Mack-Cali Realty's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Mack-Cali Realty Corp. (CLI)

Q1 2012 Earnings Conference Call

April 26, 2012 10:00 ET

Executives

Mitchell Hersh – President and CEO

Barry Lefkowitz – EVP and CFO

Analysts

Jamie Feldman – Bank of America Merrill Lynch

Sheila McGrath – KBW

Michael Knott – Green Street Advisors

Ross Nussbaum – UBS

Craig Melman – KeyBanc Capital Markets

Jim Sullivan – Cowen and Company

Presentation

Operator

Thank you for joining Mack Cali's first quarter 2012 earnings conference call. With me today is Barry Lefkowitz, Executive Vice President and Chief Financial Officer. On a legal note, I must remind everyone that certain information discussed on this call may constitute forward-looking statements within the meaning of the Federal Securities Law. Although we believe the estimates reflected in these statements are based on reasonable assumptions, we cannot give assurance that the anticipated results will be achieved. We refer you to our press release and annual and quarterly reports filed with the SEC for risk factors that could impact the company.

Truthfully not much has changed in the macroeconomic environment since our last earnings call. Economic recovery and job creation remains at painfully slow pace. There is a general lack of clarity emanating from Washington concerning tax policy, healthcare reform and other entitlement programs and of course the partial of European contingent. And so as I have said before, we'll probably be in a relatively holding pattern with respect to seeing substantial gains in the macroeconomic environment until the election. Hopefully at that point we will have clarity and we’ll be in a much stronger growth mode in our economy.

Concerning our results for the quarter, FFO for the first quarter of 2012 was $0.74 per diluted share. We had solid leasing activity totaling almost 1.1 million square feet of lease transactions including almost 3,000 square feet of new leases. Tenant retention was 61.5% of outgoing space. And we ended the quarter at 87.9% leased compared to last quarter's 88.3%. Rents rolled down in the quarter by 5.4% cash compared to last quarter's 7.2% cash and so we obviously saw an improvement there. Remaining lease for all of us for 2012 are 7.3% of base rent or roughly $45 million.

Our leasing cost for the quarter were approximately $3.85 per square foot compared to last quarter's $3.33 per square foot per year but obviously this figure varies depending on the type of deal, the length of the lease etcetera.

Relative to our activities, as previously announced during the quarter Mack Cali entered into a joint venture with Winthrop Realty Trust and we acquired a senior mezzanine loan position in the capital stack of a very high quality 1.7 million square foot office portfolio in Stanford Connecticut. We paid $40 million or $0.80 on a dollar. The loan has a face value of $50 million and is secured by the equity interest in a premier seven building portfolio containing almost 1.7 million square feet of class A office and 106 residential units totaling about 70,000 square feet. All of the assets are located in the Stanford Central Business district. We believe that this transaction will yield an attractive return while providing the opportunity to work with an exceptional partner in a significant portfolio. A portfolio that's right within our footprint in Fairfield County Connecticut.

Now turning to the leasing front, some notable transactions that we've outlined in our quarterly filings include the tower insurance company of New York, signing a new lease for 77,000 square feet at Harbor Financial Center Plaza II in Jersey City, Metropolitan Life Insurance Company signing three transactions totaling about 47,000 square feet. Those transactions encompass our tax corporate park in Harmsworth, 65 Jackson in Cranford and Mack Cali Center 4 in Paramus. We did another interesting transaction with a global engineering company that included an entire building at 228 Strawbridge Drive in Morristown and approximately 40,000 square feet at our Horizon Center in Hamilton New Jersey. Again in Jersey City, Lehman Brothers Holdings, the new global financial services firm, signed a lease for 33,000 square feet at our 101 Hudson Street, magnificent trophy building in Jersey City. This asset is now just under 90% leased. The (inaudible) County financial service firm Wells Fargo Advisors, signed a new lease for 29,000 feet in change at Mack Cali Center 6 in Paramus.

Moving on to some of our financial activities. We recently completed the sale of $300 million in 10 year senior unsecured notes at a very favorable interest rate of 4.5%, a benchmark rate certainly for Mack Cali. The net proceeds of almost $297 million were used primarily to repay outstanding borrowings. Certainly this successful execution enhances the financial flexibility of our balance sheet. We also just yesterday announced the redemption of our $94 million in December 15th of '12, 6.15% notes and our $26 million of 5.82% notes that come due March 15th of 2013. Both of these redemptions will occur on May 25th of 2012.

Mack Cali also continues to be recognized for its superior property management and superior energy performance within our assets. Earlier in the quarter we announced that our Liberty Corner Corporate Center at 106 Allen Road, Bernard's township New Jersey was announced the existing building silver certification. And just yesterday at this great asset, Epson Pharmaceutical celebrated a ribbon cutting opening its 33,000 square foot United States headquarters and so we wish great success for this European pharmaceutical company as they expand and grow in our portfolio in the United States.

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