EDISON, NJ—Mack-Cali Realty Corporation says lower levels of asset sales and lower lease revenues caused its net income available to shareholders for the second quarter of 2015 to drop 31 percent ($35.4 million, or $0.40 per share, vs. $51.1 million, or $0.58 per share). Mack-Cali's funds from operations were 7.6 percent lower ($46.5 million, or $0.46 per share, as compared to $50.3 million, or $0.50 per share) in the same period.

Analysts and investors were, nevertheless, encouraged by new CEO Mitch Rudin's analysis of the firm's value, and his plans to reposition the company.

The company says the reduced asset sales and lower lease revenues were partly offset by lower acquisition costs and decreased interest expense. Mack-Cali says it's comfortable with net income guidance in the range of $0.22-$0.32 and funds from operations of $1.22 to $1.32 for the full year.

Analysts indicated the results tracked with their expectations for the company's performance, and one analyst who has been critical of the company's performance in the past was sharply positive about the results.

“Mack-Cali's earnings were expected to decline on a year-over-year basis given property sales and tenant move-outs experienced over the past year,” says John Bejjani, an equity analyst who follows Mack-Cali for Green Street Advisors.  “However, the REIT's second quarter results were well-received by investors as improved office leasing activity contributed to greater tenant retention and a smaller decline in same-property operating income than many expected, perhaps suggestive of a sustainable improvement in operations relative to recent years.”

“We've been very, very negative on Cali forever,” John W. Guinee III, managing director of Stifel Nicolaus, tells GlobeSt.com exclusively. “This is basically a turnaround story. The management team has a lot of low hanging fruit. The reason you had such a nice pop in the stock today is that management is claiming that it sees a net asset value over $30 a share, and management did a great job of explaining that it's a legitimate number. We came to the conclusion that value is easily $25-$26 and if things go right, it could go north of $30.” Guinee upgraded Mack-Cali from a “hold” to a “buy” recommendation in June.

In New York Stock Exchange trading Wednesday, Mack-Cali closed at $20.27, up 5.52 percent for the day.

During the second quarter, Mack-Cali says it sold a 203,000 square-foot office property for $80 million, and its interest in a multi-family joint venture property for $6.4 million. The firm declared a $0.15 per share quarterly common stock dividend.

"We have been diligently assessing our operations and the opportunities available to us. While we are in the early stages of repositioning and reconstituting Mack-Cali, we are excited by the opportunities we see in the office assets and in the multi-family platform, both of which should begin to provide meaningful value as we commit additional resources to appropriately positioning each of the platforms,” says Mitchell E. Rudin, who became chief executive officer earlier this year. “In addition, we look forward to enhancing our disclosure and sharing more of our plans in the coming weeks and months.  We recognize that our initiatives will take time; however, we will endeavor to make these changes, thoughtfully and efficiently with an eye towards maximizing value for our shareholders."

FINANCIAL HIGHLIGHTS

Funds from operations (FFO) for the quarter ended June 30, 2015 amounted to $46.5 million, or $0.46 per share, vs. $50.3 million, or $0.50 per share, for the quarter ended June 30, 2014.

For the six months ended June 30, 2015, FFO equaled $89.6 million, or $0.89 per share, vs. $80.5 million, or $0.81 per share, for the same period last year.

For the quarter compared to last year, the decrease in FFO per share results primarily from lower NOI as a result of assets sold of $0.05 and lower revenue from decreased percent leased of $0.04, partially offset by increased net real estate tax appeal proceeds of $0.02, decreased acquisition related general and administrative costs of $0.02 and decreased interest expense of $0.01.

Net income available to common shareholders for the quarter ended June 30, 2015 amounted to $35.4 million, or $0.40 per share, as compared to $51.1 million, or $0.58 per share, for the quarter ended June 30, 2014. For the six months ended June 30, 2015, net income to common shareholders equaled $32.9 million, or $0.37 per share, as compared to $35.8 million, or $0.40 per share, for the same period last year.

Total revenues for the second quarter 2015 were $148.6 million, vs. $160.3 million for the second quarter 2014. For the six months ended June 30, 2015, total revenues amounted to $302.3 million, vs. $329.9 million for the same period last year.

The company had 89,195,529 shares of common stock, and 11,012,069 common operating partnership units outstanding as of June 30, 2015. The company had a total of 100,207,598 common shares/common units outstanding at June 30, 2015.

RECENT TRANSACTIONS

In June, the company sold its commercial office property located at 14 Sylvan Way, in Mack-Cali Business Campus, Parsippany, NJ, for approximately $80.0 million. The three-story, 203,506-square-foot class A office building is fully leased to Wyndham.

Also in June, the company sold its interest in The Highlands at Morristown Station in Morristown, NJ, realizing net proceeds of approximately $6.4 million. Mack-Cali had acquired its 25 percent subordinated interest in the 217-unit community for approximately $2 million in October 2012 as part of the Roseland acquisition. The sale represents about a three-times multiple on the 2012 acquisition price. Mack-Cali's Roseland subsidiary will continue to manage the property.

"We have begun the long process of identifying properties for sale and the properties with upside potential over the next six to eight quarters,” says Michael J. DeMarco, president and chief operating officer. “Our sole focus is to close completely the gap that exists between our stock price and our NAV."

OPERATING HIGHLIGHTS

Mack-Cali's consolidated commercial in-service portfolio was 82.3 percent leased at June 30, 2015, as compared to 84.3 percent leased at March 31, 2015.

For the quarter ended June 30, 2015, the company executed 138 leases at its consolidated in-service commercial portfolio totaling 1.377 million square feet, consisting of 970,472 square feet of office space, 391,328 square feet of office/flex space and 15,300 square feet of industrial/warehouse space. Of these totals, 214,577 square feet were for new leases and 1.16 million square feet were for lease renewals and other tenant retention transactions.

BALANCE SHEET/CAPITAL MARKETS

As of June 30, 2015, the company had total indebtedness of approximately $2.0 billion, with a weighted average annual interest rate of 5.67 percent. The company had a total market capitalization of $3.9 billion and a debt-to-undepreciated assets ratio of 36.3 percent at June 30, 2015.  The company had an interest coverage ratio of 2.7 times for the quarter ended June 30, 2015 and an interest coverage ratio of 2.7 times for the six months ended June 30, 2015.

DIVIDENDS

In June, the company's Board of Directors declared a cash dividend of $0.15 per common share (indicating an annual rate of $0.60 per common share) for the second quarter 2015, which was paid on July 14, 2015 to shareholders of record as of July 6, 2015.