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Mack-Cali's (CLI) Rating Downgraded: Time to Hold the Stock?

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Mack-Cali Realty Corporation’s operating partnership — Mack-Cali Realty, L.P. —recently experienced a rating downgrade from Moody's Investors Service. Specifically, its senior unsecured debt rating has been downgraded to Ba1 from Baa3. Further, the rating outlook remains negative.

Continued fall in portfolio lease rate, weakness in leverage metrics and decline in the company’s unencumbered asset base are responsible for this rating downgrade. Though Mack-Cali has a huge development pipeline, its liquidity position remains modest. Moreover, per the rating agency, the REIT has considerable near-term lease expirations. Therefore, portfolio lease rate and earnings might suffer if renewals and new lease volumes are not proportionate with lease expirations.

Notably, rating upgrades and downgrades are important for investors because these indicate a company’s creditworthiness in the market. Such movements denote the company’s accessibility to capital and determine borrowing costs on debts.

In fact, Mack-Cali has been making progress in the 2015 strategic plan, aimed at transforming the company by focusing on waterfront and transit-based office holdings, and luxury multi-family portfolio growth. As part of the company’s portfolio-transforming efforts, it has been aggressively disposing its assets. While such measures are a strategic fit for the long term, the dilutive impact on earnings from huge asset sales cannot be bypassed in the near term.

Nevertheless, Mack-Cali has been able to improve its overall portfolio mix and lower the company’s exposure to suburban office assets. Also, its expanding multi-family portfolio with solid leasing performance augurs well for long-term growth.

Mack-Cali currently has a Zacks Rank #3 (Hold).

However, the stock has declined 6.0% in the past three months, underperforming 3.3% growth recorded by the industry it belongs to.



Stocks to Consider

Better-ranked stocks in the REIT space include Chatham Lodging Trust (CLDT - Free Report) , Extra Space Storage Inc. (EXR - Free Report) and DCT Industrial Trust Inc. , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for full-year 2017 earnings of Chatham Lodging remained unchanged at $2.17 in a month’s time.

The 2017 Zacks Consensus Estimate for Extra Space Storage is pegged at $4.31, indicating 0.2% rise in the past month.

The current-year Zacks Consensus Estimate for DCT Industrial Trust is pegged at $2.44 and has inched up 0.4% over the last month.

Note: All EPS numbers presented in this report represent funds from operations (“FFO”) per share. 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.

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