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Mack-Cali’s (CLI) Debt Rating Downgraded by Moody’s to Ba2


Moody's Investors Service, a rating arm of Moody's Corporation MCO, downgraded the long-term ratings of Mack-Cali Realty Corporation CLI and its operating partnership, Mack-Cali Realty L.P. to Ba2. Further, the rating outlook has been revised to negative.

Specifically, Mack-Cali Realty, L.P.’s senior unsecured debt rating was downgraded to Ba2 from Ba1 due to significant decline in the company’s recurring income source. Further, corporate family rating of Ba2 and a speculative grade liquidity rating of SGL-3 were assigned to the entity. Further, its outlook was revised to negative from rating under review.

Additionally, the REIT’s preferred stock shelf rating was revised from (P)Ba3 to (P)B1, and a negative outlook was assigned.

Reasons Behind Rating Downgrade

Per Moody’s, higher leverage metrics, weak coverage ratio, limited financial flexibility, significant capital needs, ambiguous capital strategy in the near term are key concerns for the REIT. Further, as the company continues to operate both office and multi-family real estate assets, the company’s long-term portfolio mix remains uncertain.

In fact, Mack-Cali's office portfolio is not supporting its performance as well. The rating agency noted that over the last seven quarters, lease rate for the company’s office portfolio declined nearly 7% to 82.7% for third-quarter 2018. This was primarily due to meaningful tenant move-outs. Moreover, net leasing activity for the nine months ended Sep 31, 2018 was reduced by nearly 0.5 million square feet of office space. Also, lease expirations at the company’s high-value waterfront portfolio in New Jersey impacted its income.

Moody believes that further deterioration in operating performance and financial metrics, given weak office leasing volume over the upcoming quarters, validates the negative outlook for the company.

Nonetheless, the rating agency is of the view that disposal of its flex portfolio will bolster the company’s liquidity position and improve leverage levels as sale proceeds can be used to reduce debt.

Further, with project construction costs aggregating $737 million, the company has material near-term capital needs. Hence, easy availability of capital is critical to its credit profile. Notably, 50% of the project costs are funded.

Over the past six months, shares of this Zacks Rank #4 (Sell) company have outperformed the industry it belongs to. During the period, the stock has rallied 8.3% compared with the industry’s growth of 2.6%.

However, the Zacks Consensus Estimate for fourth-quarter 2018 funds from operations (FFO) per share has been revised downward by a cent in a week’s time.

Stocks to Consider

Top-ranked stocks in the REIT space include OUTFRONT Media Inc. OUT and Alexandria Real Estate Equities, Inc. ARE, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

OUTFRONT Media’s FFO per share estimates for 2018 have been marginally revised upward to $2.09 in the past 30 days. Its shares have gained 4.9% over the past six months.

Alexandria’s FFO per share estimates for 2018 have been revised marginally north to $6.62 in 30 days’ time. Its shares have inched up 1.6% over the past month.

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