Mack-Cali (CLI) Misses Q2 FFO Estimates, Lowers Guidance

Mack-Cali Realty Corp. (NYSE:CLI) reported second-quarter 2017 core funds from operations (“FFO”) per share of 60 cents, missing the Zacks Consensus Estimate by a penny. However, the figure came in 9.1% higher than the prior-year quarter tally.

The year-over-year increase in core FFO per share was driven by higher base rents in 2017 and interest expense savings from refinancing of high-rate debt.

Total revenue of $162.8 million exceeded the Zacks Consensus Estimate of $150.9 million and increased 9.1% from the prior-year quarter.

Mack-Cali Realty Corporation Price, Consensus and EPS Surprise

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

Note: The EPS numbers presented in the above chart represent funds from operations (“FFO”) per share.

Quarter in Detail

During the quarter, Mack-Cali executed 48 lease deals, spanning around 728,246 square feet, at its consolidated in-service commercial portfolio. This comprised 18% for new leases, and 82% for lease renewals and other tenant-retention deals.

As of Jun 30, 2017, Mack-Cali’s consolidated Core, Waterfront and Flex properties were 89.9% leased, down 50 basis points (bps) from the prior-quarter end.

Further, rental rate roll up for the second-quarter transactions in the company’s Core, Waterfront and Flex properties was 6.6% on a cash basis and 17.7% on a GAAP basis.

Liquidity

Mack-Cali exited second-quarter 2017 with cash and cash equivalents of $21.7 million, down from $31.6 million recorded at the end of the prior year.

Further, as of Jun 30, 2017, the company had a debt-to-undepreciated assets ratio of 47.5% compared with 43.8% as of Mar 31, 2017.

Guidance

Mack-Cali revised its guidance for full-year 2017. The company now expects FFO per share in the band of $2.18–$2.28, indicating a decline of 9 cents from the prior disclosed guidance mid-point.

This reflects 6 cents per share impact from lower leasing starts and 3 cents per share impact due to increased debt reduction in lieu of office acquisitions projected for the second half of 2017.

The Zacks Consensus Estimate for the same is currently pegged at $2.33.

Our Take

Mack-Cali’s lower-than-expected result with respect to FFO per share is disappointing. Nevertheless, the company has been 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. It also includes planned exits from non-core markets and capital improvements in core assets. Such efforts are likely to drive growth and improve cash flow.

Moreover, in Jun 2017, ushering good news for shareholders, Mack-Cali announced a 33.3% hike in its quarterly cash dividend, marking the first increase since 2006. However, earnings-dilutive effects of disposition in the near term remain headwinds. Rate hikes also add to its woes.

Mack-Cali currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Let us now look forward to the earnings releases of Condor Hospitality Trust Inc. (NYSE:CDOR) , FelCor Lodging Trust Incorporated (NYSE:FCH) and Hospitality Properties Trust (NASDAQ:HPT) , all of which are expected to report their quarterly numbers in the upcoming days.

Note: 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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