Mack-Cali Realty Corp. CLI reported fourth-quarter 2016 core funds from operations (“FFO”) per share of 56 cents, beating the Zacks Consensus Estimate by a penny. It was also up 19.1% from the prior-year quarter tally of 47 cents.
The better-than-expected result at Mack-Cali was supported by increased base rents in 2016.
Moreover, total revenue registered growth of 5.0% year over year to $153.7 million and exceeded the Zacks Consensus Estimate of $150.2 million.
Quarter in Detail
During the quarter, Mack-Cali executed 55 lease deals, spanning around 0.3 million square feet, at its consolidated in-service commercial portfolio. This comprised 45% for new leases, and 55% for lease renewals and other tenant-retention deals.
As of Dec 31, 2016, Mack-Cali’s consolidated Core, Waterfront and Flex properties were 90.6% leased, up 30 basis points (bps) sequentially and 150 bps year over year.
Further, rental rate roll up for the fourth-quarter transactions in the company’s Core, Waterfront and Flex properties was 3.5% on a cash basis and 12.2% on a GAAP basis.
Liquidity
Mack-Cali exited fourth-quarter 2016 with cash and cash equivalents of $31.6 million, down from $37.1 million recorded at the end of the prior year.
Further, as of Dec 31, 2016, the company had a debt-to-undepreciated assets ratio of 41.6%; while interest coverage ratio was 3.5 times for the fourth quarter.
Portfolio Activity
Notably, Mack-Cali’s office dispositions aggregated $280 million for fourth-quarter 2016 and through year-to-date 2017. Per its plan, the company made a complete exit out of the DC Metro area by selling the seven-building portfolio in Greenbelt, MD. Together with this, the company exited from several Central New Jersey office sub-markets, including Freehold, Roseland, and Cranford. In addition, it sold its subordinated/ minority stakes in several office assets held with Keystone Property Group throughout the Tri-State area. (Read more: Mack-Cali's Growth Efforts Look Good: Time to Buy?)
Guidance
Mack-Cali has reaffirmed its 2017 FFO per share guidance at $2.25–$2.40. The Zacks Consensus Estimate for the same is currently pegged at $2.32.
Our Take
Mack-Cali’s better-than-expected performance in the fourth quarter looks encouraging. In fact, the company is making solid strides in its 20/15 strategic plan. This plan is aimed at transforming the company by focusing on waterfront and transit-based office holdings and on luxury multi-family portfolio growth as well. It also includes planned exits from non-core markets, capital improvements in core assets, lower expenses in office operations and reduction in credit costs through refinancing options.
Such efforts and diversification into the apartment sector are likely to drive growth and improve cash flow. However, earnings-dilutive effects of disposition in the near term and hike in rate of interest remain concerns.
Mack-Cali currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Mack-Cali Realty Corporation Price, Consensus and EPS Surprise
Mack-Cali Realty Corporation Price, Consensus and EPS Surprise | Mack-Cali Realty Corporation Quote
Also, shares of Mack-Cali outperformed the Zacks categorized REIT and Equity Trust – Other industry over the past one year. Over this time frame, Mack-Cali logged in a return of 40.0% against 11.4% gain of the industry.
Key Picks
Other similarly-ranked stocks in the REIT space include CoreSite Realty Corporation COR, Piedmont Office Realty Trust, Inc. PDM and W. P. Carey Inc. WPC.
CoreSite Realty currently has a long-term growth rate of 19.1%.
Piedmont Office Realty’s estimates for 2017 moved north by 0.6% to $1.73 over the past 30 days.
W. P. Carey is a steady performer, having exceeded the Zacks Consensus Estimate in each of the four trailing quarters, with an average beat of 12.38%. Its estimates for 2017 also inched up 1.7% to $4.71 over the past seven days.
Note: All EPS numbers presented in this write up 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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