Mack-Cali Realty is a Real estate investment trust or REIT that develops, owns, and manages office buildings. The firm makes money by reselling office properties that it acquires and develops. While its properties appreciate, CLI rents them to tenants to cover the financing costs of the loans used to purchase the property.
CLI's holdings are concentrated in the Northeast corridor of the United States, and the company sold its remaining assets in San Francisco and Colorado in 2006 in order to focus on its core business in the Northeast. This part of the country is dense with businesses, but short on land and on topnotch office facilities, and Mack-Cali's portfolio reflects the wide variety of firms found in the region. Mack-Cali's 2,000-plus clients represent over 30 industries, and its largest client makes up only 3% of its annual rent revenues. Portfolio diversity, and the relative stability of the high-end firms that rent CLI's office space, insulates the firm from swings in the business cycle.
However, Mack-Cali, like other firms in the commercial real estate industry, may see some effects from the subprime lending crisis that has decimated the residential housing industry and squeezed the credit market. The company's position in the Northeast corridor makes it sensitive to an economic downturn in this region, and slow consumer spending could lead to cutbacks in job growth and new office developments.
Over the past several years, Mack-Cali has refocused its portfolio into fewer core markets that offer high growth potential and a comparative advantage. To this end, CLI has sold off properties in Atlantic City and the western states. Despite its focus in high growth areas, many of CLI's properties appear to be less desirable than those owned by competitors, such as Boston Properties (BXP), since they are often outside of urban central business districts.
50 of CLI's properties have restrictions regarding their sale. These restrictions stem from the fact that CLI was cobbled together from a number of different real estate firms. As part of this unification, each firm stipulated that certain properties that they brought into CLI could not be sold for a specified period of time. Another 88 of CLI's properties were originally under these restrictions which have now lapsed. Despite this, CLI still has an obligation to "use commercially reasonable efforts to prevent any sale, transfer or other disposition" of these properties. Such conditions impede CLI's ability to quickly respond to market changes.
|Year||Revenue||Net income available to common shareholders||Annual Dividends per common share|
Mack-Cali has conspicuously few development projects. Many other REITs have turned to development (as opposed to acquisition) as a source for greater potential returns since many believe that the high prices in the commercial real estate market make profitable acquisition unlikely. During the third quarter of 2007, CLI acquired two properties, one in Manhattan and another in Mercer County New Jersey. Commercial real estate prices in both regions were at record highs at the time.
|Name of Project||Location||Estimated placed in service date||Square Feet||Estimated total costs|
|Wyndham||Parsippany, NJ||Q4 2008||250,000||$64,837,000|
|One Jefferson||Parsippany, NJ||Q4 2009||100,000||$28,300,000|
Mack-Cali plans to invest about $1 billion in the Manhattan real estate market in the next five years. This market is highly competitive, but presence there will enhance CLI's stature in the Northeast, and the return on invested capital there is potentially quite high.
|Northern NJ||Central NJ||Westchester Co, NY||Manhattan, NY||Philadelphia, PA||Fairfield, CT||Washington DC/Maryland|
Market share is listed by 2007 revenues. In 2007, CLI held 8% of total U.S. office REIT market share, and was the fifth largest office REIT, by revenues. There are 14 U.S. exchange traded REITs focusing on office properties. Of those, the top three Boston Properties (BXP), Brookfield Properties (BPO) and SL Green Realty (SLG) accounted for just over half of Market Share by 2007 revenus.
All of the following companies are REITs except for Brookfield Properties (BPO). While each company owns office properties, like CLI some own other types of property as well, while others focus solely on offices. For example, HRPT Properties Trust owns considerable amounts of health care properties, while Boston Properties holds office properties almost exclusively.
|Company||Operating Cash Flow||Total Debt||Total Cash||Shares OutStanding||Dividend Yield||Square Feet in Portfolio||Markets||Property Occupancy|
|HRPT Properties Trust (HRP)||$298.96 m||$2.71 B||$25.64 m||225.43 m||11.40%||64,000,000||Five largest markets: Hawaii, Pennsylvania, New York, Texas, Massachusetts. But owns real estate through United States.||92.8%|
|Mack-Cali Realty (CLI)||$250.17 m||$2.13 B||$29.98 m||67.91 m||8.60%||33,733,011||New Jersey, New York City, Pennsylvania, Connecticut, Washington D.C., Maryland, Massachusetts||92.2%|
|Brookfield Properties (BPO)||$45 m||$12.59 B||$202 m||394.19 m||3.10%||73,200,000||New York City, Boston, Washington D.C., Houston, Los Angeles, Toronto, Calgary, Ottawa, Denver, Minneapolis||95%|
|SL Green Realty (SLG)||$401.72 m||$5.35 B||$98.1 m||59.23 m||3.80%||30,220,700||Manhattan, Brooklyn N.Y., Westchester N.Y., Connecticut||about 95.7%|
|Vornado Realty Trust (VNO)||$824.92 m||$12.58 B||$834.27||152.26 m||4.40%||about 64,000,000||New York City, Washington D.C., retail properties throughout United States||94.67%|
|Boston Properties (BXP)||$598.07 m||$5.41 B||$1.89 B||119.27 m||3.10%||44,100,000||Midtown Manhattan, Boston, Washington D.C., Princeton N.J., San Francisco||94%|