Mack-Cali (CLI) Q1 FFO & Revenues Miss Estimates, NOI Down

Mack-Cali Realty Corp’s (NYSE:CLI) first-quarter 2019 core funds from operations (FFO) per share of 40 cents missed the Zacks Consensus Estimate of 41 cents. The figure compares unfavorably with the year-ago quarter’s reported tally of 50 cents.

Quarterly revenues of $134.25 million missed the Zacks Consensus Estimate of $138.09 million. The reported figure also came in lower than the prior-year quarter’s $138.97 million.

Q1 Highlights

As of Mar 31, 2019, Mack-Cali’s consolidated core office properties were 80.9% leased, which shrunk 220 basis points (bps) from the prior-quarter end. Same-store cash revenues for the office portfolio descended 6.4%, while same-store cash net operating income (NOI) was down 5.4%.

During the reported quarter, Mack-Cali executed 14 lease deals (excluding Flex), spanning around 198,470 square feet, at the company’s consolidated in-service commercial portfolio. This comprised 60.4% for new leases, and 39.6% for lease renewals and other tenant-retention deals.

In addition, for the core portfolio, rental rate roll up for first-quarter 2019 deals (excluding Flex) was 9.4% on a cash basis. For new transactions, rental rate roll up was 13.1% on a cash basis, while for renewals and other tenant retention deals, it was 7.7% on a cash basis.

The company’s residential stabilized operating portfolio was 96.3% leased at the end of the quarter. Also, same-store NOI climbed 3.9% in the first quarter.

Mack-Cali executed non-core asset sales of $563 million, including the sale of its flex portfolio $487.5 million in the quarter.

Guidance

Mack-Cali’s projected core FFO per share for 2019 remains unchanged at $1.57-$1.67. The Zacks Consensus Estimate for the same is currently pegged at $1.65.

Further, the company did not change its projections for office occupancy (year-end % leased) of 79-83% and dispositions (excluding flex) of $155-$180 million for full-year 2019.

Our Take

Mack-Cali has been making solid progress, with respect to the 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.

Further, the company has been disposing of assets in recent years. 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. Additionally, as Mack-Cali continues to pursue multi-family residential investments, this results in material near-term capital needs, thereby impacting the company’s liquidity position.

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 #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other REITs

Duke Realty Corporation’s (NYSE:DRE) first-quarter 2019 core FFO per share of 33 cents surpassed the Zacks Consensus Estimate of 32 cents. Results reflected overall improved operations as well as increased investments in new industrial properties.

Highwoods Properties Inc.’s (NYSE:HIW) first-quarter FFO per share of 72 cents missed the Zacks Consensus Estimate of 84 cents. Results were negatively impacted by the sudden closure of the company’s tenant Laser Spine Institute.

SITE Centers Corp. (NYSE:SITC) posted first-quarter 2019 operating FFO per share of 32 cents, outpacing the Zacks Consensus Estimate of 29 cents. Results reflected growth in same-store net operating income.

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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