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Mack-Cali’s (CLI) Growth Efforts Look Good: Time to Buy?

Zacks

Mack-Cali Realty Corporation CLI has revealed solid progress on its strategic plan, aimed at transforming the company by focusing on the waterfront and transit-based office holdings, and luxury multi-family assets growth. It also includes planned exits from non-core markets and capital improvements in core assets.

Transforming Efforts

In fact, in a recent announcement about its 2016 and year-to-date 2017 capital market activities, Mack-Cali announced dispositions of 36 non-strategic and underperforming commercial office assets, comprising around five million square feet, as well as a 220-unit multi-family community. With these dispositions, the company realized gross proceeds of around $745 million, which came above its guidance. These moves provides the dry powder for its expansion plans and Mack-Cali redeployed over $500 million in capital over this time span for its strategic acquisitions.

Specifically, office dispositions aggregated $280 million for fourth-quarter 2016 and 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, Maryland. Together with this, the company departed from several Central New Jersey office sub-markets, including Freehold, Roseland, and Cranford. In addition, the company went for selling of its subordinated/ minority stakes in several office assets held with Keystone Property Group throughout the Tri-State area.

Further, Mack-Cali is looking at a potential sale of up to another $450 million of property sales, which is likely to close by mid to late 2017. With these assets sale, the company would be able to make an exodus from the Moorestown flex portfolio in southern New Jersey, consisting of 26 buildings, along with nine buildings in northern New Jersey’s Bergen County submarket.

On the other hand, the company completed the acquisition of a three-building portfolio in Red Bank, NJ, for around $27 million in first-quarter 2017. It also struck a deal to acquire a portfolio, including three buildings in the thriving market of Short Hills, NJ, where rents are highest in the state, together with three buildings in the Giralda Farms campus in Madison, NJ. Notably, with high demand for office space from corporate in the Morris County, expansion into this region is a preferred move on part of Mack-Cali.

Moreover, with respect to its multi-family segment, the company carries on streamlining and developing its platform beside the Waterfront. This commenced with the acquisition of the residual 50% joint-venture stake in a Jersey City Waterfront development site, called Plaza 8/9, for $57.1 million. The company also reached a deal to acquire its partners’ 85% joint-venture stake in Monaco, which is a 523-unit multi-family, high-rise community in Jersey City.

Our Take

Going forward, Mack-Cali’s focus on waterfront and transit-oriented office properties, large commercial tenants and diversification into the apartment sector are likely to drive growth and increase cash flows. In fact, with the strategic efforts, the company is anticipated to experience higher operating efficiencies, improving profit margins and lower expenses.

Further, Mack-Cali currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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 51.1% against 18.0% increase of the industry.



Key Picks

Other similarly-ranked stocks in the REIT space include The GEO Group, Inc. GEO, Hospitality Properties Trust HPT and Urban Edge Properties UE.

The GEO Group’s 2017 estimates climbed 2.0% to $2.99 per share, over the past 30 days.

Hospitality Properties Trust, currently, has a long-term growth rate of 5.0%.

For Urban Edge Properties, the projected growth rate for funds from operations (FFO) per share is 38.7% for 2016 and 5.4% for 2017.

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. All EPS numbers presented in this write up represent FFO per share.


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