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Mack-Cali (CLI) Q2 FFO Falls, Revenues Miss, Stock Down 2.8%

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Shares of Mack-Cali Realty Corp (CLI - Free Report) lost nearly 2.8% in the succeeding day following the release of its second-quarter results. Investors were discouraged by a 22.2% year-over-year decline in the company’s reported revenues of $126.6 million. Further, the figure missed the Zacks Consensus Estimate of $131 million.

Mack-Cali’s core funds from operations (FFO) per share of 45 cents came in lower than the year-ago figure of 60 cents.  However, it surpassed the Zacks Consensus Estimate by a cent.

The company also revised its estimate for 2018 Core FFO downward, further adding to the bearish sentiments for the stock in the market.
 
Q2 Highlights

As of Jun 30, 2018, Mack-Cali’s consolidated core office properties were 83.2% leased, which shrunk 200 basis points (bps) from the prior-quarter end. Same-store cash revenues for the office portfolio descended 4.9%, while same-store cash net operating income (NOI) fell 5.7%.  

During the reported quarter, Mack-Cali executed 51 lease deals, spanning around 453,337 square feet of space, at the company’s consolidated in-service commercial portfolio. This comprised 46% for new leases, and 54% for lease renewals and other tenant-retention deals.

Further, for the core portfolio, rental rate roll up for second-quarter 2018 deals was 7.5% on a cash basis. For new transactions, rental rate roll up was 2.9% on a cash basis, while for renewals and other tenant retention deals, it was 7.9% on a cash basis.

The company’s residential same-store portfolio remained 97.5% leased at the quarter’s end. However, same-store NOI edged down 1.3% in the quarter under review.

Guidance

Mack-Cali revised its projected core FFO per share to $1.80-$1.86, down from the earlier estimate of $1.80-$1.90. The Zacks Consensus Estimate for the same is currently pegged at $1.80.

The company projects office occupancy (year-end % leased) of 84-86% and dispositions of $375-$425 million for full-year 2018. This will mark completion of Mack-Cali major disposition program. Sales in the future will occur on a select one-off basis.

Our Take

Mack-Cali has been making solid progress with respect to the 2015 strategic plan, aimed at focusing on waterfront and transit-based office holdings, and luxury multi-family portfolio growth. Nevertheless, such plans involve significant upfront costs, which might drag down the company’s profit margins. In addition to these, it has been aggressively disposing 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. Rate hike also remains another concern.

Mack-Cali Realty Corporation Price, Consensus and EPS Surprise

Mack-Cali Realty Corporation Price, Consensus and EPS Surprise | Mack-Cali Realty Corporation Quote

Mack-Cali currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
 
We are now looking forward to the earnings releases of MGM Growth Properties LLC (MGP - Free Report) , CoreCivic, Inc. (CXW - Free Report) and MedEquities Realty Trust, Inc. (MRT - Free Report) . MGM Growth Properties is set to release quarterly figures on Aug 7, while CoreCivic and MedEquities Realty Trust are slated to report their earnings on Aug 8.

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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