REIT Stocks

Mack-Cali Realty Corp Valuation – July 2018 $CLI

Company Profile (excerpt from Reuters): Mack-Cali Realty Corporation, incorporated on May 24, 1994, together with its subsidiaries, is a self-administered and self-managed real estate investment trust (REIT). The Company owns and operates a real estate portfolio of Class A office and office/flex properties located in the Northeast. The Company operates in three segments: commercial and other real estate, multi-family real estate and multi-family services. Its commercial and other real estate provides leasing, property management, acquisition, development, construction and tenant-related services for its commercial and other real estate, and multi-family real estate portfolio. Its multi-family services business also provides similar services for third parties. As of December 31, 2016, the Company owned or had interests in 248 properties, consisting of 119 office and 110 flex properties, totaling approximately 26.6 million square feet, leased to approximately 1,600 commercial tenants and 19 multi-family rental properties containing 5,614 residential units, plus developable land (collectively, the Properties). As of December 31, 2016, the Properties are located in six states, in the Northeast, and the District of Columbia.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of CLI – July 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

 

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $1,736,979,953 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.12 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -37.53% Fail
6. Moderate PEmg Ratio PEmg < 20 172.59 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.14 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.12 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 92.21 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $0.11
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth $1.62
MG Value based on 0% Growth $0.95
Market Implied Growth Rate 82.04%
Current Price $19.33
% of Intrinsic Value N/A

Mack Cali Realty Corp does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, low current ratio, insufficient earnings stability or growth over the last ten years, and the high PEmg ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings stability or growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $0.31 in 2014 to an estimated $0.11 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 82.04% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Mack Cali Realty Corp revealed the company was trading above its Graham Number of $1.72. The company pays a dividend of $0.75 per share, for a yield of 3.9%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 172.59, which was above the industry average of 49.54. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-28.36.

Mack Cali Realty Corp scores quite poorly in the ModernGraham grading system, with an overall grade of D.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$28.36
Graham Number $1.72
PEmg 172.59
Current Ratio 1.12
PB Ratio 1.14
Current Dividend $0.75
Dividend Yield 3.88%
Number of Consecutive Years of Dividend Growth 1

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Total Current Assets $261,908,000
Total Current Liabilities $233,548,000
Long-Term Debt $2,615,211,000
Total Assets $4,815,606,000
Intangible Assets $100,732,000
Total Liabilities $3,114,695,000
Shares Outstanding (Diluted Average) 100,604,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $0.01
Dec2017 $0.06
Dec2016 $1.30
Dec2015 -$1.41
Dec2014 $0.32
Dec2013 -$0.17
Dec2012 $0.47
Dec2011 $0.81
Dec2010 $0.67
Dec2009 $0.71
Dec2008 $0.79
Dec2007 $1.61
Dec2006 $2.28
Dec2005 $1.51
Dec2004 $1.65
Dec2003 $2.43
Dec2002 $2.43
Dec2001 $2.32
Dec2000 $3.10
Dec1999 $1.78
Dec1998 $2.07

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $0.11
Dec2017 $0.12
Dec2016 $0.13
Dec2015 -$0.30
Dec2014 $0.31
Dec2013 $0.37
Dec2012 $0.65
Dec2011 $0.80
Dec2010 $0.94
Dec2009 $1.17
Dec2008 $1.46
Dec2007 $1.83
Dec2006 $1.98
Dec2005 $1.91
Dec2004 $2.20
Dec2003 $2.45
Dec2002 $2.42

Recommended Reading:

Other ModernGraham posts about the company

Mack Cali Realty Corp Valuation – Initial Coverage $CLI

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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