Seeking Alpha
Debt, CFA, Portfolio Manager, preferred stocks
Profile| Send Message|
( followers)  

Mack ("Cali") the knife is at it again. In less than a month from my last article on Mack Cali (NYSE:CLI), the company has given investors yet another reason to shy away from this office and multi-family REIT - 2014 guidance lower than 2013 guidance.

Let's go to the tape. From the release:

Mack-Cali Realty Corporation today expressed comfort with full year 2014 funds from operations in the range of $1.90 to $2.10 per diluted share.

Now, let's look at their 3013 guidance given in their October 24, 2013 earnings call. From the transcript:

We narrowed the range of our 2013 FFO guidance to $2.35 a share to $2.39 a share. We intend to provide estimates of 2014 net income and FFO in December.

Sadly, I anticipated such an event in my December 4, 2013 article in which I stated:

Bottom Line: Mack-Cali has been Mack the (falling) Knife, but there is an end in sight. While I believe there is more pain to be sustained in their narrowly focused office portfolio, the diversification into multifamily should help them get back on their FFO feet and watch their valuation climb. I would be patient, however, and wait for a cheaper entry point (6-6.5x FFO) or signs that multifamily has become a more significant portion of their NOI/FFO.

Ask and ye shall receive.

As a result of this guidance, I have updated my "rough" valuations to reflect the changes.


(Click to enlarge)

As would be expected, the valuations - and hence upside - have fallen.

A quick look at the fundamentals:


(Click to enlarge)

The balance sheet still looks decent, but it can't drive results unless more leverage is used and, quite frankly, I don't think that will help much either right now.

Now a look at the price action since my last article on Mack Cali versus peers Piedmont Office Realty (NYSE:PDM), CommonWealth REIT (CWH), Highwoods Properties (NYSE:HIW), Liberty Property (LRY), SL Green Realty (NYSE:SLG) and Boston Properties (NYSE:BXP):

CLI Chart
(Click to enlarge)

CLI data by YCharts

Since my last article, Mack Cali has been in the middle of the pack of its office peers and above the Vanguard REIT Index ETF (NYSEARCA:VNQ). Not bad (not what I expected), but this doesn't change my near-term view of a lower price. I am sure that some of the price action can be ascribed to the attractive dividend yield versus REIT peers, but don't let the dividend trap suck you in.

Bottom Line: Mack the knife is dead money until, as I stated, multi-family becomes a bigger part of their portfolio. This REIT should become more attractive at a lower valuation and the return at the lower entry point should be attractive. Another consideration would be some corporate action designed to "unlock value". I don't invest in "value unlocking" speculation, so I am on the sidelines with this company.

Source: Mack-Cali - Return Of The Living Dead (Money)