT. The company’s transformational plan entailed emphasis on New Jersey Hudson River waterfront as well as a regional ownership of luxury multi-family residential properties. The company’s Harborside portfolio-repositioning strategy is focused on capturing the attention of people who prefer to live, work and play in the same area — a trend that drove development in several other cities in the United States.

Nonetheless, while the multi-family portfolio continues to witness improvements in leasing traffic and occupancy, this has come at the expense of decline in net effective rent. Further, office vacancy as well as hotel and parking disruptions due to the pandemic are hurting the company’s performance.

Shares of this Zacks Rank #4 (Sell) company have gained 12.5% over the past year, underperforming the industry's rally of 35.5%.

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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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