Mack-Cali Realty Corp. (CLI)

[Enterprising Investor]

Mack-Cali Realty Corporation Announces Fourth Quarter 2016 Results (2/28/17)

JERSEY CITY, N.J., Feb. 28, 2017 /PRNewswire/ -- Mack-Cali Realty Corporation (NYSE: CLI) today reported its results for the fourth quarter 2016.

Recent highlights include:

•Net income of $0.17 per diluted share for the quarter;

•Funds from Operations per diluted share of $0.33; with Core Funds from Operations growth of 19.1% to $0.56 for the quarter;

•Increased rental rates by 12.2% on a GAAP basis and 3.5% on a cash basis at its Core/Waterfront/Flex properties;

•Core/Waterfront/Flex properties were 90.6% leased at quarter end; a 1.5% improvement over fourth quarter 2015;

•321,000 square feet leased in fourth quarter;

•Roseland multi-family subsidiary signed $300 million equity transaction;

•Completed $745 million in property sales in 2016 through February 2017;

•Redeemed $135 million of 7.75% bonds which were due August 2019;

•Declared $0.15 per share quarterly common stock dividend; and

•Reaffirmed 2017 FFO guidance of $2.25 to $2.40 per diluted share.

Michael J. DeMarco, president, commented, "Our strong 2016 results are a reflection of the progress made on the composition of our portfolio, our operational efficiencies, and rental strategy. Our portfolio continues to strengthen as we trim our non-core assets and the markets less relevant to our strategy. Additionally, the investment by Rockpoint in our Roseland subsidiary validates and appropriately values its NAV and development strategy. We believe we are delivering on our corporate strategy and that the market will recognize that we are a dual platform waterfront company with great potential and not a suburban office company."

FINANCIAL HIGHLIGHTS

* All per share amounts presented below are on a diluted basis.

Net income available to common shareholders for the quarter ended December 31, 2016 amounted to $15.2 million, or $0.17 per share, as compared to a net loss of $31.7 million, or $0.35 per share, for the quarter ended December 31, 2015. For the year ended December 31, 2016, net income available to common shareholders equaled $117.2 million, or $1.30 per share, as compared to a net loss of $125.8 million, or $1.41 per share, for full year 2015.

Funds from operations (FFO) for the quarter ended December 31, 2016 amounted to $32.8 million, or $0.33 per share, as compared to $46.9 million, or $0.47 per share, for the quarter ended December 31, 2015. For the year ended December 31, 2016, FFO equaled $205 million, or $2.04 per share, as compared to $188.1 million, or $1.88 per share, for full year 2015.

For the fourth quarter 2016, Core FFO was $0.56 per share after adjusting for certain items, primarily a $23.7 million loss from extinguishment of debt. The quarter's Core FFO per share of $0.56 increased 19.1 percent from the same quarter last year primarily due to increased base rents in 2016.


OPERATING HIGHLIGHTS

Mack-Cali's consolidated Core, Waterfront and Flex properties were 90.6 percent leased at December 31, 2016, as compared to 90.3 percent leased at September 30, 2016 and 89.1 percent leased at December 31, 2015.

For the quarter ended December 31, 2016, the Company executed 55 leases at its consolidated in-service commercial portfolio totaling 320,605 square feet. Of these totals, 45 percent were for new leases and 55 percent were for lease renewals and other tenant retention transactions. For the year ended December 31, 2016, the Company executed 273 lease transactions totaling 2,769,608 square feet. Of these totals, 35 percent were for new leases and 65 percent were for renewals and other tenant retention transactions. Rental rate roll up for fourth quarter 2016 transactions in the Company's Core, Waterfront and Flex properties was 3.5 percent on a cash basis and 12.2 percent on a GAAP basis. Rental rate roll up for all 2016 transactions in the Company's Core, Waterfront and Flex properties was 10.9 percent on a cash basis and 20 percent on a GAAP basis.

Mitchell Rudin, Mack Cali's Chief Executive Officer stated, "Mack-Cali's focus on improved broker relations, building amenities and operating efficiencies has yielded impressive results. For example our average tenant size has increased by 15.6%, while our Waterfront office occupancy and signed average rents have risen by 888 basis points to 94.4% and by 25.0%, respectively. We have an excellent product offering validated by our customers voting with their dollars. We are excited by the prospects of improving on these metrics as our repositioning cap-ex programs move from the planning stage to completion in the next 12 months."


RECENT TRANSACTIONS

For the fourth quarter 2016 and through year-to-date 2017, office dispositions totaled $280 million. The Company completed the strategic exit out of the DC Metro area with the seven-building portfolio sale in Greenbelt, Maryland, as well as the exit out of multiple Central New Jersey office sub-markets including Freehold, Roseland, and Cranford. Additionally, included in the $280 million, the Company sold subordinated/minority interests in numerous office assets held with Keystone Property Group throughout the Tri-State area.

