Mack-Cali Realty Corporation ( CLI Quick Quote CLI - Free Report) is well poised for growth with its strong presence in high barrier-to-entry markets, and focus on waterfront and transit-oriented office and multi-family properties. However, its substantially-leveraged balance sheet is a concern.
In recent years, the company has made efforts to transform from a sub-urban office REIT into a residential and geographically-focused office REIT. The company’s transformational plan entailed emphasis on the New Jersey Hudson River waterfront as well as a regional ownership of luxury multi-family residential properties. Its 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.
A diversified tenant base also helps the company enjoy a steady revenue stream and avoid shortcomings related to any particular sector.
The core office markets of the company are witnessing an improvement in rental rates. Ample government stimulus, pent-up demand, recovering labor markets and office occupiers’ planned post-pandemic office returns are likely to support office real estate fundamentals and drive leasing activity at the company’s portfolio.
Mack-Cali’s rejuvenation efforts and investments in high barrier-to-entry Hudson River waterfront assets are a strategic fit as it has enhanced the quality of its office space offering and will help the company capture the demand spike for highly-amenitized office spaces in business districts outside Manhattan.
Apart from these, Mack-Cali’s focus on multi-family assets acts as a tailwind. This asset class is likely to contribute more toward the company’s cash flows in the upcoming period.
Shares of this Zacks Rank #3 (Hold) company have gained 24.4% over the past six months, outperforming the
industry's gain of 16.9%. In addition to this, the trend in estimate revisions for 2021 funds from operations (FFO) per share indicates a favorable outlook for the company as it has been revised marginally upward over the past month. Image Source: Zacks Investment Research
The non-core asset dispositions are a strategic fit for the long run. However, earnings dilution from sub-urban office portfolio sales might act as deterrent in the near term.
Moreover, Mack-Cali’s substantially-leveraged balance sheet limits its strength to withstand any future credit crisis and unexpected negative externalities.
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Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.