For full year 2016 and through year-to-date 2017, the Company disposed of 36 non-strategic and underperforming commercial office assets totaling approximately five million square feet, and a 220-unit multi-family community, realizing gross proceeds of approximately $745 million, exceeding the Company's guidance, with a weighted average cap rate of approximately 5.5 percent. In the same time period, Mack-Cali redeployed more than $500 million in capital to acquire properties that fit the Company's strategic plan for growth.

The Company continues to build on the 2016 momentum of dispositions and is trimming the next layer of assets that the Company now deems to be non-core. It is currently exploring the potential of up to $450 million of additional property sales which it anticipates could close by mid to late 2017. These dispositions include exiting out of the Moorestown flex portfolio in Southern New Jersey comprised of 26 buildings totaling approximately 1.3 million square feet and nine buildings in Northern New Jersey's Bergen County submarket totaling 2.2 million square feet.

Through year-to-date February 2017, the Company acquired a three-building office portfolio comprised of 280,000 square feet in Red Bank, New Jersey for approximately $27 million. The portfolio is adjacent to the Company's existing office holdings of 477,000 square feet now totaling over one million square feet in the Monmouth County, New Jersey market. The Company also entered into an agreement to purchase a prominent portfolio including three buildings totaling 575,000 square feet in Short Hills, New Jersey and three buildings totaling 525,000 square feet in Madison, New Jersey. With the expected completion of the acquisition, Mack-Cali will own virtually 100 percent of the class A office market in Short Hills, where the rents are the highest in the state.

Regarding the multi-family side of the business, the Company continues to streamline and build on its platform along the Waterfront, starting with the purchase of the remaining 50 percent joint venture interest a development site on the Jersey City Waterfront known as Plaza 8/9 for $57.1 million funded with a combination of $14.2 million cash and the issuance of Preferred Operating Units. With the ability to accommodate up to 1.2 million square feet of residential or office, this is the most valuable and prestigious development site in Jersey City. Additionally, an agreement has been reached to purchase its partners' 85 percent joint venture interest in Monaco, a 523-unit multi-family, high-rise community in Jersey City. This purchase will be completed with the assumption of existing debt, cash, and the issuance of Preferred Operating Units.

As Mack-Cali announced in detail yesterday, Roseland Residential Trust ("Roseland"), its multifamily subsidiary, entered into an investment agreement (the "Investment Agreement") with affiliates of Rockpoint Group, L.L.C. ("Rockpoint"). The Investment Agreement provides for multiple equity investments by Rockpoint in the Roseland subsidiary entity up to an aggregate of $300 million of units of limited partnership interests in Roseland (the "Units"). The initial closing under the Investment Agreement is expected to occur by mid-March 2017 for $150 million of Units. Additional closings of Units to be issued to Rockpoint per the Investment Agreement may occur in increments of not less than $10 million, with the balance of the full $300 million committed by March 1, 2019.

Mack-Cali will have a participation right, where prior to March 1, 2022 and following either the full investment of $300 million by Rockpoint or in certain other limited circumstances, Mack-Cali may purchase up to $200 million of Units on substantially the same terms as the Rockpoint's Units. Mack-Cali will control governance of the entity, but for limited events where Rockpoint consent is required, and will receive contributed equity value at closing of $1.23 billion. Upon full Rockpoint and Mack-Cali fundings completed, pro forma ownership of the entity will be approximately 83 percent for Mack-Cali and 17 percent for Rockpoint. See RRT NAV Summary - Adjustments Subsequent to Quarter-End following in this press release.


BALANCE SHEET/CAPITAL MARKETS

As of December 31, 2016, the Company had a debt-to-undepreciated assets ratio of 41.6 percent. The Company had an interest coverage ratio of 3.5 times for the quarter ended December 31, 2016.

In January 2017, the Company closed on senior unsecured credit facilities totaling $925 million with a group of 13 lenders, with Wells Fargo Securities, LLC; J.P. Morgan Chase Bank, N.A. and Merrill Lynch, Pierce, Fenner & Smith Incorporated as joint lead arrangers and joint bookrunners; and Capital One, National Association and U.S. Bank National Association as joint lead arrangers.

The credit facilities are comprised of a renewal and extension of the Company's existing $600 million unsecured revolving facility and a new $325 million unsecured delayed-draw term loan. The $600 million credit facility carries an interest rate equal to LIBOR plus 120 basis points and a facility fee of 25 basis points. The facility has a term of four years with two six-month extension options. The new $325 million delayed-draw term loan can be drawn over time within 12 months of closing with no requirement to be drawn in full. The loan carries an interest rate equal to LIBOR plus 140 basis points and a ticking fee of 25 basis points on any undrawn balance during the first 12 months after closing. The term loan matures in three years with two one-year extension options. The interest rate on the revolving credit facility and new term loan and the facility fee on the revolving credit facility are subject to adjustment, on a sliding scale, based upon the Company's unsecured debt ratings, or at the Company's option, based on a defined leverage ratio.

The credit facilities also contain accordion features providing for expansion of the facilities up to a total of $1.275 billion.

Also in January 2017, the Company closed on a $100 million mortgage loan, secured by Alterra at Overlook Ridge, its 722 unit multi-family community located in Revere, MA. The mortgage loan carries a fixed interest rate of 3.75 percent per annum and is interest only for its seven year term.

In December 2016, the Company redeemed for cash all $135 million outstanding principal amount of its 7.75 percent Notes due in August 2019. The Notes were redeemed on December 29, 2016. The redemption price for the Notes, including a make-whole premium, was 115.3 percent of the principal amount of the Notes, plus any accrued and unpaid interest.

Also during the fourth quarter 2016, the Company repaid mortgage debt on nine assets aggregating $200 million that carried interest rates ranging from 6.3 percent to 11.3 percent, The Company disposed of two of the assets and seven became unencumbered.

Pro forma, with the execution of these financing activities, the Company's $2.4 billion total debt carries a weighted average interest rate of 3.8 percent. Additionally, with remaining maturities of up to 12 years, the weighted average maturity of its indebtedness is now 4.4 years.


DIVIDENDS

In December 2016, 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 fourth quarter 2016, which was paid on January 13, 2017 to shareholders of record as of January 5, 2017. The Company's Core FFO dividend payout ratio for the quarter was 26.9 percent.

CONFERENCE CALL/SUPPLEMENTAL INFORMATION

An earnings conference call with management is scheduled for March 1, 2017 at 9:30 a.m. Eastern Time, which will be broadcast live via the Internet at:
http://phoenix.corporate-ir.net/phoenix.zhtml?p=irol-eventDetails&c=96021&eventID=5249873

The live conference call is also accessible by calling [phone] and requesting the Mack-Cali conference call.

The conference call will be rebroadcast on Mack-Cali's website at https://www.mack-cali.com/investors/events-presentations/ beginning at 2:00 p.m. Eastern Time on March 1, 2017 through March 8, 2017.

A replay of the call will also be accessible during the same time period by calling [phone] and using the pass code, 6318060.

Copies of Mack-Cali's Form 10-K and Supplemental Operating and Financial Data are available on Mack-Cali's website, as follows:

2016 Form 10-K:
https://www.mack-cali.com/media/1002413/4thquarter10k16.pdf

Fourth Quarter 2016 Supplemental Operating and Financial Data:
https://www.mack-cali.com/media/1002416/4thquartersp16.pdf

Fourth Quarter 2016 Supplemental Operating and Financial Data for Roseland Residential Platform:
https://www.mack-cali.com/media/1002419/4thquartersp16Roseland.pdf

In addition, these items are available upon request from:
Mack-Cali Investor Relations Department - Deidre Crockett
Harborside 3, 210 Hudson St., Ste. 400, Jersey City, New Jersey 07311
[phone]

INFORMATION ABOUT FFO

Funds from operations ("FFO") is defined as net income (loss) before noncontrolling interests of unitholders, computed in accordance with generally accepted accounting principles ("GAAP"), excluding gains or losses from depreciable rental property transactions, and impairments related to depreciable rental property, plus real estate-related depreciation and amortization. The Company believes that FFO per share is helpful to investors as one of several measures of the performance of an equity REIT. The Company further believes that as FFO per share excludes the effect of depreciation, gains (or losses) from sales of properties and impairments related to depreciable rental property (all of which are based on historical costs which may be of limited relevance in evaluating current performance), FFO per share can facilitate comparison of operating performance between equity REITs.

FFO per share should not be considered as an alternative to net income available to common shareholders per share as an indication of the Company's performance or to cash flows as a measure of liquidity. FFO per share presented herein is not necessarily comparable to FFO per share presented by other real estate companies due to the fact that not all real estate companies use the same definition. However, the Company's FFO per share is comparable to the FFO per share of real estate companies that use the current definition of the National Association of Real Estate Investment Trusts ("NAREIT"). A reconciliation of net income per share to FFO per share is included in the financial tables accompanying this press release.

Core FFO is defined as FFO, as adjusted for certain items to facilitate comparative measurement of the Company's performance over time. Core FFO is presented solely as supplemental disclosure that the Company's management believes provides useful information to investors and analysts of its results, after adjusting for certain items to facilitate comparability of its performance from period to period. Core FFO is a non-GAAP financial measure that is not intended to represent cash flow and is not indicative of cash flows provided by operating activities as determined in accordance with GAAP. As there is not a generally accepted definition established for Core FFO, the Company's measures of Core FFO may not be comparable to the Core FFO reported by other REITs. A reconciliation of net income per share to Core FFO in dollars and per share is included in the financial tables accompanying this press release.

ABOUT THE COMPANY

Mack-Cali Realty Corporation is a fully integrated, self-administered, self-managed real estate investment trust (REIT) providing management, leasing, development, and other tenant-related services for its two-platform operations of waterfront and transit-based office and luxury multi-family assets. Mack-Cali provides its tenants and residents with the most innovative communities that empower them to re-imagine the way they work and live.

Additional information on Mack-Cali Realty Corporation and the commercial real estate properties and multi-family residential communities available for lease can be found on the Company's website at www.mack-cali.com.

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